20-F 1 v406836_20f.htm 20-F

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

(Mark One)

¨REGISTRATION STATEMENT PURSUANT TO SECTION 12(B) OR 12(G) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014

OR

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to         

OR

¨SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report                              

 

Commission file number: 000-53826

 

PLASTEC TECHNOLOGIES, LTD.
(Exact Name of Registrant as Specified in Its Charter)

 

N/A
(Translation of Registrant’s Name Into English)

 

Cayman Islands
(Jurisdiction of Incorporation or Organization)

 

Unit 01, 21/F, Aitken Vanson Centre, 61 Hoi Yuen Road, Kwun Tong, Kowloon, Hong Kong
(Address of Principal Executive Offices)

 

Kin Sun Sze-To, Chief Executive Officer, Plastec Technologies, Ltd.

Unit 01, 21/F, Aitken Vanson Centre, 61 Hoi Yuen Road, Kwun Tong, Kowloon, Hong Kong

Tel.: 852-21917155, Fax: 852-27796001

(Name, Telephone, E-mail and/or Facsimile Number and Address of Company Contact Person)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class   Name of Each Exchange on Which Registered
     
     
     
     

 

Securities registered or to be registered pursuant to Section 12(g) of the Act:

 

Units consisting of one Ordinary Share, par value U.S.$0.001 per share
(Title of Class)

 

Ordinary Shares, par value U.S.$0.001 per share
(Title of Class)

  

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

 

 
(Title of Class)

 

Indicate the number of outstanding shares of each of the Issuer’s classes of capital or ordinary shares as of the close of the period covered by the annual report: 12,938,128 Ordinary Shares, par value U.S.$0.001 per share, as of December 31, 2014

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes ¨ No x

 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.     Yes ¨ No x

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     Yes x No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer x

 

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP x International Financial Reporting Standards as issued Other ¨
  by the International Accounting Standards Board ¨  

 

If “Other” has been checked in response to the previous question indicate by check mark which financial statement item the registrant has elected to follow.    Item 17 ¨ Item 18 ¨

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     Yes ¨  Nox

 

 
 

 

TABLE OF CONTENTS

 

INTRODUCTION   3
PART I       5
ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.   5
ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE.   5
ITEM 3.   KEY INFORMATION.   5
ITEM 4.   INFORMATION ON THE COMPANY.   19
ITEM 4A.   UNRESOLVED STAFF COMMENTS.   35
ITEM 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS.   35
ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.   48
ITEM 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.   54
ITEM 8.   FINANCIAL INFORMATION.   57
ITEM 9.   THE OFFER AND LISTING.   58
ITEM 10.   ADDITIONAL INFORMATION.   59
ITEM 11.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.   69
ITEM 12.   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.   69
PART II       70
ITEM 13.   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.   70
ITEM 14.   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.   70
ITEM 15.   CONTROLS AND PROCEDURES.   70
ITEM 16A.   AUDIT COMMITTEE FINANCIAL EXPERT.   71
ITEM 16B.   CODE OF ETHICS.   71
ITEM 16C.   PRINCIPAL ACCOUNTANT FEES AND SERVICES.   71
ITEM 16D.   EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.   72
ITEM 16E.   PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.   72
ITEM 16F.   CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.   73
ITEM 16G.   CORPORATE GOVERNANCE.   73
ITEM 16H.   MINE SAFETY DISCLOSURES.   73
PART III       74
ITEM 17.   FINANCIAL STATEMENTS.   74
ITEM 18.   FINANCIAL STATEMENTS.   75
ITEM 19.   EXHIBITS.   76
SIGNATURES   77
EXHIBIT INDEX   78

 

2
 

 

INTRODUCTION

 

Definitions

 

Unless the context indicates otherwise:

 

  • “we,” “us,” “our” and “our company” refer to Plastec Technologies, Ltd., a Cayman Islands exempted company, its predecessor entities and direct and indirect subsidiaries;

 

  • “Plastec” refers to Plastec International Holdings Limited, a British Virgin Islands company, our direct wholly owned subsidiary;

 

  • “BVI” refers to the British Virgin Islands;

 

  • “PRC subsidiaries” refers to our indirect owned subsidiaries operating in the PRC;

 

  • “China” or the “PRC” refer to the People’s Republic of China;

 

  • “HK$” or “Hong Kong dollar” refer to the lawful currency of the Hong Kong Special Administrative Region, People’s Republic of China; if not otherwise indicated, all financial information presented in HK$ may be converted to U.S.$ or $ using the exchange rate of 7.8 HK$ for every 1 U.S.$ or $;

 

  • “Renminbi” or “RMB” refer to the lawful currency of China; and

 

  • “U.S.$” or “$” or “U.S. dollar” refer to the lawful currency of the United States of America.

 

Forward-Looking Statements

 

This Annual Report on Form 20-F (this “Form 20-F”) contains forward-looking statements that involve risks and uncertainties. All statements other than statements of historical facts are forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.

 

These forward-looking statements include information about our possible or assumed future results of operations or our performance. Words such as “expects,” “intends,” “plans,” “believes,” “anticipates,” “estimates,” and variations of such words and similar expressions are intended to identify the forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to be correct. These statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond our control. Actual results may differ materially from those expressed or implied by such forward-looking statements.

 

We undertake no obligation to publicly update or revise any forward-looking statements contained in this Form 20-F, or the documents to which we refer you in this Form 20-F, to reflect any change in our expectations with respect to such statements or any change in events, conditions or circumstances on which any statement is based.

 

This report should be read in conjunction with our audited consolidated financial statements and the accompanying notes thereto for the fiscal year ended December 31, 2014, which are included in Item 18 to this Form 20-F.

 

3
 

 

Change in Fiscal Year

 

On September 11, 2012, we determined to change our fiscal year end from April 30 to December 31. The change in fiscal year end was made so that our fiscal year end would coincide with all our operating subsidiaries in the People’s Republic of China. This Form 20-F and the accompanying consolidated financial statements cover the years ended December 31, 2014 and 2013 and the 8-month period beginning May 1, 2012 and ending December 31, 2012 and the historical activities of the year ended April 30, 2012. For a comparison of our operating results for the 8-month period ended December 31, 2011 to the 8-month period ended December 31, 2012 and a comparison of our operating results for the year ended December 31, 2012 to the year ended December 31, 2013, see note 20 to the Consolidated Financial Statements. Financial information presented in note 20 and elsewhere in this Form 20-F for the 8-month period ended December 31, 2011 and the year ended December 31, 2012 has not been audited and is presented for comparative purposes only.

 

4
 

 

PART I

 

ITEM 1.               IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.

 

Not Applicable.

 

ITEM 2.               OFFER STATISTICS AND EXPECTED TIMETABLE.

 

Not Applicable.

 

ITEM 3.               KEY INFORMATION.

 

A. Selected Financial Data

 

Our fiscal year end date had been April 30 since the closing of our merger (discussed in Item 4 of this Form 20-F) until September 11, 2012, when we changed our fiscal year end date to December 31. The selected financial information set forth below has been derived from our audited financial statements for the years ended December 31, 2014 and 2013, the 8-month period ended December 31, 2012 and the years ended April 30, 2012, 2011 and 2010.

 

The information is only a summary and should be read in conjunction with our audited financial statements and notes thereto contained elsewhere herein. The financial results should not be construed as indicative of financial results for subsequent periods. See Item 5 of this Form 20-F and the financial statements and the accompanying notes thereto included under Item 18 of this Form 20-F for further information about our financial results and condition. 

 

    For the year ended     For the 8-month
period ended		     For the year ended  
    ended December 31,     December 31,     April 30,  
    2014     2013     2012     2012     2011     2010  
                      (HK$’000, except for per share data)  
Revenues     1,207,811       1,167,115       933,888       1,291,223       1,323,533       966,755  
Cost of revenues     (905,280 )     (899,400 )     (807,104 )     (1,142,653 )     (1,074,880 )     (810,187)  
Gross profit     302,531       267,715       126,784       148,570       248,653       156,568  
Selling, general and administrative expenses     (152,912 )     (166,969 )     (66,330 )     (81,557 )     (83,584 )     (63,824)  
Other income     7,737       2,508       6,266       2,431       4,711       4,364  
Write-off of property, plant and equipment     (442 )     (14,920 )     (4,058 )     (690 )     (1,791 )     (40,348)  
Gain/(loss) on disposal of property, plant and equipment     5,420       (2,836 )     1,898       938       1,315       1,077  
Gain on disposal of subsidiary     29,125       -       -       -       -       -  
Income from operations     191,459       85,498       64,560       69,692       169,304       57,837  
Interest income     1,530       276       166       218       124       60  
Interest expense     (1,688 )     (1,160 )     (1,559 )     (2,695 )     (3,008 )     (2,733)  
Income before income tax expense     191,301       84,614       63,167       67,215       166,420       55,164  
Income tax expense     (23,480 )     (3,734 )     (3,344 )     (16,811 )     (33,106 )     (10,857)  
Net income     167,821       80,880       59,823       50,404       133,314       44,307  
Net income per share                                                
Basic and diluted income per ordinary share   HK$ 13.0     HK$ 6.0     HK$ 4.2     HK$ 3.2     HK$ 16.9     HK$ 6.3  
Basic and diluted weighted average number of ordinary shares     12,938,128       13,503,623       14,303,544       15,944,233       7,891,754       7,054,583  

  

5
 

 

   December 31,   April 30, 
   2014   2013   2012   2012   2011   2010 
                         
Total assets   1,271,156    1,154,821    1,179,142    1,193,729    1,201,927    977,492 
Total liabilities   338,166    351,207    400,897    481,682    455,667    411,400 
Total shareholders’ equity   932,990    803,614    778,245    712,047    746,260    566,092 

 

Unless otherwise noted, all translations from Hong Kong dollars to U.S. dollars in this Form 20-F were made at the noon buying rate in the City of New York for cable transfers of Hong Kong dollars as certified for customs purposes by the Federal Reserve Bank of New York on April 17, 2015, which was HK$7.7510 to U.S.$1.00. We make no representation that any Hong Kong dollars or U.S. dollar amounts could have been, or could be, converted into U.S. dollar or Hong Kong dollars, as the case may be, at any particular rate, at the rates stated below, or at all.

 

The following table sets forth information concerning exchange rates between the Hong Kong dollar and the U.S. dollar for the periods indicated, in Hong Kong dollars per U.S. dollar. These rates are provided solely for your convenience and are not necessarily the exchange rates that we used in this Form 20-F or will use in the preparation of our periodic reports or any other information to be provided to you.

 

Period   Period End     Average (1)     Maximum     Minimum  
April 17, 2015     7.7510       -       -       -  
March 2015     7.7540       7.7584       7.7686       7.7534  
February 2015     7.7559       7.7551       7.7584       7.7517  
January 2015     7.7529       7.7531       7.7563       7.7508  
December 2014     7.7531       7.7541       7.7616       7.7509  
November 2014     7.7548       7.7543       7.7572       7.7519  
October 2014     7.7551       7.7572       7.7645       7.7541  
                                 
FY Ended Dec. 31, 2014     7.7531       7.7554       7.7648       7.7497  
FY Ended Dec. 31, 2013     7.7539       7.7565       7.7629       7.7526  
8 Months Ended Dec. 31, 2012     7.7507       7.7541       7.7699       7.7493  
FY Ended April 30,                                
2012     7.7587       7.7719       7.7942       7.7551  
2011     7.7673       7.7748       7.7926       7.7515  
2010     7.7637       7.7552       7.7665       7.7497  
2009     7.7500       7.7693       7.8041       7.7499  

 

 

 

Source:  The exchange rate refers to the noon buying rate as set forth in the weekly H.10 statistical release of the Federal Reserve Board.

 

(1)Annual averages are calculated from month-end rates. Monthly averages are calculated using the average of the daily rates during the relevant period.

 

B. Capitalization and Indebtedness

 

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

6
 

 

D. Risk Factors

 

An investment in our securities involves a high degree of risk. You should consider carefully all of the risks described below, together with the other information contained in this Form 20-F before making a decision to invest in our securities.

 

Risks Relating to Plastec’s Industry and Business

 

Our manufacturing activities are dependent upon the availability of skilled and unskilled labor. If we are unable to retain skilled and unskilled labor, or if labor costs rise, we could experience reduction in profits.

 

Our manufacturing activities are relatively labor intensive and dependent on availability of skilled and unskilled labor in large numbers. Large labor-intensive operations call for good monitoring and maintenance of cordial relations. Non-availability of labor and/or any disputes between the labor and management may result in a reduction in profits. Further, we sometimes rely on contractors who engage on-site laborers for performance of many of our unskilled operations. The scarcity or unavailability of contract laborers may affect our operations and financial performance.

 

Labor costs in China have been increasing in recent years. As a percentage of cost of products sold, our labor costs for years ended December 31, 2014 and 2013 were 23.5% and 23.1%, respectively. Such costs could increase in the future. If labor costs in the PRC increase, our production costs will likely increase, which may in turn affect the selling prices of our products. We may not be able to pass on these increased costs to customers by increasing the selling prices of our products in light of competitive pressure in the markets where we operate. In such circumstances, our profit margin may decrease.

 

If the proper certificates of land use rights and building ownership certificates are not obtained or renewed, we could incur significant losses of revenue and have significant difficulty in performing the contracts with our customers to supply our products and services.

 

Certain of our manufacturing plants in Guangdong Province and Jiangsu Province rely on Tenancy Agreements with third parties or, in the case of our Shenzhen Broadway manufacturing plant, with our wholly-owned subsidiary Broadway Precision Technology Limited (as described on page 33 of this Form 20-F) for the use of land and premises that are necessary for the operation of our business. As of the date of this Form 20-F, the lessors of certain of those plants or we have not obtained the required land use rights certificates or building ownership certificates. Although we rely on the third party lessors to ensure that we may properly use the underlying land and have the proper land use rights to lease such land, it is unclear whether such lessors have the right to make the premises available to us for use. For our Shenzhen Broadway manufacturing plant, located on three parcels of land in Shenzhen, with an aggregate site area of approximately 47,190 square meters, we may not be able to obtain the required certificates for our use of these properties.

 

In addition, among the aforesaid leased properties, certain of the land used by us in our operations is situated on collectively-owned land. Under the PRC laws and regulations, if the collectively-owned land does not belong to the collectively-owned land for non-agricultural use category, before such piece of land can be leased for industrial use, prior approval must be granted by competent governmental authorities. The lessors are responsible for completing the relevant governmental procedures to enable them to lease such land and premises. To this date, the relevant governmental procedures have not been completed in order to lease such land and premises to us for our manufacturing use as contemplated under the Tenancy Agreements, nor can we foresee the specific date of the completion of such governmental procedures. As a result, the Tenancy Agreements may not be legally valid and enforceable, as a matter of PRC laws and regulations due to lack of proper government approvals or title certificates. Accordingly, it is possible that any of the Tenancy Agreements could be terminated or invalidated prior to its stated maturity.

 

If we have to vacate or are required to relocate some or all of our production facilities because of the foregoing, we would incur significant losses of revenue, we would have significant difficulty in performing the contracts with our customers to supply our products and services, and we would experience significant delays in our attempt to find alternative manufacturing premises and to relocate our production facilities. We would also have to commit significant financial and other resources, including time of senior management members, to complete such relocation. Should this happen on a significant scale, our results of operations, business prospects and financial condition could be materially and adversely affected.

 

7
 

 

Potential government restrictions and changes in the availability of PRC government support and incentives could have a negative effect on our business and results of operations.

 

Plastec is an export-oriented processing manufacturer in China. As an export-oriented processing manufacturer, Plastec is currently substantially exempted from the value added tax because it imports approximately 66.4% of the raw materials needed for the manufacturing of its products and exports approximately 97.3% of its products for incorporation into goods sold outside China. But we cannot assure that that the PRC government will not change the existing laws or regulations to reduce or eliminate certain existing economic support and incentives for export-oriented processing businesses. Any reduction or elimination by the PRC government of the various existing economic support and incentives accorded to export-oriented processing enterprises, or imposition by the PRC government of any restrictions or operational barriers with respect to export-oriented processing enterprises for political, financial or other reasons, may adversely affect our business prospects and results of operations.

 

The selling prices of our products tend to decline over time and, if we do not receive orders for new products in a timely manner, our results of operations would be negatively impacted.

 

A majority of our customers are manufacturers of consumer electronics, electrical home appliances, telecommunication products and computer equipment. As is typical in these industries, the selling prices of the end products tend to decline significantly over time. As a result, our customers have also placed pricing pressure on our products over the life of their end products. We believe the selling prices of each of our products will continue to decline over time for the foreseeable future. To offset the declining selling prices, we must receive orders for new products that command higher initial selling prices in a timely manner. If we do not receive orders for new products over time and cannot otherwise increase the selling prices of our products, our gross margins will decline.

 

We depend on existing major customers and are exposed to the risk of delays, claims, reductions or cancellations of orders from customers in general.

 

We depend on five major customers, who collectively accounted for approximately 77.1%, 74.0%, 72.3%, 77.7% and 75.5% of our revenues for the year ended April 30, 2012, for the 8-month period and the year ended December 31, 2012 and for the years ended December 31, 2013 and 2014, respectively. Historically, our largest customer accounted for approximately 35.6%, 36.4%, 36.2%, 44.4% and 42.0% of our revenues for the year ended April 30, 2012, for the 8-month period and the year ended December 31, 2012 and for the years ended December 31, 2013 and 2014, respectively. We believe that we will continue to be dependent upon these customers for a significant portion of our business. Our ability to retain these customers, as well as other customers, and to add new customers is important to our ongoing success. The loss of one or more of our major customers, or delayed, reduced or cancelled orders or claims from any of our major customers, could have a material adverse impact on our business, financial condition and results of operations.

 

We sell our products to manufacturers to incorporate them into their consumer electronic products. We are therefore dependent on our customers to compete effectively.

 

We do not sell our products directly to the mass consumer market. Instead, we sell products, largely plastic components, to leading international original equipment manufacturers (“OEMs”), original design manufacturers (“ODMs”) and original brand manufacturers (“OBMs”) for them to incorporate into their consumer electronics products, electrical home appliances, telecommunication devices, computer peripherals and precision plastic toys. Market demand for our products is, therefore, derived from the demand for the products of our customers. Our customers market their products globally and any significant change in the global demand or preference for these consumer electronics products, electrical home appliances, telecommunication devices, computer peripherals and precision plastic toys will affect our revenue. The ability of our customers to compete successfully to increase their market share will indirectly affect our business prospects and results of operations.

 

8
 

 

We do not own any legally protected intellectual property. Any infringement claim by third parties may require us to spend significant resources to defend our rights and interests.

 

As a manufacturing service provider to OBMs, ODMs and OEMs, we do not own any legally protected intellectual property. We rely on our customers to ensure that they actually have the right to share that intellectual property with us. However, such intellectual property may be in violation of intellectual property belonging to other parties. Accordingly, we are subject to claims from the ultimate owners of the intellectual property that it is allegedly being infringed. In the event of an infringement claim, we may be required to spend a significant amount of resources, financial and otherwise, to defend against such claim. Additionally, our customers may have to develop a non-infringing alternative or obtain licenses for us to continue to manufacture the products for them using the existing intellectual property. Such customers may not be successful in developing an alternative or obtaining a license on reasonable terms, if at all. Additionally, our customers may not fully indemnify us for losses in such cases. Substantial costs and diversion of our resources resulting from any such litigation may adversely affect our business, financial condition and results of operations.

 

The consumer electronics and electrical home appliance industries are characterized by rapid technological changes and changing consumer preferences. If we do not respond to such changes in tandem, our operations would be adversely affected.

 

A majority of our customers make and sell consumer electronics and electrical home appliances, which are characterized by rapid technological changes and changing consumer preferences. As a result, a majority of the products that use our plastic components tend to have short product life cycles, faster technological obsolescence and are subject to constantly evolving industry standards. In order to meet our customers’ demand for new products and to ensure operational efficiency, we need to continually invest in new machines and technologies to upgrade and expand our manufacturing capacity and capabilities, including our know-how and skills. If we are unable to cope with such advances in technology and correspondingly respond to our customers’ requirements on a timely basis, demand for our services may decline and our business, financial condition and results of operations would be adversely affected.

