Fit Boxx Holdings Limited 偉博控股有限公司

Transcription

The Stock Exchange of Hong Kong Limited and the Securities and Futures Commission take no responsibility for the
contents of this Application Proof, make no representation as to its accuracy or completeness and expressly disclaim
any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents
of this Application Proof.
Application Proof of
Fit Boxx Holdings Limited
偉博控股有限公司
(the “Company”)
(incorporated in the Cayman Islands with limited liability)
WARNING
The publication of this Application Proof is required by The Stock Exchange of Hong Kong Limited (the “Exchange”) and the
Securities and Futures Commission (the “Commission”) solely for the purpose of providing information to the public in Hong
Kong.
This Application Proof is in draft form. The information contained in it is incomplete and is subject to change which can be
material. By viewing this document, you acknowledge, accept and agree with the Company, its sponsor, advisers or members of
the underwriting syndicate that:
(a)
this document is only for the purpose of providing information about the Company to the public in Hong Kong and not
for any other purposes. No investment decision should be based on the information contained in this document;
(b)
the publication of this document or supplemental, revised or replacement pages on the Exchange’s website does not give
rise to any obligation of the Company, its sponsor, advisers or members of the underwriting syndicate to proceed with
an offering in Hong Kong or any other jurisdiction. There is no assurance that the Company will proceed with the
offering;
(c)
the contents of this document or supplemental, revised or replacement pages may or may not be replicated in full or in
part in the actual final listing document;
(d)
the Application Proof is not the final listing document and may be updated or revised by the Company from time to time
in accordance with the GEM Listing Rules;
(e)
this document does not constitute a prospectus, offering circular, notice, circular, brochure or advertisement offering to
sell any securities to the public in any jurisdiction, nor is it an invitation to the public to make offers to subscribe for or
purchase any securities, nor is it calculated to invite offers by the public to subscribe for or purchase any securities;
(f)
this document must not be regarded as an inducement to subscribe for or purchase any securities, and no such
inducement is intended;
(g)
neither the Company nor any of its affiliates, advisers or underwriters is offering, or is soliciting offers to buy, any
securities in any jurisdiction through the publication of this document;
(h)
no application for the securities mentioned in this document should be made by any person nor would such application
be accepted;
(i)
the Company has not and will not register the securities referred to in this document under the United States Securities
Act of 1933, as amended, or any state securities laws of the United States;
(j)
as there may be legal restrictions on the distribution of this document or dissemination of any information contained in
this document, you agree to inform yourself about and observe any such restrictions applicable to you; and
(k)
the application to which this document relates has not been approved for listing and the Exchange and the Commission
may accept, return or reject the application for the subject public offering and/or listing.
If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors are reminded to make
their investment decisions solely based on the Company’s prospectus registered with the Registrar of Companies in Hong
Kong, copies of which will be distributed to the public during the offer period.
THIS APPLICATION PROOF IS IN DRAFT FORM. The information contained herein is incomplete and is subject
to change. This Application Proof must be read in conjunction with the section headed “Warning” on the cover of
this Application Proof.
IMPORTANT
If you are in any doubt about any of the contents in this document, you should obtain independent professional advice.
偉博控股有限公司
(incorporated in the Cayman Islands with limited liability)
[REDACTED]
Number of [REDACTED]
:
[REDACTED]
:
Nominal value
Stock code
:
:
[REDACTED] [REDACTED] [(subject to
the [REDACTED])]
Not more than HK$[REDACTED] per
[REDACTED] and expected to be not
less than HK$[REDACTED] per
[REDACTED], plus brokerage fee of
1%, SFC transaction levy of 0.0027%,
and Stock Exchange trading fee of
0.005% (payable in full on application
in Hong Kong dollars and subject to
refund)
HK$0.01 per Share
[REDACTED]
Sponsor
[REDACTED]
[REDACTED]
Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take
no responsibility for the contents in this document, make no representation as to its accuracy or completeness and expressly disclaim any liability
whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents in this document.
A copy in this document, having attached thereto the documents specified in the sub-section headed “Appendix V – Documents delivered to the
Registrar of Companies and available for inspection” in this document, has been registered with the Registrar of Companies in Hong Kong as required
by Section 342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong). The Registrar of
Companies in Hong Kong and the Securities and Futures Commission of Hong Kong take no responsibility as to the contents in this document or any
of the other documents referred to above.
The [REDACTED] is currently expected to be fixed by an agreement between the Company and the [REDACTED] (for itself and on behalf of the
[REDACTED]) at or before 5:00 p.m. on [[REDACTED]] (Hong Kong time) or such later date or time as may be agreed by the [REDACTED] (for itself
and on behalf of the [REDACTED]) and the Company. The [REDACTED] is currently expected to be not more than HK$[[REDACTED]] per
[REDACTED] and not less than HK$[[REDACTED]] per [REDACTED]. The [REDACTED] (for itself and on behalf of the [REDACTED]) may reduce
the indicative [REDACTED] range stated in this document at any time prior to the [REDACTED]. In such a case, a notice of the reduction of the
indicative [REDACTED] range will be published on the Stock Exchange’s website at www.hkexnews.hk and the Company’s website at
www.fitboxx.com not later than the [REDACTED]. If, for any reason, the [REDACTED] is not agreed between the Company and the [REDACTED]
(for itself and on behalf of the [REDACTED]) at or before 5:00 p.m. on [[REDACTED]] (Hong Kong time), the [REDACTED] will not become
unconditional and will lapse.
Prior to making an investment decision, prospective investors should consider carefully all of the information set out in this document, including but
not limited to the risk factors set out in the section headed “Risk factors” in this document.
Prospective investors of the [REDACTED] should note that the [REDACTED] are entitled to terminate their obligations under the [REDACTED] by
notice in writing given by the [REDACTED] (for itself and on behalf of the [REDACTED]) upon the occurrence of any of the events set forth under the
paragraph headed “Grounds for termination” in the section headed ‘‘Underwriting’’ in this document, at any time prior to [8:00 a.m.] (Hong Kong
time) on the [REDACTED].
[REDACTED]
CHARACTERISTICS OF GEM
GEM has been positioned as a market designed to accommodate companies to
which a higher investment risk may be attached than other companies listed on the
Stock Exchange. Prospective investors should be aware of the potential risks of
investing in such companies and should make the decision to invest only after due and
careful consideration. The greater risk profile and other characteristics of GEM mean
that it is a market more suited to professional and other sophisticated investors.
Given the emerging nature of companies listed on GEM, there is a risk that
securities traded on GEM may be more susceptible to higher market volatility than
securities traded on the Main Board of the Stock Exchange and no assurance is given
that there will be a liquid market in the securities traded on GEM.
The principal means of information dissemination on GEM is publication on the
internet website operated by the Stock Exchange. Listed companies are not generally
required to issue paid announcements in gazette newspapers. Accordingly, prospective
investors should note that they need to have access to the GEM website at
www.hkgem.com in order to obtain up-to-date information on GEM-listed issuers.
–i–
EXPECTED TIMETABLE
[REDACTED]
– ii –
CONTENTS
This document is issued by the Company solely in connection with the [REDACTED]
and does not constitute an offer to sell or a solicitation of an offer to buy any security other
than the [REDACTED] offered by this document pursuant to the [REDACTED]. This
document may not be used for the purpose of, and does not constitute, an offer or invitation in
any other jurisdiction or in any other circumstances. No action has been taken to permit a
[REDACTED] of the [REDACTED] or the distribution in this document in any jurisdiction
other than Hong Kong.
You should rely only on the information contained in this document to make your
investment decision.
The Company, the Sponsor, the [REDACTED] and the [REDACTED] have not
authorised anyone to provide you with information that is different from what is contained in
this document. Any information or representation not made nor contained in this document
must not be relied on by you as having been authorised by the Company, the Sponsor, the
[REDACTED], the [REDACTED], any of their respective directors, officers, employees,
advisers, agents, representatives or affiliates of any of them or any other persons or parties
involved in the [REDACTED].
The contents of the Company’s website at www.fitboxx.com do not form part in this
document.
Page
Characteristics of GEM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
i
Expected Timetable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
ii
Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
iii
Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
13
Glossary of Technical Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22
Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
24
...................
37
Directors and Parties Involved in the [REDACTED] . . . . . . . . . . . . . . . . . . . . . . .
41
Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44
Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
46
Information about this document and the [REDACTED]
– iii –
CONTENTS
Regulatory Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
63
............................
81
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
95
Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
153
Future Plans and Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
155
Directors and Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
162
Substantial Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
171
Relationship with the Controlling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . .
172
......................................................
178
...............................................
181
Underwriting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
229
...........................
234
I
Accountants’ Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
I-1
II
Unaudited Pro Forma Financial Information . . . . . . . . . . . . . . . . . . . . . . . . .
II-1
III
Summary of the Constitution of the Company
and Cayman Islands Company Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1
IV
Statutory and General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1
V
Documents Delivered to the Registrar of Companies
and Available for Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
History, Reorganisation and Group Structure
Share Capital
Financial Information
Structure and Conditions of the [REDACTED]
Appendices
– iv –
V-1
SUMMARY
This summary aims to give you an overview of the information contained in this
document. As this is a summary, it does not contain all the information that may be important
to you. You should read the whole document before you decide to invest in the [REDACTED].
There are risks associated with investment in companies listed on GEM. Some of the
particular risks in investing in the [REDACTED] are set out in the section headed “Risk
Factors” in this document. You should read that section carefully before you decide to invest in
the [REDACTED].
OVERVIEW
The Group was founded in 2007 and is principally engaged in the sourcing,
marketing, selling and distribution of a variety of fitness equipment and accessories,
beauty gadgets and accessories, as well as other health care products, which are mainly
for home use, under various brands through its sales and distribution network in Hong
Kong and the PRC.
The Group’s turnover is principally derived from the sales of fitness equipment,
beauty gadgets and other health care products. The fitness equipment product segment
mainly consists of treadmills, exercise bikes, elliptical trainers, steppers and other fitness
accessories such as trampolines, yoga gears, dumbbells, boxing gears, heart rate monitors
and diagnostic scales. The beauty gadgets product segment mainly consists of beauty
devices for hair removal, wrinkle reduction, skin lifting, anti-acne treatment, rejuvenation
of the skin’s appearance and body sliming and other healthy accessories. Other health care
products include massage devices, inflated bath tubs and limb-support compression
wears.
For the two years ended 31 December 2015, the Group generated revenue of
approximately HK$67.5 million and HK$84.7 million respectively and profit attributable
to owners of the Company of approximately HK$11.4 million and HK$9.5 million
respectively.
BUSINESS MODEL
The products of the Group are either (i) branded products purchased from
independent brand owners and are sold to customers under the brand owners’ brands; or
(ii) proprietary products sourced from independent external manufacturers or suppliers
and are sold to customers under the Group’s proprietary brands.
–1–
SUMMARY
(I)
Sourcing of Branded Products
The Group normally sources and identifies popular fitness equipment and beauty
gadgets from independent brand owners around the world. Once a brand is identified, the
Group approaches the brand owners directly and negotiates for the distribution right of
the products of a particular brand principally in Hong Kong and in some occasions
covering Macau and online sales in the PRC. The brand owners who wish to expand their
business into the Hong Kong and/or the PRC market may also approach the Group
directly for business cooperation. In either event, if the products are assessed by the
Group as popular, the Group will strive to negotiate for the exclusive distribution right of
the products in the agreed territories. As at the Latest Practicable Date, the Group entered
into exclusive distribution agreements with seven brand owners.
(II)
Sourcing of the Group’s Proprietary Products
Starting from 2007, the Group began to source fitness equipment and other health
care products and develop its own proprietary brands, including “EnerGym” and “元氣達
人”. The “EnerGym” collection offers small-sized or compact fitness equipment which is
easy to use, convenient to store and requires less storage space. Products under “元氣達
人” brand include inflated bath tubs.
The Group does not have its own manufacturing facilities or production line. These
products are produced by external manufacturers located in the PRC or sourced from
third party suppliers in Hong Kong or the PRC and are delivered to the Group as finished
products for distribution under the Group’s proprietary brands.
Product Segments
The Group’s products can be classified into three segments, namely, fitness
equipment and accessories, beauty gadgets and accessories and other health care
products.
The table below set out the relevant breakdown of the Group’s turnover during the
Track Record Period attributable to products sold under brand owners’ brands and
products sold under the Group’s proprietary brands.
For the year ended
31 December 2014
HK$’000
%
For the year ended
31 December 2015
HK$’000
%
Branded products
Proprietary products
60,888
6,577
90.3
9.7
79,777
4,967
94.1
5.9
Total
67,465
100.0
84,744
100.0
–2–
SUMMARY
Sales and Distribution Networks
As at the Latest Practicable Date, the Group’s sales network was made of its own
retail outlets (retail shops, shopping mall booth and department store counter), points of
sales established in the chain retailers, third party e-commerce platforms, online group
buying platforms, other distributors and retailers, as well as the retail websites operated
by the Group. The physical retail stores, combined with the online retail platforms,
provide an integrated shopping experience to the consumers for the sales and promotion
of the Group’s products. The Group has expanded its sales network to the PRC by
operating three storefronts on a well-known e-commerce platform, namely, Tmall, and
through storefronts on an e-commerce platform which is operated by a corporate
customer, for the sales of beauty gadgets and accessories. The Directors consider that
these online storefronts allow the Group to gain access to the fast-growing consumer
market of the PRC without significant capital investment. Set out below is a breakdown of
the Group’s turnover by types of distribution channels during the Track Record Period:
For the year ended
31 December 2014
HK$’000
%
Direct sales
– Physical stores
– Online stores
Indirect sales
– Chain retailers
– Other distributors
and retailers
Total
For the year ended
31 December 2015
HK$’000
%
34,314
10,361
50.9
15.3
35,514
21,318
41.9
25.1
7,365
10.9
7,676
9.1
15,425
22.9
20,236
23.9
67,465
100.0
84,744
100.0
SUPPLIERS
Suppliers of the Group include (i) brand owners for branded products; and (ii)
manufacturers for its major proprietary products. For each of the two years ended 31
December 2015, the Group engaged over ten and ten major brand owners respectively for
branded products, and three and four manufacturers respectively for its major proprietary
products. As at the Latest Practicable Date, the Group has entered into exclusive
distribution agreements with seven brand owners for branded products generally for a
term of one to three years. The Group has also entered into cooperation framework
agreements with three major manufacturers to ensure stable supply of products.
For the two years ended 31 December 2015, the total purchases from the Group’s
five largest suppliers in aggregate amounted to approximately HK$20.5 million and
HK$17.4 million respectively, accounted for approximately 71.3% and 70.0% respectively,
of its total purchases.
–3–
SUMMARY
CUSTOMERS
The Group’s products target the general consumer market in Hong Kong and the
PRC. In respect of the fitness equipment segment, the Group’s products mainly target
general consumers of both genders aged between 25 to 50 who are health conscious and
appearance conscious. In respect of the beauty gadgets segment, the Group’s products
mainly target the female consumers aged between 25 to 50 who are appearance conscious,
eager to try novel and trendy products, and are willing to pay for premium price in return
for quality products.
The Group sells and distributes its products to chain retailers, other distributors and
retailers, which in turn sell the Group’s products directly or through sub-distributors to
ultimate consumers. The Group also directly sells to the ultimate consumers through its
own retail outlets, own websites and third party storefronts on the e-commerce platforms,
as well as online group buying platforms.
Except for the sales to Ms. Cao Xiao Wei, the wife of Mr. Chan, the Group’s five
largest customers during the Track Record Period are all Independent Third Parties. The
sales to the top five customers amounted to approximately HK$15.6 million and HK$17.9
million respectively, representing approximately 23.1% and 21.0% of the Group’s total
revenue for the two years ended 31 December 2015 respectively. For more details on the
sales to Ms. Cao Xiao Wei, please refer to the sub-paragraph headed “Business — Sales
and distribution channels — (II) Indirect sales — Sales to other distributors and retailers
— Sales to related parties”in this document.
INDUSTRY
According to the Euromonitor Report, the retail sales of home fitness equipment in
Hong Kong showed an overall growth between 2010 and 2014, from approximately
HK$48.2 million to approximately HK$58.4 million, at a CAGR of approximately 4.9%
over the years, where the Group was ranked the top distributor of home fitness equipment
in Hong Kong for 2014 with a market share of approximately 40.1%. The retail sales of
beauty gadgets (comprising facial care gadgets and hair removal gadgets and excluding
other beauty gadgets) in Hong Kong showed an overall growth between 2010 and 2014,
from approximately HK$315.5 million to approximately HK$465.2 million, at a CAGR of
approximately 10.2% over the years. The Group’s market share of beauty gadgets
(comprising facial care gadgets and hair removal gadgets and excluding other beanty
gadgets) in Hong Kong in 2014 were approximately 4.1%. Moreover, according to the
Euromonitor Report, the online retail sales of beauty gadgets in the PRC showed an
overall significant growth between 2010 and 2014, from approximately HK$62.7 million to
approximately HK$333.8 million, at a CAGR of approximately 51.9% over the years.
–4–
SUMMARY
COMPETITIVE STRENGTHS
The Directors believe that the following competitive strengths of the Group have
contributed to its growth and enabled it to compete effectively in the fitness equipment
and beauty gadget industry in Hong Kong and China:
•
Diversified portfolio of fitness equipment and beauty gadget offered by the
Group
•
Multiple sales and distribution channels
•
Multi-faceted marketing strategy
•
Experienced and dedicated management team
STRATEGIES AND FUTURE PLANS
The Group’s mission statement is to improve the quality of people’s lifestyle at
home and become one of the leading wellness solutions retailers in Hong Kong. The
Group plans to implement the following strategies to pursue further development and
expansion of its business:
•
Further development of the Group’s business in the PRC online market by
opening of display stores
•
Expansion of retail network in Hong Kong
•
Enhancing marketing and promotional activities
•
Increasing market presence in Hong Kong by opening pop-up stores
•
Enhancing the Group’s brand recognition and image by renovation of existing
shops
SELECTED FINANCIAL INFORMATION OF THE GROUP
Selected data in the consolidated statements of profit or loss and comprehensive
income of the Group
For the year ended
31 December
2014
2015
HK$’000
HK$’000
Revenue
Gross Profit
Profit attributable to owners of the Company
–5–
67,465
42,015
11,418
84,744
51,204
9,469
SUMMARY
Results of operations during the Track Record Period
Revenue
The table below sets out the breakdown of the revenues by types of product:
For the year ended 31 December
2014
2015
HK$’000
%
HK$’000
Fitness equipment and
accessories
Beauty gadgets and
accessories
Other health care
products
Total
%
23,919
35.5
22,463
26.5
41,373
61.3
60,706
71.6
2,173
3.2
1,575
1.9
67,465
100.0
84,744
100.0
The increase in revenue of the Group for the year ended 31 December 2015 by
approximately 25.6% as compared to that of the year ended 31 December 2014 was mainly
attributable to increase in sale of beauty gadgets and accessories resulted from the
increase in sales of the Group’s flagship hair removal devices via the Group’s own online
sales channels as well as sales to other distributors which in turn sold such products
through various channels including their online storefronts.
Gross profit margin
For the two years ended 31 December 2015, the gross profit margin of the Group was
approximately 62.3% and 60.4% respectively. The slight drop was mainly due to the drop
in the gross profit margin of beauty gadgets and accessories, which was principally due to
the increase in sale of beauty gadget products to other distributors at wholesale price
during the year ended 31 December 2015.
Major cost components
During the Track Record Period, the Group’s major cost components for its
operation were the cost of merchandise, employee benefits expense and operating lease
charges of rented premises. The following table sets forth a breakdown of the major cost
components and their respective percentage to revenue for the two years ended 31
December 2015.
–6–
SUMMARY
2014
2015
HK$’000
%
HK$’000
Cost of merchandise
Employee benefits
expense
Operating lease
charges
%
24,759
36.7
32,760
38.7
9,835
14.6
12,191
14.4
6,435
9.5
7,468
8.8
During the Track Record Period, the increase of each of the major cost components
for the year ended December 2015 as compared to the year ended 31 December 2014 was in
line with the increase in revenue during the year.
Profit attributable to owners of the Company and net profit margin
The Group’s profit attributable to owners of the Company decreased by
approximately HK$1.9 million, represent a decrease of approximately 17.1% from
approximately HK$11.4 million for the year ended 31 December 2014 to approximately
HK$9.5 million for the year ended 31 December 2015. Excluding the [REDACTED]
expenses of approximately HK$3.9 million incurred by the Company during the year
ended 31 December 2015, the profit attributable to owners of the Company would be
increased by approximately HK$1.9 million, representing a growth of approximately
16.7%, which was in line with the growth of the Group’s revenue during the year; and the
Group’s net profit margin would be approximately 16.9% and 15.7% respectively for the
two years ended 31 December 2015, representing a relatively stable net profit margin over
the years.
Selected data in the consolidated statements of financial position of the Group
As at 31 December
2014
2015
HK$’000
HK$’000
Total current assets
Total current liabilities
Net current assets
Total non-current liabilities
Total assets
Net assets
43,243
20,826
22,417
714
45,616
24,076
–7–
40,883
12,090
28,793
2,602
43,308
28,616
SUMMARY
Summary of consolidated statement of cash flows of the Group
For the year ended
31 December
2014
2015
HK$’000
HK$’000
Cash and cash equivalents at
beginning of year
Net cash generated from operating activities
Net cash used in investing activities
Net cash (used in)/generated from
financing activities
2,311
8,147
(526)
6,782
4,193
(291)
(3,154)
3,439
Net increase in cash and cash equivalents
Effect of foreign exchange rate changes
4,467
4
7,341
(215)
Cash and cash equivalents end of year
6,782
13,908
Key financial ratios
As at/For the year ended
31 December
2014
2015
Gross profit margin (%)
Net profit margin before interest and tax (%)
Current ratio (times)
Quick ratio (times)
Debt to equity ratio (%)
Gearing ratio (%)
Interest coverage ratio (times)
Return on assets (%)
Return on equity (%)
Net profit margin (%)
Note:
62.3
19.5
2.1
1.0
N/A
4.7
132.8
25.0
47.4
16.9
60.4
15.3
3.4
2.2
N/A
13.9
38.9
21.9
33.1
11.2
For the calculations of the financial ratios, please refer to sub-sections headed “Financial
Information — Analysis of various items from the consolidated statement of financial position”
and “Financial Information — Key financial ratios analysis” in this document.
–8–
SUMMARY
RECENT DEVELOPMENTS SINCE 31 DECEMBER 2015
[Since 31 December 2015, the Group’s business model, revenue structure, financial
performance, profitability and cost structure remained unchanged. Based on the Group’s
unaudited management accounts, the revenue for the three months ended 31 March 2016
showed a mild increase as compared to the same period of 2015. This was mainly due to
the increase in sales to other distributors, which was, however, mitigated by the decrease
in retail sales of the Group’s products as affected by the downtrend of the Hong Kong
economy and the prolonged winter season up to March 2016 which the Directors believe to
affect the customers’ overall consumption sentiment. Moreover, the overall gross profit
margin for the three months ended 31 March 2016 showed a mild decrease as compared to
the same period in 2015, which was mainly due to (i) the increase in proportion of indirect
sales against direct sales, where the gross profit margin of indirect sales is generally lower
than that of direct sales; and (ii) the Group offered discounts for certain products at the
retail level in order to boost sales under the weakening environment of the retail industry
in Hong Kong. According to the statistics announced by the Hong Kong Government, the
value of total retail sales for the first two months of 2016 was provisionally estimated to be
decreased by 13.6% as compared with the same period in 2015.
Save as disclosed above and for the total expenses for the [REDACTED] estimated
to be approximately HK$[REDACTED] million, of which approximately
HK$[REDACTED] million will be recorded in the Group’s consolidated statement of
profit or loss and comprehensive income for the year ending 31 December 2016, the
Directors confirm that, up to the date in this document, there had been no material
adverse change in the operation, financial or trading positions or prospects of the Group
since 31 December 2015, being the date to which the latest audited financial statements of
the Group were made up, and there had been no event since 31 December 2015 which
would materially affect the information shown in the Accountant’s Report set out in
Appendix I to this document.]
CONTROLLING SHAREHOLDERS
Immediately after completion of the Capitalisation Issue and the [REDACTED],
Faith Elite will legally and beneficially owns approximately [REDACTED]% of the issued
share capital of the Company (without taking into account any Shares which may be
issued under the [REDACTED] or the exercise of any options which may be granted
under the Share Option Scheme). Faith Elite is jointly owned by Mr. Chan, an executive
Director and chairman of the Group, and Mr. Li, an executive Director and the chief
executive officer of the Group, as to 50% and 50% respectively. Accordingly, Faith Elite,
Mr. Chan and Mr. Li are the Controlling Shareholders of the Company under the GEM
Listing Rules.
–9–
SUMMARY
PRE-IPO INVESTOR
The Pre-IPO Investors, namely National Pride, Prime View, Global Excellent and
Hang Kong, became the shareholders of the Group on 19 December 2014, 19 December
2014, 14 December 2015, and 14 December 2015 at cash considerations of HK$2,750,000,
HK$2,750,000, HK$3,387,500 and HK$3,387,500 respectively. The considerations were
determined after arm’s length negotiations between the parties based on valuations of the
Group.
Immediately following the completion of the [REDACTED] and the Capitalisation
Issue (assuming that the [REDACTED] is not exercised), the entire issued share capital of
the Company will be owned by Faith Elite (Controlling Shareholders) as to
[REDACTED]%, by National Pride as to [REDACTED]%, by Prime View as to
[REDACTED]%, by Global Excellent as to [REDACTED]% and by Hang Kong as to
[REDACTED]%. Please refer to the sub-section headed “History, Reorganisation and
Group Structure — Pre-IPO investments” for further details.
[REDACTED] EXPENSES
The total expenses for the [REDACTED] are estimated to be approximately
HK$[REDACTED] million based on the [REDACTED] of HK$[REDACTED] (being the
mid-point of the indicated [REDACTED] range stated in this document), of which
approximately HK$[REDACTED] million is directly attributable to the issue of the
[REDACTED] under the [REDACTED] and is expected to be accounted for as a deduction
from equity. For the remaining [REDACTED] expenses of approximately
HK$[REDACTED] million, approximately HK$3.9 million and HK$[REDACTED] million
was/will be charged to the Group’s consolidated statements of profit or loss and
comprehensive income for the year ended 31 December 2015 and for the year ending 31
December 2016 respectively.
USE OF PROCEEDS
The net proceeds from the [REDACTED], after deducting related expenses, are
estimated to be approximately HK$[REDACTED] million, based on a [REDACTED] of
HK$[REDACTED] per [REDACTED] (being the mid-point of the [REDACTED] range
between HK$[REDACTED] and HK$[REDACTED] per [REDACTED]), assuming the
[REDACTED] is not exercised. The Directors presently intend that the net proceeds will
be applied as follows:
–
approximately HK$[REDACTED] million, representing approximately
[REDACTED]% of the net proceeds will be used for further development of
the Group’s business in the PRC online market by opening of display stores;
–
[REDACTED]% of the net proceeds will be used for expansion of retail
network in Hong Kong;
–
[REDACTED]% of the net proceeds will be used for enhancing marketing and
promotional activities;
–
[REDACTED]% of the net proceeds will be used for increasing market
presence in Hong Kong by opening of pop-up stores;
– 10 –
SUMMARY
–
[REDACTED]% of the net proceeds will be used for enhancing the Group’s
brand recognition and image by renovation of existing shops;
–
[REDACTED]% of the net proceeds, will be used as working capital for stock
up of products newly launched in 2016; and
–
the balance of approximately HK$[REDACTED] million, representing
approximately [REDACTED]% of the net proceeds will be used for the
Group’s general working capital.
DIVIDEND POLICY
For the year ended 31 December 2015, a subsidiary of the Group declared dividend
of HK$17.0 million. The Company currently does not have any specific dividend policy. A
decision to declare or to pay any dividend in the future, and the amount of any dividends,
depends on a number of factors, including the Group’s results of operations, financial
condition, the payment by the Group’s subsidiaries of cash dividends to the Group, and
other factors the Board may deem relevant.
[REDACTED] STATISTICS
The Company has prepared the following [REDACTED] statistics based on the
respective [REDACTED] of HK$[REDACTED] and HK$[REDACTED] per Share:
Based on
Based on
the indicative
the indicative
[REDACTED] of
[REDACTED] of
HK$[REDACTED] HK$[REDACTED]
per Share
per Share
million
million
Market capitalisation of the Shares
Unaudited proforma adjusted
consolidated net tangible assets of
the Group attributable to owners of
the Company per Share
Note:
The calculation of the market capitalisation upon completion of the [REDACTED] is based on the
assumption that [REDACTED] Shares will be in issue and outstanding immediately following the
[REDACTED]. The unaudited pro forma adjusted combined net tangible asset value per Share is
determined after adjustments as described in note 1 as set out in Appendix II to this document.
– 11 –
SUMMARY
RISK FACTORS
The Directors consider that there are certain risks and uncertainties involved in the
Group’s operations, some of which are beyond the Group’s control. Further details of the
risks to which the Group is exposed are set out in the section headed “Risk Factors” in this
document. The following highlights some of the risks which are considered to be material
by the Directors:
–
the Group’s business substantially relies on the sales of a few categories of
flagship products, if any event happens which adversely affects the sales and
profitability of these products, the overall results of the Group’s operation
may be materially and adversely affected;
–
the Group relies on the supply of products by few major suppliers;
–
two of the Group’s major suppliers operate their business in a political
instable country. If they cease business or their businesses were disrupted
because of political instability, the Group’s business and financial results
would be adversely affected;
–
If the Group is unable to rely on the services and connections of its key
personnel, or retain the current key personnel, its business could be adversely
affected
–
The Group has not entered into long-term agreements with the customers and
there is no assurance that the current relationship between the Group and any
customer can be continued in the future
– 12 –
DEFINITIONS
In this document, unless the context otherwise requires, the following expressions have the
following meanings:
“1st Round Subscription
Agreements”
the two subscription agreements both dated 19
December 2014 entered into between Fit Boxx HK
with each of National Pride and Prime View
respectively
“2nd Round Subscription
Agreements”
the two subscription agreements both dated 10
December 2015 entered into between the Company
with each of Global Excellent and Hang Kong
respectively
“Ample Capital” or “Sponsor”
Ample Capital Limited, a licensed corporation to
carry on business in types 4, 6 and 9 regulated
activities (advising on securities, advising on
corporate finance and asset management) under the
SFO, and the sponsor of the [REDACTED]
“Articles “ or “Articles of
Association”
the articles of association of the Company adopted on
[●] and as amended from time to time, a summary of
which is set out in Appendix III to this document
“associate(s)”
has the same meaning as defined in the GEM Listing
Rules
“Audit Committee”
the audit committee of the Board
“Board”
the board of Directors
“business day(s)”
a day (other than Saturday and Sunday) on which
licensed banks in Hong Kong are generally open for
normal banking business
“BVI”
the British Virgin Islands
“CAGR”
compound annual growth rate, a method of assessing
the average growth of a value over time
“Capitalisation Issue”
the issue of [REDACTED] Shares to be made upon the
capitalisation of an amount of HK$[REDACTED]
standing to the credit of the share premium account of
the Company as referred to the paragraph headed
“Appendix IV — A. Further information about the
Company and its subsidiaries — 3. Written
resolutions of the Shareholder passed on [●]” in this
document
– 13 –
DEFINITIONS
“Cayman Companies Law”
the Companies Law, Cap 22 (Law 3 of 1961, as
consolidated and revised) of the Cayman Islands
“CCASS”
the Central Clearing and Settlement System
established and operated by the HKSCC
“CCASS Clearing Participant”
a person admitted to participate in CCASS as a direct
clearing participant or general clearing participant
“CCASS Custodian Participant”
a person admitted to participate in CCASS as a
custodian participant
“CCASS Investor Participant”
a person admitted to participate in CCASS as an
investor participant who may be an individual or
joint individuals or a corporation
“CCASS Operational
Procedures”
the operational procedures of HKSCC in relation to
CCASS, containing the practices, procedures and
administrative requirements relating to the
operations and functions of CCASS, as from time to
time in force
“CCASS Participant”
a CCASS Clearing Participant, a CCASS Custodian
Participant or a CCASS Investor Participant
“China” or “PRC”
the People’s Republic of China, but for the purpose in
this document only and except where the context
requires otherwise, references in this document to
“China” and the “PRC” do not include Hong Kong,
Macau and Taiwan
“close associate(s)”
has the meaning as defined in the GEM Listing Rules
“Companies Ordinance”
the Companies Ordinance (Chapter 622 of the Laws of
Hong Kong) which came into effect on 3 March 2014
as amended, supplemented or otherwise modified
from time to time
“Companies (Winding Up and
Miscellaneous Provisions)
Ordinance”
the Companies (Winding Up and Miscellaneous
Provisions) Ordinance (Chapter 32 of the Laws of
Hong Kong), as amended, supplemented and/or
otherwise modified from time to time
– 14 –
DEFINITIONS
“Company”
Fit Boxx Holdings Limited 偉博控股有限公司, a
company incorporated in the Cayman Islands on 14
May 2015 as an exempted company with limited
liability and registered as a non-Hong Kong company
under Part 16 of the Companies Ordinance on 23 July
2015
“connected person(s)”
has the same meaning ascribed to it in the GEM
Listing Rules
“Controlling Shareholders”
the controlling shareholders (having the meaning
ascribed to it in the GEM Listing Rules) of the
Company, namely Faith Elite, Mr. Chan and Mr. Li
“Deed of Indemnity”
the deed of indemnity dated [●] executed by the
Controlling Shareholders in favour of the Company,
details of which are set out in the paragraph headed
“Appendix IV – E. Other information — 1. Tax and
other indemnity” in this document
“Deed of Non-Competition”
the deed of non-competition dated [●] executed by
the Controlling Shareholders in favour of the
Company, details of which are set out in the
paragraph under the sub-section headed
“Relationship with the Controlling Shareholders —
Non-Competition Undertakings” in this document
“Director(s)”
the director(s) of the Company
“Electrical Products (Safety)
Regulation”
the Electrical Products (Safety) Regulation (Chapter
406G of the Laws of Hong Kong), as amended,
supplemented or otherwise modified from time to
time
“Euromonitor”
Euromonitor International Limited, a market research
and consulting company, an Independent Third Party
“Euromonitor Report”
an independent market research report prepared by
Euromonitor on market landscape and competitive
analysis for the fitness equipment and beauty gadget
market in Hong Kong and the beauty gadget online
retailing market in the PRC, details of which are set
out in the section headed “Industry Overview” in this
document
– 15 –
DEFINITIONS
“Faith Elite”
Faith Elite Limited, a limited liability company
incorporated in Anguilla on 8 July 2014 and is held as
to 50% by Mr. Chan and 50% by Mr. Li
“Fit Boxx BVI”
Fit Boxx Co. Ltd., a limited liability company
incorporated in the BVI on 20 May 2015 and directly
and wholly owned by the Company
“Fit Boxx HK”
Fit Boxx Trading Company Limited (偉博貿易有限公
司), a company incorporated in Hong Kong on 18 June
2009 with limited liability, and an operating
subsidiary of the Group
“Fit Boxx Shenzhen”
Fit Boxx Import and Export Trading (Shenzhen)
Company Limited*（偉博進出口貿易（深圳）有限公司）, a
company established in the PRC on 31 October 2012,
and an operating subsidiary of the Group
“GDP”
gross domestic product
“GEM”
the Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules”
the Rules Governing the Listing of Securities on GEM
(as amended, supplemented or otherwise modified
from time to time)
“General Rules of CCASS”
the terms and conditions regulating the use of CCASS,
as may be amended or modified from time to time and
where the context so permits, shall include the CCASS
Operational Procedures
“Global Excellent”
Global Excellent Inc Limited (全球卓越有限公司), a
limited company incorporated in Hong Kong on 5
February 2015 and is held as to 100% by Ms. Cheng Oi
Yin, an Independent Third Party
“Group”
the Company together with its subsidiaries and in
respect of the period before the Company became the
holding company of its present subsidiaries, the
companies that are the present subsidiaries of the
Company
“Hang Kong”
Hang Kong Investment Consulting Limited (恒港投資
諮詢有限公司), a BVI business company incorporated
in the BVI on 9 March 2010 and is held as to 100% by
Mr. Wong Kwok Wai, an Independent Third Party
– 16 –
DEFINITIONS
“HK$” or “HK dollar(s)”
and “cent(s)”
Hong Kong dollar(s) and cent(s) respectively, the
lawful currency of Hong Kong
“HKFRS”
Hong Kong Financial Reporting Standards issued by
the Hong Kong Institute of Certified Public
Accountants
“HKEx”
Hong Kong Exchanges and Clearing Limited
“HKSCC”
Hong Kong Securities Clearing Company Limited
“HKSCC Nominees”
HKSCC Nominees Limited
“Hong Kong” or “HKSAR”
the Hong Kong Special Administrative Region of the
PRC
“Hong Kong Legal Counsel”
Mr. Julian Yeung, Hong Kong barrister-at-law
“Independent Third Party(ies)”
party or parties that is or are to the best of the
Directors’ knowledge, information and belief,
independent of and not connected with the Company
and connected persons of the Company within the
meaning of the GEM Listing Rules
“Israel”
The State of Israel
“Latest Practicable Date”
[12 April 2016], being the latest practicable date for
ascertaining certain information prior to the printing
in this document
“[REDACTED]”
[REDACTED]
“[REDACTED]”
[REDACTED]
“[REDACTED]”
[REDACTED]
“Listing Department”
the listing department of the Stock Exchange
“Macau”
the Macao Special Administrative Region of the PRC
“Mandatory Provident Fund
Schemes Ordinance”
the Mandatory Provident Fund Schemes Ordinance
(Chapter 485 of the Laws of Hong Kong), as amended,
supplemental or otherwise modified from time to
time
– 17 –
DEFINITIONS
“Memorandum” or
“Memorandum of
Association”
the memorandum of association of the Company
adopted on [●] upon the incorporation of the
Company and as amended from time to time
“MPF”
mandatory provident fund
“Mr. Chan”
Mr. Chan Yiu Kwong, one of the founders of the
Group and a Controlling Shareholder, the chairman of
the Company and an executive Director
“Mr. Li”
Mr. Li Hon Ming, one of the founders of the Group
and a Controlling Shareholder, the chief executive
officer of the Company and an executive Director
“National Pride”
National Pride Limited, a liability company
incorporated in Anguilla on 8 July 2014 and is owned
as to 100% by Mr. Kwan Hoi Wang, an Independent
Third Party
“Nomination Committee”
the nomination committee of the Board
“[REDACTED]”
[REDACTED]
“[REDACTED]”
[REDACTED]
“[REDACTED]”
[REDACTED]
– 18 –
DEFINITIONS
“[REDACTED]”
[REDACTED]
“Predecessor Companies
Ordinance”
the Company Ordinance (Chapter 32 of the Laws of
Hong Kong) as in force from time to time before 3
March 2014
“Pre-IPO Investors”
National Pride, Prime View, Global Excellent and
Hang Kong
“[REDACTED]”
[REDACTED]
“[REDACTED]”
[REDACTED]
“Prime View”
Prime View Enterprises Limited, a limited liability
company incorporated in the Republic of Seychelles
on 29 September 2014 and is held as to 100% by Mr. Ip
Wai Lung, an Independent Third Party
“Remuneration Committee”
the remuneration committee of the Board
“Reorganisation”
the corporate reorganisation in preparation for
[REDACTED] as more particularly described in the
sub-section headed “History, Reorganisation and
Group Structure — Reorganisation” in this document
“RMB”
Renminbi, the lawful currency of the PRC
“SFC”
The Securities and Futures Commission of Hong
Kong
– 19 –
DEFINITIONS
“SFO”
Securities and Futures Ordinance (Chapter 571 of the
Laws of Hong Kong) as amended, supplemented or
“Share(s)”
ordinary share(s) of nominal value of HK$0.01 each in
the share capital of the Company
“Share Option Scheme”
the share option scheme conditionally approved and
adopted by the Company pursuant to a resolution
passed by the Shareholders on [●], the principal
terms of which are summarised in the sub-section
headed “Appendix IV – D. Share Option Scheme” in
this document
“Shareholder(s)”
holder(s) of the Shares
“Stock Exchange”
The Stock Exchange of Hong Kong Limited
“subsidiary”
has the meaning ascribed thereto in section 15 of the
Companies Ordinance
“substantial shareholder(s)”
substantial shareholder(s) of the Company having the
meaning ascribed to it in the GEM Listing Rules
“Takeovers Code”
The Codes on Takeovers and Mergers and Share
Buybacks, as amended, modified and supplements
from time to time
“Track Record Period”
the period comprising the two years ended 31
December 2015
“Trade Description Ordinance”
the Trade Description Ordinance (Chapter 362 of the
Laws of Hong Kong), as amended, supplemented or
“[REDACTED]”
[REDACTED]
“[REDACTED]”
[REDACTED]
– 20 –
DEFINITIONS
“United States” or “US”
the United States of America
“US$” or “US dollars”
United States dollars, the lawful currency of the US
“sq.ft”
square feet
“sq.m”
square meters
“%”
per cent
Certain amounts and percentage figures included in this document have been subject to
rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an
arithmetic aggregation of the figures preceding them.
If there is any inconsistency between the Chinese names of entities or enterprises established
in the PRC and their English translations, the Chinese names shall prevail. The English
translation of company names in Chinese or another language which are marked with ‘‘*’’ and the
Chinese translation of company names in English which are marked with ‘‘*’’ is for identification
purpose only.
– 21 –
GLOSSARY OF TECHNICAL TERMS
This glossary contains explanations of certain terms, definitions and abbreviations used in
this document in connection with the Group and the business. The terms and their meanings may
not correspond to standard industry meaning or usage of those terms.
“3G”
third generation of mobile telecommunication
technology
“4G”
fourth generation of mobile telecommunication
technology
“brand owner(s)”
owner(s) of branded products, or their authorised
distributor(s) or agent(s) with whom the Group
negotiates for procurement of the distribution rights
for the branded products
“e-commerce”
electronic commerce, being the trading or facilitation
of trading in products or services using computer
networks
“Taobao”
Taobao.com (淘寶網), is a Chinese language website
for consumer-to-consumer online retail that is
operated in the PRC by a well-known Chinese
e-commerce company. It is a platform for small
businesses and individual entrepreneurs to open
online stores that mainly cater to consumers in
Chinese-speaking regions (the PRC, Hong Kong,
Macau and Taiwan)
“Tmall”
Tmall.com (天貓), is a Chinese language website for
business-to-consumer online retail that is operated in
the PRC by a well-known Chinese e-commerce
company. It is a platform for local Chinese and
international businesses to sell brand name goods
mainly to consumers in the PRC, Hong Kong, Macau
and Taiwan
– 22 –
FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements that are, by their nature,
subject to significant risks and uncertainties. These forward-looking statements include,
without limitation, statements relating to:
•
the business strategies and plans of operations;
•
the capital expenditure plans;
•
the amount and nature of, and potential for, future development of the
Group’s business;
•
the operations and business prospects;
•
the dividend policy;
•
the projects under planning;
•
the regulatory environment of the relevant industry in general;
•
the future development in relevant industry; and
•
other factors referenced in this document, including, without limitation,
under the sections entitled ‘‘Risk factors’’, ‘‘Industry overview’’, ‘‘Business’’,
and ‘‘Financial information’’.
The words ‘‘anticipate’’, ‘‘believe’’, ‘‘could’’, ‘‘expect’’, ‘‘intend’’, ‘‘may’’, ‘‘plan’’,
‘‘project’’, ‘seek’’, ‘‘will’’, ‘‘would’’ and similar expressions, as they relate to the Group,
are intended to identify a number of these forward-looking statements. These
forward-looking statements reflecting the Group’s current views with respect to future
events are not a guarantee of future performance and are subject to certain risks,
uncertainties and assumptions, including the risk factors described in this document. One
or more of these risks or uncertainties may materialise, or underlying assumptions may
prove incorrect.
Subject to the requirements of the GEM Listing Rules, the Company does not intend
to publicly update or otherwise revise the forward-looking statements in this document,
whether as a result of new information, future events or otherwise. As a result of these and
other risks, uncertainties and assumptions, the forward-looking events and circumstances
discussed in this document might not occur in the way the Company expects, or at all.
Accordingly, you should not place undue reliance on any forward-looking information.
All forward-looking statements in this document are qualified by reference to this
cautionary statement.
– 23 –
RISK FACTORS
Potential investors should consider carefully all the information set out in this
document and, in particular, should consider and evaluate the following risks associated with
an investment in the Company before making any investment decision in relation to the
Company. The trading price of the Shares could decline due to any of these risks, and you may
lose part or all of your investment.
RISKS RELATING TO THE GROUP AND ITS BUSINESS
The Group’s business substantially relies on the sales of a few categories of flagship
products, if any event happens which adversely affects the sales and profitability of
these products, the overall results of the Group’s operation may be materially and
adversely affected
For each of the two years ended 31 December 2015, sales of the Group’s flagship
products, namely, hair removal devices under the “Silk’n” brand and radio frequency skin
tightening and cellulite reduction treatment devices under the “Tripollar” brand, had in
aggregate accounted for approximately 47.0% and 59.5%, respectively of the Group’s
revenue. Thus, the Group’s business had relied heavily on the demand for and the
profitability of these categories of flagship products. If any event happens which would
adversely affect the sales and profitability of these products, such as change of consumer
preferences, presence of competitive products, pricing pressure or regulatory restrictions
on their sale or related advertising activities, the overall results of the Group’s operation
may be materially and adversely affected.
The Group relies on the supply of products by a few major suppliers
For each of the two years ended 31 December 2015, suppliers from the Group’s top
five suppliers accounted for approximately 71.3% and 70.0% of the total purchase of the
Group respectively. Four and three of the top five suppliers respectively for the two years
ended 31 December 2015 had entered into exclusive distribution agreements with the
Group.
For each of the two years ended 31 December 2015, purchases of “Silk’n” beauty
gadgets from its brand owner, which is one of the Group’s top five suppliers and the
largest supplier of the Group for beauty gadgets, amounted to approximately HK$9.6
million and HK$7.9 million, representing approximately 33.4% and 31.8% of the Group’s
total purchases respectively. For the two years ended 31 December 2015, purchases of
“La-fit” and “Reebok” fitness equipment from the respective brand owner, which is one of
the Group’s top five suppliers and the largest supplier for fitness equipment for the years
ended 31 December 2014 and 2015 respectively, amounted to approximately HK$1.9
million and HK$1.8 million, representing approximately 6.7% and 7.2% of the Group’s
total purchases respectively.
The success of the Group’s business depends, to a large extent, on its ability to
secure exclusive distribution agreements with certain major brand owners for a steady
supply of fitness equipment and beauty gadgets. Currently, the group had entered into
exclusive distribution agreements with seven brand owners, pursuant to which they have
granted exclusive distribution rights to the Group for distribution of certain beauty
– 24 –
RISK FACTORS
gadgets and fitness equipment in Hong Kong, Macau and/or the PRC. Save for one of the
exclusive distribution agreements, the Group is required to achieve the minimum
purchase requirement prescribed by the respective brand owners. If the Group cannot
fulfil its obligations under the exclusive distribution agreements, the brand owners are
entitled to revoke the exclusivity rights or even terminate the distribution agreements
with the Group. Please refer to the paragraph headed “Business — Operation flow —
Entering into the exclusive distribution agreements with brand owners” in this document
for the salient terms of these distribution agreements.
Furthermore, the duration of each of these exclusive distribution agreements with
brand owners is generally from one to three years and the Group cannot assure that such
exclusive distribution agreements can be renewed, or can be renewed on commercially
reasonable terms in the future. If the Group fails to renew the distribution agreements
with the major brand owners on an exclusive basis, the exclusive distribution rights of
such products may fall into the hands of the Group’s competitors and the Group’s market
share and business results would be materially and adversely affected.
Save and except for entering into exclusive distribution agreements with the seven
brand owners, which accounted for approximately 66.0% and 66.4% of the Group’s
purchase for the two years ended 31 December 2015 respectively, the Group has not
entered into any long-term supply agreement with other suppliers. There is no assurance
that the Group’s suppliers will continue to supply their products to the Group in the
future at all or maintain a stable source of supply of products to the Group. If the suppliers
are unable or unwilling to do so, there is also no assurance that the Group would be able to
source similar products from alternative channels at all, or at commercially reasonable
prices, or in a timely manner or at favourable terms, the Group’s business and financial
results would be adversely affected.
Two of the Group’s major suppliers operate their business in a political instable
country. If they cease business or their businesses were disrupted because of political
instability, the Group’s business and financial results would be adversely affected
The Group’s top two suppliers for the Track Record Period who are brand owners of
the Group’s certain beauty gadgets are based in Israel. More information on these two
brand owners are set out in the sub-section headed “Business — Suppliers” in this
document.
Israel is situated around certain politically instable countries such as Jordan, Syria,
and Egypt. Israel is also currently engaged in conflicts with other Middle East countries
which may result in an outbreak of war should conflicts continue. Furthermore, there is an
increase of political turmoil within Israel as the political parties are sharing different
views. This may ultimately result in riots and protests.
The Group cannot assure that these top two suppliers will continue to conduct and
operate their business should political instability continues in Israel. There is no
assurance that the Group would be able to source similar products from alternative
channels at all, or at commercially reasonable prices, or in a timely manner or at
favourable terms. The Group’s business and financial results would be adversely affected.
Measures taken by the Group to counter this risk are set out in details in the sub-section
headed “Business — Inventory control” in this document.
– 25 –
RISK FACTORS
If the Group is unable to rely on the services and connections of its key personnel, or
retain the current key personnel, its business could be adversely affected
The Group’s growth has been heavily dependent on the services provided by its
management team, in particular the executive Directors, Mr. Chan and Mr. Li. They
manage the Group’s business operation, develop and execute the Group’s business
strategies and manage the relationship with the Group’s key product suppliers and
corporate customers. Therefore, the future success of the Group relies on its ability to
retain the services of these key management personnel. If any of these key personnel are
unable or unwilling to continue to provide services to the Group in his or her original
position, and the Group is unable to find suitable replacements, the Group may not be able
to continue their operations effectively and efficiently, and the Group’s business and
financial conditions could be adversely affected.
The Group has not entered into long-term agreements with the customers and there is
no assurance that the current relationship between the Group and any customer can be
continued in the future
During the two years ended 31 December 2015, approximately 66.2% and 67.0%
respectively of the Group’s sales were direct sales to general public consumers. They
generally place a single purchase order with the Group for each purchase. The rest of
33.8% and 33.0% are the sales to the Group’s corporate customers, such as chain retailers
and other distributors and retailers. None of them have entered into any long-term
purchase agreements with the Group. The volume of the customers’ purchase orders and
the product mix may vary significantly subject to trends and needs, and it may be difficult
to forecast the number of future orders. As a result, the Group’s business, results of
operations and financial condition may vary from period to period, depending on the
volume of purchase orders from the customers, whether existing or new. Moreover, as
there is no long-term agreement with the Group, there is no assurance that the
relationship between the Group and any customer will continue on the same or similar
terms, and the customers are free to terminate their respective relationship with the Group
at any time in the future.
The Group’s business and sales are subject to the business strategies of the brand
owners
For the two years ended 31 December 2015, approximately 90.3% and 94.1% of the
Group’s revenue were attributed by sales of branded products sourced from brand owners
around the world. Therefore the Group’s business and sales are heavily dependent on the
market receptiveness of, and demand for, the products being provided by various brand
owners. The overall business strategies and product development plans adopted by these
brand owners and their ability to maintain and develop the brands are therefore essential
to the Group’s business.
As the Group has limited or no influence on the decisions made by the brand owners
in relation to their business strategies, in particular, the production of their existing
products and development of new products, the Group cannot assure that the brand
owners will be able to maintain and further develop their brands and/or products, or that
– 26 –
RISK FACTORS
the Group’s customers will continue to show preferences to their brands and/or products.
If the strategies of the brand owners turn out to be unsuccessful or due to any other
reasons the marketability of the brands falls substantially, the profitability of the Group’s
business would be materially and adversely affected.
The Group cannot assure that its products can meet consumer preferences and needs,
and will continue to gain market acceptance and secure market share
The Group sells and distributes a variety of fitness equipment and beauty gadgets to
general public consumers through its distribution network, which includes chain
retailers, third party e-commerce platforms, online group buying platforms, other
distributors and retailers and the Group’s own retail outlets and websites. The general
acceptance by consumers of the brands and products marketed by the Group is of vital
importance to the Group’s success and it hinges on a number of factors such as brand
image, product quality and customer loyalty. The Group’s success also depends, to a large
extent, on its ability to offer a diversified portfolio of products that can meet the changing
consumer preferences and needs. There is no assurance that the existing products
distributed and sold by the Group will be able to satisfy changes in consumer preferences
and needs.
The Group may also fail to anticipate, identify or respond to the constant changes in
relation to consumer preferences and needs on a timely basis, nor can the Group assure
that it will be able to gain or increase market receptiveness and market share for its
products.
Consumer preferences and needs for products and brands can change from time to
time for various reasons, including negative publicity regarding the Group’s products,
emergence of competitive products and brands, or a general decrease in demand for the
fitness equipment and beauty gadgets distributed and sold by the Group. Any of these
events could adversely affect the Group’s competitive advantage and market share, which
in turn could materially and adversely affect the Group’s business, financial condition
and results of operation.
The Group may not be able to renew its existing leases for its retail outlets when they
expire, or if they are terminated, on terms acceptable to it
The Group enters into leases in order to obtain retail space for its retail outlets.
Generally, the terms of its leases of retail outlets are for a period of two years. The Group
typically negotiates with the landlords three to six months prior to the expiration of the
leases for their renewal. The Group cannot assure that it will be able to renew any of its
leases on favourable or otherwise acceptable terms and conditions, in particular, those
regarding rental amount. If existing leases cannot be renewed, the Group will have to find
alternative premises that may not be located in areas that offer similar business
environments and competitive advantage or similar pricing. In addition, failure to renew
such leases will provide an opportunity for competitors to move into such retail spaces
previously identified and occupied by the Group as strategically favourable point of sale.
Accordingly, failure to secure such retail spaces on terms that are acceptable to the Group
may materially and adversely affect its business, financial condition and results of
operations.
– 27 –
RISK FACTORS
The Group’s marketing activities are essential to maintain and enhance the brand
images of the Group’s products and the success of the Group’s business
The Group’s success depends considerably on its ability to develop, maintain and
enhance the brand image of both the branded products sold by the Group and the Group’s
proprietary products. The ability to maintain and enhance the Group’s brand recognition
and reputation depends primarily on the success of the Group’s marketing and
promotional efforts. During the Track Record Period, the Group has put substantial
resources into promoting the products by various media advertisements and sponsorships
of events in order to enhance the brand recognition of the Group’s products. However,
there is no assurance that the Group’s marketing and promotional efforts will achieve the
expected results. If the Group fails to successfully market and promote the carried brands,
the brand recognition of the products distributed and sold by the Group may be adversely
affected and there may be a possible decline in demand.
Further, the Group’s advertising activities are subject to the relevant laws and
regulations of the jurisdictions where the Group operates. For instance, the Trade
Description Ordinance provides that no person(s) shall publish any advertisements that
contain misleading information and/or a false trade description of the goods. If the
Group’s marketing materials or advertisements contain anything contrary to the relevant
laws and regulations, the Group would be liable for breach of the relevant laws and
regulations. The Group’s reputation would also be adversely affected.
The Group may not be able to maintain its profit margin in the future
During the two years ended 31 December 2015, the Group’s profit attributable to
owners of the Company amounted to approximately HK$11.4 million and HK$9.5 million
respectively, while the Group’s overall gross profit margin was approximately 62.3% and
60.4% respectively. In addition, the Group’s overall gross profit margin is subject to the
proportion of sales of different type of products. The Directors consider that the Group’s
overall gross profit margin is subject to the proportion of sales through different types of
sales channels, i.e. direct and indirect sales channels.
Nevertheless, the Group cannot assure that it will be able to continue to maintain
the current gross profit margin and growth in profit in the future if the operating costs
continue to increase as a result of, among other factors, rising costs of labour,
manufacturing, rent and shipping. Furthermore, the Group cannot guarantee its ability to
maintain the current product mix or percentage of sales through direct and indirect sales
channels and sustain the growth in sales of products that entail higher gross profit margin,
hence any changes in the product mix or percentage of sales through direct and indirect
sales channels in the future may adversely affect the Group’s profitability.
– 28 –
RISK FACTORS
The Group conducts its business in the PRC through e-commerce platforms. Risks
associated with e-commerce platforms may adversely affect the Group’s business and
reputation
The Group sells its beauty gadgets to the PRC market mainly via a third party
e-commerce platform, namely, Tmall. The Group cannot assure that technical error,
system failure, computer virus, loss of data or other electronic related system failures
would not occur when a transaction is made via the trading platform. As it is normally a
term of use that these e-commerce platforms will not be liable for any losses or damages
caused by technical error, system failure, computer virus or such, the Group may have to
bear the loss of any business due to the interruption to the transaction.
Furthermore, if any e-commerce platform is found or perceived to be associated
with selling of counterfeit products, the Group’s brand image and reputation may be
tarnished and its business may be adversely affected accordingly.
The Group relies on external manufacturers for production of its proprietary products
The Group does not have any production facilities or production lines of its own.
The Group’s major proprietary products are fitness equipment sourced from independent
external manufacturers in the PRC. For the two years ended 31 December 2015, sales of
proprietary products accounted for approximately 9.7% and 5.9% of the Group’s revenue
respectively. Thus, the Group’s control over these external manufacturers in respect of
their production process and quality of products is limited. The Group cannot assure that
(i) there will not be any unexpected interruption of supply of products by these external
manufacturers due to any reason beyond the Group’s control or expectation, such as
introduction of new regulatory requirements, import restrictions, revocation of business
licenses, power interruptions, fires or other force majeure; or (ii) the products provided to
the Group by these external manufacturers can meet the Group’s quality requirements.
Any such problems in relation to the supply of the Group’s proprietary products by
external manufacturers could have a material adverse impact on the Group’s business.
The Group is exposed to credit risks of its corporate customers. If any of the Group’s
major corporate customer experiences any financial difficulty, the Group’s business
with such corporate customers and the settlement process of their outstanding amounts
owing to the Group may be adversely affected which may in turn adversely affect the
liquidity, results of operations and profitability of the Group
Aside from the businesses generated from the general public consumers, the Group
also relies on the businesses generated from its corporate customers. The Group normally
grants corporate customers a credit period of 30 to 60 days. The Group does not have
access to all information of its corporate customers to determine their creditworthiness.
The complete financial and operational conditions of the corporate customers are not
always available to the Group, and the Group may not be in any position to obtain such
information. As a result, if any of the Group’s major corporate customers experience any
financial difficulty, the Group’s business with such corporate customers and the
settlement process of their outstanding amounts owing to the Group may be adversely
affected, which may in turn adversely affect the liquidity, the results of operations and
profitability of the Group.
– 29 –
RISK FACTORS
The Group’s products may cause unexpected or undesirable side effects unknown to the
Group that may result in costly product returns or recalls, or even legal actions against
the Group
The Group’s proprietary products are assembled with various mechanical parts and
are produced by external manufacturers, who may have inconsistencies in relation to the
product quality. Although the Group believes that there are measures in place to control
the quality of the finished products, the Group cannot assure that it will be able to detect
defective products in every circumstance.
In relation to the branded products distributed by the Group, the Group has no
control of the manufacturing process of the brand owners and can only rely on the product
warranty, quality control report and/or clinical study certificates/reports provided by
them.
However, if any side effects occur or if the Group’s products are perceived to have
certain side effects, the Group may have to recall the products sold to the market.
Substantial amount of product returns or recalls could materially and adversely affect the
Group’s business, financial condition and results of operations.
In addition, the Group may be exposed to the risk of product liability claims,
litigation, complaints or adverse publicity under the circumstance. Currently, the Group
does not maintain any product liability insurance and the product liability insurance
policies maintained by the brand owners may not be able to be extended to cover the
Group in a legally effective way. If the Group faces any litigation proceedings and the
Group is held liable for any product liability claim, the Group will have to bear the costs,
damages and other legal and related expenses arising therefrom to the extent that the
Group may not be able to recover them from the relevant brand owner or manufacturer. As
a result, the Group’s business, financial condition and results of operations may be
materially and adversely affected. Please refer to the sub-section headed “Business —
Insurance” in this document for the Group’s insurance coverage.
The operation of certain retail stores of the Group will be affected due to removal of
unauthorised building works
As set out in the sub-section headed “Business – Properties” in this document, there
are suspected unauthorised building works at the Group’s retail outlets at Causeway Bay
and Yuen Long. If the unauthorised building works are required to be removed and/or
rectified, the operation of the relevant retail stores will be affected and there will be
adverse effect on the Group’s performance and profitability.
The Group’s products may be subject to counterfeiting, imitation, and/or infringement
by third parties
The Group cannot assure that counterfeiting or imitation of its products will not
occur in the future or, if it does occur, that the Group will be able to detect or address the
problem effectively. Any occurrence of counterfeiting or imitation of the Group’s products
could negatively affect the Group’s reputation and brand image and the products that the
– 30 –
RISK FACTORS
Group sells, leading to a loss of consumer confidence in the Group and its products, and as
a consequence, adversely affect the Group’s results of operations. Any litigation to
prosecute counterfeiting and infringements of the Group’s rights and products will be
expensive and will divert the management’s attention as well as other resources away
from the Group’s business.
Furthermore, the Group has acquired intellectual property rights in its proprietary
products. The Group relies on trademark registrations to protect its intellectual property
rights. However, it may be possible for third parties to use the Group’s intellectual
property without authorisation. Any unauthorised use or infringement of the Group’s
intellectual property rights may have an adverse impact on its business. If the Group has
to resort to litigation to enforce its intellectual property rights, significant costs may be
incurred.
Conversely, there can be no assurance that the Group’s proprietary products
sourced from external manufacturers will not infringe any third parties’ alleged design
right. Should any infringement claim be initiated against the Group, it may incur
significant legal expenditure to defend its rights and interests or be required to pay
substantial damages. As a result, the Group’s reputation and business can be materially
and adversely affected.
The Group’s operating results may fluctuate due to seasonality and other factors
The Group’s sales is subject to certain degree of seasonal fluctuations. Generally,
demand for the Group’s beauty gadgets is relatively higher during spring season in March
and April. The Group also experienced higher sales during Christmas holidays in 2014,
and in November 2015 when Tmall launched special promotional activities to boost online
shopping. Sales may also fluctuate during the course of a financial year for a number of
other reasons, including the timing of launching new products and advertising and
promotional campaigns. As a result, these seasonal consumption patterns may cause the
Group’s operating results to fluctuate from period to period and therefore, comparisons of
revenue and results of operations across different periods of a given year as an indicator of
the Group’s performance may not be meaningful and should not be relied upon as
indicators of the Group’s future performance.
The Group may be unable to maintain rapid growth and implement its future plans
The Group’s future business growth primarily depends on the successful
implementation of its business objectives, business strategies and future plans as set out
in the sub-section headed “Business – Business Strategies” in this document. These
business objectives are based on the existing plans and intentions of the Group, most of
which are at initial stages and have not proceeded to the stage of actual implementation
and are therefore subject to high degree of risks and uncertainties. Furthermore, the
Group may not be able to achieve the anticipated growth and expansion of its business
due to factors which are beyond its control, such as changes in economic environment,
market demands, government policies and relevant laws and regulations. As such, there is
no assurance that the Group’s business objectives, business strategies and future plans
will be accomplished, whether in whole or in part or be implemented within the estimated
timeline. In the event that the Group’s future plans are not implemented and its business
– 31 –
RISK FACTORS
objectives are not accomplished, the Group’s business, profitability and financial
positions in the future may be materially and adversely affected.
Furthermore, the Group’s future business plans may be hindered by other factors
beyond its control, such as competition from other retailers and distributors selling
similar products. Therefore, there is no assurance that the Group’s future business plans
will materialise, or result in the conclusion or execution of any agreement within the
planned time frame, or that the Group’s objectives will be fully or partially accomplished.
The Group is exposed to risks of obsolete and slow-moving inventory which may
adversely impact its cash flow and liquidity
The total amount of the Group’s inventories were approximately HK$22.5 million
and HK$14.6 million as at 31 December 2014 and 2015 respectively, and accounted for
approximately 49.3% and 33.8% of the Group’s total assets respectively. The demand for
the Group’s fitness equipment and beauty gadgets or other accessories products is highly
dependent on customers’ preferences, which are beyond the Group’s control. For the two
years ended 31 December 2015, the Group had not identified material inventory items
requiring impairment provision. Any increase in inventory may adversely affect the
Group’s working capital. If the Group cannot manage its inventory level efficiently in the
future, its liquidity and cash flow may be adversely affected. Further, if the Group fails to
source appropriate products to suit consumer preferences in the future, the volume of
obsolete and slow-moving inventory may increase and it may need to either sell off such
inventory at a lower price or write off such inventory, in the event of which the Group’s
financial position and results of operations may be materially and adversely affected.
RISKS RELATING TO THE INDUSTRY IN WHICH THE GROUP OPERATES
The Group operates in a highly competitive industry
The Group faces keen competition in respect of, inter alia, pricing, product quality
and brand identification. Some of the Group’s competitors may have greater financial,
technological and informational resources than the Group, which may enable them to
provide products superior to the Group’s products, or to adapt more quickly than the
Group does to evolving industry trends and consumer preferences. Conversely, some of
the Group’s competitors may, out of various commercial considerations, adopt
low-margin sales strategies and compete against the Group based on lower prices to
increase their market shares. The Group may be forced to lower the prices and profit
margins of its products or its market share would drop.
There is no assurance that the Group will be able to compete successfully with its
competitors in the future in view of the changing market environment. Increasing
competition within the industry may have an adverse impact on the Group’s sales
volume, market share, profit margin and financial result.
The Group’s products mainly target Hong Kong market
For the two years ended 31 December 2015, the Group generated approximately
75.4% and 76.1% of its sales from the Hong Kong market respectively. The Group
anticipates that sales in Hong Kong will continue to represent a substantial proportion of
its total sales in the future.
– 32 –
RISK FACTORS
However, the profitability of the Group’s business is dependent on, inter alia, a
number of factors relating to the Hong Kong market, such as the purchase power of the
population, the number of and the spending by tourists and other visitors, and legislation,
regulations and government policies in relation to the Group’s business. Furthermore,
economic instability and political turmoil has certain effect on the macroeconomics
conditions which would affect the consumer ’s desire to spend.
Hong Kong is a special administrative region of the PRC. It enjoys a high degree of
autonomy under the principle of “one country, two systems” in accordance with the Basic
Law of Hong Kong. However, the Group is not in any position to guarantee the “one
country, two systems” principle and the level of autonomy would be maintained as
currently in place. Since the Group’s primary operations are substantially located in Hong
Kong, any change in Hong Kong’s existing political environment may affect the stability
of the economy in Hong Kong, thereby affecting the Group’s results of operations and
financial positions.
In late 2014, thousands of residents of Hong Kong engaged in civil disobedience
protests. Activists protested outside key government buildings and occupied several
major intersections, causing major disruption to traffic and trade in the affected areas.
Any political and social instability in Hong Kong, if significant and prolonged, could have
a material adverse effect on the Group’s business, financial condition, results of
operations and prospects.
As a result, the Group’s business may be materially and adversely affected in the
event of any adverse or unforeseeable change in the economic, political and social
conditions in Hong Kong. The Group is unable to assure that such changes will not occur
in the future.
The Group is operating in an industry that is reliant upon labour. Any increase in the
cost of labour and the availability of labour may adversely affect the Group’s
competitiveness and profitability
As a result of its retail operation, the Group’s business is reliant upon labour. As the
labour costs in Hong Kong are affected by the demand for and supply of labours and as
well as economic factors including the inflation rate and standard of living, should there
be a high demand and low supply in labour, the Group may face the risk of losing their
current staff if there are more appealing offers in the market. There is no assurance that the
Group will be able to identify and recruit replacement staff in a timely manner, which
could have an adverse effect on the Group’s operation. In view of the potential increase in
labour cost, if the Group is unable to apply effective measures to control the labour cost
and increase the price of its products correspondingly, the Group’s competitiveness and
profitability could be adversely affected.
– 33 –
RISK FACTORS
RISKS RELATING TO THE [REDACTED]
The Group’s financial performance would be adversely affected by expenses incurred
in connection with the [REDACTED]
As set out in the section headed “Reasons for the [REDACTED] and Use of
Proceeds” in this document, the estimated expenses to be incurred in connection with the
[REDACTED] is approximately HK$[REDACTED] million based on the [REDACTED] of
HK$[REDACTED] (being the mid-point of the indicated [REDACTED] range stated in
this document), assuming the [REDACTED] is not exercised. Such estimated expenses,
which are non-recurrent in nature, are attributable as to (i) approximately
HK$[REDACTED] million which was regarded as incremental costs directly attributable
to the proposed issue of new Shares under the [REDACTED] and will be deducted from
equity upon completion of the [REDACTED]; and (ii) approximately HK$[REDACTED]
million which was regarded as costs associated with the [REDACTED] to the extent they
are incremental costs not attributable to the equity transaction and to be charged to the
Group’s consolidated statements of comprehensive income. Approximately HK$3.9
million of the [REDACTED] expenses was charged to the Group’s consolidated
statements of comprehensive income for the year ended 31 December 2015, and as to
HK$[REDACTED] million for the year ending 31 December 2016.
You should note that the financial performance of the Group for the year ending 31
December 2016 would be materially and adversely affected by the estimated expenses in
relation to the [REDACTED], and our net profit may be significantly lower than that for
the years ended 31 December 2014 and 2015.
There has been no prior public market for the Shares and the liquidity, market price
and trading volume of the Share may be volatile
Prior to the [REDACTED], there is no public market for the Shares. The
[REDACTED] of, and the permission to deal in, the Shares on the Stock Exchange do not
guarantee the development of an active public market or the sustainability thereof
following completion of the [REDACTED]. Factors such as variations in the Group’s
revenues, earnings and cash flows, strategic alliances or acquisitions made by the Group
or its competitors, loss of key personnel, litigation or fluctuations in the market prices for
the products of the Group, the liquidity of the market for the Shares, the general stock
market sentiment could cause the market price and trading volume of the Shares to
change substantially. In addition, both the market price and liquidity of the Shares could
be adversely affected by factors beyond the Group’s control and unrelated to the
performance of the Group’s business, especially if the financial market in Hong Kong
experiences a significant price and volume fluctuation. In such cases, investors may not be
able to sell their Shares at or above the [REDACTED].
Investors may experience dilution if the Group issues additional Shares in the future
The Group may issue additional Shares upon exercise of options to be granted under
the Share Option Scheme in the future. The increase in the number of Shares outstanding
after the issue would result in the reduction in the percentage of ownership of the
Shareholders and may result in a dilution in the earnings per Share and net asset value per
Share.
– 34 –
RISK FACTORS
In addition, the Group may need to raise additional funds in the future to finance
business expansion or new development and acquisitions. If additional funds are raised
through the issuance of new equity or equity-linked securities of the Company other than
on a pro-rata basis to the existing Shareholders, the shareholding of such Shareholders in
the Company may be reduced or such new securities may confer rights and privileges that
take priority over those conferred by the [REDACTED].
