TIDMLED
RNS Number : 8712A
LED International Holdings Ltd
30 December 2014
LED International Holdings Limited
("LED" or the "Company")
Final Results for the year ended 30 June 2014
The board of directors of LED is pleased to present the
Company's annual report and audited financial statements for the
year ended 30 June 2014 (the "Accounts").
The Accounts are currently being sent to shareholders and will
shortly be available for download from the Company's website,
www.led-intl.com, in accordance with AIM Rule 20.
**Ends**
For further information:
LED International Holdings Limited
Stephen Chan - Chief Executive Officer +852 2243 3100
Allenby Capital Limited
+44 (0) 20 3328
Nick Naylor / Alex Price 5656
Notes to Editors:
LED International Holdings Limited and its subsidiaries
specialize in the provision of EMC contracts under which the Group
installs energy saving products in its customers' premises,
including lighting and reactance filtering equipment supplied by
the Group, and the subsequent savings made by the customers in
their electricity charges are then shared between the Group and the
customers thereby enabling the Group to generate recurring revenue
rather than one-off sales revenue. Historically, the Group's
business has been the development, manufacture and sale of
low-powered light-emitting diode ("LED") display screens and
modules.
Under EMC contracts, the Group provides energy efficiency
solutions, including LED lighting, reactance filtering energy
saving and other energy efficiency solutions. Specifically, the
Group overhauls its customers' existing lighting and power
consumption systems (which are based on traditional lighting
technology and power generation equipment) with proprietary LED
lighting products, reactance filtering equipment and other
solutions provided by the Group. These energy efficiency products
are installed in customers' premises. The Group bears all the
upfront costs associated with the supply and installation of the
energy efficiency solutions and these costs are then recouped by
sharing in the monthly energy savings generated by the customers'
use of the energy efficiency solutions over the period of the
contracts. The Group receives revenue from customers on several
different payment terms including on a pre-payment, monthly or
quarterly basis.
For more information, please visit: http://www.led-intl.com
FINANCIAL HIGHLIGHTS
2014 2013
HK$'000 HK$'000
LED element products
Revenue 21,903 22,184
Gross profit 676 359
Gross profit margin 3.1% 1.6%
EMC contracts
Revenue 33 39
Gross profit 33 21
Gross profit margin 100% 53.8%
Loss before income tax (21,238) (19,205)
Income tax - -
Loss for the year (21,238) (19,205)
Other comprehensive income 264 (570)
Total comprehensive loss for
the year (20,974) (19,775)
Loss for the year attributable
to
Owners of the Company (13,733) (12,864)
Non-controlling interests (7,505) (6,341)
Loss for the year (21,238) (19,205)
Total comprehensive loss attributable
to
Owners of the Company (13,606) (13,544)
Non-controlling interests (7,368) (6,231)
Total comprehensive loss for
the year (20,974) (19,775)
Losses per share for loss
attributable to the owners (Restated)
of the Company
Basic and diluted (HK$ per
share) (2.73) (3.10)
======================================== ========= =============
CHAIRMAN'S STATEMENT
LED International Holdings Limited (AIM: LED) (the "Company")
and its subsidiaries (together the "Group") specialise in the
provision of energy management contract services ("EMC contracts")
or energy performance contracting services under which the Group
installs energy saving products in its customers' premises,
including lighting and reactance filtering equipment supplied by
the Group, and the subsequent savings made by customers in their
electricity charges are then shared between the Group and the
customers thereby enabling the Group to generate recurring revenue
rather than one-off sales revenue. Historically, the Group's
business has been the development, manufacture and sale of
low-powered light-emitting diode ("LED") display screens and
modules. Over the past years, the Group has transformed its
business to the provision of EMC contracts in the People's Republic
of China (the "PRC"). The Board of Directors (the "Board") is
pleased to report on the final results of the Group for the year
ended 30 June 2014.
INDEPENDENT AUDITOR'S DISCLAIMER OF OPINION
The shareholders should note that BDO Limited, our independent
auditor, has issued a disclaimer of opinion on the consolidated
financial statements for the year ended 30 June 2014. Further
details of the basis of the disclaimer of opinion and disclaimer of
opinion are contained on the Independent Auditor's Report on pages
27 to 33 of the Accounts.
Without further modifying their opinion, our independent auditor
also draws attention to note 38(b) to the Accounts, which describes
a contingency relating to the Company in relation to the fire at
the Harbour Grand Hotel, North Point, Hong Kong, further details of
which were announced on 23 April 2012. Further background on this
issue is contained in the Operating Review section below.
MARKET REVIEW
According to its 12(th) Five-Year Plan (the "Five-Year Plan"),
China plans to lower its energy consumption by 16 per cent. and cut
its carbon dioxide emission by 17 per cent. by 2015. Against the
background of the Chinese government's introduction of a series of
policies and regulations designed to promote, encourage and
regulate energy conservation within the PRC, the Chinese government
will continue to build its economic growth on energy sustainability
and ecological conservation. This signifies energy savings and
conservation, promising opportunities in the energy management
market and the Group aims to become one of the leading energy and
green management service providers in the PRC.
OPERATING REVIEW
During the financial year under review, the global economy
continued to struggle in an uphill battle against the lingering
effects of an unenthusiastic investment and consumption environment
following the economic recession over the last few years in Europe
and the USA. At the same time, China's economic growth was
gradually slowing as the structural transformation of the economy
continued during the financial year. This resulted in continued
difficult trading conditions for the Group and, domestically, our
operation was also burdened by rising inflation, appreciating
Renminbi ("RMB") and slowing economic growth for the first half of
the financial year, but the impacts of these factors were reversed
at the second half of the financial year, within the PRC. These
factors impacted on the Group's gross margin and resulted in an
operating loss for the financial year ended 30 June 2014.
Over the past few years, the Group has provided EMC services in
the PRC. The Group's EMC company ("EMCO") has been operated through
Shenzhen Green Pearl Energy Management Services Company Limited
("GPEMCO"), a company with a valid and effective EMCO registration
with the National Development and Reform Commission. Operating
through GPEMCO enables the Group to take advantage of certain
favorable policies and terms for the EMC industry within the PRC.
In previous periods, the Group secured a number of contracts to
support the Group's strategy and mark the commencement of the
successful implementation of its energy efficiency solutions under
the EMC business model. Post year-end on 5 December 2014, GPEMCO
was awarded a EMC contract by Tianjin Tian Gang United Special
Steels Company Limited, a subsidiary of Tianjin Iron & Steel
Group Company Limited, based in Tianjin, the PRC, for a contract
amount of RMB1,830,000 (approximately GBP189,095) over a six-year
period. Further contracts continue to be negotiated, details of
which will be announced as appropriate.
In response to the above, the Board is continuing to gradually
drive the Group to secure meaningful revenues from the growing
domestic PRC EMC market, as well as implementing measures to reduce
the Group's overhead expenditure and assessing the future of its
manufacturing operations. The Board remains convinced that the
Group's overall operations remain sound.
On 25 September 2013 the Company received a letter from an
adjudicator alleging that its principal and its principal's insured
have suffered substantial losses in the form of property damage,
consequential loss and public liability (the "Potential Claim")
from a fire at Harbour Grand Hotel (the "Hotel"), North Point, Hong
Kong, that may have started at the giant LED display screen
supplied by the Company, further details of which were announced on
23 April 2012. The Company's legal advisor has made repeated
requests to the adjudicator to disclose any reports compiled by the
Hotel and/or government investigator but, to date, the adjudicator
has failed to respond to these requests or communicated with the
Company. Further, to date, the Company has not received any
communications from the investigator in relation to this fire.
In the absence of any response from the adjudicator since late
2013, the Board considers that the Potential Claim is without legal
basis or merit and intends to defend any attempts by the
adjudicator to seek recourse for the fire from the Company. Further
updates will be made at the appropriate time.
FINANCIAL REVIEW
Revenue and loss attributable to shareholders of the Company for
the financial year ended 30 June 2014 amounted to HK$21,936,000
(approximately GBP1,729,000) (2013: HK$22,223,000) and
HK$13,733,000 (approximately GBP1,082,000) (2013: HK$12,864,000)
respectively. During the financial year ended 30 June 2014, the
Group recorded a slight decrease in operating revenue by HK$287,000
(approximately GBP23,000) over 2013. The decrease in operating
revenue was brought about mainly by the slowing growth in the
domestic market in the PRC. Furthermore, the Group generated a
gross profit in the amount of HK$709,000 (approximately GBP56,000)
for the financial year.