 

We may not be able to upgrade our machinery when and as needed which could adversely affect our operations and profitability.

 

We need to regularly upgrade the machinery used in our operations in order to keep pace with various technological changes and changing consumer preferences. Such machinery is imported from other countries into China and then delivered to our local manufacturing facilities. Approvals from various governmental agencies in the PRC are required to import such machinery due to its high precision and hi-tech nature. If we are unable to obtain the necessary approvals, and therefore are unable to import new machinery, our business, results of operations and profitability would be adversely affected.

 

Our business depends on the continued services of our executive officers and key personnel, the loss of which could adversely affect our business.

 

Our success depends on the continued services of our executive officers and key personnel, in particular Mr. Sze-To, who founded Plastec and is now our Chairman and Chief Executive Officer. Mr. Sze-To, together with Plastec’s other executive directors and senior management, have been instrumental in Plastec’s growth and success. We do not maintain key-man life insurance on any of our executive officers and key personnel. If one or more of our executive officers and key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them readily, if at all. As a result, our business may be severely disrupted and we may have to incur additional expenses in order to recruit and retain new personnel. In addition, if any of our executives joins a competitor or forms a competing company, we may lose some of our customers.

 

We may fail to implement our expansion strategy successfully.

 

We intend to expand our existing production capacity and capability by establishing new production bases and offering plastic products to industries other than consumer electronics and electrical home appliances. Our ability to obtain adequate funds to finance our expansion plans will depend on our financial condition and results of operations, as well as other factors outside our control, such as general market conditions, demand for the types of products we offer, success of our competitors and political and economic conditions in China or other parts of the world. If additional capital is unavailable, we may be forced to abandon some or all of our expansion plans, as a result of which our business, financial condition and results of operations could be adversely affected. 

 

9
 

 

We are vulnerable to foreign currency exchange risk exposure.

 

Currently, Renminbi is not a freely convertible currency. The PRC government regulates conversion between Renminbi and foreign currencies. Changes in PRC laws and regulations on foreign exchange may result in uncertainties in Plastec’s financing and operating plans in China. Over the years, China has significantly reduced the government’s control over routine foreign exchange transactions under current accounts, including trade and service related foreign exchange transactions, payment of dividends and service of foreign debts. In accordance with the existing foreign exchange regulations in China, our PRC subsidiaries are able to pay dividends and service debts in foreign currencies without prior approval from the PRC State Administration of Foreign Exchange by complying with certain procedural requirements. However, the current PRC foreign exchange policies regarding debt service and payment of dividends in foreign currencies may not continue in the future. Changes in PRC foreign exchange policies may have a negative impact on the ability of our PRC subsidiaries to service their foreign currency-denominated indebtedness and to distribute dividends to us in foreign currencies. In addition, transfer of funds to our subsidiaries in China is subject to approval by PRC governmental authorities in case of an increase in our registered capital in these subsidiaries, or subject to registration with PRC governmental authorities in case of a shareholder loan to them. These limitations on the flow of funds between us and our PRC subsidiaries could restrict our ability to act in response to changing market conditions.

 

During the year ended April 30, 2012, for the 8-month period and the year ended December 31, 2012 and for the years ended December 31, 2013 and 2014, approximately 56.9%, 49.9%, 51.9%, 52.5% and 48.9% of our sales were denominated in Hong Kong dollars, respectively, and approximately 36.2%, 43.1%, 42.1%, 42.1% and 41.3% of our sales were denominated in U.S. dollars, respectively. The remaining 6.9%, 7.0%, 6.0%, 5.4% and 9.8% were denominated in Renminbi during the same periods. In contrast, approximately 62.2%, 57.9%, 62.6%, 35.8% and 28.0% of our purchases were denominated in Hong Kong dollars during the same time periods, and approximately 32.9%, 27.6%, 25.7%, 30.5% and 31.1% of our purchases were denominated in U.S. dollars, respectively. The remaining 4.9%, 14.5%, 11.7%, 31.5% and 33.6% were denominated in Renminbi during the same periods, whereas 2.2% and 7.3% of our purchases were denominated in Thai Baht for the years ended December 31, 2013 and 2014, respectively. All of our direct labor costs and factory overhead, including electricity and utility costs, were also denominated in Renminbi. Our foreign currency exchange risk also arises from the mismatch between the currency of our sales and the currency of our costs of goods sold. In addition, our financial statements are expressed in Hong Kong dollars. Our balance sheet uses the relevant prevailing period end exchange rate to convert all foreign currency amounts into Hong Kong dollars and our income statement records various payments and receipts using the relevant prevailing exchange rate on the date of each transaction. The different exchange rates prevailing at different times will give rise to foreign currency exchange exposures. Our net foreign exchange gains for the year ended April 30, 2012 was HK$10.1 million and for the 8-month period ended December 31, 2012 was HK$2.1 million and our net foreign exchange loss for the years ended December 31, 2013 and 2014 was HK$8.2 million and HK$5.2 million, respectively. In addition, the current peg of the exchange rate between the Hong Kong dollar and the U.S. dollar may be de-pegged or subject to an increased band of fluctuation. Fluctuations in the Hong Kong dollar exchange rates against other currencies may negatively impact our business, financial condition and results of operations.

 

We face intense competition in our industry with respect to technical and manufacturing capabilities, resources and production scale, range of product offering and pricing, product quality, delivery efficiencies and overall capability of management.

 

We operate in a competitive environment and are subject to competition from both existing competitors and new market entrants. Competitive factors in our industry include technical and manufacturing capabilities, resources and production scale, range of product offering and pricing, product quality, delivery efficiencies, and overall capability of management. Many of our current and potential competitors have a longer operating history, better name recognition, greater resources, larger customer base, better access to raw materials and greater economies of scale than we do. In addition, the entry barriers to the general plastic injection and molding business are moderate since no specialized knowledge is needed. In fact, numerous small-scale enterprises are producing plastic products in China. Our success depends on our ability to generate and nurture customer patronage and loyalty mainly through consistent offering of quality products and services at competitive prices and reliable delivery times. Should our competitors offer any better-quality products or services, better pricing and/or shorter delivery times, our sales and market share will be adversely affected. Stiff competition and overall decline in demand for our products and services may also exert a downward pressure on our prices and erode our profit margins. Consequently, our business, financial condition and results of operations could be adversely affected.

 

10
 

 

We are exposed to credit risks of our customers and defaults in payment by our customers may adversely affect our business, financial condition and results of operations.

 

We are exposed to credit risks of our customers. Our trade receivables balances as at April 30, 2012 and the 8-month period ended December 31, 2012 and the years ended December 31, 2013 and 2014 were approximately HK$282.9 million, HK$257.3 million, HK$269.4 million and HK$278.6 million, respectively. These accounted for approximately 44.8%, 36.8%, 35.8% and 29.2% of our current asset balances as at April 30 2012, the 8-month period ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively. Our trade receivables turnover days for the year ended April 30, 2012 and the 8-month period ended December 31, 2012 and the years ended December 31, 2013 and 2014 were 80 days, 68 days, 84 days and 84 days, respectively. We calculate our trade receivables turnover day by dividing our trade receivables balances at the end of the period by the turnover during the period, multiplied by actual days in the period (365 days for each year and 245 days for the 8-month period ended December 31, 2012). We made no provisions for doubtful trade receivables as at April 30, 2012 and the 8-month period ended December 31, 2012 and the years ended December 31, 2013 and 2014 and no amounts of bad debts were written off in the year ended April 30, 2012 and the 8-month period ended December 31, 2012 and the years ended December 31, 2013 and 2014. Our customers’ payments may not be made timely and they may not be able to fulfill their payment obligations. Defaults in payment by our customers may adversely affect our business, financial condition and results of operations.

 

We may be exposed to product liability claims.

 

The products we manufacture for our customers must meet their stringent quality standards. Although we have put in place strict quality control procedures, our products may not always satisfy our customers’ quality standards. In addition, as a manufacturing service provider, we do not control the design and structure of the plastic parts and components we manufacture for our customers. Nor do we control the design or structure of the final products containing our parts and components that our customers market to end-users. In our manufacturing, we strictly follow the chemical formulae provided by our customers and source our principal raw materials from vendors as designated and required by our customers. If there are any quality defects in the products that contain our parts and components, we may face claims from our customers or end-users for the damages suffered by them arising from such defects. It may be difficult or impossible to determine who is responsible for such defects or the extent of responsibility each party should bear for such defects. In addition, we do not maintain any product liability insurance except for two $5 million and $2 million policies on particular customers’ products. In the event that we become subject to valid product liability claims, we will be liable for them and, as a result, our business, financial condition and results of operations may be adversely affected.

 

Electricity disruptions may adversely impact our production.

 

Our manufacturing processes consume substantial amounts of electricity. We depend on the PRC power grid to supply our electricity needs. With the rapid development of the PRC economy, however, demand for electricity has continued to increase. There have been electricity shortages in various regions across China, especially during peak seasons. As a result, we have in the past experienced interruptions of, or limitations on, our electricity supply. To prevent similar occurrences, we have installed backup power generators to provide electricity to our production lines in case of electricity supply interruptions. However, there still may be interruptions or shortages in our electricity supply and we may need more electricity in the future to support our requirements at such time. Interruptions or shortages in power supply or increases in electricity costs may disrupt our normal operations and adversely affect our profitability.

 

We are exposed to risk of loss from fire, theft and natural disasters.

 

We face the risk of loss or damage to our properties, machinery and inventories due to fire, theft and natural disasters such as earthquakes and floods. Although we have not experienced any such disasters, such events have caused disruptions or cessations in the operations in some of the foreign-owned manufacturing facilities in China in the past and have adversely affected their business, financial condition and results of operations. While our insurance policies cover some losses in respect of damage or loss of our properties, machinery and inventories, our insurance may not be sufficient to cover all such potential losses. In the event that such loss exceeds our insurance coverage or is not covered by our insurance policies, we will be liable for the excess in losses. In addition, even if such losses are fully covered by our insurance policies, such fire, theft or natural disaster may cause disruptions or cessations in its operations and adversely affect our financial condition and results of operations.

 

11
 

 

Our operations could be disrupted by natural disasters even when such events do not directly affect our manufacturing and processing facilities.

 

Our operations may be disrupted by natural disasters even when such events do not directly affect our manufacturing and processing facilities. Our operations are dependent upon the stability of our supply chain, including our ability to acquire necessary materials from our suppliers and our customers’ demand for our products and services. For example, as a result of the then market sentiments following the earthquake in East Japan and floods in Thailand prevailing in 2011, many of our customers delayed their new product launches and development, and reduced their purchases from us. Consequently, we experienced a revenue decrease in the following year. To the extent a natural disaster has an adverse effect on some aspect of our supply chain, our revenues and results of operations may be materially and adversely affected.

 

Changes in global manufacturing outsourcing trends may adversely affect our business and prospects.

 

The electronic manufacturing services, or “EMS,” industry has undergone rapid change and growth over the last two decades as the capabilities of EMS providers continued to expand. More consumer electronics manufacturers have adopted, and have become more dependent on, manufacturing outsourcing strategies to remain competitive. We believe that the EMS industry has the potential for further growth as many consumer electronics manufacturers continue to favor outsourcing and the market for outsourcing, as a whole, continues to flourish. In recent years, manufacturing outsourcing has been quickly adopted by, and adapted for, other industries involving electrical home appliances, computers and automobiles. However, these trends of adopting manufacturing outsourcing strategies by consumer electronics and other manufacturers may not continue to grow. If the outsourcing trends change, our business, financial condition and results of operations could be adversely affected.

 

We may be subject to potential tax penalty and surcharge for the enterprise income tax payable in PRC following our assessment for uncertainty in income taxes.

 

During the fiscal year ended April 30, 2012, we had engaged an independent tax advisor to assess for uncertainty in income taxes for all open years subject to any statute of limitations. We may have uncertainty over non-taxable income benefit in the business of certain of our subsidiaries for taxable years ending on or before December 31, 2012. Prior to January 2013, certain of our subsidiaries operated pursuant to processing arrangements in the PRC. Based on these arrangements, the PRC tax bureau could take the position that such subsidiaries had permanent establishment in the PRC. In this regard, the relevant subsidiaries may be subject to enterprise income tax at a rate of 25% on any net profits attributable to permanent establishment in the PRC. While we have made provision for additional tax payable plus interest thereon, if the PRC tax bureau were to deem the relevant subsidiaries to have failed to pay enterprise income tax within the prescribed time limit, a tax penalty equivalent to 0.5 to 5 times of the tax undercharged might be retrospectively imposed subject to the PRC tax bureau’s discretion plus an additional daily surcharge might be retrospectively levied at 0.05% of the overdue payment from the date on which the obligation to pay the enterprise income tax first arose. Since January 2013, all such processing arrangements have been terminated and all of our operations have been carried out through our wholly foreign-owned enterprise subsidiaries; accordingly, we do not expect the uncertainty described herein to materially affect our results for taxable years beginning after December 31, 2012.

 

Risks Relating to Operations in China

 

Changes in PRC political and economic policies and conditions could adversely affect our business and prospects.

 

China has been, and will continue to be, our primary production base and currently a majority of our assets are located in China. While the PRC government has been pursuing economic reforms to transform its economy from a planned economy to a market-oriented economy since 1978, a substantial part of the PRC economy is still being operated under various controls of the PRC government. By imposing industrial policies and other economic measures, such as control of foreign exchange, taxation and foreign investment, the PRC government exerts considerable direct and indirect influence on the development of the PRC economy. Many of the economic reforms carried out by the PRC government are unprecedented or experimental and are expected to be refined and improved over time. Other political, economic and social factors may also lead to further adjustments of the PRC reform measures. This refining and adjustment process may not necessarily have a positive effect on our operations and our future business development. Our business, financial condition and results of operations may be materially and adversely affected by changes in the PRC economic and social conditions and by changes in the policies of the PRC government, such as austerity measures or measures to control inflation, changes in the rates or method of taxation and the imposition of additional restrictions on currency conversion.

 

12
 

 

The PRC economy has been experiencing significant growth, leading to inflation and increased labor costs which in turn could lead to increases in our costs of doing business.

 

Exacerbated by rising wages and increasing minimum wage levels and factory overhead including utilities, inflation in China soared for a large part of fiscal year ended April 30, 2012 but has moderated in recent years. Should inflation in China soar again, we may experience material increases in our cost of labor which will likely increase our operating costs and will adversely affect our financial results unless we pass on such increases to our customers by increasing the prices of our products and services. The effect of increases in the prices of our products and services would make our products more expensive in global markets, such as the United States and the European Union. This could result in the loss of customers, who may seek, and be able to obtain, products and services comparable to those we offer in lower-cost regions of the world. If we do not increase our prices to pass on the effect of increases in our labor costs, our margins and profitability would suffer.

 

The uncertain legal environment in China could limit the legal protections available to shareholders.

 

Plastec’s operating subsidiaries are wholly foreign-owned enterprises in China and are subject to laws and regulations applicable to foreign investments in China in general and laws and regulations applicable to wholly foreign-owned enterprises in particular. The PRC legal system is a civil law system based on written statutes. Unlike the common law system, the civil law system is a system in which decided legal cases have little precedential value. When the PRC government started its economic reform in 1978, it began to formulate and promulgate a comprehensive system of laws and regulations to provide general guidance on economic and business practices in China and to regulate foreign investments. China has made significant progress in the promulgation of laws and regulations dealing with economic matters such as corporate organization and governance, foreign investment, commerce, taxation and trade. However, the promulgation of new laws, changes in existing laws and abrogation of local regulations by national laws may have a negative impact on our business, financial condition and results of operations. In addition, as these laws, regulations and legal requirements are relatively recent and because of the limited volume of published cases and their non-binding nature, the interpretation and enforcement of these laws, regulations and legal requirements involve significant uncertainties. These uncertainties could limit the legal protections available to foreign investors and shareholders.

 

Plastec’s primary source of funds (in the form of dividends and other distributions from its operating subsidiaries in China and Thailand) is subject to various legal and contractual restrictions and uncertainties.

 

Plastec is a holding company established in the British Virgin Islands and it conducts its core business operations through its operating subsidiaries in China and Thailand. As a result, our ultimate profits available for distribution to shareholders are dependent on the profits available for distribution from Plastec’s PRC and Thai operating subsidiaries. If these subsidiaries incur debt on their own behalf, the debt instruments may restrict their ability to pay dividends or make other distributions, which in turn would limit our ability to pay dividends.

  

Under the current PRC laws, because Plastec is incorporated in the British Virgin Islands, its PRC subsidiaries are regarded as wholly foreign-owned enterprises in China. Under the new Enterprise Income Tax Law of the PRC effective from January 1, 2008, dividends paid by foreign-invested enterprises, such as wholly foreign-owned enterprises, are currently subject to a 10% PRC corporate withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The PRC laws permit payment of dividends only out of net income as determined in accordance with PRC accounting standards and regulations. Determination of net income under PRC accounting standards and regulations may differ from determination under U.S. GAAP in significant aspects, such as the use of different principles for recognition of revenue and expenses. In addition, distribution of additional equity interests by Plastec’s PRC subsidiaries to Plastec which are credited as fully paid through capitalizing their undistributed profits requires additional approval of the PRC government due to an increase in the registered capital and total investment in its subsidiaries in China. Under the PRC laws, Plastec’s PRC subsidiaries are required to set aside each year at least 10% of their after-tax profit based on PRC accounting standards to their statutory general reserves funds until the cumulative amount of such reserve fund reaches 50% of their registered capital. Furthermore, a wholly foreign-owned enterprise in the PRC may also be required to set aside individual funds for employee welfare, bonuses and development at its discretion and as stipulated in their articles of association. These reserve funds are not distributable as cash dividends.

 

13
 

 

Under current laws in Thailand, each of our Thailand operating subsidiaries must appropriate at least 5% of its distributable profits arising from its business to a reserve fund before making distribution of dividends, until the reserve fund reaches a level equivalent to at least 10% of the capital of the company. Distributions that we receive from the Thailand operating subsidiaries are subject to a withholding tax at a rate of up to 15%.

 

As a result, Plastec’s primary internal source of funds for dividend payments from its operating subsidiaries is subject to these and other legal and contractual restrictions and uncertainties.

 

PRC regulation of loans to, and direct investment in, PRC entities by offshore holding companies and governmental control of currency conversion may limit our ability to fund our expansion or operations.

 

As an offshore holding company with PRC subsidiaries, we may (i) make additional capital contributions to our PRC operating subsidiaries, (ii) establish new PRC subsidiaries and make capital contributions to these new PRC subsidiaries, (iii) make loans to our PRC operating subsidiaries or (iv) acquire offshore entities with business operations in China in an offshore transaction. However, most of these actions are subject to PRC regulations and approvals. For example:

 

•capital contributions to our PRC operating subsidiaries, whether existing ones or newly established ones, must be approved by the PRC Ministry of Commerce or its local counterparts; and

 

  • loans by us to our PRC operating subsidiaries, each of which is a foreign-invested enterprise, to finance their activities cannot exceed statutory limit, which is the difference between the registered capital and the amount of total investment as approved by the Ministry of Commerce or its local counterparts and must be registered with the PRC State Administration of Foreign Exchange, or SAFE, or its local branches.

 

On August 29, 2008, SAFE promulgated the Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign Invested Enterprises, or “SAFE Circular 142”, regulating the conversion by a foreign-invested enterprise of foreign currency registered capital into Renminbi by restricting how the converted Renminbi may be used. SAFE Circular 142 provides that the Renminbi capital converted from foreign currency registered capital of a foreign-invested enterprise may only be used for purposes within the business scope approved by the applicable governmental authority and may not be used for equity investments within the PRC, nor, except in the case of foreign-invested real estate enterprises, can Renminbi be used for acquisition of property in the PRC not for self-use purposes unless otherwise provided by laws and regulations. In addition, SAFE strengthened its oversight of the flow and use of the Renminbi capital converted from foreign currency registered capital of a foreign-invested company. The use of such Renminbi capital may not be altered without SAFE approval, and such Renminbi capital may not in any case be used to repay Renminbi loans if the proceeds of such loans have not been used. Violations of SAFE Circular 142 could result in severe monetary or other penalties, including substantial fines as set forth in the Foreign Exchange Administration Regulations. We cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, or at all, with respect to future loans or capital contributions by us to our PRC subsidiaries.