Any disposal by the Controlling Shareholders of a substantial number of Shares in the
public market could materially and adversely affect the market price of the Shares
There is no guarantee that the Controlling Shareholders will not dispose of their
Shares following the expiration of their respective lock-up periods after the
[REDACTED]. The Group cannot predict the effect, if any, of any future sales of the Shares
by any of the Controlling Shareholders, or that the availability of the Shares for sale by any
of the Controlling Shareholders may have on the market price of the Shares. Sales of a
substantial number of Shares by any of the Controlling Shareholders or the market
perception that such sales may occur could materially and adversely affect the prevailing
market price of the Shares.
The Controlling Shareholders may take actions that are not in, or may conflict with,
public Shareholders’ best interests
The Controlling Shareholders control the exercise of approximately [REDACTED]%
voting rights in the general meeting of the Company immediately after the [REDACTED]
and the Capitalisation Issue. Therefore, the Controlling Shareholders will continue to be
able to exercise controlling influence over the Group’s business through their ability to
take actions which do not require the approval of independent Shareholders. As such, the
Controlling Shareholders have substantial influence over the Group’s business, including
decisions regarding mergers, consolidations and the sale of all or substantially all of the
Group’s assets, election of directors, timing and amount of dividends, if any, and other
significant corporate actions. In the case where the interest of the Controlling
Shareholders conflict with other Shareholders, or if the Controlling Shareholders choose
to cause the Group to pursue objectives that would conflict with the interest of other
Shareholders, such Shareholders could be left in a disadvantageous position by such
actions caused by the Controlling Shareholders and the price of the Shares could be
adversely affected.
– 35 –
RISK FACTORS
RISKS RELATING TO THIS DOCUMENT
Statistics and industry information contained in this document may not be accurate and
should not be duly relied upon
Certain facts, statistics, and data presented in the section headed “Industry
overview” and elsewhere in this document relating to the fitness equipment and beauty
gadget markets industries have been derived, in part, from various publications and
industry-related sources prepared by government officials or independent third parties.
The Company believes that the sources of the information are appropriate sources for such
information, and the Sponsor and the Directors have taken reasonable care to extract and
reproduce the publications and industry-related sources in this document. In addition, the
Company has no reason to believe that such information is false or misleading or that any
fact that would render such information false or misleading has been omitted. However,
neither the Group, the Directors, the Sponsor, nor any parties involved in the
[REDACTED] has independently verified, or make any representation as to, the accuracy
of such information and statistics. Accordingly, such information and statistics may not be
accurate and should not be unduly relied upon.
The Group’s future results could differ materially from those expressed or implied by
the forward-looking statements
Included in this document are various forward-looking statements that are based on
various assumptions. The Group’s future results could differ materially from those
expressed or implied by such forward-looking statements. For details of these statements
and the associated risks, please refer to the section headed “Forward-looking statements”
in this document.
– 36 –
INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED]
[REDACTED]
– 37 –
[REDACTED]
– 38 –
[REDACTED]
– 39 –
[REDACTED]
– 40 –
DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED]
Name
Address
Nationality
Chan Yiu Kwong
(陳耀廣)
2/F, Block 15
Fortune Garden
Chuk Yuen
Yuen Long
Hong Kong
Chinese
Li Hong Ming
(李漢明)
No. 38, Sun Lee Uk Tsuen
Tin Ha Road
Yuen Long
Hong Kong
Chinese
Lo Wing Sang
(勞永生)
Room 14C, Block 6
Sceneway Gdn
Lam Tin, Kowloon
Chinese
Executive Directors
Independent non-executive Directors
So Alan Wai Sing
(蘇偉成)
Flat C, 23/F, Block 8
Laguna City
25 Laguna Street
Kwun Tong, Kowloon
Chinese
Ho Long Chin Matthew
(何浪前)
10/F,
New Henry House
10 Ice House Street
Central, Hong Kong
Chinese
Wong King Lung
(黃景隆)
Room 709, Block C
Kwai Chun Court
Kwai Hing, New Territories
Chinese
– 41 –
Sponsor
Ample Capital Limited
Unit A, 14th Floor
Two Chinachem Plaza
135 Des Voeux Road Central
Central
Hong Kong
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
Legal advisers to the Company
as to Hong Kong law
Jun He Law Offices
Suite 3701-10
37/F, Jardine House
1 Connaught Place
Central
Hong Kong
as to PRC law
Jun He Law Offices
Suite 2803-04
28/F, Tower Three
Kerry Plaza
No.1-1, Zhongxinsi Road
Futian District
Shenzhen 518048
P.R. China
as to Cayman Islands law
Conyers Dill & Pearman
Cricket Square
Hutchins Drive
P.O. Box 2681
Grand Cayman KY1-1111
Cayman Islands
– 42 –
Legal adviser to the Sponsor
and the [REDACTED]
[REDACTED]
Reporting accountants
RSM Hong Kong
29/F, Lee Garden Two
28 Yun Ping Road
Causeway Bay
Hong Kong
– 43 –
CORPORATE INFORMATION
Registered office in the Cayman Islands
Cricket Square
Hutchins Drive
P.O. Box 2681
Grand Cayman KY1-1111
Cayman Islands
Headquarters and principal place of
business in Hong Kong
Room 2207, 22/F
Park-In Commercial Centre
56 Dundas Street
Mong Kok
Kowloon
Hong Kong
Company secretary
Mr. Li Shiu Tong Andrew
Certified Public Accountants
2/F, 168D Yuen Kong, Pat Heung
Yuen Long, New Territories
Hong Kong
Compliance officer
Mr. Lo Wing Sang
Members of the audit committee
Mr. So Alan Wai Sing
(chairman)
Mr. Ho Long Chin Matthew
Mr. Wong King Lung
Members of the remuneration committee
Mr. Wong King Lung (chairman)
(chairman)
Members of the nomination committee
Mr. Chan
– 44 –
CORPORATE INFORMATION
Mr. Lo Wing Sang
Room 14C, Block 6
Sceneway Garden
Lam Tin, Kowloon
Hong Kong
Authorised representatives
Mr. Li Shiu Tong Andrew
2/F, 168D Yuen Kong, Pat Heung
Yuen Long, New Territories
Hong Kong
Principal share registrar and transfer
office in the Cayman Islands
[REDACTED]
Hong Kong branch share registrar and
transfer office
[REDACTED]
Principal bankers
Bank of China (Hong Kong)
1 Garden Road
Hong Kong
Compliance Adviser
Unit A, 14/F
Two Chinachem Plaza
135 Des Voeux Road Central
Central
Hong Kong
Company website (Note)
www.fitboxx.com
Note:
The information on the website of the Company does not form part in this document.
– 45 –
INDUSTRY OVERVIEW
The information that appears in this Industry Overview has been prepared by
Euromonitor and reflects estimates of market conditions based on publicly available sources
and trade opinion surveys, and is prepared primarily as a market research tool. References to
Euromonitor Report should not be considered as the opinion of Euromonitor as to the value of
any security or the advisability of investing in the Company. The Directors believe that the
sources of information contained in this Industry Overview are appropriate sources for such
information and have taken reasonable care in reproducing such information. The Directors
have no reason to believe that such information is false or misleading or that any material fact
has been omitted that would render such information false or misleading. The information
prepared by Euromonitor and set out in this Industry Overview has not been independently
verified by the Group, the Sponsor, the [REDACTED], the [REDACTED] or any other party
involved in the [REDACTED] and none of them gives any representations as to its accuracy
and the information should not be relied upon in making, or refraining from making, any
investment decision.
COMMISSIONED REPORT FROM EUROMONITOR
The Company commissioned Euromonitor, an independent market research
company, to conduct an analysis of and produce the report on the fitness equipment and
beauty gadget market in Hong Kong and the beauty gadget online retailing market in the
PRC. A total fee of US$99,750 (equivalent to approximately HK$778,000) was paid to
Euromonitor for the preparation of the report.
Research Methodology
Euromonitor, founded in 1972, is a global research organisation and the private
independent provider of business intelligence on industries, countries and consumers.
The information contained in the Euromonitor Report was undertaken through both
primary and secondary research obtained from various sources. Primary research
involved interviews with a sample of leading industry participants and industry experts.
Secondary research involved reviewing published sources including, specialised industry
literature, government/regulatory sources, third-party reports and surveys, industry
reports and analyst reports, industry associations and the database maintained by
Euromonitor. Intelligence gathered has been analysed, assessed and validated using
Euromonitor ’s in-house analysis models and techniques.
The forecasting bases and assumptions for the projections in the Euromonitor
Report include the following:
•
The economy of Hong Kong and the PRC is expected to maintain steady
growth over the forecast period;
•
The social, economic and political environments of Hong Kong and the PRC
are expected to remain stable during the forecast period;
– 46 –
INDUSTRY OVERVIEW
•
There will be no external shock, such as a financial crisis or raw materials
shortage, that affects the demand and supply of the beauty gadget and fitness
equipment market in Hong Kong or the beauty gadget online retailing market
in the PRC during the forecast period.
The following definitions were used throughout the Euromonitor Report:
•
Beauty Gadget: Defined as a gadget meant for beauty care treatment
purposes, it includes (i) facial care gadgets (e.g. facial saunas, facial
solariums, facial toners, facial cleansers, etc.), (ii) hair removal gadgets (e.g.
epilators, IPL (Intense Pulsed Light) hair removal gadgets, etc.) and (iii) other
beauty gadgets (e.g. hair care appliances including hair styling appliances
and hair dryers, as well as oral care appliances and other personal care
appliances). Beauty gadgets for professional usage (i.e. specifically designed
for beauty salons, etc.) are excluded from this study.
•
Fitness Equipment: Defined as equipment meant for personal fitness
purposes, this includes treadmills, steppers, exercise bikes, workout benches,
etc. Fitness equipment for professional usage (i.e. specifically designed for
gyms/fitness clubs, etc.) is excluded from this study.
The research results may be affected by the accuracy of these assumptions and the
choice of these parameters. Euromonitor ’s forecast data comes from analysis of the
historical development of the market, the economic environment and underlying market
drivers, and it is cross-checked against established industry data and trade interviews
with industry experts.
The Sponsor and the Company consider such information to be reliable, accurate
and not misleading after taking into account the following factors:
(a)
Euromonitor is an independent reputable research agency with extensive
experience in their profession; and
(b)
Although the Euromonitor Report includes forecast of the development of the
fitness equipment and beauty gadget market in Hong Kong and the beauty
gadget online retailing market in the PRC, it does not contain performance
forecast of the Company.
– 47 –
INDUSTRY OVERVIEW
The Directors confirm that, to the best of their knowledge, after taking reasonable
care, there is no material adverse change in the market information since the date of the
Euromonitor Report which may qualify, contradict or have an impact on the information
in this section.
MACROECONOMIC ENVIRONMENT IN HONG KONG
Nominal GDP in Hong Kong stood at HK$2,246 billion in 2014, representing a
CAGR of 6.0% since 2010. After the economy slipped into recession in 2009 and
employment shrank for the first time since 2003, consumption, investment and exports all
contributed to the rebound in 2010 and 2011, resulting in real GDP growth of
approximately 6.8% and 4.8%, respectively. The pace slowed again in 2012 when exports
dropped and retail sales stalled. Investment and construction provided most of the
support for the economy. Strong growth in the export of services was one of the main
factors contributing towards the improved economic performance in 2013, when real GDP
rose by 2.9%. In particular, rising inbound tourism helped boost exports of travel services
in the same year, while exports of financial and other business services also performed
well. Rising domestic demand also made a strong contribution to positive economic
growth in 2013. However, the economy witnessed slower growth in 2014 than the 2.9%
recorded in 2013. Hong Kong’s economy came under scrutiny in 2014 when wide-scale
democracy protests beginning in September disrupted retail sales and tourism, especially
that of mainland Chinese visitors. Although this growth is the second-lowest of the review
period, it remained well ahead of the approximately 1.5% growth seen in 2012. Similar
trends were observed for annual disposable income per capita, which increased from
HK$197,413 in 2010 to HK$249,083 in 2014, exhibiting a CAGR of about 6.0% over the
review period of 2010-2014.
FITNESS EQUIPMENT MARKET IN HONG KONG
Fitness equipment retail market in Hong Kong
Fitness equipment retail overview and performance
A very concentrated retail market
The Hong Kong fitness equipment retail market is very concentrated. There are only
a few major players, with the Group and competitor A dominating the market. Competitor
A (please refer to “Table 3 – Market Ranking of the Top Five Distributors for Fitness
Equipment, Based on Total Equivalent Retail Value Sales, Historical (2014)” for more
details) was the largest retailer of home fitness equipment until 2008, displaying a large
range of traditional fitness equipment such as treadmills and elliptical machines in its
stores. Since 2008-2009, the Group played a pivotal role in developing the market. By
offering less space-consuming and smaller-sized equipment (e.g. foldable treadmills,
foldable bikes, small-sized steppers), the Group helped boost the Hong Kong market,
raising interest in home gyms and enlarging the overall customer base for fitness
equipment as space was a major constraint.
– 48 –
INDUSTRY OVERVIEW
Healthy growth supported by product innovations and consumer health trends
The competition from commercial fitness centres was fierce during the review
period of 2010-2014, mostly because they provide more advanced products along with
personal training services. However, retail sales of home fitness equipment increased
steadily over the review period at a CAGR of 4.9%, reaching HK$58.4 million in 2014. This
growth was mostly driven by the innovative range proposed by retailers, especially the
smaller-sized and more convenient equipment compared to traditional fitness equipment,
which is less adapted to Hong Kong home sizes. In terms of products, the consumers trust
the international brands available in Hong Kong (mainly from US or Europe) and
consequently, product safety is not seen as a major concern.
Retail sales of fitness equipment are expected to continue to grow over the forecast period
The fitness equipment category is expected to continue to grow at a CAGR of 4.9% to
reach HK$74.1 million in 2019. Convenience and flexibility will remain primary drivers in
the growth of home gyms. But this expected growth is also likely to be spurred on by
demographic trends, such as the ageing population. Hong Kong is the second-fastest
ageing population in Asia behind Japan. By 2041, nearly one in three Hong Kong residents
will be aged 65 or older and, with such an epidemiological transition, maintaining health
and fitness into old age has become a public health priority.
TABLE 1 TOTAL RETAIL VALUE SALES OF FITNESS EQUIPMENT IN HONG
KONG, HISTORICAL (2010-2014), FORECAST (2015-2019), HK$ MILLIONS
Fitness Equipment
Fitness Equipment
Sources:
2010
2011
2012
2013
2014
CAGR
2010-14
48.2
50.6
53.0
55.6
58.4
4.9%
2015
2016
2017
2018
2019
CAGR
2015-19
61.2
64.2
67.4
70.7
74.1
4.9%
Euromonitor estimates from desk research and trade interviews with relevant industry associations
and major fitness equipment manufacturers/distributors/retailers in Hong Kong
– 49 –
INDUSTRY OVERVIEW
Fitness equipment retail distribution
Sporting goods retailers lead sales of home fitness equipment in Hong Kong
Store-based retailers dominate the distribution of fitness equipment in terms of
retail value sales, accounting for about HK$55.4 million or 94.9% of the total distribution
in 2014. This share was mainly driven by chained players, the Group and Competitor A
(please refer to “Table 3 – Market Ranking of the Top Five Distributors for Fitness
Equipment, Based on Total Equivalent Retail Value Sales, Historical (2014)” for more
details). The Group has seven outlets in Hong Kong (five stores and, one counter in a
department store and one sales booth in a shopping mall). Competitor A had seven stores
and 22 counters in major sporting goods retailers and in some department stores as at the
completion date of the Euromonitor Report. Hence, the single largest distribution channel
is sporting goods retailers, accounting for 80.3% of the overall retail distribution in value
sales, or HK$46.9 million in 2014. Sporting goods retailers display the widest range of
fitness products among all retailers and are located in the major commercial areas in Hong
Kong.
Department stores represented the next-largest channel within the distribution of
fitness equipment in 2014, accounting for about 14.6% of the retail value sales of fitness
equipment.
The market share of the non-store retailing channel within the distribution of fitness
equipment remained low in 2014, at approximately 5.1% or HK$3.0 million.
Table 2 Fitness Equipment Retail Distribution in Hong Kong, Based on Retail Value
Sales,
Historical (2014), HK$ Millions
Store-based Retailing
Sporting Goods Stores
Department Stores
80.3%
14.6%
Non-store Retailing (*)
94.9%
5.1%
Total
100%
(*)
Includes Internet retailing for the purpose of this study
Sources:
and major fitness equipment manufacturers/distributors/retailers in Hong Kong
– 50 –
INDUSTRY OVERVIEW
Market drivers, constraints and entry barriers
A combination of convenience, flexibility and style are the primary drivers of home gyms
With space being the biggest challenge, convenience and flexibility are the major
drivers in the fitness equipment industry for consumers. Owing to high rental prices,
consumers can seldom dedicate a whole room of their flat for exercise. Hence, portable,
foldable, sleek and streamlined workout equipment is ideal for home use. Hong Kong
consumers are attentive to the aesthetics and style of the equipment, in addition to ease of
use and effectiveness.
Growing awareness of the benefits of exercise has impacted the fitness equipment market
Hong Kong citizens work some of the longest hours in the world, largely due to a
belief that more work hours means higher productivity. However, consumer awareness is
increasing with regard to the benefits of exercise, such as reduced risk of disease,
increased health and a positive effect on performance and work-related productivity.
Therefore, consumers are beginning to make lifestyle choices through new exercise and
eating/drinking patterns. This growing awareness for sustaining a healthy lifestyle
amongst the general public has impacted the fitness equipment market.
The ageing population is a growth driver of the fitness equipment market
The large ageing population is another important factor driving the fitness
equipment market. Hong Kong’s population has experienced an ageing trend over the
past decade. According to the Hong Kong Census and Statistics Department, the
proportion of people aged 65 and up increased from 12% in 2001 to about 15% in 2013 and
it is expected to reach 32% in 2041. Moreover, people aged 50 and older are the major
customers of overall health and wellness products and the demand for fitness equipment
for home use is expected to continue to grow among this customer segment.
Very limited risk factors for the fitness equipment market in Hong Kong
In Hong Kong, owing to no import tax, there are no real risk factors that could have
a potential impact on the development of the fitness equipment market. Moreover, there
have been very few issues with counterfeit fitness equipment, which are not considered
significant enough to be a risk factor.
Market concentration is the major barrier for new entrants
Retail consolidation is one of the biggest barriers for new entrants in the fitness
equipment market for home use. With only two major players, it is challenging for a new
entrant, especially a small company, to build awareness and start selling fitness
equipment in Hong Kong. It is not easy to step into this market where the Group and
Competitor A dominate. Moreover, in terms of media, the Group has a strong and regular
presence above and below the line, leaving its competitors with little share. Hence, the
investment/capital required to enter the fitness equipment market is significant and can
be an entry barrier for small players.
– 51 –
INDUSTRY OVERVIEW
Competitive landscape
A market characterised by strong consolidation
The Hong Kong fitness equipment market is highly concentrated, with the two
largest players accounting for approximately 71.8% of total equivalent retail value sales.
The Group and Competitor A are large players while international companies/brands
focusing more on the professional market also have an offer for the home fitness market.
Several international players do not have their own points of sale in Hong Kong and try to
reach Hong Kong consumers online. They often have a studio to display their equipment
and work with agents/dealers.
The Group has a dominant position owing to its innovative offers and strong media
presence
The Group mainly sells fitness equipment at its own point of sale. The Group has
wide coverage with seven retail outlets in Hong Kong. The Group differentiates itself with
strong and innovative product offers and extensive marketing campaigns, specifically
targeting home fitness equipment market. Moreover, the Group has the advantage of
distributing multiple brands. This allows the Group to bring in more innovations than
distributing a single brand. Consequently, the Group played a pivotal role since it
emerged in this market by introducing flexible and space-saving products, e.g. foldable
bikes, foldable treadmills, small-sized steppers etc.
Table 3 Market Ranking of the Top Five Distributors for Fitness Equipment, Based on
Total Equivalent Retail Value Sales, Historical (2014)
Ranking
Company Name
Share
1
2
Others
the Group
Competitor A
40.1%
31.6%
28.3%
Total
Sources:
100.0%
Euromonitor estimates after desk research and trade interviews with a sample of distributors and
retailers of fitness equipment.
The market share data reported above has been determined via a fieldwork program consisting of desk
research and trade interviews. While audited data was available for some of the companies, they
typically did not break the revenue or sales numbers into the relevant categories covered in this study.
For these companies as well as those that were included in the market shares but are not publicly listed,
Euromonitor has projected the market shares based on estimates provided by various trade sources (i.e.
not just the companies themselves) and sought a consensus on these estimates as much as possible.
– 52 –
INDUSTRY OVERVIEW
BEAUTY GADGET MARKET IN HONG KONG
Beauty gadget retail market in Hong Kong
Beauty gadget retail market overview and performance
Beauty gadgets are well established in the Hong Kong personal care market
Hong Kong is a mature and sophisticated market when it comes to beauty.
Consumers use a large range of personal care or grooming products and show high
interest in skincare innovations. Hong Kong consumers have the second-highest level of
gadget adoption in Asia. Hence, beauty gadgets have been part of the beauty market for
some time, driven by hair removal gadgets. However, only in the past five years has the
category expanded into skin care, driven by facial care gadgets.
In broader terms, the beauty gadget market is segmented into three major
categories: (i) facial care gadgets, (ii) hair removal gadgets and (iii) other beauty gadgets.
For the purpose of this study, only the first two categories are covered because the
inclusion of all other beauty gadgets would be too broad, encompassing a multitude of
market players across various product industries, who would not be directly comparable
to the Group in terms of product offering. For information, other beauty gadgets
accounted for approximately 24.9% of retail sales of all beauty gadgets.
International players dominate the beauty gadget market due to an established
presence that earns consumers’ confidence in the quality of the products, which is
particularly important as these products often have direct contact with the body, and
therefore, consumers want to ensure product safety.
Retail sales of beauty gadgets (excluding other beauty gadgets) increased over the
review period of 2010-2014 at a CAGR of 10.2% to reach HK$465.2 million in 2014. This
growth was mostly driven by facial care gadgets, which accounted for 50.4% of total
beauty gadget retail sales in 2014. Hair removal gadgets achieved a similar customer value
spend, reaching HK$230.7 million in 2014 and a share of about 49.6% within beauty
gadgets, but realised slower growth than facial care gadgets. In Hong Kong, saving time is
important to consumers in all respects, and thus consumers looking for convenient and
effective solutions that could save them time (especially for hair removal) played a pivotal
role in the growth of beauty gadgets. In addition, women’s rising disposable income and
sophistication saw them become more receptive to beauty gadgets and innovations, as
witnessed in the facial care gadget segment.
The market for facial care gadgets flourished in 2011-2012, supported by major launches
Increasing demand for more sophisticated offerings in skin care, consumers’ desire
for greater efficacy and the high level of gadget adoption helped beauty gadgets garner
more attention in skin care in Hong Kong since 2011. Facial care gadgets represented a
relatively niche segment in 2010, but the acquisition of Clarisonic by L’Oréal at the end of
2011 boosted this segment. The success of Clarisonic opened doors for other beauty
players to move into the industry across both the mass and premium segments.
Investment from consumer appliance manufacturers has also been in the form of
collaboration with beauty players, e.g. the Panasonic and Shiseido sets of facial gadgets.
– 53 –
INDUSTRY OVERVIEW
Retail sales of facial care gadgets grew at a CAGR of 12.5% over the review period to
reach HK$234.6 million in 2014, up from HK$146.6 million in 2010. The Group competes
closely with some major international manufacturers of personal care. Although the
competition from professional hair removal salons became fiercer, hair removal gadget
retail sales witnessed healthy growth among the beauty gadget segments, increasing at a
CAGR of approximately 8.1% during the review period to reach HK$230.7 million in 2014,
up from HK$168.9 million in 2010.
Beauty gadget retail sales are expected to continue to grow over the forecast period
Several factors influencing consumer trends such as convenience, heightened
awareness of the technology used in beauty gadgets, an ageing population and men’s
grooming are expected to drive the growth of beauty gadget retail sales at a CAGR of 8.2%
over the forecast period of 2015-2019, to reach HK$687.4 million by 2019. Facial care
gadgets are forecast to continue growing quickly, at a CAGR of 11.0% over 2015-2019, to
reach HK$395.2 million in 2019. Hair removal gadgets are forecast to continue accounting
for a large share of beauty gadget retail sales, driven by consumers’ constant search for
time- and cost-efficient solutions. This segment is forecast to grow at a CAGR of 4.9% over
2015-2019, to reach HK$292.1 million in 2019.
Table 4 Total Retail Value Sales of Beauty Gadgets in Hong Kong, Historical
(2010-2014), Forecast (2015-2019), HK$ Millions
Beauty Gadgets
Facial Care
Gadgets
Hair Removal
Gadgets
Beauty Gadgets
Facial Care
Gadgets
Hair Removal
Gadgets
Sources:
2010
2011
2012
2013
2014
CAGR
2010-14
315.5
330.3
374.5
416.9
465.2
10.2%
146.6
148.4
178.0
204.4
234.6
12.5%
168.9
181.9
196.4
212.5
230.7
8.1%
2015
2016
2017
2018
2019
CAGR
2015-19
501.8
541.8
585.9
634.2
687.4
8.2%
260.4
289.0
320.8
356.1
395.2
11.0%
241.4
252.8
265.1
278.1
292.1
4.9%
and major beauty gadget manufacturers/distributors/retailers in Hong Kong
– 54 –
INDUSTRY OVERVIEW
Beauty gadget retail distribution
Electronics and appliance specialist retailers lead sales of beauty gadgets
Store-based retailers dominate the distribution of beauty gadgets in terms of retail
value sales, accounting for HK$463.3 million or 99.6% of the total distribution in 2014.
Amongst these retailers, electronics and appliance specialist retailers represented the
leading distribution channel for beauty gadgets, reaching a share of 65.3% of the total
distribution of beauty gadgets in 2014. This share was mainly driven by chained players
due largely to their comprehensive product portfolios and ability to offer competitive
prices. The next largest channels within the distribution of beauty gadgets are health and
beauty specialist retailers, accounting for about 14.1% of retail value sales. The two major
pharmacy chains dominate the health and beauty specialist channel, offering a
comprehensive range of personal care products and beauty gadgets in addition to
supporting a huge retail network. Large beauty specialist chains contribute moderately to
beauty gadget retail sales.
Other store-based retailers account for 5.6% of the beauty gadget retail value sales.
This channel includes sporting goods stores (i.e. retail outlets specialising in the sale of
sports and outdoor equipment) that also sell beauty gadgets. The Group, which is
classified as a sporting goods store, is included in this channel and drives its share.
Table 5 Beauty Gadget Retail Distribution in Hong Kong, Based on Retail Value
Sales, Historical (2014), HK$ Millions
Store-based Retailing
Grocery Retailers
Electronics and Appliance Specialist Retailers
Health and Beauty Specialist Retailers
Department Stores
Other Store-based Retailers (*)
Non-store Retailing (**)
(*)
Include Sporting Goods Stores
(**)
Includes Internet retailing for the purpose of this study
Sources:
463.3
47.1
304.0
65.7
20.3
26.3
2.0
Industry outlook of beauty gadget retail market in Hong Kong
An ageing population and rising health consciousness presents opportunity
Beauty gadgets that provide anti-ageing benefits are already driving the market,
and are expected to further gain ground over the forecast period in Hong Kong. In
addition, rising personal care spending, increasing prevalence of skin diseases and
awareness of the harmful effects of ultraviolet radiation are adjacent trends that will
support the growth of the market.
– 55 –
INDUSTRY OVERVIEW
Hong Kong’s healthy economic forecast likely to boost premium and niche brands
Hong Kong’s GDP growth is expected to improve over the forecast period, driven by
the expected stronger global demand for Hong Kong exports. Also, local consumer
spending is likely to increase over the forecast period due to expected better economic
conditions, which will continue to boost the performance of beauty gadgets.
High retail rents in Hong Kong remain a major challenge despite a recent slowdown in growth
According to real estate services firm Jones Lang LaSalle, Hong Kong retail rents
were the world’s most expensive for two years until they were topped by New York’s Fifth
Avenue in 2014. However, leases are expected to drop by approximately 5% in 2015. Major
drivers of the slowdown in retail rent growth are mainland Chinese visitors who spent
less due to a slowing domestic economy, official anti-corruption measures and a growing
‘anti-extravagance’ trend. Retailers are cautious and will continue to slow their expansion
plans over the forecast period, as many had already reached a saturation point by the end
of the review period.
Beauty gadget wholesale market in Hong Kong
Beauty gadget distribution overview and performance
Distributors and agents play a pivotal role in the beauty gadget wholesale market
Hong Kong has a sophisticated retail sector for the sale and distribution of beauty
products. There are different channels for suppliers to access retail outlets, depending on
the type of product and the target consumer sector. When it comes to beauty gadgets,
larger-scale retail outlets traditionally rely on distributors and agents to help source and
supply the products. Health and beauty specialist retailers (including pharmacies)
typically demand high listing fees and a high retail margin when purchasing from
wholesalers. A similar margin is demanded by electronics and appliance specialist
retailers.
Steady growth of the wholesale value sales of beauty gadgets
Similarly to retail value sales, wholesale value sales of beauty gadgets in Hong Kong
increased at a CAGR of about 10.2% to reach HK$255.9 million in 2014, from HK$173.5
million in 2010. Facial care gadgets flourished and distributors such as Competitor C
(please refer to “Table 7 – Market Ranking of Top Five Distributors for Beauty Gadgets,
Based on Total Equivalent Retail Value Sales, Historical (2014)” in this section for more
details) were present in this segment at an early stage. Facial care gadgets increased at a
CAGR of approximately 12.5% to reach HK$129.0 million in 2014, thanks to major
innovations and launches by international manufacturers and a strong network of
distributors/agents.
– 56 –
INDUSTRY OVERVIEW
Beauty gadget wholesale value sales to continue experiencing healthy growth
With no major changes expected in the sales and distribution model for beauty
gadgets in upcoming years, the wholesale value sales of beauty gadgets are forecast to
follow a similar growth rate as retail sales. Over the forecast period of 2015-2019, the
wholesale value sales of beauty gadgets are expected to grow at a CAGR of about 8.2%.
Facial care gadgets are projected to gain the most and become the single largest segment,
accounting for approximately 57.5% of wholesale value sales of beauty gadgets by 2019.
Table 6 Total Wholesale Value Sales of Beauty Gadgets in Hong Kong, Historical
(2010-2014), Forecast (2015-2019), HK$ Millions
Beauty Gadgets
Facial Care
Gadgets
Hair Removal
Gadgets
Beauty Gadgets
Facial Care
Gadgets
Hair Removal
Gadgets
Sources:
2010
2011
2012
2013
2014
CAGR
2010-14
173.5
181.7
206.0
229.3
255.9
10.2%
80.6
81.6
97.9
112.4
129.0
12.5%
92.9
100.1
108.0
116.9
126.9
8.1%
2015
2016
2017
2018
2019
CAGR
2015-19
276.0
298.0
322.2
348.8
378.1
8.2%
143.2
158.9
176.4
195.8
217.4
11.0%
132.8
139.1
145.8
153.0
160.7
4.9%
Industry outlook of beauty gadget wholesale market in Hong Kong
Electronics and appliance retailers provide growth driver for the distribution of beauty gadgets
The wide coverage of chained electronics and appliance specialist retailers allows
consumers to have easy access to beauty gadgets. Increasingly comprehensive product
and brand portfolios of beauty gadgets will further allow consumers to enjoy one-stop
shopping convenience. Hong Kong’s chained electronics and appliance specialist retailers
are expected to continue to enjoy higher bargaining power over suppliers, which will
allow them to offer more competitive prices and promotions.
– 57 –
INDUSTRY OVERVIEW
Changes in operations and rental costs are key challenges faced by distributors and retailers
The major challenges faced by the Hong Kong beauty gadget distribution market are
changes in operations and ever-rising rental costs. Although a slowdown of retail rental
costs was witnessed in 2014, retailers are careful with their expansion plans and will
instead focus on store. For distributors, it is also important to partner with international
players or niche/premium brands of beauty gadgets.
A strong anti-ageing trend and product innovation support beauty gadget growth
The ageing local population combined with high adoption of electronic devices and
consumers’ rising sophistication driving their image-consciousness are the primary
growth drivers for beauty gadgets in Hong Kong. Innovative products such as facial care
gadgets with anti-ageing claims, such as facial toner gadgets, facial lifting gadgets or
wrinkle treatment gadgets are expected to further encourage the market.
The impact of tourism is another key driver of beauty gadget growth in Hong Kong
In 2014, 60.8 million visitors came to Hong Kong, of whom 47.2 million were
mainland Chinese. Majority of these tourists came to shop in Hong Kong, mainly for
cosmetics and skin care items. Owing to high taxes in the PRC, consumers are enticed to
shop in tax-free Hong Kong where they can enjoy up to 30% savings, which is a key driver
for beauty gadget retail sales.
Economic slowdown is the major risk factor for retailers of beauty gadgets in Hong Kong
With an economy increasingly linked to the PRC yet a monetary policy still tied to
the United States, Hong Kong is set to be squeezed by diverging dynamics in the two
nations. Hong Kong’s economy was hurt in 2014 by the moderation in Chinese growth. An
economic slowdown is perceived to be the main threat to the beauty gadget market.
A highly competitive market where a strong sales model is paramount for new entrants
Since 2012, increasingly fierce competition exists between large international
consumer appliance manufacturers and players specialised in the beauty and personal
care industry. Hence, the high fragmentation and competition in the Hong Kong beauty
gadget market is a significant barrier for new entrants. A new entrant in this market would
either need to already have an established presence in adjacent product categories or
would have to partner with a leading distributor to gain awareness and presence in this
market.
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INDUSTRY OVERVIEW
Competitive landscape
A distributor market defined by intense competition between international players
With numerous product launches since 2012 and the entry of large international
players, the Hong Kong beauty gadget wholesale market is highly competitive, as is the
retail market. In terms of total equivalent retail value sales, the top five distributors’
market shares range from 4.1% to 26.8%, while other players share a fragmented 19.0%.
Some leading international appliance manufacturers rely primarily on large distributors.
Opportunities to grow for the Group as a distributor of beauty gadgets
With constant innovations and most leading international players looking to enter
the Hong Kong market, there is potential for distributors of beauty gadgets to gain shares.
For the Group, the challenge is to compete in a market where major players have the
advantage of their brand name. With its specialised facial care gadget portfolio, the Group
has the opportunity to capture share by riding the ageing population trend. Moreover, the
range offered in the hair removal segment is a plus for the Group. In this segment,
consumers look first and foremost for convenient and time-efficient solutions. With
gadgets providing permanent hair removal (e.g. Silk’n SensEpil Home Pulse Light Hair
Removal System), the Group could compete against large appliance brands that may face
new challenges because of their ‘generalist’ image.
Table 7 Market Ranking of Top Five Distributors for Beauty Gadgets,
Based on Total Equivalent Retail Value Sales, Historical (2014)
Ranking
Company Name
Share
1
2
3
4
5
Others
Competitor
Competitor
Competitor
Competitor
the Group
26.8%
26.3%
12.1%
11.7%
4.1%
19.0%
B
C
D
E
Total
Sources:
100.0%
Euromonitor estimates after desk research and trade interviews with a sample of distributors and
retailers of beauty gadgets.
The market share data reported above has been determined via a fieldwork programme consisting of
desk research and trade interviews. While audited data was available for some of the companies, they
typically did not break the revenue or sales numbers into the relevant categories covered in this study.
For these companies as well as those included in the market shares but not publicly listed, Euromonitor
has projected the market shares based on estimates provided by various trade sources (i.e. not just the
companies themselves) and sought a consensus on these estimates as much as possible.
– 59 –
INDUSTRY OVERVIEW
BEAUTY GADGET ONLINE RETAILING IN THE PRC
Beauty gadget online retailing overview and performance
Steady growth and potential encouraged by trends such as appearance and rising income
Beauty gadgets as emerging products in the PRC have only recently begun
developing rapidly. Due to gradually increasing income and the popularity of
self-beautification, the PRC’s beauty gadget market is starting to develop gradually.
In 2014, total retail sales value of the online beauty gadget market has achieved
HK$333.8 million, an increase of 67.0% from 2013, with a CAGR of 51.9% from 2010 to
2014. Demand for beauty gadgets in online platforms has continued increasing due to
consumers’ search for effective ways to keep the body and skin young and energetic, and
it also benefits from the booming online retailing. According to China Electronic
Commerce Research Centre, at the end of 2014 the total transaction value of China’s online
retailing market achieved HK$3,526.4 billion, an increase of 49.7% over 2013. Due to the
significant growth of the online retail market, it has become an important channel for
manufacturers and a very effective way to distribute products, especially new and
emerging items.
Online platforms represent popular channel for distribution of beauty gadgets
The PRC’s rapid development of telecommunications infrastructure with widely
available internet access, the locally booming internet economy, and improving online
payment technology and security are significant drivers to the expanding growth of
online retailing. Even before beauty gadgets grew popular in the PRC, many consumers
had purchased products sold via online platforms where many overseas sellers and
individuals are selling their products in online stores. Hence consumers have
demonstrated familiarity and comfort with the online channel.
Industry outlook of beauty gadget online retail market in the PRC
The PRC’s online retailing of beauty gadgets will continue to grow and is expected
to reach HK$512.7 million in 2015, reflecting 53.6% growth over 2014. Due to increasing
demand for beauty gadgets, this market will reach approximately HK$1,678.2 million in
2019, experiencing a CAGR of 34.5% from 2015 to 2019. The continuously increasing
demand from the PRC’s consumers is the important factor stimulating the country’s
beauty gadget market growth. The PRC’s consumers consist of not only females but also a
growing male group who are increasingly concerned with appearance and the desire to
stay energetic and healthy.
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INDUSTRY OVERVIEW
Table 8 Total Retail Value Sales of Beauty Gadget Online Retailing in the PRC,
Historical (2010-2014), Forecast (2015-2019), HK$ Millions
Beauty Gadgets
Beauty Gadgets
Sources:
2010
2011
2012
2013
2014
CAGR
2010-14
62.7
86.5
123.7
199.9
333.8
51.9%
2015
2016
2017
2018
2019
CAGR
2015-19
512.7
728.6
996.3
1,315.2
1,678.2
34.5%
and major beauty equipment manufacturers/distributors/retailers in the PRC
Growing disposable income and demand for convenient and effective products
The per capita disposable income of PRC consumers have seen stellar growth,
reaching HK$35,717.1 in 2014, up by 10.3% compared to 2013. As a result, consumers are
more willing to spend on products and services that could enhance a healthier lifestyle —
including portable beauty gadgets — yet are convenient and effective to use.
Online payments and mobile payments to increase the flexibility of purchasing
According to Ministry of Industry and Information Technology, the number of
mobile subscribers increased to about 1.29 billion in 2014. The number of 4G subscribers
increased to approximately 97.3 million and 3G grew to approximately 485.3 million. The
penetration rate of 4G and 3G subscribers increased by 7.6% and 37.7%, respectively in
2014. In addition, the development of mobile e-commerce has stimulated growth in
demand for mobile payments. According to China Internet Network Information Centre,
the population of online shoppers reached 361 million in 2014, an increase of 19.7% over
2013.
Logistical services developing quickly to stimulate online retailing in the PRC
Benefitting from the explosive growth of internet retailing, China’s express delivery
industry has witnessed rapid growth. According to China Electronic Commerce Research
Centre’s figures in 2014, the total number of mails and parcels delivered by express
methods reached 14.0 billion, an increase of 52% over 2013, while the total revenue of
express delivery increased by 42% to total approximately HK$255.0 billion. The
fast-developing logistics industry provides the essential condition to deliver products all
over the country and the consumers have the opportunity to purchase products overseas.
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INDUSTRY OVERVIEW
The competition between multinational corporations and local players
Due to increasing demand for beauty gadgets in the PRC, many international brands
have entered this market. In both online and store-based PRC markets, internationally
branded products generally from the US and Japan are still positioned as high-end. The
PRC’s local brands mainly offer economical product pricing and focus on the mass
product market as their target positioning. The competition between international brands
and local brands is intensifying and multinational corporations are also attracted by this
market.
Local brands with similar product designs and competitive selling prices
The PRC’s consumers are familiar with international brands’ beauty gadgets and are
interested in their designs and functions. In the online retailing market, it is very common
to find many local beauty gadget brands with similar product designs. As PRC’s beauty
gadget market is still new, there are limited detailed regulations or standards to guide
product design in this market. Some local brands’ products have quality issues that could
hurt popular products’ brand image due to similar product designs.
Limited barriers exist for online beauty gadgets but in the future the market will be
regulated
The PRC’s online beauty gadget market focuses on beauty care treatments including
facial care, body care, hand and foot care and are portable and targeted for personal rather
than professional usage. Currently, the beauty gadget online retailing market is
experiencing rapid growth during its initial phase of development. As the competition
intensifies, cooperating with foreign or famous brands becomes an important factor for
market entry, either online or in stores.
– 62 –
REGULATORY OVERVIEW
OVERVIEW
This section summarises certain material aspects of Hong Kong and PRC laws and
regulations, which are relevant to the Group’s business operations.
HONG KONG
Competition Ordinance
The Competition Ordinance (Chapter 619 of the Laws of Hong Kong) (the
“Competition Ordinance”) which came into force on 14 December 2015 has an impact on
all businesses in Hong Kong. According to the Competition Ordinance, serious
anti-competitive conducts such as price fixing, market allocation and bid
rigging/collusion will contravene the Competition Ordinance. The following
arrangements might be considered unlawful under the Competition Ordinance:
•
unprofitable pricing to gain market share and put pressure on competitor ’s
ability to compete;
•
tying (one product can only be bought or used if another product is also
bought);
•
bundling (two or more products offered together at a discount);
•
exclusive dealing arrangements or imposition of tougher pricing and terms
for certain customers;
•
sharing of pricing, information and agreement of practices/pricing through
trade associations; and
•
joint ventures/tenders by competitors capable of bidding independently.
According to an enforcement policy issued by the competition commission which is
established under the Competition Ordinance (the “Competition Commission”), the
Competition Commission intends to direct its resources to the investigation of unfair
competition and enforcement of matters that provide the greatest overall benefit to
consumers in Hong Kong and to facilitate fair and healthy competition in the market.
Therefore it is anticipated that companies operating in Hong Kong including the Group
are likely to be under scrutiny for their operation in Hong Kong. Hence, ensuring
anti-competitive conduct does not occur will become a continuous requirement for proper
governance of the business of the Group, in particular in the course of working with
distributors and suppliers.
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REGULATORY OVERVIEW
Consumer Goods Safety Ordinance
The Consumer Goods Safety Ordinance (Chapter 456 of the Laws of Hong Kong)
(the “Consumer Goods Safety Ordinance”) imposes a duty on manufacturers, importers
and suppliers of certain consumer goods to ensure that the consumer goods they supply
are safe and for incidental purposes.
The Group’s products are regulated by the Consumer Goods Safety Ordinance and
the Consumer Goods Safety Regulation (Chapter 456A of Laws of Hong Kong) (the
“Consumer Goods Safety Regulation”).
Section 4(1) of the Consumer Goods Safety Ordinance requires consumer goods to
be reasonably safe having regard to all of the circumstances including the manner in
which, and the purpose for which the products are presented, promoted or marketed, the
use of any mark in relation to the products, instructions and warnings given for the
keeping or use of the products, reasonable safety standards published by a standards
institute or other similar bodies and the existence of any reasonable means to make the
products safer.
According to section 2(1) of the Consumer Goods Safety Regulation, where
consumer goods on their packages are marked with, or where any labels affixed to or any
documents enclosed in their packages contain, any warning or caution regarding the safe
keeping, use, consumption or disposal, such warning or caution shall be in both the
English and the Chinese languages. Such warnings and cautions, as required by section
2(2) of Consumer Goods Safety Regulation, shall be legible and be placed in a conspicuous
position on (a) the consumer goods; (b) any package of the consumer goods; (c) a label
security affixed to the package; or (d) a document enclosed in the package.
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REGULATORY OVERVIEW
Copyright Ordinance
The Copyright Ordinance (Chapter 528 of the Laws of Hong Kong) (the “Copyright
Ordinance”) currently in force in Hong Kong has come into effect since 27 June 1997. The
Copyright Ordinance as reviewed and revised from time to time provides comprehensive
protection for recognised categories of literary, dramatic, musical and artistic works, as
well as for films, television broadcasts and cable diffusion, and works made available to
the public on the internet.
Electrical Products (Safety) Regulation
It is a requirement under the Electrical Products (Safety) Regulation that electrical
products which are designed for household use and supplied in Hong Kong shall comply
with certain safety requirements and obtain recognised certificates of safety compliance.
Employment Ordinance
The Employment Ordinance (Chapter 57 of the Laws of Hong Kong) (the
“Employment Ordinance”) provides for the protection of the wages of employees,
regulates general conditions of employment and employment agencies, and for matters
connected therewith.
Under the Employment Ordinance, employees who are employed under a
continuous contract are entitled to additional benefits including rest days, paid annual
leave, sickness allowance, severance payment and long service payment.
Where an employer willfully and without reasonable excuse fails to pay wages to an
employee when it becomes due, or fails to pay interest on the outstanding amount of
wages to the employee, the employer is liable on conviction to a fine and imprisonment.
Where an employer who is no longer able to pay wages due, he should terminate the
contract of employment in accordance with its terms.
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REGULATORY OVERVIEW
Employees’ Compensation Ordinance
The Employees’ Compensation Ordinance (Chapter 282 of the Laws of Hong Kong)
(the “Employees’ Compensation Ordinance”) regulates the payment of compensation to
employees who are injured in the course of their employment. Under the Employees’
Compensation Ordinance, an employer must be in possession of a valid insurance policy
to cover his liabilities both under the said ordinance and at common law for the work
injuries of his employees, irrespective of the length of employment contract or working
hours, full-time or part-time employment. An employer who fails to secure an insurance
cover commits an offence and is liable on conviction to a fine and imprisonment.
Mandatory Provident Fund Schemes Ordinance
The Group provides retirement benefits for the employees under the Mandatory
Provident Fund Scheme (the “MPF Scheme”) under the Mandatory Provident Fund
Schemes Ordinance. Under the Mandatory Provident Fund Schemes Ordinance, except for
exempt persons, employees (full-time and part-time) and self-employed persons who are
at least 18 but under 65 years of age are required to join an MPF Scheme.
Under the MPF Scheme, both the employer and each of its employees are each
required to make contributions to the plan at 5% of the employee’s relevant income,
subject to a monthly relevant income cap of HK$30,000 for employers and a minimum and
maximum monthly relevant income cap of HK$7,100 and HK$30,000 respectively for
employees. Where the employee’s income exceeds HK$30,000, both the employer and
employee shall contribute a monthly sum of HK$1,500 to the plan. This contribution
amount will immediately be vested in the employee as his/her accrued benefits in the
MPF Scheme.
Employers found to have evaded payment of MPF contributions, deducted
employer contributions from an employee’s pay, or failed to enroll their employees to an
MPF Scheme, may be liable to a financial penalty and potential criminal prosecution.
Occupational Safety and Health Ordinance
The Occupational Safety and Health Ordinance (Chapter 509 of the Laws of Hong
Kong) (the “Occupational Safety and Health Ordinance”) aims to ensure the safety and
health of employees when they are at work. Under the Occupational Safety and Health
Ordinance, an employer must ensure the safety and health of his workplace by (i)
providing and maintaining plant and work systems that are safe and without risks to
health; (ii) making arrangement for ensuring safety and health in connection with the use,
handling, storage or transport of plant or substances; (iii) providing all necessary
information, instruction, training and supervision for ensuring safety and health; (iv)
providing and maintaining safe access to and egress from the workplace; and (v)
providing and maintaining a safe and healthy work environment. An employer who fails
to comply with the above may be liable on conviction to a fine and imprisonment, if he did
so intentionally, knowingly or recklessly.
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REGULATORY OVERVIEW
Occupational Safety and Health Regulation
The Occupational Safety and Health Regulation (Chapter 509A of the Laws of Hong
Kong) further sets out basic requirements for accident prevention, fire precaution,
workplace environment control, hygiene at workplaces, first aid, as well as what
employers and employees are expected to do in manual handling operations.
Personal Data (Privacy) Ordinance
The Personal Data (Privacy) Ordinance (Chapter 486 of the Laws of Hong Kong)
regulates the collection, retention, use and security of any data relating directly or
indirectly to a living individual, from which it is practicable for the identity of the
individual to be ascertained and is in a form in which access to or processing of the data is
practicable.
Tortious Duty Under Common Law
Apart from contractual liability, under common law, manufacturers, distributors
and retailers of products also owe a duty of care to consumers and may be liable for
damage resulting from defects in goods caused by their negligent acts or for any
fraudulent misrepresentation made in the distributing and selling of goods. Where a
manufacturer, distributor and retailer knows or reasonably believes that the products may
be defective, he may have to cease to supply such goods and to give warning and
instructions to persons to whom the products are supplied. Any person who undertakes to
design, import or supply a product, and who negligently performs his work and causes
damage to another person or property, will also attract civil liability.
Trade Description Ordinance
The Trade Descriptions Ordinance prohibits false trade descriptions, false,
misleading or incomplete information, false statements, etc., in respect of goods offered in
the course of trade. Therefore, all of the products sold by the Group are required to comply
with the relevant provisions therein.
Section 2 of the Trade Descriptions Ordinance provides, inter alia, that “trade
description” in relation to goods means an indication, direct or indirect, and by whatever
means given, of certain matters (including quantity, method of manufacture, composition,
fitness for purpose, availability, compliance with a standard specified or recognised by
any person, price, their being of the same kind as goods supplied to a person, price, place
or date of manufacture, production, processing or reconditioning, person by whom
manufactured, produced, processed or reconditioned etc), with respect to any goods or
parts of the goods; and in relation to services means an indication, direct or indirect, and
by whatever means given, of certain matters (including nature, scope, quantity, fitness for
purpose, method and procedures, availability, the person by whom the service is
supplied, after-sale service assistance, price etc.).
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REGULATORY OVERVIEW
Section 7 of the Trade Descriptions Ordinance provides that no person shall in the
course of trade or business apply a false trade description to any goods or sell or offer for
sale any goods with false trade descriptions applied thereto.
Section 7A of the Trade Descriptions Ordinance provides that a trader who applies a
false trade description to a service supplied or offered to be supplied to a consumer, or
supplies or offers to supply to a consumer a service to which a false trade description is
applied, commits an offence.
Sections 13E, 13F, 13G, 13H and 13I of the Trade Descriptions Ordinance provide
that a trader who engages in relation to a consumer in a commercial practice that (a) is a
misleading omission; or (b) is aggressive; (c) constitutes bait advertising; (d) constitutes a
bait and switch; or (e) constitutes wrongly accepting payment for a product, commits an
offence.
A person who commits an offence under sections 7, 7A, 13E, 13F, 13G, 13H or 13I
shall be subject, on conviction on indictment, to a fine of HK$500,000 and to imprisonment
for 5 years, and on summary conviction, to a fine at HK$100,000 and to imprisonment for
2 years.
Trade Marks Ordinance
The Trade Marks Ordinance (Chapter 559 of the Laws of Hong Kong) (the “Trade
Marks Ordinance”) provides for the registration of trademarks, the use of registered
trademarks and connected matters. Hong Kong provides territorial protection for
trademarks. Therefore, trademarks registered in other countries or regions are not
automatically entitled to protection in Hong Kong. In order to enjoy protection by the
laws of Hong Kong, trademarks must be registered with the Trade Marks Registry of the
Intellectual Property Department under the Trade Marks Ordinance and the Trade Marks
Rules (Chapter 599A of the Laws of Hong Kong) (the “Trade Marks Rules”).
According to section 10 of the Trade Marks Ordinance, a registered trademark is a
property right acquired through due registration under such ordinance. The owner of a
registered trademark is entitled to the rights provided by the ordinance.
The Group is the registered owner and proprietor of the trademarks as set out in the
paragraph headed “Appendix IV — B. Further information about the business — 2.
Intellectual property rights of the Group in this document.
By virtue of section 14 of the Trade Marks Ordinance, the owner of a registered
trademark is conferred exclusive rights in the trademark. The rights of the owner in
respect of the registered trademark come into existence from the date of the registration of
the trademark. According to section 48 of such ordinance, the registration date is the filing
date of the application for registration.
Subject to the exceptions in section 19 to section 21 of the Trade Marks Ordinance,
any use of the trademark by third parties without the consent of the owner is an
infringement of the trademark. Conducts which amount to infringement of the registered
trademark are further specified in section 18 of the same ordinance.
– 68 –
REGULATORY OVERVIEW
The owner of the registered trademark is entitled to remedies under the Trade
Marks Ordinance once any infringement by third parties occurs, such as infringement
proceedings provided for in section 23 and section 25 of the Trade Marks Ordinance.
Trademarks which are not registered under the Trade Marks Ordinance and the
Trade Marks Rules may still obtain protection by the common law action of passing off,
which requires proof of the owner ’s reputation in the unregistered trademark and that use
of the trademark by third parties will cause the owner damage.
Sale of Goods Ordinance
The Sale of Goods Ordinance (Chapter 26 of the Laws of Hong Kong) (the “Sale of
Goods Ordinance”) provides, inter alia, that where a seller sells goods in the course of a
business, there is an implied condition that (a) where the goods are purchased by
description, the goods must correspond with the description; (b) the goods supplied are of
merchantable quality; and (c) the goods must be fit for the purpose for which they are
purchased. Otherwise, a buyer has the right to reject defective goods unless he or she has
a reasonable opportunity to examine the goods.
PRC
The Law of the PRC on Protection of Consumer Rights and Interests (中華人民共和國消
費者權益保護法)
Pursuant to the Law of the PRC on Protection of Consumer Rights and Interests (中
華人民共和國消費者權益保護法) implemented on 1 January 1994 and amended on 25
October 2013 by the Standing Committee of the National People’s Congress (全國人民代表
大會), both manufacturers and distributors will be held jointly liable for losses and
damage suffered by consumers caused by the defective products they manufacture and
distribute. The Law of the PRC on Protection of Consumer Rights and Interests sets out
standards of behaviour which business operators must observe in their dealings with
consumers, including the following:
(1)
Goods and services provided by the business operators to consumers must
comply with the Law of the PRC on products quality and requirements
regarding personal safety and protection of property;
(2)
Business operators shall provide consumers with authentic information and
give truthful and definite replies to inquiries from consumers concerning
their commodities or services, and may not make any false and misleading
propaganda. Business operators shall mark in their stores clearly the prices of
the commodities they supply;
(3)
Business operators shall make out for consumers invoices for purchases or
documents of services in accordance with relevant regulations or commercial
practices;
(4)
Business operators shall carry out the obligations of repair or caveat venditor
in accordance with relevant regulations or agreements with consumers;
– 69 –
REGULATORY OVERVIEW
(5)
Business operators shall indicate their real names and marks;
(6)
Business operators may not, through format contracts, notices,
announcements, entrance hall bulletins and so on, impose unfair or
unreasonable rules on consumers or reduce or escape their civil liability for
their infringement of the legitimate rights and interests of consumers. Format
contracts, notices, announcements, entrance hall bulletins and so on with such
contents shall be invalid. Violations of the above may result in the imposition
of fines. In addition, the business operator will be ordered to suspend its
operations and its business license will be revoked. Criminal liability may be
incurred in serious cases; and
(7)
Consumers whose legitimate rights and interests are infringed upon may
demand compensation from the sellers or service providers concerned. In case
the liability is on the manufacturers or other sellers who supply the
commodities to the said sellers, the said sellers shall, after paying the
compensations, have the right to recover the compensations from the
manufacturers or the other sellers. Consumers or other victims suffering
personal injuries or property damage resulting from defects of commodities
may demand compensations either from the sellers or from the
manufacturers. If the liability is on the manufacturers, the sellers shall, after
paying the compensations, have the right to recover the compensations from
the manufacturers; if the liability is on the sellers, the manufacturers shall,
after paying the compensations, have the right to recover the compensations
from the sellers.
Product Quality Law of the PRC (中華人民共和國產品質量法)
According to Product Quality Law of the PRC (中華人民共和國產品質量法)
promulgated by the Standing Committee of the National People’s Congress on 22
February 1993 and amended on 27 August 2009, consumers who sustain losses or damages
from defective products are entitled to be indemnified by either manufacturers or
distributors. Nevertheless, if manufacturers are responsible for the defective products and
the losses or damage caused thereby, the distributors which have indemnified consumers
for their losses may seek claims on the indemnities against the manufacturers. Pursuant to
the Product Quality Law of the PRC, a seller shall have the following obligations:
(1)
Sellers shall adopt measures to maintain the quality of products for sale and
may not sell any product the sale of which has been prohibited or those that
have lost effect or have deteriorated;
(2)
Sellers are not allowed to fake the marks on the products or the packaging of
the products including without limitation the place of origin, quality marks
such as certification marks and fine quality marks or fake or use the names
and addresses of other producers; and
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REGULATORY OVERVIEW
(3)
Sellers are not allowed to adulterate the products for sale or pose fake ones as
genuine or shoddy ones as good or sub-standard ones as standard.
Labor Laws
Effective as at 1 January 2008 and amended on 28 December 2012, labor contracts
shall be concluded in writing if labor relationships are to be or have been established
between enterprises or institutions and the laborers under the Labor Contract Law of the
PRC (中華人民共和國勞動合同法). Enterprises and institutions are forbidden to force the
laborers to work beyond the time limit and employers shall pay laborers for overtime
work in accordance with national regulations. In addition, the labor wages shall not be
lower than local standards on minimum wages and shall be paid to the laborers timely.
According to the Labor Law of the PRC (中華人民共和國勞動法) promulgated on 5
July 1994 and amended on 27 August 2009, enterprises and institutions shall establish and
perfect their system of work place safety and sanitation, strictly abide by State rules and
standards on work place safety, educate laborers in labor safety and sanitation in the PRC.
Labor safety and sanitation facilities shall comply with State-fixed standards. The
enterprises and institutions shall provide laborers with work place safety and sanitation
conditions which are in compliance with State stipulations and relevant articles of labor
protection.
Social Insurance Regulations
Pursuant to the Social Insurance Law of the PRC (中華人民共和國社會保險法)
promulgated on 28 October 2010 and implemented on 1 July 2011 by the Standing
Committee of the National People’s Congress, the Interim Measures Concerning the
Maternity Insurance of Enterprise Employees (企業職工生育保險試行辦法) promulgated
on 14 December 1994 and implemented on 1 January 1995 by former Ministry of Labor, the
Regulation Concerning the Administration of Housing Fund (住房公積金管理條例)
promulgated and implemented on 3 April 1999 and amended on 24 March 2002 by the
State Council of the PRC (the “State Council”), the Regulation on Occupational Injury
Insurance (工傷保險條例) promulgated on 27 April 2003 and amended on 20 December
2010 by the State Council, the employer shall pay the pension insurance fund, basic
medical insurance fund, unemployment insurance fund, occupational injury insurance
fund, maternity insurance fund and housing fund for the employees.
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REGULATORY OVERVIEW
Income Tax Law
According to the Enterprise Income Tax Law of the PRC (中華人民共和國企業所得稅
法) enacted on 16 March 2007 and the Implementation Regulations of Enterprise Income
Tax Law of the PRC (中華人民共和國企業所得稅法實施條例) enacted on 6 December 2007
(collectively the “Income Tax Law”), which both took effect on 1 January 2008, the
enterprise income tax for both domestic and foreign-invested enterprises are unified at
25%.
According to the Income Tax Law, income such as dividends, rental, interest and
royalty from the PRC derived by a non-resident enterprise which has no establishment in
the PRC or has establishment but the income has no relationship with such establishment
is subject to a 10% withholding tax, which may be reduced if the foreign jurisdiction of
incorporation has a tax treaty with the PRC that provides for a different withholding
arrangement, unless the relevant income is specifically exempted from tax under the
applicable income tax laws, regulations, notices and decisions which relate to foreign
invested enterprises and their investors.
According to the Arrangement between the Mainland and Hong Kong Special
Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with respect to Taxes on Income effective on 1 January 2007 (內地和香港特別行政
區關於對所得避免雙重徵稅和防止偷漏稅的安排), the withholding tax rate for dividends
paid by a PRC resident enterprise to a Hong Kong resident enterprise is 5%, if the Hong
Kong enterprise owns at least 25% of the PRC enterprise. According to the Notice of the
State Administration of Taxation on Issues Relating to the Administration of the Dividend
Provision in Tax Treaties promulgated on 20 February 2009 (國家稅務總局關於執行稅收協
定股息條款有關問題的通知), the corporate recipients of dividends distributed by PRC
enterprises must satisfy the direct ownership thresholds at all times during the 12
consecutive months preceding the receipt of the dividends.
Regulations Relating to Foreign Currency Exchange
Under the Foreign Currency Administration Rules (中華人民共和國外匯管理條例)
promulgated by the State Council on 29 January 1996 and amended on 14 January 1997
and 1 August 2008 and various regulations issued by State Administration of Foreign
Exchange, and other relevant PRC government authorities, Renminbi is convertible into
other currencies for the purpose of current account items, such as trade related receipts
and payments, interest and dividend. The conversion of Renminbi into other currencies
and remittance of the converted foreign currency outside China for the purpose of capital
account items, such as direct equity investments, loans and repatriation of investment,
requires prior approval from the State Administration of Foreign Exchange or its local
office. Domestic entities are permitted to free retain their current exchange earnings
according to their needs of operation.
– 72 –
REGULATORY OVERVIEW
Regulation on Foreign Investors Investing in Commercial Sectors
In order to fulfill the undertaking in respect of the opening up of commercial sector
for PRC’s entry to World Trade Organisation, the Ministry of Commerce issued the
Measures for Administration on Foreign Investment in Commercial Fields (the “Measures
of Administration”) (外商投資商業領域管理辦法) on 16 April 2004 which took effect on 1
June 2004. The Measures of Administration abolished the original higher standard of
requirements for foreign investors, allowed Sino-foreign equity joint venture,
Sino-foreign cooperation and wholly foreign-funded commercial enterprises (collectively
the “Foreign-invested Commercial Enterprises”) to engage in commission agency,
wholesale, retail and franchise businesses. The incorporation of Foreign-invested
Commercial Enterprises is subject to review and approval of the Ministry of Commence of
the PRC (“MOC“) and its authorised provincial ministry of commerce and should
nevertheless meet the following conditions:
(1)
registered capital in compliance with the requirement of Company Law of the
PRC;
(2)
compliance with the standard total investment and registered capital
requirements for foreign-invested enterprises; and
(3)
in general, Foreign-invested Commercial Enterprises’ term of operation not
exceeding 30 years and Foreign-invested Commercial Enterprises’ term of
operation in the middle and western regions of the PRC not exceeding 40
years.
According to the Notice of Ministry of Commerce on Delegation of Approval Power
for Foreign-Funded Commercial Enterprises (商務部關於下放外商投資商業企業審批事項的
通知) issued by the MOC on 12 September 2008 and taking effect on the same day, all the
establishments of foreign-funded commercial enterprises and all the alterations of
established foreign-funded commercial enterprises shall be subject to review and
approval by competent provincial Ministries of Commerce (省級商務主管部門), and report
to the MOC; however, the MOC retains the approval power upon the enterprises which are
doing business not by opening stores but via television, telephone, mail, internet, vending
machine and the enterprises which are engaged in the wholesale of audio-visual products
or the sales of books, newspapers and magazines.
– 73 –
REGULATORY OVERVIEW
According to The Measures for the Administration of Sales Promotion Activities of
Retailers (零售商促銷行為管理辦法) (the “Measures for Promotion”) issued by the MOC
on 13 July 2006 and taking effect on 15 October 2006, a retailer, when undertaking sales
promotion activities, should follow the principles of lawfulness, fairness and good faith
and may not impair the lawful rights and interests of consumers and other business
operators. Furthermore, when undertaking sales promotion activities, a retailer should
show the promotion contents at an eye-catching place in its business site and clearly mark
the prices on the price tags; a retailer may not cheat or induce the consumers to buy
commodities by taking a misleading price method or reduce the quality of the promotion
commodities. No retailer may undertake any sales promotion activity by making up a
reason such as rummage sale or shifting to another business. Where any retailer ’s act is in
violation of the Measures for Promotion and such act is also in violation of any other laws
or regulations, such other laws or regulations shall govern. Otherwise, the Measures for
Promotion apply and the retailer may be ordered to make corrections and imposed a fine
of not exceeding RMB30,000.
Regulations on Importation of Goods
According to Customs Law of the PRC (中華人民共和國海關法) promulgated by the
standing committee of National People’s Congress as revised on 28 December 2013, the
consignee of import goods or the consignor of export goods shall make an accurate
declaration to the Customs office for examination. The consignee of import goods shall be
the obligatory customs duty payer. The acts of evasion of Customs control or Customs
duties stipulated by relevant laws and regulations may constitute an act of smuggling and
incur criminal charges, and the Customs shall confiscate any smuggled goods and illegal
income and impose a fine.
According to Law of the PRC on Imported and Exported Commodities Inspection
(中華人民共和國進出口商品檢驗法) promulgated by Standing Committee of the National
People’s Congress as revised on 29 June 2013, the inspection of the import commodities
which are listed in the Catalogue of Import and Export Commodities Subject to
Compulsory Inspection shall be conducted by the commodity inspection authorities,
otherwise such import commodities may not be sold or used. The consignee or agent shall
apply for inspection to the inspection authorities. Violation of the above rules may result
in the unlawful gains derived therefrom being confiscated by the commodity inspection
authorities and imposition of a fine and criminal responsibility in serious cases.
– 74 –
REGULATORY OVERVIEW
Regulations on Cross-border E-commerce Retail Imports
The Group deliver its products sold from its Tmall storefronts to its individual
customers in the PRC by post. According to Customs Law of the PRC, the transit of mail
bags into the PRC shall be subject to customs control. According to Announcement of the
General Administration of Customs (2010) No. 43 — Relevant Issues Concerning
Amending the Administrative Measures for the Entry and Exit of Personal Postal Items (海
關總署公告2010年第43號－關於調整進出境個人郵遞物品管理措施有關事宜) promulgated by
General Administration of Customs and came into effect on 1 September 2010, personal
postal items from Hong Kong no more than RMB800 each time are exempted from import
tax. Where personal postal items from Hong Kong exceed RMB800 each time, the
consignee shall go through a customs clearance procedure in line with relevant
regulations concerning import goods, except that there is only one single item in the
parcel and the customs confirms that the item is for personal use.
According to Measures of the Customs of the PRC for the Supervision and
Administration of Inward and Outward Express Consignments (中華人民共和國海關對進
出境快件監管辦法), inward and outward express consignments refers to inward and
outward goods and articles undertaken or carried by the operator of inward and outward
express consignments by means of the rapid commercial operations they promise to their
customers. The inward and outward express consignments are divided into three
categories, namely, the documents, the individual articles and the goods. The individual
articles refer to those inward or outward luggage articles for self-use, of reasonable
quantities and transported separately from the passenger as prescribed by customs
regulations, those articles as gift presented between relatives or friends and other
individual articles. The consignments falling into the goods category refer to the express
consignments other than documents and individual articles. As for the consignments
falling into the goods category other than samples of goods and advertisement articles,
the operator shall make declaration in accordance with the regulations of the customs on
the clearance of the imported goods. According to Implementing Regulations of the
Customs of the PRC on Administrative Penalties (中華人民共和國海關行政處罰實施條例),
where an individual transports, carries or posts articles to enter or exit the territory but
makes false declaration, a warning shall be given and a fine of 20% the value of goods may
be imposed upon, and the illegal gains may be confiscated.
– 75 –
REGULATORY OVERVIEW
According to Announcement of the Ministry of Finance, the General Administration
of Customs and State Tax Bureau on Tax Policies for Cross-border E-commerce Retail
Imports (財政部、海關總署、國家稅務總局關於跨境電子商務零售進口稅收政策的通知)
promulgated on 24 March 2016 and came into effect on 8 April 2016, customs duty and
value-added tax and consumption tax for importation will be levied on commodities
imported through cross-border e-commerce retail as goods, and the individual purchasing
such commodities as the tax payer shall pay such duty and taxes on the basis of the actual
trading price (including the retail price, freight and insurance premiums), and the
e-commerce operator, e-commerce trading platform operator or logistics service provider
may act as the withholding agent to withhold and pay such duty and taxes on behalf of the
tax payer. The policy shall be applicable to the following commodities imported from
foreign countries or regions which are included in the List of Commodities Imported
Through Cross-border E-commerce Retail (which is going to be published by the Ministry
of Finance separately): (1) all commodities imported through cross-border e-commerce
retail which are traded via e-commerce trading platform interconnected with the customs
and for which the electronic data on trading, payment and logistics may be checked
against one another; and (2) commodities imported through cross-border e-commerce
retail which are not traded via e-commerce trading platform interconnected with the
customs, but for which the courier service provider or post office may provide the
electronic data on trading, payment and logistics and undertakes to bear the relevant legal
liabilities for importation. Commodities imported through cross-border retail for which
no electronic data on trading, payment and logistics can be provided shall be governed by
the regulations currently in effect.
The upper limit of the value of commodities imported through cross-border
e-commerce retail in a single deal is RMB2,000, and the aggregate upper limit of the value
of all deals of an individual in one year is RMB20,000. For commodities imported through
cross-border e-commerce retail of which the value is less than the upper limit, the customs
duty is levied at the rate of 0% temporarily, the exemption of value-added tax and
consumption tax for importation is eliminated and such taxes will be levied temporarily at
70% of the statutory tax amount payable. For a single deal of which the value exceeds the
upper limit for a single deal or of which the value, together with the value of other deals in
a year, exceeds the aggregate upper limit for an individual’s deals in one year, and an
individual non-dividable commodity of which the duty-paid price exceeds RMB2,000,
such deal will be deemed as general trade and taxes will be levied on a full-amount basis.
– 76 –
REGULATORY OVERVIEW
Regulation on Online Trading
According to the Administrative Measures for Online Trading (網路交易管理辦法)
promulgated by State Administration for Industry and Commerce on 26 January 2014 and
taking effect on 15 March 2014, where a company engages in online commodity trading
and related services, it shall disclose the information indicated in the business license or
electronic linkage identifier of its business license at a notable position of the homepage of
its website or the web-page where it conduct its business activities. When selling
commodities or providing services to consumers, online commodity operators shall:
(1)
state such information as the business address, contact information, quantity
and quality, price or expense, performance period and means, payment mode
and return or placement mode of commodities or services and safety
precautions and risk warning, after sales service and civil liabilities, take
safety guarantee measures to ensure the safety of transaction and shall
provide such commodities or services as promised;
(2)
ensure the integrity of such commodities or services and neither irrationally
split up them for sale, nor set up any minimum consumption standard or
otherwise charge any irrational fee;
(3)
issue such purchase vouchers or service bills as invoices to consumers in
accordance with relevant national provisions or business practices; such
vouchers or bills may be issued in electronic form if agreed by the consumers;
(4)
allow consumers to return the commodities within seven days from receiving
the commodities without giving a reason, except for commodities specified in
Article 16 of the Administrative Measures for Online Trading and refund the
prices paid by consumers within seven days upon receipt of the returned
commodities;
(5)
employ bold manners to remind consumers of clauses of significant interests
to consumers and shall interpret such clauses as required by the consumers
where standard contract terms are adopted;
(6)
not set out the provisions that are not fair or rational to consumers such as
those that exclude or restrain consumers’ rights, relieve or exempt operators’
responsibilities, and increase the consumers’ responsibilities by using
contract terms or by other manners;
(7)
not reach transactions in a forcible manner by using contract terms and by
technical means;
(8)
explicitly state the purposes, manners and scopes of collecting and using
information about consumers in business activities, obtain the consent of
those from whom information is collected, make public their collection and
use rules, strictly keep confidential and may not divulge, sell, or illegally
provide others with, the data and information about personal information of
consumers;
– 77 –
REGULATORY OVERVIEW
(9)
not send consumers commercial electronic information without the consent of
or the request from the consumers or with an explicit refusal from the
consumers.