Operating revenue for the financial year ended 30 June 2014
generated from LED element products mainly supplied to major home
appliance manufacturers in the PRC, decreased by HK$281,000
(approximately GBP22,000) from the same period in 2013. The Group
strengthened its product quality controls and customer
relationships with existing major customers and attempted to
diversify these sources of revenue and customers during the
financial year. The Group's operating revenue from EMC contracts
decreased by HK$6,000 (approximately GBP500) over 2013.
An operating gross profit for LED element products of
approximately 3.1 per cent., excluding impairment losses for
inventories totaling HK$3,184,000 (approximately GBP251,000) (2013:
HK$1,363,000) contained under other operating expenses, was
attained during the financial year, 1.5 per cent. higher than 2013.
The operating gross margin of EMC contracts was approximately 100
per cent. (2013: 53.8 per cent.) for the year ended 30 June
2014.
During the financial year under review, the Group's major
operating expenses, comprising administrative expenses, other
operating expenses and finance costs, were
HK14,512,000(approximately GBP1,144,000),
HK$4,868,000(approximately GBP384,000) and
HK$3,595,000(approximately GBP283,000) respectively (2013:
HK$15,113,000, HK$2,512,000 and HK$2,099,000 respectively). Such
expenses mainly comprised (i) employee benefits expense in the sum
of HK$11,392,000(approximately GBP898,000) (2013: HK$6,793,000);
(ii) depreciation in the sum of HK$284,000 (approximately
GBP22,000) (2013: HK$1,285,000); (iii) operating lease rental in
the sum of HK$3,134,000(approximately GBP247,000) (2013:
HK$919,000); (iv) cost of defective inventories in the sum of
HK$1,796,000(approximately GBP142,000) (2013: HK$649,000) and (v)
impairment losses in the sum of HK$2,346,000(approximately
GBP185,000) (2013: HK$918,000).
The aggregate amount of approximately HK$8,713,000
(approximately GBP687,000) (2013: HK$7,815,000) relating to the
employee benefits expense, depreciation and operating lease rental
were included in cost of sales for the financial year.
The Group continued to strengthen its controls on continuing
operating expenditures during the financial year.
CAPITALISATION OF LIABILITIES
As announced on 31 March 2014 (the "March Announcement"), the
Company agreed to allot 3,536,606 ordinary shares in the Company
(the "Ordinary Shares") at a price per Ordinary Share of HK$2.50
(approximately 19.37 pence) in settlement and/or in reduction of
its liability in the outstanding loans, service fees and salaries
owed to various directors, employees and other creditors.
In the event, as further announced post-year end on 30 September
2014, the arrangements outlined in the March Announcement did not
take place since, as specified in the March Announcement, these
were conditional on the calling of an Extraordinary General Meeting
of the Company which was not subsequently called.
The Company has subsequently agreed revised arrangements in
settlement and/or in reduction of its certain liabilities in the
outstanding sums owed to various creditors and has resolved to
allot a total of 532,875 ordinary shares at a price per ordinary
share of HK$6.496 (approximately 51.00 pence) (the "Settlement").
An aggregate amount of HK$3,461,499 (approximately GBP274,940) is
treated as paid to the various creditors under the Settlement.
FINANCING
1. Provision and conversion of working capital loan and placing of new ordinary shares
As announced on 16 December 2013, the Company had entered into a
working capital loan in the sum of RMB6,000,000 (approximately
HK$7,720,000 or GBP600,000) provided by Rubyfield Holdings Limited
and Speedy Dragon Holdings Limited (collectively, the
"Subscribers") in equal tranches (the "Loan"). The Loan, which was
unsecured, was interest free and was repayable on demand. It was
also announced that it is the intention of the parties that the
Loan would be converted on the issue of any equity raised as part
of the fundraising process.
As further announced on 30 December 2013, the Company completed
a conditional placing of new ordinary shares with the Subscribers,
raising RMB31 million (approximately HK$39.89 million or GBP3.09
million) (including fees and expenses) (the "Placing"). The RMB31
million (approximately HK$39.89 million or GBP3.09 million) would
be satisfied as to the first RMB25 million (approximately HK$32.17
million or GBP2.50 million) by way of new funds and, as to the
balance, by the application of the current outstanding balance of
the Loan (currently RMB6.0 million, approximately HK$7,720,000 or
GBP600,000) (the "Conversion"). The net proceeds of the Placing
would be used by the Company for general working capital purposes
and to provide the necessary capital contribution to Green Pearl
Leasing (China) Company Limited ("GP Leasing Co"), the Company's
new lease finance company.
The Placing was conditional upon, inter alia, the: (i)
consolidation of every 100 existing authorised issued and unissued
ordinary shares of HK$0.10 each in the capital of the Company into
1 new ordinary share of HK$10.00 each in the capital of the Company
("New Ordinary Share") (the "Share Consolidation"); (ii) passing of
resolutions to give the Directors the authority to issue shares
pursuant to the Placing and Conversion free of any rights of
pre-emption at the 2013 Annual General Meeting of the Company,
which was held on 26 February 2014 (the "2013 AGM"); and (iii) the
Hong Kong Securities and Futures Commission ruling that The Codes
on Takeovers and Mergers and Share Repurchases did not apply to the
Company.
On 26 February 2014, the consolidation of every 100 existing
authorised issued and unissued ordinary shares of HK$0.10 each in
the capital of the Company into 1 new ordinary share of HK$10.00
each in the capital of the Company was approved at the 2013 AGM of
the Company. Pursuant to the Placing, the Subscribers were to
subscribe for 3,875,000 new ordinary shares (the "Placing Shares")
at a price of HK$10.29 (being approximately 79.96 pence) per
Placing Share (the "Placing Price"). The Conversion was also to
take place at the Placing Price.
As announced on 11 July 2014, the Company and the Subscribers
reached a supplementary agreement in relation to the placing of the
Placing Shares and the conversion of the Loan under the terms of
which payment of the Subscription Funds to the Company had been
made in full and final settlement of all of the Subscribers' legal
obligations under the Placing. The Placing Shares were issued at a
price of 75 pence per share representing a premium of 780 per cent.
to the closing mid-price on 10 July 2014 and the Company, via its
indirect subsidiary, Shenzhen Green Pearl Energy Management
Services Company Limited, received the subscription funds of
RMB25,000,000 (approximately HK$32.17 million or GBP2.35 million)
(the "Subscription Funds") from the Subscribers at that time. The
Company will utilise the proceeds of the Subscription Funds for
general working capital purposes.
2. Issue of convertible loan notes and placing of new ordinary shares
As announced on 31 March 2014, the Company entered into
agreements with Best Merchant Ventures Limited (the "Noteholder"),
Legend Giant Ventures Limited ("LGV"), Talent Plus Ventures Limited
("TPV") and Y&C International Holding Group Limited ("Y&C")
(collectively, the "Investors") for the issue of convertible loan
notes and the conditional placing of new ordinary shares, raising a
total sum of RMB100 million (approximately HK$128.68 million or
GBP9.68 million) (the "Transaction").
Pursuant to the terms of the Transaction, the Company's new
wholly-owned subsidiary, Osmar Limited ("Osmar") would issue
convertible loan notes to the Noteholder (the "Loan Notes"),
raising RMB95,000,000 (approximately HK$122.25 million or GBP9.20
million) (the "Osmar Loan"). The net proceeds of the Osmar Loan
would be used by the Company to provide the necessary capital
contribution to GP Leasing Co and also for general working capital
purposes. The Company would also carry out a restructuring exercise
whereby the beneficial interest in GP Leasing Co shall be
transferred to Osmar.
Pursuant to the terms of the Transaction, the Company had also
conditionally placed 2,500,000 shares with LGV, TPV and Y&C at
a placing price of RMB2 per share (approximately 19.37 pence)
raising RMB5,000,000 (approximately GBP484,000) (the "Subscription
Funds"). The Subscription Funds would be used to assist in
continued development of the Company's EMC business model and to
augment the Company's working capital position.
However, as further announced on 16 May 2014, the Company did
not receive any of the funds from the Noteholder and the Investors
in relation to the Transaction. Due to the non-receipt of the funds
from the Noteholder and the Investors, the Transaction did not, in
the event, proceed.
Post year-end on 22 December 2014, the Company disposed off its
entire interest in Osmar at net book value to a connected party, in
which a director, Mr. Stephen Chan has an interest.
3. Renewal of loan facility with Ping An Bank Company, Limited
As announced on 10 March 2014, Ping An Bank Company, Limited
granted a new loan facility of RMB2,800,000 (approximately
HK$3,600,000 or GBP280,000) (the "New Loan") to the Company's 60
per cent. owned subsidiary, Kepu Electronic Technology (Shenzhen)
Company, Limited ("Kepu"). The New Loan was granted on mostly
identical terms to the original loan granted on 15 January 2013
(the "Original Loan"), and has been used to augment Kepu's working
capital position and facilitate its organic growth plans. The
Original Loan was repaid in full by Kepu in accordance with its
terms.