 

14
 

 

We face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.

 

Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises (“SAT Circular 698”), issued by the PRC State Administration of Taxation, or SAT, on December 10, 2009 with retroactive effect from January 1, 2008, except for the purchase and sale of equity through a public securities market where a non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly via disposing the equity interests of an overseas holding company, or an “Indirect Transfer,” the non-resident enterprise, being the transferor, shall report to the relevant tax authority of the PRC resident enterprise such Indirect Transfer. As a result, gains derived from such Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%. SAT Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC resident enterprise to its related parties at a price lower than the fair market value, the relevant tax authority has the power to make a reasonable adjustment to the taxable income of the transaction. On February 03, 2015, the SAT issued the Announcement of the State Administration of Taxation on Several Issues concerning the Enterprise Income Tax Deriving from the Indirect Transfers of Properties among Non-Resident Enterprises, or “Announcement 7.” Announcement 7 repealed relevant provisions in Circular 698 with respect to Indirect Transfer, and stipulates more detailed rules for tax treatment of indirect transfer of equity interest in PRC resident enterprises and other assets situated in China. Announcement 7 has broadened the scope of the Indirect Transfer under Circular 698 to non-resident enterprises’ indirect transfer of (i) the assets of an "establishment or place" situated in the PRC; (ii) real property situated in the PRC; and (iii) equity interest in Chinese resident enterprises. The Announcement 7 has also elaborated how to determine that an Indirect Transfer has “a reasonable commercial purpose” and specified the legal consequences for failing to withhold and pay tax. We may conduct acquisitions involving changes in corporate structures in the future and Circular 698 and Announcement 7 may be interpreted by the relevant tax authorities to be applicable if such future acquisitions are considered by the relevant tax authorities to be devoid of “a reasonable commercial purpose.” As a result, we may be required to expend valuable resources to comply with Circular 698 or other related tax rules, which may have a material adverse effect on our business, results of operations and financial condition in the future.

 

Compliance with environmental regulations can be expensive, and noncompliance may result in adverse publicity and potentially significant monetary damages and fines or suspension of our business operations.

 

We are required to comply with all national and local regulations regarding protection of the environment in China. Compliance with environmental regulations is expensive. On 24 April 2014, the Standing Committee of the PRC National People’s Congress amended the Environmental Protection Law and the newly amended Environmental Protection Law became effective on 1 January 2015. The new Environmental Protection Law imposes more stringent punishment on any violation of environmental protection law. If an entity fails to make correction after it is imposed a fine penalty and ordered to make correction due to its illegal discharge of pollutants, the competent environmental authority may impose fines on such entity continuously on a daily basis. If we fail to comply with relevant environmental regulations, we may be subject to substantial fines or damages or suspension of our business operations, and our reputation may be harmed.

 

The enforcement of the Labor Contract Law and other labor-related regulations in the PRC may adversely affect our business and results of operations.

 

As required by the relevant PRC laws and regulations, our PRC subsidiaries must provide their employees in the PRC with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, injury insurance, medical insurance and a housing accumulation fund. Our PRC subsidiaries are in material compliance with all applicable labor laws and regulations in the PRC and have provided their employees in the PRC with welfare schemes covering above-mentioned insurances. However, the housing accumulation fund scheme has not been fully implemented in a timely manner in certain parts of the PRC, including places where some of our PRC subsidiaries are located. As of the date of this Form 20-F, where the housing accumulation scheme has been compulsorily implemented, full contributions thereto have been made as required by relevant local authorities. Where the housing accumulation scheme has not been compulsorily implemented, full provisions thereto have been made for contributions once the implementation is carried out. Should any relevant local authorities consider any of our PRC subsidiaries as not in compliance with the requirements in respect of those insurances and the housing accumulation fund scheme, our PRC subsidiaries may be ordered by the relevant authorities to make the unpaid contributions or be fined and thus, our future operations may be adversely affected.

 

Risks Related to Us and Our Securities

 

Because we are incorporated under the laws of the Cayman Islands, you may face difficulties in protecting your interests, and your ability to protect your rights through the U.S. Federal courts may be limited.

 

We are a company incorporated under the laws of the Cayman Islands, and substantially all of our assets are located outside the United States. In addition, a majority of our directors and officers are nationals or residents of jurisdictions other than the United States and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult for investors to effect service of process within the United States upon our directors or executive officers, or enforce judgments obtained in the United States courts against our directors or officers.

 

15
 

 

Our corporate affairs are governed by our second amended and restated memorandum and articles of association, the Companies Law (2012 Revision) of the Cayman Islands (as the same may be supplemented or amended from time to time), or the “Companies Law,” and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, the decisions of whose courts are of persuasive authority, but are not binding on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws as compared to the United States, and certain states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law. In addition, Cayman Islands companies may not have standing to initiate a shareholders derivative action in a Federal court of the United States.

 

There is also uncertainty as to whether the courts of the Cayman Islands would:

 

  • recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; or

 

  • entertain original actions brought in each respective jurisdiction against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

 

The uncertainty relates to whether a judgment obtained from the U.S. courts under civil liability provisions of U.S. securities laws will be determined by the courts of the Cayman Islands as penal or punitive in nature. If such a determination is made, the courts of the Cayman Islands will not recognize or enforce the judgment against a Cayman Islands company, such as our company. As the courts of the Cayman Islands have yet to rule on making such a determination in relation to judgments obtained from U.S. courts under civil liability provisions of U.S. securities laws, it is uncertain whether such judgments would be enforceable in the Cayman Islands. The courts of the Cayman Islands would recognize as a valid judgment a final and conclusive judgment in personam obtained in the federal or state courts in the United States under which a sum of money is payable (other than a sum of money payable in respect of multiple damages, taxes or other charges of a like nature or in respect of a fine or other penalty) and would give a judgment based thereon provided that: (a) such courts had proper jurisdiction over the parties subject to such judgment; (b) such courts did not contravene the rules of natural justice of the Cayman Islands; (c) such judgment was not obtained by fraud; (d) the enforcement of the judgment would not be contrary to the public policy of the Cayman Islands; (e) no new admissible evidence relevant to the action is submitted prior to the rendering of the judgment by the courts of the Cayman Islands; and (f) there is due compliance with the correct procedures under the laws of the Cayman Islands.

 

As a result of all of the above, shareholders may have more difficulty in protecting their interests in the face of actions taken by management, members of the board of directors or controlling shareholders than they would as public shareholders of a United States company.

 

We may be treated as a passive foreign investment company (“PFIC”), which could result in adverse U.S. federal income tax consequences to U.S. investors.

 

In general, we would be treated as a PFIC for any taxable year in which either (1) at least 75% of our gross income (looking through certain 25% or more-owned corporate subsidiaries) is passive income or (2) at least 50% of the average value of our assets (looking through certain 25% or more-owned corporate subsidiaries) is attributable to assets that produce, or are held for the production of, passive income. Passive income generally includes, without limitation, dividends, interest, rents, royalties, and gains from the disposition of passive assets. If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. holder of our ordinary shares, the U.S. holder may be subject to increased U.S. federal income tax liability and may be subject to additional reporting requirements. Based on the expected composition (and estimated values) of the assets and the nature of the income of us and our subsidiaries and our current plans of operation, we do not expect to be treated as a PFIC for the current taxable year or in the near future. However, our actual PFIC status for any taxable year will not be determinable until after the end of such taxable year. Accordingly, there can be no assurance with respect to our status as a PFIC for our current taxable year or any subsequent taxable year. We urge U.S. investors to consult their own tax advisors regarding the possible application of the PFIC rules.

 

16
 

 

A national securities exchange may not list our securities, or if a national securities exchange does grant such listing, it could thereafter delist our securities, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.

 

We intend to apply to have our ordinary shares listed on a national securities exchange at an opportune time. However, there is no assurance that we will be successful in our efforts to have our securities listed. If a national securities exchange does not list our securities or if it grants such listing and thereafter delists our securities, we could face significant material adverse consequences, including:

 

  • A limited availability of market quotations for our securities;

 

  • A reduced liquidity with respect to our securities;

 

  • A determination that our ordinary shares are “penny stocks” which will require brokers trading in our shares to adhere to more stringent rules, possibly resulting in a reduced level of trading activity in the secondary trading market for our shares;

 

  • A limited amount of news and analyst coverage for us; and

 

  • A decreased ability to issue additional securities or obtain additional financing in the future.

   

If we fail to maintain an effective system of internal controls, we may be unable to accurately report our financial results or prevent fraud, and investor confidence and the market price of our ordinary shares may be adversely affected.

 

Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We are a relatively young company with limited accounting personnel and other resources with which to address our internal controls and procedures. In addition, we must implement financial and disclosure control procedures and corporate governance practices that enable us to comply, on a stand-alone basis, with the Sarbanes-Oxley Act of 2002 and related Securities and Exchange Commission, or the SEC, rules. For example, we will need to further develop accounting and financial capabilities, including the establishment of an internal audit function and development of documentation related to internal control policies and procedures. Failure to quickly establish the necessary controls and procedures would make it difficult to comply with SEC rules and regulations with respect to internal control and financial reporting. We will need to take further actions to continue to improve our internal controls. If we are unable to implement solutions to any weaknesses in our existing internal controls and procedures, or if we fail to maintain an effective system of internal controls in the future, we may be unable to accurately report our financial results or prevent fraud and investor confidence and the market price of our ordinary shares may be adversely impacted.

 

17
 

 

Section 404 of the Sarbanes-Oxley Act of 2002 requires us to perform an evaluation of our internal controls over financial reporting and file annual management assessments of their effectiveness with the SEC. The management assessment to be filed is required to include a certification of our internal controls by our chief executive officer and chief financial officer. In addition to satisfying requirements of Section 404, we may also make improvements to our management information system to computerize certain manual controls, establish a comprehensive procedures manual for US GAAP financial reporting, and increase the headcount in the accounting and internal audit functions with professional qualifications and experience in accounting, financial reporting and auditing under US GAAP.

 

If we become an “accelerated filer” or a “large accelerated filer” as those terms are defined under Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our auditors will be required to attest to our evaluation of internal controls over financial reporting. Unless we successfully design and implement changes to our internal controls and management systems, or if we fail to maintain the adequacy of these controls as such standards are modified or amended from time to time, we may not be able to comply with Section 404 of the Sarbanes-Oxley Act of 2002. As a result, our auditors may be unable to attest to the effectiveness of our internal controls over financial reporting. This could subject us to regulatory scrutiny and result in a loss of public confidence in our management, which could, among other things, adversely affect the price of our ordinary shares and our ability to raise additional capital.

  

Our executive officers have limited experience managing a public company subject to United States securities laws and preparing financial statements in U.S. GAAP.

 

Our chief executive officer and chief financial officer, who are primarily responsible for the disclosure contained in our annual reports and financial statements filed with the SEC, have limited experience as officers of a public company subject to United States securities laws since we are the first United States public company they have managed. As a result, our executive officers chiefly in charge of our disclosure have limited experience with United States securities laws and U.S. GAAP. Accordingly, they may not have sufficient knowledge to properly interpret the extensive SEC financial reporting and disclosure rules or all relevant U.S. GAAP accounting standards and guidance, and may have to rely on third party advisers for compliance. If we are unable to engage knowledgeable third party advisers or our executive officers improperly interpret SEC financial reporting and disclosure rules and U.S. GAAP accounting standards and guidance, investor confidence and the market price of our securities may be adversely impacted. 

 

One of our directors and officers controls a significant amount of our ordinary shares and his interests may not align with the interests of our other shareholders.

 

Kin Sun Sze-To, our Chairman of the Board of Directors, currently has beneficial ownership of approximately 63.9% of our issued and outstanding ordinary shares. This significant concentration of share ownership may adversely affect or reduce the trading price of our ordinary shares because investors often perceive a disadvantage in owning shares in a company with one or several controlling shareholders. Furthermore, our directors and officers, as a group, have the ability to significantly influence or control the outcome of all matters requiring shareholders’ approvals, including electing directors and approving mergers or other business combination transactions. These actions may be taken even if they are opposed by our other shareholders. This concentration of ownership and voting power may also discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company.

 

The market price for our shares may be volatile.

 

The market price for our shares is likely to be highly volatile and subject to wide fluctuations in response to factors including the following:

 

•actual or anticipated fluctuations in our quarterly operating results and changes or revisions of our expected results;

 

  • changes in financial estimates by securities research analysts;

 

  • conditions in the markets for plastic products;

 

  • changes in the economic performance or market valuations of companies specializing in the plastics business in China;

 

  • announcements by us and our affiliates or our competitors of new products, acquisitions, strategic relationships, joint ventures or capital commitments;

 

18
 

 

  • addition or departure of our senior management and key personnel; and

 

  • fluctuations of exchange rates between the RMB, the Hong Kong dollar and the U.S. dollar.

 

Volatility in the price of our shares may result in shareholder litigation that could in turn result in substantial costs and a diversion of our management’s attention and resources.

 

The financial markets in the United States and other countries have experienced significant price and volume fluctuations, and market prices have been and continue to be extremely volatile. Volatility in the price of our shares may be caused by factors outside of our control and may be unrelated or disproportionate to our results of operations. In the past, following periods of volatility in the market price of a public company’s securities, shareholders have frequently instituted securities class action litigation against such company. Litigation of this kind could result in substantial costs and a diversion of our management’s attention and resources.

 

If we do not pay dividends on our shares, shareholders may be forced to benefit from an investment in our shares only if those shares appreciate in value.

 

While we have paid dividends in the past, we currently do not intend to pay additional dividends in the future. The payment of dividends in the future will be entirely within the sole discretion of our board of directors. Whether future dividends will be declared will depend upon our future growth and earnings, of which there can be no assurance, and our cash flow needs for future development; all of which may be adversely affected by one or more of the factors described here. Accordingly, we may not declare or pay additional dividends in the future. Even if the board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board may deem relevant. If we determine not to pay any dividends in future, realization of a gain on shareholders’ investments will depend on the appreciation of the price of our shares, and there is no guarantee that our shares will appreciate in value. 

 

We may need additional capital, and the sale of additional shares or equity or debt securities could result in additional dilution to our shareholders.

 

We believe that our current cash and cash equivalents and anticipated cash flow from operations will be sufficient to meet our anticipated cash needs for the foreseeable future. We may, however, require additional cash resources due to changed business conditions or other future developments, including any investments or acquisitions we may decide to pursue. If these resources are insufficient to satisfy our cash requirements, we may seek to sell additional equity or debt securities or obtain one or more additional credit facilities. The sale of additional equity securities could result in additional dilution to our shareholders. The incurrence of indebtedness would result in increased debt service obligations and could result in operating and financing covenants that would restrict our operations. It is uncertain whether financing will be available in amounts or on terms acceptable to us, if at all. 

 

ITEM 4.               INFORMATION ON THE COMPANY.

 

A. Development of Our Company

 

Office Location

 

Our principal executive offices are located at Unit 01, 21/F, Aitken Vanson Centre, 61 Hoi Yuen Road, Kwun Tong, Kowloon, Hong Kong and our telephone number at that location is 852-21917155. Our registered office is PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands and our registered agent is Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our agent for service of process in the United States is Graubard Miller, our U.S. counsel, located at 405 Lexington Avenue, New York, New York 10174. We maintain a website at http://www.plastec.com.hk that contains information about our company, but that information is not part of this Form 20-F.

 

19
 

 

Principal Legal Advisers

 

Our principal legal adviser in the United States is Graubard Miller, located at 405 Lexington Avenue, New York, New York 10174. Our principal legal adviser in the Cayman Islands is Maples and Calder, located at PO Box 309, Ugland House, South Church Street, George Town, Grand Cayman KY1-1104, Cayman Islands. Our principal legal adviser in the People’s Republic of China is Jingtian & Gongcheng, located at 34/F, Tower 3, China Central Place, 77 Jianguo Road, Chaoyang District, Beijing 100025 People’s Republic of China.

 

History and Development

 

We are a Cayman Islands company organized under the Companies Law. We were formed on March 27, 2008 as an exempted company with limited liability. We were originally organized under the name “GSME Acquisition Partners I” for the purpose of acquiring, through a merger, share exchange, asset acquisition, plan of arrangement, recapitalization, reorganization or similar business combination, an operating business, or control of such operating business through contractual arrangements, that had its principal operations located in the PRC.

 

On November 25, 2009, we closed our initial public offering, or “IPO,” of 3,600,000 units with each unit consisting of one ordinary share and one warrant, or “public warrants,” each to purchase one ordinary share at an exercise price of $11.50 per share. The units were sold at an offering price of $10.00 per unit, generating gross proceeds of $36,000,000. We also issued to the underwriters in the IPO an aggregate of 360,000 unit purchase options, each to purchase a unit identical to the units sold in the IPO, at an exercise price of $15.00 per unit, of which 70,375 unit purchase options were subsequently repurchased by us in April 2012. Simultaneously with the consummation of the IPO, we consummated the private sale of 3,600,000 warrants, or “insider warrants,” at a price of $0.50 per warrant, generating total proceeds of $1,800,000. In connection with the IPO, our initial shareholders placed a total of 1,200,000 ordinary shares, or “initial shares”, in escrow pursuant to an escrow agreement with Continental Stock Transfer & Trust Company, as escrow agent.

 

From the consummation of our IPO until August 6, 2010, we were searching for a suitable target business to acquire. On August 6, 2010, we entered into an agreement and plan of reorganization, or “Merger Agreement,” with Plastec, each of the former Plastec shareholders and our merger subsidiary, which provided, among other things, that our wholly owned subsidiary would merge with and into Plastec, with Plastec surviving as a wholly owned subsidiary of ours. The Merger Agreement was subsequently amended in September 2010 and December 2010 but continued to provide for our wholly owned subsidiary to merge with and into Plastec, with Plastec surviving as a wholly owned subsidiary of ours. On December 10, 2010, we held an extraordinary general meeting of our shareholders, at which our shareholders approved the merger and other related proposals. On December 16, 2010, we closed the merger. At the closing, we issued to the former shareholders of Plastec an aggregate of 7,054,583 ordinary shares and agreed to issue the former Plastec shareholders an aggregate of 9,723,988 earnout shares additionally upon the achievement by Plastec of certain net income targets. Also at the closing, 2,615,732 of the public shares sold in our IPO were converted into cash and cancelled based on the election of the holders to exercise their conversion rights. In connection with the merger, our business became the business of Plastec and we changed our name to “Plastec Technologies, Ltd.” On April 30, 2011, we further amended the Merger Agreement to remove certain earnout provisions contained within it and to issue an aggregate of 7,486,845 ordinary shares to the former Plastec shareholders. We subsequently repurchased from one of the former Plastec shareholders an aggregate of 1,570,000 shares.

 

In connection with the merger with Plastec, we amended the terms of the escrow agreement with the initial shareholders to include in escrow an aggregate of 2,418,878 of the insider warrants and to provide additional restrictions on the release from escrow of all of the securities, including the requirement to raise certain financing by December 16, 2011. On December 16, 2011, the escrow agreement was again amended and the date on which the required financing was needed by was extended to March 16, 2012. No funds were ultimately raised and as a result, a total of 806,293 initial shares and the entire 2,418,878 insider warrants held in escrow were automatically repurchased by us at an aggregate consideration of $0.01 and cancelled.

 

We announced the establishment of a repurchase program in December 2011, under which and as the program was subsequently extended and expanded, we were allowed to repurchase up to $5 million of our ordinary shares and public warrants in both open market and privately negotiated transactions at the discretion of our management and as market conditions allowed, or “2011 Repurchase Program.” At the completion of the 2011 Repurchase Program on September 25, 2013, we had repurchased 832,765 ordinary shares and 85,000 public warrants thereunder.

 

On September 25, 2013, we also announced a new repurchase program, under which and as the program was subsequently extended and expanded, we are allowed to repurchase up to $5 million of our units, ordinary shares and public warrants in both open market and privately negotiated transactions at the discretion of our management and as market conditions allowed, or “2013 Repurchase Program.” The 2013 Repurchase Program is currently valid through September 25, 2015 and so far we have repurchased 586,010 ordinary shares and 547,600 public warrants thereunder.