In addition, online commodity operators may not, by using online technical means
or carriers, engage in the following unfair competition acts:
(1)
to use without authorisation the same or similar domain name, name or logo
to the peculiar domain name, name or logo of a well-known website, which
may cause mis-recognition by consumers;
(2)
to use or forge without authorisation the electronic logos of governmental
departments or social organisations to conduct misleading and false
propaganda;
(3)
to make lottery sales with virtual items as the prizes and the agreed amount of
virtual items in online market exceeds the limit as allowed by the laws and
regulations;
(4)
to harm competitors’ business reputation by malicious evaluation contrary to
the facts after transaction; and
(5)
other unfair competition acts as provided by the laws and regulations.
Violations of the Administrative Measures for Online Trading may result in the
imposition of warning and the order to make corrections. Fines may be imposed if the
violator refuses to do so.
Foreign Investment Industrial Guidance
According to applicable PRC regulations on Foreign-invested enterprise, capital
contributions from a foreign holding company to its PRC subsidiaries, which are
considered foreign-invested enterprises (or foreign-funded enterprises), may only be
made when the approval by the MOC or its local counterpart is obtained. In approving
such capital contributions, the MOC or its local counterpart examines the business scope
of each foreign-invested enterprise (or foreign-funded enterprise) under review to ensure
it complies with the Foreign Investment Industrial Guidance Catalogue, which classifies
industries in China into three categories: “encouraged foreign investment industries”,
“restricted foreign investment industries” and “prohibited foreign investment
industries”. According to the “Guideline Catalogue of Foreign Investment Industries”
promulgated on 10 March 2015 and enforced on 10 April 2015 by the State Development
and Reform Commission and MOC, Fit Boxx Shenzhen is not engaged in any of the
“restricted foreign investment industries” or “prohibited foreign investment industries”.
– 78 –
REGULATORY OVERVIEW
Regulations Relating to Dividends Distribution
The principal regulations governing dividend distributions by wholly foreign
owned enterprises includes: The PRC Company Law (中華人民共和國公司法), as amended;
The Wholly Foreign Owned Enterprise Law, as amended (中華人民共和國外資企業法); and
The Wholly Foreign Owned Enterprise Law Implementing Rules, as amended (中華人民共
和國外資企業法實施細則).
Under these law and regulations, wholly foreign owned enterprises in the PRC may
pay dividends only out of their retained earnings, if any, determined in accordance with
the PRC accounting standards and regulations. Additionally, a wholly foreign-owned
enterprise is required, as other enterprises subject to PRC laws, to set aside at least 10% of
its after tax profits each year, if any, to fund statutory reserve funds until the cumulative
amount of such funds reaches 50% of its registered capital. These reserves are not
distributable as cash dividends. Under the relevant PRC law, no net assets other than the
accumulated after-tax profits can be distributed in the form of dividends.
Trademark Law
The period of validity of a registered trademark shall be ten years, to be counted
from the date of approval of the registration under the Trademark Law of the PRC (中華人
民共和國商標法) promulgated on 23 August 1982, amended as at 22 February 1993, 27
October 2001 and 30 August 2013. The administrative authority for industry and
commerce has the power to investigate and handle any act of infringement of the
exclusive right to use a registered trademark according to the Trademark Law and
relevant regulations Where the case is so serious that it constitutes a crime, in addition to
compensating for the losses suffered by the infringed, shall be investigated into for the
criminal responsibilities according to law. Any of the following acts shall be an
infringement upon the right to exclusive use of a registered trademark:
(1)
using a trademark which is identical with the registered trademark on the
same kind of commodities without a license from the registrant of that
trademark;
(2)
using a trademark which is similar to the registered trademark on similar
commodities which may cause confusion without a license from the registrant
of that trademark;
(3)
selling the commodities that infringe upon the right to exclusive use of a
registered trademark;
(4)
forging, manufacturing without authorisation the marks of a registered
trademark of others, or selling the marks of a registered trademark forged or
manufactured without authorisation;
(5)
changing a registered trademark and putting the commodities with the
changed trademark into the market without the consent of the registrant of
that trademark;
– 79 –
REGULATORY OVERVIEW
(6)
causing other damage to the right to exclusive use of a registered trademark of
another person; and
(7)
deliberately facilitating or helping with infringement of the right to exclusive
use of a registered trademark of another person.
In the event of any above mentioned acts which infringe upon the right to the
exclusive use of a registered trademark, the infringer would be imposed a fine, ordered to
stop the infringement acts immediately, and give the infringed party compensation.
Value-Added Tax
Pursuant to the Provisional Regulations of the PRC Concerning Value-Added Tax
promulgated by the State Council which was subsequently amended and came into effect
on 1 January 2009 and its Implementation Rules, value added tax is imposed on goods
sold in or imported into the PRC and on processing, repair and replacement services
provided within the PRC.
A company, if it is not qualified as a small-scale value added tax payer, is subject to
value added tax at the rate of 17% on the sale and import of goods as well as on processing,
repair and replacement services. A company importing goods will pay value added tax on
the total value of the goods. The Group’s applicable value-added tax rate is 17%.
Competition Law
Pursuant to the Anti-unfair Competition Law of the PRC (the “Competition Law”),
which was promulgated on 2 September 1993 and came into effect on 1 December 1993 by
the Standing Committee of the National People’s Congress. The Competition Law
provides that business operators shall not undermine their competitors by engaging in the
following improper market activities:
(1)
infringement of trademark rights or confidential business information;
(2)
false publicity through advertising or other means, or forgery and
dissemination of false information that infringes upon the goodwill of
competitors or the reputation of their products; and
(3)
other improper practices, including commercial bribery, cartels, dumping
sales at below-cost prices, and offering prizes as sales rebates illegally.
Violations of the Competition Law may result in the imposition of fines and, in
serious cases, revocation of its business license as well as incurrence of criminal liability.
– 80 –
HISTORY, REORGANISATION AND GROUP STRUCTURE
BUSINESS DEVELOPMENT OF THE GROUP
The business was first started in 2006 as a virtual online shop managed jointly by
Mr. Chan and Mr. Li, both being the executive Directors and Controlling Shareholders, on
a part-time basis on an online auction platform maintained with a local internet portal in
Hong Kong. In the infant stage of the Group’s business, the Group primarily sold steppers
sourced directly from PRC manufacturers.
In 2007, seeing the huge potential demand for fitness equipment as demonstrated by
the growth of the online business of the Group, Mr. Chan and Mr. Li decided to expand the
business of the Group by forming a partnership with the establishment of Fit Boxx Trading
in March 2007, and the opening of the first retail shop in Yuen Long in March 2007. Two
years later in June 2009, to streamline the continued expansion of the Group’s business, Fit
Boxx HK was incorporated to take over the business operated under Fit Boxx Trading.
Since then, Fit Boxx HK has been the primary operating subsidiary of the Group.
In 2009, leveraging on the experience in trading and the established sales network,
Fit Boxx HK became a distributor for a brand of foldable treadmill under the brand name
“Horizon”, which became the Group’s then major products. Since then, the Group
continued to be engaged by a number of brand proprietors and manufacturers mainly
from Japan and Isreal for the sales and distribution in Hong Kong and the PRC of their
fitness equipment and beauty gadgets targeting general consumer market.
In 2010, the Group extended its product portfolio to beauty gadgets and launched its
first beauty gadget — hair removal device under the “Silk’n” brandname.
In less than ten years since the start of the Group’s business, the Group has
developed to become one of the major market players in the home-use fitness equipment
and beauty gadgets industry with extensive distribution channels. As at the Latest
Practicable Date, the Group’s sales network comprised its own retail outlets (retail shops,
a shopping mall booth and a department store counter), points of sales established in the
chain retailers, third party e-commerce platforms, online group buying platforms, other
distributors and retailers, as well as the retail websites operated by the Group. For more
details, please refer to the sub-section headed “Business — Sales and distribution
channels”. As at the Latest Practicable Date, the Group has obtained exclusive
distributorship of eight brands of products from seven brand owners of fitness equipment
and beauty gadgets and the Group also developed and managed two brands of its own
products which were mainly fitness equipment and other health care products. For details
of the brands developed and managed by the Group, please refer to the paragraph headed
“Business — Operating flow – (I) Sourcing of branded products” in this document.
– 81 –
Below are some of the key milestones of the business development of the Group.
March 2007
Fit Boxx HK was incorporated and the first retail shop
in Yuen Long was set up.
March 2009
The Group launched the first foldable treadmill under
the “Horizon” brand name.
August 2010
The Group launched its first beauty gadget – hair
removal device, under the “Silk’n” brand name.
January 2012
The Group began to distribute its beauty gadgets to
chain retailers in Hong Kong.
February 2012
The Group obtained the exclusive distributorship to
launch the radio frequency beauty devices under the
“Tripollar” brand name.
April 2012
launch laser hair rejuvenation helmet under the
“iGrow” brand name.
June 2012
The Group commenced the sales of beauty gadgets
under the “Cosmoboxx” tradename.
September 2012
The Group had a total of 9 retail stores.
March 2013
The Group launched its first online storefront on
Tmall.
August 2013
The Group launched the “iRunner” treadmill under
its proprietary brand “EnerGym”.
December 2013
launch the Japanese brand “Bijouna” and “PEC”
which offers a variety of beauty gadgets and
accessories.
May 2015
The Company was established in the Cayman Islands.
September 2015
The Group obtained the distributorship to launch the
“Reebok (fitness equipment)” brand which offers a
variety of fitness equipment and accessories.
– 82 –
February 2016
launch the “Hoii” brand which offers a variety of
anti-ultraviolet clothing products.
CORPORATE HISTORY OF THE GROUP
Set out below the corporate history and shareholding changes of the major
operating subsidiaries of the Group.
Fit Boxx HK
Fit Boxx HK (formerly known as Fix Boxx Trading Company Limited and was
renamed to its current name on 6 July 2009) is a limited liability company incorporated in
Hong Kong on 18 June 2009. As at the date of its incorporation, its authorised share capital
was HK$10,000 divided into 10,000 shares of HK$1 each, all of which were issued and
allotted as to 5,000 shares to Mr. Chan and 5,000 shares to Mr. Li, representing 50% and
50% of the then entire issued share capital respectively.
Pursuant to the 1st Round Subscription Agreements, National Pride and Prime View
respectively subscribed for 733 shares and 509 shares of Fit Boxx HK at the consideration
of HK$2,750,000 and HK$2,750,000, which was determined with reference to the estimated
net profit of Fit Boxx HK in the financial year of 2014, representing 6.52% and 4.53% of the
then entire issued share capital of Fit Boxx HK. The subscription was duly completed and
the consideration was settled on 19 December 2014. Please refer to the sub-section headed
“Pre-IPO Investors” of this section for further details.
– 83 –
As at the Latest Practicable Date, Fit Boxx HK was a major operating subsidiary of
the Group and owned a substantial number of the Group’s trademarks as detailed under
the paragraph headed “Appendix IV — B. Further information about the business — 2.
Intellectual property rights of the Group” in this document. Fit Boxx HK is principally
engaged in the sourcing, marketing, selling and distribution of a variety of fitness
equipment and accessories, beauty gadgets and accessories, as well as other health care
products, which are mainly for home use as detailed in the section headed “Business” in
this document.
Fit Boxx Shenzhen
Fit Boxx Shenzhen was established in the PRC on 31 October 2012 as a wholly
foreign owned enterprise of Mr. Li, the chief executive officer, an executive Director and
the Controlling Shareholder of the Company.
The establishment of Fit Boxx Shenzhen was pursuant to a mutual agreement among
Mr. Li, Mr. Chan and Fit Boxx HK that, since Mr. Li had been responsible for the daily
operation of the Company’s sales and businesses, it would be desirable for Mr. Li to take
charge in setting up Fit Boxx Shenzhen and it was further agreed that, to facilitate the
better operation of Fit Boxx Shenzhen and to simplify the establishment process, Mr. Li
should be the registered shareholder of Fit Boxx Shenzhen to hold the entire equity
interest in Fit Boxx Shenzhen on trust for and on behalf of the Company (the “Trust
Arrangement”). Since the inception of Fit Boxx Shenzhen, Fit Boxx Shenzhen has been
operating under the management of Fit Boxx HK.
As part of the Reorganisation, it was agreed among Mr. Li, Mr. Chan and the
Company that the Trust Arrangement should be terminated. On 13 February 2015, Mr. Li
and Fit Boxx HK entered into a deed of confirmation whereby the parties confirmed the
existence of the Trust Arrangement and also agreed to terminate the Trust Arrangement on
or before 30 April 2015. Acting on this agreement and to legalise the proper transfer of the
entire equity interest in Fit Boxx Shenzhen to Fit Boxx HK as required by Shenzhen Futian
District Economy Promotion Bureau (“Shenzhen EPB”), Mr. Li and Fit Boxx HK entered
into a share transfer agreement on 4 May 2015 pursuant to which Mr. Li transferred 100%
of his equity interest in Fit Boxx Shenzhen to Fit Boxx HK at a consideration of
RMB1,330,000, which was determined based on the value of the then shareholder ’s equity
in accordance with the instruction from Shenzhen EPB.
As at the Latest Practicable Date, the principal business activities of Fit Boxx
Shenzhen was the sale of the Group’s products in the PRC.
– 84 –
REORGANISATION
In preparation for the [REDACTED], the Group carried out a series of restructuring
steps to streamline the corporate structure of the Group and to facilitate the Group’s
growth and expansion strategy. The shareholding and corporate structure of the Group
immediately before the Reorganisation is set out as follows:
Mr. Chan
Mr. Li
50%
50%
Fit Boxx HK
(HK)
100%
Fit Boxx Shenzhen (Note 1)
(PRC)
Notes:
1.
According to a deed of confirmation dated 13 February 2015, the entire equity interest in Fit Boxx
Shenzhen had been held by Mr. Li as a trustee for and on behalf of Fit Boxx HK since the establishment of
Fit Boxx Shenzhen. The Trust Arrangement was terminated with the transfer by Mr. Li to Fit Boxx HK the
entire equity interest in Fit Boxx Shenzhen pursuant to a share transfer agreement dated 4 May 2015
entered into between Mr. Li and Fit Boxx HK. The transfer was legally and properly completed and
settled on 27 May 2015.
Investment by National Pride and Prime View
respectively agreed to subscribe for 733 shares and 509 shares in Fit Boxx HK, representing
6.52% and 4.53% of the entire issued share capital of Fit Boxx HK.
It was agreed in the 1st Round Subscription Agreements that after the
Reorganisation, National Pride and Prime View would have shareholdings in the
Company reflecting their respective investment in Fit Boxx HK and the shareholdings of
National Pride and Prime View in the Company would at all time prior to the completion
of the [REDACTED] be maintained at 6.52% and 4.53% respectively (the “Anti-dilution
Arrangement”).
– 85 –
Transfer of equity interest in Fit Boxx Shenzhen to Fit Boxx HK
As part of the Reorganisation, it was agreed between Mr. Li, Mr. Chan and the
Company that the Trust Arrangement should be terminated and Mr. Li should transfer his
shareholding in Fit Boxx Shenzhen to Fit Boxx HK. Further details of such transfer are set
out in the section headed “Corporate History of the Group” of this section.
Incorporation of overseas holding companies and restructuring of the Group
Incorporation of Faith Elite as the offshore shareholding company
On 8 July 2014, Faith Elite was incorporated with limited liability in Anguilla with
an authorised share capital of US$1,000,000 divided into 1,000,000 shares with par value of
US$1.00 each. On 18 December 2014, 1 share and 1 share with par value of US$1.00 each,
representing 50% and 50% of the entire issued share capital of Faith Elite, were allotted
and issued fully paid to Mr. Chan and Mr. Li respectively. The directors of Faith Elite are
Mr. Chan and Mr. Li.
Incorporation of the Company
On 14 May 2015, the Company was incorporated as an exempted company with
limited liability in the Cayman Islands with an authorised share capital of HK$390,000
divided into 390,000 shares of HK$1.00 each. Upon its incorporation, one share of HK$1.00
was allotted and issued to the initial subscriber for cash at par and the same was
transferred to Faith Elite on the same day. On 12 June 2015, every issued and unissued
share of HK$1.00 was subdivided into 100 Shares of HK$0.01 each.
– 86 –
Incorporation of Fit Boxx BVI as intermediate holding company
On 20 May 2015, Fit Boxx BVI was incorporated with limited liability in the BVI with
the power to issue a maximum of 50,000 shares of HK$1.00 each. On the same date, one
share with par value of HK$1.00, representing 100% of the entire issued share capital of Fit
Boxx BVI was allotted and issued fully paid to the Company. Upon completion, Fit Boxx
BVI became a wholly-owned subsidiary of the Company with Mr. Chan and Mr. Li as its
directors.
Transfer of the entire issued share capital of Fit Boxx HK from the existing shareholders to
Fit Boxx BVI and allotment of Shares by the Company to Faith Elite, Prime View and
National Pride and acquisition of Fit Boxx HK by Fit Boxx BVI
Pursuant to a share sale and purchase agreement dated 10 December 2015 (the
“Share Purchase Agreement”) entered into among (i) Mr. Chan, Mr. Li, Prime View and
National Pride as the vendors (collectively the “Vendors”); (ii) Fit Boxx BVI as the
purchaser; and (iii) the Company, the Vendors agreed to sell, and Fit Boxx BVI agreed to
purchase the entire issued share capital of Fit Boxx HK in consideration for the issue of
9,900 Shares to Faith Elite, 733 Shares to National Pride and 509 Shares to Prime View, all
credited as fully paid in return for which Fit Boxx BVI issued one new share of HK$1.00 in
its share capital, credited as fully paid, to the Company. The share transfer was properly
and legally settled and completed on 6 Janaury 2016. Upon completion of the aforesaid
share transfer, Fit Boxx HK became a directly and wholly owned subsidiary of Fit Boxx
BVI.
On 6 January 2016, pursuant to the Share Purchase Agreement, the Company
allotted 9,900 Shares to Faith Elite credited as fully paid which together with 100 Shares
already owned by Faith Elite, in aggregate, representing 88.95% of the then entire issued
share capital of the Company. On the same date, pursuant to the Share Purchase
Agreement, the Company allotted to National Pride and Prime View 733 Shares and 509
Shares respectively, credited as fully paid, representing 6.52% and 4.53% of the entire
issued share capital of the Company.
In consideration of the aforesaid allotments, Fit Boxx BVI issued one new share of
HK$1.00 in its share capital, credited as fully paid, to the Company on 6 January 2016.
Following the completion of the transfers, the Company remained the sole shareholder of
Fit Boxx BVI holding two shares in Fit Boxx BVI.
– 87 –
Investment by Global Excellent and Hang Kong
Pursuant to the 2nd Round Subscription Agreements, each of Global Excellent and
Hang Kong agreed to subscribe for 1,292 Shares at the consideration of HK$3,387,500,
representing 6.46% of the then total issued shares of the Company respectively.
Pursuant to the Anti-dilution Arrangement, an additional of 5,206 Shares, 571
Shares and 397 Shares were issued and allotted to Faith Elite, National Pride and Prime
View respectively at par value on 6 January 2016. On 6 January 2016, the Company allotted
1,292 Shares, representing 6.46% of the issued share capital of the Company, to each of
Global Excellent and Hang Kong.
Upon completion of the aforesaid allotments, the Company was held as to 76.03% by
Faith Elite, 6.52% by National Pride, 4.53% by Prime View, 6.46% by Global Excellent and
6.46% by Hang Kong.
– 88 –
SHAREHOLDER AND CORPORATE STRUCTURE
Shareholding and Corporate Structure after Completion of the Reorganisation but
before [REDACTED]
The shareholding and corporate structure of the Group immediately after
completion of the Reorganisation is set out as follows:
Mr. Chan
Mr. Li
Kwan Hoi Wang
Ip Wai Lung
Cheng Oi Yin
Wong Kwok Wai
Faith Elite
National Pride
Prime View
Global Excellent
Hang Kong
(Auguilla)
(Auguilla)
(Seychelles)
(Hong Kong)
(BVI)
50%
50%
76.03%
6.52%
4.53%
6.46%
6.46%
The Company
(Cayman Islands)
100%
Fit Boxx BVI
(BVI)
100%
Fit Boxx HK
(HK)
100%
Fit Boxx Shenzhen
(PRC)
Capitalisation Issue and [REDACTED]
Conditional upon the creating of the Company’s share premium account as a result
of the issue of the [REDACTED] pursuant to the [REDACTED], an amount of
HK$[REDACTED] standing to the credit of the share premium account of the Company
would be capitalised by applying such sum towards the paying up in full at par a total of
[REDACTED] Shares for allotment and issue to the then shareholders of the Company on
a pro rata basis.
– 89 –
Shareholding and Corporate Structure after Completion of the [REDACTED] and the
Capitalisation Issue
The following chart sets out the shareholding and corporate structure of the Group
immediately after completion of the Capitalisation Issue and completion of the
[REDACTED], assuming the [REDACTED] is not exercised and there is no exercise of any
options which may be granted under the Share Option Scheme:
Mr. Chan
Mr. Li
50%
Kwan Hoi Wang
Ip Wai Lung
Cheng Oi Yin
Wong Kwok Wai
50%
Faith Elite
National Pride
Prime View
Global Excellent
Hang Kong
(Auguilla)
(Auguilla)
(The Republic of Seychelles)
(Hong Kong)
(BVI)
[REDACTED]%
[REDACTED]%
[REDACTED]%
[REDACTED]%
[REDACTED]%
Public Shareholders
[REDACTED]%
The Company
(Cayman Islands)
100%
Fit Boxx BVI
(BVI)
100%
Fit Boxx HK
(HK)
100%
Fit Boxx Shenzhen
(PRC)
PRE-IPO INVESTMENTS
Investment of National Pride and Prime View
respectively subscribed for 733 shares and 509 shares in Fit Boxx HK, representing 6.52%
and 4.53% of the then entire issued share capital of Fit Boxx HK, both at a consideration of
HK$2,750,000, which was determined after an arm’s length negotiation with regard to the
estimated net profit of Fit Box HK in the financial year of 2014 and the price-to-earnings
ratio of five times. It was agreed that after the Reorganisation, National Pride and Prime
View would have shareholdings in the Company reflecting their investments in Fit Boxx
HK. To implement the 1st Round Subscription Agreements, on 6 January 2016, the
Company allotted and issued 733 Shares and 509 Shares, representing 6.52% and 4.53% of
the entire issued share capital of the Company to National Pride and Prime View
respectively in consideration for the transfer to Fit Boxx BVI of each of National Pride and
Prime View’s entire shareholding, being 733 shares and 509 shares, in Fit Boxx HK.
Following the 2nd Round Subscription Agreements and in accordance with the
Anti-Dilution Arrangement, an additional of 571 Shares and 397 Shares were issued and
allotted to National Pride and Prime View respectively at par value of HK$1.00 on 6
January 2016.
– 90 –
The consideration under the 1st Round Subscription Agreements had been fully
settled on 19 December 2014. Saved for the Anti-dilution Arrangement, National Pride
and Prime View were not given any special rights with respect to their respective
investments. Since they are not required to be subject to any lock-up arrangement after the
[REDACTED], the Shares held by each of National Pride and Prime View are not counted
towards the public float after the [REDACTED] for the purpose of Rule 11.23 of the GEM
Listing Rules.
The following table summarises the details of the investments of National Pride and
Prime View:
Investment of National Pride and Prime View
Name of investors
Information of investors
(a)
National Pride
(b)
Prime View
(a)
National Pride is an investment holding
company and is wholly owned by Mr. Kwan Hoi
Wang, a merchant who is a Hong Kong
permanent resident and an Independent Third
Party
(b)
Prime View is an investment holding company
and is wholly owned by Mr. Ip Wai Lung, a
merchant who is a Hong Kong permanent
resident and an Independent Third Party
Completion date and date of
payment of consideration of
investments
19 December 2014
Amount of consideration
Each of National Pride and Prime View paid
HK$2,750,000 for their respective investments and the
amount was credited to the share capital of Fit Boxx
HK.
Number of equity interest/
shares acquired
(a)
National Pride: 1,304 Shares (representing
approximately 6.52% and [REDACTED]% of
the entire issued share capital of the Company
upon the completion of the Capitalisation Issue
and the completion of the [REDACTED]
respectively)
– 91 –
(b)
Prime View: 906 Shares (representing
upon the Capitalisation Issue and the
completion of the [REDACTED] respectively)
(assuming the [REDACTED] is not exercised and
taking into no account of the exercise of any options
which may be granted under the Share Option
Scheme)
Cost per Share paid by the
Investors (taking into account
the Capitalisation Issue)
(a)
For National Pride: HK$[REDACTED]
(representing a discount of approximately
[REDACTED]% to the mid-point of the
indicative
[REDACTED]
range
of
HK$[REDACTED] to HK$[REDACTED])
(b)
For
Prime
View:
HK$[REDACTED]
(representing a discount of [REDACTED]% to
the mid-point of the indicative [REDACTED]
range
of
HK$[REDACTED]
to
HK$[REDACTED]
Special Rights
National Pride and Prime View were not given any
special rights with respect to their respective
investments except for the Anti-dilution Arrangement
Use of Proceeds
The Company utilised the investment proceeds from
National Pride and Prime View for business
development, working capital and other corporate
purposes. The investments from National Pride and
Prime View enable the Group to expand its business
Investment of Global Excellent and Hang Kong
Pursuant to the 2nd Round Subscription Agreements, each of Global Excellent and
Hang Kong agreed to subscribe for 1,292 Shares at the consideration of HK$3,387,500,
which was determined based on the estimated valuation of the assets and business of the
Group being not less than HK$90 million as at [REDACTED] or as at the [REDACTED],
whichever is earlier. On 6 January 2016, the Company allotted and issued 1,292 Shares and
1,292 Shares, representing 6.46% and 6.46% of the entire issued share capital of the
Company to each of Global Excellent and Hang Kong.
The consideration under the 2nd Round Subscription Agreements had been fully
settled on 14 December 2015. Saved for the Anti-dilution Arrangement, Global Excellent
and Hang Kong were not given to any special rights with respect to their respective
investment. Since Global Excellent and Hong Kong are not required to be subject to any
lock-up arrangement after the [REDACTED], the Shares held by each of them are not
counted towards the public float after the [REDACTED] for the purpose of Rule 11.23 of
the GEM Listing Rules. After the completion of the 2nd Round Subscription Agreement
– 92 –
and the issue and allotment of additional Shares to National Pride and Prime View on 6
January 2016 pursuant to the Anti-dilution Arrangement, the Company was held as to
76.03% by Faith Elite, 6.52% by National Pride, 4.53% by Prime View, 6.46% by Global
Excellent and 6.46% by Hang Kong.
The following table summarises the details of the investment of Global Excellent
and Hang Kong:
Name of investors
Information of investors
(a)
Global Excellent
(b)
Hang Kong
(a)
Global Excellent is an investment holding
company and is wholly owned by Ms. Cheng Oi
Yin, a merchant who is a Hong Kong permanent
(b)
Hang Kong is an investment holding company
and is wholly owned by Mr. Wong Kwok Wai, a
merchant who is a Hong Kong permanent
Completion date and date of
payment of consideration of
investments
14 December 2015
Among of consideration
Each of Global Excellent and Hang Kong paid
HK$3,387,500 for their respective investments
Number of equity interest/
shares acquired
(a)
Global Excellent: 1,292 Shares (representing
upon the Capitalisation Issue and completion of
the [REDACTED] respectively)
(b)
Hang Kong: 1,292 Shares (representing
upon the Capitalisation Issue and completion of
the [REDACTED] respectively)
(assuming the [REDACTED] is not exercised and
taking into no account of the exercise of any options
which may be granted under the Share Option
Scheme
– 93 –
Cost per Share paid by the
investors (taking into account
the Capitalisation Issue)
[REDACTED] (representing a discount of
approximately [REDACTED]% to the mid-point of
the
indicative
[REDACTED]
range
of
HK$[REDACTED] to HK$[REDACTED]
Special Rights
Pursuant to an anti-dilution arrangement, the
Company promises that prior to the completion of the
[REDACTED], the shareholdings of Global Excellent
and Hang Kong in the Group would at all time be
maintained at 6.46% and 6.46% respectively.
Use of Proceeds
The Company utilised the investment proceeds from
Global Excellent and Hang Kong for business
development, working capital and other corporate
purposes. The investments from Global Excellent and
Hang Kong enable the Group to expand its business.
Sponsor’s confirmation
The Sponsor is of the view that the terms of the investments of National Pride, Prime
View, Global Excellent and Hang Kong are in compliance with the Interim Guidance on
Pre-IPO Investment issued the Stock Exchange on 13 October 2010 (as amended) and
Guidance Letters HKEx-GL43-12 (issued in October 2012 and updated in July 2013), based
on the review of the relevant documentation.
– 94 –
BUSINESS
OVERVIEW
The Group was founded in 2007 and is principally engaged in the sourcing,
marketing, selling and distribution of a variety of fitness equipment and accessories,
beauty gadgets and accessories, as well as other health care products, which are mainly
for home use, under various brands through its sales and distribution network in Hong
Kong and the PRC.
The Group’s turnover is principally derived from the sales of fitness equipment,
beauty gadgets and other accessory products. The fitness equipment product segment
mainly consists of treadmills, exercise bikes, elliptical trainers, steppers and other fitness
accessories such as trampolines, yoga gears, dumbbells, boxing gears, heart rate monitors
and diagnostic scales. The beauty gadgets product segment mainly consists of beauty
devices for hair removal, wrinkle reduction, skin lifting, anti-acne treatment, rejuvenation
of the skin’s appearance and body sliming and other healthy accessories. Other health care
products include massage devices, inflated bath tubs and limb-support compression
wears.
The table below sets out the breakdown of the Group’s turnover by product segment
during the Track Record Period.
Year ended
31 December 2014
HK$’000
accessories
Beauty gadgets and
accessories
Other health care
products
Total
%
Year ended
31 December 2015
HK$’000
%
23,919
35.5
22,463
26.5
41,373
61.3
60,706
71.6
2,173
3.2
1,575
1.9
67,465
100.0
84,744
100.0
These products are either (i) branded products purchased from independent brand
owners and are sold to customers under the brand owners’ brands; or (ii) proprietary
products sourced from independent external manufacturers or suppliers and are sold to
customers under the Group’s proprietary brands.
As at the Latest Practicable Date, the Group entered into exclusive distribution
agreements with seven brand owners for the marketing, sales and distribution of their
products on an exclusive basis in Hong Kong. Some of these brand owners have also
granted exclusivity to the Group for the distribution of their products in the PRC (for
online sales on specified e-commerce platforms only) and/or Macau; and two of them also
have granted to the Group distribution rights in the PRC on a non-exclusive basis. The
popular brands under the Group’s fitness equipment segment include “Reebok (fitness
equipment)”, “La-fit” and “Horizon”. For the beauty gadgets segment, the
– 95 –
BUSINESS
popular brands include “Silk’n”, “TriPollar”, “Bijouna”, “P.E.C”, “Aduro”, “Hoii” and
“iGrow”. For products sold under the Group’s own proprietary brands, namely,
“EnerGym” and “元氣達人”, they are fitness equipment and other health care products
sourced from independent external manufacturers or suppliers located in Hong Kong and
the PRC and are delivered to the Group as finished products for distribution under the
Group’s proprietary brands.
mainly target female consumers aged between 25 to 50 who are appearance conscious,
eager to try novel and trendy products, and are willing to pay premium price in return for
quality products.
In order to reach the Group’s target customers for different types of products, the
Group believes that it is essential to establish an extensive sales and distribution channel.
Within less than ten years of operation, the Group has managed to develop various sales
and distribution channels, including the Group’s own retail outlets (including retail
shops, shopping mall booth and department store counter) and retail websites, points of
sales established by the chain retailers, third party e-commerce platforms, online group
buying platforms, other distributors and retailers. As at the Latest Practicable Date, the
Group had seven retail outlets (five retail shops, one shopping mall booth and one
department store counter) and a showroom located in Hong Kong which were all directly
operated by the Group. Since 2012, the Group started to co-operate with some chain
retailers in Hong Kong and as at the Latest Practicable Date, the Group had established
over 150 points of sales through their retail networks in Hong Kong. The Group also
operates two retail websites, namely, www.fitboxx.com and www.cosmoboxx.com in
Hong Kong, which allow the customers to view and/or purchase the Group’s products
online. Besides, the Group co-operates with two third party e-commerce platform
operators to provide online shopping channels in Hong Kong. Leveraging on the Group’s
growth in Hong Kong, the Group started to explore the PRC market in 2011. The Group
principally distributes its products in the PRC through online channels. As at the Latest
Practicable Date, the Group launched three storefronts on an e-commerce platform in the
PRC, namely, Tmall, for the sales of beauty gadgets and accessory products. The Directors
consider that these online storefronts would allow the Group to gain access to the
fast-growing consumer market of the PRC without significant capital investment. The
Group’s fitness equipment and accessories are not sold on the e-commerce platform in the
PRC as the Directors consider that, apart from the inconvenience of logistics, the
competition in respect of the fitness equipment market is keen in the PRC with a
considerable number of established brands and distributors competing in the market over
product design and price.
– 96 –
BUSINESS
COMPETITIVE STRENGTHS
The Group believes that its growth during the Track Record Period and future
prospects are based on the following competitive strengths:
Diversified portfolio of fitness equipment and beauty gadgets offered by the Group
The Group offers a variety of proprietary and branded fitness equipment and
beauty gadgets, which are mainly for home use, to consumers with varying needs and
preferences. The Group’s sales and marketing team regularly attends key tradeshow
events and conducts market studies to keep abreast of the latest market information and
industry trends. As they communicate frequently with various brand owners around the
world, they are able to grasp updated market information and benefit from the experience
in other geographical markets. With the market updates and consumer data, the Group
strives to bring new products to the market and upgrade its product portfolio on a
continuous basis in response to changing consumer preferences, new innovations and
market opportunities.
During the Track Record Period, the Group was approached by certain brand
owners for the purpose of business cooperation. The Directors consider that the
approaches of various suppliers to the Group during the Track Record Period were as a
result of the Group’s growth and reputation built in the industry. The Group would
shortlist suitable products based on its assessment of the market acceptance and may
include such products into its product portfolio in order to maintain competitive edge.
During the Track Record Period and up to the Latest Practicable Date, the Group
brought in the following brands for distribution on an exclusive basis:•
“Reebok” for fitness equipment and accessories; and
•
“Aduro”, “Bijouna”, “P.E.C.” and “Hoii” for beauty gadgets and accessories
The Directors believe this diversified portfolio of products will help reduce the
Group’s reliance on any particular kind of product or brand, and demonstrate the Group’s
ability to identify and introduce new products to meet customers’ expectations and
demands.
Multiple sales and distribution channels
PRC. The Directors believe that an established sales and distribution network would
enhance brand awareness and enable the Group’s products to penetrate into the target
market.
The Group’s sales network is made of its own retail outlets (including retail shops,
shopping mall booth, and department store counter) and retail websites, points of sales
established by the chain retailers, third party e-commerce platforms, online group buying
platforms, other distributors and retailers, as well as the retail websites operated by the
– 97 –
BUSINESS
Group. The Directors beleive physical retail stores, combined with the online retail
platforms, would provide an integrated shopping experience to the consumers for the
sales and promotion of the Group’s products. The Group has expanded its sales network
to the PRC by operating three storefronts on a e-commerce platform, namely, Tmall, for
the sales of beauty gadgets and accessories. The Directors consider that these online
storefronts allow the Group to gain access to the fast-growing consumer market of the
PRC without significant capital investment.
The Directors believe that the multiple sales and distribution channels would
provide the Group with the solid foundation to further increase its sales and market share.
In addition, the established sales network would also attract potential brand owners
supplying fitness equipment or beauty gadgets to appoint the Group as distributors in
order to penetrate into the Hong Kong and the PRC markets.
Multi-faceted marketing strategy
The Group believes that strong brand awareness, recognition, and reputation are
essential to the Group’s success. Accordingly, the Group places great emphasis and efforts
in marketing and promoting both the Group’s proprietary brands and branded products
traded by the Group. During the two years ended 31 December 2015, marketing and
promotion expenses accounted for approximately 15.1% and 14.5% respectively of the
Group’s cost of sales.
The Group implements a multi-faceted marketing strategy to promote its products.
It tailors marketing and promotion plans for major products based on their respective
brand positioning, price range and target customers. The Group advertises and promotes
its major products through various media channels, such as television commercials,
printed media, internet, outdoor advertising, road shows, billboards and in-store
promotion. In addition, the Group selects celebrities as brand ambassadors to promote
and enhance the public image of its brands and products.
The Directors believe that this advertising and promotion strategy has a positive
and long lasting effect on the public and is able to further reinforce the Group’s image and
recognition of its products among the general consumers, which in turn will boost the
sales of the Group’s existing and new products in the future.
Experienced and dedicated management team
The Directors believes that the Group’s management team’s experience, knowledge
and vision in the fitness equipment and beauty gadgets markets have enabled the Group
to achieve growth during the Track Record Period. Most of the Group’s key executives and
senior management have over six years of experience in the fitness equipment and beauty
gadgets markets and possess relevant management experience and industry knowledge.
Benefiting from the experience and knowledge of the Group’s management team, the
Directors believes that the Group is able to adopt appropriate marketing and sales
strategies to accommodate the changing market environment, possess the vision required
to anticipate changes in consumer preference, market trends and introduce new products
or upgrade existing products to ensure the Group’s future growth.
– 98 –
BUSINESS
BUSINESS STRATEGIES
The Group’s mission statement is to improve the quality of people’s lifestyle at
home and become one of the leading wellness solutions retailers in Hong Kong. The
Group plans to implement the following strategies to pursue further development and
expansion of its business:
Further development of the Group’s business in the PRC online market by opening of
display stores
The Directors believe the online market in the PRC has promising potential.
However, the Directors consider that certain customers may be hesitated to purchase the
products online without test using or looking at the physical products. In order to provide
online customer traffic with physical experience of the Group’s products in the PRC, and
to enhance the Group’s interactivity with potential customers, the Group plans to open a
few display stores in major cities of the PRC, including Shenzhen, Shanghai and Beijing.
These display stores allow customers to gain confidence of their purchases by test using
the products before placing their orders at the Group’s online storefronts. In this regard,
the Group plans to incur an aggregate of approximately HK$[REDACTED] million for the
payment of rental deposits and renovation expenditures for five display stores, which is
expected to open progressively in 2017 to 2018. The relevant expenditures will be funded
by the net proceeds from the [REDACTED].
Expansion of retail network in Hong Kong
In order to attract customer traffic with higher purchasing power, the Group plans
to open a new flagship shop in Shatin district and two new shops in Central and Kowloon
Bay respectively. The Group plans to open the flagship shop in Shatin in the first quarter
of 2017 and the two new shops in Central and Kowloon Bay in the second and third
quarter of 2017 respectively. The Directors believe that the new shops allow the Group to
gain market presence in prime locations with busy customer traffic of working group,
while the flagship shop to be opened in Shatin district is intended to display most of the
Group’s products in a well-decorated shop environment so as to gain favourable
impression from customers. The Directors also believe that the flagship store serves, to a
certain extent, to promote the brand name of the Group. In this regards, the Group plans to
incur approximately HK$[REDACTED] million (which mainly comprises the estimated
expenses for renovation and rental deposits of the shops) for the opening of the three
shops, which will be funded by the net proceeds from the [REDACTED].
Enhancing marketing and promotional activities
In view that the products sold by the Group are general consumer products, the
Directors believe that marketing and promotion of its products and brand names are
important to increase the general public’s awareness of the Group and its products. In
order to increase customer traffic of both physical and online stores and to cope with the
Group’s expansion plan in relation to various types of physical stores, the Group plans to
– 99 –
BUSINESS
strengthen its effort to promote its brand name of “Fit Boxx” in Hong Kong and the PRC
by launching various marketing and promotional activities. In this regards, apart from its
existing budget in advertising and promotion (which was around HK$4.9 million for the
year ended 31 December 2015), the Group plans to increase its annual budget using the net
proceeds from the [REDACTED]. HK$[REDACTED] million will be allocated for this
purpose up to 31 December 2018.
Increasing market presence in Hong Kong by opening of pop-up stores
Taking into consideration the Group’s positive results in sales through trade fairs
and exhibitions, the Directors consider sales of its products through short-term leased
area is profitable. The Group plans to incur approximately HK$[REDACTED] million
(which mainly comprises the estimated expenses for renovation and rental deposits of the
short-term leased area), which will be funded by the net proceeds from the [REDACTED],
to open four pop-up stores in Hong Kong in 2018 to further enhance its market presence.
The pop-up stores are temporary stores open for around two to three month and are
intended to allow the Group to create an unique environment that engages potential
customers and generates interactivity between the Group and its customers, and to
promote seasonal product items such as hair removal devices. These pop-up stores also
allow the Group to test the popularity of its products and suitability of future shop
locations, which the Directors believe is a low-cost way to capture foot traffic without
committing to leases with tenure of two to three years.
Enhancing the Group’s brand recognition and image by renovation of existing shops
In addition to the increase in the variety of brands and products offered to
customers, the Directors believe that ambience of the retail shops is also important to
customers’ shopping experience. In this regard, the Group plans to refurbish its existing
retail shops with an estimated aggregate renovation costs of approximately
HK$[REDACTED] million to be incurred in 2018, which will be funded by the net
proceeds from the [REDACTED]. The Group will continue to refurbish its existing retail
shops as and when necessary with the aim to provide its customers with a comfortable
shopping environment.
BUSINESS MODEL
The Group is principally engaged in the sourcing, marketing, selling and
distribution of a variety of fitness equipment and accessories, beauty gadgets and
accessories, as well as other health care products, which are mainly for home use, under
various brands through its sales and distribution network in Hong Kong and the PRC.
These products are either (i) branded products purchased from independent brand
owners and are sold to customers under the brand owners’ brands; or (ii) proprietary
products sourced from independent external manufacturers or suppliers and are sold to
customers under the Group’s proprietary brands.
– 100 –
BUSINESS
OPERATION FLOW
The following diagram illustrates the Group’s general operation flow in respect of
the branded products and proprietary products:
Branded products
Select brand and product
Select product
Evaluate product and manufacturer
(i) Enter into exclusive distribution agreement; or
(ii) procure products on a
non-exclusive basis
Negotiate with product manufacturer
Determine market position, price range and target customers and formulate marketing plan
Place order, receive delivery and product inspection
Sell and distribute the products through various sales and distribution channels
in Hong Kong and the PRC
The Group’s own
retail outlets in
Hong Kong
Chain retailers,
other distributors and
retailers in Hong Kong
and the PRC
Online sales through (i) own
retail websites in Hong Kong;
(ii) third party storefronts on
e-commerce platform
in the PRC (for branded
products only); and
(iii) group buying platforms
in Hong Kong
Launch promotional and marketing activities
Review/maintain brand image and keep track of consumer’s response
to the products and brand image
After sales support and customer services through
the Group’s offices in Hong Kong and the PRC
(I)
Sourcing of Branded Products
The Group normally sources and identifies popular fitness equipment and
beauty gadgets from independent brand owners around the world. Once a brand is
identified, the Group approaches the brand owners directly and negotiates for the
distribution rights of the products of a particular brand principally in Hong Kong
and in some occasions covering Macau and online sales in the PRC. The brand
owners who wish to expand their business into the Hong Kong and/or the PRC
market may also approach the Group directly for business co-operation. In either
event, if the products are assessed by the Group as popular, the Group will strive to
negotiate for the exclusive distribution right of the products in the agreed
territories.
– 101 –
BUSINESS
Brand selection and cooperation with the brand owners
The Directors understand that product features and the reputation of brand
owners (who are mainly manufacturers) are essential to the Group’s long-term
development. Hence, the Group adopts a stringent approach in the selection of
brands and the sourcing of products which are as follows:
(i)
The Group normally sources new products and brand owners based on
the market intelligence collected from industry exhibitions, tradeshows,
feedbacks from the frontline salespeople, referrals from existing and
new suppliers, and from foreign websites. The Group will conduct a
preliminary check on the brand owners’ credentials to ascertain their
background and goodwill and estimate the projected sale of a particular
product manufactured and/or supplied by such owners. The selection
criteria for brands and products are based on factors such as: (a)
whether the new products complement the current product portfolio
offered by the Group; (b) the quality and safety of the products; (c) the
expected sales and profitability of the new products; (d) the brand
owners’ reputation in the industry; (e) the prospect of expanding the
market share of the Group in the target market; and (f) the popularity of
a particular product in the overseas market.
(ii)
After the preliminary evaluation, the Group normally orders small
quantities of new products from the brand owners. These new products
will be put on a trial sale for one to six months. Based on the level of
market reception and the trial sale results, the Group will further
consider whether to co-operate with the brand owners in the long term
and whether to negotiate for exclusive distribution rights from the
brand owners.
Entering into the exclusive distribution agreement with brand owners
Having selected the brand owners, the relevant brand and the product(s) to be
distributed, as well as having decided to strive for exclusive distribution rights, the
Group will negotiate with the brand owners and seek to enter into exclusive
distribution agreements with them. As at the Latest Practicable Date, the Group
entered into exclusive distribution agreements with a total of seven brand owners
for the marketing, sales and distribution of their products on an exclusive basis
predominantly in Hong Kong, Macau and/or online sales in the PRC.
Set out below are the salient terms under the exclusive distribution
agreements:
•
Term of the agreement: generally ranges from one to three years and one
of the distribution agreements without specified term; some with
automatic renewal clause of one year;
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BUSINESS
•
Termination of agreement: in general, the distribution agreement would
be terminated with immediate effect with or without notice if there is
material breach of the terms of the agreement or in the event of
bankruptcy, cessation of business, etc.; in some distribution agreements,
either party can terminate the agreement by giving advance notice of
three to six months;
•
Distribution territories and channels: Hong Kong and in some
agreements, the distribution territories also cover Macau and online
sales in the PRC;
•
Products: the agreements specify the respective brand(s) and kinds of
product(s) to be distributed and managed by the Group;
•
Minimum purchase requirement: all except one brand owner imposed a
minimum purchase requirement in the exclusive distribution
agreements. If the Group fails to fulfil the minimum requirement, the
brand owner is entitled to terminate the agreement or revoke the
exclusivity rights. However, except for one agreement which requires
the Group to pay 20% of the deficiency in guaranteed purchase amount,
the Group is not liable to pay any compensation or damages to the
brand owners under the agreement for non-fulfilment of the minimum
purchase requirement. The Directors confirm that the Group was not
aware of the situation that it had not met any of the minimum purchase
requirements set by the brand owners during the Track Record Period
and up to the Latest Practicable Date, which would otherwise lead to
possible termination of the agreements or recovation of the exclusivity
rights by the brand owners.
•
Recommended retail prices: a majority of the brand owners set
recommended retail prices for the Group to follow.
•
Non-compete clause: most of the distribution agreements include a
non-compete clause which prohibits the Group from selling products
that are identical to, or performs same or similar functions to the
products supplied by the brand owner.
Once the exclusive distribution right is granted to the Group, the Group will
devise marketing and promotion plan including the corresponding sales and
distribution channel, arrange logistics and delivery services for these branded
products.
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BUSINESS
Exclusively distributed brands and products
As at the Latest Practicable Date, the Group has entered into exclusive
distribution agreements with seven brand owners. The table below is a summary of
the brands and products distributed by the Group on an exclusive basis:
Brand
Key products/
Key product series
Silk’n
Pulsed light hair removal device and beauty
devices for anti-acne treatment, cleaning and
rejuvenation of skin
TriPollar
Radio frequency (“RF”) treatment devices
Bijouna
Sonic brush, ion device, sonic device, mist
spray device
iGrow
Laser hair rejuvenation helmet
P.E.C
Sonic Brush, nail polisher, dead skin
removal, hair shaver
Aduro
LED silicon mask
Hoii
Anti-ultraviolet clothing products
Reebok (fitness equipment)
Treadmills, exercise bikes, elliptical trainers,
fitness accessories
Non-exclusively distribution brands and products
The table below is a summary of the major brands and products distributed by
the Group on a non-exclusive basis:
Brand
Key products/
Key product series
Horizon
Treadmills, exercise bikes, elliptical trainers
La-fit
Exercise bikes
– 104 –
BUSINESS
(II)
Sourcing of the Group’s Proprietary Products
Apart from the distribution and sale of branded products, starting from 2007,
the Group began to source fitness equipment and other health care products and
develop its own proprietary brands, including “EnerGym” and “元氣達人”.
The “EnerGym” collection offers small-sized or compact fitness equipment
which is relatively convenient to store and requires less storage space. Major
products under the “EnerGym” brand consist of foldable treadmills, exercise bikes
and steppers. Products under the “元氣達人” brand include inflated bath tubs.
Products under a previous brand which is owned by the Group, namely, “部屋達人”,
included similar household products as the “元氣達人” brand and such brand was
no longer in use as at the Latest Practicable Date.
The Group does not have its own manufacturing facilities or production lines.
These products are manufactured by external manufacturers located in the PRC or
sourced from third party suppliers in Hong Kong or the PRC, and are delivered to
the Group as finished products for distribution under the Group’s proprietary
brands. For details of these external manufacturers, please refer to the sub-section
headed “Suppliers” in this section.
Product selection
The sales and marketing team is responsible for sourcing products from the
market based on their market research. The products identified should suit the
market trend and consumer preference. Before selecting a product, the Group will
evaluate the features and quality of the product, and identify if any improvement is
required. The Group will also evaluate the major product manufacturer based on
factors such as its operating history, reputation, scale of operation, production
facilities and production capacity. The Group may visit the factory site to
understand its production procedures, including the raw materials used and third
party intellectual property rights involved.
Cooperation with product manufacturer
If the Group is satisfied with its preliminary check, the management team will
negotiate with the product manufacturer on the terms of cooperation, such as unit
price, quantity, quality requirements, packaging arrangement and delivery
schedule. The Group normally places a smaller order with the product
manufacturer first to test the initial market response. If the market response proves
to be positive, the Group would consider placing a larger order with the product
manufacturer. If the performance of the manufacturer is satisfactory to the Group
and the relevant products are assessed to be popular, the Group may negotiate with
the relevant manufacturer to enter into a framework agreement. This is intended to
assure constant and steady supply of products from the product manufacturer,
prevent infringement of the Group's proprietary products by the manufacturers,
and exercise better control of product quality over the manufacturers.
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BUSINESS
As at the Latest Practicable Date, the Group and three external manufacturers
entered into manufacturing framework agreements. Pursuant to these framework
agreements, the parties will negotiate and agree in advance in respect of the
manufacturing schedule for each order placed by the Group depending on the
market conditions, including product specification, quantity, unit price, quality
requirements, delivery time and place. Such terms will then be incorporated into an
order form for the manufacturer to follow. Other salient terms of these
manufacturing framework agreements include the following:
•
Unless with the Group’s prior written consent, the manufacturer shall
not in any circumstance sub-contract the manufacturing process to any
third party contractor(s), or supply to or manufacture the subject
products(s) for any party (whether retailor or wholesaler) located in
Hong Kong;
•
With prior notice, the Group has the right to visit the factory and
production facilities, inspect the manufacturing standards and product
quality, provide recommendations and confirm receipt of goods after
quality inspection;
•
The intellectual property rights in respect of the subject product brand,
including name, pattern and design of the brand, belong to the Group,
and the manufacturer is prohibited from utilising such intellectual
property rights without the prior consent of the Group or providing
products bearing the same or similar brand features and trademarks to
other parties;
•
If the manufacturer anticipates that it would terminate the production
of the subject product(s) or that it would not be able to deliver the
subject product(s) to the Group according to normal practice (including
quantity and delivery time), it shall notify the Group as soon as possible
in order to allow the Group to react promptly to adjust its business
arrangements;
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BUSINESS
Quality control of the proprietary products
All products will be delivered to the Group as finished products. Depending
on the nature of the product, the Group may send its own quality control personnel
to conduct quality control during the manufacturing process. Please refer to the
paragraph headed “Quality control” in this section for more information.
The table below is a summary of the Group’s proprietary products as at the
Latest Practicable Date:
Brand
Key products/
Key product series
Product features
EnerGym
Treadmill, exercise
bike, stepper
Foldable treadmill
and space saving
exercise bike and
stepper
元氣達人
Inflated bathtub
Space saving
bathtub
Retail price range
HK$688HK$4,888
HK$338
Sales and after-sales activities
As shown in the operation flowchart above, both branded products and
proprietary products share the similar procedures from devising marketing and
promotion plan to customer sales and after-sales services.
Devising marketing and promotion plan
For both branded and proprietary products, the Group generally tailors a
marketing and promotion plan for each of the brand and product:
•
based on the product features and market acceptance in other
territories, determine the market position of the product and the
ultimate target consumers;
•
based on the perceived value of ultimate target consumers and with
reference to the suggested selling price of brand owners (if for a
branded product), set the price range;
– 107 –
BUSINESS
•
devise marketing and promotion campaign for the brand and the
relevant product, such as designing and producing the advertising
materials and promotion packages, placing advertisements in different
media channels such as magazines, newspapers, public transportation
displays and the internet; identifying appropriate events to provide
sponsorship; identifying suitable celebrities as product/brand
ambassador; and arranging other marketing and promotional activities;
•
continue monitoring the effectiveness of the marketing and promotional
campaign, and making adjustment to marketing strategies if necessary,
so as to achieve the intended brand/product image and market
acceptance;
The promotion and marketing activities for the branded products may be
assisted by the brand owners through their provision of free samples and marketing
materials for the Group’s marketing and promotion campaigns.
The Group also implements a loyalty program pursuant to which consumers
can join the Group’s membership scheme and enjoy certain discounts on future
purchase when they have an accumulated spending over certain amounts as
specified under the membership scheme.
Protecting the intellectual property rights of the brand owners
•
The Group monitors the market to determine whether the intellectual
property rights of the brand owners are being infringed by way of
pirated or parallel imported good or any unauthorised usage of the
brand logos;
•
necessary and appropriate actions will be taken against the infringers;
and
•
the Group will keep the brand owners informed of the infringements.
Expanding sales channels of the products
•
The Group will continue to develop and expand the sales networks of
the products in both chain retailers and other distributors and retailers;
•
the Group will continue to gain more retail shelf spaces in various chain
retailers; and
•
the Group will explore and expand into more e-commerce platforms and
group buying channels.
– 108 –
BUSINESS
Product delivery
•
Apart from its own logistics team, the Group also engages third party
logistics providers to deliver its products to individual consumers or
corporate customers such as retail chain stores, department stores or
other distributors and retailers.
After-sales services
•
The Group provides after-sales services such as responding to customer
enquiries; and
•
for products which are sold by the Group on an exclusive basis, the
Group generally offers its customers a one-year product warranty
period, and the Group provides free maintenance services during the
product warranty period.
PRODUCTS
Product segments
The Group’s products can be classified into three segments, namely, fitness
equipment and accessories, beauty gadgets and accessories, and other health care
products. The table below sets out the breakdown of the Group’s turnover by product
segment during the Track Record Period:
For the year ended
31 December 2014
HK$’000
%
accessories
Beauty gadgets and
accessories
Other health care products
Total
For the year ended
31 December 2015
HK$’000
%
23,919
35.5
22,463
26.5
41,373
2,173
61.3
3.2
60,706
1,575
71.6
1.9
67,465
100.0
84,744
100.0
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BUSINESS
Branded and proprietary products
The table below sets out the relevant breakdown of the Group’s turnover during the
Track Record Period attributable to products sold under brand owners’ brands and
products sold under the Group’s proprietary brands.
For the year ended
31 December 2014
HK$’000
%
For the year ended
31 December 2015
HK$’000
%
Branded products
60,888
6,577
90.3
9.7
79,777
4,967
94.1
5.9
Total
67,465
100.0
84,744
100.0
Fitness equipment and accessories
The fitness equipment product segment mainly consists of treadmills, exercise
bikes, elliptical trainers, steppers and other fitness accessories including trampolines,
yoga gears, dumbbells, boxing gears, heart rate monitors and diagnostic scales.
The following is a list of major fitness equipment products sold by the Group during
the Track Record Period:
Brand
Year of
launch by
the Group
Horizon
2008
Treadmills,
exercise bikes,
elliptical trainers
HK$4,388HK$16,888
Reebok (fitness
equipment)
2014
Treadmills,
exercise bikes,
elliptical trainers,
fitness accessories
HK$68HK$9,388
Key products/
Key products series
Retail price
range
– 110 –
Sample product pictures
BUSINESS
Brand
Year of
launch by
the Group
Key products/
Key products series
Retail price
range
La-fit
2007
Exercise bikes
HK$2,288HK$2,388
EnerGym
2007
Treadmills,
steppers
HK$688HK$4,888
Beauty gadgets and accessories
The beauty gadgets product segment mainly consists of beauty devices for hair
removal, wrinkle reduction, skin lifting, anti-acne treatment, rejuvenation of skin’s
appearance and body sliming. It also includes other beauty accessories such as hair care
products and anti-ultraviolet clothings.
The following is a list of major beauty gadgets products sold by the Group during
the Track Record Period:
Brand
Year of
launch by
the Group
TriPollar
2012
Key products/
Key products series
Radio frequency
(“RF”) treatment
devices
Purpose
Retail price
range
RF skin tightening
HK$2,988and cellulite reduction HK$3,988
– 111 –
BUSINESS
Brand
Year of
launch by
the Group
Silk’n
2010
Pulsed light hair
removal device and
beauty devices for
anti-acne treatment,
cleaning and
rejuvenation of skin
Pulse light hair
HK$988removal, sonic
HK$3,888
cleansing, pulse light
anti-acne, skin
rejuvenation and skin
tightening
Bijouna
2014
Sonic brush, ion
device, sonic device,
mist spray device
Sonic hair brushing, HK$288cleansing, facial
HK$1,288
massage, sonic and
ion skin rejuvenation
P.E.C
2014
Sonic Brush, nail
polisher, dead skin
removal, hair shaver
Sonic hair brushing,
nail polishing, dead
skin removing, hair
shaving
HK$198HK$299
iGrow
2012
Laser hair
rejuvenation helmet
Low-level light
therapy for hair
rejuvenation
HK$5,988
Aduro
2015
LED silicone mask
Skin rejuvenation and HK$1,288wrinkle reduction
HK$1,988
Hoii
2014
Anti-ultraviolet
clothing products
Transforming harmful HK$588ultraviolet light to
HK$1,688
beneficial light
for skin
Key products/
Key products series
Purpose
– 112 –
Retail price
range
BUSINESS
The other health care products mainly consist of massage devices, inflated bath tubs
and limb-support compression wears.
SALES AND DISTRIBUTION CHANNELS
The Group distributes and sells all products through various sales and distribution
channels, including the Group’s own retail outlets (retail shops, shopping mall booth and
department store counter) and retail websites, chain retailers, e-commerce platforms,
group buying channels and other distributors and retailers. Set out below is a breakdown
of the Group’s turnover by distribution channels during the Track Record Period:
Year ended
31 December 2014
HK$’000
%
Direct sales
Physical stores:
Own retail shops (note 1)
Department store counter and
shopping mall booth
Franchised stores (note 2)
Online stores:
Own websites (note 3)
Third party e-commerce
platforms
Group buying platforms
Indirect sales
Chain retailers
Other distributors and
retailers (note 4)
Total
Year ended
31 December 2015
HK$’000
%
24,215
35.9
31,544
37.2
3,048
7,051
4.5
10.5
3,128
842
3.7
1.0
1,316
1.9
1,539
1.8
7,692
1,353
11.4
2.0
16,174
3,605
19.1
4.2
7,365
10.9
7,676
9.1
15,425
22.9
20,236
23.9
67,465
100.0
84,744
100.0
Notes:
1.
The figures under this category also included (i) the Group’s hotline sales through its hotline
staff; and (ii) sales in trade fairs and exhibitions. Hotline sales also included customer orders
made online with settlement by cash on delivery.
2.
The franchised stores were all located in Hong Kong and operated by staff of the Group assigned
to work in the stores.
3.
The figures only comprised those online sales with settlement made through online payment
system.
4.
The figures included sales to related parties who in turn sold the Group’s products on their own
online storefronts of an e-commerce platform. For details, please refer to the sub-paragraph
headed “Sales and distribution channels – Sales to other distributors and retailers — Sales to
related parties” in this section.
– 113 –
BUSINESS
Set out below is a breakdown of the Group’s turnover by geographical region during
the Track Record Period, based on location of customers:
Year ended
31 December 2014
HK$’000
(I)
%
Year ended
31 December 2015
HK$’000
%
Hong Kong
The PRC
50,843
16,622
75.4
24.6
64,527
20,217
76.1
23.9
Total
67,465
100.0
84,744
100.0
Direct Sales
Own retail outlets network
As at the Latest Practicable Date, the Group had seven retail outlets (five retail
shops, one shopping mall booth and one department store counter) located in Hong
Kong directly operated by the Group. All retail outlets directly operated by the
Group are presently located on leased premises. For details of the rental
arrangements, please refer to the sub-section headed “Properties” in this section.
The Group had eight, seven and seven retail outlets (including franchised
stores) as of 31 December 2014 and 2015 and the Latest Practicable Date respectively.
All of the retail outlets are operated under the “Fitboxx 元氣館” trade name. The
following table sets forth the respective locations, types of the outlets, estimated
gross floor areas, and types of premises of the retail outlets currently in operation as
at the Latest Practicable Date.
Location
Hong Kong Island:
Causeway Bay
Quarry Bay
Type of the
outlet
Approximate
gross floor
area
(sq.m.)
Type of the premises
Own shop
Shopping mall
booth
111
59
Store on street-level
Shopping mall
53
25
Shopping mall
Shopping mall
Mongkok
Own shop
Department
store
counter
Own shop
93
Commercial building
New Territories:
Tsuen Wan
Yuen Long
Own shop
Own shop
112
41
Shopping mall
Store on street-level
Kowloon:
Diamond Hill
Kowloon Bay
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BUSINESS
The Directors considers identifying a suitable location for the retail outlets to
be crucial to the Group’s success and to maximising the Group’s revenue. Most of
the Group’s existing retail outlets are situated at or close to high-traffic or populated
locations such as shopping malls, department stores and residential areas. Factors
that the Group takes into account in selecting a new retail outlet site would include
the accessibility of the potential site to the target customers, spending patterns of
the target customers, geographic coverage of the site compared to that of the
existing stores, size of the premises, nature of surrounding shops and rental
expenses.
In contrast with the Group’s self-operated retail shops and the shopping mall
booth, the Group does not retain direct control over the sales proceeds received in
connection with the sales transacted at the self-operated department store counter
located in a department store in Kowloon Bay. Instead, all proceeds are collected by
the grantor (being the department store) of a license arrangement for the use of the
department store counter by the Group, subject to deduction of a license fee before
being disbursed to the Group on a monthly basis generally within 30 days of the
issuance of a monthly statement.
In respect of the self-operated shopping mall booth, it is a specified area
granted to be used by the Group under a license agreement with the landlord of the
shopping mall.
The Directors confirm that during the Track Record Period, there were no
instances of material disputes with any of the grantors of the Group’s licensing
arrangements in relation to the terms of the respective licensing agreements and the
amount of sales proceeds, nor did the Group experience any material default in
collecting the net sales proceeds from the said Kowloon Bay department store.
The Group also receives hotline sales orders from customers who place orders
via the Group’s sales hotline. Such orders also include those made online but with
settlement by cash on delivery.
Franchised stores
During the Track Record Period, the Group had three franchised stores located
in Kowloon Bay, Diamond Hill and Yuen Long respectively. The purposes of
adopting the franchise model was to enhance the Group’s market presence and to
increase sales volume, at the same time to incur less set-up and operating costs at
the initial stage of the Group’s business development. Under the franchise
arrangements, the rental and other operating costs were borne by the franchisees.
However the franchised stores were under full control of the Group whereby the
sales staff were employed by the Group to work in the franchised stores with their
salaries reimbursed by the franchisees together with other operation costs paid by
the Group on behalf of the franchised stores, on a monthly basis. Moreover, all sales
proceeds of the shops were received by the Group which it then paid the pre-agreed
percentages of the sales proceeds of different products to the franchisees as agency
fees.
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BUSINESS
Therefore, the franchised stores were regarded as self-operated stores and all
sales proceeds by the franchised stores were treated as turnover of the Group.
In November 2013, the Group opened its own retail outlet at a department
store counter in a shopping mall in Kowloon Bay. Upon the business of the said
retail outlet had been gradually on the track, the Group mutually agreed with the
relevant franchisee to terminate the franchised store operation in Kowloon Bay in
May 2014.
In September 2014, the franchise arrangement in respect of the franchised
store in Diamond Hill was terminated upon mutual agreement between the Group
and the relevant franchisee. The Group continued to use the same shop premises as
its own retail store.
In March 2015, the franchise arrangement in respect of the franchised store in
Yuen Long was terminated upon mutual agreement between the Group and the
relevant franchisee. In May 2015, the Group continued to use the same shop
premises as its own retail store.
The Directors confirm that there was no disagreement nor dispute between
the Group and the relevant franchisees due to the termination of the franchise
agreements. As at the Latest Practicable Date, the Group did not have any subsisting
franchise agreement.
Own websites — online sales in Hong Kong
The Group currently operates two retail websites, namely, www.fitboxx.com
& www.cosmoboxx.com in Hong Kong, which allow the customers to view and/or
purchase the Group’s products online.
The Group’s retail websites contain the following information and features:
•
Comprehensive product information: each product webpage contains
pictures of the product, the price and a detailed introduction of the
product’s specifications and functions. In order to promote the products
in an attractive way, the product webpage may also contains showcases
presented by way of television commercials, advertisements on printed
media, demonstration videos and customer review videos.
•
Online question and answer section: customers can submit their
questions or queries through the retail websites. Then the customer
services staff of the Group will reply to their questions by emails.
Frequently asked questions and answers are also listed out on the
websites for the customers’ easy reference.
– 116 –
BUSINESS
•
Online order system: customers can place orders for the products
online. They can choose to pay by credit cards online or by cash upon
delivery. For purchases of more than HK$300, the Group provides free
delivery. After receipt of the orders, the customer services staff of the
Group will contact the customers to arrange for delivery.
The Directors believe these user-friendly retail websites address customer ’s
desire to view and understand the products before purchasing.
The Directors also believe that the retail websites would help stimulating
viewers’ interest and attract customers to visit the Group’s retail stores. The
physical retail stores, combined with online retail websites, are aimed to provide an
integrated shopping experience to the consumers for the sales and promotion of the
Group’s products.
Third party e-commerce platforms
Online sales in Hong Kong
In 2010, The Group entered into a cooperation agreement with a credit card
company which provides an online shopping platform for its credit card holders in
Hong Kong. According to the agreement, the credit card company is mainly
responsible for the production and printing of the promotional materials, approving
credit card payment transactions and handling online orders from its credit card
members; while the Group is mainly responsible for the supply and direct delivery
of the ordered products, and provision of after-sales service to those online buyers.
The online storefront is named “Fitboxx 元氣館” and sells various kinds of fitness
equipment and accessories, beauty gadgets and accessories, and other health care
products. The sales proceeds, after deduction of the agreed percentage of
commission and other charges payable, will be reimbursed to the Group from the
credit card company within one month in general.
In 2015, the Group entered into another cooperation agreement with an online
shopping platform operator which provides an online marketplace facilitating the
sale, purchase, and promotion of multifarious goods and services between
merchants and online buyers in Hong Kong. According to the agreement, the
platform operator is mainly responsible for maintaining the design, layout and
features of the online shopping platform, running regular marketing and
promotional campaigns on the platform, and handling the delivery (depending on
product types) of the online customer orders; while the Group is mainly responsible
for the supply and delivery (depending on product types) of the ordered products,
and provision of after-sales service to those online buyers. The online storefront is
named “Fitboxx 元氣館” and sells various kinds of fitness equipment and
accessories, beauty gadgets and accessories, and other health care products. The
online buyers are required to settle payments by credit cards and the sales proceeds
are held by the platform operator through the relevant escrow agents of the credit
card companies. The sales proceeds, after deduction of the agreed percentage of
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BUSINESS
commission and other charges payable, will be reimbursed to the Group from the
platform operator within one month in general.
Online sales in the PRC
Since 2011, the Group started to sell beauty gadgets and accessories by way of
distribution arrangements through online storefronts set up by certain related
parties on an e-commerce platform namely, Taobao, in the PRC. As advised by the
Directors, competition in respect of the fitness equipment market is keen in the PRC,
with a considerable number of established brands and distributors competing in the
market over product design and price. Moreover, the Directors consider that the
delivery logistics of fitness equipment is inconvenient. Therefore, the Group’s
fitness equipment are not sold through e-commerce platforms in the PRC. Upon
familiarising with the operation of online marketplace and the market potential in
the PRC through the related parties, the Group set up its own storefronts on an
e-commence platform, namely, Tmall, since 2013, while continued to maintain the
distribution arrangements with the related parties in order to gain more market
presence of its products. In April 2015, the Group ceased the distribution
arrangements with the related parties in order to enhance its corporate image and
consolidate its market presence. As at the Latest Practicable Date, the Group
maintained three storefronts on Tmall. The Group also sells beauty gadgets to other
distributors which operate e-commerce platforms in the PRC.
The following table sets forth the respective name of the storefront on Tmall,
year of launch and major products sold of the storefronts which were operated by
the Group as at the Latest Practicable Date:
Name of storefront
Year of launch
Major products sold
Cosmosboxx
海外旗艦店
Hoii旗艦店
2013
Silk’n偉博專賣店
2013
of various brands
of various brands
Beauty gadgets under the
“Silk’n” brand, which mainly
consist of hair removal device
and beauty devices for
anti-acne treatment, cleaning
and rejuvenation of skin
2015
As provided under the framework agreement with Tmall, the Group is
required to pay a commission, at a rate depending on the product category, out of
the total sales amounts settled through the payment system of the marketplace. An
additional commission based on the total sales amounts would also be charged if the
Group joins the specific product promotional activities launched by Tmall. The
Group also subscribes online marketing services to direct viewer traffic to certain of
its storefronts.