The New Loan expires twelve months from drawdown and attracts
interest at a 40 per cent. increase to the prevailing lending rate
per annum determined by the People's Bank of China (currently 6 per
cent. per annum) which is currently 8.4 per cent. per annum. Kepu
is required to repay the New Loan by monthly instalments of
RMB80,000 (approximately HK$102,000 or GBP8,000) commencing one
month from drawdown with the remaining balance (plus accrued
interest) payable at the end of the New Loan facility. The New Loan
is secured by a first charge over Rooms 1013-15, Shen Hua
Commercial Building, 2018 Jia Bin Road, Luo Wu, Shenzhen, the PRC,
a property owned by a third party, together with personal
guarantees given by Mr. Fu Wei, the general manager and legal
representative of Kepu, and his wife, Ms. Huang Yu Feng.
BOARD CHANGES
On 15 November 2013, Mr. Harby Janagol resigned as a
Non-Executive Director with immediate effect.
Post year-end on 30 August 2014, Mr. Kevin Miu resigned as a
Non-Executive Director with effect from 30 November 2014.
DIVIDENDS
The Directors do not recommend the payment of any dividend for
the year and the Board is committed to an ongoing review of the
Company's dividend policy.
CURRENT OUTLOOK AND PROSPECTS
EMC business
The Group is focused on the domestic PRC economy and adopts a
conservative but proactive approach towards entering into the
growing EMC market under the brand name "Green Pearl". In order to
focus primarily on its EMC business model, the Company disposed its
remaining effective equity interest (60 per cent.) in LED
International (Far East) Limited, the immediate holding company of
Kepu and the Group's different business model of development,
manufacture and sale of LED element products,to Mr. Fu Wei post
year-end on 17 December 2014.
Notwithstanding the recent slowdown in China's GDP growth, the
Board believes that the Chinese government will implement fiscal
and monetary policies to stimulate steady economic growth in the
PRC.
The energy saving and environmental protection industry ranks
top among the seven strategic emerging industries outlined in the
Five-Year Plan. Following the gradual import and sale of
incandescent lamps complemented by fiscal subsidies, this presents
a tremendous market opportunity for green lighting. In view of
rising national power consumption, the Board believes that measures
that the Chinese government has taken to reduce energy consumption
and carbon emissions will lead to increasing opportunities for
energy saving and carbon reduction products, services and solutions
within the PRC.
In addition to the supply of LED lighting and reactance
filtering equipment to the domestic PRC market, the Group has also
been considering the introduction of other carbon reduction
solutions to offer a total carbon reduction solution to the PRC.
Post-year end on 22 December 2014, the Company entered into a
conditional agreement subject to shareholder approval to acquire a
distribution network in the PRC. The Board envisages that the
acquisition will enable the Group to take advantage of the
operating cash flows, market its "Green Pearl" green products and
give the Group immediate access to this distribution network
through which the Group will be able to promote its EMC business in
the PRC.
The Group is exploring the possible export of its energy saving
and carbon reduction products, services and solutions, mainly solar
lighting products and solutions, to the emerging markets in the
Atlantic and Pacific regions, where potential demand for solar
related products and services is prominent.
The Board remains cautiously optimistic and confident in the
Group's business, market and products as well as its long-term
growth potential in the PRC. Furthermore, the Board considers that
the overall operations of the Group remain sound and that the
transformation of the Group into an energy management service
provider in the PRC is the correct strategy.
Green Pearl Leasing (China) Company Limited
As announced previously the Shanghai Municipal Commission of
Commerce granted the Group a highly sought after leasing finance
license to enable the Company to provide lease financing to
customers. The Company formed a new wholly owned direct subsidiary,
Green Pearl Leasing (China) Company Limited ("GP Leasing Co"), in
order to carry on this business.
GP Leasing Co was formed as the Board believes that the Group's
EMC business model will be financed substantially by debt capital
finance, mainly bank finance for the Group or equipment leasing
finance for its customers. The Board believes that equipment
leasing finance will become one of the major sources of finance for
EMC contracts in the foreseeable future.
As announced on 5 December 2014, the Company made the required
capital contribution to GP Leasing Co in an amount of USD2,691,900
(approximately RMB16,535,000, HK$20,996,000 or GBP1,700,000) (the
"Contribution"). An independent certified public accounting firm in
China confirmed that the Company had made the Contribution as
required.
In order to focus on its EMC business model, the Company has
been considering forming joint ventures in order to develop this
aspect of the business further and identify how the Company can
leverage knowledge, experience and contacts.
APPRECIATION
Finally, on behalf of the Board, I would like to thank all of
our management team and staff members for their valuable
contribution and dedication to the Group. I would also like to
thank Mr. Miu for his invaluable contribution to the Group during
his tenure. I also express my gratitude to our customers, suppliers
and government authorities for their continuous support.
Stephen Weatherseed
Non-Executive Director and Chairman
Hong Kong, 29 December 2014
INDEPENDENT AUDITOR'S REPORT
TO THE SHAREHOLDERS OF LED INTERNATIONAL HOLDINGS LIMITED
(incorporated in Hong Kong with limited liability)
Report on the financial statements
We were engaged to audit the consolidated financial statements
of LED International Holdings Limited (the "Company") and its
subsidiaries (together the "Group") set out on pages 34 to 96 of
the Accounts, which comprise the consolidated and the company
statements of financial position as at 30 June 2014, and the
consolidated statement of comprehensive income, the consolidated
statement of changes in equity and the consolidated statement of
cash flows for the year then ended, and a summary of significant
accounting policies and other explanatory information.
Directors' responsibility for the consolidated financial
statements
The directors are responsible for the preparation of
consolidated financial statements that give a true and fair view in
accordance with International Financial Reporting Standards and the
Hong Kong Companies Ordinance, Cap.32 by operation of the
transitional and saving provisions in Schedule 11 to the Hong Kong
Companies Ordinance, Cap.622, and for such internal control as the
directors determine is necessary to enable the preparation of
financial statements that are free from material misstatement,
whether due to fraud or error.
Auditor's responsibility
Our responsibility is to express an opinion on the Accounts
based on our audit. This report is made solely to you, as a body,
in accordance with Section 141 of the Hong Kong Companies
Ordinance, Cap.32 by operation of the transitional and saving
provisions set out in section 80 of Schedule 11 to the Hong Kong
Companies Ordinance, Cap.622, and for no other purpose. We do not
assume responsibility towards or accept liability to any other
person for the contents of this report.
Except for the inability to obtain sufficient appropriate audit
evidence as explained below, we conducted our audit in accordance
with International Standards on Auditing. Those standards require
that we comply with ethical requirements and plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free from material misstatement. Because of the
matters described in the Basis for Disclaimer of Opinion
paragraphs, however, we were not able to obtain sufficient
appropriate audit evidence to provide a basis for an audit
opinion.
Basis for Disclaimer of Opinion
1. Disposal of subsidiaries, Yanford Limited and Shenzhen
Strongbase New Opto-Electronics Technology Company Limited
("Strongbase New") (together referred to as "Yanford Group")
On 14 November 2011, the Group completed the acquisition of the
entire equity interests in Strongbase New. On 21 March 2013, the
Group completed the disposal of the entire equity interests in
Yanford Limited and its subsidiary, Strongbase New (the "Yanford
Group") with certain energy management business ("EMC business")
related assets and liabilities being retained by the Group ("EMC
Assets and Liabilities"), as set out in note 34(b) to the
Accounts.
Included in the Company's consolidated statement of
comprehensive income for the year ended 30 June 2013 was Yanford
Group's loss for the year up to the date of disposal of
approximately HK$1,449,000, represented by revenue of approximately
HK$39,000, cost of sales of approximately HK$18,000, other income
of approximately HK$282,000, distribution of costs of approximately
HK$113,000, administrative expenses of approximately HK$1,339,000
and other operating expenses of approximately HK$300,000 ("Disposal
Group Results"). As at 30 June 2013 and 2014, the EMC Assets and
Liabilities included in the consolidated statement of financial
position of the Group are property, plant and equipment of
approximately HK$39,000, inventories of approximately HK$2,468,000,
trade and other receivables of approximately HK$3,967,000, cash and
bank balances of approximately HK$15,000 and trade and other
payables of approximately HK$5,306 ("EMC Balances"). There was no
movement in the EMC Balances per the Group's accounting records
during the year ended 30 June 2014.