 

On November 18, 2014, all issued and outstanding public warrants, insider warrants and unit purchase options expired and were cancelled accordingly.

 

20
 

 

B. Business Overview

 

General

 

We are a vertically integrated plastic manufacturing services provider. We provide comprehensive precision plastic manufacturing services from mold design and fabrication and plastic injection manufacturing to secondary-process finishing as well as parts assembly through our wholly owned subsidiary, Plastec. For more information concerning our organizational structure as at the date of this Form 20-F, please refer to our chart of operating subsidiaries on page 35 of this Form 20-F.

 

We manufacture our products solely on the basis of customer orders. Our major customers include leading international OEMs, ODMs and OBMs of consumer electronics, electrical home appliances, telecommunication devices, computer peripherals and precision plastic toys.

 

The Asia-Pacific region has been our principal market, accounting for approximately 57.5%, 49.6%, 51.2%, 41.4% and 44.6% of our revenues for the year ended April 30, 2012, the 8-month period and the year ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively. Europe accounted for approximately 42.0%, 40.7%, 41.3%, 49.1% and 43.4% of our revenues for the year ended April 30, 2012, the 8-month period and the year ended December 31, 2012 and for the years ended December 31, 2013 and 2014, respectively. The United States accounted for the balance for approximately 0.5%, 9.7%, 7.5%, 9.5% and 12.0% of our revenues for the year ended April 30, 2012, the 8-month period and the year ended December 31, 2012 and for the years ended December 31, 2013 and 2014, respectively.

 

As of the date of this Form 20-F, Plastec has production facilities in Guangdong Province, Jiangsu Province, China and Saraburi Province, Thailand.

 

Our Competitive Strengths

 

We believe that our principal competitive strengths include the following:

 

Our ability to provide one-stop integrated manufacturing services

 

We provide one-stop integrated services for the manufacture of precision plastic components used in various electronic devices, including mold design, precision mold fabrication, plastic injection manufacturing, secondary-process finishing and parts assembly. As an integrated plastic manufacturing services provider, we are able to plan and undertake the entire plastic component manufacturing process for new products launched by our customers. With our dedication and expertise in mold design and fabrication, plastic injection manufacturing and secondary-process finishing, we are also able to assist our customers in moving their products from their conceptual design to mass production quickly and economically. Our integrated manufacturing ability allows our customers to focus on other aspects of the production and marketing of their products.

 

Our expertise and capabilities in high-precision mold design and fabrication

 

We possess considerable plastic manufacturing expertise and know-how and are able to provide quick and quality services to our customers, especially in high-precision mold design and fabrication. One of the strengths of our mold fabrication division is our ability to assist our customers in accurately prototyping their product concepts and in designing and manufacturing precision toolings and molds. We own advanced design software and equipment necessary for such high-precision mold fabrication, which enhances the efficiency of its mold design and fabrication. We also use some of the most advanced mold fabrication machines and plastic injection machines available in the industry. We believe our expertise and know-how in high-precision mold design and fabrication shortens the lead time we need before we mass-produce such products and represent a significant advantage over our competitors.

 

Our just-in-time delivery service

 

Our just-in-time delivery service is designed to meet our customers’ stringent inventory management systems and their demanding delivery schedules. We have strategically established our manufacturing facilities in Dongguan and Shenzhen of Guangdong Province and Kunshan of Jiangsu Province, China as well as in Bangkok of Thailand in order to stay close to our customers’ assembly plants there, which strategic positioning not only enables us to accommodate our customers’ just-in-time inventory management systems but also reduces our transportation costs and enhances our direct communications with customers. 

 

21
 

 

Our stringent quality control

 

Our customers include major companies in their respective industries who are generally known for their high quality products sold throughout the world, and a majority of our products are used in well-known brands. We have imposed stringent quality control measures on each phase of our manufacturing process, including our raw materials, semi-finished products and finished products. Our quality control procedures are designed to enable us to promptly identify flaws or defects during the production process. The successful implementation of our quality control system is demonstrated by the low rate of goods returned, which was approximately 0.34%, 0.09%, 0.15%, 0.11% and 0.10% during the year ended April 30, 2012, the 8-month period and the year ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively, based on our total revenues for the corresponding years and period of HK$1,291.2 million, HK$933.9 million, HK$1,313.8 million, HK$1,167.1 million and HK$1,207.8 million, respectively.

 

To ensure the quality of Plastec's manufacturing processes, Plastec has subjected its manufacturing facilities to various compliance standards and certifications available in the plastics industry. The most recent awards and certifications for each facility as of December 31, 2014 are presented in the following table:

 

Award/Certification  

Latest Award

Date

  

Manufacturing

Facility

  

Certifying

Organization

ISO 9001:2008 Certification   June 2013   Dongguan Sun Chuen Manufacturing Plant  

SGS United

Kingdom Ltd. (“SGS'')

             
ISO 14001:2004 Certification   October 2014   Dongguan Sun Chuen Manufacturing Plant   SGS
             
Certificate of Compliance (Component-fabricated parts)   January 2013   Dongguan Sun Chuen Manufacturing Plant   Underwriter
Laboratories Inc. (“UL'')
             
ISO 9001:2008 Certification   August 2012   Kunshan Broadway Manufacturing Plant  

Kaixin Certification

(Beijing) Co. Ltd.

             
ISO 14001:2004 Certification   August 2012   Kunshan Broadway Manufacturing Plant  

Kaixin Certification

(Beijing) Co. Ltd.

             
ICTI Code of Business Practices (2013 Version) Certification   April 2014   Shenzhen Broadway Manufacturing Plant   ICTI Care Foundation
             
ISO 9001:2008 Certification   October 2014   Shenzhen Broadway Manufacturing Plant   SGS
             
ISO 14001:2004 Certification   June 2013   Shenzhen Broadway Manufacturing Plant   SGS
             
ISO/TS 16949:2009 Certification   October 2013   Shenzhen Broadway Manufacturing Plant   SGS
             
ISO 9001:2008 Certification   May 2013   Broadway Precision (Thailand) Co., Ltd.   SGS
             
ISO 9001:2008 Certification   May 2013   Broadway Industries (Thailand) Co., Ltd.   SGS
             
Certificate of Compliance (Component-fabricated parts)   December 2012   Broadway Industries (Thailand) Co., Ltd.   UL

 

Our stringent quality control is highly regarded by our customers as one of the most important attributes that enables us to retain our existing customers and to expand our customer base. Our dedication to the quality of our products and services has also won us numerous certifications of satisfaction from our customers in respect of such products and services.

 

22
 

 

Our well established long-term customer relationships

 

We have successfully established and maintained good long-term business relationships with many of our customers. Most of our major customers have been doing business with us for more than five years and some of them for over 10 years. We believe our capability to design and fabricate high-precision mold and tooling, to manufacture high quality plastic components and our strategically located production facilities to accommodate the just-in-time inventory control systems of our customers and their demanding production schedules provide us with a significant competitive advantage over our competitors. We believe that we have earned the trust and confidence of our customers mainly due to our reliability in providing quality products and services at competitive prices on a timely basis.

 

Our experienced and dedicated management

 

Kin Sun Sze-To, Plastec’s Chairman and founder and our Chairman of the Board and Chief Executive Officer, and Chin Hien Tan, Plastec’s Executive Director and our Chief Operating Officer, have over 20 years of experience each in the plastic injection and molding industry. Mr. Sze-To leads a professional management team that possesses extensive industry experiences and knowledge in the latest plastic technology. Guided by our senior management, Plastec (via its precursor) entered the PRC market in 1993. As more and more global brands started to outsource component manufacturing from their China assembly plants over the years, we have strategically and principally established ourselves in the PRC market, with a diversified and growing customer base. We believe that our extensive experience accumulated over the past 20 years and our familiarity with the PRC market in particular, coupled with our scale of operations and cutting edge technology and equipment, are key competitive advantages that we have over many of our competitors.

 

Our Business Strategy

 

Our principal business strategies and future plans include the following:

 

Expanding our product mix and customer base

 

As plastic is becoming an increasingly popular material in many industries, we intend to capitalize on this trend by manufacturing plastic casings, components and utensils for products beyond the current categories. As most of our customers are multinational companies engaged in the production of a variety of products, we believe that our efforts to keep our technology and manufacturing capabilities in line with industry trends and the confidence and trust we have gained from our multinational customers will facilitate the realization of our strategy of seeking new business opportunities and expanding our product mix.

 

Continue to improve our production facilities and expand our production capacity

 

We are devoted to continuously improving and expanding our existing production facilities principally in Guangdong Province while we seek opportunities to further expand our production capacity in other parts of China or overseas. We believe these improvements will enhance our competitiveness in the higher-end plastic production market and will also improve our overall profit margin in the long-run.

  

Since our production is entirely customer order based, in order to meet demands of our customers in other regions of China or other parts of the world, and as a long-term plan, we may establish additional facilities in other parts of China or overseas where circumstances and demand justify. Well-selected strategic locations of production facilities will allow us to shorten our delivery time, facilitate communications with customers and help customers reduce their inventory carrying costs.

 

Continue to focus on leading global brands in our customer development efforts

 

We will continue to devote significant marketing efforts to maintaining our existing customers and developing new customers from leading global brands in order to broaden our customer base. As our manufacturing facilities are geared for high-end plastic products, we will continue to focus on top global brands that demand higher product quality and more stringent product specifications. Global brands also tend to have a shorter product cycle and generally launch new products and product models to the market at shorter intervals. We believe that we are uniquely positioned to cater to the needs of these customers with our technology, know-how and some of the most advanced production facilities available in the industry. In such pursuit, we not only enjoy generally better profit margins associated with newly launched products and models, but also benefit from the generally better credit standings of such global customers in our efforts to reduce credit risk. We believe that it is crucial for us to stay abreast with the global trend of manufacturing outsourcing and to be able to service needs of international manufacturers that decide to outsource their precision plastic products.

 

23
 

 

Continue to improve precision molding to cater to higher quality specifications

 

Capitalizing on our expertise in precision mold design and fabrication, we will continue to improve and enhance our high and stringent specification molding production. We plan to purchase additional state-of-the-art computerized design systems and molding equipment so as to further distinguish ourselves as a precision molding specialist in the industry. We expect that our high-end production approach will avoid or minimize competition from other PRC or overseas competitors and will increase our market share in high-precision component manufacturing.

 

Products and Services

 

We produce a vast array of plastic casings, components and utensils. These high-precision molded plastic products are designed and made for different applications. We also provide mold design and fabrication services, secondary-process finishing and parts assembly services to offer our customers with one-stop-shop services. As an industrial practice, customers are not required to inform us the final products and it would therefore be hard for us to provide an accurate statistic of the segment for the plastic casings, components and utensils we produced. Based on the nature of our customers, however, we surmise that most of our products are used in the consumer electronics and telecommunication industry.

 

We categorize our sales by geographic market on the basis of the location of the customers that we are billing, regardless of the actual location of those goods we ship to such customers, as follows:

 

 

   Year ended
April 30,		   8 months ended
December 31,		   Year ended December 31, 
Revenues by geographic market  2012   2012   2012   2013   2014 
Asia-Pacific Region   57.5%   49.6%   51.2%   41.4%   44.6%
Europe   42.0%   40.7%   41.3%   49.1%   43.4%
United States   0.5%   9.7%   7.5%   9.5%   12.0%
Total   100.0%   100.0%   100.0%   100.0%   100.0%

 

24
 

 

Production Process

 

Our production process currently takes approximately six to eight weeks on average from the design stage to the delivery of products to the customers. Over the years, we have implemented various measures to improve our efficiencies and to shorten lead-time. Complexity of the product specifications tends to prolong the time needed by us and the customers to finalize the product model. The stages of this production process where we play a crucial role include mainly:

 

  • mold design and fabrication;

 

  • plastic injection manufacturing;

 

  • secondary-process finishing; and

 

  • parts assembly.

 

Mold design and fabrication

 

Mold design and fabrication, or “tooling,” is a crucial step in the manufacturing process of molded precision plastic products. With our sophisticated equipment and substantial experience and know-how relating to mold development, we are capable of fabricating high precision molds for use in plastic injection machines of up to 850 tons in clamping force with parts dimension tolerance of up to 0.01 millimeters, which measures the changes in dimensions of molded plastic products before and after they are cooled. Molds with high precision are necessary for the production of high quality molded plastic products. Our design engineers closely collaborate with our customers throughout the mold design process in order to develop a mold that optimizes cost-efficiency, capacity and quality. We believe that our mold design and fabrication capability represents a substantial competitive strength over our competitors and constitutes an indispensable part of our core competencies in this precision plastic products business.

 

Mold design and fabrication is an interactive process between us and our customers. We have skilled design engineers and technicians in Shenzhen and Dongguan, assisted by computer-aided design, or “CAD,” and computer-aided manufacturing, or “CAM,” software systems to design the molds. Based on initial product designs and specifications provided by our customers, our design engineers use fused deposition modeling, or “FDM,” technology to prototype the finished products in accordance with the designs of the customers and prepare detailed specifications for the molds. Through a consultation process known as “co-design” for the molds, our design engineers would recommend improvements to the original product design and specifications, such as to increase durability of the molds and to enhance reliability of the products.

 

When we finalize the mold designs, we use CAD to draw up the detailed specifications. We then use CAM to detail our manufacturing procedures in accordance with the detailed CAD specifications and start to manufacture with the assistance of our advanced machinery such as our computer-numerical controlled, or “CNC,” machining systems. Our CNC machining systems commence milling the mold prototypes from graphite or copper electrodes. Once the customers have verified the finished-product prototypes, we commence fabrication of the molds via a combination of precision milling, grinding, wire-cutting and electro-discharge machining, or “EDM.”

 

We then polish, assemble and use the molds to manufacture an initial batch of the plastic products for the first-article inspection by our customers. We also offer chemical treatment process for the molds, at the request of our customers, to produce special textured casings or high-gloss mirror finishing for products.

 

Our tooling division is able to produce approximately 100 to 120 molds on a monthly basis with competitive lead time ranging from 20 to 60 days. The length of the lead time primarily depends on the complexity and size requirements of the mold. We produce molds that generally weigh up to 7.5 tons.

 

Our customers generally bear the costs of designing and producing customer-specific molds. We generally maintain and store the molds we have fabricated for our customers at our facilities for use in further productions. Sometimes we also own the molds, in which case we will bear the costs in designing and producing them. Through such additional services to our customers, we seek to create customer dependence on us to manufacture additional plastic parts and components when need arises.

 

25
 

 

Plastic injection manufacturing

 

To manufacture a molded plastic product, the mold is first mounted onto an injection molding machine and is clamped. Resin, in granular form, is then loaded into the machine, to be dehumidified and melted into viscous form. The viscous resin is then injected into the mold at high pressure. Coolant will then pass through the mold to solidify the resin into the shape required. When the plastic has cooled, the mold is unclamped and the product is ejected. We then perform quality checks on the products for flaws and defects before forwarding them for secondary-process finishing or packaging for shipment. The entire injection molding process takes approximately 15 to 60 seconds.

 

Each of our injection molding machines is capable of servicing a variety of applications and product configurations. Plastic injection molding machines are classified according to the clamping force, the maximum force/pressure an injection molding machine is capable of exerting in order to hold a mold in place during the injection molding process.

 

Secondary-process finishing

 

We provide a wide range of secondary-process finishing services, including smoothing and polishing, laser marking, silk-screening, pad printing, spraying, painting, ultra-violet coating, anti-fog coating, hot stamping and metallic coating in our production plants. We carry out most of these secondary-process finishing services in our controlled environment production areas. Although we automate some of our secondary-process finishing services, such as spray painting, a significant portion of its other secondary-process finishing services is labor-intensive due to the different secondary-process finishing requirements from our customers. Our secondary-process finishing enhances the appearance or external functionality of molded plastic products.

 

Parts assembly

 

In response to increasing demands for integrated manufacturing solutions from our customers, we also provide parts assembly services for our molded plastic products as a turn-key solution to our customers. We usually assemble the plastic components into semi-finished parts before their delivery. Our customers will further incorporate their electronic or electrical components into our products to produce their finished products. The parts assembly business has become an important part of the integrated manufacturing services desired by our customers. Most of our parts assembly services, however, are labor-intensive due to the different assembly requirements from our customers.

 

Quality Control

 

Commensurate with our competitive capabilities in high-precision plastic product manufacturing, we have established an in-house quality control, or “QC,” department that maintains stringent quality controls over all of our products. We strictly carry out all customer-required QC measures in addition to routine quality control. Our fundamental QC principle is to build quality not only into our products and services but also into our processes at the earliest possible stage. Our QC procedures require quality control checks to be performed at each critical stage of our production process to meet our own quality requirements and to conform to our customer’s specifications. Quality control checks are carried out, recorded and monitored by our QC department.

 

As integrated plastic manufacturing services are relatively labor intensive by nature, we deploy staff members at various control check points to make sure that our customers’ numerous requirements in product designs, appearances and functionalities are properly observed. Our QC staffs are located at all of our manufacturing plants in China and Thailand.

 

In addition to our human quality controllers, we also use some of the most advanced machines to control and test our product quality. As of the date of this Form 20-F, our QC department also employs the following equipment to monitor our product quality:

 

  • Coordinate measuring machine.

 

  • Optical measuring system.

 

26
 

 

  • Spectrophotometer.

 

  • RoHS analyzing system.

 

  • Paint thickness tester.

 

  • UV analyzer.

 

For plastic components, we are required by our customers to have the procurement and manufacturing processes certified by The Underwriters Laboratories Inc.

 

Some of our manufacturing processes and quality control systems are subject to semi-annual QC audit by SGS United Kingdom Ltd., a provider of inspection, verification, testing and certification services, or other internationally recognized organizations. Such audit includes verification of personnel training, proper maintenance and calibration of equipment used in the manufacturing process as well as use of correct procedures for all operations.

 

Production Facilities and Capacity

 

As of the date of this Form 20-F, we have production facilities in China and Thailand to carry out our manufacturing operations, all of which are located in Guangdong Province and Jiangsu Province, China and Saraburi Province, Thailand. As at the year ended December 31, 2014, the plant and machinery accounted for approximately 22.3% of our total assets in terms of net book values. 

 

In 2011, we established operations in Saraburi Province, Thailand. During the fiscal year ended April 30, 2012, we had completed the construction of a four-story extension to our mold design and fabrication center at our Shenzhen plant. By August 2012, the construction of another 9-story industrial building for our plastic injection and assemble operations at our Shenzhen plant was also completed. As a result of all these expansions, which helped to boost operating floor space at our production plants in Shenzhen, PRC and in Thailand collectively, our capacities and capabilities both in terms of better serving stringent customers requirements and attracting new customers have been enhanced significantly.

 

Sales and Marketing

 

We manufacture our products solely on the basis of customer orders. Our major customers include leading international OEMs, ODMs and OBMs of consumer electronics, electrical home appliances, telecommunication devices, computer peripherals and precision plastic toys. We market our manufacturing services largely through specific targeted client developments, rather than large-scale promotion efforts, such as various trade shows organized for the plastic industry. Our marketing personnel are mostly plastic industry engineers or technicians. They endeavor to identify appropriate potential customers and to qualify us for the approved vendor status at these customers. A vendor qualification process typically takes 6 to 18 months in the plastics industry for precision plastic manufacturing services. Once a potential customer is identified and has expressed interest in exploring our services, it will often involve an initial period of questions and answers, followed by various in-depth interactive investigations by the potential customer, including factory audit, technical capacity and capability audit, QC audit, supplier audit, attention-to-detail evaluation, environmental assessment, financial analysis and general industry reputation investigation.

 

In addition to maintaining the solid working relationship with our current customers principally in Guangdong Province of China, we are actively developing new clientele, not only with respect to leading international OEMs, ODMs and OBMs with whom we have not had an opportunity to cooperate, but also with respect to our current multinational customers with operations in regions other than Guangdong Province in China.