– 118 –
BUSINESS
In a typical sales transaction, the consumer may pay the purchase price by
credit cards or through Tmall marketplace’s online payment system known as
“Alipay” (“支付寶”). All transactions are ultimately settled through Alipay. The
marketplace releases the payments from Alipay to the Group only when the
consumer has confirmed receipt of goods and is in satisfactory condition or when
the consumer does not object to the releases of the payments with a specified time
period. After the customer ’s order is confirmed, the Group will engage third-party
logistics company to execute the delivery of products ordered. The logistics
company picks up the package from the Group and delivers the package directly to
the buyer ’s door or to pick-up stations selected by the consumer.
The sales activities of the Group on Tmall are regulated by its marketplace
rules, including consumer protection programmes, return and exchange policy and
dispute reporting procedures. Consumers on Tmall may return the purchased goods
within seven days if there are quality issues. The freight costs of the returned goods
and exchange goods will be borne by the Group. In case of disputes, both the buyer
and the seller can report to Tmall and ask their customer service staff to intervene
and assist to resolve the disputes. The Group is also required to contribute to and
maintain a consumer protection fund in the amount ranges from approximately
HK$180,000 to HK$480,000, depending on the features of the storefronts, for the
benefits of the individual customers. If the Group fails to perform its obligations
against the consumer, Tmall may use this fund to compensate the consumer.
The Group also engaged three, three and three online group buying platforms
in Hong Kong during the two years ended 31 December 2015 and as at the Latest
Practicable Date respectively to provide group buying services which offer the
Group’s certain products to online customer traffic for boosting sales and achieving
promotional effect. Under the group buying arrangements, the Group offers
different products at discounted prices and at limited quantities for specified
period, usually a few weeks, by selling redemption vouchers on such online
platforms, which are exchangeable into goods by presentation of the vouchers at
designated shops of the Group.
(II)
Indirect Sales
Sales through chain retailers
The Group provides its products to chain retailers, which display the products
of the Group in their stores for sales to the general public. As at the Latest
Practicable Date, the Group co-operated with four chain retailers and established
over 150 points of sales through their extensive sales network in Hong Kong. These
chain retailers include two chain retailers of electronic products, a chain retailer of
cosmetic products and a chain retailer of pharmaceutical, health and beauty
products.
– 119 –
BUSINESS
The chain retailers place purchase orders generally on a replenishment basis
and the Group supply products to them accordingly by delivering the products to
the warehouses or stores designated by the chain retailers from time to time. The
retail prices of the Group’s products are recommended by the Group and finally
determined by the chain retailers.
The Group provides products to the chain retailers under two kinds of
arrangements: consignment arrangement or non-consignment arrangement.
(1)
Under the consignment arrangement, the Group provides its products
for sale on a consignment basis where the ownership of the goods
delivered to the chain retailers belongs to the Group before they are sold
by the chain retailers. After the consigned goods are sold, the relevant
chain retailers will provide the Group with details of the goods sold on
a monthly basis. The consignment fees charged by the chain retailers are
generally represented by the difference between the pre-determined
retail prices and the pre-agreed discounted prices for the goods
purchased from the Group for resale to customers of the chain retailers,
and the pre-agreed discounted prices are determined based on a fixed
percentage of or discounted amount on the retail prices of consigned
goods. After deducting the payable consignment fees (i.e. the profit
margin charged by the chain retailers) and other commissions and
charges, if any, the chain retailers will pay the balance of the sales
proceeds to the Group.
(2)
Under the non-consignment arrangement, the Group directly sells its
products to the chain retailers. The Group invoices the chain retailers at
wholesale prices, which is recognised as revenue of the Group when the
products are accepted by the chain retailers after delivery of the
products to their respective warehouses or stores. Thus, when the
products are sold to the general public at the chain retailers, the
proceeds of sales belong to them. However, the chain retailers are
entitled to return unsold goods purchased from the Group according to
the relevant terms of the distribution agreements.
As at the Latest Practicable Date, the Group had distribution arrangements
with two chain retailers under the consignment arrangements and two chain
retailers under the non-consignment arrangement.
The Group generally enters into master supply agreements with the chain
retailers using the standard agreements and/or forms prescribed by them on an
annual basis. One of these master supply agreements specifies annual target
purchase amounts whereby, if the annual target purchase amounts are met, the
relevant chain retailer will be entitled to certain rebates specified in the master
supply agreement. Some master supply agreements also specify certain terms such
as delivery, payment, discounts and/or rebates payable to the chain retailers,
promotion and return policy. The Group generally does not set any initial purchase
requirements or minimum purchase requirements for the chain retailers.
– 120 –
BUSINESS
Rebates and allowances to the chain retailers
The Group offers rebates and allowances (other than discount on retail price
for the purchase cost of goods supplied by the Group on consignment basis) to the
chain retailers. The Group will give certain rebates to the chain retailers based on
the amount of goods purchased by the chain retailers. Such rebates will then be paid
by the chain retailers at their own discretion to their salespersons as incentive. This
arrangement is intended to boost the sales volume when the Group promotes a
particular kind of product or intends to clear the stock of that product. Occasionally,
the Group will offer promotional campaigns to the chain retailers and offer extra
discounts on its products during the promotion period. The amounts of the
discount, rebate or allowance are determined on case by case basis after taking into
account of (i) the negotiation between the chain retailers and the Group; and (ii) the
market sentiment in the relevant period.
Sales to other distributors and retailers
To benefit from local market knowledge and expertise and to expand the
Group’s network of product coverage at minimal costs into areas where the Group
does not have presence, the Group also sells its products directly to other
distributors and retailers in Hong Kong and the PRC. For the two years ended 31
December 2015, the Group sold goods to over 20 and 25 other distributors and
retailers in Hong Kong and the PRC, which also included sales to certain corporate
customers such as fitness centre, beauty salon and healthcare clinic.
The Group selects the distributors and retailers based on, among others, their
business scale, distribution network, payment terms and reputation.
Relationship with other distributors and retailers
The sales of the Group’s products are generally made on a wholesale basis to
the other distributors and retailers, who then resell the products (i) to consumers
mainly through various channels including online storefronts of e-commerce
platforms which they operate, or (ii) to their wholesale customers, who then resell
the products to consumers through their respective retail channels.
Except for a distributor which operates its own online storefronts on an
e-commerce platform and has entered into a distribution agreement with the Group,
the Group’s sales to its other distributors and retailers are conducted on an
order-by-order basis without entering into any distribution agreement with them.
The Group does not have any contractual relationships with the wholesale
customers of its distributors and have no direct control over their respective
distribution channels.
Except as disclosed under the sub-paragraphs headed “Sales partner traded
under the Group’s trade name” and “Sales to related parties” below, all of the
Group’s other distributors and retailers during the Track Record Period are
Independent Third Parties.
– 121 –
BUSINESS
The Group’s relationship with a distributor which operates its own online
storefronts is governed by a distribution agreement with the following key terms:
Term:
one year
Retail price:
determined by the distributor with reference to the
Group’s own retail prices
Operational control:
except for
determined
the Group
activities of
Termination:
terminable by either party by giving three months’
prior notice to the other
sales period of the products to be
after consultation between both parties,
does not have control over the sales
the distributor
Irrespective of whether there is distribution or other cooperation agreement
with such other distributors and retailers, products are purchased from the Group
and paid in full by the distributors and retailers as buyer on an order-by-order basis.
Generally, except for defective goods, there is no product return policy. As it is a
policy of the Group to prevent stock accumulation, it will assess the sales and
inventory levels of the distributors and retailers by reviewing the amount of orders
placed by them and communication with them for any unusualness.
Sales partner traded under the Group’s trade name
Since September 2011, the Group had authorised its marketing manager to
open a shop in Macau and sell the Group’s products in the shop under the trade
name of “Fit Boxx 元氣館” in order to open up a new distribution channel in Macau,
under which the Macau shop was operated by the marketing manager who
purchased products from the Group as a distributor. The relationship between the
Macau shop and the Group is one of buyer and seller, while the marketing manager
continued to be a staff of the Group during the period of operation of his own
business of running the Macau shop.
In April 2015, as the marketing manager considered the Macau business was
not satisfactory and intended to concentrate on the Group’s marketing activities in
Hong Kong, the parties mutually agreed to terminate the buyer and seller
relationship and the Macau shop had closed down. Having taken into consideration
of the fact that (i) the Group has no prior experience in running retail store in Macau;
(ii) opening the Group’s own retail store in Macau involves capital investment; and
(iii) the sales to the store in Macau only contributed approximately 1.1% and 0.2% to
the turnover of the Group during the Track Record Period, the Directors considered
that establishing its own retail location in Macau might not be of imminent need for
the Group’s business development at this stage. The Group currently has no plan to
open a retail store in Macau after the termination of the physical distribution
channel in Macau.
– 122 –
BUSINESS
Sales to related parties
During the Track Record Period, the Group sold its products to the following
related parties who in turn, to the best knowledge of the Directors, sold such
products at online storefronts on an e-commerce platform, namely, Taobao, which
were registered in the related parties’ own names, on an indent basis:
Related
parties
Relationship
with the Group
Ms. Cao Xiaowei
Mr. Li
Wife of Mr. Chan
Director and a controlling
Shareholder
Mother-in-law of
Mr. Chan
Ms. Zhu Zhengfang
Sales for the year ended
31 December
2014
2015
HK$’000
HK$’000
6,032
250
1,278
14
1,114
123
The reason for the online sales through the above related parties was due to
the fact that the Group was yet to familiarise with the operation of online
marketplace and market potential in the PRC before it formally stepped into the
PRC market in 2013 by setting up its first online storefront on Tmall. Therefore, in
order to increase the online market presence of its products in the PRC, the Group
commenced the sales of its products to the related parties since 2011, who in turn
sold the products through their own Taobao storefronts, and the prices of the
products sold by the Group to the related parties were generally the same as the
online retail prices which the related parties sold to their online customers during
the Track Record Period.
Upon familiarizing with the operation of online marketplace and market
potential in the PRC through the related parties, the Group set up its first own
online storefront on Tmall in 2013. Moreover, since the Group considered that direct
online sales by the Group was gradually on track, the Group ceased the distribution
relationship with the related parties in April 2015 in order to enhance its corporate
image and consolidate its market presence.
– 123 –
BUSINESS
Management of distribution network
The following table illustrates the number of distributors with which the
Group had entered into distribution or other cooperation agreements, during the
Track Record Period and up to the Latest Practicable Date:
For the year ended
31 December
2014
2015
Chain retailers
Other distributors and retailers
4
nil
4
1
Up to
the Latest
Practicable
Date
4
1
To the best knowledge of the Directors, there were no instances of material
disputes with the distributors and retailers, or material non-compliance with the
terms of the distribution or cooperation agreements (if any) by the Group or any of
the distributors or retailers during the Track Record Period.
The table below set forth the amount of goods unsold and returned (other than
defective goods) from the above distributors during the Track Record Period:
Year end 31 December
2014
2015
HK$’000
HK$’000
Goods returned from chain retailers
nil
34
The Group has no ownership or managerial control over any of the
distribution networks of its distributors, irrespective of whether the Group has
entered into distribution agreements or other cooperation agreements with them.
Distribution networks of the Group’s products are owned and managed by its
distributors and the wholesale customers of the Group’s distributors (which include
third-party retailers and sub-distributors). The Group also does not have direct
day-to-day access to the sales and inventory levels of its distributors and points of
sales operated by them as well as the third-party retailers with whom they contract.
The Group does not have contractual relationships with the wholesale
customers of the Group’s distributors, such as third-party retailers and
sub-distributors, of its distributors. The Group relies on its distributors to monitor
the business behaviour of their own wholesale customers. Excluding the sales to
related parties, the Group’s sales to other distributors and retailers accounted for
only 11.5% and 22.2% of its turnover for the two years ended 31 December 2015, the
majority amount of which, to the best knowledge of the Directors, comprised sales
to distributors which were engaged in online retail business. As such, except for
understanding the business nature of such distributors and retailer, generally
reviewing of orders and communication with them for any unusualness, the Group
did not implement any other means to monitor and evaluate the sales performance
or inventory levels of the distribution networks of such distributors and retailers.
– 124 –
BUSINESS
During the Track Record Period, save as disclosed above, the Group had not
received any request for and had no material sales returns (other than defective
goods) from those distributors with distribution or other cooperation agreements,
and continually received orders from them. In addition, through regular contact
with such distributors by the Group’s sales and marketing team, nothing has caused
the Directors to believe that the increase, if any, in the Group’s sales to those
distributors during the Track Record Period was due to the accumulation of
inventories at the distributors.
The Directors consider that the Group’s chain retailer customers are
well-known retailers in Hong Kong with extensive retail shop networks selling a
wide variety of consumer goods with similar products from various brand owners
and as such, the possibility of cannibalisation among themselves in respect of the
Group’s products is remote. However, the Directors believe certain chain retailer
customers would, for the sake of avoiding potential cannibalisation, request for
exclusivity for designated brands or categories of product supplied to them, to the
exclusion of other chain retailer competitors. In such case, the Group may agree to
such request depending on the number of retail shops designated by the chain
retailer to promote the subject brands or products. As to those distributors which
operate online storefronts on e-commerce platforms in the PRC or distribute the
products in the PRC through other channels, the possibility of cannibalisation with
the Group’s chain retailer customers, which are all located in Hong Kong, or among
themselves in respect of the Group’s products is also considered by the Directors to
be remote due to their different operating location with different customer groups
and the fact that the PRC market is too huge to consider the effect of cannibalisation.
Furthermore, the Group would, if possible, enquire its distributors (other than
chain retailers and operators of online retail platforms) the geographical locations of
the ultimate points of sales, both of the distributors themselves and their wholesale
customers. Through taking awareness of the locations in which the Group’s
distributors and their wholesale customers establish the points of sales, the Group
would minimise possible cannibalisation and competition among its distributors.
The Group’s distributors are managed by its sales and marketing team which
manages the relationships with the distributors in accordance with the distribution
or other cooperation agreements (if any) and internal sales and marketing policy.
The Group will monitor and evaluate the performance of its distributors from
time to time. Such monitoring and evaluation form the basis of whether it would
continue the business relationships with its distributors or to adjust the business
scales with them.
– 125 –
BUSINESS
SUPPLIERS
Relationship with suppliers
Suppliers of the Group include (i) brand owners for branded products; and (ii)
manufacturers for its major proprietary products. For each of the two years ended 31
December 2015, the Group engaged over ten and ten major brand owners respectively for
its branded products, and three and four manufacturers respectively for its major
proprietary products.
As at the Latest Practicable Date, the Group entered into exclusive distribution
agreements with seven brand owners for branded products generally for a term of one to
three years, and the purchase price for the products is generally negotiated between
individual brand owners and the Group on an annual basis subject to adjustments by the
brand owners with at least 30-90 days’ notice. For details of the exclusive distribution
agreement entered into with the brand owners, please refer to the paragraph headed
“Operating flow – Sourcing of branded products” in this section.
The Directors confirm that the Group had not experienced any termination of
distribution agreements by brand owners up to the Latest Practicable Date.
Manufacturers for proprietary products are mainly third party manufacturers in the
PRC to which the Group outsources the production of its proprietary products. The Group
had not entered into any contractual arrangements with the manufacturers for the
production of the proprietary products during the Track Record Period. The Group
generally places purchase orders for a particular kind of product when needed. In
February 2016, the Group entered into cooperation framework agreements with three
major manufacturers, in order to ensure quality control, stable supply and prevention of
possible infringement of intellectual property rights of the major proprietary products.
According to the terms of the cooperation framework agreements, the manufacturers are
required to ensure, among others, product quality, delivery terms, and exclusivity of
products supplied to the Group.
The Group’s five largest suppliers during the Track Record Period are all
Independent Third Parties. The purchases from the top five suppliers amounted to
approximately HK$20.5 million and HK$17.4 million respectively, representing
approximately 71.3% and 69.9% of total purchases for the two years ended 31 December
2015. The purchases from the largest supplier amounted to approximately HK$9.6 million
and HK$7.9 million respectively, representing approximately 33.4% and 31.8% of total
purchases for the two years ended 31 December 2015 respectively.
– 126 –
BUSINESS
During the Track Record Period, the Group’s business is considerably relied on the
sales of a few series of branded beauty gadget products supplied by two brand owners in
Israel. The aggregate amount of purchases from these two suppliers accounted for
approximately 51.7% and 49.8% of the Group’s total purchases for the two years ended 31
December 2015. In order to mitigate the effect of concentration risk of reliance on a few
major suppliers, a particular product segment or territory of the suppliers, it is the
Group’s policy to continuously explore the opportunity to introduce new branded
products for all of the Group’s product segments from worldwide suppliers, irrespective
of whether the supplies are on an exclusive or non-exclusive basis. Please also refer to the
paragraph headed “Risk Factors — Risk relating to the Group and its business — The
Group is relied on the supply of products by major suppliers” in this document for details.
The following tables set forth certain information about the Group’s top five
suppliers during the Track Record Period:
For the year ended 31 December 2014
Supplier
Principal business
Location
Supplier A
Manufacturing of
beauty devices
Israel
Supplier B
Manufacturing of
beauty devices
Manufacturing of
electrical appliances
and beauty devices
Manufacturing of
fitness equipment
and accessories
Manufacturing of
beauty devices
Israel
Supplier C
Supplier D
Supplier E
Japan
Type of
products sold
to the Group
Typical credit
terms
Hair removal Within 60 days
and skin care after delivery
devices
Skin care
Full payment in
devices
advance
Hair and skin Within 14 days
care devices
after delivery
Business
relationship Amount of
since
purchase
(%)
2010
33.4
2012
18.3
2014
6.8
Taiwan
Exercise bikes
Full payment upon 2007
delivery
6.7
United
States
Full payment upon 2012
Hair
delivery
rejuvenation
device
6.1
– 127 –
BUSINESS
Supplier
Principal business
Location
Supplier A
Manufacturing of
beauty devices
Israel
Supplier B
Supplier F
Supplier G
Supplier D
Type of
products sold
to the Group
Typical credit
terms
Hair removal Within 60 days
and skin care after delivery
devices
Manufacturing of
Israel
Skin care
50% payment in
beauty devices
devices
advance; 50%
payment within
60 days after
shipment
Distribution of fitness Hong Kong Treadmills,
Within 15 days
equipment
exercise
after shipment
bikes and
elliptical
trainers
Distribution of fitness Hong Kong Treadmills and Within 30 days
after delivery
equipment
elliptical
trainers
Taiwan
Exercise bikes Full payment upon
Manufacturing of
fitness equipment
delivery
and accessories
Business
relationship Amount of
since
purchase
(%)
2010
31.8
2012
18.1
2014
7.2
2008
6.7
2007
6.2
Background of the top five suppliers
Supplier A (brand owner of “Silk’n”) is a developer and manufacturer of various
types of beauty devices under the same brand of “Silk’n”, with distribution networks
located worldwide. The major products include pulsed light hair removal device and
beauty devices for anti-ance treatment, cleaning and rejuvenation of skin.
Supplier B (brand owner of “Tripollar”) is a developer and manufacturer of various
types of beauty devices under a few brands, with distribution networks located
worldwide. It is specialised in the development of beauty devices using the technology of
radio frequency for skin tightening and cellulite reduction.
Supplier C (brand owner of “Bijouna” and “P.E.C”) is an appliances manufacturer
and original equipment manufacturer supplier for well-known brands of electrical
appliances. It designs, manufactures and wholesales electrical and household appliances.
Its products include televisions, radios, kitchen appliances, audio equipment, air
conditioners, lighting products, and beauty devices for hair and skin care.
Supplier D (brand owner of “La-fit”) is a manufacturer of fitness equipment and
accessories. Its export markets are mainly Asian countries.
– 128 –
BUSINESS
Supplier E (brand owner of “iGrow ”) is a developer and manufacturer of beauty
devices for skin treatment and hair rejuvenation, using low-level light therapy
technology.
Supplier F (brand owner of “Reebok” (fitness equipment)) is a distributor of fitness
equipment for famous sports brands.
Supplier G (brand owner of “Horizon”) is a distributor of fitness equipment for its
parent company which is a manufacuturer of fitness equipment based in Taiwan with
sales market worldwide.
None of the Directors, their associates, or any Shareholders who owned more than
5% of the share capital of the Company as at the Latest Practicable Date had any interest in
any of the five largest suppliers during the Track Record Period.
Payments to suppliers are generally made within 60 days upon delivery of goods
from suppliers, and are generally settled either by telegraphic transfers or cheque
payments. During the two years ended 31 December 2015, approximately 82.7% and
81.1%, respectively of the purchases from the Group’s suppliers were denominated and
settled in US dollars, approximately 14.1% and 16.0%, respectively were denominated and
settled in Hong Kong dollars, and the remaining purchases were denominated and settled
in Renminbi and other currencies.
CUSTOMERS
Customers of the Group
mainly target the female consumers aged between 25 to 50 who are appearance conscious,
eager to try novel and trendy products, and are willing to pay for premium price in return
for quality products.
The Group’s customers can generally be classified as follows:
(i)
ultimate-consumers who purchase products through the Group’s own retail
outlets, own retail websites and third party storefronts on the e-commerce
platforms (including group buying platforms);
(ii)
chain retailers which sell the Group’s products directly to ultimate consumers
in Hong Kong through their points of sales networks; and
– 129 –
BUSINESS
(iii)
other distributors and retailers which sell the Group’s products directly or
through sub-distributors to ultimate consumers.
The Group has not entered into any long-term or short-term supply agreements
with distributors and retailers save for (i) master supply agreements with the chain
retailers in Hong Kong containing those terms related to the rebates, discounts or
promotion offers offered by the Group to them so that the Group’s products are allowed to
be put on sale on their shelf spaces in Hong Kong; and (ii) a distribution agreement
entered into with a distributor which operates its own online storefronts on an
e-commerce platform in the PRC, to govern the terms of supply and delivery. Please refer
to the sub-paragraphs headed “Sales and distribution channels — (II) Indirect sales —
Sales through chain retailers” and “Sales and distribution channels — (II) Indirect sales —
Sales to other distributors and retailers — Relationship with other distributors and
retailers” in this section for the key terms of the distribution or cooperation agreements.
Top five customers
Except for the sales to Ms. Cao Xiao Wei, the wife of Mr. Chan, the Group’s five
largest customers during the Track Record Period are all Independent Third Parties.
Details of the Group’s sales to Ms. Cao Xiao Wei are set out in the sub-paragraph headed
“Sale and distribution channels — (II) Indirect sales — Sales to other distributors and
retailers — Sales to related parties” in this section. The sales to the top five customers
amounted to approximately HK$15.6 million and HK$17.9 million respectively,
representing approximately 23.1% and 21.0% of the Group’s total revenue for the two
years ended 31 December 2015 respectively. The sales to the largest customer amounted to
approximately HK$6.0 million and HK$5.9 million respectively, representing
approximately 8.9% and 6.9% of total revenue of the Group for the two years ended 31
December 2015 respectively.
The following tables set forth certain information about the Group’s top five
customers during the Track Record Period:
Customer
Principal business
(Note)
Location
Ms. Cao Xiao Wei
Operation of an online the PRC
storefront on Taobao
Type of products
purchased from the
Group
Business
Typical
relationship
credit terms since
beauty gadgets
Within 60
2011
days after
delivery
– 130 –
Amount of
sales
(%)
8.9
BUSINESS
Customer
Principal business
(Note)
Customer B
Chain retailer of
Hong Kong beauty gadgets
cosmetic products,
with over 200 retail
stores in Hong Kong
Customer C
General trading
Customer D
Operation of online
the PRC
beauty gadgets
storefronts on
e-commerce
platforms
Chain retailer of
electronic products,
with over 30 retail
stores in Hong Kong
Customer E
Location
Type of products
purchased from the
Group
Business
Typical
relationship
credit terms since
Amount of
sales
(%)
Within 60
2012
days upon
sale of
consigned
goods
Within 120 2014
days after
delivery
Full
2013
payment
is advance
6.4
Within 60
2014
days after
delivery
2.4
2.7
2.7
Type of products
purchased from the
Group
Customer
Principal business
(Note)
Location
Customer C
General trading
Customer B
Chain retailer of
cosmetic products,
with over 200 retail
stores in Hong Kong
Customer F
Operation of online
storefronts on
e-commerce
platforms
– 131 –
Business
Typical
relationship
credit terms since
Within 120 2014
days after
delivery
Within 60
2012
days upon
sale of
consigned
goods
2014
Within 60
days after
delivery
Amount
of sales
(%)
6.9
5.3
4.0
BUSINESS
Customer
Principal business
(Note)
Customer G
Operation of online
storefronts on
e-commerce
platforms
Chain retailer of
electronic products,
with over 30 retail
stores in
Hong Kong
Customer E
Note:
Location
Type of products
purchased from the
Group
Business
Typical
relationship
credit terms since
Full
2015
payment
upon
delivery
Within 60
2014
days after
delivery
Amount
of sales
(%)
2.5
2.3
The relevant information is per the best knowledge of the Directors.
Except for Ms. Cao Xiao Wei, none of the Directors, their associates, or any
Shareholders who owned more than 5% of the share capital of the Company as at the
Latest Practicable Date had any interest in any of the five largest customers during the
Track Record Period.
PRICING POLICY, PROFIT MARGIN, SEASONALITY AND PAYMENT TERMS
Pricing Policy
The Group adopts a market driven pricing policy. The Group would consider
various factors including the pricing of similar products of the Group’s competitors
uniqueness and market positioning of the Group’s products, macroeconomic conditions and
the Group’s operation costs, in arriving at the retail and wholesale prices of its products.
The retail prices of branded products being distributed and sold by the Group are
generally set with reference to the recommended prices of the brand owners and are
usually higher than such recommended prices, depending on the perceived market
acceptance. If there is no recommended price from the brand owners, the Group will
determine the retail price of the products with reference to a number of factors, including
the selling price guideline and discount range provided by the brand owners to the Group
(if any), the prices of other competitive products available in the same market, the
perceived market value and the Group’s pricing strategy as ultimately determined by the
Group’s management.
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BUSINESS
The pricing of the Group’s proprietary products are determined by the Group based
on its market research and the perceived general market acceptance. The Group has taken
into account factors including the costs related to manufacturing, packaging, marketing
and logistics. The Group decides on an initial price range for a new product. Once the
product is launched in the market, the Group will evaluate market response to the product
and will compare the retail price and demand with similar products already available (if
any) in the market in order to ascertain whether the Group needs to adjust the initial price
of the product.
The Group holds periodic meetings with its chain retailer customers to discuss
market strategies of its products in order to maintain brand image and make
recommendation to their retail pricing policies. The Directors believe that, alongside with
the Group’s expansion, the Group will be able to purchase larger quantities of products at
a more favourable price from different suppliers and will therefore be able to maintain
competitiveness of the prices of the Group’s products offered to its chain retailer
customers and other distributors.
Gross profit margin
Set out below are the average gross profit margins (Note) for each product segment
during the Track Record Period:
Year ended
31 December
2014
Year ended
31 December
2015
63.0%
64.4%
46.5%
61.8%
61.1%
65.0%
Set out below are the average gross profit margins (Note) in respect of each category of
distribution channel during the Track Record Period:
Year ended
31 December
2014
Year ended
31 December
2015
66.5%
57.0%
65.1%
53.7%
Direct sales
Indirect sales
For the analysis of the Group’s gross profit margins
(Note)
, please refer to the
sub-section headed “Financial Information — Discussion and analysis of financial
condition and operations of the Group” in this document.
Note:
The cost of goods sold used for calculating gross profit margin does not take into account other
direct costs which mainly comprised transportation charges.
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Seasonality
The Group’s sales is subject to certain degree of seasonal fluctuations. Generally,
demand for the Group’s beauty gadgets is relatively higher during spring season in March
and April. The Directors consider this is due to the higher appearance consciousness of
target customers in preparation for summer when they wear short wears, leading to their
purchase behaviour before summer. The Group also experienced higher sales during
Christmas holidays in 2014, and in November 2015 when Tmall launched special
promotional activities to boost online shopping.
Payment terms and credit control
The Group generally offers a credit period of 30 days after the end of the month of
sales to its chain retailer customers to settle payments, whereas other distributors and
retailers are usually requested to settle payments within 30 to 60 days upon delivery of
products depending on the distributors or retailer ’s credit record, historical sales
performance, annual purchase and accounts settlement patterns.
For certain distributors or retailer customers with shorter business relationships, all
sales are generally made on “cash on delivery” basis.
For online sales, customers will settle payment through online payment systems
and the Group will receive sales proceeds from escrow agents within a short period of
time. Customers who make purchases at the retail outlets or through sales hotline are
required to settle payment before delivery or by “cash on delivery”.
In order to minimise the Group’s credit risk, the management team determines
credit limits and credit periods and is responsible for credit approvals. The Group’s
accounting department is delegated with the responsibility for other monitoring
procedures to ensure that proper and timely follow-up action is taken to recover overdue
debts. In addition, the management team reviews the recoverable amount of each
individual trade debt at the end of each year to ensure that adequate impairment losses
were made for irrecoverable amounts, if any. In this regard, the Directors believe that the
Group’s credit risk is significantly reduced.
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Before accepting orders from new customers, the Group determines the credit terms
by assessing various factors, including reputation and business scale of the customer, if
appropriate. The Group’s accounting department carries out regular reconciliations of
outstanding receivables balances and the Group’s management regularly reviews whether
bad debts, if any, are to be written off. For the two years ended 31 December 2015, the
Group had made no provision for impairment loss on its trade receivables as at the
respective year ends. Nevertheless, the Group had written off bad debts amounting to an
aggregate of approximately HK$226,000 for the year ended 31 December 2015.
Sales return policy
The Group generally permits its customers to return products to the Group due to
quality defects. Save as disclosed in the sub-paragraph headed “Sales and distribution
channels — (II) Indirect sales — Sales to other distributors and retailers — Management of
distribution network” in this section, the Directors confirm that, except for (i) the
purchase of certain display items of the franchised stores at discounted prices with
immaterial purchase amounts from the franchisees when they terminated the business;
and (ii) the repurchase of old models of certain products upon launch of new models by
the Group from certain distributor customers with immaterial amounts, the Group did not
repurchase any unsold products from retailer or distributor customers during the Track
Record Period.
According to the agreements with certain chain retailer customers, their purchases
are conducted on a returnable basis. Nevertheless, the Group did not experience any
material products return from such chain retailer customers during the Track Record
Period.
During the Track Record Period, the Group did not experience any material product
returns or make any material product recalls due to any quality defects, perceived product
side effects or harmful chemicals or substances. No inventory impairments were made for
the two years ended 31 December 2015.
SALES AND MARKETING
As the Group’s products target the general consumer market, the Group has put
considerable resources in devising various marketing campaigns to further increase
public awareness of the Group’s brand recognition and its products. During the Track
Record Period, the Group advertised mainly through magazines, pamphlets, banners,
billboards, television advertisements, internet advertisements, and media advertisements
on public transit vehicles such as buses. Trade exhibitions are also conducted in order to
gain awareness of the Group’s products. The Group also contracts with celebrities to be
the brand/product ambassadors. For the Group’s sales and marketing function in relation
to a new product, please refer to the paragraph headed “Operating flow — Devising
marketing and promotion plan” in this section above.
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BUSINESS
Marketing materials and design were carried out by the Group’s in-house staff.
However, the Group’s advertising activities are subject to the relevant laws and
regulations of the jurisdictions where the Group operates. For instance, the Trade
Description Ordinance provides that no person(s) shall publish any advertisements that
contain misleading information and/or a false trade description of the goods. If the
Group’s marketing materials or advertisements contain anything contrary to the relevant
laws and regulations, the Group would be liable for those breaches.
During the Track Record Period and as at the Latest Practicable Date, the Directors
confirm that there was no breach of the said ordinance by the Group, and the Group did
not experience any non-compliance with the applicable laws and regulations relevant to
the advertising issue.
QUALITY CONTROL
Before the Group orders a particular product from the suppliers, if the Directors
consider there would be higher risk of product defective rate due to product quality, the
Group would ensure that each batch of products supplied should be accompanied with a
Quality Control Report (the “Q.C. Report”) which is issued by the product manufacturer.
The Q.C. Report is issued if it is in compliance with the quality and safety standards set by
the manufacturer. For beauty gadgets, the Group will obtain copies of clinical studies
certificates and/or reports issued to the manufacturer to prove that the beauty gadgets
perform their advertised functions and are not hazardous for humans to use. Moreover, a
certificate of safety compliance would be provided by the supplier if the subject product is
subject to safety compliance under the Electrical Products (Safety) Regulations.
When the products are delivered to the Group’s warehouses, the warehouse staff
will inspect the condition (including physical appearance, packaging and labelling) of the
products to ensure that their condition has not been changed or impaired and that there is
no damage to the products. The designated quality control staff will then perform
sampling inspections on the products. They follow the quality control guidelines of each
product when conducting quality control tests. Quality inspection on the fitness
equipment normally include the equipment’s condition, structure, functions and safety,
whilst the quality inspection on the beauty gadgets normally include the condition,
structure and safety. If the quantity of products does not match or where defects are
found, the staff will notify the management. The Group will then take records and photos
of the damaged products and communicate with the relevant suppliers and request for
refund or exchange of products from the relevant suppliers.
As at the Latest Practicable Date, the Group had four designated staff responsible
for the quality control of the products of the Group.
The Group selects and assembles its branding profile with due regard to the quality
exhibited by products of the underlying branded suppliers. The Directors believe that the
fitness equipment and beauty gadgets products which the Group sells generally comply
with international safety standards, and is subject to the Group’s quality control
procedures including sample inspection upon deliveries to its warehouse. The Directors
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BUSINESS
consider the chance of significant defects occurring in its product portfolio is generally
low and the exposure to significant potential compensation claims from its customers is
unlikely. During the Track Record Period, the Group did not encounter any incidence of
customer complaints or product liability claims of materiality.
During the Track Record Period, the Group had not made any material claim against
the suppliers.
In view of the above, the Group has not taken out any product liability insurance
policy in relation to the products it offers. To the best of knowledge and understanding of
the Directors, it is not the industry practice for retailers or distributors to take out such
product liability insurance policy. Please refer to the paragraph headed ‘‘Risk Factors —
Risks relating to the Group and its business — The Group’s products may cause
unexpected or undesirable side effects unknown to the Group that may result in costly
product returns or recalls, or even legal actions against the Group” in this document for
further details.
In order to gain customer confidence in the Group’s products and enhance the
Group’s corporate image, the Group has participated in the “No Fakes Pledge” Scheme
since 2012. It is a scheme launched by the Hong Kong Government and aims to promote a
sense of pride among traders who do not deal in counterfeit and pirated goods; it also
aims to enhance awareness of intellectual property protection among retailers and
consumers alike. The “No Fakes Pledge” Scheme campaign encourages participating
retail merchants to set a good example by pledging not to sell or distribute counterfeit or
pirated products, thus establishing and upholding honest and trustworthy trading
practices.
WARRANTY
For products which are sold by the Group on an exclusive basis, the Group generally
offers its customers a one-year product warranty period. Warranty for the products is
usually given directly by the Group to customers if a warranty is also given to the Group
from the supplier. Products that are found to be defective and are entitled for a
replacement will be subject to a replacement either for the defective parts or for the whole
equipment or gadget. For products which are sold by the Group on a non-exclusive basis,
warranty is generally provided directly by the relevant sole distributors to the ultimate
customers. For the Group’s proprietary products, the Group generally offers its customers
a one-year product warranty period.
Generally, certain brand owners would offer the Group a certain amount of spare
parts per shipment so that replacements can be made by the Group to their customers.
Certain brand owners would also undertake to take up returned defective products (if
any) and will replace them with new products under the warranty policy given to the
Group.
The Directors confirm that the Group had not received any material complaints
about the quality of the products during the Track Record Period. The Group did not make
any return of products to the suppliers during the Track Record Period.
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BUSINESS
CUSTOMER SERVICE
The Group has maintained a service hotline in Hong Kong. The customers can
contact the service hotline to ask questions or leave a complaint.
In relation to product repairs, the current maintenance policy provided by the
Group is to offer free on-site maintenance of one year upon purchase of fitness equipments
worth more than HK$2,400. For fitness equipments worth less than HK$2,400, the Group
also offers free maintenance period of one year, but the on-site maintenance service is for
one month upon purchase only; and customers are then required to bring the products
back to the stores for repair after the one month period has lapsed. For beauty gadgets, the
Group generally offers free maintenance of one year, but customers are required to bring
the products to the stores for repair.
For maintenance of beauty gadgets sold in the PRC, customers can return their
purchased products to the Group’s Shenzhen office for repair. Simple repair works will be
conducted by the staff situated at the office. If the staff is unable to repair the product, the
product will be delivered to Hong Kong for further repair works and will be returned to
the customer by mail.
In addition, the customers may also leave a complaint in writing through the retail
websites operated by the Group or emails to the Group.
INVENTORY CONTROL
Inventories held by the Group are mainly fitness equipment and beauty gadgets
products provided by the suppliers. The Group had inventories of HK$22.5 million and
HK$14.6 million as of 31 December 2014 and 2015, respectively. The majority of the
Group’s inventories are kept in its retail outlets and warehouses in Hong Kong and
Shenzhen, while some beauty gadgets and accessories are kept in the point-on-sales of
certain chain retailers as consignment stocks.
The Directors understand that maintaining a sufficient but non-excessive inventory
is crucial to the success of the Group’s business. The Group normally maintains the
inventory level at an average of approximately two to six months depending on the
product nature, marketing plan and delivery lead time. The Group place orders with
suppliers regularly to replenish the inventory stock to a predetermined level which in
turn allows it to avoid additional warehouse costs. The general lead time for the delivery
of products to the warehouses ranges from 30 to 60 days for orders placed with overseas
suppliers. For orders placed with PRC suppliers, which are usually fitness equipments,
the lead time for delivery is approximately 60-90 days. The Group adopts the
first-in-first-out inventory management policy in order to minimise stock-ageing
problems. The inventory turnover days for each of the two years ended 31 December 2015
was approximately 302 days and 207 days respectively. The relatively higher inventory
turnover day for the year ended 31 December 2014 was mainly due to the stock up of
certain flagship products i.e. hair removal devices and facial care devices near the end of
2014 for launch in 2015. Moreover, the Directors consider that it is necessary to maintain a
relatively higher inventory near the end of a year as manufacturers in the PRC generally
suspend production during the Chinese New Year holidays.
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BUSINESS
Since two of the Group’s top five suppliers are situated in Israel, the Group has
implemented a special inventory control policy for these suppliers in order to ensure
stable delivery of products should there be a delay of product supply due to events arising
from political turmoil. Depending on product types, an inventory level of three to six
months is usually maintained for these two suppliers. Aside from maintaining a higher
inventory level with these suppliers, the Group also focuses on diversifying its product
categories in order to sustain retail activities and to prevent from overreliance on these
two suppliers.
The Directors consider that the beauty gadgets industry is characterised by rapid
changes of trends and technology. The suppliers frequently launch new products or
upgrade their existing products to cater for evolving industry trends and consumer
preferences. As such, the Directors believe that the beauty gadgets products have a
relative short product life cycle as compared with other products. Based on their
experience and observation, the Directors believe the product life cycle of beauty gadgets
products ranges from three to five years while fitness equipment products have longer life
cycle of four to seven years. Nevertheless, the product brand owners will usually launch
new product models to replace old models before the expiry of the expected product life
cycles of those old models. The Group has a policy of making provisions against slow
moving and obsolete inventories when such items are identified. During the Track Record
Period, the Group had not made any allowances for impairment of obsolete and
slow-moving inventories. This is because the Group closely monitors the stock ageing and
usually offers the products prone to obsolescence to the customers at a discount.
The Group has established a computerised inventory management system and other
inventory control procedures to track in-coming and out-going inventory. The warehouse
staff also maintain an inventory list for stock kept at the warehouse and update the list
regularly. They also carry out a full inventory check at the end of each financial year and
monthly inventory checks on selected products.
LOGISTICS
The Group has its own logistics team which aims at ensuring the cost-effectiveness
and timely delivery of the products to the customers and for better control. The logistics
team consisted of three staff as at the Latest Practicable Date. The logistics team
coordinates closely with customer services staff for the purposes of arranging the delivery
of the products to the customers according to the purchase orders received.
The Group owned and operated a truck and two cargo vans as at the Latest
Practicable Date. The Group delivered the products from its warehouse to its own retail
stores and designated places of the customers in Hong Kong. The costs of delivery to the
chain store customers were borne by the Group. For individual consumers in Hong Kong,
the Group provides free delivery for purchases of more than HK$300. The Group also
engages two third-party logistics providers in Hong Kong for delivery of heavy fitness
equipments and to cover delivery during busy hours.
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BUSINESS
The Group also rented a warehouse in Shenzhen to support its online sales
operation in the PRC. The Group engages third party logistics companies to regularly
transfer goods from the Hong Kong warehouse to the Shenzhen warehouse. After the
customers place orders through the online storefronts in the PRC, the staff in the Shenzhen
warehouse is responsible for packaging of the goods and engages third party logistics
companies to deliver the order. The logistic company picks up the package from the
Shenzhen warehouse and delivers the packages directly to the customers’ door or to
pick-up stations selected by the customers. The cost of the delivery will be borne by the
Group. For other distributors and retailer customers in the PRC, the Group will either
deliver the products to the customers’ designated places in Hong Kong or engage third
party logistics company to provide delivery services at the cost of the Group.
During the Track Record Period, the Group did not face any material disruption in
the delivery of the products and it did not suffer any loss or pay any compensation as a
result of delays in delivery or poor services of the logistics companies.
COMPETITION
The Group faces keen competition in respect of, inter alia, pricing, product quality
and brand identification. Some of the Group’s competitors may have greater financial,
technological and informational resources than the Group, which may enable them to
provide products superior to the Group’s products, or to adapt more quickly than the
Group does to evolving industry trends and consumer preferences. Conversely, some of
the Group’s competitors may, out of various commercial considerations, adopt
low-margin sales strategies and compete against the Group based on lower prices to
increase their market shares. Details of the competition that the Group currently faces and
will continue to face are set out under the section headed “Industry overview” in this
document. The Directors consider that the [REDACTED] will promote the Group’s
corporate image and enhance public awareness towards the Group’s brands and products.
This in turn will enable the Group to attract new customers and retain existing customers.
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INTELLECTUAL PROPERTY RIGHTS
Trademarks
As at the Latest Practicable Date, the Group owned a number of trademarks
registered in Hong Kong and the PRC. The following is the trademarks owned by the
Group:Hong Kong
trademark
Use of the trademark
Holder of
trademark
The “FITBOXX.com” trademark is
limited to the use of the Group’s
advertising, business management,
business administration and office
functions under Class 35 of the
Hong Kong Trademark Registry
classifications.
Fit Boxx HK
The “FITBOXX 元氣館” trademark is
classifications.
Fit Boxx HK
The “CosmoBoxx” trademark is
classifications.
Fit Boxx HK
The “ENERGYM” trademark is
limited to the use of labelling the
Group’s gymnastic and sporting
articles (not included in other
classes) under Class 28 of the Hong
Kong Trademark Registry
classifications.
Fit Boxx HK
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BUSINESS
Hong Kong
trademark
PRC
trademark
Holder of
trademark
The “部屋達人” trademark is limited
to the use of labelling the Group’s
furniture under Class 20 of the
classifications.
Fit Boxx HK
The “元氣達人” trademark limited to
the use of the Group’s advertising,
business management, business
administration and office functions
under Class 35 of the Hong Kong
Trademark Registry classifications.
Fit Boxx HK
Holder of
trademark
The “FITBOXX 元氣館” trademark is
limited to the use of labeling fitness
equipment under Class 28 of the PRC
Trademarks classifications. The
permitted items include dumbbells,
muscle training machineries, boxing
gloves, etc.
Fix Boxx Shenzhen
The “COSMO BOXX ” trademark is
limited to the use of labeling beauty
equipment under Class 8 and Class 10
of the PRC Trademarks classifications.
The permitted items include hair
removal devices, acne removal
apparatuses and beauty devices.
Fix Boxx Shenzhen
– 142 –
BUSINESS
The following trademarks are registered and held by the Group on behalf of a brand
owner at its request for the purpose of business efficacy and management efficiency.
Hong Kong
trademark
held on
behalf of
a brand owner
The “Silk’n” trademark is a trademark
used by the Group’s supplier. The
Group registered the supplier ’s
trademark in Hong Kong for better
protection and for the execution of
exclusive distribution rights of the
Silk’n products in Hong Kong. This
trademark is limited to the use of
labelling the Group’s beauty
equipment under Class 10 of the Hong
Kong Trademark Registry
classifications.
PRC trademarks
held on behalf of
a brand owner
The “HomeSkinovations” trademark
is a trademark used by the Group’s
supplier. The Group registered the
supplier ’s trademark in the PRC for
better protection and for the
operation of the Silk’n store in
T-Mall. The trademark is limited to
the use of beauty equipment under
Class 10 of the PRC Trademarks
classifications. The permitted items
include acne removal apparatuses
and beauty devices.
– 143 –
Holder of
trademark
Fit Boxx HK
Holder of
trademark
Fit Boxx Shenzhen
BUSINESS
PRC trademarks
held on behalf of
a brand owner
Holder of
trademark
The “SensEpil” trademark is a
trademark used by the Group’s
supplier. The Group registered the
supplier ’s trademark in the PRC for
better protection and for the
operation of the Silk’n store in
T-Mall. This trademark is limited to
the use of beauty equipment under
Class 8 of the PRC Trademarks
classifications. The permitted items
include hair removal devices.
Fit Boxx Shenzhen
The “Silk’n” trademark is a trademark
used by the Group’s supplier. The
Group registered the supplier ’s
trademark in the PRC for better
protection and for the operation of
the Silk’n store in T-Mall. This
trademark is limited to the use of
beauty equipment under Class 10 of
the PRC Trademarks classifications.
The permitted items include acne
removal apparatuses and beauty
devices.
Fit Boxx Shenzhen
The Group has made applications for the registration of eight trademarks in the PRC
under classes 8, 21 and 35 to the Trademark Office of the State Administration for Industry
and Commerce of the PRC. All such applications were still being processed as at the Latest
Practicable Date.
Domain names
As at the Latest Practicable Date, the Group registered five domain names. Details in
relation to the domain names are set out in the paragraph headed “Appendix IV – B.
Further information about the business – 2. Intellectual property rights of the Group” in
this document.
The Group recognises the importance of protecting and enforcing the Group’s
intellectual property rights. The Group relies on various intellectual property laws,
especially trademark laws, to protect its proprietary rights. If any attempted or actual
infringement of the Group’s trademarks comes to the Group’s attention, the Group will
take appropriate actions (including legal actions) to protect its trademarks to the full
extent allowable by law.
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BUSINESS
EMPLOYEES
Number of employees by function and geographical location
As at the Latest Practicable Date, the Group had a total of 71 full-time employees.
Set out below is the number of employees of the Group by function and geographical
location as at the Latest Practicable Date:
Hong Kong
Function
Number of Employees
Senior management
Finance and accounting
Sales and marketing
Human resources and administration
Warehousing
Quality control and maintenance
Logistics
Customer services
Retail stores operations
7
2
5
1
6
4
3
3
29
PRC
Function
Number of Employees
Senior management
Finance and accounting
Human resources and administration
Warehousing
Online stores operations and customer services
1
1
1
3
5
Relationship with staff
The Directors consider that the Group has maintained good relationship with its
employees. The Directors confirm that the Group has not experienced any significant
problems with its employees or disruption to its operations due to labour disputes nor has
it experienced any difficulties in the recruitment and retention of experienced staff or
skilled personnel during the Track Record Period. During the Track Record Period and up
to the Latest Practicable Date, there were no labour union established by the Group’s
employees.
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Training and recruitment policies
The Group intends to use its best effort to attract and retain appropriate and suitable
personnel to serve the Group. The Group assesses the available human resources on a
continuous basis and will determine whether additional personnel are required to cope
with the business development of the Group. The Group provides various types of
trainings to its employees. The Group provides trainings to new employees to explain the
Group’s internal rules and to enhance employees’ safety awareness. Apart from the
ongoing on-the-job training, the Group also identifies training programmes and seminars
arranged by external institutions such as the Hong Kong Retail Management Association
and the Occupational Safety & Health Council, and encourages employees to attend. The
training fees (if any) are reimbursed by the Group. These training programmes and
seminars are usually relevant to the Group’s business and operation, such as customer
servicing techniques and introduction of new products and their functions. Through these
trainings, the Group intends to cultivate a sense of work safety among its employees and
to enhance the technical skills relevant to employees’ responsibilities.
Remuneration policies
The Group entered into separate labour contracts with each of its employees in
accordance with the applicable labour laws in Hong Kong and the PRC. The remuneration
package the Group offers to its employees includes salary, bonuses and commission for
sales persons. The Group determines employee salaries based on each employee’s
qualifications, position and seniority. For sales persons, they are entitled to guaranteed
commission based on retail sales amount, and will also be entitled to further commissions
subject to whether they can meet the sales target laid out by the Group. The Group has
designed an annual review system to assess the performance of its employees, which
forms the basis of its decisions with respect to salary raises, bonuses and promotions.
INSURANCE
The Group maintains insurance policies against loss or damage to its office and
retail shops, business interruption, and for employees’ compensation for its staff in Hong
Kong. In relation to the insurance policy maintained for the Group’s inventories, the
insurance policy insures the fitness equipment and beauty equipment stored in the
Group’s warehouse in Hong Kong. The Group also maintains a general property
insurance for its business in the PRC. The insurance premium paid by the Group for the
two years ended 31 December 2015 amounted to approximately HK$81,000 and
HK$214,000 respectively. As the major aspects of the Group’s operation have been covered
by insurance, the Directors consider that the Group has taken out sufficient insurance
policies over its assets and employees. During the Track Record Period, there have not
been any material insurance claims.
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BUSINESS
The Group’s branded products are generally covered by the product liability
insurance maintained by relevant brand owners. The Group is exposed to potential
product liability claim in respect of injuries alleged to be caused by the Group’s
proprietary product that a consumer purchases. For further details of the potential
product liability to which the Group may be exposed, please refer to the sub-section
headed “Quality control” above in this section. Please also refer to the paragraph headed
“Risk Factors — Risks relation to the Group and its business — The Group’s products may
cause unexpected or undesirable side effects unknown to the Group that may result in
costly product returns or recalls, or even legal actions against the Group” in this document
for the relevant risk.
HEALTH, WORK SAFETY, SOCIAL AND ENVIRONMENTAL MATTERS
The Group has established procedures to provide its workers with a safe and
healthy working environment by providing work safety rules in the staff manual for the
operation and warehousing staff to follow. In addition, the Group provides its employees
with occupational safety education and training to enhance their awareness of safety
issues.
In order to protect the rights of workers to receive medical cure and monetary
compensation after suffering from work injuries, the Group has procedures in place to
handle work-related accidents. During the Track Record Period and up to the Latest
Practicable Date, there was no material breach of work safety rules by the Group’s
operation and warehousing staff, and the Group did not experience any significant
incidents or accidents in relation to workers’ safety or any non-compliance with the
applicable laws and regulations relevant to the work safety and health issues.
The Group does not have formal protocols over social responsibility and
environmental protection matters. The Directors believe the nature of the Group’s
business operations would not impose any serious threats to these concerns.
PROPERTIES
As at the Latest Practicable Date, the Group does not own any property.
Properties leased by the Group in Hong Kong
As at the Latest Practicable Date, the Group had leased 12 properties in Hong Kong,
the uses of which are for retail outlets, showroom, repair centre, office and warehouse
purposes respectively. Except for the lease in relation to a retail store in Yuen Long district,
details of which are set out in the section headed “Connected transactions” in this
document, all properties leased by the Group in Hong Kong were from Independent Third
Parties.
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BUSINESS
The following table sets out a summary of the properties leased by the Group in
Hong Kong as at the Latest Practicable Date:
Location
Shop No. 1, G/F,
and Flat J, 1/F,
Phoenix Apartments,
No. 70 Lee Garden
Road, Causeway Bay,
Hong Kong
Use of
Approximate
property by gross floor
the Group
area Tenant
(sq.m.)
Term of
current lease
Rental payment basis
Retail store
111 Fit Boxx HK
7 July 2014 to
6 July 2016
Fixed monthly rental
payment
Shop No. 411, Level 4, Retail store
Tsuen Wan Plaza,
New Territories,
Hong Kong
112 Fit Boxx HK
1 October 2015 to
30 September
2017
payment; plus additional
turnover rent of a certain
percentage of the monthly
gross receipts of the retail
outlet exceeding
the fixed monthly rent
Whole Floor, 7/F,
Retail store
Mongkok Metro,
594-596 Nathan Road,
Kowloon,
Hong Kong
93 Fit Boxx HK
16 August 2015 to Fixed monthly rental
15 August 2017
payment
Booth S1FA and
Storeroom, 1/F,
Kornhill Plaza,
Kornhill Road,
Hong Kong
(labelled as licence
agreement)
Retail store
59 Fit Boxx HK
9 April 2016 to
8 October 2016
Department store
Retail store
counter at
5/F Telford Plaza,
Kowloon Bay,
Kowloon, Hong Kong
25 Fit Boxx HK
1 December 2015 Monthly fee based on a
to 30 November certain percentage of gross
2016
sales of the retail outlet,
subject to
a minimum sales amount
per month
G/F & M/F Shop 13,
Wing Fu Mansion,
2‐6 Fung Yau Street
North, Yuen Long,
New Territories,
Hong Kong
41 Fit Boxx HK
1 April 2015 to
31 March 2017
Retail store
– 148 –
Fixed monthly fee payment;
plus additional turnover
fee of a certain percentage
of the monthly gross
receipts of the retail outlet
exceeding the fixed
monthly fee
payment
BUSINESS
Location
Shop No. 338,
Level 1,
Plaza Hollywood,
Diamond Hill,
Kowloon,
Hong Kong
Use of
Approximate
the Group
area Tenant
(sq.m.)
Retail Store
Workshop No. E1,
Showroom
6/F, Camelpaint
and repair
Building, Block 3,
centre
No. 60 Hoi Yuen Road,
Kowloon, Hong Kong
53 Fit Boxx HK
Term of
current lease
3 October 2015 to
31 August 2017
49 Fix Boxx HK 5 November 2015
to 4 November
2017
payment; plus additional
turnover rent of a certain
percentage of the monthly
gross receipts of the retail
outlet exceeding the fixed
monthly rent
payment
Room A-E,
9/F, Hung Wai
Industrial Building,
No. 3 Hi Yip Street,
Yuen Long,
New Territories,
Hong Kong
Warehouse
724 Fit Boxx HK
3 October 2015 to
2 October 2017
payment
Room G, H& I,
9/F, Hung Wai
Industrial Building,
Yuen Long,
New Territories,
Hong Kong
Warehouse
384 Fit Boxx HK
17 March 2016 to
16 March 2018
payment
Unit F, 3/F,
Hung Wai Industrial
Building,
Yuen Long,
New Territories,
Hong Kong
Warehouse
213 Fix Boxx HK 21 May 2015 to
20 May 2017
payment
Room 2207,
22/F, Park‐In
Commercial Centre
56 Dundas Street,
Mong Kok,
Kowloon,
Hong Kong
Office
50 Fix Boxx HK 17 June 2015 to
30 November
2017
payment
– 149 –
BUSINESS
Properties leased by the Group in the PRC
As at the Latest Practicable date, the Group had leased two properties in Shenzhen,
the PRC from an Independent Third Party for use as office and warehouse. The following
table sets out a summary of the properties leased by the Group in the PRC as at the Latest
Practicable Date:
Location
Units 1304 and 1305,
Shenrong Building,
No. 1045 Fuqiang
Road, Futian District,
Shenzhen,
Guangdong, China
Use of
Approximate
the Group
area Tenant
(sq.m.)
Office
Unit 713, Shenrong
Warehouse
Building, No. 1045
Fuqiang Road, Futian
District, Shenzhen,
Guangdong, China
Term of current
lease
85 Fit Boxx
Shenzhen
31 March 2015 to
30 March 2017
payment
59 Fit Boxx
Shenzhen
5 May 2015 to
4 May 2017
payment
According to the inspection conducted by a surveyor appointed by the Group, there
are suspected unauthorised building works (the “UBWs”) in two leased retail stores of the
Group, located in Causeway Bay (the “Causeway Bay Shop”) and Yuen Long (the “Yuen
Long Shop”), respectively. No notice or order has been imposed by the relevant
government authority to remove the UBWs as at the Latest Practicable Date. In the event
that an order is imposed by the relevant government authority in relation to the UBWs, the
Group and the relevant landlords will be required to remove and/or rectify the UBWs
under the relevant Hong Kong laws.
According to the Hong Kong Legal Counsel, notwithstanding the existence of the
UBWs, the tenancy agreement for each of the Causeway Bay Shop and Yuen Long Shop is
valid and subsisting and in full force and effect in favour of the Group.
Except for certain minor additions constructed by the Group such as signage board
(the “Group’s UBWs”), the Directors confirm that the UBWs situated at the Causeway Bay
Shop and Yuen Long Shop (the “Landlord’s UBWs”) were not built by the Group and
these Landlord’s UBWs existed prior to the commencement of the relevant tenancy
agreements. Accordingly, the costs of removing the Landlord’s UBWs shall be borne by the
respective landlords. As certain UBWs were erected or built within the two retail stores,
the removal and/or rectification works by the respective landlords, may have influence
on the operation of the respective shops the Group. The Group has informed the
respective landlords about the UBWs and also recommended them to take appropriate
action to remove the Landlord’s UBWs. As at the Latest Practicable Date, no feedback had
– 150 –
BUSINESS
been provided by both the landlords. In addition, the Group has removed the Group’s
UBWs of the Yuen Long Shop to the extent practicable. No action has been taken for the
Group’s UBWs of the Causeway Bay Shop in view that the tenancy agreement will be
expired soon (i.e. in July 2016).
The Directors confirm that to the best of their knowledge, none of the UBWs had
resulted in any injuries to its employees and the public during the Track Record Period
and up to the Latest Practicable Date.
The Group plans to relocate the Causeway Bay Shop and the Yuen Long Shop upon
the expiry of the term of the respective tenancies, which will be 7 July 2016 and 31 March
2017, respectively. Since the tenancy agreement for the Causeway Bay Shop will expire
soon, the Group is currently identifying suitable premises for relocation. The estimated
relocation cost which may be incurred by the Group would be approximately HK$0.5
million and HK$0.4 million for the relocation of the Causeway Bay Shop and the Yuen
Long Shop, respectively. The Directors are of the view that no material disruption to the
Group’s business is expected to arise from the proposed relocations as the Group will
ensure smooth transition.
The Controlling Shareholders have executed the Deed of Indemnity in favour of the
Group to indemnify the Group against, among others, losses, liabilities, damages, costs,
charges, fees, claims, expenses and fines of whatever nature suffered by or incurred by the
Group as a result of directly or indirectly or in connection with the UBWs.
The aggregate revenue contribution of this two retail stores for the two years ended
31 December 2015 represented approximately 14.3% and 10.5% of the Group’s revenue
respectively.
In addition, under the relevant occupation permit of the premises which the
Causeway Bay Shop is located, the permitted use of the first floor of the Causeway Bay
Shop (which consists of ground floor and first floor) is restricted for domestic use while
the relevant floor has been used by the Group for retail purposes. Accordingly, there is a
breach of section 40(2) of the Buildings Ordinance for not requesting permission for a
material change in use under section 25(1) of the Building Ordinance by the Group. In
view that the tenancy agreement of the Causeway Bay Shop will expire soon and the
Group will relocate the Causeway Bay Shop to other premises, the Group considers that it
is not sensible to take action to rectify such breach. Despite such breach, the Hong Kong
Legal Counsel is of the view that (i) the tenancy agreement for the Causeway Bay Shop is
valid and subsisting and in full force and effect in favour of the Group, and (ii) for the
breach of section 40(2) of the Buildings Ordinance by the Group, the fines (if any) that the
Group is likely to receive if found guilty of such offence should be greatly reduced from
the maximum default fine of HK$100,000 and the chance of imprisonment (if any) for any
director of the Group is extremely remote. The Controlling Shareholders have executed
the Deed of Indemnity in favour of the Group to indemnify the Group against, among
others, losses, liabilities, damages, costs, claim and expenses incurred by the Group in
relation to the unauthorised use of the first floor of the Causeway Bay Shop.
– 151 –
BUSINESS
INTERNAL CONTROL
The Group’s internal control system and procedures are designed to meet its specific
business needs and to minimise its risk exposure. The Group has adopted different
internal guidelines, along with written policies and procedures to monitor and lessen the
impact of risks which are relevant to the Group’s business and control the Group’s daily
business operations. In order to ensure sound implementation of the Group’s risk
management and internal control policies, the Group has also adopted various on-going
measures as set out below:
•
the Group has engaged an internal control consultant to perform internal
controls review in connection with its internal control policies;
•
the Group has improved the existing internal control framework by adopting
a set of internal control manual and policies, which cover corporate
governance, risk management, operations and legal matters;
•
the Group will assess and monitor the implementation of its internal control
manual and policies by the relevant departments and companies in the Group
through regular audits and inspections; and
•
provide internal training to staff as appropriate in order to enable them to
follow the internal control and corporate governance procedures.
The Group will continuously monitor and improve the Group’s management
procedures to ensure that effective operation of those internal controls are in line with the
growth of the Group’s business and good corporate governance practice.
LITIGATION
During the Track Record Period and up to the Latest Practicable Date, the Directors
confirm that, neither the Company, any of the subsidiaries nor the Directors and senior
management is engaged in any litigation, arbitration or claim of material importance, and
no litigation, arbitration or claim of material importance is known to the Directors to be
pending or threatened by or against the Company or any of the subsidiaries or the
Directors and senior management, that would have a material adverse effect on the results
of operations or financial condition of the Group.
LICENSES AND PERMITS
To the best knowledge, information and belief of the Directors, and as advised by
the Company’s legal adviser as to Hong Kong law and legal adviser as to PRC law, the
Group has obtained all material licenses, permits and certificates which are necessary for
the conduct of its principal businesses as stipulated in this section.
– 152 –
CONNECTED TRANSACTIONS
CONTINUING CONNECTED TRANSACTION EXEMPTED FROM REPORTING,
ANNUAL REVIEW, ANNOUNCEMENT AND INDEPENDENT SHAREHOLDERS’
APPROVAL
Ms. Poon Suet Fan is the mother of Mr. Chan, the chairman of the Company,
executive Director and one of the Controlling Shareholders, and Mr. Chan Yiu Chung is
the brother of Mr. Chan. Therefore, Ms. Poon Suet Fan and Mr. Chan Yiu Chung will
become connected persons of the Company upon [REDACTED] by virtue of Chapter 20 of
the GEM Listing Rules.
Lease Agreement
On 31 March 2015, the Group entered into a lease agreement (the “Lease
Agreement”) with Ms. Poon Suet Fan, pursuant to which Ms. Poon Suet Fan as a landlord
agreed to lease a property located on the ground floor and the loft of Wing Fu Mansion,
No. 2-6 of Fung Yau Street North, Yuen Long, New Territories, with a gross area of
approximately 41 sq.m (the “Premises”) to the Group as tenant at a monthly rental of
HK$35,000 for a period of two years commencing from 1 April 2015. The Premises is
occupied by the Group to operate as a shop for the sale of the Group’s products.
Given that Ms. Poon Suet Fan is a connected person of the Group, the Lease
Agreement constitutes a continuing connected transaction of the Group under Chapter 20
of the GEM Listing Rules.
The Directors confirm that the rental payable under the Lease Agreement is on
normal commercial terms based on arm’s length negotiation and was determined with
reference to the prevailing market rate for the lease of properties of similar standard in
neighbouring areas of the premises.
IT Maintenance Agreement
On 1 February 2013, the Group entered into an IT maintenance agreement (the “IT
Maintenance Agreement”) with Exodus Technology Ltd (“Exodus Technology”), a
company directly and wholly owned by Mr. Chan Yiu Chung, pursuant to which Exodus
Technology agreed to provide maintenance service for the computer system of the Group
on a monthly basis at the monthly service charge of HK$3,500 until termination by either
party.
On 1 May 2015, the Group entered into another IT Service Agreement (the “IT
Service Agreement”) with Exodus Technology for a period of 24 months to replace the IT
Maintenance Agreement. Pursuant to the IT Service Agreement, Exodus Technology
agreed to provide maintenance and security service for the computer system of the Group
on a monthly basis at the monthly service charge of HK$16,500. The increase in the service
charge is due to the expansion of the Group and the upgrading of the computer system of
the Group.
Given that Mr. Chan Yiu Chung is a connected person of the Group, the IT Service
Agreement constitutes a continuing connected transaction of the Group under Chapter 20
of the GEM Listing Rules.
– 153 –
CONNECTED TRANSACTIONS
The Directors confirm that the service charges payable under the IT Service
Agreement is on normal commercial terms based on arm’s length negotiation and was
determined with reference to the prevailing market rate for similar services.
GEM Listing Rules implications
As the applicable percentage ratios for both transactions are less than 5% and the
annual consideration for the Lease Agreement is less than HK$3,000,000 while the annual
consideration for the IT Service Agreement is less than HK$3,000,000, the transactions
under the Lease Agreement and the IT Service Agreement are fully exempted from all
requirements under Chapter 20 of the GEM Listing Rules.
For the three years ended 31 December 2018, the proposed annual cap amount for
the aggregate consideration payable by the Group will be HK$420,000, HK$420,000 and
HK$420,000 respectively under the Lease Agreement and HK$198,000, HK$198,000 and
HK$198,000 respectively under the IT Service Agreement. Such annual cap amounts are
estimated based on the rental payable to Ms. Poon Suet Fan and the service charges
payable to Mr. Chan Yiu Chung.
CONFIRMATION FROM THE DIRECTORS
The Directors (including the independent non-executive Directors) consider that it
is in the interest of the Company to continue with the continuing connected transactions
after the [REDACTED]. They also consider that all the continuing connected transactions
as set out above are in the interests of the Company and the Shareholders as a whole and
are in the ordinary and usual course of the business. The Directors are also of the view that
the continuing connected transaction above was entered into on normal commercial terms
and the annual caps are fair and reasonable and in the interest of the Company and the
Shareholders as a whole.
– 154 –
FUTURE PLANS AND USE OF PROCEEDS
BUSINESS OBJECTIVES AND STRATEGIES
Please refer to the sub-section headed “Business — Business strategies” in this
document for the Group’s business objectives and strategies.
IMPLEMENTATION PLAN
The Group’s implementation plans are set forth below for each of the six-month
periods until 31 December 2018. Investors should note that the implementation plans and
their scheduled times for attainment are formulated on the bases and assumptions
referred to in the sub-section headed “Bases and assumptions” below. These bases and
assumptions are inherently subject to many uncertainties, variables and unpredictable
factors, in particular the risk factors set out in the section headed “Risk factors” in this
document. The Group’s actual course of business may vary from the business objective set
out in this document. There can be no assurance that the plans of the Group will
materialise in accordance with the expected time frame or that the objective of the Group
will be accomplished at all.
Based on the Group’s business objective, the Directors intend to carry out the
following implementation plans:
Business strategy
Implementation plan
Amount to be
applied from
the net
proceeds of
the [REDACTED]
HK$’000
From the Latest Practicable Date to 31 December 2016
Expansion of retail network
in Hong Kong
Enhancing marketing and
promotional activities
• Opening of a flagship shop in Shatin district:
– Identify suitable flagship shop location
– Negotiation of the terms of the lease
– Design and renovation of the flagship shop
[REDACTED]
• Launch various marketing and promotional
activities with additional budget
[REDACTED]
[REDACTED]
– 155 –
Business strategy
Implementation plan
Amount to be
applied from
the net
proceeds of
the [REDACTED]
HK$’000
For the six months ending 30 June 2017
Further development of
the PRC online market
in Hong Kong
Enhancing of marketing and
• Opening of a display store in Shenzhen, the PRC:
– Identify suitable display store location
– Design and renovation of the display store
– Opening by the end of June 2017
[REDACTED]
• Opening of a flagship shop in Shatin district:
– Opening in early 2017
[REDACTED]
• Opening of a new shop in Central:
– Identify suitable shop location
– Design and renovation of the new shop
– Opening in second quarter of 2017
[REDACTED]
• Opening of a new shop in Kowloon Bay:
– Identify suitable shop location
– Design and renovation of the new shop
[REDACTED]
[REDACTED]
[REDACTED]
– 156 –
Business strategy
Implementation plan
Amount to be
applied from
the net
proceeds of
the [REDACTED]
HK$’000
For the six months ending 31 December 2017
• Opening of a display store in Shanghai, the PRC:
– Opening by the end of December 2017
[REDACTED]
in Hong Kong
• Opening of a new shop in Kowloon Bay:
– Opening in third quarter of 2017
[REDACTED]
Enhancing of marketing and
[REDACTED]
[REDACTED]
For the six months ending 30 June 2018
• Opening of a display store in Beijing, the PRC:
[REDACTED]
[REDACTED]
Increasing market presence
in Hong Kong
• Opening of two pop-up stores in Hong Kong:
– Identify suitable pop-up store locations
– Negotiation of the terms of the leases
– Design and renovation of the pop-up stores
[REDACTED]
Enhancing the Group’s brand
recognition and image
• Refurbishment of existing retail shops
[REDACTED]
[REDACTED]
– 157 –
Business strategy
Implementation plan
Amount to be
applied from
the net
proceeds of
the [REDACTED]
HK$’000
For the six months ending 31 December 2018
• Opening of a display store in Chongqing,
the PRC:
[REDACTED]
• Opening of a display store in Guangzhou,
the PRC:
[REDACTED]
[REDACTED]
Increasing market presence
in Hong Kong
• Opening of two pop-up stores in Hong Kong:
– Identify suitable pop-up store locations
– Negotiation of the terms of the leases
– Design and renovation of the pop-up stores
[REDACTED]
recognition and image
• Refurbishment of existing retail shops
[REDACTED]
[REDACTED]
– 158 –
BASES AND ASSUMPTIONS
The business objectives set out by the Directors are based on the following bases and
assumptions:
•
the Group will have sufficient financial resources to meet the planned capital
expenditure and business development requirements during the period to
which the Group’s future plans relate;
•
there will be no change in the funding requirement for each of the Group’s
future plans described in this document from the amount as estimated by the
Directors;
•
there will be no material changes in existing laws and regulations, or other
governmental policies relating to the Group, or in the political, economic or
market conditions in which the Group operates;
•
there will be no material changes in the bases or rates of taxation applicable to
the activities of the Group;
•
the [REDACTED] will be completed in accordance with and as described in
the section headed “Structure and conditions of the [REDACTED]” in this
document;
•
the Group is able to maintain its customers;
•
there will be no material changes in the industries or businesses of the
Group’s major suppliers;
•
the Group can maintain the relationship with its suppliers;
•
the Group will be able to retain key staff in the management and the main
operational departments;
•
the Group will be able to continue its operation in substantially the same
manner as the Group has been operating during the Track Record Period and
the Group will also be able to carry out its development plans without
disruptions adversely affecting its operations or business objectives in any
way;
•
there will be no disasters, natural, political or otherwise, which would
materially disrupt the businesses or operations of the Group; and
•
the Group will not be materially affected by the risk factors as set out under
the section headed “Risk factors” in this document.
– 159 –
REASONS FOR THE [REDACTED]
The [REDACTED] will enhance the Group’s reputation and capital base and
provide the Group with additional working capital to implement the future plans set out
in the sub-section headed “Implementation plan” above.