As Yanford Group was disposed of last year, in the course of our
audit of the financial statements for the year ended 30 June 2013,
the Group's management had no access to the accounting records
subsequent to the disposal and the Group's management was unable to
allow us access to the books and records of the Yanford Group
without the consent and cooperation from the new owner of Yanford
Group, which the new owner of Yanford Group had no obligation to
provide and in fact did not provide. These accounting records
included those relating to the EMC Assets and Liabilities. As such
the Group's management had not been able to provide us with all the
underlying supporting information and documentary evidence which we
considered necessary for our audit purpose in relation to the items
making up the assets and liabilities of the Yanford Group at the
date of disposal, the Disposal Group Results and the EMC Balances
as at 30 June 2013.
(a) Disposal Group Results and distribution to a shareholder on disposal of Yanford Group
As disclosed in note 34(b) to the Accounts, the disposal of the
Yanford Group was to a shareholder of the Company. The difference
between the disposal consideration and the carrying amount of
Yanford Group's net assets at the date of disposal of approximately
HK$5,063,000 was regarded as a distribution to a shareholder and
included in the consolidated statement of change in equity of the
Group for the year ended 30 June 2013 accordingly.
As explained in the paragraphs above, the Group's management had
no access to the accounting records subsequent to the disposal. As
such the Group's management had not been able to provide us with
all the underlying supporting information and documentary evidence
which we considered necessary for our audit purpose in relation to
the disposal of the Yanford Group up to the date of disposal.
Accordingly, we are unable to satisfy ourselves as to whether the
Disposal Group Results and the amount of distribution to a
shareholder on disposal of Yanford Group has been arrived at
properly. Together with other matters we disclaimed our opinion on
the Company's consolidated financial statements for the year ended
30 June 2013. Such limitations remained unresolved in our audit of
the Company's consolidated financial statements for the year ended
30 June 2014.
(b) EMC Assetsand Liabilities and profit or loss
As mentioned above, notwithstanding the disposal of the Yanford
Group on 21 March 2013, the Group retained EMC Assets and
Liabilities. Due to the limitations on our scope of audit of the
financial statements for the year ended 30 June 2013, together with
other matters we disclaimed our opinion on the consolidated
financial statements.
These limitations were unresolved in the current year. In
addition, the Group's management was unable to provide us with
information and evidence relating to the EMC Balances as at 30 June
2014 and the EMC activities during the financial year then ended as
we considered necessary for the purpose of our audit of the
consolidated financial statements. There were no other satisfactory
audit procedures that we could adopt in order to satisfy ourselves
as to the EMC Balances as at 30 June 2014 and the performance of
EMC business for the year then ended. Any adjustment considered
necessary to the EMC Balances as at 30 June 2014 and to the
performance of EMC business for the year then ended would have a
consequential effect on the Group's consolidated statement of
financial position as at 30 June 2014 and its results for the year
then ended.
2. Deconsolidation of a subsidiary
As explained in note 3(c) to the Accounts, the directors of the
Company considered that the Group's control over Shenzhen China-LED
Photo-Technology Limited ("Shenzhen LED") had been lost and
therefore, the Company had deconsolidated Shenzhen LED as from 17
April 2010, prior to our appointment as auditor. Same as last year,
during the course of our audit, we were unable to obtain
satisfactory documentary evidence from the Group's management
regarding the loss of control. The Group's management represented
to us that they no longer had possession of the accounting and
other records of Shenzhen LED and had lost contact with the then
management of Shenzhen LED which might have provided the necessary
alternative evidence. Other than the representation, the Group's
management have not provided to us other evidence regarding their
loss of control. There were no other satisfactory audit procedures
that we could adopt to satisfy ourselves that the control of
Shenzhen LED has been lost and therefore, with regard to the
deconsolidation of Shenzhen LED, we were unable to determine
whether any adjustment might be necessary to consolidate Shenzhen
LED as part of the Group as if no deconsolidation had happened
before. Together with other matters, we disclaimed our opinion on
the Company's consolidated financial statements for the financial
year ended 30 June 2013. Any adjustment considered necessary to the
consolidation of Shenzhen LED would have a consequential effect on
the Group's consolidated statement of financial position as at 30
June 2014, its loss and total comprehensive income for the year
ended 30 June 2014, and the elements making up the consolidated
statement of changes in equity and consolidated statement of cash
flows.
In addition, due to the limitation as explained above, we have
been unable to carry out any audit procedures to satisfy ourselves
as to the existence and correctness of the amounts of contingent
liabilities attributable to Shenzhen LED as set out in note 38(a)
to the Accounts.
3. Trade receivables, inventories and sales of a subsidiary,
Kepu Electronic Technology (Shenzhen) Company Limited ("Kepu")
Included in the consolidated statement of financial position of
the Group as at 30 June 2013 and 30 June 2014 are trade receivables
of Kepu, a subsidiary of the Company, of approximately HK$4,939,000
and approximately HK$4,750,000 respectively due from its major
customers whereas included in the consolidated statement of
comprehensive income for the year ended 30 June 2013 and 30 June
2014 are sales of Kepu to these major customers of approximately
HK$16,845,000 and approximately HK$19,471,000 respectively. These
balances and amounts were mainly attributable to Kepu's sales to
the major customers in the PRC on a consignment basis. In relation
to the consignment sales, no consignment stock was included in the
inventories of HK$6,663,000 and HK$6,338,000 in the consolidated
statement of financial position of the Group as at 30 June 2013 and
30 June 2014. In the course of our audit of the financial
statements for the year ended 30 June 2013, we noted that the local
management of Kepu had not maintained satisfactory accounting
records on these consignment sales and stocks. Together with other
matters, we disclaimed our opinion on the Company's consolidated
financial statements for the year ended 30 June 2013. These
limitations were unresolved in current year and we faced with the
same limitations in our audit of the Company's consolidated
financial statements for the year ended 30 June 2014. There were no
other satisfactory audit procedures that we could adopt in order to
satisfy ourselves as to the existence and accuracy of such trade
receivables, the completeness of such inventories and the existence
of such sales. Any adjustments which might have been found
necessary in respect of these items would have a consequential
effect on the Group's consolidated statement of financial position
as at 30 June 2014, its loss and total comprehensive income for the
year then ended 30 June 2014 and the elements making up the
consolidated statement of cash flows.
4. Convertible loan notes issued to a director of the Company
As explained in note 27 to the Accounts, included in non-current
liabilities in the consolidated statement of financial position as
at 30 June 2014 are convertible loan notes of approximately
HK$10,000,000 (US$1,282,000) issued to the then director of the
Company (the "Convertible Loan Notes") on 27 March 2014. The
Convertible Loan Notes were issued to the then director of the
Company to settle an original loan due from the Company to him (the
"Original Loan"). On initial recognition, the Convertible Loan
Notes as a whole should be measured at fair value. Any difference
between the fair value of the Convertible Loan Notes and the
carrying amount of the Original Loan extinguished should be
recognized as a gain or loss on settlement in the consolidated
income statement.
In accordance with International Accounting Standard 32
"Financial Instruments: Presentation" and International Accounting
Standard 39 "Financial Instruments: Recognition and Measurement",
the Convertible Loan Notes were made up of financial liability,
equity and derivative components. On initial recognition the fair
value of the liability component and the fair value of the
derivative (if not closely related to the liability component)
shall be measured first. The equity component shall be assigned the
residual amount after deducting from the fair value of the
Convertible Loan Notes as a whole the amount determined for the
liability component and derivative, if any. Subsequently, the
financial liability component shall be carried at amortised cost
using the effective interest method while the derivative (if not
closely related to the liability component) shall be stated at fair
value and the equity component shall remain in equity until
conversion or redemption with no subsequent remeasurement.
The initial fair value of the Convertible Loan Notes was
determined by the Company's management at HK$10,000,000 which was
approximately the principal amount of the Convertible Loan Notes
and equaled the carrying amount of the Original Loan. As a result,
there was no gain or loss on settlement of the Original Loan. On
initial recognition of the Convertible Loan Notes, no fair value
was allocated to the equity component and no derivative was
separately stated. As at 30 June 2014, the Convertible Loan Notes
was also stated at HK$10,000,000. For the year ended 30 June 2014,
interest charge of approximately HK$237,000 was recognized in the
consolidated income statement with the corresponding credit
recognized in the account "Amount due to a director".