 

Our marketing and sales staffs are able to understand the business and technical needs of our customers, to engage in in-depth discussions with our customers with respect to their requirements, and to assist our customers in enhancing and materializing the contemplated functionalities of the products they plan to launch. In addition to liaising with customers, securing sales orders and providing after-sales services, our marketing and sales professionals also play an important role in promoting our corporate image through our dedication and professionalism. In the past, we have also developed important customers and generated significant sales through referrals from existing customers.

 

27
 

 

Credit Control Policy

 

We usually require our customers to pay an advance deposit for production of molds to cover the related development costs. Payment of the balance of the production of molds and manufacturing of plastic products is typically subject to normal credit terms ranging from approximately 60 to 120 days. However, the exact credit term granted to a customer is dependent on a number of criteria such as the length of business relationship, general market standing, past payment record and financial strength of the relevant customer. Our finance department reviews and approves the credit term of each customer before it is agreed and implemented.

 

The credit terms extended to Plastec by its trade suppliers are mostly between 30 to 120 days.

 

Inventory Management

 

As our production process is sales driven, we commence production only after we have received confirmation from our customers with respect to their purchase orders. Similarly, we purchase raw materials in accordance with the pre-determined production schedules. Our production model, therefore, allows us to minimize our inventory level due to the fact that we purchase the majority of our raw materials only when they are needed to fulfill our customers’ orders. We also maintain a minimum inventory of finished goods as we endeavor to manufacture our products in accordance with our customers’ “just-in-time” delivery production schedules. 

 

As at April 30, 2012, the 8-month period and the year ended December 31, 2012 and the years ended December 31, 2013 and 2014, our inventory level was approximately HK$128.4 million, HK$97.5 million, HK$97.5 million, HK$107.1 million and HK$96.0 million, respectively, and our inventory turnover during these time periods was 41, 30, 31, 43 and 39, respectively (based on 365 days a year and 245 days for an 8-month period ended December 31). We review our inventory level on an ongoing basis. Generally, we make provision for any slow-moving inventory that is older than six months. We may sell obsolete inventory as scrap and recognize income derived from such sales as part of our other income.

 

Research and Development

 

We do not have a dedicated research and development department. As a result, we do not separately account for research and development expenditures, as they are included in our cost of sales. However, in response to our customers’ technical requirements, we launch various research and development initiatives as a part of our manufacturing process, to focus on enhancing mold design and fabrication, the overall manufacturing process and the secondary-process finishing. We organize our engineers and other technical personnel to undertake these efforts to improve the quality of our products and services and to widen our manufacturing capabilities and know-how. We will continue to upgrade and expand our capabilities in mold design and fabrication and in our integrated manufacturing services in order to provide higher value-added services to our customers.

  

Major Customers

 

Our major customers consist of some of the leading international OEMs, ODMs and OBMs of consumer electronics, electrical home appliances, telecommunication devices, computer peripherals and precision plastic toys. We believe that we have maintained good working relationships with our customers. Due to the nature of the plastics industry, we have attached as much importance to customer maintenance as to customer development.

 

The five major customers, which accounted for 5.0% or more of our total revenues, collectively accounted for approximately 77.1%, 74.0%, 72.3%, 77.7% and 75.5% of our revenues for the year ended April 30, 2012, the 8-month period ended and the year ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively. Historically, our largest customer accounted for approximately 35.6%, 36.4%, 36.2%, 44.4% and 42.0% of our revenues for the year ended April 30, 2012, the 8-month period ended and the year ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively.

 

None of our directors, executive officers or significant shareholders or any of their affiliates has any ownership interest, direct or indirect, in any of our major customers. Related party transactions are disclosed in Item 7.B of this Form 20-F.

 

28
 

 

Major Suppliers and Raw Materials

 

We purchase a variety of raw materials, including resins, chemicals, solvent and mold base, from over 12 suppliers, of which 66.7% are based in Hong Kong and 33.3% are based in China. Our customers determine the suppliers of specific raw materials to be used in their products. With our customer’s approved suppliers, we negotiate the price and quantity of raw materials with the suppliers. Our customers typically provide multiple suppliers for any specific raw material. To a significant extent, our customers maintain control over the quality and pricing of raw materials used in their products and we are generally allowed to pass through any significant raw material price increases or decreases to them.

 

We had two suppliers which accounted for 5.0% or more of our total purchases for the year ended April 30, 2012, who collectively accounted for approximately 24.1% of our purchases. We had three suppliers which accounted for 5.0% or more of our purchases for the 8-month period ended December 31, 2012, who collectively accounted for approximately 23.3% of our purchases in this 8-month period. We had two suppliers which accounted for 5.0% or more of our total purchases for the year ended December 31, 2012, who collectively accounted for approximately 19.8% of our purchases. We had 3 suppliers which accounted for 5.0% or more of our total purchases for the years ended December 31, 2013 and 2014, who collectively accounted for approximately 29.0% and 23.6%, of our purchases, respectively. Historically, our largest supplier accounted for approximately 13.7%, 10.5%, 12.4%, 12.4% and 9.5% of our purchases for the year ended April 30, 2012, the 8-month period and the year ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively.

 

The settlement for our purchase of raw materials are mostly denominated either in Hong Kong dollars or U.S. dollars or Reminbi or Thai Baht on an open account basis with credit terms ranging from 30 to 90 days.

 

As disclosed in the section above titled “ Inventory Management ,” because our production is customer driven, we commence production only upon receipt of a customer’s purchase orders. Similarly, we purchase raw materials according to a pre-determined production schedule. We endeavor to minimize our inventory risk by purchasing the majority of raw materials only when needed to fulfill customers’ orders. 

 

We have not experienced any difficulties in obtaining raw materials from our suppliers. We have generally maintained a good business relationship with our suppliers and do not believe that we will experience any significant difficulties in sourcing raw materials from our existing suppliers or in finding alternative suppliers if necessary in the future.

 

None of our directors, executive officers or significant shareholders or any of their affiliates has any ownership interest, direct or indirect, in any of our major suppliers. Related party transactions are disclosed in Item 7.B of this Form 20-F.

 

Competition

 

There are many precision plastic product manufacturing service providers in China, Hong Kong and Thailand. Our industry is fragmented and we are not aware of any independent published statistics on market share or industry ranking for its industry.

 

We believe that the key factors considered by customers when choosing a vendor for precision plastic products and services include the vendor’s overall capabilities, such as ability to provide integrated manufacturing and finishing services, mold design and fabrication capabilities, products quality, scope and flexibility of product offering, speed of supply, pricing, attention to details, financial strength, as well as the customer’s previous experience and relationships with the vendor. We believe that our in-house mold design and fabrication capability, our integrated precision plastic manufacturing and finishing capability, our in-depth knowledge and know-how in this industry and our advanced machinery and equipment give us a competitive advantage over many of our competitors.

 

While most of the foreign manufacturers, including us, with production sites in China currently dominate the higher-end sector of the PRC plastic OEM, ODM and OBM market, domestic PRC manufacturers, including various medium- and small-size companies, largely compete in the mid- to lower-end market. Domestic PRC manufacturers, however, often have wider sales networks in the country and lower production costs. In addition, they are quickly catching up in manufacturing technology and overall quality control. In addition, China has lifted its import restrictions, lowered import tariffs and relaxed foreign investment restrictions after its entry into the World Trade Organization in December 2001. This has led to increased competition from foreign imports. We cannot assure that, as more foreign and domestic competitors establish PRC-based manufacturing facilities to lower their production costs, price competition will not further intensify in the marketplace.

 

29
 

 

 

Government Regulations

 

Our operations are subject to the following laws and regulations.

 

Wholly-Foreign Owned Enterprises.   Our PRC subsidiaries are all wholly foreign-owned enterprises, which are subject to foreign investment laws of the PRC. The wholly foreign-owned enterprises are governed by the Law of the People’s Republic of China on Foreign-Capital Enterprises and its amendment, which were promulgated on April 12, 1986 and October 31, 2000 respectively, and its Implementation Regulations promulgated on December 12, 1990 and lately amended on February 19, 2014 (together the “Foreign Enterprises Law”), which regulate all the matters as to establishment procedures, approval procedures, registered capital requirements, foreign exchange restrictions, accounting practices, taxation, employment and all other relevant matters.

 

The Ministry of Commerce or its delegated authorities (together the “MOC”) is the examining and approving body for the establishment of a wholly foreign-owned enterprise, and will issue a certificate of approval after an application has been examined and approved. Following MOC’s approval, a wholly foreign-owned enterprise shall also obtain a business license from the local industrial and commercial administrative authorities before it can commence business. The date of issue of the business license of a wholly foreign-owned enterprise is the date of its establishment. In the event of division, merger or other major changes, a wholly foreign-owned enterprise shall also report to, and seek approval from the MOC and carry out procedures for registration of such changes with the industrial and commercial administrative authorities. All of our PRC subsidiaries currently hold valid and most updated certificates of approval for establishment of enterprises with foreign investment and business licenses respectively.

 

Further, any investments conducted by foreign investors and foreign enterprises in the PRC shall be subject to the Guidance Catalogue of Industries for the Foreign Investment (the “Guidance Catalogue”), the latest version of which was promulgated by the MOC and the National Development and Reform Commission on March 10, 2015 and came into effect on April 10, 2015. The Guidance Catalogue set out categories of foreign investment industries, namely, the Encouraged Foreign Investment Industries, the Restricted Foreign Investment Industries and the Prohibited Foreign Investment Industries. Any industry not listed in the Guidance Catalogue is classified as the Permitted Foreign Investment Industries. Under the Guidance Catalogue, our business does not fall under the prohibited or the restricted categories for foreign investments.

 

Imports and Exports.   Most of our products manufactured in China are exported to foreign countries. Therefore we are subject to the laws and regulations in relation to import and exports. According to the PRC Foreign Trade Law, which was promulgated on May 12, 1994 and revised on April 6, 2004, a foreign trade operator who is engaged in the import and export of goods or technologies shall process the filing and registration with the department of foreign trade under the State Council or its authorized institute, unless otherwise provided by the laws and regulations. The specific method for filing and registration shall be formulated by the department of foreign trade under the State Council (presently, the MOC). For the foreign trade operators who fail to register in accordance with the provisions of the regulations, Customs will not process the import and export goods declaration and clearance procedure. According to the Goods Import and Export Regulations, which were promulgated by the State Council on December 10, 2001 and implemented on January 1, 2002, the government can prohibit and restrict the import and export of goods under certain circumstances. No goods may be imported and exported when the government prohibits the import and export. The goods under national restriction on import quantity are subject to quota administration. The goods under other import restriction are subject to permit administration. No restriction is imposed on goods of free import.

 

Further, the Foreign Trade Law and the Measures for the Archival Filing and Registration of Foreign Trade Operators, which were promulgated by the MOC on June 25, 2004, require enterprises engaged in foreign trade to register with the relevant authorities in charge of foreign trade under the State Council (presently, the MOC) and obtain permission for their foreign trade operations, if necessary. Also, pursuant to the Administrative Provisions for the Registration of Customs Declaration Agents by the PRC Customs Authorities, which were promulgated by the General Administration of Customs on March 13, 2014, entities or individuals who import or export goods are required to complete the registration formalities with Customs authorities before they may handle their own declarations. All of our PRC subsidiaries engaging in the export business have obtained such permissions and currently hold valid Customs Declaration Registration Certificates for Consignors and Consignees of Import and Export Goods.

 

30
 

  

Environmental Regulations.   The Ministry of Environmental Protection of the PRC (the “MEP”) is responsible for the overall supervision and administration of the environmental protection work in the PRC and is the principal department in this discipline. The Environmental Protection Law of the PRC, approved and implemented by the Standing Committee of the National People’s Congress on December 26, 1989 and amended on April 24, 2014, was enacted to protect and improve the living environment and ecological environment, prevent and administer pollution and other public hazards in order to safeguard human health. According to this law, enterprises causing environmental pollution and other public hazards must incorporate the environmental protection works into their plans and establish an accountability system in environmental protection. In constructing the projects that may cause environmental pollution, such enterprises must comply with the requirements of environmental protection administration for the respective construction projects. The prevention pollution facilities of the construction project must be designed, constructed and put into production at the same time with the main subject work. The construction project cannot be put into production or use until the environmental protection facilities have obtained the inspection and approval from the environmental protection administration authority approving the original report on environmental impact.

 

Particularly, the Regulations on Administration of Construction Project Environmental Protection and the Administration Measures of Inspection and Acceptance of the Environmental Protection of the Construction Projects, implemented on November 29, 1998 and February 1, 2002 respectively, have detailed the requirements in different levels of environmental protection, pursuant to which, for development projects (including but not limited to alteration, expansion and technology re-engineering projects) that affect the environment, environmental impact evaluation shall be conducted according to the impact level. The developer shall submit such environmental impact evaluation report, report form or registration form at the feasibility study stage for approval. Any commencement of development work without prior approval may be subject to cease work order, reinstatement order or a fine of not more than RMB100,000. After the construction project is completed, the construction enterprise shall apply for the inspection and acceptance of the environmental protection of the construction project from the environmental protection administration authority.

 

Pursuant to the requirements under the amended Law on Prevention of Water Pollution of the PRC, which became effective as of June 1, 2008, the amended Law on Prevention of Air Pollution of the PRC, which became effective as of September 1, 2000, and Administrative Regulations on Levy and Utilization of Sewage Charge, which became effective as of July 1, 2003, enterprises which discharge water or air pollutants must pay discharge fees based on the types and volumes of the pollutants discharged. The discharge fees are calculated by the local environmental protection authority, which will review and verify the types and volumes of pollutants discharged. In addition, the Law on Prevention and Control of Environmental Noise Pollution of the PRC, which was promulgated on October 29, 1996, regulates the prevention and control of noise pollution. Under the amended Law on Prevention of Environmental Pollution Caused by Solid Waste of the PRC, which became effective as of April 1, 2005 and was amended on June 29, 2013, entities and individuals that collect, store, transport, utilize or dispose of solid waste must take precautions against the spread, loss and leakage of such solid waste and adopt other measures to prevent solid waste from polluting the environment.

 

All of our PRC subsidiaries have complied with the relevant environmental requirements in all material aspects, and we have not received any administrative penalties by the relevant governmental authorities which result in any substantive impact on our business.

 

Labor and Social Security. Pursuant to the Labor Law of the PRC, which was promulgated on July 5, 1994 and became effective on January 1, 1995, and the Labor Contract Law of the PRC, which became effective on January 1, 2008 and was amended on December 28, 2012, labor contracts shall be concluded in writing if labor relationships are to be or have been established between enterprises or entities on one hand and the laborers on the other hand. Further, under the Regulations on Paid Annual Leave for Employees, which became effective on January 1, 2008, employees who have served more than one year with an employer are entitled to a paid vacation ranging from five to fifteen days, depending on their length of service. Employees who waive such vacation entitlement at the request of the employer shall be compensated at three times their normal salaries for each waived vacation day.

 

31
 

  

As required under the Regulation of Insurance for Labor Injury, implemented on January 1, 2004, the Provisional Measures for Maternity Insurance of Employees of Corporations, implemented on January 1, 1995, the Decisions on the Establishment of a Unified Programme for Old-Aged Pension Insurance of the State Council, issued on July 16, 1997, the Decisions on the Establishment of the Medical Insurance Programme for Urban Workers of the State Council, promulgated on December 14, 1998, the Unemployment Insurance Measures, promulgated on January 22, 1999, and the Social Insurance Law of the PRC, implemented on July 1, 2011, enterprises are obliged to provide their employees in the PRC with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, labor injury insurance and medical insurance. Enterprises must apply for social insurance registration with local social insurance agencies and pay premiums for their employees. If an enterprise fails to pay the required premiums on time or in full amount, the authorities in charge will demand the enterprise to settle the overdue amount within a stipulated time period and impose a 0.05% overdue fine. If the overdue amount is still not settled within the stipulated time period, an additional fine with an amount of three to five times of the overdue amount will be imposed.

 

According to the Regulation on Management of Housing Provident Fund, which was promulgated by the State Council on April 3, 1999, became effective on the same day and was amended on March 24, 2002, enterprises must register with the competent managing center for housing funds and, upon the examination by such managing center of housing fund, complete procedures for opening an account at the relevant bank for the deposit of employees’ housing funds. Employers are required to contribute, on behalf of their employees, to housing accumulation funds. The payment is required to be made to local administrative authorities. Any employer who fails to contribute may be fined and ordered to make good the deficit within a stipulated time limit.

 

Production Safety.   On June 29, 2002, the Standing Committee of the National People’s Congress passed the Production Safety Law of the PRC (implemented on November 1, 2002 and lately amended on August 31, 2014), pursuant to which, enterprises engaging in production and business operation activities shall observe the relevant laws, regulations concerning production safety, strengthen the administration of production safety, establish and perfect the accountability system for production safety, perfect the conditions for production safety, and ensure the safety in production. They shall also set up apparent safety warning signs at the production or business operation sites or on the relevant facilities or equipment that have substantial dangerous elements. For production and business operation enterprises with more than 100 employees, they shall establish an administrative organization for production safety or have full-time personnel for the administration of production safety. For production and business operation enterprises with not more than 100 employees, they shall have full or part time personnel for the administration of production safety. The safety facilities of the newly built or rebuilt or expanded engineering projects shall be designed, built and put into production and use at the same time with the main subject of the projects. The State Administration of Work Safety (“Work Safety Administration”) shall implement comprehensive supervision and administration of the work of work safety of the whole country. The Work Safety Administration’s local branches at the county level and above in charge of the supervision and administration of work safety shall implement comprehensive supervision and administration of the work of work safety within their respective administrative jurisdictions according to the present Law. All of our PRC subsidiaries have strictly applied the relevant safety requirements and adhered to our internal policies and procedures to ensure safety on the manufacturing premises, and we have not received any administrative penalties by the relevant governmental authorities.

 

According to the Fire Control Law of the PRC promulgated on September 1, 1998 and amended on October 28, 2008, we are required to submit the design and drawings of a construction project to the relevant fire control bureau for approval before commencement of the construction. Also upon completion of a construction project, fire prevention mechanisms of the construction project should be evaluated and approved by the relevant fire control bureau before commencement of operation. All of our PRC subsidiaries had passed the evaluation and approval procedure conducted by the relevant fire control bureau before they commence manufacturing operations.

 

Dividends and Distributions.   Our operating subsidiaries are subject to certain government restrictions on their ability to pay dividends and make certain distributions to us, as their sole owner. Under PRC laws, the PRC subsidiaries must allocate at least 10% of their respective after-tax profit to their statutory general reserve funds until the balance of the fund reaches 50% of their registered capital. They also have discretion in allocating their after-tax profits to their statutory employee welfare reserve funds. These reserve funds are also not distributable as cash dividends. Further, no dividends shall be distributed unless the losses of previous years have been made up. In addition, in the case of distribution of additional equity interests by the PRC subsidiaries to Plastec which are credited as fully paid through capitalizing their undistributed profits, governmental approval is required as it is a form of an increase in the registered capital and total investment in its subsidiaries in China. Each of our Thailand operating subsidiaries must appropriate at least one-twentieth (or 5%) of the distributable profits arising from its business to a reserve fund before making distribution of dividends, until the reserve fund reaches one-tenth of the capital of the company. Distributions that we receive from the Thailand operating subsidiaries are subject to a withholding tax at a rate of up to 15%.