USE OF PROCEEDS
The net proceeds from the [REDACTED], after deducting related expenses, are
estimated to be approximately HK$[REDACTED] million (assuming the [REDACTED] is
not exercised) and based on a [REDACTED] of HK$[REDACTED] (being the mid-point of
the [REDACTED] range between HK$[REDACTED] and HK$[REDACTED]. The
Directors presently intend that the net proceeds will be applied as follows:
From the
For the
For the
For the
For the
Latest six months six months six months six months
Practicable
ending
ending
ending
ending
Date to 31
30
31
30
31
December
June December
June December
2016
2017
2017
2018
2018
Total
HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million
Further development of the Group’s
business in the PRC online market by
opening of display stores
in Hong Kong
Enhancing marketing and promotional
activities
Increasing the market presence
in Hong Kong by opening
pop-up stores
recognition and image by renovation
of existing shops
[REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]
The balance of the net proceeds from the [REDACTED] of approximately
HK$[REDACTED] million will be used as to HK$[REDACTED] million (approximately
[REDACTED]% of the net proceeds) as working capital for stock up of products newly
launched in 2016 and approximately HK$[REDACTED] million (approximately
[REDACTED]% of the net proceeds) will be used as general working capital of the Group.
The Directors consider that the net proceeds from the issue of the [REDACTED] of about
HK$[REDACTED] million and the Group’s internal resources will be sufficient to finance
the business plans of the Group as scheduled up to 31 December 2018.
– 160 –
If the [REDACTED] is exercised in full, the net proceeds from the [REDACTED]
will increase to approximately HK$[REDACTED] million, assuming the [REDACTED] is
set at the mid-point of the indicative [REDACTED] range at HK$[REDACTED] per Share.
If the [REDACTED] is set at the high-end of the indicative [REDACTED] range at
HK$[REDACTED] per Share, the net proceeds from the [REDACTED] (including the
proceeds from the exercise of the [REDACTED]) will increase to approximately
HK$[REDACTED] million. If the [REDACTED] is set at the low-end of the indicative
[REDACTED] range, at HK$[REDACTED] per Share, the net proceeds from the
[REDACTED] (including the proceeds from the exercise of the [REDACTED]) will
decrease to approximately HK$[REDACTED] million. The Directors intend to apply the
additional net proceeds from the exercise of the [REDACTED] to the above purposes on a
pro-rata basis. If the [REDACTED] is finally determined to be less than
HK$[REDACTED] (being the mid-point of the indicative range of the [REDACTED]), the
Group will finance the shortfall in relation to the funding required for its implementation
plans by internal cash resources, working capital and/or other financing, as and when
appropriate. If the [REDACTED] is finally determined to be more than
HK$[REDACTED], the Group will apply the additional net proceeds as working capital.
To the extent that the net proceeds from the [REDACTED] are not immediately
required for the above purposes, it is the present intention of the Directors that such net
proceeds will be placed as short-term deposits with authorised banks and/or financial
institutions in Hong Kong.
Investors should be aware that any part of the Group’s business plans may or may
not proceed according to the timeframe as described under the sub-section headed
“Implementation Plans” of this section due to various factors such as changes in
customers’ demand and changes in market conditions. Under such circumstances, the
Directors will evaluate carefully the situations and will hold the funds as short-term
deposits in authorised banks and/or financial institutions in Hong Kong until the relevant
business plan materialises.
– 161 –
DIRECTORS AND SENIOR MANAGEMENT
SUMMARY OF DIRECTORS AND SENIOR MANAGEMENT
Directors
Name
Age Position
Roles and
Responsibilities
Date of
Joining the
Group
Date of
Relationship with
Appointment other Directors and
as Director senior management
Chan Yiu Kwong
(陳耀廣)
38 Chairman and
executive
Director
Responsible for overall 27 March
strategic planning and 2007
business development
of the Group
14 May 2015 Cousin of Ms. Lam
Tsui Ying and
husband of
Ms. Cao Xiaowei
Li Hon Ming
(李漢明)
38 Chief executive
officer and
executive
Director
Responsible for
27 March
management of the
2007
day-to-day operations
of the Group
14 May 2015 None
Lo Wing Sang
(勞永生)
50 Executive
Director
Responsible for
11 March
2016
overseeing the
strategic planning and
corporate
development of the
Group
11 March
2016
None
So Alan Wai Shing
(蘇偉成)
[●]
49 Independent
Responsible for
supervising and
non-executive
providing
Director,
the chairman
independent
of Audit
judgment to the Board
Committee
[●]
None
Ho Long Chin
Matthew
(何浪前)
35 Independent
Responsible for
[●]
non-executive
supervising and
Director,
providing
the chairman
independent
of Nomination judgment to the Board
Committee
[●]
None
Wong King Lung
(黃景隆)
[●]
Responsible for
44 Independent
supervising and
non-executive
providing
Director, the
independent
chairman of
judgment to the Board
Remuneration
Committee
[●]
None
– 162 –
Senior Management
Name
Age Position
Roles and
Responsibilities
Date of
Joining the
Group
Relationship with
Date of
other Directors
Appointment and other senior
to Position management
Ms. Lam Tsui Ying
(林翠瑩)
35 General
manager of
Fit Boxx
HK
Supervising daily
operation and
management of
Fit Boxx HK
1 April 2009
1 December
2012
Cousin of Mr. Chan
Ms. Cao Xiaowei
(曹小偉)
34 General
manager of
Fit Boxx
Shenzhen
Supervising daily
operation and
management of
Fit Boxx Shenzhen
1 December
2012
1 December
2012
Wife of Mr. Chan
Mr. Mak Chin
Wah (麥展華)
35 Marketing
manager
Developing and
communicating
marketing strategies
and coordinating
marketing functions
of the Group
19 May 2010 19 May 2010 N/A
Ms. Lam Kit Man
(林潔文)
30 Financial
controller
Supervising financial
reporting, corporate
finance, treasury, tax
and other financial
related matters
1 January
2015
Mr. Li Shiu Tong
Andrew
(李紹棠)
Financial planning,
11 January
53 Company
management and
2016
secretary and
corporate governance
chief financial
officer
1 January
2016
N/A
11 January
2016
N/A
BOARD OF DIRECTORS
The Board currently consists of six Directors comprising three executive Directors
and three independent non-executive Directors. The functions and duties of the Board
includes, but are not limited to, convening the general meetings, reporting on the
performance of the Board at the general meeting, implementing the resolutions passed at
the general meetings, formulating business plans and investment plans, preparing the
annual budget and final accounts, preparing proposals on profit distribution and
increasing or decreasing the registered capital, as well as performing the other authorities,
functions and responsibilities in accordance with the Articles of Association.
– 163 –
Executive Directors
Mr. Chan Yiu Kwong (陳耀廣), aged 38, is the chairman and one of the co-founders
of the Group and was appointed as an executive Director on 11 March 2016. Mr. Chan is
primarily responsible for the overall strategic planning and business development of the
Group, overseeing the day-to-day management, research and development and
formulation of overall corporate policies of the Group. Mr. Chan has more than ten years
of experience in the industry of hospitality, distribution and sales and marketing business.
He joined Renaissance Zurich Hotel, Switzerland as service trainee in February 1997 and
worked as front desk clerk at JW Marriott Hotel Hong Kong from August 1998 to October
1999. He was then employed by Shanghai Paka Premium Products Ltd. as a marketing
supervisor from January 2003 to November 2004 stationed in Shanghai. Since January
2005, Mr. Chan joined Edward Wong & Company Limited and was promoted to sales
manager and was mainly responsible for managing the sales team to sell raw leather
materials factories in the PRC. Mr. Chan founded the business of the Group in March 2007
and has been devoted himself to the sales and marketing business of fitness equipment
and beauty gadgets since then.
Mr. Li Hon Ming (李漢明), aged 38, is one of the co-founders of the Group. He is the
chief executive officer of the Group and was appointed as an executive Director on 11
March 2016. Mr. Li is primarily responsible for overall strategic planning, formulation of
the corporate policies and the day-to-day management of the Group. Prior to the
establishment of the Group in March 2007, Mr. Li had over ten years of experience in the
industry of surveying since 1997. He was an assistant surveyor of Sun Fook Kong
Construction Management Ltd. during the period from April 1997 to March 2003 and
worked as a works supervisor in MWH Hong Kong Limited from April 2003 to January
2006. Mr. Li then established his career with the Group and involved in the distribution,
marketing and sale of fitness equipment and beauty gadgets.
Mr. Lo Wing Sang (勞永生), aged 50, was appointed as an executive Director on 11
March 2016, is responsible for overseeing the strategic planning and corporate
development of the Group. Mr. Lo obtained a bachelor ’s degree of arts majoring in
accountancy from the City University of Hong Kong in December 1994. He is a practicing
member of The Hong Kong Institute of Chartered Public Accountant, an associate of The
Institute of Chartered Accountants in England and Wales and a fellow member of The
Association of Chartered Certified Accountants. He has worked in a large international
accounting firm and has over ten years of experience in auditing and accounting. He has
also been involved in various senior management positions over the years. Mr. Lo worked
as a vice president-finance, the company secretary and qualified accountant of Pico Far
East Holdings Limited (stock code: 752), a company listed on the main board of the Stock
Exchange, from December 1995 to August 2004. From September 2004 to June 2005, Mr. Lo
was the company secretary of AMS Public Transport Holdings Limited (stock code: 77), a
company listed on the main board of the Stock Exchange. From 2011 to 2014, he joined as
the chief operating officer and later promoted to be the deputy chief executive officer and
executive Director of Time Watch Investments Limited (stock code: 2033), a company
listed on the main board of the Stock Exchange. From August to November in 2014, Mr. Lo
was an independent non-executive director of PPS International (Holdings) Limited
(stock code: 8201), a company listed on GEM. Prior to joining the Group, Mr. Lo was also
– 164 –
the executive Director and the chief executive officer of China New Energy Power Group
Limited (stock code: 1041), a company listed on the main board of the Stock Exchange,
from March 2014 to July 2015.
Independent Non-executive Directors
Mr. So Alan Wai Shing (蘇偉成), aged 49, was appointed as an independent
non-executive Director on [●] and is the chairman of the Audit Committee. Mr. So
obtained a bachelor ’s degree in business majoring in accounting from the Edith Cowan
University, Western Australia, Australia, in February 1993, and a master ’s degree in
business administration from the Open University of Hong Kong in December 2003. Mr.
So has approximately 22 years of experience in audit work and has been an associate of the
Hong Kong Society of Accountants since May 1999, as well as a registered practicing
member of the Hong Kong Institute of Certified Public Accountants since January 2012.
He had been practising in his own name as a certified public accountant from October
2006 to June 2014 and under Alan So & Co, Certified Public Accountants from June 2014 to
present to provide auditing, accounting and tax services. Prior to joining the Group, Mr.
So worked at various institutions, including accounting firms, and held the position of
audit assistant manager at RSM Nelson Wheeler from January 1999 to February 2001. Mr.
So was also the chief financial officer and company secretary of Huazhang Technology
Holdings Limited (stock code: 8276), a company which was listed on GEM, (a company
now listed on the main board of the Stock Exchange with stock code 1673) for the period
from May 2012 to February 2014.
Mr. Ho Long Chin Matthew (何浪前), aged 35, has been appointed as an
independent non-executive Director of the Company on [●] and is the chairman of the
Nomination Committee. Mr. Ho has obtained a bachelor ’s degree of laws from the
University of Hong Kong in 2003. Mr. Ho has been a practicing barrister in Hong Kong
since 2005. He was appointed as a member of the Panel of Advisers under the Film
Censorship Ordinance (Cap. 392 of the Laws of Hong Kong) from October 2012 to
September 2013. He is also currently an adjudicator of the Immigration Tribunal under the
Immigration Ordinance (Cap. 115 of the Laws of Hong Kong) and a headnote writer of the
Board of Review of the Inland Revenue Department. From June to July in 2015, Mr. Ho was
an independent non-executive director of China New Energy Power Group Limited (stock
code: 1041), a company listed on the main board of the Stock Exchange.
Mr. Wong King Lung (黃景隆), aged 44, was appointed as an independent
non-executive Director on [●] and is the chairman of the Remuneration Committee. He
obtained a bachelor ’s degree in managerial statistics from the City University of Hong
Kong in November 1998. Prior to joining the Group, Mr. Wong has over 15 years of
working experience in business development and project management in the industry of
manufacturing, retail and services. He has been working as a consultant in the Hong Kong
Productivity Council from June 2004 to July 2014 and is also currently a council member of
the Kowloon Chamber of Commerce in the year of 2015-2016. Mr. Wong also obtained
professional qualifications as an affiliate of the Association of Chartered Certified
Accountants in February 2000 and Certified Information Systems Auditor of the
Information Systems Audit and Control Association in September 2003.
– 165 –
Please refer to the sub-section headed “Appendix IV — C. Further information
about the Directors and Substantial Shareholders” in this document for information
regarding particulars of the Directors’ service agreements and emoluments and
information regarding their respective interests (if any) in the Shares of the Company
within the meaning of Part XV of the SFO.
Save as disclosed in this document, each of the Directors confirms that (i) each of
them has not held any directorships in the last three years in any public companies the
securities of which are listed on any securities market in Hong Kong or overseas; (ii) each
of them does not have any relationship with any other Directors, senior management or
substantial or Controlling Shareholders of the Company; (iii) each of them does not have
any interests in the Shares within the meaning of Part XV of the SFO; (iv) there are no other
matters concerning all the Directors’ appointment that need to be brought to the attention
of the Shareholders and the Stock Exchange; and (v) there are no other matters which shall
be disclosed pursuant to Rule 17.50(2)(h) to 17.50(2)(v) of the GEM Listing Rules.
SENIOR MANAGEMENT
Ms. Lam Tsui Ying (林翠瑩), aged 35, was appointed as the general manager of Fit
Boxx HK in December 2012. She is responsible for the administrative and human resources
matters of the Group and has been involved in the management of the Group for over six
years. Ms. Lam received a certificate in business law, business communication, office
practice, fundamental computer concepts and written English for commerce from the
School of Continuing Education of Hong Kong Baptist University in 2001. Prior to joining
the Group, Ms. Lam had over eight years’ experience in the industry of shipping and
logistics, including working as a shipping clerk for Universe (Far East) Co. Ltd. from June
2000 to January 2003 and for Pai Cheng Bags Co. Ltd. from July 2004 to June 2005. She then
joined U-Right International Limited as a senior trading officer from June 2005 to October
2008 and was responsible for managing the trading department and overseeing shipment
schedule. Ms. Lam is the cousin of Mr. Chan.
Ms. Cao Xiaowei (曹小偉), aged 34, was appointed as the general manager of Fit
Boxx Shenzhen in December 2012 and is responsible for customer communication,
management of customer information, preservation of continuous customer relationship
and customer service planning of the Group’s operation in the PRC. Ms. Cao obtained
tertiary education qualification in electronic technology from Shanghai Xinqiao
Polytechnic College (上海新僑職業技術學院) in July 2003. Ms. Cao is the wife of Mr. Chan.
– 166 –
Mr. Mak Chin Wah (麥展華), aged 35, is the marketing manager of the Group and is
responsible for developing and communicating marketing strategies, overseeing
marketing budget, leading the marketing team to develop business models and
coordinating marketing functions of the Group. Mr. Mak joined the Group in May 2010
and has been working as the marketing manager of the Group since then. Prior to joining
the Group, Mr. Mak was a manager of the logistics department of Asia Credit Monitors
(Holdings) Ltd from February 2004 to April 2009, in which he was responsible for
providing staff training, managing logistics activities of the company and develop
strategy for debt collection.
Ms. Lam Kit Man (林潔文), aged 30, was appointed as the financial controller of the
Company in January 2016, prior to which Ms. Lam worked for the Group during her
secondment to the Group from January 2015 to December 2015. She is in charge of the
accounting department of the Group and responsible for the accounting, finance and
taxation matters of the Group. Ms. Lam obtained a bachelor ’s degree of commerce
majoring in accounting from Curtin University of Technology, Australia in February 2009.
Ms. Lam has been admitted to full membership as a certified public accountant of CPA
Australia in August 2013 and she has also become a certified public accountant of the
Hong Kong Institute of Certified Public Accountants in March 2014. Prior to joining the
Group, Ms. Lam was a supervisor at KTC Partners CPA Limited, primarily responsible for
auditing, financial reporting, taxation and secretarial matters, during which she has
obtained extensive experience in corporate listing work, financial due diligence and
acquisition transactions. Ms. Lam worked as an audit assistant and then audit senior at
KTC Partners CPA Limited from February 2010 to December 2015 and she underwent
audit training at Hoosang, Lyn, Li & Co. from April 2009 to January 2010.
Mr. Li Shiu Tong Andrew (李紹棠), aged 53, was appointed as the company
secretary of the Company on 11 January 2016. He obtained his honours diploma of social
science from Lingnan College of Hong Kong in November 1986 and master in business
administration from the University of Wales in December 1988. Mr. Li Shiu Tong Andrew
became an associate of the Hong Kong Society of Accountants in 1993 and a fellow of the
Chartered Association of Certified Accountants in 1997. He joined PriceWaterhouse as a
staff accountant in corporate advisory services department in February 1989 and was
promoted to the position of audit senior in July 1991 and later as an senior accountant II in
December 1992. From December 1992 to August 1999, he served in various financial roles
in FPD Guardforce Holdings Limited, a subsidiary of First Pacific Company (stock code:
142), a company listed on the main board of the Stock Exchange. He started as an internal
auditor and was later promoted to General Manager Group Finance (Overseas
Companies) in 1995 responsible for the management and all company secretarial matters.
In 1997, he was appointed as the Group Chief Financial Officer and was responsible for the
all financial operations and reporting of the enterprises. He then involved in various
senior financial and management positions and overseas project development in eForce
Holdings Limited (stock code: 943), a company listed on the main board of the Stock
Exchange from 2000 to 2014. Currently, he is also the chief financial officer of the
Company.
There are no directorships held by the senior management of the Group in any listed
company whose securities are listed on any stock exchanges in Hong Kong or overseas
within the three years immediately preceding the date in this document.
– 167 –
COMPLIANCE OFFICER
Mr. Lo Wing Sang (勞永生), an executive Director of the Company, is the compliance
officer of the Company. Details of the qualification and experience of Mr. Lo Wing Sang
have been disclosed in the paragraph headed “Executive Directors” of this section.
BOARD COMMITTEES
Audit Committee
The Company established an audit committee pursuant to a resolution of the
Directors passed on [●] in compliance with Rule 5.28 of the GEM Listing Rules. Written
terms of reference in compliance with paragraph C3.3 of the Corporate Governance Code
as set out in Appendix 15 to the GEM Listing Rules has been adopted. The primary duties
of the Audit Committee are mainly to make recommendations to the Board on the
appointment and removal of external auditor; review the financial statements and
material advice in respect of financial reporting; and oversee internal control procedures
of the Company. At present, the audit committee of the Company consists of three
members who are Mr. So Alan Wai Shing (蘇偉成), Mr. Ho Long Chin Matthew (何浪前)
and Mr. Wong King Lung (黃景隆). Mr. So Alan Wai Shing (蘇偉成) is the chairman of the
Audit Committee.
Remuneration committee
The Company established a remuneration committee on [●] with written terms of
reference in compliance with paragraph B1.2 of the Corporate Governance Code as set out
in Appendix 15 to the GEM Listing Rules. The primary duties of the Remuneration
Committee are to make recommendation to the Board on the overall remuneration policy
and structure relating to all Directors and senior management of the Group; review
performance based remuneration; and ensure none of the Directors determine their own
remuneration. The remuneration committee consists of three members who are Mr. So
Alan Wai Shing (蘇偉成), Mr. Ho Long Chin Matthew (何浪前) and Mr. Wong King Lung
(黃景隆). Mr. Wong King Lung (黃景隆) is the chairman of the Remuneration Committee.
Nomination committee
The Company established a nomination committee on [●] with written terms of
reference in compliance with paragraph A5.2 of the Corporate Governance Code as set out
in Appendix 15 to the GEM Listing Rules. The primary duties of the Nomination
Committee are to review the structure, size and composition of the Board on regular basis;
identify individuals suitably qualified to become Board members; assess the
independence of independent non-executive Directors; and make recommendations to the
Board on relevant matters relating to the appointment or re-appointment of Directors. The
Nomination Committee consists of three members who are Mr. Chan, Mr. So Alan Wai
Shing (蘇偉成) and Mr. Ho Long Chin Matthew (何浪前). Mr. Ho Long Chin Matthew (何浪
前) is the chairman of the Nomination Committee.
– 168 –
COMPENSATION OF THE DIRECTORS AND SENIOR MANAGEMENT
The Directors and senior management receive compensation in the form of fixed
monthly salaries in accordance with their respective employment contracts with the
Group. The Group also reimburses them for expenses which are necessarily and
reasonably incurred for the provision of services to the Group or executing their functions
in relation to the business operation. The Board regularly reviews and determines the
remuneration and compensation packages of its Directors and senior management, by
making reference to, among other things, market level of salaries paid by comparable
companies, the respective responsibilities of the Directors and the performance of the
Group. After [REDACTED], the Remuneration Committee will review and determine the
remuneration and compensation packages of the Directors with reference to their
responsibilities, workload, the time devoted to the Group and the performance of the
Group. The Directors may also receive options to be granted under the Share Option
Scheme.
The aggregate amounts of remuneration including fees, salaries, contributions to
pension schemes, housing allowances and other allowances and benefits in kind and
discretionary bonuses which were paid or payable to the Directors for the two years ended
31 December 2015 was approximately HK$0.9 million and HK$1.1 million respectively.
Under the arrangement currently in force, the aggregate remuneration (excluding
discretionary bonus) of the Directors for the year ending 31 December 2016 is estimated to
be approximately HK$1.4 million.
The five highest paid individuals included two directors for the two years ended 31
December 2015. The aggregate amounts of remuneration including fees, salaries,
contributions to pension schemes, housing allowances and other allowances and benefits
in kind and discretionary bonuses which were paid by the Group to the remaining three
highest paid individuals for the two years ended 31 December 2015 was approximately
HK$1.1 million and HK$1.2 million respectively.
During the Track Record Period, no remuneration was paid by the Group to, or
received by, the Directors or the five highest paid individuals as an inducement to join or
upon joining the Group or as compensation for loss of office. There was no arrangement
under which a director waived or agreed to waive any remuneration during the Track
Record Period.
For additional information on Directors’ remuneration during the Track Record
Period as well as information on the highest paid individuals, please refer to notes 12 and
13 to the Accountant’s Report set out in Appendix I to this document.
SHARE OPTION SCHEME
The Company has adopted conditionally the Share Option Scheme. For details of the
Share Option Scheme, please refer to the section entitled “Appendix IV — Share Option
Scheme” in this document.
– 169 –
COMPLIANCE ADVISOR
Pursuant to Rule 6A.19 of the GEM Listing Rules, the Company has appointed
Ample Capital Limited as the compliance adviser. The compliance adviser will advise the
Company on the following matters pursuant to Rule 6A.23 of the GEM Listing Rules:
(i)
before the publication of any regulatory announcement, circular or financial
report;
(ii)
where a transaction, which might be a notifiable or connected transaction, is
contemplated including share issues and share repurchases;
(iii)
where the Company proposes to use the proceeds of the [REDACTED] in a
manner different from that detailed in this document or where the business
activities, developments or results deviate from any forecast, estimate or
other information in this document; and
(iv)
where the Stock Exchange makes an inquiry of the Company regarding
unusual movements in the price or trading volume of the Shares the possible
development of a false market in its securities, or any other matters.
The term of this appointment will commence on the [REDACTED] and is expected
to end on the date on which the Company complies with Rule 18.03 of the GEM
Listing Rules on the distribution of the annual report in respect of the financial
results of the second full financial year commencing after the [REDACTED].
– 170 –
SUBSTANTIAL SHAREHOLDERS
So far as the Directors are aware, immediately following completion of the
[REDACTED] and the Capitalisation Issue (without taking into account any Shares which
may be issued under the [REDACTED] or the exercise of any options granted under the
Share Option Scheme), the following persons will have or be deemed or taken to have
beneficial interests and/or short position in the Shares or the underlying Shares which
would be required to be disclosed to the Company under the provisions of Divisions 2 and
3 of Part XV of the SFO or be directly or indirectly interested in 10% or more of the nominal
value of any class of share capital carrying rights to vote in all circumstances at general
meetings of any of the Group:
Name
Nature of Interest
Faith Elite
Mr. Chan(Note)
Beneficial Owner
Interest in controlled
corporation
Interest in controlled
corporation
Mr. Li(Note)
Note:
Approximate
percentage of
interest in the
Company
immediately
after the
[REDACTED]
and the
Number of Capitalisation
Shares
Issue
Number of
Shares as at
the Latest
Practicable
Date
Approximate
percentage of
interest in the
Company as at
the Latest
Practicable
Date
15,206
15,206
76.03%
76.03%
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
15,206
76.03%
[REDACTED]
[REDACTED]
As at the Latest Practicable Date, Faith Elite was directly held as to 50% and 50% by each of Mr.
Chan and Mr. Li, therefore, each of Mr. Chan and Mr. Li is deemed to be interested in 50%
shareholding of the Company held by Faith Elite.
Save as disclosed above, the Directors are not aware of any other person who will,
immediately following the completion of the [REDACTED] and the Capitalisation Issue
(without taking into account any Shares that may be issued under the [REDACTED] or the
exercise of any options granted under the Share Option Scheme), have beneficial interests
or short positions in any of the Shares or underlying Shares, which would be required to
be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the
SFO, or who is, directly or indirectly interested in 10% or more of the nominal value of any
class of share capital carrying rights to vote in the circumstances at general meetings of
any member of the Group. The Directors are not aware of any arrangement which may at
a subsequent date result in a change of control of the Company.
– 171 –
RELATIONSHIP WITH THE CONTROLLING SHAREHOLDERS
CONTROLLING SHAREHOLDERS
Immediately after completion of the Capitalisation Issue and the [REDACTED],
Faith Elite will legally and beneficially own approximately [REDACTED]% of the entire
issued share capital of the Company (without taking into account any Shares which may
be issued under [REDACTED] or the exercise of any options which may be granted under
the Share Option Scheme). Faith Elite is jointly owned by Mr. Chan, an executive Director
and chairman of the Group, and Mr. Li, an executive Director and the chief executive
officer of the Group, as to 50% and 50% respectively. Accordingly, Faith Elite, Mr. Chan
and Mr. Li are the Controlling Shareholders of the Company.
COMPETING INTEREST
None of the Controlling Shareholders is interested in any business which is,
whether directly or indirectly, in competition with the Group’s business. To ensure that
competition will not exist in the future, each of the Controlling Shareholders has entered
into the Deed of Non-Competition in favour of the Company to the effect that each of them
will not, and will procure each of their respective close associates not to, directly or
indirectly participate in, or hold any right or interest, or otherwise be involved in any
business which may be in competition with the Group’s businesses.
INDEPENDENCE FROM CONTROLLING SHAREHOLDERS
The Directors believe that the Group is capable of carrying on its business
independently from the Controlling Shareholders and/or their respective close associates
after the [REDACTED], having taken into consideration the following factors:
Management independence
The Company aims at establishing and maintaining a strong and independent Board
to oversee the Group’s business. The Board’s main function includes the approval of the
overall business plans and strategies of the Group, monitoring the implementation of
these policies and strategies and the management of the Company. The Company has an
independent management team which is led by a team of senior management with
experience and expertise in the Group’s business to implement its policies and strategies.
– 172 –
The Board consists of six Directors, comprising three executive Directors, and three
independent non-executive Directors. For a summary of the positions held by the
Directors at the Company and its subsidiaries as of the Latest Practicable Date, please
refer to the section headed “Directors and Senior Management” in this document.
Except for Mr. Chan and Mr. Li, who act as directors of Faith Elite, being the
Controlling Shareholder, none of other Directors hold(s) any directorships or positions in
the Controlling Shareholders. Each of the Directors is aware of his/her fiduciary duties as
a Director which requires, among other things, that he/she acts for the benefit and in the
best interests of the Company and does not allow any conflict between his/her duties as a
Director and his/her personal interest. In the event that there is a potential conflict of
interest arising out of any transaction to be entered into between the Group and the
Directors or their respective associates, the interested Director(s) shall abstain from voting
at the relevant board meetings of the Company in respect of such transactions and shall
not be counted in the quorum. The provisions of the Articles also ensure that matters
involving a conflict of interests which may arise from time to time will be managed in line
with accepted corporate governance practice.
The Company has also appointed three independent non-executive Directors to
ensure that there is a strong independent element on the Board and with a view to
promoting the best interests of the Company and Shareholders taken as a whole. The
independent non-executive Directors have diversified skills and experience in their
respective fields of expertise and the Directors believe that the Board will benefit from
their independent advice.
In light of the above, the Directors are satisfied that they are able to perform their
roles in the Company independently, and the Directors are of the view that the Company
is capable of managing its business independently from the Controlling Shareholders
after the [REDACTED].
Operational independence
The Group has established its own organisational structure comprising individual
departments, each with specific areas of responsibilities. Save as set out in this document,
no services, premises and facilities will be provided by the Controlling Shareholders
and/or their respective associates to the Group. The Group is able to operate
independently from the Controlling Shareholders after the [REDACTED].
– 173 –
Financial independence
The Group has an independent accounting, financial and internal control system
and makes financial decisions according to its own business needs. During the Track
Record Period, Mr. Chan and Mr. Li provided guarantees to the Group’s several bank
loans and finance lease. [Mr. Chan and Mr. Li would be released from the guarantees prior
to the [REDACTED].] Upon [REDACTED], the Group is capable of relying principally on
cash from operations to carry on its business and financing from Independent Third
Parties without relying on guarantee or security provided by the Controlling
Shareholders.
Having considered the above factors, the Directors consider that there is no
financial dependence on the Controlling Shareholders.
Therefore, in view of the above fact, the Group is considered independent in all
material aspects including finance, management and operations of the Controlling
Shareholders.
UNDERTAKINGS
Each of the Controlling Shareholders has given certain undertakings in respect of
the Shares to the Company, the Sponsor and the [REDACTED], details of which are set out
under the sub-section headed “Underwriting — Non-disposal Undertakings” in this
document.
NON-COMPETITION UNDERTAKINGS
For the purpose of the [REDACTED], the Controlling Shareholders (the
“Covenantors”) have entered into the Deed of Non-Competition with the Company,
pursuant to which each of the Covenantors has unconditionally and irrevocably
undertaken to the Company (for itself and for the benefits of members of the Group) that
it/he/she would not, and would procure that its/his/her close associates (other than any
members of the Group) would not, directly or indirectly, either on its/his/her own
account or in conjunction with or on behalf of any person, firm or company, among other
things, carry on, participate or be interested or engaged in or acquire or hold (in each case
whether as a shareholder, director, partner, agent, employee, or otherwise, and whether
for profit, reward or otherwise) any activity or business which is or may be in competition,
directly or indirectly, with the business carried on or contemplated to be carried on by any
member of the Group from time to time (“Restricted Activity”).
Further, each of the Covenantors has unconditionally and irrevocably undertaken to
the Company that in the event that it/he/she or its/his/her close associate(s) is
given/identifies any opportunities which directly or indirectly competes, or may lead to
competition with the Restricted Activity, it/he/she will and will procure it/his/her close
associate(s) to, as soon as practicable inform the Group of such opportunity in writing,
provide such information as is available to it/him/her in respect of such opportunity to
the Group, refer such opportunity to the Group, and use all reasonable endeavours to
procure the person who communicated the opportunity to the Covenantors or their
respective close associates to contact the Group directly regarding the opportunity upon
becoming aware of it.
– 174 –
Each of the Covenantors has represented and warranted that, as of the date of the
Deed of Non-Competition, neither it/he/she nor any of its/his/her close associates was
interested, involved or engaged, directly or indirectly, in (whether as a shareholder,
partner, agent or otherwise and whether for profit, reward or otherwise) the Restricted
Activity otherwise than through the Group or was otherwise engaged in any business
which is in competition or potential competition to those of the Group.
Each of the Covenantors has also undertaken to the Company the following:
(a)
to provide all information requested by the Company which is necessary for
the annual review by the independent non-executive Directors of its/his/her
compliance with the terms of the Deed of Non-Competition and the
enforcement of the Deed of Non-Competition;
(b)
to procure the Company to disclose decisions on matters reviewed by the
independent non-executive Directors relating to the compliance and
enforcement of its/his/her non-competition undertakings under the Deed of
Non-Competition either through the annual report, or by way of
announcements to the public; and
(c)
to make an annual declaration on compliance with his/her/its undertaking
under the Deed of Non-Competition in the annual reports of the Company as
the independent non-executive Directors think fit and ensure that the
disclosure of details of its/his/her compliance with and the enforcement of
the non-competition undertakings under the Deed of Non-Competition is
consistent with the relevant requirements under the GEM Listing Rules.
The Deed of Non-Competition does not apply to:
(a)
the holding of or interests in the shares of any member of the Group; or
(b)
the holding of or interests in shares or other securities in any company other
than the Group which conducts or is engaged in any Restricted Activity,
provided that, in the case of such shares, they are listed on a recognised stock
exchange and either:
(i)
the relevant Restricted Activity (and assets relating thereto) accounts
for less than 5% of that relevant company’s consolidated turnover or
consolidated assets, as shown in that company’s latest audited
accounts; or
– 175 –
(ii)
the total number of the shares held by the Covenantors and/or their
respective close associates or in which they are together interested does
not amount to more than 5% of the issued shares of that class of the
company in question, provided that the Covenantors and/or their
respective close associates, whether acting singly or jointly, are not
entitled to appoint a majority of the directors of that company or
otherwise participate in or be involved in the management of that
company and that at all times there should exist at least another
shareholder of that company (together, where appropriate, with its
close associates) whose shareholdings in that company should be more
than the total number of shares held by the Covenantors and/or their
respective close associates together hold.
The obligation of the Covenantors under the Deed of Non-Competition will cease to
have any effect whatsoever on:
(a)
the date on which the Shares cease to be listed on the Stock Exchange; or
(b)
in respect of a Covenantor, the date on which that Covenantor and/or
its/his/her close associates, jointly and severally, ceases to be entitled to
exercise or control the exercise of not less than 30% in aggregate of the voting
power at general meetings of the Company,
whichever occurs first.
CORPORATE GOVERNANCE MEASURES
The Company will further adopt the following measures to manage the conflict of
interest arising from the possible competing business of the Controlling Shareholders and
to safeguard the interests of the independent Shareholders:
(i)
in preparation for the [REDACTED], the Company has amended the Articles
to comply with the GEM Listing Rules. In particular, the Articles provide that,
except for certain exceptions permitted under the GEM Listing Rules or the
Stock Exchange, a Director shall not vote on any board resolution approving
any contract in relation to which he has a material interest, nor shall such
Director be counted in the quorum present at the meeting;
(ii)
the Company has appointed Ample Capital Limited as the Company’s
compliance adviser, which will provide advice and guidance to the Company
with respect to compliance with the applicable laws and the GEM Listing
Rules, including various requirements relating to Directors’ duties and
internal controls;
(iii)
the Company’s independent non-executive Directors will review, at least on
an annual basis, the compliance with the Deed of Non-Competition by the
Controlling Shareholders;
– 176 –
(iv)
each of the Controlling Shareholders has undertaken to provide all
information necessary for the annual review by the independent
non-executive Directors of its/his/her compliance with the terms of the Deed
of Non-Competition and the enforcement of the Deed of Non-Competition;
(v)
the Company will disclose decisions on matters reviewed by the independent
non-executive Directors relating to compliance and enforcement of the Deed
of Non-Competition either through the annual report, or by way of
announcements to the public;
(vi)
each of the Controlling Shareholders will make an annual declaration of
compliance with the Deed of Non-Competition in the annual reports of the
Company;
(vii) the management structure of the Group includes an audit committee, a
remuneration committee, and a nomination committee, the terms of reference
of each of which will require them to be alert to prospective conflict of interest
and to formulate their proposals accordingly; and
(viii) pursuant to the Corporate Governance Code in Appendix 15 to the GEM
Listing Rules, the Directors, including the independent non-executive
Directors, will be able to seek independent professional advice from external
parties in appropriate circumstances at the Company’s costs.
The Directors consider that the above corporate governance measure are sufficient
to manage any potential conflict of interests between the Controlling Shareholders and
their respective close associates and the Group and to protect the interests of the
Shareholders, in particular, the minority Shareholders.
– 177 –
SHARE CAPITAL
SHARE CAPITAL OF THE COMPANY
The following is a description of the authorised and issued share capital of the
Company immediately before and following the completion of the [REDACTED] and
upon [REDACTED]:
Authorised share capital
[REDACTED]
HK$
Shares of par value of HK$0.01 each
Shares issued and fully paid or credited as fully paid
[REDACTED]
HK$
Assuming that the [REDACTED] is not exercised, the share capital of the
Company immediately following the [REDACTED] and Capitalisation Issue will be
as follows:
20,000
[REDACTED]
[REDACTED]
Total:
[REDACTED]
Shares in issue as at the date in this
document
Shares to be issued under the
[REDACTED]
Shares
200
[REDACTED]
[REDACTED]
[REDACTED]
Assuming the [REDACTED] is exercised in full, the share capital of the
Company immediately following the [REDACTED] and the Capitalisation Issue
will be as follows:
20,000
[REDACTED]
[REDACTED]
[REDACTED]
Total:
[REDACTED]
Shares in issue as at the date in this
document
[REDACTED]
Shares to be issued upon exercise of the
[REDACTED]
Shares
200
[REDACTED]
[REDACTED]
[REDACTED]
[REDACTED]
ASSUMPTIONS
The above table assumes that the [REDACTED] has become unconditional and the
Shares are issued pursuant to the [REDACTED]. It takes no account of any Shares, which
may be allotted and issued pursuant to the exercise of the options which may be granted
under the Share Option Scheme or which may be allotted and issued or repurchased by the
Company under the general mandates of any Shares referred to below.
– 178 –
SHARE CAPITAL
RANKING
The [REDACTED] are ordinary shares and will rank pari passu in all respects with
all the Shares now in issue or to be issued as mentioned herein, and, in particular, will
qualify in full for all dividends or other distributions declared, made or paid on the Shares
in respect of a record date which falls after the date in this document save for entitlement
to the Capitalisation Issue.
MINIMUM PUBLIC FLOAT
Pursuant to Rule 11.23(7) of the GEM Listing Rules, at the time of the [REDACTED]
and at all times thereafter, the Company must maintain the minimum prescribed
percentage of 25% of the issued share capital of in the hands of the public (as defined in
the GEM Listing Rules).
THE SHARE OPTION SCHEME
The Company conditionally adopted the Share Option Scheme. Summaries of the
principal terms of the Share Option Scheme are set out in the sub-section entitled
“Appendix IV – D. Share Option Scheme” in this document.
GENERAL MANDATE TO ISSUE NEW SHARES
Conditional on the fulfilment or waiver (as applicable) of the conditions set out in
the sub-section headed “Structure and Conditions of the [REDACTED] — Conditions of
the [REDACTED]” in this document, the Directors have been granted a general
unconditional mandate to allot, issue and deal with Shares with an aggregate nominal
value of not more than the sum of:
(a)
20% of the aggregate nominal amount of share capital of the Company in issue
immediately following completion of the [REDACTED] and upon
[REDACTED]; and
(b)
the aggregate nominal amount of the share capital of the Company
repurchased by the Company, if any, under the general mandate to repurchase
Shares referred to below.
The allotment and issue of Shares under a rights issue, script dividend scheme or
similar arrangement in accordance with the Articles do not generally require the approval
of the Shareholders in general meeting and the aggregate nominal value of the Shares
which the Directors are authorised to allot and issue under this mandate will not be
reduced by the allotment and issue of such Shares.
This general mandate will expire at the earliest of:
(a)
the conclusion of the Company’s next annual general meeting;
(b)
the expiration of the period within which the Company is required applicable
laws or its Articles to hold its next annual general meeting; and
– 179 –
SHARE CAPITAL
(c)
when varied or revoked by an ordinary resolution of the Shareholders in
general meeting.
For further details of this general mandate, please refer to the paragraph headed
“Appendix IV — A. Further Information About The Company And Its Subsidiaries — 3.
Written Resolutions of the Shareholders passed on [●]” in this document.
GENERAL MANDATE TO REPURCHASE SHARES
Conditional on the fulfilment or waiver (as applicable) of the conditions set out in
the paragraph headed “Conditions of the [REDACTED]” under the section headed
“Structure and conditions of the [REDACTED]” in this document, the Directors have been
granted a general unconditional mandate to exercise all the powers of the Company to
repurchase Shares with an aggregate nominal value of not more than 10% of the aggregate
nominal amount of the share capital of the Company in issue following completion of the
[REDACTED] and upon [REDACTED].
This mandate only relates to repurchases made on the Stock Exchange, or on any
other stock exchange on which the Shares are listed (and which are recognised by the SFC
and the Stock Exchange for this purpose), and which are in accordance with all applicable
laws and requirements of the GEM Listing Rules. Further information required by the
Stock Exchange to be included in this document regarding the repurchase of Shares is set
out in the paragraph headed “Appendix IV – A. Further Information About the Company
and its Subsidiaries – 7. Repurchase of the Securities” in this document.
This mandate will expire at the earliest of:
(a)
the conclusion of the Company’s next annual general meeting;
(b)
the expiration of the period within which the Company is required applicable
laws or its Articles to hold its next annual general meeting; and
(c)
when varied or revoked by an ordinary resolution of the Shareholders in
general meeting.
For further details of this general mandate, please refer to the paragraph headed
“Appendix IV — Written Resolutions of the Shareholders passed on [●]”in this document.
CIRCUMSTANCES UNDER WHICH GENERAL MEETING AND CLASS MEETING
ARE REQUIRED
The circumstances under which general meeting and class meeting are required are
provided in the Articles. For details, please refer to the Summary of the constitution of the
Company and Cayman Islands company law set out in Appendix III to this document.
– 180 –
FINANCIAL INFORMATION
You should read the following discussion and analysis of the Group’s financial condition
and results of operations together with its consolidated financial statements as at the closing
date of and for the years ended 31 December 2014 and 2015 and the accompanying notes
included in the Accountants’ Report set out in Appendix I to this document. The Accountants’
Report has been prepared in accordance with HKFRS. Potential investors should read the
whole of the Accountants’ Report set out in Appendix I to this document and not rely merely
on the information contained in this section. The following discussion and analysis contains
forward-looking statements that involve risks and uncertainties (including those discussed
below or elsewhere in this document). For additional information regarding these risks and
uncertainties, please refer to the section headed “Risk Factors” in this document.
OVERVIEW
The Group is principally engaged in the sourcing, marketing, selling and
distribution of a variety of fitness equipment and accessories, beauty gadgets and
accessories, as well as other health care products under various brands through its sales
and distribution network in Hong Kong and the PRC.
The fitness equipment product segment mainly consists of treadmills, exercise
bikes, elliptical trainers, steppers and other fitness accessories such as trampolines, yoga
gears, dumbbells, boxing gears, heart rate monitors and diagnostic scales. The beauty
gadget product segment mainly consists of beauty devices for hair removal, wrinkle
reduction, skin lifting, anti-acne treatment, rejuvenation of the skin’s appearance and
body sliming and other healthy accessories. Other health care products include massage
devices, inflated bath tubs, electric blankets and limb-support compression wears.
For the two years ended 31 December 2015, the Group generated revenue of
approximately HK$67.5 million and HK$84.7 million respectively. The profit attributable
to owners of the Company was approximately HK$11.4 million and HK$9.5 million for the
respective years.
The increase in revenue for the year ended 31 December 2015 by 25.6% as compared
to that of the year ended 31 December 2014 was mainly attributable to increase in sale of
beauty gadgets and accessories resulted from the increase in sales of the Group’s flagship
hair removal devices via the Group’s own online sales channels as well as sales to other
distributors which in turn sold such products through various channels including their
online storefronts.
For the year ended 31 December 2015, the decrease in profit attributable to owners
of the Company by approximately 17.1% as compared to that of the year ended 31
December 2014 was mainly attributable to increase in administrative expenses, in
particular, [REDACTED] expenses of approximately HK$3.9 million incurred during the
year ended 31 December 2015. Excluding the effect of [REDACTED] expenses, the profit
attributable to owners of the Company for year ended 31 December 2015 would be
approximately HK$13.3 million, representing an increase of approximately 16.7%, which
was mainly due to the increase in gross profit as driven by increase in revenue during the
year.
– 181 –
BASIS OF PRESENTATION
The Company was incorporated as a limited liability company in the Cayman
Islands on 14 May 2015. In preparation of the [REDACTED], the Group underwent the
Reorganisation, as detailed in the sub-section headed “History, Reorganisation and Group
Structure — Reorganisation” in this document. As a result of the Reorganisation, the
Company became a holding company of the subsidiaries comprising the Group. The
financial information includes the consolidated statements of profit and loss and other
comprehensive income, consolidated statements of changes in equity, consolidated
statements of cash flows and consolidated statements of financial position of the
companies now comprising the Group.
The financial information has been prepared as if the current group structure had
been in existence throughout the Track Record Period. The consolidated statements of
financial position of the Group as at 31 December 2014 and 2015 have been prepared to
present the assets and liabilities of the Group as at the respective dates as if the current
group structure had been in existence at those dates.
Transactions, balances and unrealised gain or losses on transactions between
companies within the Group are eliminated on consolidation.
KEY FACTORS AFFECTING THE RESULTS OF OPERATIONS
The results of operations and financial condition of the Group have been and will
continue to be affected by a number of factors, many of which may be beyond control of
the Group, including those factors set out in the section headed “Risk Factors” in this
document and those set out below.
Market recognition of the branded products and proprietary products and the trade
name
The growth of the historical sales was mainly driven by the increasing market
recognition of the branded products managed by the Group in Hong Kong and the PRC.
The Directors expect the future sales growth to receive continuous benefits from the
expansion of public awareness of the fitness equipment and beauty gadget products in
Hong Kong and the PRC. The growth of these markets is affected by a number of factors,
including the growth of GDP and disposable income level of households as well as
consumer preferences. For the Group’s fitness equipment and beauty gadget products, the
Group faces challenges from Hong Kong, the PRC and foreign manufacturers, distributors
as well as other brand owners.
– 182 –
Through distributing and marketing under the direct and indirect sales and
distribution network, the Group offers a variety of fitness equipment and beauty gadget
products sourced from third party brand owners. The Group also offers certain products
under its own proprietary brands. The Directors believe the Group’s success depends
substantially on the popularity of the branded products and its proprietary products, as
well as the reputation of its trade name of “Fitboxx 元氣館”. As at the Latest Practicable
Date, all the Group’s retails outlets are operated under the trade name of “Fitboxx 元氣館”
to offer branded products and proprietary products. The Directors believe that brand and
trade name recognition plays an important role in influencing consumers’ decisions in
purchasing the products. The Group has been investing significant effort to establish
brand and trade name recognition through various media channels. The Directors believe
that the continued success will depend largely on the ability to enhance the recognition of
the branded and proprietary products offered by the Group, and the reputation and public
awareness of its trade name. Furthermore, as the Group continues to expand its sales
network, the ability to market and promote the branded and proprietary products as well
as its trade name will remain critical to the success of the business.
Coverage of the Group’s sales and distribution network
The revenue and profit growth of the Group will depend to a significant extent on
the ability to successfully expand and manage the sales and distribution network. The
Group may face challenges with finding suitable distribution channels in Hong Kong and
the PRC. The Group will rely continuously on the ability of the self-operated retail outlets,
sales to chain retailers and other distributors and retailers, and online sales through its
own websites and third party e-commerce platforms to successfully promote its products
to end consumers.
In the event that any of the major sales channels is found to be unsustainable, which
may be due to the deteriortation of the business of the distributor customers of the Group
and hence out of control of the Group, the sales and results of operations of the Group may
be adversely affected.
– 183 –
The product portfolio
The Group’s ability to introduce new products to the market that meet consumer
preferences will have a significant influence on the future sales volume and financial
performance. The success of the Group’s branded and proprietary products depends on a
number of factors, including (i) the Group’s ability to accurately anticipate changes in
market demand and consumer preferences; (ii) the Group’s ability to differentiate its
products from those of the competitors; (iii) the Group’s ability to obtain exclusive
distribution rights of branded products from brand owners; and (iv) intellectual property
rights of competitors that may cause limitation in the Group’s product offerings.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Critical accounting policies and estimates are those accounting policies and
estimates that involve significant judgments and uncertainties and potentially yield
materially different results under different assumptions and conditions. The consolidated
financial statements have been prepared in accordance with HKFRSs, which requires that
the Group adopts accounting policies and makes estimates that it believes are the most
appropriate in the circumstances for the purposes of giving a true and fair view of the
results of operations and financial condition. Estimates and judgments are based on
historical experience, prevailing market conditions and rules and regulations, and are
reviewed on a continual basis taking into account of the changing environment and
circumstances.
For more details, see notes 4 and 5 to the Accountants’ Report set forth in Appendix
I to this document.
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable
and is recognised when it is probable that the economic benefits will flow to the Group
and the amount of revenue can be measured reliably.
(i)
Sales of goods
Revenue from the sales of goods is recognised on the transfer of significant
risks and rewards of ownership, which generally coincides with the time when the
goods are delivered and the title has passed to the customers.
(ii)
Interest income
Interest income is recognised on a time-proportion basis using the effective
interest method.
– 184 –
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is
determined using the first-in, first-out basis. Net realisable value is the estimated selling
price in the ordinary course of business, less the estimated costs of completion and the
estimated costs necessary to make the sale.
Trade and other receivables
Trade receivables are amounts due from customers for merchandise sold or services
performed in the ordinary course of business. If collection of trade and other receivables is
expected in one year or less (or in the normal operating cycle of the business if longer),
they are classified as current assets. If not, they are presented as non-current assets.
Trade and other receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less allowance for
impairment.
Plant and equipment
Plant and equipment, held for use in the production or supply of goods or services,
or for administrative purposes are stated in the consolidated statement of financial
position at cost, less subsequent accumulated depreciation and subsequent accumulated
impairment losses if any.
Subsequent costs are included in the asset’s carrying amount or recognised as a
separate asset, as appropriate, only when it is probable that future economic benefits
associated with the item will flow to the Group and the cost of the item can be measured
reliably. All other repairs and maintenance are recognised in profit or loss during the
period in which they are incurred.
Depreciation of plant and equipment is calculated at rates sufficient to write off
their cost over the estimated useful lives on a straight-line basis. The principal annual
rates are as follows:
Furniture and Fixtures
Office equipment
Motor vehicles
Leasehold improvements
20%
20%
30%
20%
The useful lives and depreciation method are reviewed and adjusted, if appropriate,
at the end of each reporting period.
The gain or loss on disposal of plant and equipment is the difference between the net
sales proceeds and the carrying amount of the relevant asset, and is recognised in profit or
loss.
– 185 –
Useful lives of plant and equipment
The Group determines the estimated useful lives, residual values and related
depreciation charges for the Group’s plant and equipment. This estimate is based on the
historical experience of the actual useful lives and residual values of plant and equipment
of similar nature and functions. The Group will revise the depreciation charge where
useful lives and residual values are different to those previously estimated, or it will
write-off or write-down technically obsolete or non-strategic assets that have been
abandoned.
Impairment loss for bad and doubtful debts
The Group makes impairment loss for bad and doubtful debts based on assessments
of the recoverability of the trade and other receivables, including the current
creditworthiness and the past collection history of each debtor. Impairments arise where
events or changes in circumstances indicate that the balances may not be collectible. The
identification of bad and doubtful debts, in particular of a loss event, requires the use of
judgment and estimates. Where the actual result is different from the original estimate,
such difference will impact the carrying value of the trade and other receivables and
doubtful debt expenses in the year in which such estimate has been changed.
Allowance for slow-moving inventories
Allowance for slow-moving inventories is made based on the aging and estimated
net realisable value of inventories. The assessment of the allowance amount involves
judgment and estimates. Where the actual outcome in future is different from the original
estimate, such difference will impact the carrying value of inventories and allowance
charge/write-back in the period in which such estimate has been changed.
– 186 –
SUMMARY OF FINANCIAL INFORMATION
The following table presented the selected financial data from the consolidated
income statements for the two years ended 31 December 2015 which have been extracted
from, and should be read in conjunction with the Accountants’ Report set forth in
Appendix I to this document.
Consolidated statement of profit or loss and other comprehensive income
Year ended 31 December
2014
2015
HK$’000
HK$’000
Revenue
Cost of goods sold
67,465
(25,450)
84,744
(33,540)
Gross profit
Other income
Selling and distribution expenses
Administrative expenses
42,015
5
(22,693)
(6,184)
51,204
98
(25,296)
(12,998)
Profit from operations
Finance costs
13,143
(99)
13,008
(334)
Profit before tax
Income tax expense
13,044
(1,626)
12,674
(3,205)
Profit for the year attributable to owners of
the Company
11,418
9,469
Other comprehensive income after tax:
Item that may be reclassified to profit or loss:
– Exchange differences on translating foreign
operations
4
(204)
Other comprehensive income for the year,
net of tax
4
(204)
Total comprehensive income for the year
attributable to owners of the Company
– 187 –
11,422
9,265
Consolidated statement of financial position
As at 31 December
2014
2015
HK$’000
HK$’000
Non-current assets
Plant and equipment
Long-term rental deposits
1,679
694
979
1,446
2,373
2,425
22,483
5,084
6,005
2,889
6,782
14,624
3,142
5,224
3,985
13,908
43,243
40,883
8,278
7,835
250
161
4,302
3,392
4,292
1,224
163
3,019
20,826
12,090
Net current assets
22,417
28,793
Total assets less current liabilities
24,790
31,218
472
242
2,523
79
714
2,602
NET ASSETS
24,076
28,616
Capital and reserves
Share capital
Reserves
10
24,066
1
28,615
TOTAL EQUITY
24,076
28,616
Current assets
Inventories
Trade receivables
Prepayments, deposits and other receivables
Due from directors
Bank and cash balances
Current liabilities
Trade payables
Accruals and other payables
Bank loans
Finance lease payables
Current tax liabilities
Non-current liabilities
Bank loans
– 188 –
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND OPERATIONS OF
THE GROUP
Revenue by products
The revenue represents the net invoiced value of goods sold after deduction of
allowances for returns (if any) and trade discounts provided to the Group’s consumers.
During the Track Record Period, the revenue was derived from the sales of the Group’s
fitness, beauty and other health care products, which are broadly classified into three
major types of products including: (i) fitness equipment and accessories; (ii) beauty
gadgets and accessories; and (iii) other health care products.
The following table sets forth the breakdown of the Group of revenue by types of
product:
2014
2015
HK$’000
%
HK$’000
accessories
Beauty gadgets and
accessories
Other health care
products
Total
%
23,919
35.5
22,463
26.5
41,373
61.3
60,706
71.6
2,173
3.2
1,575
1.9
67,465
100.0
84,744
100.0
The overall revenue of the Group increased by approximately 25.6% from
HK$84.7 million for the year ended 31 December 2015, driven by the increase in sales of
the beauty gadgets and accessories sector.
The sales derived from fitness equipment and accessories slightly decreased by
approximately 6.1% from approximately HK$23.9 million in 2014 to approximately
HK$22.5 million in 2015. The sales of the beauty gadgets and accessories significantly
increased by approximately 46.7% from approximately HK$41.4 million in 2014 to
approximately HK$60.7 million in 2015.
Most of the Group’s products are branded products sourced from various brand
owners located worldwide, including Hong Kong. The Group’s proprietary products are
mainly fitness equipment supplied by manufacturers in the PRC and Taiwan.
– 189 –
The following table sets forth the breakdown of the Group of revenue by products
sold under brand owners’ brands and products sold under the Group’s proprietary
brands:
2014
2015
HK$’000
%
HK$’000
%
Branded products
60,888
6,577
90.3
9.7
79,777
4,967
94.1
5.9
Total
67,465
100.0
84,744
100.0
As the Group’s products are mainly for home-use, its fitness equipment and beauty
gadgets product market is considered as a consumer market. The various types of
products sold by the Group are subject to different levels of demand and consumer ’s
preference, which also depends on a series of factors, including the pricing of the
products, the product differentiation, the brand images, the marketing and promotion
activities, the customer loyalty, the accessibility of the distribution channels of the
products and the overall market trend.
The fitness equipment and accessories sector included both branded and
proprietary products. These products include treadmills, exercise bikes, elliptical trainers,
steppers and other fitness accessories such as trampolines, yoga gears, dumbbells, boxing
gears, heart rate monitors and diagnostic scales.
For the two years ended 31 December 2015, the fitness equipment and accessories
represented approximately 35.5%, and 26.5% of the Group’s revenue respectively. The
overall decrease in percentage of the Group’s revenue derived from the fitness equipment
and accessories sector during the Track Record Period was mainly due to the significant
increase in sales of beauty gadgets and accessories sector in 2015.
The slight decrease in revenue from the fitness equipment and accessories sector for
the year ended 31 December 2015 was mainly attributable to the decrease in sales of
treadmill during the year, though mitigated by the increase in sales of exercise bikes and
fitness accessories. The Directors consider that such change was mainly due to the launch
of certain new treadmill models in 2014 which resulted in increase in sales of treadmills in
2014 as compared to that of 2015; and that the Group launched more new models of
exercise bikes and fitness accessories in 2015.
– 190 –
The beauty gadgets and accessories sector mainly consists of branded beauty
devices for hair removal and facial care (e.g. wrinkle reduction, skin tightening and skin
rejuvenation), which in aggregate accounted for over 70% and 80% of the revenue from
such sector during the year ended 31 December 2014 and 2015 respectively. Other beauty
gadgets include devices for cellulite reduction and hair rejuvenation. Beauty accessories
mainly include hair care products and anti-ultraviolet clothing products.
For the two years ended 31 December 2015, the beauty gadgets and accessories
represented approximately 61.3% and 71.6% of the Group’s revenue respectively. The
overall increase in percentage of the Group’s revenue derived from the beauty gadgets
and accessories sector during the Track Record Period was mainly due to the increase in
sales of the Group’s flagship hair removal devices via the Group’s own online sales
channels as well as sales to other distributors which in turn sold such products on their
online storefronts.
The Group also sells a wide variety of other health care products such as massage
devices, inflated bath tubs, electric blankets and limb-support compression wears, as
auxiliary products to cater for customer needs, which accounted for approximately 3.2%
and 1.9% of the Group’s revenue for the two years ended 31 December 2015 respectively.
– 191 –
Revenue by distribution channels
The Group’s diversified distribution channels contributed to its success in growth of
revenue and gaining market share during the Track Record Period.
The following table sets forth a breakdown of the Group’s revenue by distribution
channels for the Track Record Period:
2014
2015
HK$’000
%
HK$’000
Direct sales
Physical stores:
Own retail shops
Department store
counter and
shopping mall
booth
Franchised stores
Online stores:
Own websites
Third party
e-commerce
platforms
Group buying
platforms
Indirect sales
Chain retailers
Other distributors
and retailers
Total
%
24,215
35.9
31,544
37.2
3,048
7,051
4.5
10.5
3,128
842
3.7
1.0
1,316
1.9
1,539
1.8
7,692
11.4
16,174
19.1
1,353
2.0
3,605
4.2
7,365
10.9
7,676
9.1
15,425
22.9
20,236
23.9
67,465
100.0
84,744
100.0
The Group has established a multi-channel sales and distribution network which is
broadly classified into eight major distribution channels as follows: (i) own retail shops,
(ii) department store counter and shopping mall booth, (iii) franchised stores, (iv) own
websites, (v) third party e-commerce platforms, (vi) group buying platforms, (vii) chain
retailers and (viii) other distributors and retailers. In light of the increasing marketing and
promotion activities and the expansion of the sales and distribution network developed
over the years, the Group has achieved remarkable growth in overall revenue during the
year ended 31 December 2015 as compared to that of 2014, mainly contributed from sales
derived from online storefronts set up at third party e-commerce platforms such as Tmall,
as well as sales to other distributors which operate their own online storefronts at
e-commerce platforms.
– 192 –
Direct sales
During the Track Record Period, the Group’s direct sales were conducted through
physical retail outlets, including own retail shops, a department store counter, a shopping
mall booth and franchised stores; as well as online channels including its own website,
storefronts at third party e-commerce platforms and group buying platforms.
Own retail shops and franchised stores
During the year ended 31 December 2014, except for the relocation of a shop in
Causeway Bay district, the Group operated eight retail shops (being five own retail shops
and three franchised stores) in Hong Kong. Upon the termination of the franchise
arrangement with the two franchisees in Kowloon Bay and Diamond Hill districts, the
Group continued to lease the premises of the franchised store at Diamond Hill as its own
retail shop and did not renew the rental of another own retail shop located in the same
shopping mall in Diamond Hill district upon the expiry of the lease, and maintained six
retail shops (being five own retail shops and one franchised store) as at 31 December 2014.
In order to consolidate its market presence, the Group did not renew the rental of
the relevant retail shop upon the expiry of the lease during the year ended 31 December
2015. Upon the termination of the franchise arrangement with the franchisee in Yuen Long
district, the Group continued to lease the premises of the franchise store as its own retail
shop, and maintained five retail shops, all being own retail shops in Hong Kong as at 31
December 2015 and up to the Latest Practicable Date.
Except that the rental and other operation costs of the franchised stores were born
by the franchisees, the operations of the franchised stores were basically the same as the
Group’s own retail shops. In particular, the franchised stores were under the full control of
the Group where all sales proceeds of the shops were received by the Group which then
paid the pre-agreed percentages of the sales proceeds of different products to the
franchisees as agency fees on a monthly basis. Therefore, the franchised stores were
regarded as self-operated stores and all sales proceeds of the franchised stores were
treated as revenue of the Group.
For the two years ended 31 December 2015, despite the reduction in number of retail
shops, the aggregate revenue of all the Group’s self-operated physical stores amounted to
approximately HK$31.3 million and HK$32.4 million respectively, represented a steady
growth of approximately 3.5%. The revenue in this category also included those revenue
generated from the Group’s hotline sales through its hotline staff; and sales in trade fairs
and exhibitions.
Department store counter and shopping mall booth
During the Track Record Period and up to the Latest Practicable Date, the Group
operated a department store counter in Kowloon Bay district and a shopping mall booth in
Quarry Bay district for the sale of its products, where the Group was required to conduct
its sales activities within the specified areas stipulated under the respective license
agreements.
– 193 –
For the two years ended 31 December 2015, the aggregate revenue generated from
the department store counter and the shopping mall booth amounted to approximately
HK$3.0 million and HK$3.1 million respectively, represented a steady growth of
approximately 2.6%.
Own websites
The revenue generated from the Group’s own website, namely, www.fitboxx.com,
amounted to approximately HK$1.3 million and HK$1.5 million respectively during the
two years ended 31 December 2015, represented an increase of approximately 16.9%,
which the Directors believe to be mainly due to the increasingly popularity of online
shopping by internet viewer traffic. The Group will keep regular update of the design and
layout of the storefront on its own website in order to maintain the informative and
attractive features, which the Directors believe would achieve efficacy for the Group’s
sales in physical stores.
Third party e-commerce platforms
The Group’s revenue from online sales at third party e-commerce platforms mainly
included sales generated from the Group’s storefronts set up at an e-commerce platform,
namely, Tmall in the PRC. The revenue generated from the Group’s Tmall storefronts
accounted for approximately 89.2% and 92.9% respectively of the revenue generated from
third party e-commerce platforms.
For the two years ended 31 December 2015, revenue from this category amounted to
approximately HK$7.7 million and HK$16.2 million respectively, represented an increase
of approximately 110.3%. Such significant increase was mainly due to the change of the
operation mode of the indirect online sales via certain related parties who, to the best
knowledge of the Directors, operated Taobao storefronts for selling the Group’s products
generally at level off prices on an indent basis (where the Group’s sales to those related
parties were classified as indirect sales under the category of “other distributors and
retailers”), to direct online sales at the Group’s own Tmall storefronts since March to April
2015.
The Group’s sales to those related parties amounted to approximately HK$7.4
million and HK$1.4 million respectively during the two years ended 31 December 2015. If
the revenue from such transactional arrangement of indirect online sales through related
parties were aggregated with the revenue from direct online sales at third party
e-commerce platforms, the combined revenue would be approximately HK$15.1 million
and HK$17.6 million respectively, represented a growth of approximately 16.6% which
was in line with the growth rate of the Group’s online sales on its own website.
The Group’s revenue from group buying platforms represents the online sales of
goods redemption vouchers launched at periodic promotion time slots at those
e-commerce platforms, all based in Hong Kong. The Group’s sales of goods redemption
vouchers at such group buying platforms are carried out at considerable discounted prices
and at limited quantity, mainly for the purposes of product promotion and inventory
clearance.
– 194 –
approximately HK$1.4 million and HK$3.6 million respectively, represented an increase of
approximately 166.4%, though accounted for only approximately 2.0% and 4.2% of the
Group’s revenues during the respective years.
Indirect sales
Chain retailers
The Group’s sales to chain retailer customers under this category are all governed
by contractual arrangements, including both on a consignment basis and
non-consignment basis. These chain retailers are all Hong Kong based reputable operators
of chain stores and comprised extensive retail networks of cosmetic products,
pharmaceutical and health care products, as well as electronics products and home
appliances. The Group’s products sold to these chain retailers are mainly beauty gadgets.
approximately HK$7.4 million and HK$7.7 million respectively, represented a steady
increase of approximately 4.2%.
Other distributors and retailers
During the Track Record Period, the Group’s sales to other distributors and retailers
mainly comprised sales to certain related parties as detailed in the above category headed
“Third party e-commerce platforms” and sales to a few other distributors which operate
its own online storefronts in the PRC.
approximately HK$15.4 million and HK$20.2 million respectively. Excluding the sales to
those related parties who operated online storefronts at Taobao, the revenue from sales to
other distributors and retailers would amounted to approximately HK$8.0 million and
HK$18.8 million respectively, represented a significant increase of approximately HK$10.8
million or growth of 134.4% in 2015 as compared to 2014. Such increase was mainly
attributable to the overall increase in sales to those customers, including new customers
gained in 2015, which sold the products through various channels including online retail
shops in the PRC. The Directors consider such increase was mainly due to the continuous
growth of the online retail market in the PRC and the increase in demand for beauty
gadget products of the PRC’s consumers, which boosted the Group’s sales to those
distributors and retailers.
Direct sales vs. indirect sales
For the year ended 31 December 2014, the Group’s revenue from direct sales and
indirect sales amounted to approximately HK$44.7 million and HK$22.8 million
respectively, and accounted for approximately 66.2% and 33.8% respectively of the
Group’s revenue for the year. For the year ended 31 December 2015, the Group’s revenue
from direct sales and indirect sales amounted to approximately HK$56.8 million and
HK$27.9 million respectively, and accounted for approximately 67.0% and 33.0%
– 195 –
respectively of the Group’s revenue for the year. Hence, the Group’s revenue share
derived from direct sales channels and indirect sales channels were relatively stable
during the Track Record Period.
Revenue by geographic locations
The following table sets forth a breakdown of the Group’s revenue by geographical
region during the Track Record Period, based on location of the Group’s customers:
2014
2015
HK$’000
%
HK$’000
%
Hong Kong
The PRC
50,843
16,622
75.4
24.6
64,527
20,217
76.1
23.9
Total
67,465
100.0
84,744
100.0
During the Track Record Period, the revenue from Hong Kong mainly included (i)
sales in self-operated physical stores in Hong Kong; (ii) sales through the Group’s own
website and group buying platforms; (iii) sales to chain retailers which were all located in
Hong Kong; (iv) and sales to certain other distributors which received goods in Hong
Kong for their resale in the PRC. On the other hand, the revenue from the PRC mainly
included direct online sales through the Group’s online storefronts on Tmall of the PRC
and sales to certain PRC distributors which operated their own online storefronts on
e-commerce platforms in the PRC.
For the two years ended 31 December 2015, the revenue from Hong Kong accounted
for approximately 75.4% and 76.1% respectively of the Group’s revenue, while the
revenue from the PRC accounted for approximately 24.6% and 23.9% of the Group’s
revenue; demonstrating a relatively stable share of the Group’s revenue between the two
geographical locations during the Track Record Period.
Cost of sales
The Group’s cost of sales were approximately HK$25.5 million and HK$33.5 million
for the two years ended 31 December 2015, which mainly represented the cost of
merchandise purchased from brand owners of branded products or manufacturers of the
Group’s proprietary products. It also included other direct costs which mainly comprised
transportation charges.
– 196 –
The following table sets forth a breakdown of the major component of cost of sales
during the Track Record Period:
2014
2015
HK$’000
%
HK$’000
%
Cost of merchandise
Other direct costs
24,759
691
97.3
2.7
32,760
780
97.7
2.3
Total
25,450
100.0
33,540
100.0
The cost of merchandise included in the Group’s cost of goods sold increased from
HK$32.8 million for the year ended 31 December 2015, representing an increase of
approximately 32.3% which was in line with the increase in the Group’s revenue over the
years.
Other direct costs mainly represented transportation charges incurred in the
respective years. The increase in other direct costs by approximately 12.9% during the
year ended 31 December 2015 as compared to that of 2014 was mainly due to increase in
transportation charges which accounted for over 95% of other direct costs for both years,
and was in line with the increase in cost of sales.
Gross profit and gross profit margin
Gross profit represents the excess of revenue over cost of goods sold. The following
table sets forth the overall gross profit margin of the Group for the two years ended 31
December 2015:
For the year ended
31 December
2014
2015
HK$’000
HK$’000
Revenue
Cost of goods sold
67,465
25,450
84,744
33,540
Gross profit
42,015
51,204
Gross profit margin
62.3%
60.4%
– 197 –
The overall gross profit margin slightly decreased from approximately 62.3% for the
year ended 31 December 2014 to approximately 60.4% for the year ended 31 December
2015, which was mainly due to the increase in sales of beauty gadget products to other
distributors at wholesale prices during the year ended 31 December 2015. Nevertheless, as
the cost of goods sold included other direct costs which were incurred during the relevant
years but were not allocated to specific product types or sales channels. For the purpose of
facilitating the further analysis of the Group’s profit margin by product types and by sales
channels, which only included the cost of merchandise purchased as the relevant cost of
goods sold, the following table sets forth the overall gross profit and gross profit margin
as adjusted to include only the cost of merchandise purchased as the cost of goods sold:
For the year ended
31 December
2014
2015
HK$’000
HK$’000
Revenue
Cost of goods sold (include cost of
merchandise only)
67,465
84,744
24,759
32,760
Gross profit (before other direct costs)
42,706
51,984
Gross profit margin (before other direct costs)
63.3%
61.3%
The gross profit margin (before other direct costs) decreased slightly from
approximately 63.3% for the year ended 31 December 2014 to approximately 61.3% for the
year ended 31 December 2015.