During the course of our audit, the Company has not provided us
with information about the valuation of the Convertible Loan Notes
as a whole on initial recognition, the determination of components
included in the Convertible Loan Notes and the components'
respective fair value on initial recognition. As such, we are
unable to satisfy ourselves as to the initial fair value of the
Convertible Loan Notes as a whole and the initial fair value to be
allocated to the liability component, the equity component and the
derivative component, if any to be separately stated. As a result,
we are unable to satisfy ourselves whether the carrying amount of
the Convertible Loan Notes was fairly stated as at 30 June 2014,
whether there should be equity and derivative components and their
carrying amounts as at 30 June 2014, whether the interest on the
Convertible Loan Notes calculated using the effective interest
method of approximately HK$237,000 recognised in the consolidated
income statement for the year ended 30 June 2014 was fairly stated,
and whether any gain or loss on settlement of the Original Loan
should be recognized in the consolidated income statement for the
year ended 30 June 2014.
There were no satisfactory alternative audit procedures that we
could adopt to satisfy ourselves as to the above matters. Any
adjustments which might have been found necessary would have a
consequential effect on the Group's financial position as at 30
June 2014 and its performance for the year then ended.
5. Going Concern
The Group incurred a loss before income tax of approximately
HK$21,238,000 for the year ended 30 June 2014 and, as of that date,
the Group had net current liabilities and net liabilities of
approximately HK$55,520,000 and HK$61,338,000 respectively. These
conditions indicate the existence of material uncertainty which may
cast significant doubt on the Group's ability to continue as a
going concern, with a potential consequence that the Group may be
unable to realise its assets and discharge its liabilities in the
normal course of business.
As explained in note 3(b) to the Accounts, the management have
taken certain measures ("Measures") including to secure further
contracts, which the management have assessed to be profitable,
negotiate with certain directors to obtain their undertakings not
to demand repayments of amounts due to them until there are funds
available for repayment, secure new funding from existing
shareholders and/or new investors, and negotiate with its banker to
renew bank facilities of the Group. The directors of the Company
are of the opinion that the Measures will be successfully executed
after 30 June 2014.
These financial statements have been prepared on a going concern
basis, the validity of which depends upon the successful execution
of the Measures so that the Group will have sufficient working
capital to finance its operations and/or settle or arrange its
financial obligations. However, the Company's directors have not
provided us with a cash flow forecast in sufficient detail to
satisfy ourselves that the Group has sufficient resources to
satisfy the demand for repayment of liabilities. Due to this
limitation on our scope of work, we are unable to obtain sufficient
appropriate audit evidence to assess whether the Group has the
ability to settle liabilities that are due for repayment, and
therefore whether it is appropriate to use going concern basis in
preparing the consolidated financial statements. There were no
other satisfactory audit procedures that we could adopt in this
regard.
Should the use of the going concern basis in preparing the
consolidated financial statements be determined to be
inappropriate, adjustments might have to be made to reduce the
value of assets to their recoverable amounts, to provide for any
further liabilities which might arise and to reclassify non-current
assets and liabilities as current assets and liabilities.
Disclaimer of Opinion
Because of the significance of the matters described in the
Basis for Disclaimer of Opinion paragraphs, we have not been able
to obtain sufficient appropriate audit evidence to provide a basis
for an audit opinion and, accordingly, we do not express an opinion
on the consolidated financial statements of the Company, and
whether the financial statements have been properly prepared in
accordance with the Hong Kong Companies Ordinance, Cap.32.
Emphasis of matter
Without further modifying our opinion, we draw your attention to
note 38(b) to the Accounts, which describes a contingency relating
to the Company.
REPORT ON MATTER UNDER THE HONG KONG COMPANIES ORDINANCE,
CAP.32
In accordance with Section 141(4) and 141(6) of the Hong Kong
Companies Ordinance, Cap.32 by operation of the transitional and
saving provisions set out in section 80(1) of Schedule 11 to the
Hong Kong Companies Ordinance, Cap. 622, we report that in respect
alone of the inability to obtain sufficient appropriate audit
evidence about the matters described in the Basis for Disclaimer of
Opinion paragraphs above:
- We have not obtained all the information and explanations that
we considered necessary for the purpose of our audit; and
- We were unable to determine whether proper books of account had been kept.
BDO Limited
Certified Public Accountants
Chiu Wing Cheung Ringo
Practising Certificate
Number P04434
Hong Kong, 29 December 2014
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 30 JUNE 2014
Notes 2014 2013
HK$'000 HK$'000
Revenue 21,936 22,223
Cost of sales (21,227) (21,843)
--------- -----------
Gross profit 709 380
Other income 1,596 3,100
Distribution costs (568) (498)
Administrative expenses (14,512) (15,113)
Other operating expenses (4,868) (2,512)
Loss on disposal of subsidiaries - (2,463)
Finance costs (3,595) (2,099)
Loss before income tax (21,238) (19,205)
Income tax - -
--------- -----------
Loss for the year (21,238) (19,205)
Other comprehensive income
Items that may by reclassified
subsequently to profit or loss:
* Exchange gains/(losses) on translating foreign
presentations 264 (640)
* Exchange gains reclassified on disposal of
subsidiaries - 70
--------- -----------
Other comprehensive income for
the year, including reclassification
adjustments 264 (570)
--------- -----------
Total comprehensive income for
the year (20,974) (19,775)
========= ===========
Loss for the year attributable
to
Owners of the Company (13,733) (12,864)
Non-controlling interests (7,505) (6,341)
--------- -----------
(21,238) (19,205)
========= ===========
Total comprehensive income attributable
to:
Owners of the Company (13,606) (13,544)
Non-controlling interests (7,368) (6,231)
--------- -----------
(20,974) (19,775)
========= ===========
Losses per share for loss attributable (Restated)
to the owners of the Company
Basic and diluted (HK$ per share) 3 (2.73) (3.10)
========= ===========
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2014
Notes 2014 2013
HK$'000 HK$'000
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment 2,057 182
Goodwill - -
Deposit paid for acquisition
of a subsidiary 2,125 2,125
4,182 2,307
Current assets
Inventories 6,338 6,663
Trade and other receivables 13,272 14,585
Amount due from a former director 3,329 3,497
Amount due from a related company 3,333 -
Pledged bank deposit 10,024 10,110
Cash and bank balances 154 1,403
---------- ---------
36,450 36,258
Current liabilities
Trade and other payables 58,381 49,219
Borrowings 20,535 18,006
Amount due to a director 3,811 1,655
Amounts due to non-controlling
interests 568 550
Amounts due to related companies 3,127 1,310
Loan from a director 4 - 10,160
Loan from a former director 4 3,979 600
Current tax liabilities 1,569 1,653
91,970 83,153
Net current liabilities (55,520) (46,895)
---------- ---------
Non-current liabilities
Loan from a former director 4 - 3,379
Convertible loan notes 10,000 -
---------- ---------
Net liabilities (61,338) (47,967)
========== =========
EQUITY
Share capital 166,846 50,329
Reserves (204,507) (81,987)
Equity attributable to owners
of the Company (37,661) (31,658)
Non-controlling interests (23,677) (16,309)
Capital deficiency (61,338) (47,967)
========== =========
STATEMENT OF FINANCIAL POSITION
AS AT 30 JUNE 2014
Notes 2014 2013
HK$'000 HK$'000
ASSETS AND LIABILITIES
Non-current assets
Property, plant and equipment - -
Investments in subsidiaries 80 41
80 41
Current assets
Trade and other receivables 359 712
Amounts due from subsidiaries 229 -
Amount due from a former director 3,329 3,497
Amount due from a related 3,333 -
company
Pledged bank deposit 10,024 10,110
Cash and bank balances 91 66
---------- ---------
17,365 14,385
Current liabilities
Trade and other payables 15,807 15,829
Borrowings 9,964 10,021
Amounts due to subsidiaries 24,731 24,693
Amount due to a director 463 185
Amounts due to related companies 1,678 477
Loan from a former director 4 3,979 600
56,622 51,805
Net current liabilities (39,257) (37,420)
---------- ---------
Non-current liability
Loan from a former director 4 - 3,379
---------- ---------
Net liabilities (39,177) (40,758)
========== =========
EQUITY
Share capital 166,846 50,329
Reserves (206,023) (91,087)
Capital deficiency (39,177) (40,758)
========== =========
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 30 JUNE 2014
Attributable to shareholders of the Company
Shares PRC
Share Share to be Capital Exchange statutory Accumulated Total Non-controlling Total
capital premium issued reserve reserve reserve losses reserve interests equity
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
At 1 July
2012 36,624 121,941 826 644 1,592 617 (185,601) (59,981) (11,265) (34,622)
Loss for
the year - - - - - - (12,864) (12,864) (6,341) (19,205)
Other
comprehensive
income:
Exchange
losses on
translating
foreign
operations - - - - (722) - - (722) 82 (640)