 

32
 

  

Properties

  

As at December 31, 2014, Plastec’s manufacturing plants were subject to the following leases (referred to also as “Tenancy Agreements”):

 

Plant/
Subsidiary
Lessee		  Location  Lessor  Site
area/Gross
floor area
(sq. m.)		  Status of
Land		  Term of
Lease		   Fees
Dongguan Sun
Chuen
Manufacturing
Plant/Dongguan
Sun Chuen Plastic
Products Co., Ltd.		  Daling Village,
Dalingshan
Township,
Dongguan
City,
Guangdong
Province		  Dongguan
Fuxing
Property
Management
Co., Ltd.		  9,333/25,137  Collectively
owned land		   1/1/2015 to
5/31/2015(1)		   RMB 273,828 per month
                     
   Daling Village,
Dalingshan
Township,
Dongguan City,
Guangdong
Province		  Zhang Shixiu  8,540/28,212 and scaled down to 15,645 from 4/1/2015  State owned land   1/1/2015 to
12/31/2015(1)		   RMB 263,977 per month from 1/1/2015 to 3/31/2015; RMB 161,035 from 4/1/2015 to 12/31/2015
                     
Kunshan
Broadway
Manufacturing
Plant/Broadway
Precision
Industrial
(Kunshan) Ltd.		  88 Chang Shun
Road, Chang Po
Town, Kunshan
City, Jiangsu
Province		  Kunshan Huixia
Metals
Manufacturing
Co., Ltd.		  7,142/8,191  Collectively
owned land		   8/10/2008 to
8/20/2018 (2)		   RMB 72,275/month for first five years, subject to a 10% increase for the second five-year period
                     
   168 Chang Shun
Road, Chang Po
Town, Kunshan
City, Jiangsu
Province		  Village
Committee of
Jinhua Village,
Zhangpu Town,
Kunshan City		  3,500/4,500  Collectively
owned land		   3/1/2010 to
3/1/2019 (3)		   RMB 648,000/year for first four years, (4) RMB 712.800/year for the next five years
                     
Broadway
Thailand
Manufacturing
Plant/Broadway
Industries
(Thailand) Co.,
Ltd./Broadway Precision (Thailand) Co., Ltd.		  39/1 Moo 5
Phaholyothin
Road
Tambui Nongyao,
Ampere Mueng at
Saraburi Province
(18000), Thailand		  PIAM
Manufacturing
Co., Ltd.		  22,400/5,952  Privately
owned land		   5/1/2012 to
4/30/2021 (5)		   1,101,120 baht per month (6)
                     
Shenzhen
Broadway Manufacturing Plant/Broadway Precision (Shenzhen) Co.
Ltd.		  Furong Industrial
District, Furongmei
Area, Shajing Street,
Xinqiao Village,
Bao’an District,
Shenzhen City,
Guangdong Province		  Broadway
Manufacturing
Company
Limited (7)		  47,190/81,251 (9)  Collectively
owned land		   12/1/2012 to
11/30/2015		   RMB 731,259 per month
                     
Shenzhen
Broadway Manufacturing Plant/Broadway Precision (Shenzhen) Co.
Ltd.		  Furong Industrial
District, Furongmei
Area, Shajing Street,
Xinqiao Village,
Bao’an District,
Shenzhen City,
Guangdong Province		  Broadway
Manufacturing
Company
Limited (8)		  47,190/16,036 (9)  Collectively
owned land		   9/1/2013 to
11/30/2015		   RMB 104,237 per month

 

33
 

 

 

  (1) These leases are renewed for the optional period through the terms specified.

 

  (2) The rental period for this lease is split into two five-year terms. The first five years of the period is the mandatory rental period. The second five years of the period is the optional rental period.

 

  (3) The rental period for this lease is split into two terms. The first four years of the period is the mandatory rental period. The second five years of the period is the optional rental period.

 

  (4) In the first year of the lease, the lessee subsidiary received a deduction of one month’s rent.

 

  (5) The initial term of the lease is through April 30, 2015 and has been extended and renewed to April 30, 2018. At the option of the lessee subsidiary, the lease may be further renewed for another three-year term beyond April 30, 2018.

 

  (6) The lessor agreed to waive the first two months’ rent.

 

  (7) In March 2014, one of our wholly-owned subsidiaries, Broadway Manufacturing Company Limited, succeeded Broadway Precision Technology Limited, another of our wholly-owned subsidiaries, as the lessor and owner of the premises. The fees paid by the lessee are set off by the income of lessor and have no effect on a consolidated basis.

 

  (8) In March 2014, one of our wholly-owned subsidiaries, Broadway Manufacturing Company Limited, succeeded Broadway Precision Technology Limited, another of our wholly-owned subsidiaries, as the lessor and owner of the premises. The premises are used for dormitory purposes. The fees paid by the lessee are set off by the income of lessor and have no effect on a consolidated basis.

 

  (9) These premises are located at the same site.

 

We also lease office space (through one of our subsidiaries) from Guan Shaohong, pursuant to an agreement for 653 square feet of space located at Alameda Dr. Carlos D’Assumpcao, No. 181-187, 12 Andar, B12, Edif. Centro Comercial do Grupo Brilhantismo, Macao. The renewed lease commenced on September 15, 2013 and expiring on September 14, 2015. Pursuant to the rental agreement, our subsidiary pays HK$9,000 per month for the first year, and HK$10,000 per month for the second year.

 

Employees

 

As of December 31, 2014, we had an aggregate of 4,843 employees directly employed by us. We consider our relationships with our employees to be good and expect that these relationships continue in the future. We have not experienced any strikes or work stoppages by our employees since our inception.

 

The tables below show our employees by geographic area and function as of December 31, 2014.

 

Employees by geographic area

 

China   4,578 
Hong Kong   16 
Macau   3 
Thailand   246 
Total:   4,843 

 

Employees by function

 

Management   45 
Marketing and support functions   35 
Engineering   735 
Production   3,634 
General administration   394 
Total:   4,843 

 

34
 

  

Seasonality

 

The disclosure set forth under “Seasonality” in Item 5 of this Form 20-F is incorporated herein by reference.

 

C. Organizational Structure

 

The following chart illustrates the organizational structure of us and our active subsidiaries as at the date of this Form 20-F.

 

  

D. Property, Plants and Equipment

 

The disclosure set forth under “Properties” in Item 4.B is incorporated herein by reference.

 

ITEM 4A. UNRESOLVED STAFF COMMENTS.

 

None.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

 

A. Operating Results

 

Overview

 

We are a vertically integrated plastic manufacturing services provider. We provide comprehensive precision plastic manufacturing services from mold design and fabrication and plastic injection manufacturing to secondary-process finishing as well as parts assembly through our wholly owned subsidiary, Plastec.

 

We manufacture our products solely on the basis of customer orders. Our major customers include leading international OEMs, ODMs and OBMs of consumer electronics, electrical home appliances, telecommunication devices, computer peripherals and precision plastic toys.

 

The Asia-Pacific region has been our principal market, accounting for approximately 57.5%, 49.6%, 51.2%, 41.4% and 44.6% of our revenues for the year ended April 30, 2012, the 8-month period and the year ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively. Europe accounted for approximately 42.0%, 40.7%, 41.3%, 49.1% and 43.4% of our revenues for the year ended April 30, 2012, the 8-month period and the year ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively. The United States accounted for the balance for approximately 0.5%, 9.7%, 7.5%, 9.5% and 12.0% of our revenues for the year ended April 30,2012, the 8-month period and the year ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively.

 

Plastec has production facilities in Guangdong Province and Jiangsu Province, China and Saraburi Province, Thailand.

 

Factors Affecting Our Performance

 

The following are the key factors that may affect our financial condition and results of operations:

 

Our ability to stay current with the latest market trends and technology

 

Continued growth of our business depends to a significant extent on our ability to enhance our existing products and services and to develop new ones in light of the latest market trends and technology. As a majority of our customers make and sell consumer electronics and electrical home appliances, our industry is characterized by rapid technological changes and changing consumer preferences. Most of the consumer electronics and electrical home appliances tend to have short product life cycles, faster technology obsolescence and are subject to constantly evolving industry standards. In order to stay current with the latest market trends and technology, we must continually invest in new machines and technologies to upgrade and expand our manufacturing capabilities and know-how. If we are unable to remain up to date with respect to market trends and technology and correspondingly respond to our customers’ requirements on a timely basis, demand for our products and services will be adversely affected.

 

35
 

  

Our ability to retain existing customers and compete for additional customers and new businesses

 

We service principally a limited number of multinational corporations. We depend on approximately five major customers, who collectively accounted for approximately 77.1%, 74.0%, 72.3%, 77.7% and 75.5% of our revenues for the year ended April 30, 2012, the 8-month period and the year ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively. Historically, our largest customer accounted for approximately 35.6%, 36.4%, 36.2%, 44.4% and 42.0% of our revenues for the year ended April 30, 2012, the 8-month period and the year ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively.

 

Our ability to retain our existing customers, to develop additional customers, and to secure new business opportunities from these existing and new customers is vital to our ongoing success and future expansion. Our industry is competitive, and we expect it to become more competitive as the plastic market becomes more globally integrated and as new entrants enter into this global market. If we lose, or receive reduced or delayed orders from, one or more of our existing major customers, or if we fail to develop additional customers, or if we fail to execute our expansion plan to compete for new business opportunities from these existing or new customers in different jurisdictions or in terms of additional product categories, our results of operations will be adversely affected.

 

Changes in selling prices and gross margin

 

A majority of our customers are manufacturers, the selling prices of the end products of which typically tend to decline significantly over time. As a result, our customers have also placed pricing pressure on our products over the life of the product. We believe the selling prices of each of our products will continue to decline in the foreseeable future. To offset the declining selling prices, we must receive orders for new products that command higher initial selling prices in a timely manner. In addition, because the higher initial selling prices of a product often result in a higher gross margin, if we receive a large order of a new product or multiple orders of different new products in a short period of time, we may experience an increase in our gross margin. Conversely, if we do not receive orders for new products over time and cannot otherwise increase the selling prices of its products in a timely manner, our gross margins will decline.

 

Market demand for products made and sold by customers

 

We do not sell our products directly to the mass consumer market. Instead, we sell products, largely plastic components, to leading international OEMs, ODMs and OBMs for them to incorporate into their consumer electronics products, electrical home appliances, telecommunication devices, computer peripherals and precision plastic toys. Market demand for our products is, therefore, derived from the demand for the products of our customers. Our customers market their products globally and any significant change in the global demand or preference for these consumer electronics products, electrical home appliances, telecommunication devices, computer peripherals and precision plastic toys will affect our revenue. The ability of our customers to compete successfully to increase their market share will indirectly affect our business prospects and results of operations.

 

Our ability to continue to rely on our existing Tenancy Agreements for certain of our manufacturing plants

 

We rely on Tenancy Agreements (the terms of which are described in greater detail under the section titled “Properties” in Item 4.B of this Form 20-F) for the use of land and premises that are necessary for the operation of our business for certain of our manufacturing plants. They are either with a fixed duration of lease or with an option to further extend at our discretion within the pre-determined period. There is a risk that some of the Tenancy Agreements may be terminated or invalidated prior to their stated maturity if these Tenancy Agreements may not be held legally valid or enforceable due to the lack of the land use rights certificates or building ownership certificates or prior approval by competent governmental authorities as a matter of applicable laws and regulations. The lessors in the Tenancy Agreements do not undertake to compensate us for losses arising from such deficiencies. If we have to vacate some or all of our production facilities because of the foregoing, we would incur significant losses of revenue, we would have significant difficulty in performing the contracts with our customers to supply our products and services, and we would experience significant delays in our attempt to find alternative manufacturing premises and to relocate our production facilities. We would also have to commit significant financial and other resources, including time of senior management members, to complete such relocation. Should this happen on a significant scale, our results of operations, business prospects and financial condition could be materially and adversely affected.

 

36
 

  

Critical Accounting Policies

 

We prepare our consolidated financial statements in accordance with U.S. GAAP, which requires us to make judgments, estimates and assumptions that affect:

 

  • the reported amounts of its assets and liabilities;

 

  • the disclosure of its contingent assets and liabilities at the end of each reporting period; and

 

  • the reported amounts of revenues and expenses during each reporting period.

 

We continually evaluate these estimates based on our own experience, knowledge and assessment of current business and other conditions, our expectations regarding the future based on available information and reasonable assumptions, which together form our basis for making judgments about matters that are not readily apparent from other sources. Some of our accounting policies require a higher degree of judgment than others in their application. When reading our consolidated financial statements, you should consider:

 

  • our selection of critical accounting policies;

 

  • the judgment and other uncertainties affecting the application of such policies; and

 

  • the sensitivity of reported results to changes in conditions and assumptions.

 

We believe the following accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements:

 

Depreciation and amortization

 

Our long-lived assets include property, plant and equipment. We amortize our long-lived assets using the straight-line method over the estimated useful lives of the assets, taking into account the assets’ estimated residual values. We estimate the useful lives and residual values at the time we acquire the assets based on our management’s knowledge on the useful lives of similar assets and replacement costs of similar assets having been used for the same useful lives respectively in the market, and taking into account anticipated technological or other changes. On this basis, we have estimated the useful lives of our buildings to be twenty-five years, our leasehold improvements to be three to five years, our plants and machinery to be three to five years, our furniture, fixture and equipment to be three to five years, our computer equipment to be two to three years, our molds to be two to three years and our motor vehicles to be five years. We review the estimated useful life and residual value for each of our long-lived assets on a regular basis. If technological changes are to occur more rapidly than anticipated, we may shorten the useful lives or lower the residual value assigned to these assets, which will result in the recognition of increased depreciation and amortization expense in the adjusted remaining useful lives.

 

Revenues

 

We derive revenues primarily from the sale of precision plastic parts and components in our role as an integrated plastic manufacturing services provider.

 

The Asia-Pacific region has been our principal market, accounting for approximately 57.5%, 49.6%, 51.2%, 41.4% and 44.6% of our revenues for the year ended April 30, 2012, the 8-month period and the year ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively. Europe accounted for approximately 42.0%, 40.7%, 41.3%, 49.1% and 43.4% of our revenues for the year ended April 30, 2012, the 8-month period and the year ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively. The United States accounted for the balance for approximately 0.5%, 9.7%, 7.5%, 9.5% and 12.0% of our revenues for the year ended April 30, 2012, the 8-month period and the year ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively. We determine the geographical market of our sales on the basis of the location of the customers that we are billing, regardless of the actual location of those goods we shipped.

 

37
 

  

Cost of Sales

 

The main components of our cost of sales are raw materials, direct labor costs and factory overheads. Raw materials mainly include mold bases, resins, paints and solvents. Our direct labor cost relates to employees directly hired by our PRC subsidiaries, indirect employees they hired from the PRC counterparties and temporary employees they hire from time to time. Our factory overhead includes machinery depreciation, rental expenses, utility consumed and other indirect factory expenses incurred. Our cost of sales and percentage cost of sales for the periods presented were approximately as follows:

  

    Year ended April 30,     8 months
ended December 31,		           Year ended December 31,        
    2012     2012     2012     2013     2014  
Component   (HK$’000)     %     (HK$’000)     %     (HK$’000)     %     (HK$’000)     %     (HK$’000)     %  
                                                             
Raw materials     459,104       40.2       291,606       36.1       418,245       36.5       359,245       39.9       385,297       42.6
                                                                                 
Factory overheads     406,959       35.6       328,294       40.7       462,796       40.4       332,441       37.0       306,899       33.9
                                                                                 
Direct labor costs     276,590       24.2       187,204       23.2       263,930       23.1       207,714       23.1       213,084       23.5
                                                                                 
Total     1,142,653       100.0       807,104       100.0       1,144,971       100.0       899,400       100.0       905,280       100.0  

  

Approximately 28.0% of our purchases of raw materials for the year ended December 31, 2014 were denominated in Hong Kong dollars, 31.1% in U.S. dollars, 33.6% in Renminbi and 7.3% in Thai Baht. The main factor affecting the prices of our raw materials is the supply and demand for resins, mold bases and paints. However, fluctuations in prices of raw materials have not significantly affected our gross margins primarily because our quotations to our customers have been on a “cost-plus” basis that took into account the pre-determined prices of these raw materials as requested by our customers. In addition, our quotations to customers are generally subject to revision in the event of any significant increase in raw material prices.

 

The level of direct labor costs has been escalating under the prevailing market condition in China, as well as the other fringe benefits for labor.

 

Gross Margins

 

In general, factors affecting our revenue and cost of sales will affect our gross profit margin. The following factors tend to have a material effect on our gross margins:

 

  • Stage of the product life cycle.  Most of the plastic parts and components we manufacture tend to experience price erosion over the life cycle of the end-products that our customers make and sell. Such products, especially consumer electronics and electrical home appliances, generally command a higher premium in the earlier stages of their life cycles and tend to decline toward the end of their life cycles. This life cycle also affects the pricing of our products. The pricing pressure is particularly acute and apparent during the time when products at the end of their life cycles are not replaced with new products, although such decline in margin is often compensated by larger volumes of orders subsequent to the start-up stage of a product.

 

  • Volume discounts.  Typically, our customers with purchase orders exceeding a certain quantity will request and in certain circumstances, we may grant, a volume discount. A volume discount means the customer would receive a reduced unit selling price in exchange for an increased total order. Such discounts, when offered, result in a lower profit margin per unit in such sales.

 

  • Market penetration strategy.  From time to time, we may price our products competitively to penetrate deeper into our target markets or to attract new customers. Such strategy will also lead to a decrease in our unit selling price and lower our profit margin as a result.

 

  • Prevailing direct labor costs and production costs. Our direct labor costs relate to employees directly hired by our PRC subsidiaries, temporary employees they hire from time to time. Production costs include machinery depreciation, rental expenses, utility consumed and other indirect factory expenses incurred. The prevailing level of wages and other employees’ benefits and the inflation in PRC have increased in recent years, which affects our gross profit margin.

 

38
 

 

 Operating Costs

 

Our operating costs are mainly comprised of administrative expenses and distribution costs, as well as interest expenses. Our administrative expenses and distribution costs comprise mainly staff costs, including our directors’ fees and remuneration, general administrative expenses, marketing expenses and office expenses, and constituted approximately HK$81.6 million, HK$66.3 million, HK$94.7 million, HK$167.0 million and HK$152.9 million for the year ended April 30, 2012, the 8-month period and the year ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively. In addition to the administrative expenses and distribution costs, on the disposals and write-off of fixed assets we recorded a gain of approximately HK$0.2 million in the year ended April 30, 2012, loss of approximately HK$2.2 million and HK$2.1 million in the 8-month period and the year ended December 31, 2012, respectively, a loss of approximately HK$17.8 million in the year ended December 31, 2013 and a gain of approximately HK$5.0 million in the year ended December 31, 2014. Also, we recorded a gain on disposal of a subsidiary of approximately HK$29.1 million in the year ended December 31, 2014.

 

Our interest expenses include mainly bank interest and charges in relation to Plastec’s bank borrowings and finance leases, and constituted approximately HK$2.7 million, HK$1.6 million, HK$2.4 million, HK$1.2 million and HK$1.7 million for the year ended April 30, 2012, the 8-month period and the year ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively.

 

Income Tax

 

Due to the various tax incentives available to Plastec, our effective corporate income tax rates for the year ended April 30, 2012, the 8-month period and the year ended December 31, 2012 and the years ended December 31, 2013 and 2014 were 25.0%, 5.3%, 8.8%, 4.4% and 12.3%, respectively. The lower effective corporate income tax rates for the 8-month period and the years ended December 31, 2012 and 2013 was a combined result of more proportionate profit contributions from our operations in jurisdictions with lower tax rates as well as tax credits after disposals of certain fixed assets associated with deferred tax liabilities being eliminated and credited to the income statement during those periods.

 

Hong Kong.  Plastec is subject to income tax on its profits in Hong Kong at the prevailing corporate tax rate of 16.5%. Plastec makes provisions for its Hong Kong profit tax in its combined financial statements in reliance on the Departmental Interpretation and Practice Note No. 21 issued by the Hong Kong Inland Revenue Department regarding processing arrangements. Accordingly, Plastec’s relevant subsidiaries have made provisions at the prevailing Hong Kong profit tax rate on 50% of their estimated assessable profit from their sale of goods manufactured in China under their processing arrangements each year up to the end of December 2012. Since then, all of the subsidiaries in Hong Kong are subject to 16.5% tax rate.

 

China.  Plastec has, as of the date of this Form 20-F, operating subsidiaries with operations and production facilities in Guangdong and Jiangsu Provinces, in China.