The following table sets forth a summary of (i) gross profit and gross profit margin
(before other direct costs) by product types; and (ii) gross profit and gross profit margin
(before other direct costs) by sales channels, respectively:
(i)
Gross profit and gross profit margin (before other direct costs) – by product types
2014
2015
Gross profit
Gross profit
HK$’000
margin (%)
HK$’000
margin (%)
Fitness
equipment and
accessories
Beauty gadgets
and accessories
Other health care
products
Total gross profit
(before other
direct costs)
15,061
63.0
13,872
61.8
26,635
64.4
37,088
61.1
1,010
46.5
1,024
65.0
42,706
– 198 –
51,984
The gross profit margin (before other direct costs) of fitness equipment and
accessories for the two years ended 31 December 2015 was relatively stable, being
approximately 63.0% and 61.8% respectively.
The gross profit margin (before other direct costs) of beauty gadgets and
accessories decreased slightly from approximately 64.4% for the year ended 31
December 2014 to approximately 61.1% for the year ended 31 December 2015,
mainly due to the increase in sales of beauty gadget products to other distributors at
wholesale prices during the year ended 31 December 2015.
The gross profit margin (before other direct costs) of other health care
products increased from approximately 46.5% for the year ended 31 December 2014
to approximately 65.0% for the year ended 31 December 2015, mainly due to the
decrease in sales of products with relatively thin product margins.
(ii)
Gross profit and gross profit margin (before other direct costs) – by sales channels
2014
2015
Gross profit
Gross profit
HK$’000
margin (%)
HK$’000
margin (%)
Direct sales
Indirect sales
29,704
13,002
Total gross profit
(before other
direct costs)
42,706
66.5
57.0
37,004
14,980
65.1
53.7
51,984
The gross profit margin (before other direct costs) of direct sales for the two
years ended 31 December 2015 was relatively stable, being approximately 66.5% and
65.1% respectively.
The gross profit margin (before other direct costs) of indirect sales decreased
from approximately 57.0% for the year ended 31 December 2014 to approximately
53.7% for the year ended 31 December 2015. This was mainly due to the fact that the
indirect sales for the year ended 31 December 2014 included sales to certain related
parties, who operated online storefronts at Taobao, where the prices of the Group’s
products sold to them were generally approximated to online retail prices. Although
such sales to related parties were also included in the indirect sales for the year
ended 31 December 2015, they were all terminated in April 2015. Please also refer to
the sub-paragraph headed “Business — Sales and distribution channels — (II)
Indirect sales — Sales to other distributors and retailers — Sales to related parties”
in this document for details.
– 199 –
Other income
Other income mainly consists of (i) bank interest income on bank deposits; and (ii)
advertising subsidies provided by certain suppliers, which remained immaterial to the
Group during the Track Record Period.
The selling and distribution expenses mainly consists of (i) advertising and
promotional expenses; (ii) agency fees; (iii) commission and other online charges paid to
an e-commerce platform; (iv) rent, rate and management fees of the Group’s retail stores
and warehouses; (v) salaries and allowances of sales staff; and (vi) transportation
expenses.
The following table sets forth a breakdown of the selling and distribution expenses
for the two years ended 31 December 2015.
For the year ended
31 December
2014
2015
HK$’000
HK$’000
Advertising and promotional expenses
Agency fees
Bank charges
Commission and other online charges
Depreciation charge
Retirement benefit scheme contributions
Rent, rate and management fees
Salaries and allowances
Sundry
Transportation expense
3,833
840
766
839
504
354
7,500
7,449
68
540
4,851
48
759
1,319
422
353
8,062
8,286
193
1,003
22,693
25,296
The Group’s selling and distribution expenses increased by approximately HK$2.6
million, representing an increase of approximately 11.5% from approximately HK$22.7
million for the year ended 31 December 2014 to approximately HK$25.3 million for the
year ended 31 December 2015. Such increase was mainly attributable to the combined
effect of:
(i)
increase in advertising and promotion expenses by approximately HK$1.0
million, from approximately HK$3.8 million for the year ended 31 December
2014 to approximately HK$4.9 million for the year ended 31 December 2015,
which was in line with the increase in revenue of the Group and represented
approximately 5.7% of the Group’ revenue for both of the years ended 31
December 2015;
– 200 –
(ii)
decrease in agency fees by approximately HK$0.8 million, which mainly
represented payment of pre-agreed share of revenue of franchised stores (after
deducted of operation costs borne by franchisees) to franchisees, where upon
the progressive termination of the three franchise arrangements, being in May
2014, September 2014 and March 2015 respectively, the agency fees decreased
significantly;
(iii)
increase in commission and other online charges by approximately HK$0.5
million, which was mainly due to the increase in such charges paid to an
e-commerce platform operator for the Group’s online sales and was in line
with the increase in revenue from sales via the third party e-commerce
platform;
(iv)
increase in rent, rate and management fees of the Group’s retail stores and
warehouses by approximately HK$0.6 million, from approximately HK$7.5
million for the year ended 31 December 2014 to approximately HK$8.1 million
for the year end 31 December 2015, mainly as a result of the increase in rental
expenses of warehouses in Hong Kong and renting of the retail store in
Diamond Hill district since October 2014 upon the termination of franchise
arrangement in the district;
(v)
increase in salaries and allowances for sales staff by approximately HK$0.8
million, which was in line with the increase in revenue generated from the
Group’s retail outlets over the years; and
(vi)
increase in transportation expenses for delivery of goods to customers by
approximately HK$0.5 million, which was in line with the increase in revenue
over the years.
The Group’s administrative expenses mainly consist of (i) depreciation charge; (ii)
[REDACTED] expenses; (iii) repair and maintenance expenses; (iv) rent, rate and
management fees of the Group’s offices in Hong Kong and the PRC; and (v) salaries and
allowances (including directors’ remuneration).
– 201 –
The following table sets forth a breakdown of the administrative expenses for the
two years ended 31 December 2015:
For the year ended
31 December
2014
2015
HK$’000
HK$’000
Accounting fee
Auditors’ remuneration
Bad debts written off
Bank charges
Courier and postage
Depreciation charge
Electricity and water charges
Entertainment
Insurance expenses
Legal and professional fees
[REDACTED] expenses
Motor vehicle expenses
Office supplies
Printing and stationery
Repair and maintenance
Rent, rate and management fee
Salaries and allowances
(including directors’ remuneration)
Telecommunication
Travelling
Written off of plant and equipment
Others
60
30
–
67
74
474
153
80
77
107
–
174
179
164
275
385
284
114
43
226
168
132
349
185
133
210
130
3,851
246
188
159
256
401
609
2,748
108
101
327
317
4,389
99
65
222
823
6,184
12,998
Excluding the effect of [REDACTED] expense of approximately HK$3.9 million
incurred during the year ended 31 December 2015 for the preparation of the
[REDACTED], the Group’s administrative expenses increased by approximately HK$3.0
million, representing an increase of approximately 47.9% from approximately HK$6.2
million for the year ended 31 December 2014 to approximately HK$9.1 million for the year
ended 31 December 2015. Such increase was mainly due to (i) increase in rent, rate and
management fee by approximately HK$0.3 million as a result of renting of office for the
Company and increase in rental expense of the Group’s office in the PRC during the year
ended 31 December 2015; and (ii) increase in salaries and allowances by approximately
HK$1.6 million as a result of general increase in labour costs and increase in headcount
during the year ended 31 December 2015.
– 202 –
Finance costs
Finance costs mainly represent finance lease charges and interest expenses on bank
loans.
The following table sets forth a breakdown of the finance costs for the two years
ended 31 December 2015.
For the year ended
31 December
2014
2015
HK$’000
HK$’000
Finance charges
Interest on bank loans
Others
35
58
6
23
306
5
99
334
The increase in finance costs for the year ended 31 December 2015 as compared to
that for the year ended 31 December 2014 was mainly due to the addition of a new bank
loan of HK$4.0 million for financing the working capital requirement of the Group during
the year.
Income tax expense
During the Track Record Period, the Group’s assessable profits in respect of its
Hong Kong operations were subject to Hong Kong profits tax at the applicable income tax
rate of 16.5%. The Group’s assessable profits in respect of its the PRC operations were
subject to the PRC enterprise income tax at the applicable income tax rate of 25%.
Excluding the over-provision of profits tax in prior years credited against income tax
expense for the year ended 31 December 2014 and the [REDACTED] expenses incurred by
the Company for the year ended 31 December 2015, the effective tax rate for the two years
ended 31 December 2015 was approximately 18.2% and 19.4% respectively.
– 203 –
The following table sets forth a breakdown of the income tax expense for the two
years ended 31 December 2015.
For the year ended
31 December
2014
2015
HK$’000
HK$’000
Current tax – Hong Kong profits tax
Provision for the year
Over-provision in prior years
Current tax – PRC
1,966
(751)
2,435
–
1,215
2,435
411
770
1,626
3,205
The Group’s income tax expense increased by approximately HK$1.6 million from
HK$3.2 million for the year ended 31 December 2015, mainly due to (i) the increase in
profit before tax (excluding [REDACTED] expenses) by approximately HK$3.5 million
during the year; and (ii) the tax provision for the year ended 31 December 2014 was partly
offset by the over-provision of profits tax in prior years of approximately HK$0.8 million.
Profit attributable to owners of the Company and net profit margin
The Group’s profit attributable to owners of the Company decreased by
approximately HK$1.9 million, representing a decrease of approximately 17.1% from
HK$9.5 million for the year ended 31 December 2015. Excluding the [REDACTED]
expenses of approximately HK$3.9 million incurred by the Company during the year
ended 31 December 2015, the profit attributable to owners of the Company would be
increased by approximately HK$1.9 million, representing a growth of approximately
16.7%, which was in line with the growth of the Group’s revenue during the year; and the
Group’s net profit margin would be approximately 16.9% and 15.7% respectively for the
two years ended 31 December 2015, representing a relatively stable net profit margin over
the years.
– 204 –
LIQUIDITY AND CAPITAL RESOURCES
Cash flow
The Group’s primary uses of cash are to satisfy its working capital needs. During the
Track Record Period, the Group’s uses of cash have mainly been financed through a
combination of cash inflows from its operating activities and bank borrowings. As at 31
December 2015, the Group had cash and cash equivalents of approximately HK$13.9
million.
The Group’s working capital requirements mainly comprise cost of purchase of
merchandises, operating lease payments and employee benefits expense. The Directors
expect that the Group’s capital requirements will be met by cash generated from its retail
and distribution operations, bank borrowings and the net proceeds from the
[REDACTED].
The following table is a condensed summary statements of cash flows for the two
years ended 31 December 2015:
For the year ended
31 December
2014
2015
HK$’000
HK$’000
Cash and cash equivalents at beginning of
year
2,311
8,147
(526)
6,782
4,193
(291)
(3,154)
3,439
Net increase in cash and cash equivalents
Effect of foreign exchange rate changes
4,467
4
7,341
(215)
Cash and cash equivalents end of year
6,782
13,908
During the Track Record Period, the Group mainly derived its cash inflow from
operating activities from the receipt of payment from the sales of products. The Group’s
cash outflow from operating activities was principally the payment for purchase of
inventories. The Group’s net cash generated from operating activities mainly represented
its profit before taxation, being adjusted for impairment loss on trade receivables,
depreciation, finance costs, interest income, loss on disposal of plant and equipment, the
effects of change in working capital and income taxes paid.
For the year ended 31 December 2014, the Group had net cash generated from
operating activities of approximately HK$8.1 million, primarily as a result of operating
profit of approximately HK$14.4 million before net negative change in working capital of
approximately HK$5.9 million and income taxes paid of approximately HK$0.4
– 205 –
million. Net negative change in working capital primarily consisted of the combined
effects of (i) increase in inventories of approximately HK$4.0 million; (ii) increase in trade
receivables of approximately HK$2.9 million; (iii) increase in amounts due from directors
of approximately HK$2.9 million; (iv) increase in prepayments, deposits and other
receivables of approximately HK$3.8 million; (v) increase in trade payables of
approximately HK$2.9 million; and (vi) increase in accruals and other payables of
approximately HK$5.0 million.
operating activities of approximately HK$4.2 million, primarily as a result of operating
profit of approximately HK$14.2 million before net negative change in working capital of
approximately HK$5.2 million and income taxes paid of approximately HK$4.5 million.
Net negative change in working capital primarily consisted of the combined effects of (i)
decrease in inventories of approximately HK$7.9 million; (ii) decrease in trade receivables
of approximately HK$1.7 million; (iii) increase in amounts due from directors of
approximately HK$11.9 million; (iv) decrease in trade payables of approximately HK$4.9
million; and (v) increase in accruals and other payables of approximately HK$2.0 million.
Explanations of fluctuations of the aforesaid items from the consolidated statement
of financial position are set out in the sub-section headed “Analysis of various items from
the consolidated statement of financial position” in this section.
For the two years ended 31 December 2015, the Group had net cash used in investing
activities of approximately HK$0.5 million and HK$0.3 million respectively, which were
mainly attributable to the payment for purchase of plant and equipment.
Net cash used in financing activities
For the year ended 31 December 2014, the Group had net cash used in financing
activities of approximately HK$3.2 million, which was mainly attributable to decrease in
amounts due to directors of approximately HK$3.0 million.
financing activities of approximately HK$3.4 million, which was mainly attributable to
the combined effects of (i) proceeds from issue of shares of HK$6.8 million which
represented investments by certain Pre-IPO investors; (ii) proceeds from a new bank loan
raised of HK$4.0 million; (iii) repayment of bank loans of approximately HK$1.0 million;
and (iv) dividends payment of HK$6.2 million.
– 206 –
NET CURRENT ASSETS
As at 31 December
2014
2015
HK$’000
HK$’000
Current assets
Inventories
Trade receivables
Prepayments, deposits and other
receivables
Due from directors
Current liabilities
Trade payables
Bank borrowings
Net current assets
As at
[31 March]
2016
HK$’000
22,483
5,084
14,624
3,142
[17,501]
[7,135]
6,005
2,889
6,782
5,224
3,985
13,908
[6,589]
[4,401]
[8,506]
43,243
40,883
[44,132]
8,278
7,835
250
161
4,302
3,392
4,292
1,224
163
3,019
[6,487]
[2,781]
[1,246]
[150]
[3,212]
20,826
12,090
[13,876]
22,417
28,793
[30,256]
The Group’s net current assets increased by approximately HK$6.4 million from
approximately HK$22.4 million as at 31 December 2014 to approximately HK$28.8 million
as at 31 December 2015, which was mainly due to the combined effects of (i) the profitable
operation the Group during the year ended 31 December 2015, generating net profit
attributable to owners of the Company of approximately HK$9.5 million; (ii)
reclassification of the amount of share subscription money paid by certain Pre-IPO
investors of HK$5.5 million included in the balance of accruals and other payables as at 31
December 2014 to other reserves as at 31 December 2015 upon completion of the share
subscription in February 2015 and the Reorganisation; (iii) declaration of dividend of
HK$17.0 million; (iv) the financing from net increase in non-current portion of bank loans
of approximately HK$2.1 million during the year ended 31 December 2015; and (v) the
financing from issue of shares of approximately HK$6.8 million during the year ended 31
December 2015.
– 207 –
The increase in net current assets as at 31 December 2015 as compared to that of 2014
was mainly represented by the net effects of (i) decrease in inventories by approximately
HK$7.9 million; (ii) decrease in trade receivables by approximately HK$1.9 million; (iii)
decrease in prepayments, deposits and other receivables by approximately HK$0.8
million; (iv) increase in amounts due from directors of approximately HK$1.1 million; (v)
increase in cash and cash equivalents by approximately HK$7.1 million; (vi) decrease in
trade payables by approximately HK$4.9 million; (vii) decrease in accruals and other
payables by approximately HK$3.5 million; (viii) increase in bank borrowings by
approximately HK$1.0 million; and (ix) decrease in current tax liabilities by
approximately HK$1.3 million.
As at [31 March 2016], the Group had net current assets of approximately HK$[30.3]
million, representing an increase of approximately HK$[1.5] million from approximately
HK$[28.8] million as at 31 December 2015, which was mainly due to the profitable
operation of the Group during the three months ended [31 March 2016].
ANALYSIS OF VARIOUS ITEMS FROM THE CONSOLIDATED STATEMENT OF
FINANCIAL POSITION
Plant and equipment
During the Track Record Period, the Group’s plant and equipment comprised
furniture and fixtures, office equipment, motor vehicles and leasehold improvements. The
carrying amount of plant and equipment decreased by approximately HK$0.7 million
from approximately HK$1.7 million as at 31 December 2014 to approximately HK$1.0
million as at 31 December 2015, mainly due to the combined effect of (i) additions to
furniture and fixtures, office equipment and leasehold improvements aggregated to
approximately HK$0.3 million for retail stores and warehouses; (ii) disposal of office
equipment and leasehold improvements with aggregate net carrying amount of
approximately HK$0.2 million; and (iii) depreciation charge for the year ended 31
December 2015 of approximately HK$0.8 million.
Long-term rental deposits as at 31 December 2014 and 2015 represented the Group’s
rental deposits for retail outlets, offices and warehouses where the expiry dates of the
leases were due more than one year from the respective year-end dates. The increase in
long-term rental deposits as at 31 December 2015 was due to the fact that the majority of
the Group’s existing leases were renewed during the year ended 31 December 2015 and
the relevant rental deposits were classified as long-term rental deposits.
– 208 –
Inventories
The inventories of the Group comprise merchandises of fitness equipment and
accessories, beauty gadgets and accessories, as well as other health care products. The
following table sets forth a breakdown of inventories balances by product types as at 31
December 2014 and 2015:
As at 31 December
2014
2015
HK$’000
HK$’000
3,968
18,063
452
4,391
9,943
290
22,483
14,624
The Group’s inventories balance significantly decreased by approximately 35.0%
from approximately HK$22.5 million as at 31 December 2014 to approximately HK$14.6
million as at 31 December 2015, which was mainly due to the fact that the Group increased
the purchase of certain flagship branded beauty gadget products near the end of the year
ended 31 December 2014 for sale in 2015, which boosted the sales to other distributors and
retailers for the year ended 31 December 2015.
The following table sets forth the inventories turnover days for the years below:
For the year ended
31 December
2014
Inventories turnover days (Note)
Note:
302
2015
207
The inventories turnover days were calculated using the average of the beginning and ending
inventories balances of the year, divided by cost of sales (excluding other direct costs) for the year
and multiplied by number of days in the year.
It is the Group’s inventories policy to keep adequate inventories level to cope with
customers’ demand and adjust according to the timing of planned marketing and
promotion activities and the delivery lead time of goods ordered from overseas suppliers
of its products.
The inventories turnover days decreased from an average of approximately 302
days for the year ended 31 December 2014 to approximately 207 days for the year ended 31
December 2015, mainly due to the sale of beauty gadget products stocked up at as 31
December 2014, as it was the Group’s marketing plan to boost the sales of flagship beauty
gadget products during the year ended 31 December 2015 in order to strength its beauty
gadget market presence.
– 209 –
The ageing analysis of the Group’s inventories as at 31 December 2014 and 2015 is as
follows:
As at 31 December
2014
2015
HK$’000
HK$’000
Up to 30 days
31 to 60 days
61 to 90 days
91 to 180 days
181 to 365 days
Over 365 days
6,329
5,334
466
3,313
4,453
2,588
2,669
2,573
708
3,581
2,342
2,751
22,483
14,624
As at 29 February 2016, approximately 25.3% of the inventories as at 31 December
2015 were subsequently sold.
Based on the experience and observation of the Directors, the Directors believe the
product life cycle of beauty gadget products ranges from three to five years while fitness
equipment products have longer life cycle of four to seven years. Nevertheless, the
product brand owners will usually launch new product models to replace old models
before the expiry of the expected product life cycles of those old models. The Group has a
policy of making provisions against slow moving and obsolete inventories as and when
such items are identified. During the Track Record Period, the Group had not made any
allowances for impairment of obsolete and slow-moving inventories. This is because the
Group closely monitors the stock ageing and usually offers the products prone to
obsolescence to the customers at a discount.
Trade receivables
The Group’s trade receivables mainly consist of receivables from chain retailer
customers and certain of its other distributor and retailer customers. The Group generally
offers credit period of 30 days after the end of the month of sales to its chain retailer
customers to settle payments, whereas other distributors and retailers are usually
requested to settle payments within 30 to 60 days upon delivery of products depending
on, among others, the distributors or retailer ’s credit record, historical sales performance,
annual purchase and accounts settlement patterns. The Group seeks to maintain strict
control over its outstanding receivables. Overdue balances are reviewed regularly by the
management.
The Group’s trade receivables decreased by approximately 38.2%, from
approximately HK$5.1 million as at 31 December 2014 to approximately HK$3.1 million as
at 31 December 2015, which was mainly due to the balance as at 31 December 2014
included a relatively significant amount of sales amounted to approximately HK$1.9
million to a customer near the end of 2014, which was subsequently settled in 2015.
– 210 –
The following table sets forth the trade receivables turnover days for the years
below:
For the year ended
31 December
2014
Trade receivables turnover days (Note)
Note:
20
2015
18
The trade receivables turnover days were calculated using the average of the beginning and
ending trade receivables balances of the year, divided by revenue for the year and multiplied by
number of days in the year.
The Group’s trade receivables turnover days were maintained stable at
approximately 20 days and 18 days for the two years ended 31 December 2015
respectively, which were within the credit period offered to customers.
The following table sets forth the ageing analysis of the Group’s trade receivables
based on the delivery of goods and net of allowances, as at 31 December 2014 and 2015:
As at 31 December
2014
2015
HK$’000
HK$’000
Up to 30 days
31 to 60 days
61 to 90 days
91 to 180 days
Over 180 days
3,663
959
177
61
224
2,142
659
112
228
1
5,084
3,142
As at 31 December 2014 and 2015, trade receivables of approximately HK$426,000
and HK$404,000 respectively were past due but not impaired. They relate to a number of
independent customers for whom there is no recent history of default. Based on past
experience, the management believes that no impairment allowance is necessary in
respect of these balances as there has not been a significant change in credit quality and
the balances are still considered fully recoverable.
– 211 –
The ageing analysis of these trade receivables is as follows:
As at 31 December
2014
2015
HK$’000
HK$’000
Up to 30 days
31 to 60 days
61 to 90 days
91 to 180 days
Over 180 days
137
61
4
3
221
210
149
35
10
–
426
404
Impairment losses in respect of trade receivables are recorded using an allowance
account unless the Group is satisfied that recovery of the amount is remote, in which case
the impairment loss is written off against trade receivables directly. For the year ended 31
December 2015, the Group has written off bad debts amounting to approximately
HK$226,000. At 31 December 2014 and 2015, none of the trade receivables was
individually determined to be impaired.
As at 29 February 2016, approximately 79.0% of the trade receivables as at 31
December 2015 were subsequently settled.
Prepayments, deposits and other receivables
Prepayments, deposits and other receivables mainly consisted of prepaid
[REDACTED] expenses, trade deposits, rental and utility deposits and trade discounts
receivable from suppliers.
The following table sets forth the details of the Group’s deposits, prepayments and
other receivables as at 31 December 2014 and 2015:
As at 31 December
2014
2015
HK$’000
HK$’000
Prepaid operating expenses
Prepaid [REDACTED] expenses
Trade deposits
Rental and utility deposits
Other deposits
Other receivables
– 212 –
168
–
–
1,331
874
3,632
488
1,284
1,073
788
934
657
6,005
5,224
The balance of prepayments, deposits and other receivables decreased by
approximately HK$0.8 million from approximately HK$6.0 million as at 31 December 2014
to approximately HK$5.2 million as at 31 December 2015, which was mainly due to the
combined effects of (i) recognition of prepaid [REDACTED] expenses of approximately
HK$1.3 million as at 31 December 2015; (ii) trade deposits of approximately HK$1.1
million paid to certain suppliers but the goods were yet to be received by the Group as at
31 December 2015 while there was no such trade deposits paid as at 31 December 2014; (iii)
the decrease in rental and utility deposits by approximately HK$0.5 million, as the
majority of the Group’s existing leases were renewed during the year ended 31 December
2015 and the relevant rental deposits were classified as long-term rental deposits; and (iv)
trade discounts receivable from certain major suppliers of approximately HK$2.4 million
as at 31 December 2014, while there was no such discounts receivable as at 31 December
2015.
Trade payables
Trade payables were related to the Group’s purchase of merchandises from
suppliers. Payments to suppliers are generally made within 60 days after shipment of
goods from suppliers. The Group’s trade payables of approximately HK$8.3 million as at
31 December 2014 was approximately HK$4.9 million higher than that of approximately
HK$3.4 million as at 31 December 2015, which was mainly due to increase in purchase of
beauty gadgets near the end of the year ended 31 December 2014, and was in line with the
higher inventories balance as at 31 December 2014 as compared to that as at 31 December
2015.
The following table sets forth the trade payables turnover days for the years below:
For the year ended
31 December
2014
Trade payables turnover days (Note)
Note:
87
2015
86
The trade payables turnover days were calculated using the average of the beginning and ending
trade payable balances of the year, divided by the total amount of purchase of goods for the year
and multiplied by number of days in the year.
The Group’s trade payables turnover days were maintained stable at approximately
87 days and 86 days for the two years ended 31 December 2015 respectively.
– 213 –
The following table sets forth the ageing analysis of the Group’s trade payables
based on date of receipt of goods, as at 31 December 2014 and 2015:
As at 31 December
2014
2015
HK$’000
HK$’000
Up to 30 days
31 to 60 days
61 to 90 days
91 to 180 days
1,535
5,872
151
720
1,486
1,803
103
–
8,278
3,392
As at 29 February 2016, all of the trade payables as at 31 December 2015 were
subsequently settled.
Accruals and other payables mainly consisted of accrued operating expenses,
accrued [REDACTED] expenses, amount due to Pre-IPO investors and dividends
payable.
The following table sets forth the details of the Group’s accruals and other payables
as at 31 December 2014 and 2015:
As at 31 December
2014
2015
HK$’000
HK$’000
Accrued operating expenses
Accrued [REDACTED] expenses
Trade deposits received
Other payables
Due to Pre-IPO investors
1,919
–
192
224
5,500
1,755
2,305
141
91
–
7,835
4,292
Accrued operating expenses mainly represented accrued employees benefit
expenses, being approximately HK$1.0 million and HK$1.1 million as at 31 December 2014
and 2015 respectively. The Group’s accruals and other payables decreased by
approximately HK$3.5 million, from approximately HK$7.8 million as at 31 December
2014 to approximately HK$4.3 million as at 31 December 2015, which was mainly due to
the combined effects of (i) the accrual of [REDACTED] expenses of approximately HK$2.3
million incurred during the year ended 31 December 2015; and (ii) the reclassification of
the amount due to certain Pre-IPO investors of HK$5.5 million as at 31 December 2014 to
other reserves upon the completion of the relevant share subscription in February 2015
– 214 –
and the Reorganisation. Such amount was classified as amount due to Pre-IPO investors
as at 31 December 2014 since the relevant funds had been injected into the Group while the
issuance of shares was pending.
Bank loans
As at 31 December 2014 and 2015, the Group’s bank loans were borrowed from
banks in Hong Kong.
The following table sets forth the Group’s bank loans as at 31 December 2014 and
2015:
As at 31 December
2014
2015
HK$’000
HK$’000
Bank loans
722
3,747
The Group’s bank loans are repayable as follows:
As at 31 December
2014
2015
HK$’000
HK$’000
Within one year
More than one year but not exceeding
two years
More than two years, but not more than
five years
Less: Amount due for settlement within
one year
Amount due for settlement after one year
250
1,224
274
1,223
198
1,300
722
3,747
(250)
(1,224)
472
2,523
The Group’s bank loans are arranged at the following average interest rates:
As at 31 December
2014
Bank loans
9.4%
– 215 –
2015
8.6%
As at 31 December 2014 and 2015, bank loans of approximately HK$722,000 and
HK$3,747,000 respectively are arranged at the above fixed interest rates and exposed the
Group to fair value interests rate risk.
As at 31 December 2014 and 2015, the Group’s bank loans were secured by personal
guarantees provided by the Directors.
The Group’s bank borrowings increased by approximately HK$3.0 million from
approximately HK$0.7 million as at 31 December 2014 to approximately HK$3.7 million as
at 31 December 2015, which was mainly due to the combined effects of (i) the raise of a
new bank loan of HK$4.0 million; and (ii) repayment of bank loans of approximately
HK$1.0 million during the year ended 31 December 2015.
[The personal guarantees provided by the Directors will be released upon the
[REDACTED].]
The motor vehicles under finance leases were contracted for an average lease term
of 5 years. At 31 December 2014 and 2015, the average effective interest rates were 7.2%
and 7.2% respectively. Interest rates are fixed at the contract dates and thus expose the
Group to fair value interest rate risk. All leases are on a fixed repayment basis and no
arrangements have been entered into for contingent rental payments. At the end of each
lease term, the Group has the option to purchase the motor vehicles at nominal prices.
At 31 December 2014 and 2015, the Group’s finance lease payables were secured by
the lessor ’s title to the leased asset and personal guarantee provided by a Director.
[The personal guarantee provided by a Director will be released upon the
[REDACTED].]
Due from directors
The following table sets forth the amounts due from directors as at 31 December
2014 and 2015:
As at 31 December
2014
2015
HK$’000
HK$’000
Amount due from directors
– Mr. Chan
– Mr. Li
2,403
486
1,035
2,950
The amounts due from directors mainly represented advances to the Directors.
The amounts due from directors are unsecured, interest-free and repayable on
demand. [The amounts due from directors as at 31 December 2015 will be fully settled
before the [REDACTED]].
– 216 –
Current tax liabilities as at 31 December 2014 and 2015 comprised income tax
payable charged at the taxable income of the Group derived in Hong Kong and the PRC at
the applicable tax rates of 16.5% and 25% respectively.
The current tax liabilities as at 31 December 2014 and 2015 included provision for
income tax of approximately HK$1.3 million and provision for tax penalty of
approximately HK$0.4 million in relation to years of assessment before the Track Record
Period. During the course of conducting the annual audit for the year ended 31 December
2015, the auditors of Fit Boxx HK considered certain items should have been accounted for
in the accounts of Fit Boxx HK for financial years before the Track Record Period based on
latest estimates and information. As a result of the restatement of these relevant financial
figures, tax provision in aggregate of approximately HK$1.3 million had been provided
for in the respective financial years in which the tax liabilities arose, which are before the
Track Record Period. In addition to the tax provision of approximately HK$1.3 million, a
provision for tax penalty in aggregate of approximately HK$0.4 million had also been
provided for respectively. The provision for tax penalty represented 30% of the tax
involved and had been made in accordance with the penalty policy of the Inland Revenue
Department. As at the Latest Practicable Date, Fit Boxx HK, assisted by its auditors and its
tax representative, will report the revised taxable income in the Hong Kong Profits Tax
Returns and tax computations for the relevant years of assessment.
Pursuant to the Deed of Indemnity, save for any amount which have been provided
for in the audited consolidated accounts of the Group as set out in Appendix I to this
document and subject to the terms and conditions contained therein, the Controlling
Shareholders have jointly and severally undertaken to indemnify the Group in respect of
any taxation arising from which might be payable by any member of the Group in respect
of any income, profits or gains earned, accrued or received or alleged to have been earned,
accrued or received on or before the date on which the [REDACTED] becomes
unconditional.
RELATED PARTY TRANSACTIONS
During the Track Record Period, the Group had entered into certain related party
transactions including the sales of goods to a Director and certain related parties which
amounted to an aggregate of approximately HK$7.6 million and HK$1.4 million for the
two years ended 31 December 2015 respectively, details of which are set out in the
sub-paragraph headed “Business — Sales and distribution channels — (II) Indirect sales
— Sales to other distributors and retailers — Sales to related parties” in this document and
note 31 to the Accountants’ Report set out in Appendix I to this document.
The Directors confirm that these related party transactions were conducted on
normal commercial terms and/or on terms not less favourable than terms available from
independent third parties, which are considered fair, reasonable and in the interests of the
Shareholders as a whole.
– 217 –
KEY FINANCIAL RATIOS ANALYSIS
The following table sets forth certain key financial ratios of the Group as at the dates
or for the years indicated:
As at/ For the year ended
31 December
2014
2015
Current ratio 1 (times)
Quick ratio 2 (times)
Debt to equity ratio 3 (%)
Gearing ratio 4 (%)
Interest coverage ratio 5 (times)
Return on assets 6 (%)
Return on equity 7 (%)
Net profit margin 8 (%)
2.1
1.0
N/A
4.7
132.8
25.0
47.4
16.9
3.4
2.2
N/A
13.9
38.9
21.9
33.1
11.2
Notes:
1.
Current ratio is calculated based on the total current assets divided by the total current liabilities
as at the respective year end.
2.
Quick ratio is calculated based on the total current assets less inventories and divided by total
current liabilities as at the respective year end.
3.
Debt to equity ratio is calculated by the net debt (all borrowings net of cash and cash equivalents)
divided by the total equity attributable to owners of the Company as at the respective year end
and multiplied by 100%.
4.
Gearing ratio is calculated based on the interest-bearing liabilities divided by the total equity
attributable to owners of the Company as at the respective year end and multiplied by 100%.
5.
Interest coverage ratio is calculated by the profit before interest and tax divided by the interest for
the respective year.
6.
Return on assets is calculated by the profit attributable to owners of the Company for the year
divided by the total assets as at the respective year end and multiplied by 100%.
7.
Return on equity is calculated by the profit attributable to owners of the Company for the year
divided by the total equity attributable to owners of the Company as at the respective year end
and multiplied by 100%.
8.
Net profit margin is calculated by the profit attributable to owners of the Company for the year
divided by the revenue for the respective year and multiplied by 100%.
– 218 –
Current ratio
The current ratio increased from approximately 2.1 times as at 31 December 2014 to
approximately 3.4 times as at 31 December 2015. This was mainly due to the decrease in
total amount of current liabilities arising from (i) decrease in trade payables as at 31
December 2015 as compared to that of 31 December 2014, where the trade payables
balance as at 31 December 2014 was relatively higher due to the increase in purchase of
certain flagship products near the end of 2014 for sale in 2015; and (ii) the balance of other
payables as at 31 December 2014 included an amount of HK$5.5 million due to certain
Pre-IPO investors, which was subsequently reclassified to other reserves upon the
completion of the relevant share subscription in February 2015 and the Reorganisation.
Quick ratio
The quick ratio increased from approximately 1.0 times as at 31 December 2014 to
approximately 2.2 times as at 31 December 2015. This was mainly due (i) the increase in
bank and cash balances as at 31 December 2015 arising from the share subscription money
of approximately HK$6.8 million received from certain Pre-IPO investors in December
2015; and (ii) the decrease in total amount of current liabilities as at 31 December 2015 as
explained in the paragraph headed “Current ratio” above.
Debt to equity ratio
As the bank and cash balances exceeded the aggregate balances of interest-bearing
debts, the debt to equity ratio was not applicable as at 31 December 2014 and 2015.
Gearing Ratio
The gearing ratio increased from approximately 4.7% as at 31 December 2014 to
approximately 13.9% as at 31 December 2015. This was mainly due to the borrowing of a
new bank loan of HK$4.0 million during the year ended 31 December 2015.
Interest coverage ratio
The interest coverage ratio decreased from approximately 132.8 times for the year
ended 31 December 2014 to approximately 38.9 times for the year ended 31 December
2015. This was mainly due to the increase in interest expenses for the year end 31
December 2015 by approximately 2.4 times as a result of the borrowing of a new bank loan
of HK$4.0 million during the year.
Return on assets
The return on assets decreased from approximately 25.0% for the year ended 31
December 2014 to approximately 21.9% for the year ended 31 December 2015. This was
mainly due to the decrease in profit attributable to owners of the Company for the year
ended 31 December 2015, mainly resulting from the incurring of [REDACTED] expenses
of approximately HK$3.9 million during the year.
– 219 –
Return on equity
The return on equity decreased from approximately 47.4% for the year ended 31
mainly due to (i) the decrease in profit attributable to owners of the Company for the year
of approximately HK$3.9 million during the year; and (ii) the increase in total equity
attributable to owners of the Company as a result of the recording of share premium and
other reserves arising from the share subscriptions of the Pre-IPO investors in an
aggregate amount of approximately HK$12.3 million during the year ended 31 December
2015 and the total comprehensive income of approximately HK$9.3 million for the year, as
deducted by the dividends of HK$17.0 million declared for the year.
Net profit margin
The net profit margin decreased from approximately 16.9% for the year ended 31
mainly due to the decrease in profit attributable to owners of the Company for the year
of approximately HK$3.9 million during the year. Excluding the effect of [REDACTED]
expenses, the profit attributable to owners of the Company for the year ended 31
December 2015 would be approximately HK$13.3 million, and the net profit margin would
be approximately 15.7%, representing a relatively stable net profit margin over the Track
Record Period.
SENSITIVITY ANALYSIS
The Group’s results of operations are vulnerable to the economy in Hong Kong
which would affect the rental costs of the Group’s rented premises including retail outlets
and the labour costs of the Group’s employees. Moreover, the cost of merchandises
purchased from suppliers located worldwide would also affect the results of operations of
the Group to a material extent.
The table below sets forth a sensitivity analysis for the Group’s major cost
components, i.e. (i) costs of goods sold (excluding other direct costs); (ii) employee
benefits expense (including directors’ remuneration); and (iii) operating lease charges of
rented premises, illustrating their respective impact on the Group’s profit before tax if the
above items had been 5%, 10% and 15% higher or lower in the years indicated, assuming
all other variables were held constant.
– 220 –
(i)
Cost of goods sold (excluding other direct costs):
For the year ended
31 December
2014
2015
HK$’000
HK$’000
(ii)
If costs of goods sold
(excluding other direct costs)
had been 5% higher/lower
Decrease/increase in profit before tax
-/+1,238
-/+1,638
-/+2,476
-/+3,276
-/+3,714
-/+4,914
Employee benefits expenses (including directors’ remuneration):
For the year ended
31 December
2014
2015
HK$’000
HK$’000
If employee benefits expense
-/+492
-/+610
-/+984
-/+1,219
-/+1,475
-/+1,829
– 221 –
(iii)
Operating lease charges of rented premises:
For the year ended
31 December
2014
2015
HK$’000
HK$’000
If operating lease charges
-/+322
-/+373
-/+644
-/+747
-/+965
-/+1,120
CONTINGENT LIABILITIES
As at 31 December 2014 and 2015, the Group did not have any significant contingent
liabilities.
INDEBTEDNESS
At the close of business on [29 February 2016], being the latest practicable date on
which indebtedness information was available to the Group, the Group had outstanding
total bank loans of approximately HK$[3.6] million. The effective contractual interest rate
of the Group’s borrowings was ranged from [4.2]% to [5.0]% per annum. All of the Group’s
bank borrowings were guaranteed by the Directors. [Such personal guarantees provided
by the Directors will be released upon the [REDACTED].]
As at [29 February 2016], finance lease payables of approximately HK$[0.2] million
were secured by motor vehicles of the Group and personal guarantee provided by a
Director. [Such personal guarantee will be released upon the [REDACTED].]
To the best knowledge and belief of the Directors, the Group will not have
difficulties in obtaining and/or renewing banking facilities. Based on the business and
financial performance of the Group, the Directors are not aware of any circumstances in
which the Group’s ability to obtain external financing in the future may be affected by the
recent global financial market volatility and credit tightening, and they expect the
Group’s banking facilities to be renewed after [REDACTED].
– 222 –
Save as disclosed above, and apart from the amount due to related parties, the
Group did not have, at the close of business on [29 February 2016], any loan capital issued
and outstanding or agreed to be issued, bank overdrafts, loan or other similar
indebtedness, liabilities under acceptances or acceptance credit, debentures, hire
purchase commitments, mortgages and charges, material contingent liabilities or
guarantees outstanding.
[REDACTED] EXPENSES
Based on the [REDACTED] of HK$[REDACTED] (being the mid-point of the
[REDACTED] range stated in this document), the total expenses in connection with the
[REDACTED] are estimated to be approximately HK$[REDACTED] million, of which
approximately HK$[REDACTED] million is directly attributable to the issue of
[REDACTED] under the [REDACTED] and is expected to be accounted for as a deduction
from equity. For the remaining [REDACTED] expenses of approximately
HK$[REDACTED] million, approximately HK$3.9 million was charged to the
consolidated statement of comprehensive income for the year ended 31 December 2015,
and approximately HK$[REDACTED] million will be charged to the consolidated
statement of comprehensive income for the year ending 31 December 2016.
WORKING CAPITAL
[The Directors are of the opinion that, taking into account the financial resources
available to the Group, including the estimated net proceeds of the [REDACTED], the
banking facilities available to the Group and the internally generated funds, that the
Group has sufficient working capital for the present requirements for at least the next
twelve months from the date in this document.]
– 223 –
CAPITAL EXPENDITURE AND COMMITMENT
The Group’s capital expenditures principally consisted of purchase of plant and
equipment. The Group primarily funded its capital expenditures through cash flows
generated from operations and bank borrowings. The following table sets forth the
Group’s capital expenditure during the Track Record Period:
For the year ended
31 December
2014
2015
HK$’000
HK$’000
Furniture and fixtures
Office equipment
Motor vehicles
44
61
–
422
71
96
–
128
Total
527
295
As at 31 December 2014 and 2015, the Group did not have significant capital
commitment.
OPERATING LEASE COMMITMENTS
The Group leases various properties of retail stores, offices and warehouses under
non-cancellable operating lease agreements. The lease agreements are in general for a
period of two years, and certain of these lease arrangements are renewable at the end of
the lease period with either pre-set increment rate or market rate to be agreed with
landlord.
The operating leases of certain retail store properties also call for additional rentals,
which will be based on a certain percentage of revenue of the operation being undertaken
therein pursuant to the terms and conditions as stipulated in the respective lease
agreements. As the future revenue of these retail stores could not be accurately
determined as at the reporting date, the relevant contingent rentals have not been
included.
– 224 –
At 31 December 2014 and 2015, the total future minimum lease payments under
non-cancellable operating leases are payable as follows:
As at 31 December
2014
2015
HK$’000
HK$’000
Within one year
In the second to fifth years inclusive
4,597
1,024
6,297
3,467
5,621
9,764
The Group’s operating lease commitments increased from approximately HK$5.6
million as at 31 December 2014 to approximately HK$9.8 million as at 31 December 2015,
which was mainly due to the majority of the Group’s lease agreements were entered into
in 2015 with a period of two years in general, and hence they were yet to be renewed as at
31 December 2014.
The operating lease commitment under an operating lease payable to a related party
is as follows:
As at 31 December
2014
2015
HK$’000
HK$’000
Within one year
–
–
420
105
–
525
Please refer to the section headed “Connected transactions” in this document for
details of the lease agreement entered into with the related party.
OFF-BALANCE SHEET TRANSACTIONS
Save for the operating lease commitments and contingent liabilities as disclosed in
the sub-sections headed “Operating lease commitments” and “Contingent liabilities” in
this section and the Accountants’ Report set out in Appendix I to this document, the
Group had not entered into any material off-balance sheet transactions or arrangements as
at the Latest Practicable Date.
– 225 –
PROPERTY INTERESTS
As at the Latest Practicable Date, no single property owned by the Group had a
carrying value exceeding 15% of the total assets, the details of which are set out in the
sub-section headed “Business — Properties” in this document.
DISTRIBUTABLE RESERVES
As at 31 December 2015, the Company had no distributable reserves available for
distribution to the Shareholders.
DIVIDEND AND DIVIDEND POLICY
For the year ended 31 December 2015, a subsidiary of the Group declared dividend
of HK$17.0 million. The Directors consider that there is no material adverse impact on the
Group’s financial and liquidity position arising out of the dividend payment.
Dividends may be paid out by way of cash or by other means that the Directors
consider appropriate. Declaration and payment of any dividends would require the
recommendation of the Board and will be at their discretion. In addition, any final
dividend for a financial year will be subject to Shareholders’ approval. The Company
currently does not have any specific dividend policy. A decision to declare or to pay any
dividend in the future, and the amount of any dividends, depends on a number of factors,
including the Group’s results of operations, financial condition, the payment by the
Group’s subsidiaries of cash dividends to the Group, and other factors the Board may
deem relevant. There will be no assurance that the Company will be able to declare or
distribute any dividend in the amount set out in any plan of the Board or at all. The
dividend distribution record in the past may not be used as a reference or basis to
determine the level of dividends that may be declared or paid by the Board in the future.
UNAUDITED PRO FORMA STATEMENT OF ADJUSTED NET TANGIBLE ASSETS
For illustrative purpose only, the pro forma financial information prepared in
accordance with paragraph 31 of Chapter 7 of the GEM Listing Rules is set out herein to
provide the investors with further information to assess the financial performance of the
Group after taking into account the adjusted net tangible assets of the Group to illustrate
the financial position of the Group after completion of the [REDACTED] and to illustrate
the performance of the Group had the [REDACTED] been completed on 31 December
2015.
The unaudited pro forma financial information has been prepared, on the basis of
the notes set out below, to illustrate how the [REDACTED] may have affected the net
tangible assets attributable to owners of the Company had it occurred as of 31 December
2015. It has been prepared for illustrative purpose only and, because of its nature, may not
give a true picture of the financial position of the Group.
– 226 –
Audited
consolidated net
tangible assets
attributable to
owners of
the Company as
of 31 December
2015
(Note 1)
HK$’000
Unaudited pro
Estimated net
Unaudited pro forma adjusted net
proceeds from forma adjusted net
tangible assets
the [REDACTED]
tangible assets
per Share
(Note 2)
(Note 3)
HK$’000
HK$’000
HK$
Based on the [REDACTED] of
[HK$[REDACTED]] per
share
28,616
[REDACTED]
[REDACTED]
[REDACTED]
[HK$[REDACTED]] per
share
28,616
[REDACTED]
[REDACTED]
[REDACTED]
Notes:
(1)
The audited consolidated net tangible assets attributable to owners of the Company as of 31
December 2015 is extracted from the audited consolidated net assets of HK$28,616,000 as of 31
December 2015, as shown in the accountants’ report, the text of which is set out in Appendix I to
this document.
(2)
The adjustment to the pro forma statement of net tangible assets reflects the estimated proceeds
from the [REDACTED] to be received by the Company. The estimated proceeds from the
[REDACTED] is based on the [REDACTED] of [HK$[REDACTED]] and [HK$[REDACTED]],
respectively, being the lower and higher end price of the stated [REDACTED] range, and
[REDACTED] Shares, net of underwriting fee of approximately [REDACTED] million and
[REDACTED] million, respectively and other estimated issue expenses approximately
[REDACTED] million payable by the Company.
(3)
The unaudited pro forma adjusted net tangible assets and the amounts per Share are on the basis
that [REDACTED] shares are expected to be in issue following the [REDACTED] (including
[REDACTED] shares newly issued upon the [REDACTED]) had been completed on 31 December
2015 and respective [REDACTED] of [HK$[REDACTED]] and [HK$[REDACTED]] per Share.
(4)
No adjustment has been made to the unaudited pro forma adjusted consolidated net tangible
assets of the Group attributable to owners of the Company to reflect any trading result or other
transactions of the Group entered into subsequent to 31 December 2015.
CAPITAL RISK MANAGEMENT AND FINANCIAL RISK MANAGEMENT
Capital risk management
The Group’s objectives when managing capital are to safeguard the Group’s ability
to continue as a going concern and to maximise the return to the shareholders through the
optimisation of the debt and equity balance. The Group sets the amount of capital in
proportion to risk. The Group manages the capital structure and makes adjustments to it
in the light of changes in economic conditions and the risk characteristics of the
underlying assets. In order to maintain or adjust the capital structure, the Group may
adjust the payment of dividends, issue new shares, buy-back shares, raise new debts,
– 227 –
redeem existing debts or sell assets to reduce debts. The Group monitors capital on the
basis of the gearing ratio which is the total borrowings divided by the total equity of the
Company. Total borrowings comprises bank loans and finance lease payables. The
Group’s policy is to keep the gearing ratio at a reasonable level. The Group is not subject
to any externally imposed capital requirements. Further details on the Group’s capital risk
management policies and practices are set out in note 25 to the Accountants’ Report in
Appendix I to this document.
Financial risk management
The Group is exposed to a variety of financial risks: market risk (including foreign
exchange risk and cash flow and fair value interest rate risk), credit risk and liquidity risk.
The Group’s overall risk management programme focuses on the unpredictability of
financial markets and seeks to minimise potential adverse effects on the Group’s financial
performance. The Group does not use derivative financial instruments to hedge its risk
exposures to changes in foreign exchange rates and interest rates. Further details on the
Group’s financial risk management policies and practices are set out in note 6 to the
Accountants’ Report in Appendix I to this document.
DISCLOSURE UNDER CHAPTER 17 OF THE GEM LISTING RULES
The Directors have confirmed that, save as disclosed above, as at the Latest
Practicable Date, they were not aware of any circumstances which would give rise to a
disclosure requirement under Rules 17.15 to 17.21 of the GEM Listing Rules.
MATERIAL ADVERSE CHANGE
Save as disclosed in the sub-section headed “Summary – Recent development since
31 December 2015” in this document, the Directors confirm that, up to the date in this
document, there had been no material adverse change in the financial or trading positions
or prospect of the Group since 31 December 2015, being the date to which the latest
audited financial statements of the Group were made up, and there had been no event
since 31 December 2015 which would materially affect the information shown in the
Accountant’s Report set out in Appendix I to this document.
– 228 –
UNDERWRITING
[REDACTED]
– 229 –
UNDERWRITING
[REDACTED]
– 230 –
UNDERWRITING
[REDACTED]
– 231 –
UNDERWRITING
[REDACTED]
Commission and expenses
The [REDACTED] will receive an underwriting commission of [REDACTED]% of
the aggregate [REDACTED] of all [REDACTED]. The Sponsor will receive a financial
advisory and documentation fee in relation to the [REDACTED] and will be reimbursed
for their expenses. Such commission, advisory and documentation fee and expenses,
together with the [REDACTED] fees, SFC transaction levy, legal and other professional
fees, printing and other expenses relating to the [REDACTED] which are estimated to
amount in aggregate to approximately HK$[REDACTED] million and are to be borne by
the Company.
[REDACTED]’s interest in the Company
Save as disclosed in this document and as provided for under the [REDACTED], the
[REDACTED] have no shareholding interests in any member of the Group nor has any
right (whether legally enforceable or not) to subscribe for or nominate persons to
subscribe for securities in any member of the Group.
[REDACTED]
– 232 –
UNDERWRITING
[REDACTED]
MINIMUM PUBLIC FLOAT
The Directors and the [REDACTED] will ensure that there will be a minimum 25%
of the total issued Shares held in public hands in accordance with Rule 11.23(9) of the GEM
Listing Rules after completion of the [REDACTED].
– 233 –
STRUCTURE AND CONDITIONS OF THE [REDACTED]
[REDACTED]
– 234 –
[REDACTED]
– 235 –
[REDACTED]
– 236 –
APPENDIX I
ACCOUNTANTS’ REPORT
The following is the text of a report, prepared for the sole purpose of inclusion in this
document, from the independent reporting accountants, RSM Hong Kong, Certified Public
Accountants, Hong Kong.
RSM Hong Kong
29th Floor
Lee Garden Two
28 Yun Ping Road
Causeway Bay
Hong Kong
[●] 2016
The Board of Directors
Dear Sirs,
We set out below our report on the financial information (the “Financial
Information”) of Fit Boxx Holdings Limited (the “Company”) and its subsidiaries
(hereinafter collectively referred to as the “Group”) for each of the two years ended 31
December 2014 and 2015 (the “Relevant Periods”) for inclusion in the document dated [●]
2016 issued by the Company (the “Document”) in connection with the [REDACTED] of
shares of the Company on the Growth Enterprise Market of the Stock Exchange of Hong
Kong Limited.
The Company was incorporated as an exempted company in the Cayman Islands
under the Companies Law of the Cayman Islands on 14 May 2015. Pursuant to a group
reorganisation as more fully explained in the paragraph headed “Reorganisation” in the
“History, Reorganisation and Group Structure” section in the Document (the “Group
Reorganisation”), the Company became the holding company of the Group since 10
December 2015.
– I-1 –
APPENDIX I
As at the date of this report, the Company has the following subsidiaries:
Name
Place of
Date of
incorporation/ incorporation/
establishment establishment
Issued and
paid up
capital/
registered
capital
Percentage of
ownership interest
2014
Fit Boxx Co. Ltd.
(“Fit Boxx
BVI”)
2015
20 May 2015
HK$2
–
Fit Boxx Trading Hong Kong
Company
Limited
(“Fit Boxx HK”)
18 June 2009
HK$5,510,000
100%
100% Sales and
distribution of
fitness
equipment,
beauty gadgets
and other health
care products
PRC
偉博進出口貿易
（深圳）有限公司*
(“Fit Boxx
Shenzhen”)
31 October
2012
RMB500,000
100%
100% Sales and
distribution of
beauty gadgets
and accessories
*
BVI
Principal
activities
– Investment
holding
This subsidiary is registered as wholly-owned foreign enterprise under the PRC laws.
All the companies now comprising the Group have adopted 31 December as their
financial year end date. We acted as auditors of all the companies now comprising the
Group for the Relevant Periods except as disclosed below.
The statutory financial statements of Fit Boxx HK for the year ended 31 December
2014 have been prepared in accordance with Hong Kong Financial Reporting Standards
(“HKFRSs”) issued by Hong Kong Institute of Certified Public Accountants (the
“HKICPA”) and were audited by Alan Chan & Company, certified public accountants
registered in Hong Kong, in accordance with Hong Kong Standards on Auditing
(“HKSA”) issued by the HKICPA.
The statutory financial statements of Fit Boxx Shenzhen for the years ended 31
December 2014 and 2015 have been prepared in accordance with the relevant accounting
principles and financial regulations applicable to companies established in the People’s
Republic of China (the “PRC”) and were audited by 深圳市永明會計師事務所有限責任公司,
certified public accountants registered in the PRC.
No audited financial statements of Fit Boxx BVI have been prepared since
incorporation as there is no statutory audit requirement in the country of its
incorporation.
– I-2 –
APPENDIX I
For the purpose of this report, the directors of the Company have prepared the
consolidated financial statements of the Group for the Relevant Periods in accordance
with HKFRSs issued by the HKICPA (the “HKFRS Financial Statements”).
We have performed our independent audit on the HKFRS Financial Statements in
accordance with HKSA issued by the HKICPA and have examined the HKFRS Financial
Statements in accordance with Auditing Guideline 3.340 “Prospectuses and the Reporting
Accountant” issued by the HKICPA.
The Financial Information has been prepared from the HKFRS Financial Statements
in accordance with HKFRSs and on the basis of presentation set out in note 2 to the
Financial Information. No adjustments were considered necessary for the purpose of
preparing our report for inclusion in the Document.
The directors of the Company are responsible for the preparation of the HKFRS
Financial Statements and the contents of the Document in which this report is included. It
is our responsibility to compile the Financial Information set out in this report from the
HKFRS Financial Statements, to form an independent opinion on the Financial
Information and to report our opinion to you.
In our opinion, for the purpose of this report and on the basis of presentation set out
in note 2 to the Financial Information, the Financial Information gives a true and fair view
of the state of affairs of the Company and of the Group as at 31 December 2014 and 2015
and of the Group’s results and cash flows for the Relevant Periods.
– I-3 –
APPENDIX I
A.
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER
COMPREHENSIVE INCOME
Note
7
Revenue
Cost of goods sold
Gross profit
Other income
8
2014
2015
HK$’000
HK$’000
67,465
(25,450)
84,744
(33,540)
42,015
5
(22,693)
(6,184)
51,204
98
(25,296)
(12,998)
13,008
(334)
Profit from operations
Finance costs
9
13,143
(99)
Profit before tax
Income tax expense
10
13,044
(1,626)
12,674
(3,205)
Profit for the year attributable to
owners of the Company
11
11,418
9,469
Other comprehensive income
after tax:
Item that may be reclassified to
profit or loss:
Exchange differences on
translating foreign operations
4
Total comprehensive income for
the year attributable to
owners of the Company
(204)
11,422
9,265
N/A
N/A
15
Earnings per share
Basic
– I-4 –
APPENDIX I
B.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Note
Non-current assets
Plant and equipment
16
At 31 December
2014
2015
HK$’000
HK$’000
1,679
694
979
1,446
2,373
2,425
18
19
22,483
5,084
14,624
3,142
13(b)
20
6,005
2,889
6,782
5,224
3,985
13,908
43,243
40,883
8,278
7,835
250
161
4,302
3,392
4,292
1,224
163
3,019
20,826
12,090
Net current assets
22,417
28,793
Total assets less current liabilities
24,790
31,218
472
242
2,523
79
714
2,602
24,076
28,616
10
24,066
1
28,615
24,076
28,616
Current assets
Inventories
Trade receivables
Prepayments, deposits and other
receivables
Due from directors
Current liabilities
Trade payables
Bank loans
21
22
23
Non-current liabilities
Bank loans
22
23
NET ASSETS
Share capital
Reserves
25
27
TOTAL EQUITY
– I-5 –
APPENDIX I
C.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Share
Share
capital premium
HK$’000 HK$’000
(note
(note 25) 27(b)(i))
At 1 January 2014
Foreign
currency
translation Statutory
Other
reserve
reserve
reserve
HK$’000 HK$’000 HK$’000
(note
(note
(note
27(b)(ii)) 27(b)(iii)) 27(b)(iv))
Retained
profits
HK$’000
Total
HK$’000
10
–
5
–
–
12,639
12,654
Total comprehensive
income for the year
Transfer to statutory
reserve
–
–
4
–
–
11,418
11,422
–
–
–
106
–
(106)
–
Changes in equity for
the year
–
–
4
106
–
11,312
11,422
At 31 December 2014
and 1 January 2015
10
–
9
106
–
23,951
24,076
5,500
–
–
–
–
–
5,500
(5,510)
–
–
–
5,510
–
–
0
–
–
–
–
–
0
1
6,774
–
–
–
–
6,775
–
–
(204)
–
–
9,469
9,265
–
–
–
231
–
(231)
–
–
–
–
–
–
(17,000)
(17,000)
Changes in equity for
the year
(9)
6,774
(204)
231
5,510
(7,762)
4,540
At 31 December 2015
1
6,774
(195)
337
5,510
16,189
28,616
Issue of shares of
Fit Boxx HK before
Group
Reorganisation
Effect of Group
Reorganisation
Issue of shares of
the Company on
Group Reorganisation
(note 25(iv)
Issue of shares of
the Company
(note 25(v))
Total comprehensive
income for the year
Transfer to statutory
reserve
Dividends paid
(note 14)
– I-6 –
APPENDIX I
D.
CONSOLIDATED STATEMENT OF CASH FLOWS
Note
CASH FLOWS FROM OPERATING
ACTIVITIES
Profit before tax
Adjustments for:
Written-off of bad debts
Depreciation
Finance costs
Bank interest income
Written-off of plant and equipment
2014
2015
HK$’000
HK$’000
13,044
11
11
9
8
11
Operating profit before working
capital changes
(Increase)/decrease in inventories
(Increase)/decrease in trade
receivables
Increase in amounts due from
directors
Increase in long-term rental
deposits paid
(Increase)/decrease in
prepayments, deposits and other
receivables
Increase/(decrease) in trade
payables
Increase in accruals and other
payables
–
978
99
(1)
327
12,674
226
772
334
(4)
222
14,447
(4,039)
14,224
7,859
(2,877)
1,716
(2,894)
(11,891)
(117)
(752)
(3,812)
776
2,868
(4,886)
5,020
1,957
Cash generated from operations
Finance lease charges paid
Interest paid
Income taxes paid
8,596
(35)
(64)
(350)
9,003
(23)
(311)
(4,476)
Net cash generated from operating
activities
8,147
4,193
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchase of plant and equipment
Interest received
– I-7 –
16
(527)
1
(295)
4
(526)
(291)
APPENDIX I
Note
CASH FLOWS FROM FINANCING
ACTIVITIES
Issue of shares
Bank loans raised
Repayment of bank loans
Repayment of capital element of
finance lease payables
Decrease in amounts due to directors
Dividends paid
NET INCREASE IN CASH AND
CASH EQUIVALENTS
Effect of foreign exchange rate
changes
25
28
2014
2015
HK$’000
HK$’000
–
800
(772)
6,775
4,000
(975)
(154)
(3,028)
–
(161)
–
(6,200)
(3,154)
3,439
4,467
7,341
4
(215)
CASH AND CASH EQUIVALENTS
AT 1 JANUARY
2,311
6,782
CASH AND CASH EQUIVALENTS
AT 31 DECEMBER
6,782
13,908
ANALYSIS OF CASH AND CASH
EQUIVALENTS
6,782
13,908
– I-8 –
APPENDIX I
E.
NOTES TO THE FINANCIAL INFORMATION
1.
GENERAL INFORMATION
The Company was incorporated in the Cayman Islands with limited liability. The address of its
registered office is Cricket Square, Hutchins Drive, P. O. Box 2681, Grand Cayman KY1-1111, Cayman
Islands. The address of its principal place of business is Flat F, 3/F., Hung Wai Industrial Building, 3 Hi
Yip Street, Yuen Long, the New Territories, Hong Kong.
In the opinion of the directors of the Company, Faith Elite Limited, a company incorporated in
Anguilla with limited liability, is the immediate and ultimate holding company and Mr. Li Hon Ming and
Mr. Chan Yiu Kwong are the ultimate controlling parties.
2.
BASIS OF PRESENTATION OF THE FINANCIAL INFORMATION
Pursuant to the Group Reorganisation as more fully explained in the paragraph headed
“Reorganisation” in the “History, Reorganisation and Group Structure” section in the Document, the
Company became the holding company of the companies now comprising the Group on 10 December
2015. As the Group Reorganisation involved only the insertion of new holding companies at the top of the
existing group and did not result in any change in economic substance, the Financial Information for the
Relevant Periods has been prepared as a continuation of the existing group using the principles of merger
accounting.]
The consolidated statement of profit or loss and other comprehensive income, the consolidated
statement of changes in equity and the consolidated statement of cash flows are prepared as if the group
structure had been in existence throughout the Relevant Periods. The consolidated statement of financial
position as at 31 December 2014 and 2015 presents the assets and liabilities of the companies now
comprising the group as if the current group structure had been in existence at those dates.
3.
ADOPTION OF NEW AND REVISED HONG KONG FINANCIAL REPORTING STANDARDS
(a)
Application of new and revised HKFRSs
During the Relevant Periods, the Group has adopted all the new and revised HKFRSs
issued by the HKICPA that are relevant to its operations and effective for accounting year
beginning on 1 January 2015:
Amendment to HKAS 24 (Annual Improvements to HKFRSs 2010–2012 Cycle)
The amendment clarifies how payments to entities providing key management
personnel services are to be disclosed. This amendment had no effect on the Group’s
Financial Information.
Amendment to HKFRS 8 (Annual Improvements to HKFRSs 2010–2012 Cycle)
The amendment requires disclosure of the judgments made by management in
applying the aggregation criteria to operating segments, and clarifies that reconciliations
of the total of the reportable segments’ assets to the entity’s assets are required only if the
segment assets are reported regularly. These clarifications had no effect on the Group’s
Financial Information.
(b)
New and revised HKFRSs in issue but not yet effective
The Group has not early applied new and revised HKFRSs that have been issued but are
not yet effective for the financial year beginning on 1 January 2015. The directors anticipate that
the new and revised HKFRSs will be adopted in the Group’s Financial Information when they
become effective. The Group is in the process of assessing, where applicable, the potential effect
of all new and revised HKFRSs that will be effective in future periods but is not yet in a position
to state whether these new and revised HKFRSs would have a material impact on its results of
operations and financial position.
– I-9 –
APPENDIX I
Financial Instruments 1
Revenue from Contracts with Customers 1
Disclosure Initiative 2
Annual Improvements to HKFRSs 2012-2014 Cycle 2
HKFRS 9
HKFRS 15
Amendments to HKAS 1
Amendments to HKFRSs
1
2
4.
Effective for annual periods beginning on or after 1 January 2018, with earlier
application permitted.
Effective for annual periods beginning on or after 1 January 2016, with earlier
application permitted.
SIGNIFICANT ACCOUNTING POLICIES
The Financial Information has been prepared under the historical cost convention.
The preparation of Financial Information in conformity with HKFRSs requires the use of certain
critical accounting estimates. It also requires management to exercise its judgment in the process of
applying the Group’s accounting policies. The areas involving a higher degree of judgment or
complexity, or areas where assumptions and estimates are significant to the Financial Information are
disclosed in note 5.
The significant accounting policies applied in the preparation of the Financial Information are set
out below.
(a)
Consolidation
The Financial Information includes the financial statements of the Company and its
subsidiaries made up to 31 December. Subsidiaries are entities over which the Group has control.
The Group controls an entity when it is exposed, or has rights, to variable returns from its
involvement with the entity and has the ability to affect those returns through its power over the
entity. The Group has power over an entity when the Group has existing rights that give it the
current ability to direct the relevant activities, i.e. activities that significantly affect the entity’s
returns.
When assessing control, the Group considers its potential voting rights as well as
potential voting rights held by other parties. A potential voting right is considered only if the
holder has the practical ability to exercise that right.
Subsidiaries are consolidated from the date on which control is transferred to the Group.
They are de-consolidated from the date the control ceases.
Intragroup transactions, balances and unrealised profits are eliminated. Unrealised losses
are also eliminated unless the transaction provides evidence of an impairment of the asset
transferred. Accounting policies of subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
(b)
Merger accounting for business combination under common control
The consolidated financial statements incorporate the financial statements of the
combining entities as if they had been combined from the date when they first came under the
control of the controlling party.
The consolidated statement of profit or loss and other comprehensive income and
consolidated statement of cash flows include the results and cash flows of the combining entities
from the earliest date presented or since the date when the combining entities first came under the
common control, where this is a shorter period, regardless of the date of the common control
combination.
The consolidated statement of financial position has been prepared to present the assets
and liabilities of the combining entities as if the Group structure as at 31 December 2015 had been
in existence at the end of each reporting period. The net assets of the combining entities are
consolidated using the existing book values from the controlling party’s perspective. No amount
is recognised in respect of goodwill or gain on bargain purchase at the time of common control
combination, to the extent of the continuation of the controlling party’s interest.
There was no adjustment made to the net assets nor the net profit or loss of any combining
entities in order to achieve consistency of the Group’s accounting policies.
– I-10 –
APPENDIX I
(c)
Foreign currency translation
(i)
Functional and presentation currency
Items included in the financial statements of each of the Group’s entities are
measured using the currency of the primary economic environment in which the entity
operates (the “functional currency”). The consolidated financial statements are presented
in Hong Kong dollars (“HK$”), which is the Company’s presentation currency and the
functional currency.
(ii)
Transactions and balances in each entity’s financial statements
Transactions in foreign currencies are translated into the functional currency on
initial recognition using the exchange rates prevailing on the transaction dates. Monetary
assets and liabilities in foreign currencies are translated at the exchange rates at the end of
each reporting period. Gains and losses resulting from this translation policy are
recognised in profit or loss.
Non-monetary items that are measured at fair value in foreign currencies are
translated using the exchange rates at the dates when the fair values are determined.
When a gain or loss on a non-monetary item is recognised in other comprehensive
income, any exchange component of that gain or loss is recognised in other
comprehensive income. When a gain or loss on a non-monetary item is recognised in
profit or loss, any exchange component of that gain or loss is recognised in profit or loss.
(iii)
Translation on consolidation
The results and financial position of all the Group entities that have a functional
currency different from the Company’s presentation currency are translated into the
Company’s presentation currency as follows:
–
Assets and liabilities for each statement of financial position presented are
translated at the closing rate at the date of that statement of financial
position;
–
Income and expenses are translated at average exchange rates for the
period (unless this average is not a reasonable approximation of the
cumulative effect of the rates prevailing on the transaction dates, in which
case income and expenses are translated at the exchange rates on the
transaction dates); and
–
All resulting exchange differences are recognised in other comprehensive
income and accumulated in the foreign currency translation reserve.
On consolidation, exchange differences arising from the translation of monetary
items that form part of the net investment in foreign entities are recognised in other
comprehensive income and accumulated in the foreign currency translation reserve.
When a foreign operation is sold, such exchange differences are reclassified to
consolidated profit or loss as part of the gain or loss on disposal.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity
are treated as assets and liabilities of the foreign entity and translated at the closing rate.
– I-11 –
APPENDIX I
(d)
Plant and equipment
Plant and equipment, held for use in the production or supply of goods or services, or for
administrative purposes are stated in the consolidated statement of financial position at cost, less
subsequent accumulated depreciation and subsequent accumulated impairment losses if any.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate
asset, as appropriate, only when it is probable that future economic benefits associated with the
item will flow to the Group and the cost of the item can be measured reliably. All other repairs and
maintenance are recognised in profit or loss during the period in which they are incurred.
Depreciation of plant and equipment is calculated at rates sufficient to write off their cost
less their residual values over the estimated useful lives on a straight-line basis. The principal
annual rates are as follows:
Furniture and fixtures
Office equipment
Motor vehicles
20%
20%
30%
20%
The residual values, useful lives and depreciation method are reviewed and adjusted, if
appropriate, at the end of each reporting period.
The gain or loss on disposal of plant and equipment is the difference between the net sales
proceeds and the carrying amount of the relevant asset, and is recognised in profit or loss.
(e)
Leases
The Group as lessee
(i)
Operating leases
Leases that do not substantially transfer to the Group all the risks and rewards of
ownership of assets are accounted for as operating leases. Lease payments (net of any
incentives received from the lessor) are recognised as an expense on a straight-line basis
over the lease term.
(ii)
Finance leases
Leases that substantially transfer to the Group all the risks and rewards of
ownership of assets are accounted for as finance leases. At the commencement of the lease
term, a finance lease is capitalised at the lower of the fair value of the leased asset and the
present value of the minimum lease payments, each determined at the inception of the
lease.
The corresponding liability to the lessor is included in the consolidated statement
of financial position as finance lease payable. Lease payments are apportioned between
the finance charge and the reduction of the outstanding liability. The finance charge is
allocated to each period during the lease term so as to produce a constant periodic rate of
interest on the remaining balance of the liability.
Assets under finance leases are depreciated the same as owned assets over the
shorter of the lease term and their estimated useful lives.
– I-12 –
APPENDIX I
(f)
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined
using the first-in, first-out basis. The cost of finished goods comprises raw materials, direct labour
and an appropriate proportion of all production overhead expenditure, and where appropriate,
subcontracting charges. Net realisable value is the estimated selling price in the ordinary course
of business, less the estimated costs of completion and the estimated costs necessary to make the
sale.
(g)
Recognition and derecognition of financial instruments
Financial assets and financial liabilities are recognised in the consolidated statement of
financial position when the Group becomes a party to the contractual provisions of the
instruments.
Financial assets are derecognised when the contractual rights to receive cash flows from
the assets expire; the Group transfers substantially all the risks and rewards of ownership of the
assets; or the Group neither transfers nor retains substantially all the risks and rewards of
ownership of the assets but has not retained control on the assets. On derecognition of a financial
asset, the difference between the asset’s carrying amount and the sum of the consideration
received and the cumulative gain or loss that had been recognised in other comprehensive income
is recognised in profit or loss.
Financial liabilities are derecognised when the obligation specified in the relevant
contract is discharged, cancelled or expires. The difference between the carrying amount of the
financial liability derecognised and the consideration paid is recognised in profit or loss.