Exchange
gains
reclassified
on disposal
of
subsidiaries - - - - 42 - - 42 28 70
------- --------- ------- ------- -------- --------- ----------- --------- --------------- --------
Total
comprehensive
income for
the year - - - - (680) - (12,864) (13,544) (6,231) (19,775)
Share issued
to extinguish
financial
liabilities 6,156 - - - - - - - - 6,156
Shares issued
to
acquisition
of a
subsidiary 7,549 - - (5,424) - - - (5,424) - 2,125
Disposal
of
subsidiaries - - - - - - (3,038) (3,038) 1,187 (1,851)
Transaction
with owners 13,705 - - (5,424) - - (3,038) (8,462) 1,187 6,430
Share options
expired - - - (296) - - 296 - - -
At 30 June
2013 and
1 July 2013 50,329 121,941 826 (5,076) 912 617 (201,207) (81,987) (16,309) (47,967)
Loss for
the year - - - - - - (13,733) (13,733) (7,505) (21,238)
Other
comprehensive
income:
Exchange
gains on
translating
foreign
operations - - - - 127 - - 127 137 264
Total
comprehensive
income for
the year - - - - 127 - (13,733) (13,606) (7,368) (20,974)
Transition
to no-par
value regime
on 3 March
2014 116,517 (121,941) - 5,424 - - - (116,517) - -
Shares to
be issued
by the way
of placing - - 7,603 - - - - 7,603 - 7,603
Transaction
with owners 116,517 (121,941) 7,603 5,424 - - - (108,914) - 7,603
At 30 June
2014 166,846 - 8,429 348 1,039 617 (214,940) (204,507) (23,677) (61,338)
======= ========= ======= ======= ======== ========= =========== ========= =============== ========
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED 30 JUNE 2014
Notes 2014 2013
HK$'000 HK$'000
Cash flows from operating activities
Loss before income tax (21,238) (19,205)
Adjustments for:
Interest income (33) (34)
Interest expense 3,595 2,099
Realised gain on derivative financial
instrument - (157)
Depreciation of property, plant and
equipment 284 1,285
Provision for impairment of trade
and other receivables 958 204
Provision for impairment of obsolete
inventory 1,388 714
Write back of long outstanding payables
and reversal of overprovision (827) (1,576)
Loss on disposal of subsidiaries - 2,463
-------- --------
Operating loss before working capital
changes (15,873) (14,207)
(Increase)/Decrease in inventories (1,064) 143
Decrease/(Increase) in trade and
other receivables 355 (5,647)
Increase in trade and other payables 9,905 6,955
Increase in amounts due to non-controlling
interests 18 61
Net cash used in operating activities (6,659) (12,695)
Cash flows from investing activities
Payments for purchase of property,
plant and equipment (2,165) (224)
Proceeds from gain on derivative
financial instruments - 157
Increase in amount due from a former
director - (1,145)
Net cash outflow arising from disposal
of subsidiaries - (385)
Decrease/(Increase) in pledged bank
deposit 86 (33)
Interest received 33 34
-------- --------
Net cash used in investing activities (2,046) (1,596)
-------- --------
Cash flows from financing activities
Increase in amount due to a director 1,094 5,569
(Decrease)/Increase in amounts due
to related companies (1,516) 833
Net proceeds from shares to be issued
for the Placing 7,603 -
Proceeds from borrowings 8,554 17,056
Repayments of borrowings (6,267) (15,220)
Interest paid (2,526) (1,251)
Net cash generated from financing
activities 6,942 6,987
-------- --------
Net decrease in cash and cash equivalents (1,763) (7,304)
Cash and cash equivalents at beginning
of the year (8,618) (956)
Effect of foreign exchange rate changes 271 (358)
-------- --------
Cash and cash equivalents at end
of the year (10,110) (8,618)
======== ========
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
30 JUNE 2014
1. BASIS OF PREPARATION
(a) Statement of compliance
These consolidated financial statements have been prepared in
accordance with all applicable IFRSs, which collective term
includes all applicable individual International Financial
Reporting Standards, International Accounting Standards, ("IAS")
and Interpretations issued by the International Accounting
Standards Board and the Hong Kong Companies Ordinance, which
concern the preparation of financial statements, which for this
financial year and the comparative period continue to be those of
the Hong Kong Companies Ordinance, Cap.32 in accordance with the
transitional and saving arrangements for Part 9 of the Hong Kong
Companies Ordinance, Cap.622 "Accounts and Audit" which are set out
in sections 76 to 87 of Schedule 11 to that Ordinance. The
consolidated financial statements also comply with IFRS as issued
by the IASB as adopted by the European Union. The differences
between IFRS as adopted by the European Union and IFRS as issued by
the IASB have not had a material impact on the consolidated
financial statements for the years presented.
(b) Basis of measurement
The financial statements have been prepared under the historical
cost convention. The measurement bases are fully described in the
accounting policies below.
The Group incurred a loss of approximately HK$21,238,000 for the
year ended 30 June 2014 and, as of that date, the Group had net
current liabilities and net liabilities of approximately
HK$55,520,000 and HK$61,338,000 respectively. These conditions
indicate the existence of material uncertainty which may cast
significant doubt on the Group's ability to continue as a going
concern, with a potential consequence that the Group may be unable
to realise its assets and discharge its liabilities in the normal
course of business.
The management have taken certain measures ("Measures")
including to secure further contracts, which the management have
assessed to be profitable, negotiate with certain directors to
obtain their undertakings not to demand repayments of amounts due
to them until there are funds available for repayment, secure new
funding from existing shareholders and/or new investors, and
negotiate with its banker to renew bank facilities of the Group.
Details of some of these Measures subsequent to 30 June 2014 are
disclosed in note 40 to the Accounts. In the opinion of the
directors, based on the successful execution of the Measures, the
Group will have sufficient cash resources to satisfy its working
capital and other financing requirements for the foreseeable
future. Accordingly, the directors are of the opinion that it is
appropriate to prepare the consolidated financial statements on a
going concern basis.
These financial statements have been prepared on a going concern
basis, the validity of which depends upon the ongoing financial
support from the Company's substantial shareholder and successful
execution of the Group's business plan, attainment of profitable
operations and securing of new financing. These include successful
securing of further EMC contracts which the management have
assessed to be profitable, obtaining of undertakings from certain
directors and a former director not to demand repayments of amounts
due to them until there are funds available for the repayments and
the renewal of bank facilities after the reporting date.
Should the use of the going concern basis in preparing the
consolidated financial statements be determined to be
inappropriate, adjustments might have to be made to reduce the
value of assets to their recoverable amounts, to provide for any
further liabilities which might arise and to reclassify non-current
assets and liabilities as current assets and liabilities.
(c) Deconsolidation of a subsidiary, Shenzhen China-LED
Photo-Technology Limited ("Shenzhen LED")
The Group entered into a preliminary sale and purchase agreement
dated 11 February 2009 to dispose of its entire interest in a
wholly-owned subsidiary, Shenzhen LED. The assets and liabilities
of Shenzhen LED had been reclassified as held for sale as at 30
June 2009 and the results of Shenzhen LED were previously presented
under discontinued operations in the consolidated financial
statements for the year ended 30 June 2009. However, the disposal
of Shenzhen LED did not proceed. The sale and purchase agreement
dated 11 February 2009 was effectively terminated on 17 April
2010.
Notwithstanding that the Group owned the entire equity interests
in Shenzhen LED, Shenzhen LED was no longer regarded as a
subsidiary of the Group as the directors of the Company are of the
opinion that the control of Shenzhen LED had been lost in the prior
year.
The directors of Company considered that Shenzhen LED is not
under the control of the Company given (i) the Company was unable
to obtain any books and records from Shenzhen LED; (ii) the Company
had not been provided with any up-to-date financial reports of
Shenzhen LED and thus had no information as to the current
financial situation of Shenzhen LED and (iii) the current
management of the Group had lost contact with the then management
of Shenzhen LED. As a result, the Company expressed a lack of
confidence in its ability to properly control and manage Shenzhen
LED. In light of this situation, the directors of the Company
resolved to deconsolidate Shenzhen LED from the effective date of
17 April 2010.
(d) Use of estimation and judgements
It should be noted that accounting estimates and assumptions are
used in preparation of these financial statements. Although these
estimates and assumptions are based on management's best knowledge
and judgement of current events and actions, actual results may
ultimately differ from those estimates and assumptions. The areas
involving a higher degree of judgement or complexity, or areas
where assumptions and estimates are significant to the consolidated
financial statements, are disclosed in note 5 to the Accounts.
2. SEGMENT INFORMATION
Operating segments are identified on the basis of internal
reports about components of the Group that are regularly reviewed
by the chief operating decision maker in order to allocate
resources to the segment and to assess their performance.