 

As a result, Plastec is subject to various PRC taxes as well as the benefits of various PRC tax incentives. The rate of income tax chargeable on companies in China varies depending on the availability of preferential tax treatment or subsidies based on their industry or location. Under PRC laws and regulations, prior to December 31, 2007, a company established in China in the form of a foreign-invested enterprise was typically subject to a national enterprise income tax at the rate of 30% on its taxable income and a local enterprise income tax at the rate of 3% on its taxable income. The PRC government has provided various incentives to foreign-invested enterprises to encourage foreign investments. Foreign-invested enterprises that are determined by PRC tax authorities to be manufacturing companies with authorized terms of operation for more than ten years are eligible for:

 

  • a national enterprise income tax at the rate of 24% on its taxable income if such enterprises are located in coastal economic open zones or in the old urban districts of the Special Economic Zones or the Economic and Technological Development Zones in the PRC;

 

  • a two-year exemption from the national enterprise income tax beginning with their first profitable year; and

 

  • a 50% reduction of their applicable national enterprise income tax rate for the succeeding three years.

 

The local preferential enterprise taxation treatment is within the jurisdiction of the local provincial authorities as permitted under the current PRC tax laws relating to foreign-invested enterprises. The local tax authorities decide whether to grant any tax preferential treatment to foreign-invested enterprises on the basis of their local conditions.

 

39
 

  

In March 2007, the National People’s Congress of China enacted a new Enterprise Income Tax Law, which became effective on January 1, 2008. In December 2007, the State Council promulgated the Regulations on the Implementation of the Enterprise Income Tax Law of the PRC, which became effective on January 1, 2008. The new tax law imposes a unified income tax rate of 25% on all domestic enterprises and foreign-invested enterprises unless they qualify under certain limited exemptions, and the enterprise income tax will no longer be divided into the national enterprise income tax and the local enterprise income tax. The new PRC tax law also permits companies to continue to enjoy their existing preferential tax treatment until such treatment expires in accordance with its current terms. Our PRC preferential tax treatment has expired, with the last of such treatment expired on December 31, 2012. We will be subject, going forward, to the unified income tax rate of 25% for all of our PRC subsidiaries. Accordingly, we will be subject to higher income tax expenses for our PRC operations.

 

Under the PRC tax law effective prior to January 1, 2008, dividend payments to foreign investors made by foreign-invested enterprises such as its PRC subsidiaries are exempted from PRC withholding tax. Pursuant to the new PRC tax law, however, dividends payable by a foreign-invested enterprise to its foreign investors is subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement.

 

Plastec may have uncertainty over non-taxable income benefit in the business of certain of our subsidiaries under its processing arrangement in PRC. Based on the processing factories operation of the relevant subsidiaries, the PRC tax bureau may take the position that they have permanent establishment in the PRC retrospectively. In this regard, the relevant subsidiaries may be subject to enterprise income tax at a rate of 25% on the net profits attributable to their permanent establishment in PRC, for which provision for additional tax payable plus interest thereon have already been made. Since January 2013, all such processing arrangements have been terminated and all of our operations have been carried out through our wholly foreign-owned enterprise subsidiaries; accordingly, we do not expect the uncertainty described in this paragraph to materially affect our results of operation for taxable years beginning after December 31, 2012.

 

Macau.  Under Decree-Law No. 58/59/M, a Macau company incorporated under such 58/59/M law is exempted from Macau complementary tax, or Macau income tax, as long as such 58/59/M company does not sell its products to a Macau resident. A Plastec subsidiary was incorporated in Macau on August 13, 2004 and is qualified as a 58/59/M company.

 

Thailand. The two subsidiaries of Plastec in Thailand are subject to corporate income tax. Under Board of Investment, one subsidiary is subject to a tax rate of 23%, while the other subsidiary obtained exemption in 2012 from corporate income tax for six years as tax privilege.

 

Review of Results of Operations

 

For the year ended December 31, 2014 compared to year ended December 31, 2013

 

Revenues. Our revenues for the year ended December 31, 2014 increased by HK$40.7 million or 3.5% to HK$1,207.8 million from HK$1,167.1 million in the year ended December 31, 2013. The increase in revenues was primarily resulted from new models launching from our existing clienteles, coupled with our efforts in developing and procuring new customers.

 

Cost of sales. Cost of sales for the year ended December 31, 2014 increased by HK$5.9 million or 0.7% to HK$905.3 million from HK$899.4 million in the year ended December 31, 2013. Our cost of sales comprised mainly of cost of raw materials, direct labor costs and factory overhead. Our cost of raw materials for the year ended December 31, 2014 increased to HK$385.3 million, or approximately 42.6% of the total cost of sales, compared to HK$359.2 million, or approximately 39.9%, in the year ended December 31, 2013. Our direct labor costs increased to HK$213.1 million, or approximately 23.5% of the cost of sales, for the year ended December 31, 2014 compared to HK$207.7 million, or approximately 23.1%, in the year ended December 31, 2013. Our factory overhead decreased to HK$306.9 million, or approximately 33.9% of the cost of sales, for the year ended December 31, 2014, compared to HK$332.7 million, or approximately 37.0%, in the year ended December 31, 2013.

 

Gross profit.  Our gross profit increased by approximately 13.0% to HK$302.5 million for the year ended December 31, 2014 from HK$267.7 million in the year ended December 31, 2013. Our gross profit margin increased to 25.0% from 22.9% between the two years. The increases were resulted from our conscious efforts in shedding low-margined sales orders and implementing costs containment measures, increased new product orders from our customers which typically generated a greater margin and also underpinned by the fact that our plant in Thailand entered into normal production stage for the year ended December 31, 2014.

 

Other income.  Our other income increased by approximately 208.5% to HK$7.7 million for the year ended December 31, 2014 from HK$2.5 million in the year ended December 31, 2013 mainly attributable to scrap sales and various sundries incomes.

 

Selling, general and administrative expenses.  Total selling, general and administrative expenses decreased by approximately 8.4% to HK$152.9 million for the year ended December 31, 2014 from HK$167.0 million in the year ended December 31, 2013, mainly due to our cost containment measures.

 

40
 

  

Interest expenses.  Our interest expenses increased by approximately 45.5% to HK$1.7 million for the year ended December 31, 2014 from HK$1.2 million in the year ended December 31, 2013. The increase was primarily due to interest payable for a long term loan and more active utilization of banking facilities during the year.

 

Income before income tax expense.  Our income before income tax expense increased by approximately 126.1% to HK$191.3 million for the year ended December 31, 2014 from HK$84.6 million in the year ended December 31, 2013. The increase was in part resulted from net gains from disposals of a subsidiary, Heyuan Sun Line Industrial Ltd. (alongside our Heyuan plant in China) of approximately HK$29.1 million as well as from property, plant and equipment (net of write-offs) of approximately HK$5.0 million in the year ended December 31, 2014, which was in sharp contrast to a net loss from disposals of property, plant and equipment (plus write-offs) of approximately HK$17.8 million in the year ended December 31, 2013.

 

Income tax expense.  Our income tax expenses increased by approximately 528.8% to HK$23.5 million, representing an effective tax rate of 12.3%, for the year ended December 31, 2014 from HK$3.7 million, representing an effective tax rate of 4.4%, in the year ended December 31, 2013. The lower tax expense in the year ended December 31, 2013 was resulted from a tax credit after disposals of certain fixed assets associated with deferred tax liabilities eliminated and credited to the income statement.

 

Net income.  Our net income increased by approximately 107.5% to HK$167.8 million for the year ended December 31, 2014 from HK$80.9 million for the year ended December 31, 2013.

 

For the year ended December 31, 2013 compared to the year ended December 31, 2012

 

Revenues. Our revenues for the year ended December 31, 2013 decreased by HK$146.7 million or 11.1% to HK$1,167.1 million from HK$1,313.8 in the year ended December 31, 2012. The decrease in revenues was primarily a result of our continued focus on soliciting relatively high margins products and phrasing out thin margined products.

 

Cost of sales. Cost of sales for the year ended December 31, 2013 decreased by HK$245.6 million or 21.5% to HK$899.4 million from HK$1,145.0 million in the year ended December 31, 2012. Our cost of sales comprised mainly of cost of raw materials, direct labor costs and factory overhead. Our cost of raw materials for the year ended December 31, 2013 decreased to HK$359.2 million, or approximately 39.9% of the total cost of sales, compared to HK$418.3million, or approximately 36.5%, in the year ended December 31, 2012 as less raw materials had been consumed according to the product mix requirements during the period. Our direct labor costs decreased to HK$207.7 million, or approximately 23.1% of the cost of sales, for the year ended December 31, 2013 compared to HK$263.9 million, or approximately 23.1%, in the year ended December 31, 2012; which decrease was attributable to our efforts in further streamlining the manufacturing process and controlling direct wages and other workers’ benefits. Our factory overhead decreased to HK$332.5 million, or approximately 37.0% of the cost of sales, for the year ended December 31, 2013, compared to HK$462.8 million, or approximately 40.4%, in the year ended December 31, 2012 mainly because of our control on factory overhead and decreased sub-contracting expenses during the year.

 

41
 

  

Gross profit.  Our gross profit increased by approximately 58.6% to HK$267.7 million for the year ended December 31, 2013 from HK$168.9 million in the year ended December 31, 2012. Our gross profit margin increased to 22.9% from 12.9% between the two years. The improvement of our profit margin was resulted from better margins for those relatively high margined products, such as new products launched by our customers and also more value added services rendered for the product mix.

 

Other income.  Our other income decreased by approximately 64.7% to HK$2.5 million for the year ended December 31, 2013 from HK$7.1 million in the year ended December 31, 2012, as a result of less sundry incomes during the year.

 

Selling, general and administrative expenses .  Total selling, general and administrative expenses increased by approximately 76.2% to HK$167.0 million for the year ended December 31, 2013 from HK$94.7 million in the year ended December 31, 2012 mainly due to increase in the numbers of supervisory and administration staff as well as the salary and allowance for them during the year.

 

Interest expenses.  Our interest expenses decreased by approximately 50.0% to HK$1.2 million for the year ended December 31, 2013 from HK$2.4 million in the year ended December 31, 2012. The decrease was primarily due to lower bank borrowings during the year.

 

Income before income tax expense.  Our income before income tax expense increased by approximately 9.9% to HK$84.6 million for the year ended December 31, 2013 from HK$77.0 million in the year ended December 31, 2012.

 

Income tax expense.  Our income tax expenses decreased by approximately 45.6% to HK$3.7 million, representing an effective tax rate of 4.4%, for the year ended December 31, 2013 from HK$6.8 million, representing an effective tax rate of 8.8%, in the year ended December 31, 2012. The lower tax expense was resulted from a tax credit after the disposals of certain fixed assets associated with deferred tax liabilities eliminated and credited to the income statement.

 

Net income.  Our net income increased by approximately 15.2% to HK$80.9 million for the year ended December 31, 2013 from HK$70.2 million for the year ended December 31, 2012.

 

For the 8-month period ended December 31, 2012 compared to the 8-month period ended December 31, 2011

 

Revenues. Our revenues for the 8-month period ended December 31, 2012 increased by HK$22.6 million or 2.5% to HK$933.9 million from HK$911.3 in the 8-month period ended December 31, 2011. The increase was mainly contributed from sales orders received from existing customers for their new products launchings, and new sales orders solicited from new customers.

 

Cost of sales. Cost of sales for the 8-month period ended December 31, 2012 increased by HK$5.7 million or 0.7% to HK$807.1 million from HK$801.4 million in the 8-month period ended December 31, 2011. Our cost of sales comprised mainly of cost of raw materials, direct labor costs and factory overhead. Our cost of raw materials decreased to HK$291.6 million, or approximately 36.1% of the total cost of sales in the 8-month period ended December 31, 2012 compared to HK$332.5 million, or approximately 41.5% in the 8-month period ended December 31, 2011 as less raw materials had been consumed according to the product mix requirements during the period. Our direct labor costs decreased to HK$187.2 million, or approximately 23.2% of the cost of sales in the period ended December 31, 2012 compared to HK$199.9 million, or approximately 24.9% in the 8-month period ended December 31, 2011; which decrease was attributable to our efforts in further streamlining the manufacturing process and controlling direct wages and other workers’ benefits. Our factory overhead increased to HK$328.3 million, or approximately 40.7% in the 8-month period ended December 31, 2012, compared to HK$269.1 million, or approximately 33.6% in the 8-month period ended December 31, 2011 because of inflationary factory overhead and also increased sub-contracting expenses during the period.

 

Gross profit.  Our gross profit increased by approximately 15.4% to HK$126.8 million in the 8-month period ended December 31, 2012 from HK$109.9 million in the 8-month period ended December 31, 2011. Our gross profit margin increased to 13.6% from 12.1% between the two periods. The improvement of our profit margin was resulted from better margins for those new products launched by our customers and also more value added services rendered for the product mix during the period.

 

42
 

  

Other income.  Our other income increased by approximately 293.8% to HK$6.3 million in the 8-month period ended December 31, 2012 from HK$1.6 million in the 8-month period ended December 31, 2011 arising from cancellation of certain accrued expenses related to our processing factories when their operations were being taken over by our wholly foreign-owned enterprise subsidiaries.

 

Selling, general and administrative expenses.  Total selling, general and administrative expenses increased by approximately 17.4% to HK$66.3 million in the 8-month period ended December 31, 2012 from HK$56.5 million in the 8-month period ended December 31, 2011 mainly due to increased salary and allowances for management and administration staff during the period.

 

Interest expenses.  Our interest expenses decreased by approximately 15.8% to HK$1.6 million in the 8-month period ended December 31, 2012 from HK$1.9 million in the 8-month period ended December 31, 2011. The decrease was primarily due to lower bank borrowings during the year.

 

Income before income tax expense.  Our income before income tax expense increased by approximately 18.3% to HK$63.2 million in the 8-month period ended December 31, 2012 from HK$53.4 million in the 8-month period ended December 31, 2011.

 

Income tax expense.  Our income tax expenses decreased by approximately 75.4% to HK$3.3 million, representing an effective tax rate of 5.3%, in the 8-month ended December 31, 2012 from HK$13.4 million, representing an effective tax rate of 25.0%, in the 8-month period ended December 31, 2011. The lower effective tax rate was due to more profit contributions by our operations in the jurisdictions of lower tax rate proportionally during the period.

 

Net income.  Our net income increased by approximately 49.5% to HK$59.8 million in the 8-month period ended December 31, 2012 from HK$40.0 million in the 8-month period ended December 31, 2011.

 

43
 

  

Liquidity and Capital Resources

 

Our operations have been generally funded through a combination of net cash generated from its operations, equity capital and borrowings from financial institutions. We believe that we have adequate working capital to finance our operations.

 

Summary of Cash Flows 

 

   Year Ended April 30,   8-month Period Ended
December 31,		   Year Ended
December 31,		 
   2012   2011   2012   2012   2013   2014 
           (HK$’000)             
Net Cash From Operating Activities   216,628    178,991    247,566    285,489    158,303    256,221 
Net Cash From Investing Activities   (133,728)   (102,952)   (73,414)   (104,459)   (50,127)   (368)
Net Cash From Financing Activities   (110,180)   (115,785)   (63,118)   (57,507)   (72,514)   (68,463)
    (27,280)   (39,746)   111,034    123,523    35,662    187,390 

  

For the year ended December 31, 2014 compared to year ended December 31, 2013

 

Net cash generated from operating activities. For the year ended December 31, 2014, we generated a net cash inflow from operating activities of approximately HK$256.2 million, which comprised operating cash flow before changes in operating assets and liabilities of HK$247.4 million, adjusted for net inflows from changes in operating assets and liabilities of HK$8.8 million. The net cash inflow increased by 61.9%, or HK$97.9 million, from HK$158.3 million for the year ended December 31, 2013, which was mainly contributed by the increased net inflows from operating activities.

 

Net cash used in investing activities. We recorded a net cash outflow from investing activities of approximately HK$0.4 million for the year ended December 31, 2014, which was primarily attributable to the purchase of property, plant and equipment related to our capacity expansion as well as facilities upgrading of HK$50.5 million, against the net proceeds of HK$50.1 million from disposals of a subsidiary and property, plant and equipment during the year. Compared to the net cash outflow from investing activities of HK$50.1 million for the year ended December 31, 2013, the net cash used in investing activities was reduced by 99.3%, or HK$49.8 million.

 

Net cash generated from financing activities. We recorded a net cash outflow from financing activities of approximately HK$68.5 million for the year ended December 31, 2014. This was mainly due to approximately HK$37.8 million for the net repayment of bank borrowings, and approximately HK$30.3 million for the payment of dividends during the year. Compared to the net cash outflow of HK$72.5 million from financing activities for the year ended December 31, 2013, the net cash outflow was decreased by 5.6% or HK$4.1 million.

 

For the year ended December 31, 2013 compared to the year ended December 31, 2012

 

Net cash generated from operating activities. For the year ended December 31, 2013, we generated a net cash inflow from operating activities of approximately HK$158.3 million, which comprised operating cash flow before changes in operating assets and liabilities of HK$205.6 million, adjusted for net outflows from changes in operating assets and liabilities of HK$47.3 million. The net cash inflow decreased by 44.6%, or HK$127.2 million, from HK$285.5 million for the year ended December 31, 2012, which was mainly contributed by the increased net outflows from changes in operating assets.

 

Net cash used in investing activities. We recorded a net cash outflow from investing activities of HK$50.1 million for the year ended December 31, 2013, which was primarily attributable to the purchase of property, plant and equipment related to our capacity expansion as well as facilities upgrading during the year. Compared to the net cash outflow from investing activities of HK$104.5 million for the year ended December 31, 2012, the net cash used in investing activities, primarily for the purchase of property, plant and equipment was reduced by 52.0%, or HK$54.4 million.

 

Net cash generated from financing activities. We recorded a net cash outflow from financing activities of HK$72.5 million for the year ended December 31, 2013. This was mainly due to approximately HK$9.1 million for the net repayment of bank borrowings, and approximately HK$63.4 million for the repurchases of shares and warrants during the year. Compared to the net cash outflow of HK$57.5 million from financing activities for the year ended December 31, 2012, the net cash outflow was increased by 26.1% or HK$15.0 million. This was mainly because we used more cash for the repurchases of shares and warrants comparatively.

 

44
 

  

For the 8-month period ended December 31, 2012 compared to the 8-month period ended December 31, 2011

 

Net cash generated from operating activities. For the 8-month period ended December 31, 2012, we generated a net cash inflow from operating activities of approximately HK$247.6 million, which comprised operating cash flow before changes in operating assets and liabilities of HK$166.9 million, adjusted for net inflows from changes in operating assets and liabilities of HK$80.7 million. The net cash inflow increased by 38.3%, or HK$68.6 million, from HK$179.0 million for the 8-month period ended December 31, 2011, which was mainly contributed by the increased net inflows from changes in operating assets.

 

Net cash used in investing activities. We recorded a net cash outflow from investing activities of HK$73.4 million for the 8-month period ended December 31, 2012, which was primarily attributable to the purchase of property, plant and equipment related to our capacity expansion as well as facilities upgrading during the period. Compared to the net cash outflow from investing activities of HK$103.0 million for the 8-month period ended December 31, 2011, the net cash used in investing activities, primarily for the purchase of property, plant and equipment was reduced by 28.7%, or HK$29.6 million.

 

Net cash generated from financing activities. We recorded a net cash outflow from financing activities of HK$63.1 million for the 8-month period ended December 31, 2012. This was mainly due to approximately HK$60.3 million for the net repayment of bank borrowings and capital lease obligations, and approximately HK$2.8 million for the repurchases of shares during the period. Compared to the net cash outflow of HK$115.8 million from financing activities for the 8-month period ended December 31, 2011, the net cash outflow was reduced by 45.5% or HK$52.7 million. This was mainly because we used approximately HK$91.8 million to repurchase 1.57 million ordinary shares in December 2011.

 

For the year ended April 30, 2012

 

Net cash generated from operating activities. In the year ended April 30, 2012, we generated a net cash inflow from operating activities of approximately HK$216.6 million, which comprised operating cash flows before changes in operating assets and liabilities of HK$213.6 million, adjusted for net inflows from changes in operating assets and liabilities of HK$3.0 million.

 

Net cash used in investing activities. We recorded a net cash outflow from investing activities of HK$133.7 million, which was primarily attributable to the purchase of property, plant and equipment related to our capacity expansion as well as facilities upgrading.