Financial assets and liabilities are offset and the net amount reported in the balance sheet
when there is a legally enforceable right to offset the recognised amounts and there is an intention
to settle on a net basis or realise the asset and settle the liability simultaneously. The legally
enforceable right must not be contingent on future events and must be enforceable in the normal
course of business and in the event of default, insolvency or bankruptcy of the company or the
counterparty.
(h)
Financial assets
Financial assets are recognised and derecognised on a trade date basis where the purchase
or sale of an financial asset is under a contract whose terms require delivery of the financial assets
within the timeframe established by the market concerned, and are initially measured at fair
value, plus directly attributable transaction costs except in the case of financial assets at fair value
through profit or loss.
The Group classifies its financial assets in loans and receivables. The classification
depends on the purpose for which the financial assets were acquired. Management determines
the classification of its financial assets at initial recognition.
(i)
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or
determinable payments that are not quoted in an active market. These assets are carried at
amortised cost using the effective interest method (except for short-term receivables
where interest is immaterial) minus any reduction for impairment or uncollectibility.
Typically trade and other receivables, bank balances and cash are classified in this
category.
– I-13 –
APPENDIX I
(i)
Trade and other receivables
Trade and other receivables are recognised initially at fair value and subsequently
measured at amortised cost using the effective interest method, less allowance for impairment.
(j)
Cash and cash equivalents
For the purpose of the consolidated statement of cash flows, cash and cash equivalents
represent cash at bank and on hand, demand deposits with banks and other financial institutions,
and short-term highly liquid investments which are readily convertible into known amounts of
cash and subject to an insignificant risk of change in value. Bank overdrafts which are repayable
on demand and form an integral part of the Group’s cash management are also included as a
component of cash and cash equivalents.
(k)
Financial liabilities and equity instruments
Financial liabilities and equity instruments are classified according to the substance of the
contractual arrangements entered into and the definitions of a financial liability and an equity
instrument under HKFRSs. An equity instrument is any contract that evidences a residual interest
in the assets of the Group after deducting all of its liabilities. The accounting policies adopted for
specific financial liabilities and equity instruments are set out below.
(i)
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred,
and subsequently measured at amortised cost using the effective interest method.
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least 12 months after the
reporting period.
(ii)
Trade and other payables
Trade and other payables are stated initially at their fair value and subsequently
measured at amortised cost using the effective interest method unless the effect of
discounting would be immaterial, in which case they are stated at cost.
(iii)
Equity instruments
Equity instruments issued by the Company are recorded at the proceeds received,
net of direct issue costs.
(l)
Revenue recognition
Revenue is measured at the fair value of the consideration received or receivable and is
recognised when it is probable that the economic benefits will flow to the Group and the amount
of revenue can be measured reliably.
(i)
sales of goods
Revenue from the sales of goods is recognised on the transfer of significant risks
and rewards of ownership, which generally coincides with the time when the goods are
delivered and the title has passed to the customers.
(ii)
interest income
Interest income is recognised on a time-proportion basis using the effective
interest method.
– I-14 –
APPENDIX I
(m)
Employee benefits
(i)
Employee leave entitlements
Employee entitlements to annual leave and long service leave are recognised when
they accrue to employees. A provision is made for the estimated liability for annual leave
and long service leave as a result of services rendered by employees up to the end of the
reporting period.
Employee entitlements to sick leave and maternity leave are not recognised until
the time of leave.
(ii)
Pension obligations
The Group contributes to defined contribution retirement schemes which are
available to all employees. Contributions to the schemes by the Group and employees are
calculated as a percentage of employees’ basic salaries. The retirement benefit scheme cost
charged to profit or loss represents contributions payable by the Group to the funds.
(iii)
Termination benefits
Termination benefits are recognised at the earlier of the dates when the Group can
no longer withdraw the offer of those benefits and when the Group recognises
restructuring costs and involves the payment of termination benefits.
(n)
Borrowing costs
All borrowing costs are recognised in profit or loss in the period in which they are
incurred.
(o)
Taxation
Income tax represents the sum of the current tax and deferred tax.
The tax currently payable is based on taxable profit for the year. Taxable profit differs from
profit recognised in profit or loss because of items of income or expense that are taxable or
deductible in other years and items that are never taxable or deductible. The Group’s liability for
current tax is calculated using tax rates that have been enacted or substantively enacted by the
end of the reporting period.
Deferred tax is recognised on differences between the carrying amounts of assets and
liabilities in the Financial Information and the corresponding tax bases used in the computation
of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary
differences and deferred tax assets are recognised to the extent that it is probable that taxable
profits will be available against which deductible temporary differences, unused tax losses or
unused tax credits can be utilised. Such assets and liabilities are not recognised if the temporary
difference arises from goodwill or from the initial recognition (other than in a business
combination) of other assets and liabilities in a transaction that affects neither the taxable profit
nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on
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.
The carrying amount of deferred tax assets is reviewed at the end of each reporting period
and reduced to the extent that it is no longer probable that sufficient taxable profits will be
available to allow all or part of the asset to be recovered.
– I-15 –
APPENDIX I
Deferred tax is calculated at the tax rates that are expected to apply in the period when the
liability is settled or the asset is realised, based on tax rates that have been enacted or
substantively enacted by the end of the reporting period. Deferred tax is recognised in profit or
loss, except when it relates to items recognised in other comprehensive income or directly in
equity, in which case the deferred tax is also recognised in other comprehensive income or
directly in equity.
The measurement of deferred tax assets and liabilities reflects the tax consequences that
would follow from the manner in which the Group expects, at the end of the reporting period, to
recover or settle the carrying amount of its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set
off current tax assets against current tax liabilities and when they relate to income taxes levied by
the same taxation authority and the Group intends to settle its current tax assets and liabilities on
a net basis.
(p)
Impairment of non-financial assets
The carrying amounts of non-financial assets are reviewed at each reporting date for
indications of impairment and where an asset is impaired, it is written down as an expense
through the consolidated statement of profit or loss to its estimated recoverable amount. The
recoverable amount is determined for an individual asset, unless the asset does not generate cash
inflows that are largely independent of those from other assets or groups of assets. If this is the
case, recoverable amount is determined for the cash-generating unit to which the asset belongs.
Recoverable amount is the higher of value in use and the fair value less costs of disposal of the
individual asset or the cash-generating unit.
Value in use is the present value of the estimated future cash flows of the asset or
cash-generating unit. Present values are computed using pre-tax discount rates that reflect the
time value of money and the risks specific to the asset or cash-generating unit whose impairment
is being measured.
Impairment losses for cash-generating units are allocated first against the goodwill of the
unit and then pro rata amongst the other assets of the cash-generating unit. Subsequent increases
in the recoverable amount caused by changes in estimates are credited to profit or loss to the
extent that they reverse the impairment.
(q)
Impairment of financial assets
At the end of each reporting period, the Group assesses whether its financial assets (other
than those at fair value through profit or loss) are impaired, based on objective evidence that, as a
result of one or more events that occurred after the initial recognition, the estimated future cash
flows of the (group of) financial asset(s) have been affected.
In addition, for trade receivables that are assessed not to be impaired individually, the
Group assesses them collectively for impairment, based on the Group’s past experience of
collecting payments, an increase in the delayed payments in the portfolio, observable changes in
economic conditions that correlate with default on receivables, etc.
Only for trade receivables, the carrying amount is reduced through the use of an
allowance account and subsequent recoveries of amounts previously written off are credited
against the allowance account. Changes in the carrying amount of the allowance account are
recognised in profit or loss.
– I-16 –
APPENDIX I
For all other financial assets, the carrying amount is directly reduced by the impairment
loss.
For financial assets measured at amortised cost, if the amount of the impairment loss
decreases in a subsequent period and the decrease can be related objectively to an event occurring
after the impairment was recognised, the previously recognised impairment loss is reversed
(either directly or by adjusting the allowance account for trade receivables) through profit or loss.
However, the reversal must not result in a carrying amount that exceeds what the amortised cost
of the financial asset would have been had the impairment not been recognised at the date the
impairment is reversed.
(r)
Provisions and contingent liabilities
Provisions are recognised for liabilities of uncertain timing or amount when the Group has
a present legal or constructive obligation arising as a result of a past event, it is probable that an
outflow of economic benefits will be required to settle the obligation and a reliable estimate can
be made. Where the time value of money is material, provisions are stated at the present value of
the expenditures expected to settle the obligation.
Where it is not probable that an outflow of economic benefits will be required, or the
amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless
the probability of outflow is remote. Possible obligations, whose existence will only be confirmed
by the occurrence or non-occurrence of one or more future events are also disclosed as contingent
liabilities unless the probability of outflow is remote.
(s)
Events after the reporting period
Events after the reporting period that provide additional information about the Group’s
position at the end of the reporting period or those that indicate the going concern assumption is
not appropriate are adjusting events and are reflected in the Financial Information. Events after
the reporting period that are not adjusting events are disclosed in the notes to the Financial
Information when material.
5.
KEY SOURCES OF ESTIMATION UNCERTAINTY
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, are discussed below.
(a)
Plant and equipment and depreciation
The Group determines the estimated useful lives, residual values and related depreciation
charges for the Group’s plant and equipment. This estimate is based on the historical experience
of the actual useful lives and residual values of plant and equipment of similar nature and
functions. The Group will revise the depreciation charge where useful lives and residual values
are different to those previously estimated, or it will write-off or write-down technically obsolete
or non-strategic assets that have been abandoned.
As at 31 December 2014 and 2015, the carrying amount of plant and equipment were
approximately HK$1,679,000 and HK$979,000 respectively.
(b)
Income taxes
The Group is subject to income taxes in HK and the PRC. Significant estimates are
required in determining the provision for income taxes. There are many transactions and
calculations for which the ultimate tax determination is uncertain during the ordinary course of
business. Where the final tax outcome of these matters is different from the amounts that were
initially recorded, such differences will impact the income tax and deferred tax provisions in the
period in which such determination is made.
Approximately HK$1,626,000 and HK$3,205,000 of income taxes were charged to profit or
loss based on the estimated profit from operations for the years ended 31 December 2014 and 2015
respectively.
– I-17 –
APPENDIX I
(c)
Impairment loss for bad and doubtful debts
The Group makes impairment loss for bad and doubtful debts based on assessments of the
recoverability of the trade and other receivables, including the current creditworthiness and the
past collection history of each debtor. Impairments arise where events or changes in
circumstances indicate that the balances may not be collectible. The identification of bad and
doubtful debts, in particular of a loss event, requires the use of judgment and estimates. Where
the actual result is different from the original estimate, such difference will impact the carrying
value of the trade and other receivables and doubtful debt expenses in the year in which such
estimate has been changed.
As at 31 December 2014 and 2015, no accumulated impairment loss for bad and doubtful
debts was made except that bad debts of HK$226,000 were written off for the year ended 31
December 2015.
(d)
Allowance for slow-moving inventories
Allowance for slow-moving inventories is made based on the aging and estimated net
realisable value of inventories. The assessment of the allowance amount involves judgment and
estimates. Where the actual outcome in future is different from the original estimate, such
difference will impact the carrying value of inventories and allowance charge/write-back in the
period in which such estimate has been changed.
No allowance for slow-moving inventories was made for the years ended 31 December
2014 and 2015 respectively.
6.
FINANCIAL RISK MANAGEMENT
The Group’s activities expose it to a variety of financial risks: foreign currency risk, credit risk,
liquidity risk and interest rate risk. The Group’s overall risk management programme focuses on the
unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s
financial performance.
(a)
Foreign currency risk
The Group has minimal exposure to foreign currency risk as most of its business
transactions, assets and liabilities are principally denominated in HK$, US dollars (“US$”) and
Renminbi (“RMB”). The Group does not expect any significant exposure to foreign currency risk
as HK$ is pegged to US$ and it is not considered likely that there will be a material fluctuation in
the US$/HK$ exchange rate.
The Group currently does not have a foreign currency hedging policy in respect of foreign
currency transactions, assets and liabilities. The Group monitors its foreign currency exposure
closely and will consider hedging significant foreign currency exposure should the need arise.
(b)
Credit risk
The Group’s credit risk is primarily attributable to its trade receivables, other receivables
and bank and cash balances.
The Group have certain concentrations of credit risk as 65% and 48% of the total trade
receivables were due from the Group’s five largest customers as at 31 December 2014 and 2015
respectively.
It has policies in place to ensure that sales are made to customers with an appropriate
credit history.
The credit risk on bank and cash balances is limited because the counterparties are banks
with high credit-ratings assigned by international credit-rating agencies.
– I-18 –
APPENDIX I
(c)
Liquidity risk
The Group’s policy is to regularly monitor current and expected liquidity requirements to
ensure that it maintains sufficient reserves of cash to meet its liquidity requirements in the short
and longer term.
The maturity analysis based on contractual undiscounted cash flows of the Group’s
non-derivative financial liabilities is as follows:
(d)
Less than
1 year
HK$’000
Between
1 and 2
years
HK$’000
Between
2 and 5
years
HK$’000
Total
HK$’000
At 31 December 2014
Trade payables
Bank loans
8,278
7,643
307
184
–
–
307
175
–
–
205
83
8,278
7,643
819
442
At 31 December 2015
Trade payables
Bank loans
3,392
4,102
1,475
175
–
–
1,373
83
–
–
1,363
–
3,392
4,102
4,211
258
Interest rate risk
The Group’s exposure to interest rate risk arises from its bank deposits and bank
borrowing. These deposits and borrowings bear interests at variable rates.
At 31 December 2014 and 2015, if interest rates had been 1% lower with all other variables
held constant, consolidated profit after tax for the years and equity would have been
approximately HK$28,000 and HK$99,000 respectively lower, arising mainly as a result of lower
interest income on bank balance.
At 31 December 2014 and 2015, if interest rates had been 1% higher with all other variables
held constant, consolidated profit after tax for the years and equity would have been
approximately HK$28,000 and HK$99,000 respectively higher, arising mainly as a result of higher
interest income on bank balance.
(e)
Categories of financial instruments at end of each reporting period
At 31 December
2014
2015
HK$’000
HK$’000
Financial assets:
Loans and receivables (including cash and cash
equivalents)
18,542
24,812
Financial liabilities:
Financial liabilities measured at amortised cost
17,046
11,483
– I-19 –
APPENDIX I
(f)
Fair values
The carrying amounts of the Group’s financial assets and financial liabilities as reflected
in the consolidated statement of financial position approximate their respective fair values.
7.
REVENUE AND SEGMENT INFORMATION
(a)
The Group’s revenue represents sales of goods to customers.
(b)
Segment information
The Group has three reportable segments as follows:
(i)
Fitness equipment
–
(ii)
Beauty gadgets
–
(iii)
Other health care
products
–
Sale of treadmills, exercise bikes, elliptical trainers,
steppers and other fitness accessories
Sale of beauty gadgets such as hair removal, wrinkle
reduction, skin lifting, etc, and other beauty
accessories
Sale of massage devices, inflated bath tub, electric
blankets, ergonomic chairs and limb-support
compression wears
The Group’s reportable segments are strategic business units that offer different products
and services. They are managed separately because each business requires different sales and
marketing strategies.
The accounting policies of the operating segments are the same as those described in note
4 to the Financial Information.
Segment profits or losses do not include corporate income and expenses.
As segment assets and liabilities are not prepared and provided regularly to the Group’s
most senior management and accordingly no segment assets or liabilities are presented.
(i)
Information about operating segment profit or loss, assets and liabilities:
Fitness
equipment
HK$’000
Beauty
gadgets
HK$’000
Other
health
care
products
HK$’000
Year ended
31 December 2014
Revenue from
external customers
Segment profit
23,919
14,815
41,373
26,212
2,173
988
67,465
42,015
Year ended
31 December 2015
Revenue from
external customers
Segment profit
22,463
13,665
60,706
36,530
1,575
1,009
84,744
51,204
– I-20 –
Total
HK$’000
APPENDIX I
(ii)
Reconciliations of segment profit or loss:
2014
2015
HK$’000
HK$’000
Profit or loss
Total profit or loss of reportable segments
Unallocated amounts:
Other income
Finance costs
Consolidated profit before tax
(iii)
42,015
51,204
5
(22,693)
(6,184)
(99)
98
(25,296)
(12,998)
(334)
13,044
12,674
Geographical information:
The Group’s revenue from external customers by reference to the location of
customers and information about its non-current assets by reference to the geographical
location of assets are detailed below:
2014
2015
HK$’000
HK$’000
Revenue
Hong Kong
PRC except Hong Kong
50,843
16,622
64,527
20,217
Consolidated total
67,465
84,744
2014
2015
HK$’000
HK$’000
(iv)
Non-current assets
Hong Kong
PRC except Hong Kong
2,354
19
2,395
30
Consolidated total
2,373
2,425
Information about major customers:
The revenue attributed by each customer is less than 10% of the Group’s total
revenue for the years ended 31 December 2014 and 2015 respectively.
– I-21 –
APPENDIX I
8.
OTHER INCOME
2014
2015
HK$’000
HK$’000
Bank interest income
Others
9.
1
4
4
94
5
98
FINANCE COSTS
2014
2015
HK$’000
HK$’000
Finance lease charges
Bank loans
Others
10.
35
58
6
23
306
5
99
334
INCOME TAX EXPENSE
(a)
Income tax has been recognised in the consolidated profit or loss as following:
2014
2015
HK$’000
HK$’000
Current tax – Hong Kong
Over-provision in prior year
Current tax – PRC
1,966
(751)
2,435
–
1,215
2,435
411
770
1,626
3,205
Hong Kong profits tax has been provided at a rate of 16.5% on the estimated assessable
profit for the years ended 31 December 2014 and 2015.
PRC enterprise income tax has been provided at applicable income tax rate of 25% on the
assessable profit for the years ended 31 December 2014 and 2015.
– I-22 –
APPENDIX I
(b)
The reconciliation between the income tax expense and the product of profit before tax
multiplied by the applicable tax rates is as follows:
2014
2015
HK$’000
HK$’000
Profit before tax
11.
13,044
12,674
Tax calculated at 16.5%
Tax effect of expenses that are not deductible
Tax effect of temporary differences not recognised
Tax effect of utilisation of tax losses not previously
recognised
Difference in tax rates of subsidiary
Over-provision in prior year
2,152
106
58
2,091
795
57
Income tax expense
1,626
(119)
180
(751)
–
262
–
3,205
PROFIT FOR THE YEAR
The Group’s profit for the year is stated after charging the following:
2014
2015
HK$’000
HK$’000
Auditor ’s remuneration
– Provision for the year
– Under-provision in prior years
Bad debts written off
Cost of inventories sold
Depreciation
Written-off of plant and equipment
[REDACTED] expenses
Net foreign exchange loss
Operating lease charges in respect of land and buildings
– I-23 –
30
–
30
–
25,450
978
327
–
47
6,435
38
5
43
226
33,540
772
222
3,851
79
7,468
APPENDIX I
12.
EMPLOYEE BENEFITS EXPENSE
2014
2015
HK$’000
HK$’000
Salaries, bonuses and allowances
9,341
494
9,835
11,631
560
12,191
The five highest paid individuals included two directors for the years ended 31 December 2014
(2015: two) whose emoluments are reflected in the analysis presented in note 13. The emoluments of the
remaining three (2015: three) individuals are set out below:
2014
2015
HK$’000
HK$’000
Salaries, bonuses and allowances
1,061
48
1,115
52
1,109
1,167
These three highest paid individuals’ emoluments fell within HK$Nil to HK$1,000,000.
13.
BENEFITS AND INTERESTS OF DIRECTORS
(a)
Directors’ emoluments
The emoluments of each director were as follows:
Name of director
Fees
HK$’000
Salaries,
allowances
Retirement
and
benefit
benefits
scheme
in kind contributions
HK$’000
HK$’000
Total
HK$’000
2014
Executive directors
Chan Yiu Kwong
Li Hon Ming
Lo Wing Sang
–
–
–
413
443
–
17
17
–
430
460
–
Independent non-executive director
So Alan Wai Sing
Wong King Lung
–
–
–
–
–
–
–
–
–
–
–
–
Total
–
856
34
890
– I-24 –
APPENDIX I
Name of director
Fees
HK$’000
Salaries,
allowances
Retirement
and
benefit
benefits
scheme
in kind contributions
HK$’000
HK$’000
Total
HK$’000
2015
Executive directors
Chan Yiu Kwong
Li Hon Ming
Lo Wing Sang
–
–
–
600
444
–
21
18
–
621
462
–
Independent non-executive director
So Alan Wai Sing
Wong King Lung
–
–
–
–
–
–
–
–
–
–
–
–
Total
–
1,044
39
1,083
None of the directors waived or agreed to waive any emoluments during the years ended
31 December 2014 and 2015.
(b)
Amounts due from/(to) directors
Amounts due from/(to) directors are as follows:
Name
Chan Yiu Kwong
Li Hon Ming
At
1 January
2014
HK$’000
The Group
At 31
December
2014
HK$’000
At 31
December
2015
HK$’000
(1,046)
(1,982)
2,403
486
1,035
2,950
2,408
486
3,486
2,950
(3,028)
2,889
3,985
2,894
6,436
Maximum amount
outstanding during
the year
2014
2015
HK$’000
HK$’000
All the above amounts are unsecured, interest-free and will be fully settled before
[REDACTED].
– I-25 –
APPENDIX I
(c)
Directors’ material interests in transactions, arrangements or contracts
During the years ended 31 December 2014 and 2015, the Company entered into the
following transactions:
Name of parties contracted with
Nature of contracts
(i)
(ii)
(iii)
Li Hon Ming
Cao Xiao Wei
Zhu Zhengfang
Distribution
Distribution
Distribution
(iv)
Diva 100 Company Limited
Distribution
(v)
Exodus Technology Limited
IT maintenance fee
(vi)
Poon Suet Fan
Rental
The contracting party and
nature of directors’ interests
Director
Spouse of Chan Yiu Kwong
Mother-in-law of Chan Yiu
Kwong
Controlled by Cao Xiao Wei
and spouse of Li Hon Ming
Controlled by brother of
Chan Yiu Kwong
Mother of ChanYiu Kwong
Save for the aforementioned transactions, no other transactions, arrangements and
contracts of significance to which the Company was a party and in which a director of the
Company had a material interest, whether directly or indirectly, subsisted at the end of the year or
at any time during the years.
14.
DIVIDENDS
Interim dividends
2014
HK$’000
2015
HK$’000
–
17,000
During the year ended 31 December 2015, Fit Boxx HK declared interim dividends to its then
shareholders amounted to HK$17,000,000.
The rates of dividend and number of shares ranking for dividends are not presented as such
information is not meaningful having regard to the purpose of this report.
15.
EARNINGS PER SHARE
Earnings per share information is not presented as its inclusion, for the purpose of this financial
information, is not considered meaningful due to the Group Reorganisation and the basis of presentation
of the results of the Group for the Relevant Periods as further explained in note 2 to the Financial
Information.
– I-26 –
APPENDIX I
16.
PLANT AND EQUIPMENT
Furniture
and
fixtures
HK$’000
Office
equipment
HK$’000
Cost
At 1 January 2014
Additions
Written-off
384
44
(41)
429
61
(14)
1,667
–
–
1,946
422
(618)
4,426
527
(673)
At 31 December 2014 and
1 January 2015
Additions
Written-off
Exchange difference
387
71
–
–
476
96
(17)
(2)
1,667
–
–
–
1,750
128
(362)
–
4,280
295
(379)
(2)
At 31 December 2015
458
553
1,667
1,516
4,194
Accumulated depreciation
At 1 January 2014
Charge for the year
Written-off
184
77
(30)
207
98
(7)
798
454
–
780
349
(309)
1,969
978
(346)
At 31 December 2014 and
1 January 2015
Charge for the year
Written-off
Exchange difference
231
77
–
–
298
86
(12)
(1)
1,252
325
–
–
820
284
(145)
–
2,601
772
(157)
(1)
At 31 December 2015
308
371
1,577
959
3,215
Carrying amount
At 31 December 2015
150
182
90
557
979
At 31 December 2014
156
178
415
930
1,679
Motor
Leasehold
vehicles improvements
HK$’000
HK$’000
Total
HK$’000
At 31 December 2014 and 2015, the carrying amount of motor vehicles held by the Group under
finance leases amounted to HK$167,000 and HK$29,000 respectively.
– I-27 –
APPENDIX I
17.
INVESTMENTS IN SUBSIDIARIES
The Company
At 31 December
2014
2015
HK$’000
HK$’000
Unlisted investments, at cost
–
21,911
The amount due from a subsidiary is unsecured, interest-free and repayable on demand.
18.
INVENTORIES
At 31 December
2014
2015
HK$’000
HK$’000
Finished goods
19.
22,483
14,624
TRADE RECEIVABLES
The aging analysis of the Group’s trade receivables, based on the delivery of goods and net of
allowance, is as follows:
At 31 December
2014
2015
HK$’000
HK$’000
Up to 30 days
31 to 60 days
61 to 90 days
91 to 180 days
Over 180 days
3,663
959
177
61
224
2,142
659
112
228
1
5,084
3,142
As of 31 December 2014 and 2015, trade receivables of approximately HK$426,000 and
HK$404,000 respectively were past due but not impaired. These relate to a number of independent
customers for whom there is no recent history of default. The aging analysis of these trade receivable is as
follows:
At 31 December
2014
2015
HK$’000
HK$’000
Up to 30 days
31 to 60 days
61 to 90 days
91 to 180 days
Over 180 days
– I-28 –
137
61
4
3
221
210
149
35
10
–
426
404
APPENDIX I
The carrying amounts of the Group’s trade receivables are denominated in the following
currencies:
At 31 December
2014
2015
HK$’000
HK$’000
HK$
RMB
4,991
93
2,830
312
5,084
3,142
The Group’s trading terms with wholesales customers are mainly on credit. The credit terms
generally range from 30 to 60 days. Each customer has a credit limit. The Group seek to maintain strict
control over its outstanding receivables. Overdue balances are reviewed regularly by the management.
For individual retail customers, sales are made on “cash on delivery” except for certain
individuals that, due to their long-standing business relationships with the Group, who are given 30-60
days of credit period.
20.
BANK AND CASH BALANCES
The carrying amounts of the Group’s bank and cash balances are denominated in the following
currencies:
At 31 December
2014
2015
HK$’000
HK$’000
HK$
RMB
6,260
522
13,404
504
6,782
13,908
As at 31 December 2014 and 2015, the bank and cash balances of the Group denominated in RMB
amounted to approximately HK$522,000 and HK$504,000 respectively. Conversion of RMB into foreign
currencies is subject to the PRC’s Foreign Exchange Control Regulations and Administration of
Settlement, Sale and Payment of Foreign Exchange Regulations.
21.
TRADE PAYABLES
The aging analysis of the Group’s trade payables, based on goods receipt date, is as follows:
At 31 December
2014
2015
HK$’000
HK$’000
Up to 30 days
31 to 60 days
61 to 90 days
91 to 180 days
– I-29 –
1,535
5,872
151
720
1,486
1,803
103
–
8,278
3,392
APPENDIX I
The carrying amounts of the Group’s trade payables are denominated in the following currencies:
At 31 December
2014
2015
HK$’000
HK$’000
HK$
US$
810
7,468
701
2,691
Total
8,278
3,392
Payments to suppliers are generally made within 30 to 60 days after shipment of goods from
suppliers.
22.
BANK LOANS
At 31 December
2014
2015
HK$’000
HK$’000
Bank loans
722
3,747
The Group’s bank loans are repayable as follows:
At 31 December
2014
2015
HK$’000
HK$’000
Within one year
More than one year but not exceeding two years
More than two years, but not more than five years
Less: Amount due for settlement within 12 months
Amount due for settlement after 12 months
250
274
198
1,224
1,223
1,300
722
3,747
(250)
(1,224)
472
2,523
The Group’s bank loans are arranged at the following average interest rates:
At 31 December
2014
Bank loans
9.4%
2015
8.6%
As at 31 December 2014 and 2015, bank loans of approximately HK$722,000 and HK$3,747,000
respectively are arranged at the above fixed interest rates and expose the Group to fair value interests
rate risk.
As at 31 December 2014 and 2015, the Group’s bank loans are secured by personal guarantee from
directors of the Group (note 31 (c)(i)).
– I-30 –
APPENDIX I
23.
FINANCE LEASE PAYABLES
Minimum lease
payments
At 31 December
2014
2015
HK$’000
HK$’000
Within one year
In the second to fifth years, inclusive
184
258
175
83
Less: Future finance charges
442
(39)
258
(16)
Present value of lease obligations
403
242
Present value of
minimum lease
payments
At 31 December
2014
2015
HK$’000
HK$’000
161
242
163
79
403
N/A
242
N/A
403
242
Less: Amount due for settlement
within 12 months
(161)
(163)
Amount due for settlement after
12 months
242
79
The motor vehicles under finance leases are contracted for an average lease term of 5 years.
At 31 December 2014 and 2015, the average effective interest rates were 7.2% and 7.2%
respectively. Interest rates are fixed at the contract dates and thus expose the Group to fair value interest
rate risk.
All leases are on a fixed repayment basis and no arrangements have been entered into for
contingent rental payments. At the end of each lease term, the Group has the option to purchase the
motor vehicles at nominal prices.
At 31 December 2014 and 2015, the Group’s finance lease payables are secured by the lessor ’s title
to the leased assets and personal guarantee from one of the directors of the Group (note 31(c)(ii)).
24.
RETIREMENT BENEFIT SCHEME CONTRIBUTIONS
The Group operates a mandatory provident fund scheme (the “MPF Scheme”) under the Hong
Kong Mandatory Provident Fund Schemes Ordinance for all qualifying employees in Hong Kong. The
Group’s contributions to the MPF Scheme are calculated at 5% of the salaries and wages subject to a
monthly maximum amount of contribution of HK$1,500 (before 1 June 2014: HK$1,250) per employee and
vest fully with employees when contributed into the MPF Scheme.
The employees of the Group’s subsidiary established in the PRC are members of a central pension
scheme operated by the local municipal government. This subsidiary is required to contribute certain
percentage of the employees’ basic salaries and wages to the central pension scheme to fund the
retirement benefits. The local municipal government undertakes to assume the retirement benefits
obligations of all existing and future retired employees of this subsidiary. The only obligation of this
subsidiary with respect to the central pension scheme is to meet the required contributions under the
pension scheme.
– I-31 –
APPENDIX I
25.
SHARE CAPITAL
Authorised shares capital of the Company:
Number
of Shares
Ordinary shares of HK$0.01 each (note i & iii)
Amount
HK$
39,000,000
390,000
Number of
shares issued
Nominal
value of fully
paid shares
HK$
At 14 May 2015 (date of incorporation) (note ii)
Share subdivision (note iii)
Issue of shares on Group Reorganisation (note iv)
Issue of shares (note v)
1
99
11,142
8,758
1
–
111
88
At 31 December 2015
20,000
200
Issued and fully paid:
Notes:
(i)
The Company was incorporated in Cayman Islands on 14 May 2015 with an authorised
share capital of HK$390,000 divided into 390,000 shares of HK$1.00 each.
(ii)
On 14 May 2015, the incorporation date of the Company, 1 share was allotted and issued
fully paid.
(iii)
On 12 June 2015, pursuant to the written resolutions passed by the Company’s
shareholders, every issued and unissued share of HK$1.00 each in the share capital of the
Company be subdivided into 100 shares of HK$0.01 each, such that the Company’s
authorised share capital of HK$390,000 was subdivided into 39,000,000 shares of HK$0.01
each.
(iv)
Pursuant to the share sale and purchase agreement dated 10 December 2015, the Company
allotted 9,900 shares to Faith Elite Limited (“Faith Elite”), credited as fully paid. On the
same date, pursuant to the Share Sale and Purchase Agreement, the Company allotted 733
shares and 509 shares to National Pride Limited (“National Pride”) and Prime View
Enterprises Limited (“Prime View”), credited as fully paid respectively.
(v)
Pursuant to two subscription agreements dated 11 December 2015 entered into between
the Company with each of Global Excellent Inc Limited (“Global Excellent”) and Hang
Kong Investment Consulting Limited (“Hang Kong”) respectively, each of Global
Excellent and Hang Kong agreed to subscribe for 1,292 shares at the consideration of
HK$3,387,500. [On the same date], an additional of 5,206 shares, 571 shares and 397 shares
were issued and allotted to Faith Elite, National Pride and Prime View respectively as par
value, credited as fully paid respectively.
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as
a going concern and to maximise the return to the shareholders through the optimisation of the debt and
equity balance.
– I-32 –
APPENDIX I
The Group sets the amount of capital in proportion to risk. The Group manages the capital
structure and makes adjustments to it in the light of changes in economic conditions and the risk
characteristics of the underlying assets. In order to maintain or adjust the capital structure, the Group
may adjust the payment of dividends, issue new shares, buy-back shares, raise new debts, redeem
existing debts or sell assets to reduce debts.
The Group monitors capital on the basis of the gearing ratio which is the total borrowings divided
by the total equity of the Company. Total borrowings comprises bank loans and finance lease payables.
The Group’s policy is to keep the gearing ratio at a reasonable level. The Group’s gearing ratio at the end
of each reporting period were as follows:
2014
2015
HK$’000
HK$’000
Bank loans
Total borrowings
Total equity
722
403
3,747
242
1,125
3,989
24,076
28,616
0.05
0.14
Gearing ratio
The Group is not subject to any externally imposed capital requirements.
26.
STATEMENT OF FINANCIAL POSITION AND RESERVE MOVEMENT OF THE COMPANY
(a)
Statement of financial position of the Company
Note
At 31 December
2014
2015
HK$’000
HK$’000
Non-current assets
Investments in subsidiaries
–
21,911
Current assets
Due from a subsidiary
–
6,732
TOTAL ASSETS
–
28,643
–
–
1
28,642
–
28,643
Share capital
Reserves
26(b)
TOTAL EQUITY
– I-33 –
APPENDIX I
(b)
Reserve movement of the Company
At 14 May 2015 (date of
incorporation)
Issue of shares on Group
Reorganisation (note 25 (iv))
Issue of shares (note 25(v))
Total comprehensive income for the
year
At 31 December 2015
27.
Share
premium
HK$’000
(note
27(b)(i))
Other
reserve
HK$’000
(note
27(b)(iv))
Retained
profits
HK$’000
Total
HK$’000
–
–
–
–
–
6,774
21,910
–
–
–
21,910
6,774
–
–
(42)
6,774
21,910
(42)
(42)
28,642
RESERVES
(a)
The Group
The amounts of the Group’s reserves and movements therein are presented in the
consolidated statement of profit or loss and other comprehensive income and consolidated
statement of changes in equity.
(b)
Nature and purpose of reserves
(i)
Share premium account
Under the Companies Law of the Cayman Islands, the funds in the share premium
account of the Company are distributable to the shareholders of the Company provided
that immediately following the date on which the dividend is proposed to be distributed,
the Company will be in a position to pay off its debts as they fall due in the ordinary
course of business.
(ii)
Foreign currency translation reserve
The foreign currency translation reserve comprises all foreign exchange
differences arising from the translation of the financial statements of foreign operations.
The reserve is dealt with in accordance with the accounting policies set out in note 4(b) to
the Financial Information.
(iii)
Statutory reserve
The statutory reserve, which is non-distributable, is appropriated from the profit
after taxation of the Group’s PRC subsidiary under the applicable laws and regulations in
the PRC.
(iv)
Other reserve
Other reserves of the Group represents the capital contributions from equity
holders of certain subsidiaries now comprising the Group before the completion of the
Group Reorganisation.
– I-34 –
APPENDIX I
28.
NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS
(a)
Major non-cash transaction
The dividend of approximately HK$10,800,000 paid to then shareholders of Fit Boxx
Trading Company Limited during year ended 31 December 2015 was settled by way of set-off
against amounts due from directors.
On 19 December 2014, HK$5,500,000 proceeds from share subscription of Fit Boxx HK
were received and were included in other payables. The shares were subsequently allotted and
issued on 11 February 2015.
29.
CONTINGENT LIABILITIES
As at 31 December 2014 and 2015, the Group did not have any significant contingent liabilities.
30.
LEASE COMMITMENTS
The Group as lessee
The total future minimum lease payments under non-cancellable operating leases are
payable as follows:
At 31 December
2014
2015
HK$’000
HK$’000
Within one year
4,597
1,024
6,297
3,467
5,621
9,764
Operating lease payments represent rentals payable by the Group for certain of its offices,
retail outlets and warehouses. Leases are negotiated for an average term of 2 years and rentals are
fixed over the lease terms and include contingent rentals based on an agreed percentage of
revenue generated from certain retail outlets.
31.
MATERIAL RELATED PARTIES TRANSACTIONS
(a)
In addition to those related party transactions and balances disclosed elsewhere in note 13
to the Financial Information, the Group had the following material transactions with its
related parties during the Relevant Periods:
At 31 December
2014
2015
HK$’000
HK$’000
Sales of goods to a director (note 13 (c)(i))
Sales of goods to related parties (note 13 (c)(ii)-(iv))
Rental expenses charged by a related party
(note 13 (c)(vi))
IT maintenance fee charged by a related party
(note 13 (c)(v))
– I-35 –
250
7,389
14
1,428
–
315
42
159
APPENDIX I
(b)
The remuneration of directors and other members of key management during the year
was as follows:
At 31 December
2014
2015
HK$’000
HK$’000
Short-term benefits
Post-employment benefits
(c)
32.
856
34
1,113
39
890
1,152
Save as disclosed elsewhere in the Financial Information, the Group had the following
financial guarantees from directors at the end of reporting period:
(i)
At 31 December 2014 and 2015, Li Hon Ming and Chan Yiu Kwong have
guaranteed the banking facilities granted to Fit Boxx HK amounted to
approximately HK$722,000 and HK$3,747,000 respectively.
(ii)
At 31 December 2014 and 2015, Mr. Li Hon Ming has guaranteed the finance lease
payables of Fit Boxx HK amounted to approximately HK$403,000 and HK$242,000
respectively.
EVENTS AFTER THE REPORTING PERIOD
Save as disclosed above, no significant events took place up to the date of this report. [Subject to o/s]
33.
SUBSEQUENT FINANCIAL STATEMENTS
No audited financial statements have been prepared by the Company or any of its subsidiaries in
respect of any period subsequent to 31 December 2015.
Yours faithfully
RSM Hong Kong
Certified Public Accountants
Hong Kong
– I-36 –
APPENDIX II
UNAUDITED PRO FORMA FINANCIAL INFORMATION
For illustrative purpose only, the pro forma financial information prepared in
accordance with paragraph 31 of Chapter 7 of the GEM Listing Rules is set out herein to
provide the investors with further information to assess the financial performance of the
Group after taking into account the adjusted net tangible assets of the Group to illustrate
the financial position of the Group after completion of the [REDACTED] and to illustrate
the performance of the Group had the [REDACTED] been completed on 31 December
2015.
A.
UNAUDITED PRO FORMA ADJUSTED NET TANGIBLE ASSETS
The unaudited pro forma financial information has been prepared, on the basis of
the notes set out below, to illustrate how the [REDACTED] may have affected the net
tangible assets attributable to owners of the Company had it occurred as of 31 December
2015. It has been prepared for illustrative purpose only and, because of its nature, may not
give a true picture of the financial position of the Group.
Audited
consolidated net
tangible assets
attributable to
owners of
the Company as
of 31 December
2015
(Note 1)
HK$’000
Unaudited pro
Estimated net
Unaudited pro forma adjusted net
proceeds from the forma adjusted net
tangible assets
[REDACTED]
tangible assets
per Share
(Note 2)
(Note 3)
HK$’000
HK$’000
HK$
[HK$[REDACTED]] per
share
28,616
[REDACTED]
[REDACTED]
[REDACTED]
[HK$[REDACTED]] per
share
28,616
[REDACTED]
[REDACTED]
[REDACTED]
Notes:
(1)
The audited consolidated net tangible assets attributable to owners of the Company as of 31
December 2015 is extracted from the audited consolidated net assets of HK$28,616,000 as of 31
December 2015, as shown in the accountants’ report, the text of which is set out in Appendix I to
this document.
(2)
The adjustment to the pro forma statement of net tangible assets reflects the estimated proceeds
from the [REDACTED] to be received by the Company. The estimated proceeds from the
[REDACTED] is based on the [REDACTED] of [HK$[REDACTED]] and [HK$[REDACTED]],
respectively, being the lower and higher end price of the stated [REDACTED] range, and
[REDACTED] Shares, net of underwriting fee of approximately [REDACTED] million and
[REDACTED] million, respectively and other estimated issue expenses approximately
[REDACTED] million payable by the Company.
(3)
The unaudited pro forma adjusted net tangible assets and the amounts per Share are on the basis
that [REDACTED] shares are expected to be in issue following the [REDACTED] (including
[REDACTED] shares newly issued upon the [REDACTED]) had been completed on 31 December
2015 and respective [REDACTED] of [HK$[REDACTED]] and [HK$[REDACTED]] per Share.
(4)
No adjustment has been made to the unaudited pro forma adjusted consolidated net tangible
assets of the Group attributable to owners of the Company to reflect any trading result or other
transactions of the Group entered into subsequent to 31 December 2015.
– II-1 –
APPENDIX II
B.
ACCOUNTANT’S REPORT ON UNAUDITED PRO FORMA FINANCIAL
INFORMATION
[REDACTED]
– II-2 –
APPENDIX II
[REDACTED]
– II-3 –
APPENDIX II
[REDACTED]
– II-4 –
APPENDIX III
SUMMARY OF THE CONSTITUTION OF THE COMPANY
AND CAYMAN ISLANDS COMPANY LAW
Set out below is a summary of certain provisions of the Memorandum and Articles
of Association of the Company and of certain aspects of Cayman company law.
The Company was incorporated in the Cayman Islands as an exempted company
with limited liability on 14 May, 2015 under the Companies Law, Cap 22 (Law 3 of 1961, as
consolidated and revised) of the Cayman Islands (the “Companies Law”). The Company’s
constitutional documents consist of its memorandum of association (the “Memorandum”)
and its articles of association (the “Articles”).
1.
2.
MEMORANDUM OF ASSOCIATION
(a)
The Memorandum states, inter alia, that the liability of members of the
Company is limited to the amount, if any, for the time being unpaid on the
shares respectively held by them and that the objects for which the Company
is established are unrestricted (including acting as an investment company),
and that the Company shall have and be capable of exercising all the functions
of a natural person of full capacity irrespective of any question of corporate
benefit, as provided in section 27(2) of the Companies Law and in view of the
fact that the Company is an exempted company that the Company will not
trade in the Cayman Islands with any person, firm or corporation except in
furtherance of the business of the Company carried on outside the Cayman
Islands.
(b)
The Company may by special resolution alter its Memorandum with respect
to any objects, powers or other matters specified therein.
ARTICLES OF ASSOCIATION
The Articles were conditionally adopted on [●] with effect from the [REDACTED].
The following is a summary of certain provisions of the Articles:
(a)
Shares
(i)
Classes of shares
The share capital of the Company consists of ordinary shares.
(ii)
Variation of rights of existing shares or classes of shares
Subject to the Companies Law, if at any time the share capital of the
Company is divided into different classes of shares, all or any of the special
rights attached to the shares or any class of shares may (unless otherwise
provided for by the terms of issue of that class) be varied, modified or
abrogated either with the consent in writing of the holders of not less than
three-fourths in nominal value of the issued shares of that class or with the
sanction of a special resolution passed at a separate general meeting of the
holders of the shares of that class. To every such separate general meeting the
– III-1 –
APPENDIX III
provisions of the Articles relating to general meetings will mutatis mutandis
apply, but so that the necessary quorum (other than at an adjourned meeting)
shall be two persons holding or representing by proxy not less than one-third
in nominal value of the issued shares of that class and at any adjourned
meeting two holders present in person or by proxy (whatever the number of
shares held by them) shall be a quorum. Every holder of shares of the class
shall be entitled to one vote for every such share held by him.
Any special rights conferred upon the holders of any shares or class of
shares shall not, unless otherwise expressly provided in the rights attaching to
the terms of issue of such shares, be deemed to be varied by the creation or
issue of further shares ranking pari passu therewith.
(iii)
Alteration of capital
The Company may by ordinary resolution of its members:
(i)
increase its share capital by the creation of new shares;
(ii)
consolidate all or any of its capital into shares of larger amount
than its existing shares;
(iii)
divide its shares into several classes and attach to such shares any
preferential, deferred, qualified or special rights, privileges,
conditions or restrictions as the Company in general meeting or as
the directors may determine;
(iv)
sub divide its shares or any of them into shares of smaller amount
than is fixed by the Memorandum; or
(v)
cancel any shares which, at the date of passing of the resolution,
have not been taken and diminish the amount of its capital by the
amount of the shares so cancelled.
The Company may reduce its share capital or any capital redemption
reserve or other undistributable reserve in any way by special resolution.
(iv)
Transfer of shares
All transfers of shares may be effected by an instrument of transfer in
the usual or common form or in a form prescribed by The Stock Exchange of
Hong Kong Limited (the “Stock Exchange”) or in such other form as the board
may approve and which may be under hand or, if the transferor or transferee
is a clearing house or its nominee(s), by hand or by machine imprinted
signature or by such other manner of execution as the board may approve
from time to time.
– III-2 –
APPENDIX III
The instrument of transfer shall be executed by or on behalf of the
transferor and the transferee provided that the board may dispense with the
execution of the instrument of transfer by the transferee. The transferor shall
be deemed to remain the holder of the share until the name of the transferee is
entered in the register of members in respect that share.
The board may, in its absolute discretion, at any time transfer any share
upon the principal register to any branch register or any share on any branch
register to the principal register or any other branch register.
The board may decline to recognise any instrument of transfer unless a
fee (not exceeding the maximum sum as Stock Exchange may determine to be
payable) determined by the Directors is paid to the Company, the instrument
of transfer is properly stamped (if applicable), it is in respect of only one class
of share and is lodged at the relevant registration office or registered office or
such other place at which the principal register is kept accompanied by the
relevant share certificate(s) and such other evidence as the board may
reasonably require to show the right of the transferor to make the transfer
(and if the instrument of transfer is executed by some other person on his
behalf, the authority of that person so to do).
The registration of transfers may be suspended and the register closed
on giving notice by advertisement in any newspaper or by any other means in
accordance with the requirements of the Stock Exchange, at such times and for
such periods as the board may determine. The register of members must not
be closed for periods exceeding in the whole thirty (30) days in any year.
Subject to the above, fully paid shares are free from any restriction on
transfer and free of all liens in favour of the Company.
(v)
Power of the Company to purchase its own shares
The Company is empowered by the Companies Law and the Articles to
purchase its own shares subject to certain restrictions and the board may only
exercise this power on behalf of the Company subject to any applicable
requirements imposed from time to time by Stock Exchange.
Where the Company purchases for redemption a redeemable share,
purchases not made through the market or by tender must be limited to a
maximum price determined by the Company in general meeting. If purchases
are by tender, tenders must be made available to all members alike.
(vi)
Power of any subsidiary of the Company to own shares in the Company
There are no provisions in the Articles relating to ownership of shares in
the Company by a subsidiary.
– III-3 –
APPENDIX III
(vii) Calls on shares and forfeiture of shares
The board may from time to time make such calls upon the members in
respect of any monies unpaid on the shares held by them respectively
(whether on account of the nominal value of the shares or by way of
premium). A call may be made payable either in one lump sum or by
installments. If the sum payable in respect of any call or instalment is not paid
on or before the day appointed for payment thereof, the person or persons
from whom the sum is due shall pay interest on the same at such rate not
exceeding twenty per cent. (20%) per annum as the board may agree to accept
from the day appointed for the payment thereof to the time of actual payment,
but the board may waive payment of such interest wholly or in part. The
board may, if it thinks fit, receive from any member willing to advance the
same, either in money or money’s worth, all or any part of the monies
uncalled and unpaid or installments payable upon any shares held by him,
and upon all or any of the monies so advanced the Company may pay interest
at such rate (if any) as the board may decide.
If a member fails to pay any call on the day appointed for payment
thereof, the board may serve not less than fourteen (14) clear days’ notice on
him requiring payment of so much of the call as is unpaid, together with any
interest which may have accrued and which may still accrue up to the date of
actual payment and stating that, in the event of non-payment at or before the
time appointed, the shares in respect of which the call was made will be liable
to be forfeited.
If the requirements of any such notice are not complied with, any share
in respect of which the notice has been given may at any time thereafter,
before the payment required by the notice has been made, be forfeited by a
resolution of the board to that effect. Such forfeiture will include all dividends
and bonuses declared in respect of the forfeited share and not actually paid
before the forfeiture.
A person whose shares have been forfeited shall cease to be a member in
respect of the forfeited shares but shall, notwithstanding, remain liable to pay
to the Company all monies which, at the date of forfeiture, were payable by
him to the Company in respect of the shares, together with (if the board shall
in its discretion so require) interest thereon from the date of forfeiture until
the date of actual payment at such rate not exceeding twenty per cent. (20%)
per annum as the board determines.
– III-4 –
APPENDIX III
(b)
Directors
(i)
Appointment, retirement and removal
At each annual general meeting, one third of the Directors for the time
being (or if their number is not a multiple of three, then the number nearest to
but not less than one third) shall retire from office by rotation provided that
every Director shall be subject to retirement at an annual general meeting at
least once every three years. The Directors to retire by rotation shall include
any Director who wishes to retire and not offer himself for re-election. Any
further Directors so to retire shall be those who have been longest in office
since their last re-election or appointment but as between persons who
became or were last re-elected Directors on the same day those to retire will
(unless they otherwise agree among themselves) be determined by lot.
Neither a Director nor an alternate Director is required to hold any
shares in the Company by way of qualification. Further, there are no
provisions in the Articles relating to retirement of Directors upon reaching
any age limit.
The Directors have the power to appoint any person as a Director either
to fill a casual vacancy on the board or as an addition to the existing board.
Any Director appointed to fill a casual vacancy shall hold office until the first
general meeting of members after his appointment and be subject to
re-election at such meeting and any Director appointed as an addition to the
existing board shall hold office only until the next following annual general
meeting of the Company and shall then be eligible for re-election.
A Director may be removed by an ordinary resolution of the Company
before the expiration of his period of office (but without prejudice to any claim
which such Director may have for damages for any breach of any contract
between him and the Company) and members of the Company may by
ordinary resolution appoint another in his place. Unless otherwise
determined by the Company in general meeting, the number of Directors shall
not be less than two. There is no maximum number of Directors.
The office of director shall be vacated if:
(aa)
he resigns by notice in writing delivered to the Company;
(bb) he becomes of unsound mind or dies;
(cc)
without special leave, he is absent from meetings of the board for
six (6) consecutive months, and the board resolves that his office is
vacated;
– III-5 –
APPENDIX III
(dd) he becomes bankrupt or has a receiving order made against him or
suspends payment or compounds with his creditors;
(ee)
he is prohibited from being a director by law; or
(ff)
he ceases to be a director by virtue of any provision of law or is
removed from office pursuant to the Articles.
The board may appoint one or more of its body to be managing director,
joint managing director, or deputy managing director or to hold any other
employment or executive office with the Company for such period and upon
such terms as the board may determine and the board may revoke or
terminate any of such appointments. The board may delegate any of its
powers, authorities and discretions to committees consisting of such Director
or Directors and other persons as the board thinks fit, and it may from time to
time revoke such delegation or revoke the appointment of and discharge any
such committees either wholly or in part, and either as to persons or purposes,
but every committee so formed must, in the exercise of the powers, authorities
and discretions so delegated, conform to any regulations that may from time
to time be imposed upon it by the board.
(ii)
Power to allot and issue shares and warrants
Subject to the provisions of the Companies Law and the Memorandum
and Articles and to any special rights conferred on the holders of any shares or
class of shares, any share may be issued (a) with or have attached thereto such
rights, or such restrictions, whether with regard to dividend, voting, return of
capital, or otherwise, as the Company may by ordinary resolution determine
(or, in the absence of any such determination or so far as the same may not
make specific provision, as the board may determine), or (b) on terms that, at
the option of the Company or the holder thereof, it is liable to be redeemed.
The board may issue warrants conferring the right upon the holders
thereof to subscribe for any class of shares or securities in the capital of the
Company on such terms as it may determine.
Subject to the provisions of the Companies Law and the Articles and,
where applicable, the rules of Stock Exchange and without prejudice to any
special rights or restrictions for the time being attached to any shares or any
class of shares, all unissued shares in the Company are at the disposal of the
board, which may offer, allot, grant options over or otherwise dispose of them
to such persons, at such times, for such consideration and on such terms and
conditions as it in its absolute discretion thinks fit, but so that no shares shall
be issued at a discount.
– III-6 –
APPENDIX III
Neither the Company nor the board is obliged, when making or
granting any allotment of, offer of, option over or disposal of shares, to make,
or make available, any such allotment, offer, option or shares to members or
others with registered addresses in any particular territory or territories being
a territory or territories where, in the absence of a registration statement or
other special formalities, this would or might, in the opinion of the board, be
unlawful or impracticable. Members affected as a result of the foregoing
sentence shall not be, or be deemed to be, a separate class of members for any
purpose whatsoever.
(iii)
Power to dispose of the assets of the Company or any of its subsidiaries
There are no specific provisions in the Articles relating to the disposal of
the assets of the Company or any of its subsidiaries. The Directors may,
however, exercise all powers and do all acts and things which may be
exercised or done or approved by the Company and which are not required by
the Articles or the Companies Law to be exercised or done by the Company in
general meeting.
(iv)
Borrowing powers
The board may exercise all the powers of the Company to raise or
borrow money, to mortgage or charge all or any part of the undertaking,
property and assets and uncalled capital of the Company and, subject to the
Companies Law, to issue debentures, bonds and other securities of the
Company, whether outright or as collateral security for any debt, liability or
obligation of the Company or of any third party.
(v)
Remuneration
The ordinary remuneration of the Directors is to be determined by the
Company in general meeting, such sum (unless otherwise directed by the
resolution by which it is voted) to be divided amongst the Directors in such
proportions and in such manner as the board may agree or, failing agreement,
equally, except that any Director holding office for part only of the period in
respect of which the remuneration is payable shall only rank in such division
in proportion to the time during such period for which he held office. The
Directors are also entitled to be prepaid or repaid all travelling, hotel and
incidental expenses reasonably expected to be incurred or incurred by them in
attending any board meetings, committee meetings or general meetings or
separate meetings of any class of shares or of debentures of the Company or
otherwise in connection with the discharge of their duties as Directors.
Any Director who, by request, goes or resides abroad for any purpose of
the Company or who performs services which in the opinion of the board go
beyond the ordinary duties of a Director may be paid such extra remuneration
as the board may determine and such extra remuneration shall be in addition
– III-7 –
APPENDIX III
to or in substitution for any ordinary remuneration as a Director. An executive
Director appointed to be a managing director, joint managing director, deputy
managing director or other executive officer shall receive such remuneration
and such other benefits and allowances as the board may from time to time
decide. Such remuneration may be either in addition to or in lieu of his
remuneration as a Director.
The board may establish or concur or join with other companies (being
subsidiary companies of the Company or companies with which it is
associated in business) in establishing and making contributions out of the
Company’s monies to any schemes or funds for providing pensions, sickness
or compassionate allowances, life assurance or other benefits for employees
(which expression as used in this and the following paragraph shall include
any Director or ex-Director who may hold or have held any executive office or
any office of profit with the Company or any of its subsidiaries) and
ex-employees of the Company and their dependents or any class or classes of
such persons.
The board may pay, enter into agreements to pay or make grants of
revocable or irrevocable, and either subject or not subject to any terms or
conditions, pensions or other benefits to employees and ex-employees and
their dependents, or to any of such persons, including pensions or benefits
additional to those, if any, to which such employees or ex-employees or their
dependents are or may become entitled under any such scheme or fund as is
mentioned in the previous paragraph. Any such pension or benefit may, as the
board considers desirable, be granted to an employee either before and in
anticipation of, or upon or at any time after, his actual retirement.
(vi)
Compensation or payments for loss of office
Pursuant to the Articles, payments to any Director or past Director of
any sum by way of compensation for loss of office or as consideration for or in
connection with his retirement from office (not being a payment to which the
Director is contractually entitled) must be approved by the Company in
general meeting.
(vii) Loans and provision of security for loans to Directors
The Company must not make any loan, directly or indirectly, to a
Director or his close associate(s) if and to the extent it would be prohibited by
the Companies Ordinance (Chapter 622 of the laws of Hong Kong) as if the
Company were a company incorporated in Hong Kong.
– III-8 –
APPENDIX III
(viii) Disclosure of interests in contracts with the Company or any of its subsidiaries
A Director may hold any other office or place of profit with the
Company (except that of the auditor of the Company) in conjunction with his
office of Director for such period and upon such terms as the board may
determine, and may be paid such extra remuneration therefor in addition to
any remuneration provided for by or pursuant to the Articles. A Director may
be or become a director or other officer of, or otherwise interested in, any
company promoted by the Company or any other company in which the
Company may be interested, and shall not be liable to account to the Company
or the members for any remuneration, profits or other benefits received by
him as a director, officer or member of, or from his interest in, such other
company. The board may also cause the voting power conferred by the shares
in any other company held or owned by the Company to be exercised in such
manner in all respects as it thinks fit, including the exercise thereof in favour
of any resolution appointing the Directors or any of them to be directors or
officers of such other company, or voting or providing for the payment of
remuneration to the directors or officers of such other company.
No Director or proposed or intended Director shall be disqualified by
his office from contracting with the Company, either with regard to his tenure
of any office or place of profit or as vendor, purchaser or in any other manner
whatsoever, nor shall any such contract or any other contract or arrangement
in which any Director is in any way interested be liable to be avoided, nor
shall any Director so contracting or being so interested be liable to account to
the Company or the members for any remuneration, profit or other benefits
realised by any such contract or arrangement by reason of such Director
holding that office or the fiduciary relationship thereby established. A
Director who to his knowledge is in any way, whether directly or indirectly,
interested in a contract or arrangement or proposed contract or arrangement
with the Company must declare the nature of his interest at the meeting of the
board at which the question of entering into the contract or arrangement is
first taken into consideration, if he knows his interest then exists, or in any
other case, at the first meeting of the board after he knows that he is or has
become so interested.
– III-9 –
APPENDIX III
A Director shall not vote (nor be counted in the quorum) on any
resolution of the board approving any contract or arrangement or other
proposal in which he or any of his close associates is materially interested, but
this prohibition does not apply to any of the following matters, namely:
(aa)
any contract or arrangement for giving to such Director or his
close associate(s) any security or indemnity in respect of money
lent by him or any of his close associates or obligations incurred
or undertaken by him or any of his close associates at the request
of or for the benefit of the Company or any of its subsidiaries;
(bb) any contract or arrangement for the giving of any security or
indemnity to a third party in respect of a debt or obligation of the
Company or any of its subsidiaries for which the Director or his
close associate(s) has himself/themselves assumed responsibility
in whole or in part whether alone or jointly under a guarantee or
indemnity or by the giving of security;
(cc)
any contract or arrangement concerning an offer of shares or
debentures or other securities of or by the Company or any other
company which the Company may promote or be interested in for
subscription or purchase, where the Director or his close
associate(s) is/are or is/are to be interested as a participant in the
underwriting or sub-underwriting of the offer;
(dd) any contract or arrangement in which the Director or his close
associate(s) is/are interested in the same manner as other holders
of shares or debentures or other securities of the Company by
virtue only of his/their interest in shares or debentures or other
securities of the Company; or
(ee)
(c)
any proposal or arrangement concerning the adoption,
modification or operation of a share option scheme, a pension
fund or retirement, death, or disability benefits scheme or other
arrangement which relates both to Directors, his close associates
and employees of the Company or of any of its subsidiaries and
does not provide in respect of any Director, or his close
associate(s), as such any privilege or advantage not accorded
generally to the class of persons to which such scheme or fund
relates.
Proceedings of the Board
The board may meet for the despatch of business, adjourn and otherwise
regulate its meetings as it considers appropriate. Questions arising at any meeting
shall be determined by a majority of votes. In the case of an equality of votes, the
chairman of the meeting shall have an additional or casting vote.
– III-10 –
APPENDIX III
(d)
Alterations to constitutional documents and the Company’s name
The Articles may be rescinded, altered or amended by the Company in general
meeting by special resolution. The Articles state that a special resolution shall be
required to alter the provisions of the Memorandum, to amend the Articles or to
change the name of the Company.
(e)
Meetings of members
(i)
Special and ordinary resolutions
A special resolution of the Company must be passed by a majority of not
less than three-fourths of the votes cast by such members as, being entitled so
to do, vote in person or, in the case of such members as are corporations, by
their duly authorised representatives or, where proxies are allowed, by proxy
at a general meeting of which notice has been duly given in accordance with
the Articles.
Under the Companies Law, a copy of any special resolution must be
forwarded to the Registrar of Companies in the Cayman Islands within fifteen
(15) days of being passed.
An ordinary resolution is defined in the Articles to mean a resolution
passed by a simple majority of the votes of such members of the Company as,
being entitled to do so, vote in person or, in the case of corporations, by their
duly authorised representatives or, where proxies are allowed, by proxy at a
general meeting of which notice has been duly given held in accordance with
the Articles.
(ii)
Voting rights and right to demand a poll
Subject to any special rights or restrictions as to voting for the time
being attached to any shares, at any general meeting on a poll every member
present in person or by proxy or, in the case of a member being a corporation,
by its duly authorised representative shall have one vote for every fully paid
share of which he is the holder but so that no amount paid up or credited as
paid up on a share in advance of calls or installments is treated for the
foregoing purposes as paid up on the share. A member entitled to more than
one vote need not use all his votes or cast all the votes he uses in the same way.
At any general meeting a resolution put to the vote of the meeting is to
be decided by way of a poll save that the chairman of the meeting may in good
faith, allow a resolution which relates purely to a procedural or
administrative matter to be voted on by a show of hands in which case every
member present in person (or being a corporation, is present by a duly
authorised representative), or by proxy(ies) shall have one vote provided that
– III-11 –
APPENDIX III
where more than one proxy is appointed by a member which is a clearing
house (or its nominee(s)), each such proxy shall have one vote on a show of
hands.
If a recognised clearing house (or its nominee(s)) is a member of the
Company it may authorise such person or persons as it thinks fit to act as its
representative(s) at any meeting of the Company or at any meeting of any
class of members of the Company provided that, if more than one person is so
authorised, the authorisation shall specify the number and class of shares in
respect of which each such person is so authorised. A person authorised
pursuant to this provision shall be deemed to have been duly authorised
without further evidence of the facts and be entitled to exercise the same
powers on behalf of the recognised clearing house (or its nominee(s)) as if
such person was the registered holder of the shares of the Company held by
that clearing house (or its nominee(s)) including, where a show of hands is
allowed, the right to vote individually on a show of hands.
Where the Company has any knowledge that any shareholder is, under
the rules of the Stock Exchange, required to abstain from voting on any
particular resolution of the Company or restricted to voting only for or only
against any particular resolution of the Company, any votes cast by or on
behalf of such shareholder in contravention of such requirement or restriction
shall not be counted.
(iii)
Annual general meetings
The Company must hold an annual general meeting of the Company
every year within a period of not more than fifteen (15) months after the
holding of the last preceding annual general meeting or a period of not more
than eighteen (18) months from the date of adoption of the Articles, unless a
longer period would not infringe the rules of the Stock Exchange.
(iv)
Notices of meetings and business to be conducted
An annual general meeting must be called by notice of not less than
twenty-one (21) days and not less than twenty (20) business days. All other
general meetings must be called by notice of at least fourteen (14) days and
not less than ten (10) business days. The notice is exclusive of the day on
which it is served or deemed to be served and of the day for which it is given,
and must specify the time and place of the meeting and, in the case of special
business, the general nature of that business.
In addition notice of every general meeting, must be given to all
members of the Company other than to such members as, under the
provisions of the Articles or the terms of issue of the shares they hold, are not
entitled to receive such notices from the Company, and also to the auditors for
the time being of the Company.
– III-12 –
APPENDIX III
Any notice to be given to or by any person pursuant to the Articles may
be served on or delivered to any member of the Company personally, by post
to such member ’s registered address or by advertisement in newspapers
published daily and circulating generally in Hong Kong and in accordance
with the requirements of the Stock Exchange. Subject to compliance with
Cayman Islands law and the rules of the Stock Exchange, notice may also be
served or delivered by the Company to any member by electronic means.
All business that is transacted at an extraordinary general meeting and
at an annual general meeting is deemed special, save that in the case of an
annual general meeting, each the following business is deemed an ordinary
business:
(aa)
the declaration and sanctioning of dividends;
(bb) the consideration and adoption of the accounts and balance sheet
and the reports of the directors and the auditors;
(cc)
the election of directors in place of those retiring;
(dd) the appointment of auditors and other officers;
(ee)
the fixing of the remuneration of the directors and of the auditors;
(ff)
the granting of any mandate or authority to the directors to offer,
allot, grant options over or otherwise dispose of the unissued
shares of the Company representing not more than twenty per
cent (20%) in nominal value of its existing issued share capital;
and
(gg) the granting of any mandate or authority to the directors to
repurchase securities of the Company.
(v)
Quorum for meetings and separate class meetings
No business shall be transacted at any general meeting unless a quorum
is present when the meeting proceeds to business, but the absence of a
quorum shall not preclude the appointment of a chairman.
The quorum for a general meeting shall be two members present in
person (or, in the case of a member being a corporation, by its duly authorised
representative) or by proxy and entitled to vote. In respect of a separate class
meeting (other than an adjourned meeting) convened to sanction the
modification of class rights the necessary quorum shall be two persons
holding or representing by proxy not less than one-third in nominal value of
the issued shares of that class.
– III-13 –
APPENDIX III
(vi)
Proxies
Any member of the Company entitled to attend and vote at a meeting of
the Company is entitled to appoint another person as his proxy to attend and
vote instead of him. A member who is the holder of two or more shares may
appoint more than one proxy to represent him and vote on his behalf at a
general meeting of the Company or at a class meeting. A proxy need not be a
member of the Company and is entitled to exercise the same powers on behalf
of a member who is an individual and for whom he acts as proxy as such
member could exercise. In addition, a proxy is entitled to exercise the same
powers on behalf of a member which is a corporation and for which he acts as
proxy as such member could exercise if it were an individual member. Votes
may be given either personally (or, in the case of a member being a
corporation, by its duly authorised representative) or by proxy.
(f)
Accounts and audit
The board shall cause true accounts to be kept of the sums of money received
and expended by the Company, and the matters in respect of which such receipt and
expenditure take place, and of the property, assets, credits and liabilities of the
Company and of all other matters required by the Companies Law or necessary to
give a true and fair view of the Company’s affairs and to explain its transactions.
The accounting records must be kept at the registered office or at such other
place or places as the board decides and shall always be open to inspection by any
Director. No member (other than a Director) shall have any right to inspect any
accounting record or book or document of the Company except as conferred by law
or authorised by the board or the Company in general meeting. However, an
exempted company must make available at its registered office in electronic form or
any other medium, copies of its books of account or parts thereof as may be required
of it upon service of an order or notice by the Tax Information Authority pursuant to
the Tax Information Authority Law of the Cayman Islands.
A copy of every balance sheet and profit and loss account (including every
document required by law to be annexed thereto) which is to be laid before the
Company at its general meeting, together with a printed copy of the Directors’
report and a copy of the auditors’ report, shall not less than twenty-one (21) days
before the date of the meeting and at the same time as the notice of annual general
meeting be sent to every person entitled to receive notices of general meetings of the
Company under the provisions of the Articles; however, subject to compliance with
all applicable laws, including the rules of the Stock Exchange, the Company may
send to such persons summarised financial statements derived from the Company’s
annual accounts and the directors’ report instead provided that any such person
may by notice in writing served on the Company, demand that the Company sends
to him, in addition to summarised financial statements, a complete printed copy of
the Company’s annual financial statement and the directors’ report thereon.
– III-14 –
APPENDIX III
At the annual general meeting or at a subsequent extraordinary general
meeting in each year, the members shall appoint an auditor to audit the accounts of
the Company and such auditor shall hold office until the next annual general
meeting. The remuneration of the auditors shall be fixed by the Company in general
meeting or in such manner as the members may determine.
The financial statements of the Company shall be audited by the auditor in
accordance with generally accepted auditing standards which be those of a country
or jurisdiction other than the Cayman Islands.. The auditor shall make a written
report thereon in accordance with generally accepted auditing standards and the
report of the auditor must be submitted to the members in general meeting.
(g)
Dividends and other methods of distribution
The Company in general meeting may declare dividends in any currency to be
paid to the members but no dividend shall be declared in excess of the amount
recommended by the board.
The Articles provide dividends may be declared and paid out of the profits of
the Company, realised or unrealised, or from any reserve set aside from profits
which the directors determine is no longer needed. With the sanction of an ordinary
resolution dividends may also be declared and paid out of share premium account
or any other fund or account which can be authorised for this purpose in accordance
with the Companies Law.
Except in so far as the rights attaching to, or the terms of issue of, any share
may otherwise provide, (i) all dividends shall be declared and paid according to the
amounts paid up on the shares in respect whereof the dividend is paid but no
amount paid up on a share in advance of calls shall for this purpose be treated as
paid up on the share and (ii) all dividends shall be apportioned and paid pro rata
according to the amount paid up on the shares during any portion or portions of the
period in respect of which the dividend is paid. The Directors may deduct from any
dividend or other monies payable to any member or in respect of any shares all
sums of money (if any) presently payable by him to the Company on account of calls
or otherwise.
Whenever the board or the Company in general meeting has resolved that a
dividend be paid or declared on the share capital of the Company, the board may
further resolve either (a) that such dividend be satisfied wholly or in part in the
form of an allotment of shares credited as fully paid up, provided that the
shareholders entitled thereto will be entitled to elect to receive such dividend (or
part thereof) in cash in lieu of such allotment, or (b) that shareholders entitled to
such dividend will be entitled to elect to receive an allotment of shares credited as
fully paid up in lieu of the whole or such part of the dividend as the board may think
fit.
– III-15 –
APPENDIX III
The Company may also upon the recommendation of the board by an ordinary
resolution resolve in respect of any one particular dividend of the Company that it
may be satisfied wholly in the form of an allotment of shares credited as fully paid
up without offering any right to shareholders to elect to receive such dividend in
cash in lieu of such allotment.
Any dividend, interest or other sum payable in cash to the holder of shares
may be paid by cheque or warrant sent through the post addressed to the holder at
his registered address, or in the case of joint holders, addressed to the holder whose
name stands first in the register of the Company in respect of the shares at his
address as appearing in the register or addressed to such person and at such
addresses as the holder or joint holders may in writing direct. Every such cheque or
warrant shall, unless the holder or joint holders otherwise direct, be made payable
to the order of the holder or, in the case of joint holders, to the order of the holder
whose name stands first on the register in respect of such shares, and shall be sent at
his or their risk and payment of the cheque or warrant by the bank on which it is
drawn shall constitute a good discharge to the Company. Any one of two or more
joint holders may give effectual receipts for any dividends or other moneys payable
or property distributable in respect of the shares held by such joint holders.
Whenever the board or the Company in general meeting has resolved that a
dividend be paid or declared the board may further resolve that such dividend be
satisfied wholly or in part by the distribution of specific assets of any kind.