Segment information reported was analysed on the basis of the
types of products sold by the Group's operating division (i.e. LED
element products and energy management contracts services). The
Group's reportable segments are as follows:
Operations:
- LED element products
- Energy management contracts services
Segment revenues and results
The following is an analysis of the Group's revenue and results
from operations by reportable segment.
LED element EMC contracts Total
products
-------------------- ------------------ ---------------------
2014 2013 2014 2013 2014 2013
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
Revenue and
results
Segment revenue 21,903 22,184 33 39 21,936 22,223
========= ========= ======== ======== ========= ==========
Segment results (14,951) (13,331) 33 (1,728) (14,918) (15,059)
========= ========= ======== ========
Other income 769 3,100
Unallocated
write-back
of long outstanding
payables and
reversal of
overprovision
in prior years 827 848
Loss on disposal
of subsidiaries - (2,463)
Provision for
impairment
of trade and
other receivables (958) (204)
Unallocated
administrative
expense (3,145) (3,328)
Unallocated (218) -
depreciation
Finance costs (3,595) (2,099)
--------- ----------
Loss before
tax (21,238) (19,205)
========= ==========
Revenue reported above represents revenue generated from
external customers. There were no inter-segment sales during the
years ended 30 June 2014 and 2013.
The accounting policies of the reportable segment are the same
as the Group's accounting policies described in note 4(s) to the
Accounts.
Segment loss represents the loss incurred by each segment
without allocation of certain administration costs including
directors' salaries, finance costs and income tax expense. This is
the measure reported to the chief operation decision maker for the
purposes of resource allocation and assessment of segment
performance.
Segment assets and liabilities
2014 2013
HK$'000 HK$'000
Segment assets
LED element products 14,579 15,566
EMC contracts 8,623 8,614
-------- --------
Total segment assets 23,202 24,180
Unallocated assets:
Amount due from a former director 3,329 3,497
Amount due from a related company 3,333 -
Pledged bank deposit 10,024 10,110
Others 744 778
-------- --------
Consolidated assets 40,632 38,565
======== ========
Segment liabilities
LED element products 47,326 37,694
EMC contracts 4,680 4,678
Total segment liabilities 52,006 42,372
Unallocated liabilities:
Bank overdrafts 10,264 10,021
Amount due to a director 3,811 1,655
Amounts due to related companies 3,127 1,310
Loan from a director - 10,160
Loan from a former director 3,979 3,979
Convertible loan notes 10,000 -
Others 18,783 17,035
-------- --------
Consolidated liabilities 101,970 86,532
======== ========
For the purposes of monitoring segment performance and
allocating resources between segments:
-- all assets are allocated to reportable segments other than
unallocated assets including amounts due from a former director and
a related company and pledge bank deposit. Goodwill is allocated to
respective reportable segment as described in note 16 to the
Accounts. Assets used jointly by reportable segments are allocated
on the basis of the revenue earned by individual reportable
segments; and
-- all liabilities are allocated to reportable segment other
than current tax liabilities and unallocated liabilities including
interest payables, bank overdrafts, amounts due to a director and
related companies, loans from a director and a former director and
convertible loan notes. Liabilities for which a reportable segment
is jointly liable are allocated in proportion to segment
assets.
LED element EMC contracts Unallocated Total
products
---------------------- ----------------- ---------------------- ---------------------
2014 2013 2014 2013 2014 2013 2014 2013
HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000 HK$'000
Depreciation 66 1,059 - 226 218 - 284 1,285
Write-back of
long outstanding
payables and
reversal of
overprovision
in prior years - (728) - - (827) (848) (827) (1,576)
Cost of defective
inventories
being sold 1,796 649 - - - - 1,796 649
Provision for
impairment loss
of inventories 1,388 714 - - - - 1,388 714
Provision for
impairment of
trade and other
receivables - - - - 958 204 958 204
Addition to
non-current
assets 1,855 170 - 53 310 - 2,165 223
The Group's revenue from its operations from its major products
and services is disclosed in "segment revenue and results".
Geographical information
The Group operates in two principal geographical areas - Hong
Kong and the PRC (place of domicile) excluding Hong Kong. The
Group's revenue by geographical locations is determined based on
the shipment destination instructed by customers. The Group's
non-current assets by geographical locations are determined based
on physical location of the assets. The Group's revenue from
operations from external customers and information about its
non-current assets by geographical location are detailed below.
2014 2013
HK$'000 HK$'000
Revenue from external customers
Hong Kong 1,204 1,440
The PRC 20,732 20,783
-------- --------
21,936 22,223
======== ========
Non
Non-current assets
Hong Kong - -
The PRC 2,057 182
-------- --------
2,057 182
======== ========
Capital expenditure
Hong Kong - -
The PRC 2,096 223
2,096 223
======== ========
3. LOSSES PER SHARE
The calculation of the basic and diluted losses per share
attributable to owners of the Company is based on the
following:
2014 2013
HK$'000 HK$'000
Loss for the year:
Loss for the purpose of basic
and diluted losses per share
(loss for the year attributable
to owners of the Company) 13,733 12,864
========== ============
Number of shares:
(Restated)
Weighted average number of ordinary
shares for the purpose of basic
and diluted losses per share 5,032,934 4,149,574
========== ============
In calculating the diluted losses per share attributable to the
owners of the Company for the year ended 30 June 2014 and 2013, the
potential issue of shares arising from the exercise of share
options would decrease the losses per share attributable to the
owners of the Company and is not taken into account as they have an
anti-dilutive effect. Therefore, the diluted losses per share
attributable to the owners of the Company for the year ended 30
June 2014 and 2013 is based on the loss attributable to the owners
of the Company of approximately HK$13,733,000 (2013: HK$12,864,000)
and on the weighted average of 5,032,934 (2013: 4,149,574
(restated)) ordinary shares outstanding during the year ended 30
June 2014, which are the amounts used in calculating the basic
losses per share for the year.
The weighted average number of ordinary shares held in 2013, for
the purpose of calculating basic and diluted loss per share, has
been retrospectively adjusted for the ten-for-one share
consolidation (as detailed in note 28(e) to the Accounts) during
the year ended 30 June 2014.
4. LOANS FROM A DIRECTOR / A FORMER DIRECTOR
As at 30 June 2013, a loan from a director of approximately
US$1,282,000 (equivalent to HK$10,000,000) to the Group was
interest-bearing at its rate of 9% per annum and due for repayment
within the next twelve months and the interest will be settled in
the form of the shares of the Company. The fair value of the
liability component and the equity component (note 29 to the
Accounts) were determined at inception of the received loan. The
fair value of the liability component was calculated using a market
interest rate for a similar loan and subsequently measured at
amortised cost. The residual amount, representing the value of the
equity as shares to be issued, was included in shareholders' equity
(note 29 to the Accounts). The loan was secured by a charge over
Green Pearl BVI's entire shareholding in its subsidiaries, Carten
(note 17 to the Accounts) and Yanford Limited.
The loan was due on 26 April 2013 and became immediately
repayable on demand. Interest of approximately HK$664,000 (2013:
HK$160,000) was accrued as part of the liability component for the
period subsequent to the due date up to the reporting date. On 27
March 2014, the loan was settled by the Convertible Loan Notes
(note 27 to the Accounts).
As at 30 June 2014, a loan from a former director to the Group
and the Company of approximately HK$600,000 was interest-bearing at
a rate of three months LIBOR plus 4% per annum and repayable on
demand and approximately HK$3,379,000 was interest-bearing at the
rate of three months LIBOR plus 4% per annum and repayable on 7
September 2014. As stated in note 40(b) to the Accounts, on 30
September 2014, 442,118 ordinary shares of the Company were issued
to the former director to settle the liabilities with him in the
net amount of approximately HK$2,872,000.
5. RELATED PARTY TRANSACTIONS
In addition to the transactions and balances disclosed elsewhere
in these consolidated financial statements, the Group had the
following significant transactions with related parties during the
year:
2014 2013
Notes HK$'000 HK$'000
Interest on convertible loan note (a) 237 -
to a director
Loan interest to director (b) 664 848
Loan interest to a former director (c) 168 172
Loan interest to a related party (d) 309 -
Consultancy and management fee
expense (e) 1,920 1,080
Subcontracting income (f) - 679
Deposit paid for acquisition of
a subsidiary (g) - 2,125
Consideration received for disposal
of a subsidiary (h) - 629
======== ========
Notes:
(a) Interest on Convertible Loan Notes (note 27 to the Accounts)
of approximately HK$237,000 (2013: nil) was charged at a rate of 9%
per annum on the aggregate principal amount and shall be satisfied
by the issue of ordinary shares of the Company on redemption or
maturity date to a director, calculated by reference to the closing
middle market price of the Company's shares on the date of
redemption or maturity.