All dividends or bonuses unclaimed for one year after having been declared
may be invested or otherwise made use of by the board for the benefit of the
Company until claimed and the Company shall not be constituted a trustee in
respect thereof. All dividends or bonuses unclaimed for six years after having been
declared may be forfeited by the board and shall revert to the Company.
No dividend or other monies payable by the Company on or in respect of any
share shall bear interest against the Company.
(h)
Inspection of corporate records
Pursuant to the Articles, the register and branch register of members shall be
open to inspection for at least two (2) hours during business hours by members
without charge, or by any other person upon a maximum payment of HK$2.50 or
such lesser sum specified by the board, at the registered office or such other place at
which the register is kept in accordance with the Companies Law or, upon a
maximum payment of HK$1.00 or such lesser sum specified by the board, at the
office where the branch register of members is kept, unless the register is closed in
accordance with the Articles.
– III-16 –
APPENDIX III
(i)
Rights of minorities in relation to fraud or oppression
There are no provisions in the Articles relating to rights of minority
shareholders in relation to fraud or oppression. However, certain remedies are
available to shareholders of the Company under Cayman Islands law, as
summarised in paragraph 3(f) of this Appendix.
(j)
Procedures on liquidation
A resolution that the Company be wound up by the court or be wound up
voluntarily shall be a special resolution.
Subject to any special rights, privileges or restrictions as to the distribution of
available surplus assets on liquidation for the time being attached to any class or
classes of shares:
(i)
if the Company is wound up and the assets available for distribution
amongst the members of the Company shall be more than sufficient to
repay the whole of the capital paid up at the commencement of the
winding up, the excess shall be distributed pari passu amongst such
members in proportion to the amount paid up on the shares held by
them respectively; and
(ii)
if the Company is wound up and the assets available for distribution
amongst the members as such shall be insufficient to repay the whole of
the paid-up capital, such assets shall be distributed so that, as nearly as
may be, the losses shall be borne by the members in proportion to the
capital paid up, or which ought to have been paid up, at the
commencement of the winding up on the shares held by them
respectively.
If the Company is wound up (whether the liquidation is voluntary or by the
court) the liquidator may, with the authority of a special resolution and any other
sanction required by the Companies Law divide among the members in specie or
kind the whole or any part of the assets of the Company whether the assets shall
consist of property of one kind or shall consist of properties of different kinds and
the liquidator may, for such purpose, set such value as he deems fair upon any one
or more class or classes of property to be divided as aforesaid and may determine
how such division shall be carried out as between the members or different classes
of members. The liquidator may, with the like authority, vest any part of the assets in
trustees upon such trusts for the benefit of members as the liquidator, with the like
authority, shall think fit, but so that no contributory shall be compelled to accept any
shares or other property in respect of which there is a liability.
– III-17 –
APPENDIX III
(k)
Subscription rights reserve
The Articles provide that to the extent that it is not prohibited by and is in
compliance with the Companies Law, if warrants to subscribe for shares have been
issued by the Company and the Company does any act or engages in any transaction
which would result in the subscription price of such warrants being reduced below
the par value of a share, a subscription rights reserve shall be established and
applied in paying up the difference between the subscription price and the par value
of a share on any exercise of the warrants.
3.
CAYMAN ISLANDS COMPANY LAW
The Company is incorporated in the Cayman Islands subject to the Companies Law
and, therefore, operates subject to Cayman Islands law. Set out below is a summary of
certain provisions of Cayman company law, although this does not purport to contain all
applicable qualifications and exceptions or to be a complete review of all matters of
Cayman company law and taxation, which may differ from equivalent provisions in
jurisdictions with which interested parties may be more familiar:
(a)
Company operations
As an exempted company, the Company’s operations must be conducted
mainly outside the Cayman Islands. The Company is required to file an annual
return each year with the Registrar of Companies of the Cayman Islands and pay a
fee which is based on the amount of its authorised share capital.
(b)
Share capital
The Companies Law provides that where a company issues shares at a
premium, whether for cash or otherwise, a sum equal to the aggregate amount of the
value of the premiums on those shares shall be transferred to an account, to be called
the “share premium account”. At the option of a company, these provisions may not
apply to premiums on shares of that company allotted pursuant to any arrangement
in consideration of the acquisition or cancellation of shares in any other company
and issued at a premium.
The Companies Law provides that the share premium account may be applied
by the company subject to the provisions, if any, of its memorandum and articles of
association in (a) paying distributions or dividends to members; (b) paying up
unissued shares of the company to be issued to members as fully paid bonus shares;
(c) the redemption and repurchase of shares (subject to the provisions of section 37
of the Companies Law); (d) writing-off the preliminary expenses of the company;
and (e) writing-off the expenses of, or the commission paid or discount allowed on,
any issue of shares or debentures of the company.
– III-18 –
APPENDIX III
No distribution or dividend may be paid to members out of the share
premium account unless immediately following the date on which the distribution
or dividend is proposed to be paid, the company will be able to pay its debts as they
fall due in the ordinary course business.
The Companies Law provides that, subject to confirmation by the Grand
Court of the Cayman Islands (the “Court”), a company limited by shares or a
company limited by guarantee and having a share capital may, if so authorised by
its articles of association, by special resolution reduce its share capital in any way.
(c)
Financial assistance to purchase shares of a company or its holding
company
There is no statutory restriction in the Cayman Islands on the provision of
financial assistance by a company to another person for the purchase of, or
subscription for, its own or its holding company’s shares. Accordingly, a company
may provide financial assistance if the directors of the company consider, in
discharging their duties of care and acting in good faith, for a proper purpose and in
the interests of the company, that such assistance can properly be given. Such
assistance should be on an arm’s-length basis.
(d)
Purchase of shares and warrants by a company and its subsidiaries
A company limited by shares or a company limited by guarantee and having a
share capital may, if so authorised by its articles of association, issue shares which
are to be redeemed or are liable to be redeemed at the option of the company or a
shareholder and the Companies Law expressly provides that it shall be lawful for
the rights attaching to any shares to be varied, subject to the provisions of the
company’s articles of association, so as to provide that such shares are to be or are
liable to be so redeemed. In addition, such a company may, if authorised to do so by
its articles of association, purchase its own shares, including any redeemable shares.
However, if the articles of association do not authorise the manner and terms of
purchase, a company cannot purchase any of its own shares unless the manner and
terms of purchase have first been authorised by an ordinary resolution of the
company. At no time may a company redeem or purchase its shares unless they are
fully paid. A company may not redeem or purchase any of its shares if, as a result of
the redemption or purchase, there would no longer be any issued shares of the
company other than shares held as treasury shares. A payment out of capital by a
company for the redemption or purchase of its own shares is not lawful unless
immediately following the date on which the payment is proposed to be made, the
company shall be able to pay its debts as they fall due in the ordinary course of
business.
Shares purchased by a company is to be treated as cancelled unless, subject to
the memorandum and articles of association of the company, the directors of the
company resolve to hold such shares in the name of the company as treasury shares
prior to the purchase. Where shares of a company are held as treasury shares, the
– III-19 –
APPENDIX III
company shall be entered in the register of members as holding those shares,
however, notwithstanding the foregoing, the company is not be treated as a member
for any purpose and must not exercise any right in respect of the treasury shares,
and any purported exercise of such a right shall be void, and a treasury share must
not be voted, directly or indirectly, at any meeting of the company and must not be
counted in determining the total number of issued shares at any given time, whether
for the purposes of the company’s articles of association or the Companies Law.
A company is not prohibited from purchasing and may purchase its own
warrants subject to and in accordance with the terms and conditions of the relevant
warrant instrument or certificate. There is no requirement under Cayman Islands
law that a company’s memorandum or articles of association contain a specific
provision enabling such purchases and the directors of a company may rely upon
the general power contained in its memorandum of association to buy and sell and
deal in personal property of all kinds.
Under Cayman Islands law, a subsidiary may hold shares in its holding
company and, in certain circumstances, may acquire such shares.
(e)
Dividends and distributions
The Companies Law permits, subject to a solvency test and the provisions, if
any, of the company’s memorandum and articles of association, the payment of
dividends and distributions out of the share premium account. With the exception
of the foregoing, there are no statutory provisions relating to the payment of
dividends. Based upon English case law, which is regarded as persuasive in the
Cayman Islands, dividends may be paid only out of profits.
No dividend may be declared or paid, and no other distribution (whether in
cash or otherwise) of the company’s assets (including any distribution of assets to
members on a winding up) may be made to the company, in respect of a treasury
share.
(f)
Protection of minorities and shareholders’ suits
The Courts ordinarily would be expected to follow English case law
precedents which permit a minority shareholder to commence a representative
action against or derivative actions in the name of the company to challenge (a) an
act which is ultra vires the company or illegal, (b) an act which constitutes a fraud
against the minority and the wrongdoers are themselves in control of the company,
and (c) an irregularity in the passing of a resolution which requires a qualified (or
special) majority.
In the case of a company (not being a bank) having a share capital divided into
shares, the Court may, on the application of members holding not less than one fifth
of the shares of the company in issue, appoint an inspector to examine into the
affairs of the company and to report thereon in such manner as the Court shall
direct.
– III-20 –
APPENDIX III
Any shareholder of a company may petition the Court which may make a
winding up order if the Court is of the opinion that it is just and equitable that the
company should be wound up or, as an alternative to a winding up order, (a) an
order regulating the conduct of the company’s affairs in the future, (b) an order
requiring the company to refrain from doing or continuing an act complained of by
the shareholder petitioner or to do an act which the shareholder petitioner has
complained it has omitted to do, (c) an order authorising civil proceedings to be
brought in the name and on behalf of the company by the shareholder petitioner on
such terms as the Court may direct, or (d) an order providing for the purchase of the
shares of any shareholders of the company by other shareholders or by the company
itself and, in the case of a purchase by the company itself, a reduction of the
company’s capital accordingly.
Generally claims against a company by its shareholders must be based on the
general laws of contract or tort applicable in the Cayman Islands or their individual
rights as shareholders as established by the company’s memorandum and articles of
association.
(g)
Disposal of assets
The Companies Law contains no specific restrictions on the power of directors
to dispose of assets of a company. However, as a matter of general law, every officer
of a company, which includes a director, managing director and secretary, in
exercising his powers and discharging his duties must do so honestly and in good
faith with a view to the best interests of the company and exercise the care, diligence
and skill that a reasonably prudent person would exercise in comparable
circumstances.
(h)
Accounting and auditing requirements
A company must cause proper books of account to be kept with respect to (i)
all sums of money received and expended by the company and the matters in
respect of which the receipt and expenditure takes place; (ii) all sales and purchases
of goods by the company; and (iii) the assets and liabilities of the company.
Proper books of account shall not be deemed to be kept if there are not kept
such books as are necessary to give a true and fair view of the state of the company’s
affairs and to explain its transactions.
An exempted company must make available at its registered office in
electronic form or any other medium, copies of its books of account or parts thereof
as may be required of it upon service of an order or notice by the Tax Information
Authority pursuant to the Tax Information Authority Law of the Cayman Islands.
(i)
Exchange control
There are no exchange control regulations or currency restrictions in the
Cayman Islands.
– III-21 –
APPENDIX III
(j)
Taxation
Pursuant to section 6 of the Tax Concessions Law (2011 Revision) of the
Cayman Islands, the Company has obtained an undertaking from the
Governor-in-Cabinet:
(1)
that no law which is enacted in the Cayman Islands imposing any tax to
be levied on profits, income, gains or appreciation shall apply to the
Company or its operations; and
(2)
that the aforesaid tax or any tax in the nature of estate duty or
inheritance tax shall not be payable on or in respect of the shares,
debentures or other obligations of the Company.
The undertaking for the Company is for a period of twenty years from 9 June,
2015.
The Cayman Islands currently levy no taxes on individuals or corporations
based upon profits, income, gains or appreciations and there is no taxation in the
nature of inheritance tax or estate duty. There are no other taxes likely to be material
to the Company levied by the Government of the Cayman Islands save for certain
stamp duties which may be applicable, from time to time, on certain instruments
executed in or brought within the jurisdiction of the Cayman Islands. The Cayman
Islands are a party to a double tax treaty entered into with the United Kingdom in
2010 but otherwise is not party to any double tax treaties.
(k)
Stamp duty on transfers
No stamp duty is payable in the Cayman Islands on transfers of shares of
Cayman Islands companies except those which hold interests in land in the Cayman
Islands.
(l)
Loans to directors
There is no express provision in the Companies Law prohibiting the making of
loans by a company to any of its directors.
(m)
Inspection of corporate records
Members of the Company have no general right under the Companies Law to
inspect or obtain copies of the register of members or corporate records of the
Company. They will, however, have such rights as may be set out in the Company’s
Articles.
– III-22 –
APPENDIX III
(n)
Register of members
An exempted company may maintain its principal register of members and
any branch registers at such locations, whether within or without the Cayman
Islands, as the directors may, from time to time, think fit. A branch register must be
kept in the same manner in which a principal register is by the Companies Law
required or permitted to be kept. The company shall cause to be kept at the place
where the company’s principal register is kept a duplicate of any branch register
duly entered up from time to time.
There is no requirement under the Companies Law for an exempted company
to make any returns of members to the Registrar of Companies of the Cayman
Islands. The names and addresses of the members are, accordingly, not a matter of
public record and are not available for public inspection. However, an exempted
company shall make available at its registered office, in electronic form or any other
medium, such register of members, including any branch register of members, as
may be required of it upon service of an order or notice by the Tax Information
Authority pursuant to the Tax Information Authority Law of the Cayman Islands.
(o)
Register of Directors and Officers
The Company is required to maintain at its registered office a register of
directors and officers which is not available for inspection by the public. A copy of
such register must be filed with the Registrar of Companies in the Cayman Islands
and any change must be notified to the Registrar within sixty (60) days of any
change in such directors or officers.
(p)
Winding up
A company may be wound up (a) compulsorily by order of the Court, (b)
voluntarily, or (c) under the supervision of the Court.
The Court has authority to order winding up in a number of specified
circumstances including where the members of the company have passed a special
resolution requiring the company to be wound up by the Court, or where the
company is unable to pay its debts, or where it is, in the opinion of the Court, just
and equitable to do so. Where a petition is presented by members of the company as
contributories on the ground that it is just and equitable that the company should be
wound up, the Court has the jurisdiction to make certain other orders as an
alternative to a winding-up order, such as making an order regulating the conduct
of the company’s affairs in the future, making an order authorising civil
proceedings to be brought in the name and on behalf of the company by the
petitioner on such terms as the Court may direct, or making an order providing for
the purchase of the shares of any of the members of the company by other members
or by the company itself.
– III-23 –
APPENDIX III
A company (save with respect to a limited duration company) may be wound
up voluntarily when the company so resolves by special resolution or when the
company in general meeting resolves by ordinary resolution that it be wound up
voluntarily because it is unable to pay its debts as they fall due. In the case of a
voluntary winding up, such company is obliged to cease to carry on its business
(except so far as it may be beneficial for its winding up) from the time of passing the
resolution for voluntary winding up or upon the expiry of the period or the
occurrence of the event referred to above.
For the purpose of conducting the proceedings in winding up a company and
assisting the Court therein, there may be appointed an official liquidator or official
liquidators; and the court may appoint to such office such person, either
provisionally or otherwise, as it thinks fit, and if more persons than one are
appointed to such office, the Court must declare whether any act required or
authorised to be done by the official liquidator is to be done by all or any one or
more of such persons. The Court may also determine whether any and what security
is to be given by an official liquidator on his appointment; if no official liquidator is
appointed, or during any vacancy in such office, all the property of the company
shall be in the custody of the Court.
As soon as the affairs of the company are fully wound up, the liquidator must
make a report and an account of the winding up, showing how the winding up has
been conducted and how the property of the company has been disposed of, and
thereupon call a general meeting of the company for the purposes of laying before it
the account and giving an explanation thereof. This final general meeting must be
called by at least 21 days’ notice to each contributory in any manner authorised by
the company’s articles of association and published in the Gazette.
(q)
Reconstructions
There are statutory provisions which facilitate reconstructions and
amalgamations approved by a majority in number representing seventy-five per
cent. (75%) in value of shareholders or class of shareholders or creditors, as the case
may be, as are present at a meeting called for such purpose and thereafter
sanctioned by the Court. Whilst a dissenting shareholder would have the right to
express to the Court his view that the transaction for which approval is sought
would not provide the shareholders with a fair value for their shares, the Court is
unlikely to disapprove the transaction on that ground alone in the absence of
evidence of fraud or bad faith on behalf of management.
– III-24 –
APPENDIX III
(r)
Take-overs
Where an offer is made by a company for the shares of another company and,
within four (4) months of the offer, the holders of not less than ninety per cent. (90%)
of the shares which are the subject of the offer accept, the offeror may at any time
within two (2) months after the expiration of the said four (4) months, by notice in
the prescribed manner require the dissenting shareholders to transfer their shares
on the terms of the offer. A dissenting shareholder may apply to the Court within
one (1) month of the notice objecting to the transfer. The burden is on the dissenting
shareholder to show that the Court should exercise its discretion, which it will be
unlikely to do unless there is evidence of fraud or bad faith or collusion as between
the offeror and the holders of the shares who have accepted the offer as a means of
unfairly forcing out minority shareholders.
(s)
Indemnification
Cayman Islands law does not limit the extent to which a company’s articles of
association may provide for indemnification of officers and directors, except to the
extent any such provision may be held by the Court to be contrary to public policy
(e.g. for purporting to provide indemnification against the consequences of
committing a crime).
4.
GENERAL
Conyers Dill & Pearman, the Company’s special legal counsel on Cayman Islands
law, have sent to the Company a letter of advice summarising certain aspects of Cayman
Islands company law. This letter, together with a copy of the Companies Law, is available
for inspection as referred to in the sub-section headed “Appendix V — Documents
available for inspection” in this document. Any person wishing to have a detailed
summary of Cayman Islands company law or advice on the differences between it and the
laws of any jurisdiction with which he is more familiar is recommended to seek
independent legal advice.
– III-25 –
APPENDIX IV
STATUTORY AND GENERAL INFORMATION
A.
FURTHER INFORMATION ABOUT THE COMPANY AND ITS SUBSIDIARIES
1.
Incorporation of the Company
The Company was incorporated in the Cayman Islands under the Cayman
Companies Law as an exempted company with limited liability on 14 May 2015. The
Company has established its principal place of business in Hong Kong at Room 2207,
22/F. Park-In Commercial Centre, 56 Dundas Street, Mongkok, Kowloon, Hong Kong and
was registered as a non-Hong Kong company under Part 16 of the Companies Ordinance
on 23 July, 2015. The Company has appointed Mr. Chan as the authorised representative of
the Company for the acceptance of service of process and notices in Hong Kong.
As the Company was incorporated in the Cayman Islands, it operates subject to the
Cayman Companies Law and to its constitution comprising the Memorandum and the
Articles. A summary of various provisions of the Company’s constitution and certain
relevant aspects of the Cayman Companies Law is set out in Appendix III to this
document.
2.
Changes in Share Capital of the Company
(a)
As of the date of incorporation of the Company, its authorised share capital
was HK$390,000 divided into 390,000 Shares of HK$1 each. At the time of its
incorporation, one Share was allotted and issued to the initial subscriber,
which was transferred to Faith Elite on the same date.
(b)
On 12 June 2015, every issued and unissued share of HK$1.00 each in the share
capital of the Company was subdivided into 100 shares of HK$0.01 each with
the effect that the authorised share capital of the Company became
HK$390,000 divided into 39,000,000 shares and the issued share of HK$1.00
held by Faith Elite divided into 100 Shares.
(c)
On 6 January 2016, the Company issued and allotted an additional of 15,106
Shares, 906 Shares, 1,304 Shares, 1,292 Shares and 1,292 Shares to each of Faith
Elite, Prime View, National Pride, Global Excellent and Hang Kong,
respectively.
(d)
Assuming that the [REDACTED] becomes unconditional and the issue of the
Shares pursuant to the [REDACTED] and the Capitalisation Issue mentioned
herein are made, but not taking into account of any Shares which may be
issued upon the exercise of the [REDACTED] and any Shares which may be
issued upon the exercise of any options which may be granted under the Share
Option Scheme, the authorised share capital of the Company will be
HK$[REDACTED] divided into [REDACTED] Shares and the issued share
capital of the Company will be HK$[REDACTED] divided into [REDACTED]
Shares fully paid or credited as fully paid and [REDACTED] Shares will
remain unissued. Other than pursuant to any options which may be granted
under the Share Option Scheme, the exercise of the [REDACTED] or the
– IV-1 –
APPENDIX IV
exercise of the general mandate to issue Shares referred to in the paragraph
headed “A. Further information about the company and its subsidiaries — 3.
Written Resolutions of the Shareholders passed on [●]” in this Appendix,
there is no present intention to issue any part of the authorised but unissued
share capital of the Company and, without prior approval of the Shareholders
in general meeting, no issue of Shares will be made which would effectively
alter the control of the Company.
(e)
3.
Save as disclosed herein, there has been no alteration in the share capital of the
Company since its incorporation.
Written Resolutions of the Shareholders passed on [●]
On [●], written resolutions of the Shareholders were passed pursuant to which,
among others:
(a)
the authorised share capital of the Company was increased from HK$390,000
to [REDACTED] by the creation of an additional [REDACTED] Shares with
effect from the date of the written resolutions;
(b)
The Company approved and adopted the Articles and the Memorandum with
effect from the date of the written resolutions;
(c)
conditional on (A) the Listing Department granting the [REDACTED] of, and
permission to deal in, the Shares in issue and the Shares to be issued as
mentioned herein (including any Shares which may be issued pursuant to the
[REDACTED], the Capitalisation Issue, the [REDACTED] and the Share
Option Scheme); and (B) the entering into of the [REDACTED] between the
[REDACTED] (for itself and on behalf of the [REDACTED]) and the
Company; and (C) the obligations of the [REDACTED] under the
[REDACTED] becoming unconditional (including, if relevant, as a result of
the waiver of any condition(s) by the [REDACTED] (for itself and on behalf of
the [REDACTED])) and the [REDACTED] not being terminated in
accordance with its terms or otherwise, in each case on or before the date
determined in accordance with the terms of the [REDACTED]:
(i)
the [REDACTED] was approved and the Directors were authorised to
effect the same and to allot and issue the [REDACTED] pursuant to the
[REDACTED];
(ii)
the [REDACTED] was approved and the Directors were authorised to
allot and issue any Shares which may be required to be issued if the
[REDACTED] is exercised;
(iii)
the rules of the Share Option Scheme, the principal terms of which are
set out in the sub-section headed “D. Share Option Scheme” below, were
approved and adopted and the Directors were authorised, at their
– IV-2 –
APPENDIX IV
absolute discretion, to grant options to subscribe for Shares under the
Share Option Scheme and to allot, issue and deal with Shares issued
pursuant thereunder and to take all such steps as they consider
necessary or desirable to implement the Share Option Scheme and to
vote on any matter connected therewith notwithstanding that they or
any of them may be interested in the same; and
(iv)
(d)
conditional upon the share premium amount of the Company having
sufficient balance or being credited as a result of the [REDACTED], the
Directors were authorised to capitalise the amount of
HK$[REDACTED] from the amount standing to the credit of the share
premium account of the Company to pay up in full at par [REDACTED]
Shares for allotment and issue to the person(s) whose name(s) appears
on the register of members of the Company on the date of the written
resolutions (or as they may direct) on a pro rata basis. The Shares to be
allotted and issued pursuant to the Capitalisation Issue will rank pari
passu in all respects with the existing issued Shares.
a general unconditional mandate was given to the Directors authorising them
to exercise all the powers of the Company to allot, issue and deal in (otherwise
than by way of rights issue or an issue of Shares upon the exercise of the
[REDACTED] or any subscription or conversion rights attaching to any
warrants or any securities which are convertible into Shares or pursuant to the
exercise of any options which may be granted under the Share Option Scheme,
or any other option scheme or similar arrangement for the time being adopted
for the grant or issue to officers and/or employees of the Company and/or
any of its subsidiaries or any other person of Share or rights to acquire Shares
or any scrip dividend schemes or similar arrangements providing for the
allotment and issue of Shares in lieu of the whole or part of a dividend on
Shares in accordance with the Articles or a specific authority granted by the
Shareholders in general meeting) any unissued Shares with a total nominal
value not exceeding 20% of the aggregate of the total nominal value of the
share capital of the Company in issue immediately following completion of
the [REDACTED] and the Capitalisation Issue (excluding any Shares that
may be issued upon exercise of the [REDACTED] or any options which may
be granted under the Share Option Scheme), such mandate to remain in effect
until whichever is the earliest of:
(i)
the conclusion of the next annual general meeting of the Company;
(ii)
the expiration of the period within which the next annual general
meeting of the Company is required by the Articles or any applicable
laws of the Cayman Islands to be held; or
(iii)
the passing of an ordinary resolution of the Shareholders in general
meeting revoking, varying or renewing such mandate.
– IV-3 –
APPENDIX IV
(e)
(f)
4.
a general unconditional mandate was given to the Directors authorising them
to exercise all powers of the Company to repurchase on the Stock Exchange or
on any other stock exchange on which the Shares may be listed, and which is
recognised by the SFC and the Stock Exchange for this purpose, such number
of Shares with a total nominal value not exceeding 10% of the aggregate of the
total nominal value of the share capital of the Company in issue immediately
following completion of the [REDACTED] and the Capitalisation Issue
(excluding any Shares that may be issued upon exercise of the [REDACTED]
and options which may be granted under the Share Option Scheme), such
mandate to remain in effect until whichever is the earliest of:
(i)
(ii)
meeting of the Company is required by the Articles or applicable laws of
the Cayman Islands to be held; or
(iii)
the passing of an ordinary resolution of the Shareholders in general
meeting revoking, varying or renewing such mandate;
the general unconditional mandate mentioned in paragraph (d) above was
extended by the addition to the aggregate nominal value of the share capital of
the Company which may be allotted or agreed conditionally or
unconditionally to be allotted by the Directors pursuant to such general
mandate of an amount representing the aggregate nominal value of the share
capital of the Company repurchased by the Company pursuant to the
mandate to repurchase Shares referred to in paragraph (e) above provided
that such extended amount shall not exceed 10% of the aggregate of the total
nominal value of the share capital of the Company in issue immediately
following completion of the [REDACTED] and the Capitalisation Issue
(excluding any Shares that may be issued upon exercise of the [REDACTED]
or any options which may be granted under the Share Option Scheme).
Corporate Reorganisation
In preparation for the [REDACTED], the companies comprising the Group
underwent the Reorganisation to rationalise the corporate structure of the Group. For
further details, please refer to the sub-section headed “History, Reorganisation and Group
Structure — Reorganisation” in this document.
5.
Changes in Share Capital of Subsidiaries
Save as disclosed in the sub-sections headed “Corporate History of the Group” and
“Reorganisation” both under the section headed “History, Reorganisation and Group
Structure” in this document, there has been no alteration in the share capital of any of the
subsidiaries of the Company within the two years preceding the date in this document.
– IV-4 –
APPENDIX IV
6.
Particulars of the subsidiaries
Particulars of the subsidiaries are set forth in the Accountant’s Report, the text of
which is set forth in Appendix I to this document.
7.
Repurchase of the securities
This paragraph includes the information required by the Stock Exchange to be
included in this document concerning the repurchase by the Company of its own
securities.
(a)
Provisions of the GEM Listing Rules
The GEM Listing Rules permit companies whose primary listing is on the
Stock Exchange to repurchase their securities on the Stock Exchange subject to
certain restrictions, the most important of which are summarised below:
(i)
Shareholders’ Approval
All proposed repurchases of securities on the Stock Exchange by a
company with its primary listing on the Stock Exchange must be approved in
advance by an ordinary resolution, either by way of general mandate or by
specific approval in relation to specific transactions.
Note:
(ii)
Pursuant to the written resolutions of the Shareholders passed on [●], a general
unconditional mandate (the “Repurchase Mandate”) was given to the Directors
authorising any repurchase by the Company of Shares as described above in the
paragraph headed “A. Further information about the Company — Written
resolutions of the Shareholders passed on [●]” in this Appendix.
Source of Funds
Any repurchases must be financed out of funds legally available for the
purpose in accordance with the Memorandum and the Articles and the
applicable laws and regulations of the Cayman Islands.
(b)
Funding of Purchases
In repurchasing securities, the Company may only apply funds legally
available for such purpose in accordance with the Memorandum, the Articles and
the applicable laws and regulations of the Cayman Islands. Pursuant to the
Repurchase Mandate, repurchases will be made out of funds of the Company legally
permitted to be utilized in this connection, including profits and share premium of
the Company or out of a fresh issue of Shares made for the purpose of the
repurchase or, subject to the Cayman Companies Law, out of capital and, in the case
of any premium payable on the repurchase, out of the profits of the Company or
from sums standing to the credit of the share premium account of the Company or,
subject to the Cayman Companies Law, out of capital of the Company. The Company
– IV-5 –
APPENDIX IV
may not repurchase securities on the Stock Exchange for a consideration other than
cash or for settlement otherwise than in accordance with the trading rules of the
Stock Exchange from time to time.
(c)
Reasons for Repurchases
Repurchases of Shares will only be made when the Directors believe that such
a repurchase will benefit the Company and the Shareholders as a whole. Such
repurchases may, depending on market conditions and funding arrangements at
that time, lead to an enhancement of the net asset value of the Company and/or its
earnings per Share.
(d)
Exercise of the Repurchase Mandate
Exercise in full of the Repurchase Mandate, on the basis of [REDACTED]
Shares in issue immediately after completion of the [REDACTED] and the
Capitalisation Issue (but taking no account of any Shares which may be issued upon
the exercise of the [REDACTED] and any options which may be granted under the
Share Option Scheme), could accordingly result in up to [REDACTED] Shares being
repurchased by the Company during the course of the period (the “Relevant
Period”) prior to the earliest of:
(e)
(i)
(ii)
meeting of the Company is required by the Articles and the applicable
laws and regulations of the Cayman Islands to be held; or
(iii)
the revocation, variation or renewal of the Repurchase Mandate by
ordinary resolution of the Shareholders in general meeting.
General
None of the Directors or, to the best of their knowledge having made all
reasonable enquiries, any of their respective close associates (as defined in the GEM
Listing Rules), has any present intention, if the Repurchase Mandate is approved by
the Shareholders, to sell any Shares to the Company or its subsidiaries.
There might be a material adverse impact on the working capital or gearing
position of the Company (as compared with the position disclosed in this document)
in the event that the Repurchase Mandate is exercised in full. However, the
Directors do not propose to exercise the Repurchase Mandate to such extent as
would, in the circumstances, have a material adverse effect on the working capital
requirements of the Company or on its gearing levels which in the opinion of the
Directors are from time to time appropriate for the Company.
– IV-6 –
APPENDIX IV
The Directors have undertaken to the Stock Exchange that, so far as the same
may be applicable, they will exercise the Repurchase Mandate in accordance with
the GEM Listing Rules, the Memorandum, the Articles and all the applicable laws
and regulations of the Cayman Islands.
If as a result of a repurchase of Shares, a Shareholder ’s proportionate interest
in the voting rights of the Company increases, such increase will be treated as an
acquisition for the purposes of the Takeovers Code. As a result, a Shareholder, or a
group of Shareholders acting in concert (within the meaning under the Takeovers
Code), depending on the level of increase in the interest of the Shareholder(s), could
obtain or consolidate control of the Company and become(s) obliged to make a
mandatory offer in accordance with Rule 26 of the Takeovers Code as a result of a
repurchase of Shares made after the [REDACTED]. Save as aforesaid, the Directors
are not aware of any other consequence under the Takeovers Code as a result of a
repurchase of Shares made immediately after the [REDACTED].
No connected person (as defined in the GEM Listing Rules) of the Company
has notified the Company that he has a present intention to sell any Shares to the
Company or has undertaken not to do so, if the Repurchase Mandate is exercised.
B.
FURTHER INFORMATION ABOUT THE BUSINESS
1.
Summary of Material Contracts
The following contracts (not being contracts in the ordinary course of business of
the Group) have been entered into by members of the Group within the two years
preceding the date in this document and are or may be material:
(a)
the Deed of Non-Competition;
(b)
the Deed of Indemnity; and
(c)
the [REDACTED].
– IV-7 –
APPENDIX IV
2.
Intellectual Property Rights of the Group
(a)
Trademarks
(i)
No.
Trademark
As of the Latest Practicable Date, the Group was the registered owner of
the following trademarks registered in Hong Kong:
Registration
No.
Trademark Owner
Class
Valid Period
1.
301039329
Fit Boxx HK
28
25 January 2008
– 24 January 2018
2.
301326104
Fit Boxx HK
35
17 April 2009
– 16 April 2019
3.
301423025
Fit Boxx HK
20
9 September 2009
– 8 September 2019
4.
302397367
Fit Boxx HK
35
5 October 2012
– 4 October 2022
5.
302451519
Fit Boxx HK
10
30 November 2012
– 29 November 2022
6.
303246309
Fit Boxx HK
35
22 December 2014
– 21 December 2024
7.
303327228
Fit Boxx HK
35
12 March 2015
– 11 March 2025
– IV-8 –
APPENDIX IV
(ii)
As of the Latest Practicable Date, the Group was the registered owner of
the following trademarks registered in the PRC:
Registration
No.
Trademark Owner
Class
1.
9763150
Fit Boxx Shenzhen
28
21 September 2012
2.
9785435
Fit Boxx Shenzhen
10
28 September 2012
3.
9765492
Fit Boxx Shenzhen
8
21 September 2012
4.
9785436
Fit Boxx Shenzhen
10
28 September 2012
5.
14291419
14291445
Fit Boxx Shenzhen
8, 10
No.
Trademark
Valid Period
21 May 2015
– 20 May 2025
As of the Latest Practicable Date, the Group had made application to register
the following trademark:
Trademark
Place of
Application
Applicant
Class
Date of
Application
Application No.
the PRC
Fit Boxx
Shenzhen
35
15 June
2015
17201205
the PRC
Fit Boxx
Shenzhen
33
15 June
2015
17201198
the PRC
Fit Boxx
Shenzhen
21
15 June
2015
17201199
– IV-9 –
APPENDIX IV
Place of
Application
Trademark
(b)
Applicant
Class
the PRC
Fit Boxx
Shenzhen
8
the PRC
Fit Boxx
Shenzhen
the PRC
Date of
Application
Application No.
15 June
2015
17201200
38
14 August
2015
17666504
Fit Boxx
Shenzhen
35
14 August
2015
17666505
the PRC
Fit Boxx
Shenzhen
35
14 August
2015
17666503
the PRC
Fit Boxx
Shenzhen
35
15 June
2015
17201206
Domain Names
As of the Latest Practicable Date, the Group was the registered proprietor of
the following domain names:
Registrant
Domain Name
Date of
Registration
Expiry Date
Fit
Fit
Fit
Fit
Fit
fitbox.com
fitboxx.com
fitboxxmacau.com
cosmoboxx.com
everlasthk.com
27 April 2002
30 October 2006
14 June 2011
18 January 2012
19 March 2012
27 April 2018
30 October 2024
14 June 2016
18 January 2018
19 March 2020
Boxx
Boxx
Boxx
Boxx
Boxx
HK
HK
HK
HK
HK
– IV-10 –
APPENDIX IV
C.
FURTHER INFORMATION ABOUT THE DIRECTORS AND SUBSTANTIAL
SHAREHOLDERS
1.
Disclosure of Interests
(a)
Interests and short positions of directors in the share capital and the
associated corporations
Immediately following completion of the [REDACTED] and the
Capitalisation Issue (taking no account of Shares which may be issued pursuant to
the exercise of the [REDACTED] and options which may be granted under the Share
Option Scheme), the interests or short positions of each of the Directors and the
chief executives in the share capital, underlying shares and debentures of the
Company which, once the Shares are listed, will have to be notified to the Company
and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO
(including interests and short positions which he is taken or deemed to have taken
under such provisions of the SFO) or which will be required, pursuant to section 352
of the SFO, to be entered in the register required to be kept therein or which, once
the Shares are listed, will be required pursuant to Rules 5.54 to 5.68 of the GEM
Listing Rules to be notified to the Company and the Stock Exchange are set out as
follows:
Interests in the Company
Name
Nature of interest
Mr. Chan
Interest of a controlled
corporation
corporation
Mr. Li
Number of
Shares
[REDACTED]
Shares
[REDACTED]
Shares
Approximate
percentage of
shareholding
[REDACTED]
[REDACTED]
Note:
(1)
The letter “L” denotes the person’s long position in the Shares.
(2)
Faith Elite is held as to 50% and 50% by each of Mr. Chan and Mr. Li, hence each of Mr.
Chan and Mr. Li is deemed to be interested in [REDACTED] Shares and [REDACTED]
Shares which are beneficially owned by Faith Elite.
– IV-11 –
APPENDIX IV
(b)
Interests and short positions of substantial shareholders in the share capital
of the Company
So far as the Directors are aware, immediately following completion of the
[REDACTED] and the Capitalisation Issue (but taking no account of Shares which
may be issued pursuant to the exercise of the [REDACTED] and options which may
be granted under the Share Option Scheme), in addition to the interests disclosed
under the section headed “C. Further information about the Directors and
Substantial Shareholders — 1. Disclosure of interests — (a) Interest and short
positions of directors in the share capital and the associated corporations ” above,
the persons (not being a director or chief executive of the Company) who will have
interests or short positions in the Shares and underlying Shares which are required
to be disclosed to the Company and the Stock Exchange under the provisions of
Divisions 2 and 3 of Part XV of the SFO are as follows:
Name
Nature of interest
Faith Elite
Beneficial owner
Mr. Chan (2)
corporation
corporation
Mr. Li (2)
Number of
Shares (1)
[REDACTED]
Shares
[REDACTED]
Shares
[REDACTED]
Shares
Approximate
percentage of
shareholding
[REDACTED]
[REDACTED]
[REDACTED]
Note:
(1)
The letter “L” denotes the person’s long position in the Shares
(2)
Faith Elite is held as to 50% and 50% by each of Mr. Chan and Mr. Li, hence each of Mr.
Chan and Mr. Li is deemed to be interested in [REDACTED] Shares and [REDACTED]
Shares which are beneficially owned by Faith Elite.
Save as disclosed herein but taking no account of any Shares which may be
issued pursuant to the exercise of the [REDACTED] and the options which may be
granted under the Share Option Scheme, the Directors are not aware of any person
(not being a director or chief executive of the Company) who will immediately
following completion of the [REDACTED] have interests or short positions in the
Shares and underlying Shares which would fall to be disclosed to the Company and
the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO
or who will immediately following completion of the [REDACTED] be, directly or
indirectly, interested in 10% or more of the nominal value of any class of share
capital in any associated corporations of the Company carrying rights to vote in all
circumstances at general meetings of associated corporation of the Company.
– IV-12 –
APPENDIX IV
2.
Directors’ Service Contracts and Remuneration
(a)
Directors’ Service Contracts
Each of the executive Directors has entered into a service contract with the
Company for a term of three years commencing from the [REDACTED], which will
be renewable automatically for sucessive terms of one year each commencing from
the next day after the expiry of the then current term of the appointment, unless
terminated by not less than three months’ notice in writing served by either party on
the other.
Each of the independent non-executive Directors has entered into a letter of
appointment with the Company for a term of three years commencing from the
[REDACTED], subject to termination in certain circumstances as stipulated in the
letter of appointment.
(b)
Directors’ remuneration
For the year ended 31 December 2014 and 2015, the aggregate amount paid to
the Directors as remuneration (including fees, salaries, contribution to retirement
benefit scheme and discretionary performance related bonus) were approximately
HK$0.9 million and HK$1.1 million respectively.
For the year ending 31 December 2016, the estimated total compensation
payable to the Directors amounts to HK1.4 million (excluding any discretionary
bonus).
There was no arrangement under which a Director has waived or agreed to
waive any emoluments for each of the three financial years immediately preceding
the issue in this document.
– IV-13 –
APPENDIX IV
Under the arrangements currently proposed, conditional upon the
[REDACTED], the basic annual remuneration (excluding any discretionary bonus)
payable by the Group to each of the Directors is as follows:
Annual
remuneration
(HK$)
3.
Executive Directors
Mr. Chan
Mr. Li
Mr. Lo Wing Sang
960,000
960,000
600,000
Independent non-executive Directors
Mr. So Alan Wai Shing
Mr. Wong King Lung
180,000
144,000
144,000
Disclaimers
Save as disclosed in this document:
(a)
none of the Directors nor any of the persons whose names are listed in the
paragraph headed “E. Other information — 7. Consents of experts” in this
Appendix has any direct or indirect interest in the promotion of, or in any
assets which have been, within the two years immediately preceding the date
in this document, acquired or disposed of by or leased to any member of the
Group, or are proposed to be acquired or disposed of by or leased to any
member of the Group;
(b)
none of the Directors nor any of the persons whose names are listed in the
paragraph headed “E. Other information — 7. Consents of experts” in this
Appendix is materially interested in any contract or arrangement subsisting at
the date in this document which is significant in relation to the business of the
Group;
(c)
none of the Directors is materially interested in any contract or arrangement
subsisting at the date in this document which is significant in relation to the
business of the Group taken as a whole;
(d)
none of the Directors or their associates (as defined in the GEM Listing Rules)
or existing shareholders or the Company (who, to the knowledge of the
Directors, owns more than 5% of the issued share capital) has any interest in
any of the five largest customers of the Company; and
(e)
none of the Directors or their associates (as defined in the GEM Listing Rules)
or the existing shareholders of the Company (who, to the knowledge of the
Directors, owns more than 5% of the issued share capital) has any interest in
any or the five largest suppliers of the Company.
– IV-14 –
APPENDIX IV
D.
SHARE OPTION SCHEME
The following is a summary of the principal terms of the Share Option Scheme
conditionally approved and adopted by the written resolutions of the Shareholders
passed on [●]. The Directors confirm that the terms of the Share Option Scheme comply
with the requirements under Chapter 23 of the GEM Listing Rules.
(a)
Purpose
The purpose of the Share Option Scheme is to provide incentive or reward to
Eligible Persons (as defined in paragraph (b) below) for their contribution to, and
continuing efforts to promote the interests of, the Group and for such other
purposes as the Board may approve from time to time.
(b)
Who may join
The Board may, at its absolute discretion, offer eligible persons (being any
director or employee (whether full time or part time), consultant or advisor of the
Group who in the sole discretion of the Board has contributed to and/or will
contribute to the Group) (the “Eligible Persons”) to subscribe for such number of
Shares in accordance with the terms of the Share Option Scheme.
(c)
Maximum number of Shares
The maximum aggregate number of Shares which may be issued upon
exercise of all outstanding options granted and yet to be exercised under the Share
Option Scheme and any other share option schemes of the Company, must not, in
aggregate, exceed 10% of the total number of Shares in issue from time to time. No
options may be granted under the Share Option Scheme and any other share option
schemes of the Company if this will result in such limit being exceeded.
(d)
Price of Shares
Subject to any adjustments made, the subscription price for a Share in respect
of any particular option granted under the Share Option Scheme (which shall be
payable upon exercise of the option) shall be a price solely determined by the Board,
provided that it shall not less than the nominal value of the Shares.
– IV-15 –
APPENDIX IV
(e)
Granting options to connected persons
Any grant of options to a Director, chief executive or substantial shareholder
of the Company or any of their respective associates is required to be approved by
the independent non-executive Directors (excluding any independent
non-executive Director who is a proposed grantee of the options). If the Company
proposes to grant options to a Substantial Shareholder or an independent
non-executive Director of the Company or their respective associates which will
result in the number and value of Shares issued and to be issued upon exercise of all
options granted and to be granted (including options exercised, cancelled and
outstanding) to such person in the 12-month period up to and including the date of
the offer of such grant in aggregate exceeding: (i) 0.1% of the Shares in issue at the
relevant time of grant; and (ii) HK$5 million, based on the closing price of the Shares
as stated in the daily quotations sheets issued by the Stock Exchange at the date of
each grant, such grant shall not be valid unless: (A) a circular containing the details
of the grant has been dispatched to the Shareholders in a manner complying with,
and containing the matters specified in, the relevant provisions of Chapter 23 of the
GEM Listing Rules (including in particular, a recommendation from the
independent non-executive Directors (excluding the independent non-executive
Director who is the prospective grantee) to the independent Shareholders as to
voting); and (B) the grant has been approved by the Shareholders in general meeting
(taken on a poll), at which all Connected Persons abstained from voting in favor at
such meeting.
(f)
Restrictions on the time of grant of options
No offer to grant option shall be made after a price-sensitive event has
occurred or a price sensitive matter has been the subject of a decision until such
price-sensitive information has been announced pursuant to the requirements of the
GEM Listing Rules. In particular, no options may be offered to be granted during the
period commencing one month immediately preceding the earlier of (i) the date of
the Board meeting (as such date is first notified by the Company to the Stock
Exchange in accordance with the GEM Listing Rules) for the approval of the
Company’s results for any year, half-year, quarterly or any other interim period
(whether or not required under the GEM Listing Rules); and (ii) the deadline for the
Company to publish an announcement of its results for any year or half year under
the GEM Listing Rules, or quarterly or any other interim period (whether or not
required under the GEM Listing Rules) and ending on the date of actual publication
of the results announcement. The period which no option may be granted will cover
any period of delay in the publication of results announcement.
(g)
Rights are personal to grantee
An option is personal to the grantee and shall not be assignable nor
transferable, and no grantee shall in any way sell, transfer, charge, mortgage,
encumber or create any interest (legal or beneficial) in favor of any third party over
or in relation to any option.
– IV-16 –
APPENDIX IV
(h)
Time of exercise of option
Subject to the provisions of the GEM Listing Rules and other applicable laws
and regulations, the Board may in its absolute discretion when offering the grant of
an option impose any conditions, restrictions or limitations in relation thereto in
addition to those set forth in the Share Option Scheme as the Board may think fit (to
be stated in the offer Letter) including (without prejudice to the generality of the
foregoing) qualifying and/or continuing eligibility criteria, conditions, restrictions
or limitations relating to the achievement of performance, operating or financial
targets by the Company and/or the grantee, the satisfactory performance or
maintenance by the grantee of certain conditions or obligations or the time or period
before the right to exercise the option in respect of all or any of the Shares shall vest
provided that such terms or conditions shall not be inconsistent with any other
terms or conditions of the Share Option Scheme. For the avoidance of doubt, subject
to such terms and conditions as the Board may determine as aforesaid (including
such terms and conditions in relation to their vesting, exercise or otherwise) there is
no minimum period for which an option must be held before it can be exercised and
no performance target which need to be achieved by the grantee before the option
can be exercised.
The date of grant of any particular option is the date on which the offer
relating to such option is duly accepted by the grantee in accordance with the Share
Option Scheme. An option may be exercised according to the terms of the Share
Option Scheme and the offer in whole or in part by the grantee (or his personal
representatives) before its expiry by giving notice in writing to the Company stating
that the option is to be exercised and the number of Shares in respect of which it is
exercised provided that the number of Shares shall be equal to the size of a board lot
for dealing in Shares on the Stock Exchange or an integral multiple thereof. Such
notice must be accompanied by a remittance for the full amount of the subscription
price for the Shares in respect of which the notice is given. The period during which
an option may be exercised will be determined by the Board at its absolute
discretion, save that no option may be exercised more than 10 years from the date of
grant. No option may be granted more than 3 years after the date of approval of the
Share Option Scheme. Subject to earlier termination by the Company in general
meeting, the Share Option Scheme shall be valid and effective for a period of 3 years
from the date of adoption of the Share Option Scheme by Shareholders by resolution
at a general meeting.
(i)
Performance target
The Board may from time to time require a particular grantee to achieve
certain performance targets specified at the time of grant before any option granted
under the Share Option Scheme can be exercised. There are no specific performance
targets stipulated under the terms of the Share Option Scheme and the Board is
currently unable to determine such restriction on the exercise of the options granted
under the Share Option Scheme.
– IV-17 –
APPENDIX IV
(j)
Rights on ceasing to be an Eligible Person
In the event of the grantee ceasing to be an Eligible Person for any reason
other than ceasing (1) by reason of summary dismissal for misconduct or other
breach of the terms of his employment or other contract constituting him an Eligible
Person, or appears either to be unable to pay or to have no reasonable prospect of
being able to pay his debts or has become insolvent or has made any arrangements
or composition with his creditors generally or on which he has been convicted of
any criminal offence involving his integrity or honesty or (2) by death or permanent
disability the option may be exercised within one month after the date of such
cessation, which date shall be (i) if he is an employee or director of the Company or
any subsidiary, his last actual working day with the Company or any subsidiary
whether salary is paid in lieu of notice or not; or (ii) if he is not an employee of the
Company or any subsidiary, the date on which the relationship constituting him an
Eligible Person ceases.
(k)
Rights on death or permanent disability
In the event that the grantee of an outstanding option dies or becomes
permanently disabled before exercising the option in full or at all, the option may be
exercised up to the entitlement of such grantee or, if appropriate, in the
circumstances described in paragraphs (n), (o) and (q), an election made by his
personal representatives within twelve months after the date of his death or
permanent disability.
(l)
Lapse of option on misconduct, bankruptcy or dismissal etc.
If a grantee ceases to be an Eligible Person by reason of summary dismissal for
misconduct or other breach of the terms of his employment or other contract
constituting him an Eligible Person, or appears either to be unable to pay or to have
no reasonable prospect of being able to pay his debts or has become insolvent or has
made any arrangements or composition with his creditors generally or on which he
has been convicted of any criminal offence involving his integrity or honesty, the
right to exercise the option (to the extent not already exercised) shall terminate
immediately.
(m)
Rights on a general offer by way of a take-over
If a general offer by way of a take-over is made to all the Shareholders (or all
such Shareholders other than the offeror and/or any person controlled by the
offeror and/or any person acting in association or concert with the offeror) and such
offer becomes or is declared unconditional, the Company shall forthwith notify all
the grantees and any grantee (or his personal representatives) may by notice in
writing to the Company within 21 days after such offer becoming or being declared
unconditional exercise the option to its full extent or to the extent specified in such
notice.
– IV-18 –
APPENDIX IV
(n)
Rights on a general offer by way of a scheme of arrangement
If a general offer by way of a scheme of arrangement is made to all the
Shareholders and the scheme has been approved by the necessary number of
Shareholders at the requisite meetings, the Company shall forthwith notify the
grantees and any grantee (or his personal representatives) may thereafter (but
before such time as shall be notified by the Company) by notice in writing to the
Company exercise the option to its full extent or to the extent specified in such
notice.
(o)
Rights on a compromise or arrangement
If a compromise or arrangement between the Company and its Shareholders
or creditors is proposed for the purposes of or in connection with a scheme for the
reconstruction of the Company or its amalgamation with any other company or
companies, the Company shall give notice thereof to the grantee (together with a
notice of the existence of the provisions of this paragraph) on the same date or soon
after it dispatches the notice to each member or creditor of the Company
summoning the meeting to consider such a compromise or arrangement, and
thereupon the grantee (or his personal representatives) may forthwith and until the
expiry of the period commencing with such date and ending with the earlier of 2
months thereafter and the date on which such compromise or arrangement is
sanctioned by the court of competent jurisdiction, exercise any of his options
whether in full or in part, but the exercise of an option as aforesaid shall be
conditional upon such compromise or arrangement being sanctioned by the court of
competent jurisdiction and becoming effective. Upon such compromise or
arrangement become effective, all options shall lapse except insofar as previously
exercised under the Share Option Scheme. The Company may require the grantee
(or his personal representatives) to transfer or otherwise deal with the Shares issued
as a result of the exercise of options in these circumstances so as to place the grantee
in the same position as nearly as would have been the case had such Shares been
subject to such compromise or arrangement.
– IV-19 –
APPENDIX IV
(p)
Rights on winding-up
In the event a notice is given by the Company to its Shareholders to convene a
general meeting for the purposes of considering, and if thought fit, approving a
resolution to voluntarily wind-up the Company other than for the purpose of a
reconstruction, amalgamation or scheme of arrangement, the Company shall on the
same date as or soon after it dispatches such notice to each member of the Company
give notice thereof to all grantees (together with a notice of the existence of the
provisions of this paragraph) and thereupon, each grantee (or his personal
representatives) shall be entitled to exercise all or any of his options at any time not
later than four business days prior to the proposed general meeting of the Company
by giving notice in writing to the Company, accompanied by a remittance for the full
amount of the aggregate subscription price for the Shares in respect of which the
notice is given whereupon the Company shall as soon as possible and, in any event,
no later than one business day immediately prior to the date of the proposed general
meeting referred to above, allot the relevant Shares to the grantee credited as fully
paid.
(q)
Lapse of the options
The right to exercise an option (to the extent not already exercised) shall
terminate immediately upon the earliest of:
(i)
the expiry of the option period;
(ii)
the expiry of any of the periods referred to in paragraph (k), (l) or (n);
(iii)
subject to the scheme of arrangement becoming effective, the expiry of
the period referred to in paragraph (o);
(iv)
subject to the compromise or arrangement referred to in paragraph (p);
(v)
the date on which the grantee ceases to be an Eligible Person by reason
of summary dismissal for misconduct or other breach of the terms of his
employment or other contract constituting him an Eligible Person, or
appears either to be unable to pay or to have no reasonable prospect of
being able to pay his debts or has become insolvent or has made any
arrangements or composition with his creditors generally or on which
he has been convicted of any criminal offence involving his integrity or
honesty;
(vi)
subject to paragraph (q), the date of the commencement of the voluntary
winding-up of the Company;
– IV-20 –
APPENDIX IV
(vii) the date on which the grantee commits a breach of paragraph (h);
(viii) the date on which the option is cancelled by the Board as provided in
paragraph (v); or
(ix)
the non-fulfillment of any condition referred to in paragraph (x) on or
before the date specified therein.
The Company shall owe no liability to any grantee for the lapse of any option
under this paragraph (r).
(r)
Ranking of Shares
The Shares to be allotted and issued upon the exercise of an option shall be
subject to the Company’s Memorandum and Articles of Association and the laws of
the Cayman Island for the time being in force and shall rank pari passu in all
respects with the fully-paid Shares in issue of the Company as of the date of
allotment and will entitle the holders to participate in all dividends or other
distributions paid or made on or after the date of allotment other than any dividend
or other distribution previously declared or recommended or resolved to be paid or
made if the record date therefore shall be on or before the date of allotment and
issue.
(s)
Effect of alterations to share capital
In the event of any alteration to the capital structure of the Company arising
from capitalisation of profits or reserves, rights issue, consolidation,
redenomination, subdivision or reduction of the share capital of the Company in
accordance with the legal requirements or requirements of the Stock Exchange other
than any alteration in the capital structure of the Company as a result of an issue of
Shares as consideration in a transaction to which the Company is a party.
Adjustment (if any) shall be made to (a) the number or nominal amount of Shares
subject to the option so far as unexercised; and/or (b) the subscription price for the
Shares subject to the option so far as unexercised; and/or (c) the Shares to which the
option relates; or any combination thereof as the Auditors or the independent
financial advisors to the Company (acting as expert not arbitrator) shall at the
request of the Company certify in writing to the Board either generally or as regards
any particular grantee that the adjustments are in compliance with Rule 23.03(13) of
the GEM Listing Rules and the notes thereto. Any such adjustments must give a
grantee the same proportion of the equity capital of the Company as to which that
grantee was previously entitled, and any adjustments so made shall be in
compliance with the GEM Listing Rules and such applicable guidance and/or
interpretation of the GEM Listing Rules from time to time issued by the Stock
Exchange (including, without limitation, the supplemental guidance attached to the
letter of the Stock Exchange dated 5 September 2005 to all issuers relating to share
option scheme) and any future guidance/interpretation of the GEM Listing Rules
issued by the Stock Exchange from time to time (but no such alterations shall be
– IV-21 –
APPENDIX IV
made the effect of which would be to enable a Share to be issued at less than its
nominal value. The capacity of the Auditors or the independent financial advisors to
the Company in this paragraph is that of experts and not of arbitrators and their
certification shall, in the absence of manifest error, be final and binding on the
Company and the grantees. The costs of the Auditors or the independent financial
advisors to the Company shall be borne by the Company. Notice of such adjustment
shall be given to the Grantees by the Company.
(t)
Alteration of Share Option Scheme
The Share Option Scheme may be altered in any respect by resolution of the
Board except that the provisions of the Share Option Scheme as to:
(u)
(i)
the definitions of “Eligible Person” and “grantee” in the Share Option
Scheme; and
(ii)
the provisions relating to the matters set out in Rule 23.03 of the GEM
Listing Rules which shall not be altered to the advantage of grantees or
prospective grantees except with the prior approval of the Shareholders
in general meeting (with participants and their respective associates
abstained from voting). No such alterations shall operate to affect
adversely the terms of issue of any option granted or agreed to be
granted prior to such alterations except with the consent or sanction in
writing of such majority of the grantees as would be required of the
Shareholders under the bye-laws for the time being of the Company for
a variation of the rights attached to the Shares. Any change to the
authority of the Board in relation to any alterations to the terms of the
Share Option Scheme must be approved by the Shareholders in general
meeting. Any alterations to the provisions of the Share Option Scheme
which are of a material nature or any change to the terms of options
granted must be approved by the Shareholders in general meeting
except where the alterations take effect automatically under the existing
provisions of the Share Option Scheme. Any amended terms of the
Scheme or the options must comply with Chapter 23 of the GEM Listing
Rules.
Cancellation of options
The Board may cancel an option granted but not exercised with the approval
of the grantee of such option. No options may be granted to an Eligible Person in
place of his cancelled options unless there are available unissued options (excluding
the cancelled options) within the limit set out in paragraph (c) above from time to
time.
– IV-22 –
APPENDIX IV
(v)
Termination of the Share Option Scheme
The Company, by resolution in general meeting, or the Board may at any time
terminate the operation of the Share Option Scheme and in such event no further
option will be offered but in all other respects the provisions of the Share Option
Scheme shall remain in full force and effect and options granted prior to such
termination shall continue to be valid and exercisable in accordance with the Share
Option Scheme.
(w)
Conditions of the Share Option Scheme
The Share Option Scheme is conditional upon:
(x)
(i)
the Listing Committee granting approval of the [REDACTED] of, and
permission to deal in, any Shares which may fall to be allotted and
issued pursuant to the exercise of any such options;
(ii)
the passing of the resolutions by the Shareholders to approve and adopt
the Share Option Scheme and to authorise the Board to grant Options
under the Share Option Scheme and to allot and issue Shares pursuant
to the exercise of any options; and
(iii)
the commencement of dealings in the Shares on the Stock Exchange.
Disclosure in annual and interim reports
The Company will disclose details of the Share Option Scheme in its annual
and interim reports including the number of options, date of grant, exercise price,
exercise period, vesting period and (if appropriate) a valuation of options granted
during the financial year/period in the annual/interim/quarterly reports in
accordance with the GEM Listing Rules in force from time to time.
– IV-23 –
APPENDIX IV
E.
OTHER INFORMATION
1.
Tax and Other Indemnity
Indemnity on estate duty and taxation
The Controlling Shareholders (the “Indemnifiers”) have, pursuant to the
Deed of Indemnity, given indemnities on a joint and several basis in favour of the
Company (for itself and as trustee as its subsidiaries and jointly-controlled
company) in connection with, among other things:
(a)
any taxation which might be payable by any member of the Group in
respect of any income, profits or gains earned, accrued or received or
alleged to have been earned, accrued or received on or before the date
on which the [REDACTED] becomes unconditional (the “Effective
Date”);
(b)
all costs (including all legal costs), expenses or other liabilities which
any member of the Group may reasonably incur in connection with:
(c)
(i)
the investigation, assessment or the contesting of any claim;
(ii)
the settlement of any claim under the Deed of Indemnity;
(iii)
any legal proceedings in which any member of the Group claims
under or in respect of the Deed of Indemnity and in which
judgment is given for any member of the Group;
(iv)
the enforcement of any such settlement or judgment;
(v)
the implementation of the Reorganisation and/or disposal or
acquisition of the equity interest in any member of the Group
since the date of incorporation of each member of the Group and
up to the Effective Date;
(vi)
any non-compliance with the applicable laws, rules or regulations
by the Company and/or any member of the Group on or before
the Effective Date;
all costs (including all legal costs), expenses or other liabilities which
any member of the Group may reasonably incur in connection with:
(i)
any unlawful use of the real properties leased by any company of
the Group and/or non-compliance by the relevant company of the
Group of any relevant land, construction or user regulations
applicable to the properties leased by the relevant company of the
Group on or before the Effective Date;
– IV-24 –
APPENDIX IV
(ii)
any rectifying works carried out by any of the landlord of the
premises or third party or the Group on which a relevant building
order/notice was served where the shops of the Group are located
to remove any unauthorised building work (as defined under
section 14 of the Buildings Ordinance) which has been erected by
any member of the Group or the landlord of the premises on or
before the Effective Date; and
(iii)
any possible or alleged violation or non-compliance by any
member of the Group with any Hong Kong or PRC laws or
regulations on or before the Effective Date, including but not
limited in relation to (i) non-compliance with the Companies
Ordinance (Cap.622 of the Laws of Hong Kong); and (ii) the PRC
laws and regulations in relation to the participation of social
welfare scheme (including housing provident fund and social
insurance).
The Indemnifiers will however, not be liable under the Deed of Indemnity for
taxation where:
(a)
to the extent (if any) to which provision, reserve or allowance has been
made for such taxation liabilities and claims in the audited consolidated
accounts of the Company for the Track Record Period as set out in
Appendix I to this document (the “Accounts”);
(b)
to the extent such taxation liabilities and claims falling on any of the
members of the Group in respect of their current accounting periods or
any accounting period commencing on or after the Effective Date would
not have arisen but for some act or omission of, or transaction
voluntarily effected by, any of the members of the Group (whether alone
or in conjunction with some other act, omission or transaction,
whenever occurring) with the prior written consent or agreement or
acquiescence of the Indemnifiers other than any such act, omission or
transaction:
(c)
(i)
carried out or effected in the ordinary course of business or in the
ordinary course of acquiring and disposing of capital assets after
the Effective Date, or
(ii)
carried out, made or entered into pursuant to a legally binding
commitment created on or before the Effective Date or pursuant to
any statement of intention made in this document; or
to the extent of any provision, reserve or allowance made for such
taxation liabilities in the Accounts which is finally established to be an
over-provision or an excessive reserve or allowance, in which case the
Indemnifiers’ liability (if any) in respect of such taxation liabilities shall
– IV-25 –
APPENDIX IV
be reduced by an amount not exceeding such provision, reserve or
allowance, provided that the amount of any such provision, reserve or
allowance applied pursuant to this paragraph to reduce the
Indemnifiers’ liability in respect of such taxation liabilities shall not be
available in respect of any such liability arising thereafter and for the
avoidance of doubt, such over-provision or excess provision, reserve or
allowance shall only be applied to reduce the liability of the
Indemnifiers under the Deed of Indemnity and none of the members of
the Group shall in any circumstances be liable to pay the Indemnifiers
any such excess; or
(d)
to the extent that any taxation liabilities and claims arises or is incurred
as a result of the imposition of such taxation liabilities as a consequence
of any retrospective change in the law, rules and regulations or the
interpretation or practice thereof by the Hong Kong Inland Revenue
Department or the taxation authority of the PRC or any other relevant
authority (whether in Hong Kong, the BVI, the PRC or any other part of
the world) coming into force after the Effective Date or to the extent that
such taxation liabilities and claims arise or is increased by an increase in
rates of such taxation liabilities after the Effective Date with
retrospective effect.
The Directors have been advised that no material liability for estate
duty is likely to fall on the Company or any of its subsidiaries under the laws
of the Cayman Islands, the BVI, Hong Kong or the PRC, being jurisdictions in
which one or more of the companies comprising the Group are incorporated.
2.
Litigation
As at the Latest Practicable Date, no member of the Group was engaged in any
litigation or arbitration of material importance and no litigation or claim of material
importance is known to the Directors to be pending or threatened against any member of
the Group.
3.
Sponsor
The Sponsor has made an application on behalf of the Company to the Listing
Department for [REDACTED] of, and permission to deal in, the Shares in issue and Shares
to be issued as mentioned herein (including any Shares falling to be issued pursuant to the
exercise of the [REDACTED] and pursuant to the exercise of any options which may be
granted under the Share Option Scheme).
The Sponsor is independent from the Company pursuant to Rule 6A.07 of the GEM
Listing Rules. The total amount of fees payable to the Sponsor by the Company for
sponsoring the [REDACTED] of the Shares on the Stock Exchange is HK$4.5 million.
– IV-26 –
APPENDIX IV
4.
Preliminary Expenses
The preliminary expenses are estimated to be approximately HK$42,588 and are
payable by the Company.
5.
Promoter
The Company has no promoter for the purpose of the GEM Listing Rules. Save as
disclosed above, within the two years immediately preceding the date in this document,
no cash, securities or other benefits have been paid, allotted or given to any promoters in
connection with the [REDACTED] or the related transactions described in this document.
6.
Qualifications of Experts
The following are the qualifications of the experts who have given opinion or advice
which are contained in this document:
7.
Name
Qualification
A licensed corporation under the SFO to
engage in type 4 (advising on securities),
type 6 (advising on corporate finance)
and type 9 (asset management) of the
regulated activities as defined under the
SFO
RSM Hong Kong
Certified public accountants
Conyers Dill & Pearman
Cayman Islands attorneys-at-law
Jun He Law Offices
PRC legal advisors to the Company
Jun He Law Offices
(Hong Kong branch)
Hong Kong
Company
Mr. Julian Yeung
Hong Kong barrister-at-law
Euromonitor International Limited
Industry Consultants
legal
advisors
to
the
Consents of Experts
Each of the experts named in paragraph 6 above has given and has not withdrawn
its consent to the issue in this document with the inclusion of its report and/or letter
and/or summary of valuations and/or opinion and/or data (as the case may be) and
references to its name included in the form and context in which it respectively appears.
None of the experts named in paragraph 6 above has any shareholding interests in
the Group or any right or option (whether legally enforceable or not) to subscribe for, or to
nominate persons to subscribe for, securities in any member of the Group.
– IV-27 –
APPENDIX IV
8.
Binding Effect
This document shall have the effect, if an application is made in pursuance hereof,
of rendering all persons concerned bound by all of the provisions (other than the penal
provisions) of sections 44A and 44B of the Companies (Winding Up and Miscellaneous
Provisions) Ordinance insofar as applicable.
9.
Agency fees or commission received
The [REDACTED] will receive an underwriting commission, and the Sponsor will
receive a documentation fee, as referred to under the sub-section headed “Underwriting
— Commissions and expenses” in this document.
10.
Miscellaneous
(a)
Save as disclosed in this document, within the two years immediately
preceding the date in this document:
(i)
no share or loan capital of the Company or any of its subsidiaries has
been issued or agreed to be issued fully or partly paid either for cash or
for a consideration other than cash;
(ii)
no share or loan capital of the Company or any of its subsidiaries is
under option or is agreed conditionally or unconditionally to be put
under option;
(iii)
no commissions, discounts, brokerages or other special terms have been
granted or agreed to be granted in connection with the issue or sale of
any share or loan capital of the Company or any of its subsidiaries;
(iv)
no founders, management or deferred shares of the Company or any of
its subsidiaries have been issued or agreed to be issued; and
(v)
no commission has been paid or is payable for subscription, agreeing to
subscribe, procuring subscription or agreeing to procure subscription of
any share in the Company or any of its subsidiaries.
(b)
Save as disclosed in this document, since 31 December 2015, being the date of
the latest audited consolidated financial results as set out in “the Accountants’
Report set out in Appendix I” to this document, there has been no material
adverse change in the financial or trading position or prospects of the Group.
(c)
There has not been any interruption in the business of the Group which may
have or has had a significant effect on the financial position of the Group in
the 12 months preceding the date in this document.
– IV-28 –
APPENDIX IV
11.
(d)
Subject to the provisions of the Cayman Companies Law, the register of
members of the Company will be maintained in the Cayman Islands by
[REDACTED] and a branch register of members of the Company will be
maintained in Hong Kong by [REDACTED]. Unless the Directors otherwise
agree, all transfer and other documents of title of Shares must be lodged for
registration with and registered by the Hong Kong share registrar in Hong
Kong and may not be lodged in the Cayman Islands. All necessary
arrangements have been made to enable the Shares to be admitted into CCASS
for clearing and settlement.
(e)
No Company within the Group is presently listed on any stock exchange or
traded on any trading system.
(f)
There are no arrangements in existence under which future dividends are to
be or agreed to be waived.
(g)
The Directors have been advised that, the Chinese name of the Company has
been registered in the Cayman Islands as a dual foreign name in accordance
with the Cayman Companies Law.
Bilingual Document
The English language and Chinese language versions in this document are being
published separately in reliance upon the exemption provided by Section 4 of the
Companies Ordinance (Exemption of Companies and Prospectuses from Compliance with
Provisions) Notice (Chapter 32L of the Laws of Hong Kong).
– IV-29 –
APPENDIX V
DOCUMENTS DELIVERED TO THE REGISTRAR OF
COMPANIES AND AVAILABLE FOR INSPECTION
DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES
The documents attached to the copy in this document delivered to the Registrar of
Companies in Hong Kong for registration were the written consents referred to in the
paragraph headed “Appendix IV — E. Other Information — 7. Consents of Experts” in this
document, and copies of the material contracts referred to in the paragraph headed
“Appendix IV — B. Further Information About The Business — 1. Summary of Material
Contracts” in this document.
DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the offices of
Jun He Law Offices at Suite 3701-10, 37/F, Jardine House, 1 Connaught Place Central,
Hong Kong during normal business hours from 9:00 a.m. to 1:00 p.m. and 2:00 p.m. to 5:00
p.m. up to and including the date which is 14 days from the date in this document.
1.
the Memorandum of Association and Articles of Association of the Company;
2.
the Accountants’ Report prepared by RSM Hong Kong, the text of which is set
out in Appendix I to this document;
3.
the report prepared by RSM Hong Kong in respect of the unaudited pro forma
financial information, the text of which is set out in Appendix II to this
document;
4.
the audited consolidated financial statements of the companies comprising
the Group for the two years ended 31 December 2015 (or for the period since
their respective dates of incorporation where they are shorter);
5.
the PRC legal opinion issued by Jun He Law Offices, the PRC legal advisers, in
relation to the PRC law;
6.
the letter of advice prepared by Conyers Dill & Pearman, the Cayman Islands
legal advisers, summarising certain aspects of the Cayman Islands company
law as referred to in Appendix III to this document;
7.
the material contracts referred to in the paragraph headed “Appendix IV — B.
Further Information About The Business — 1. Summary of Material
Contracts” in this document;
8.
the written consents referred to in the paragraph headed “Appendix IV — E.
Other Information — 7. Consents of Experts” in this document;
9.
the rules of the Share Option Scheme;
– V-1 –
APPENDIX V
DOCUMENTS DELIVERED TO THE REGISTRAR OF
COMPANIES AND AVAILABLE FOR INSPECTION
10.
the service agreements and letters of appointment referred to in the paragraph
headed “Appendix IV — C. Further Information About The Directors and
Substantial Shareholders — 2. Directors’ Service Contracts and
Remuneration” in this document;
11.
the Cayman Companies Law.
– V-2 –

Fit Boxx Holdings Limited 偉博控股有限公司

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