(b) Loan interest payable was accrued as payable to a director
of the Company and the imputed interest was credited to the
liabilities component in respect of the loans from director (note
26 to the Accounts).
(c) Loan interest payable was accrued as payable to a former director of the Company.
(d) Loan interest was charged by a related party, who is a
director of the Company's subsidiary, at rates ranging from 2% to
9% per month.
(e) Consultancy and management fee expense of HK$720,000 (2013:
HK$1,080,000) was charged by a non-controlling interest for the
provision of consultancy services in relation to EMC contracts and
consultancy and management fee expense of HK$1,200,000 (2013: nil)
was charged by a related company, in which one of directors of the
Company has beneficial interest, for provision of consultancy,
advisory and management services to the Group.
(f) Subcontracting income represented the income for the
subcontract of the operations of Kepu to a holder of a
non-controlling interest with effect from 1 June 2012 and the terms
of the subcontract arrangement are that the holder of the
non-controlling interest is entitled to the profits/losses of the
subcontracted operations fully for one year from 1 June 2012 in
return for the annual fee.
(g) Shares were allotted to a substantial shareholder to acquire
the 100% equity interest of a subsidiary (note 18 to the Accounts).
The acquisition was not completed as at the reporting date.
(h) The consideration was received from a holder of a
non-controlling interest in respect of the disposal of Yanford in
the prior year.
The directors of the Company are of the opinion that the above
related party transactions were conducted on normal commercial
terms and in the ordinary course of business.
Compensation to key management personnel
The remuneration of directors and other members of key
management during the year were as follows:
2014 2013
HK$'000 HK$'000
Short-term employee benefits 750 2,034
Post employment benefits 15 75
-------- --------
765 2,109
======== ========
6. EVENTS AFTER REPORTING PERIOD
(a) Placing of new shares
As stated in note 29(b) to the Accounts, the Placing of
3,875,000 new ordinary shares to two potential investors was
completed on 11 July 2014 with settlement of the balancing payment
of RMB25,000,000 (approximately HK$31,040,000).
(b) Capitialisation of liabilities
On 29 September 2014, the Company entered into agreements to
settle liabilities of certain creditors with an aggregate amount of
approximately HK$3,461,000 by issuing 532,875 ordinary shares of
the Company (the "Settlement"). The price per ordinary share was
HK$6.496 (approximately 51 pence) represented the closing
mid-market price on 26 September 2014. On 30 September 2014,
532,875 ordinary shares were issued, including 442,118 ordinary
shares being issued to a former director to settle the liabilities
with him of approximately HK$2,872,000.
(c) Disposal of Kepu
On 17 December 2014, the Company entered into a sale and
purchase agreement with Mr. Fu Wei ("Fu"), a director of Kepu,
relating to the disposal by the Group of the remaining effective
equity interest (60%) in Kepu.
Kepu specialises in the research, development and manufacturing
of its own brand of opto-electronic products, such as LED modules,
LED unit boards and LED bar-screens, which are used in consumer
electronic goods such as air-conditioners, microwave ovens,
conventional ovens, refrigerators, washing machines and fixed line
telephones.
As announced on 17 May 2012 and as a part of its ongoing
business review, the Board had determined that the activities of
Kepu present considerable, but different opportunities from LED's
primary focus of its EMC business model. As currently structured,
the Company does not have the resources to take full advantage of
the opportunities available to Kepu nor does the Board foresee Kepu
becoming a profitable member of the Group in the foreseeable
future. For this reason, the Company has taken the decision to sell
its remaining interest in Kepu. This will provide the Company with
further resources to promote and focus on the EMC business
model.
In pursuance of this strategy, the Company has disposed of its
effective equity interest in Kepu to Fu for a consideration of
RMB360,000 (approximately HK$450,000 or GBP37,000). Included within
the sale was Far East, the immediate holding company of Kepu and a
subsidiary of the Company in which the Company held 60% and in
which Mr. Weng Xiao Yong holds the remaining 40 % equity
interest.
The proceeds of the sale of Kepu will be used to facilitate the
Group's working capital and support its EMC development plans.
Further details are set out in the Company's announcements dated
17 December 2014.
(d) Proposed acquisition of Shenzhen Ruihetai Industry Co. Limited
On 22 December 2014, the Company entered into a conditional
agreement under which it, or a nominated member of its Group, will
acquire the majority of the issued share capital of Shenzhen
Ruihetai Industry Co. Limited ("RHT") (the "Acquisition") from Ms.
Li Sai Ying and Mr. Lin Zhong (together, the "Vendors") at a
maximum consideration of RMB11,259,903 (approximately GBP1,136,000)
(the "Consideration"). The exact shareholding of RHT after the
Acquisition is to be determined and is subject to the local laws
and regulations governing foreign investments in PRC companies.
The Consideration is to be satisfied by the issue of up to
334,200 new ordinary shares in the Company at HKD12.49806 per share
and the issue of a three year, non-interest bearing convertible
loan note in the amount of up to HKD9,746,009. The loan notes are
convertible into ordinary shares in the Company at a price of
HK$12.49806. The price per share represents the closing mid-price
of 102 pence on 19 December 2014.
RHT is a large-scale grain enterprise incorporated in the PRC.
It is mainly engaged in the business of rice storage, processing,
distribution, and the wholesale and retail sale of rice. RHT has
long established relationships with business partners in major
grain-producing areas in Northeast China, Hunan, Hubei, Jiangxi,
Jiangsu, Guangxi as well as internationally in Thailand. RHT has
established rice counters in major shopping malls, supermarkets and
chain stores in residential areas throughout the PRC and, in doing
so, RHT has built a strong and reputable food distribution network
in the PRC. The Company envisages that the Acquisition will enable
the Group to take advantage of the operating cash flows generated
from RHT and market its "Green Pearl" green products through RHT's
distribution network in the PRC.
The Company has agreed to provide a working capital loan to RHT
in the amount of RMB50 million to support the business development
of RHT and the Vendors will continue to assume responsibility for
the management and operation of RHT. In order to finance this
working capital loan, the Company intends to raise additional
funding through equity and/or debt financing.
As part of the Acquisition, the Vendors will provide a profit
guarantee that the annual net profit of RHT shall be at least RMB70
million for the three-year period after the completion of the
Acquisition, such amount shall exclude the green products
introduced by the Company and distributed through RHT within the
PRC during the three-year period. In the event that this profit
guarantee is not met, the Consideration payable by the Company will
be reduced.
The Vendors have agreed to enter into a lock-in and orderly
market agreement with the Company and its Nominated Adviser,
Allenby Capital Limited, under which the Vendors have agreed not to
sell or otherwise dispose of any of their shares in the Company
during the three-year period following the completion of the
Acquisition.
To comply with the local laws and regulations governing foreign
investments in PRC companies, the exact structure and terms of the
Acquisition and the loan notes are subject to the legal opinion of
PRC lawyers.
By reason of the size of RHT in relation to the Company, the
Acquisition is classified as a reverse takeover under the AIM
Rules. In pursuance of the AIM Rules, trading in the Company's
shares has been suspended from 8 a.m. on 22 December 2014 pending
the preparation and publication of the AIM admission document and
the notice of general meeting setting out the details of the
Acquisition and seeking shareholder approval.
As Mr. Lin Zhong is sole shareholder of Speedy Dragon Holdings
Limited, a substantial shareholder of the Company, the Acquisition
of RHT constitutes a related party transaction pursuant to Rule 13
of the AIM Rules. The Company's directors, having consulted with
the Company's nominated adviser, Allenby Capital Limited, consider
that the terms of the Acquisition are fair and reasonable insofar
as the Company's shareholders are concerned.
Further details are set out in the Company's announcement dated
22 December 2014.
(e) Disposal of Osmar Limited
On 22 December 2014, the Company disposed of its entire interest
in Osmar Limited together with its wholly owned subsidiary, Green
Pearl Leasing Holdings Limited, at a consideration of USD2,500 to a
related company, in which a director, Mr. Stephen Chan, has an
interest. Osmar Limited and Green Pearl Leasing Holdings Limited
are principally engaged in investment holding.
STATEMENT
This statement was approved by the directors on 29 December
2014. This statement does not constitute the Group's statutory
accounts for the year ended 30 June 2014. Statutory accounts for
the year ended 30 June 2013 have been delivered to the Hong Kong
Registrar of Companies. The auditor's report on those accounts was
subject to a disclaimer. The auditor's report for the accounts for
the year ended 30 June 2014 is subject to a disclaimer in the
manner set out above.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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