 

Net cash generated from financing activities. We recorded a net cash outflow from financing activities of HK$110.2 million. This was mainly due to the cash outflow of HK$92.0 million for the shares re-purchase transactions, and approximately HK$18.2 million for the repayment of bank borrowings and capital lease obligations during the fiscal year.

 

 

45
 

 

Working capital

 

We believe that we have adequate working capital for our present requirements and that our net cash generated from operating activities, together with cash and cash equivalents, our borrowing capacity and the net proceeds from the merger, will provide sufficient funds to satisfy our working capital requirements, planned capital expenditures and debt repayments for the period ending 12 months from the date of this Form 20-F. As at the year ended December 31, 2014, we had a cash and bank balance of approximately HK$528.5 million, of which approximately HK$265.0 million was denominated in Hong Kong Dollars, approximately HK$126.5 million equivalent was denominated in US Dollars, approximately HK$106.9 million equivalent was denominated in Renminbi, while the balance of approximately HK$30.1 million equivalent were denominated in other currencies, respectively.

 

Indebtedness

 

The following table shows our indebtedness as of December 31, 2014:

 

   Actual
(HK$’000)		 
Short-term debt:     
Bank loans   21,429 
Long-term debt:     
Bank loans   28,571 
Total Indebtedness   50,000 

 

Our indebtedness as of December 31, 2014 comprised short-term bank loans of HK$21,429 million and long-term loan of HK$28,571 million. As of December 31, 2014, we had available to us under various credit facilities in the aggregate of approximately HK$380.2 million, of which HK$330.2 million was unused.

 

Contractual Obligations and Commitments

 

The following table sets forth our contractual cash commitments as of December 31, 2014. Amounts for debt obligations are principal amounts only.

  

   Payment by Period 
             Within   After 
       Within   Within   4 – 5   5 
   Total   1 Year   2 – 3 Years   Years   Years 
   (HK$’000) 
                     
Short-term debt obligations   21,429    21,429    —    —    — 
Long-term debt obligations   28,571    —    28,571    —    — 
Operating lease obligations   28,150    13,653    10,034    4,310    153 
                          
Capital commitments   13,590    13,590    —    —    — 
                          
TOTAL   91,740    48,672    38,605    4,310    153 

  

The short-term and long-term debt obligations in the above table included the debts as disclosed under the section titled “Indebtedness” in Item 5.A of this Form 20-F.

 

The interest commitments for the short-term debt obligations to be paid within one year are estimated to be approximately HK$748,000, which amount is not included in the total amount of short-term debt obligations in the above table. This estimate is based on the terms of the short term debts and used three months HIBOR quoted as of December 31, 2014. The interest commitments for the long-term debt obligations to be paid are estimated to be approximately HK$239,000, which amount is not included in the total amount of long-term debt obligations in the above table. This estimate is based on the terms of the long-term debts and using three months HIBOR quoted as of December 31, 2014.

 

46
 

  

The operating lease obligations in the above table included the rents payable for the leased properties as disclosed under the section titled “Properties” in Item 4.B of this Form 20-F.

  

As of December 31, 2014, we had capital commitments for purchase of plant and machineries totaling HK$13,590,000 which are expected to be disbursed during the year ending December 31, 2015.

  

Orders

 

As consumer electronics, electrical home appliances and other end products to which we provide our products and services are relatively more sensitive to changes in consumer preference and to the impact of competing products, our customers tend to monitor the market demand and supply of their products and other competing products more closely and to time the introduction and inventorying of their products. These customers generally give us purchase orders one to two months in advance. As a result, we endeavor to maintain our competitive advantage by meeting our customers’ just-in-time inventory control requirements.

 

Off-Balance Sheet Arrangements

 

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholders’ equity or that are not reflected in our combined financial statements. Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity. We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to it or that engages in leasing, hedging or research and development services with us. There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, net sales or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to an investor.

 

Quantitative and Qualitative Disclosures About Market Risks

 

Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices and/or equity prices.

 

Foreign exchange risk .  Plastec’s sales are mainly denominated in Hong Kong dollars and U.S. dollars. Plastec’s costs and capital expenditures are largely denominated in Renminbi and other foreign currencies. Fluctuations in currency exchange rates, particularly among the Hong Kong dollar, U.S. dollar and Renminbi, could have a significant impact on our financial condition and results of operations, affect our gross and operating profit margins and result in foreign exchange and operating gains or losses. We made a gain of approximately HK$10,127,000 for the year ended April 30, 2012, made a gain of approximately HK$2,102,000 for the 8-month period ended December 31, 2012, made a gain of approximately HK$3,394,000 for the year ended December 31, 2012, incurred loss of approximately HK$8,206,000 and approximately HK$5,223,000 for the years ended December 31, 2013 and 2014, respectively. We currently do not plan to enter into any hedging arrangements, such as forward exchange contracts and foreign currency option contracts, to reduce the effect of our foreign exchange risk exposure. Even if we decide to enter into any such hedging activities in the future, we may not be able to effectively manage our foreign exchange risk exposure. In addition, Plastec’s financial statements are expressed in Hong Kong dollars but the functional currency of its principal operating subsidiaries in China is in Renminbi. To the extent Plastec’s PRC subsidiaries hold assets denominated in foreign currencies, any appreciation of Renminbi against such foreign currencies could result in a charge to our consolidated statement of income and decrease the value of our foreign currency denominated assets.

 

Interest rate risk .  Plastec’s exposure to interest rate risk relates to interest expenses incurred by its short-term and long-term borrowings. We have not used any derivative financial instruments to manage our interest rate risk exposure. As of December 31, 2014, there was no interest rate swap contract outstanding. Historically, we have not been exposed to material risks due to changes in interest rates on any third-party debt. However, future interest expenses on our borrowings may increase due to changes in interest rates.

 

47
 

  

Seasonality

 

Market demand for our products is derived from the demand for the products of our customers. Our customers market their products globally and any significant change in the global demand or preference for these consumer electronics, electrical home appliances, telecommunication devices and computer peripherals will affect our revenue. We have not been subject to any seasonality in our business operations in any material respect.

 

Inflation

 

Historically, inflation in the PRC has not materially impacted our results of operations. However, the soaring inflation in China underpinned by rising labor costs and overhead like what we had experienced during a large part of fiscal year ended April 30, 2012, if it is to soar again, could have a significant impact on our financial condition and results of operations, affect our gross and operating profit margins and operating results.

 

Subsequent Material Changes

 

There have been no material changes in our financial condition and results of operations subsequent to December 31, 2014.

 

B. Liquidity and Capital Resources

 

The disclosure set forth in Item 5.A of this Form 20-F is incorporated herein by reference.

 

C. Research and Development, Patents and Licenses, Etc.

 

The disclosure set forth under the section titled “ Research and Development ” in Item 4.B of this Form 20-F is incorporated herein by reference.

 

D. Trend Information

 

The disclosure set forth in Item 5.A of this Form 20-F is incorporated herein by reference.

 

E. Off-Balance Sheet Arrangements

 

The disclosure set forth in Item 5.A of this Form 20-F is incorporated herein by reference.

 

F. Contractual Obligations and Commitments

 

The disclosure set forth in Item 5.A of this Form 20-F is incorporated herein by reference.

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.

 

A. Directors and Senior Management

 

Our current directors and officers are:

 

Name   Age   Position
Kin Sun Sze-To (4)   53   Chairman of the Board and Chief Executive Officer
Chin Hien Tan (4)   55   Chief Operating Officer
Ho Leung Ning(4)   54   Chief Financial Officer
Eli D. Scher(1) (3)   35   Non-Executive Vice Chairman of the Board
J. David Selvia(2)   39   Director
Chung Wing Lai (1) (2) (3)   67   Director
Joseph YiuWah Chow (1) (2) (3)   55   Director

 

48
 

  

 

  (1) Serves as a member of the Audit Committee.
  (2) Serves as a member of the Compensation Committee.
  (3) Serves as a member of the Nominating and Corporate Governance Committee.
  (4) Serves as a member of the Executive Committee.

 

Kin Sun Sze-To has been our Chairman of the Board and Chief Executive Officer since the consummation of the merger in December 2010 and has served as the Chairman of Plastec’s Board and an Executive Director since its formation. Mr. Sze-To founded the precursor of the Plastec group in 1993. Mr. Sze-To is responsible for directing and reviewing Plastec’s long-term business development strategies, as well as establishing its operational objectives and assignments. Mr. Sze-To is also responsible for directing and overseeing Plastec’s marketing and business expansion. Prior to founding Plastec, Mr. Sze-To started his career in the specialized field of spraying and silk screening of plastics products, before diversifying and accumulating over 20 years of experience in other areas of the plastic injection and molding industry. We believe Mr. Sze-To’s past business experience in the plastics industry as well as his contacts and relationships make him well qualified to be a member of our board of directors. Mr. Sze-To graduated from the Third Kaiping High School of China in 1978.

 

Chin Hien Tan has served as our Chief Operating Officer since the consummation of the merger in December 2010 and has been Plastec’s Executive Director since January 2005. Mr. Tan joined Plastec’s precursor in 1999 and is responsible for the administration and management of its PRC operations as well as its marketing development. He has over 24 years of experience in the manufacturing industry, with 19 years of experience in three manufacturing entities in Singapore. We believe Mr. Tan’s past business experience in the manufacturing industry makes him well qualified to be a member of our board of directors. Mr. Tan graduated from the River Valley High School of Singapore with a General Certificate of Education, Advanced level, in 1977.

 

Ho Leung Ning has served as our Chief Financial Officer since the consummation of the merger in December 2010 and has been an Executive Director of Plastec since January 2005. Mr. Ning joined Plastec as a deputy general manager in January 2005. Mr. Ning is responsible for Plastec’s corporate planning and financial activities, and he has over 20 years of experience in the banking and finance industry. Prior to joining Plastec, Mr. Ning was the Assistant General Manager of the Hong Kong branch of The Bank of Tokyo Mitsubishi UFJ Ltd. We believe Mr. Ning’s past business experience and financial knowledge and understanding makes him well qualified to be a member of our board of directors. Mr. Ning graduated from the Hong Kong Baptist University with an Honors Diploma in Economics in 1984.

 

Eli D. Scher has served as our Non-Executive Vice Chairman of the Board since January 2011, shortly after the consummation of the merger in December 2010. Previously, he served as GSME Acquisition Partners I’s Chief Executive Officer from its inception. Since June 2013, he has been the founder, Chairman and Chief Executive Officer of New Continuum Holdings Corporation, operating under the name Continuum Data Centers, which is a multi-tenant data center owner and operator. Prior to founding New Continuum, from April 2012 to February 2013, he served in various consulting and analyst roles for companies and funds controlled by Carl Icahn. From February 2011 to April 2012, Mr. Scher served as an investment analyst at Perella Weinberg Partners. From July 2007 to December 2010, Mr. Scher served as chief executive officer of GSME Capital Partners Inc., a principal investment business headquartered in Shanghai founded in July 2007. From July 2007 to February 2008, Mr. Scher served as chief development officer and a director of Media Communication Group, a high-technology, LED media business that is the exclusive operator of LED advertising screens in the subway systems of China’s major cities, and served as its chief financial officer from February 2008 to January 2011. Additionally, Mr. Scher co-founded Fundamental Films, a film distribution and production company, headquartered in Shanghai, in 2008 and served as a director until January 2011. From September 2003 to February 2007, Mr. Scher served as a principal at Daroth Capital Advisors LLC, which is involved in investing and advising clients on financings, mergers and acquisitions and restructurings, where he led the firm’s Asian business development efforts. We believe Mr. Scher’s past business experience and financial contacts and relationships make him well qualified to be a member of our board of directors. Mr. Scher received an A.B. in East Asia Studies from Princeton University in 2002. Mr. Scher is fluent in Mandarin Chinese.

 

49
 

 

J. David Selvia has served as a Director of ours since the consummation of the merger in December 2010 and has been an Independent Non-Executive Director of Plastec since June 2010. Mr. Selvia joined Cathay Plastic Limited (BVI) (“Cathay”) in July 2006 as Vice President and served in such capacity until April 2010 when he was appointed Managing Director. Mr. Selvia is currently responsible for analyzing new investment opportunities and investment execution. Prior to joining Cathay, from 2004 to 2006, Mr. Selvia attended The Wharton School of the University of Pennsylvania and the Lauder Institute at the University of Pennsylvania to obtain his Masters degree in Business Administration and Mastersdegree in International Relations. Previously, Mr. Selvia served as the Business Development Director for GE Capital (Asia) and Business Development Manager for GE Corporate Initiatives Group, both based in Shanghai, from 2000 to 2004. We believe Mr. Selvia’s past business experience, investment activities and contacts and relationships make him well qualified to be a member of our board of directors. Mr. Selvia received a Bachelor of Arts degree in Economics and International Relations from Boston University in 1998 and a Masters degree in Finance from The Wharton School of the University of Pennsylvania in 2006 as well as a Masters degree in International Relations from the Lauder Institute at the University of Pennsylvania in 2006. Mr. Selvia speaks Mandarin.

 

Chung Wing Lai has been a Director of ours since the consummation of the merger in December 2010. Since July 2002, Mr. Lai has been involved in business consultancy and advisory work in the Asia Pacific region. From 1999 to February 2009, he was an independent non-executive director of Kingboard Copper Foil Holdings Ltd, a public listed company on The Stock Exchange of Singapore. He was previously the managing director of Seaunion Holdings Ltd. (now known as South Sea Petroleum Holdings Ltd), an oil and gas company listed on The Stock Exchange of Hong Kong Ltd. He is an independent non-executive director of Kingboard Chemical Holdings Ltd, which is a public listed company on The Stock Exchange of Hong Kong Ltd. We believe Mr. Lai’s past business experience, including serving as an independent director of a number of publicly listed companies, makes him well qualified to be a member of our board of directors. Mr. Lai received a Bachelor-of-Laws (Honours) degree from the University of London in 1983.

 

Joseph YiuWah Chow has been a Director of ours since the consummation of the merger in December 2010. Mr. Chow has over 20 years experience in auditing, accounting, and financial management. He has been a senior partner of JYC & Company, an accounting firm, since January 2006 and a practicing director of KTC Partners CPA Ltd. since May 2008. We believe Mr. Chow’s financial background in auditing, accounting and financial management makes him well qualified to be a member of our board of directors and chairman of our audit committee. Mr. Chow graduated from the University of Ulster in the United Kingdom with a Bachelor degree in Accounting in 1989. Additionally, Mr. Chow is also admitted as a member of Association of Chartered Certified public Accountants in 1991 and a member of the Hong Kong Institute of Certified Public Accountants in 1992. He has also been an associate member of the Taxation Institute of Hong Kong since 1992, Hong Kong Securities Institute since 1998 and Institute of Chartered Accountants in England and Wales since 2006.

 

Each director serves until our next annual general meeting, if one is called for, and until his successor is elected and qualified. We have not entered into service or similar contracts with our directors.

 

B. Compensation

 

Compensation of Senior Management/Executive Officers

 

Our executive officers are currently compensated at the Plastec subsidiaries level on terms summarized below:

 

Employment Agreements

 

Each of Kin Sun Sze-To, Chin Hien Tan and Ho Leung Ning are and have been employed by certain of Plastec’s subsidiaries pursuant to certain employment agreements currently receiving aggregate annual base salary in the sums of HK$5.070 million, HK$2.197 million and HK$2.028 million, respectively. These employment agreements have been amended to provide for their services to be extended to cover us with no additional compensation in terms of base salary. The following table and summary set forth certain key information about such employment agreements as they currently relate to us:

 

50
 

  

Executive
Officer		   Position   Term   Employing entity
Kin Sun Sze-To   Chairman of the Board and Chief Executive Officer of Plastec Technologies, Ltd., General Manager of Broadway Precision (HK)   Until December 16, 2016 (1)   Broadway Precision Co. Limited (“Broadway Precision (HK)”)
Chin Hien Tan   Chief Operating Officer of Plastec Technologies, Ltd. and Sales Manager of Broadway (Macao)   Until December 16, 2016 (1)   Broadway (Macao Commercial Offshore) Company Limited (“Broadway (Macao)”)
Ho Leung Ning   Chief Financial Officer of Plastec Technologies, Ltd. and Deputy General Manager of Broadway Precision (HK)   Until December 16, 2016 (1)   Broadway Precision (HK)

 

  (1) On December 5, 2013, the employment agreements between (i) Broadway Precision (HK) and Kin Sun Sze-To, (ii) Broadway Precision (HK) and Ho Leung Ning and (iii) Broadway (Macao) and Chin Hien Tan, each of which had previously been amended to provide for the executives’ services to be extended to cover us as such companies’ indirect parent, were each amended to extend the term of the respective contracts from December 17, 2013 to December 16, 2016 with all other terms of the employment agreements remaining materially the same as in the prior agreements. Additionally, the overall annual compensation to be paid to each of Kin Sun Sze-To, Ho Leung Ning and Chin Hien Tan for their services at our subsidiaries level was increased to HK$5,070,000, HK$2,028,000 and HK$2,197,000, respectively.

 

Each employment agreement terminates upon the death or disability (as defined in the agreements) of the executive officer and may be terminated by either Broadway Precision (HK)/Broadway (Macao) (as the case may be) or the executive officer with or without “cause” (as defined in the agreements). Upon termination for death, disability, for cause by Broadway Precision (HK)/Broadway (Macao) (as the case may be) or without cause by the executive officer, the executive officer is entitled to all accrued and vested amounts due upon termination. Upon termination without cause by Broadway Precision (HK)/Broadway (Macao) (as the case may be) or for cause by the executive officer, the executive officer is entitled to his compensation for the remainder of the term of the agreement as if the employment agreement had not been terminated.

 

The agreements provide that each of the executive officers, during the period of one year following termination of his employment, shall not, for himself or on behalf of, or in conjunction with, any other person, persons, company, partnership, limited liability company, corporation or business of whatever nature, (a) engage (as an officer, director, manager, member, shareholder, owner, partner, joint venturer, trustee, or in a managerial capacity, whether as an employee, independent contractor, agent, consultant or advisor, or as a sales representative) in any entity that designs, researches, develops, markets, sells or licenses products or services that are substantially similar to or competitive with our business and that of our subsidiaries from time to time or at the date of termination of the executive officer’s employment, (b) call upon any person who is at that time, or within the preceding twelve (12) months has been, an employee of ours or our subsidiaries, for the purpose, or with the intent, of enticing such employee away from, or out of, the employ of us or our subsidiaries or for the purpose of hiring such person for the executive officer or any other person or entity, unless any such persons’ employment with respect to us or our subsidiaries was terminated by us more than six (6) months prior thereto, (c) call upon any person or entity who is then or has been within one year prior to that time, a customer of ours or our subsidiaries, for the purpose of soliciting or selling products or services in competition with us or our subsidiaries or (d) call upon any prospective acquisition or investment candidate, on the executive officer’s own behalf or on behalf of any other person or entity, which candidate was known by the executive officer to have, within the previous twelve (12) months, been called upon by us or our subsidiaries or for which we or our subsidiaries made an acquisition or investment analysis or contemplated a joint marketing or joint venture arrangement with, for the purpose of acquiring or investing or enticing such entity into a joint marketing or joint venture arrangement. The employment agreements provide for injunctive relief against the executive officers in the event of a breach of these non-competition provisions, in addition to other available remedies.

 

51
 

  

Compensation

 

Base Salary at Plastec subsidiaries level

 

The aggregate amount of base salary paid by Plastec’s subsidiaries during the year ended December 31, 2014 to our executive officers as a group for services in all service capacities was approximately HK$9.2 million.

 

Bonus Plan for Management/Executive Officers at the company level

 

We have also established a bonus plan for our management/executive officers. Pursuant to the plan, in order for any bonus to be paid, we must achieve an annual net profit (excluding any extraordinary items) of HK$78,000,000 in any fiscal year, which we refer to as the “Net Profit Target.” If the Net Profit Target is achieved in any fiscal year, a pool of 4% of any amount over the Net Profit Target will be set aside to provide bonuses to our management/executive officers. Of the bonus pool that is created, Kin Sun Sze-To, Chin Hien Tan and Ho Leung Ning would currently be entitled to 32%, 24% and 24%, respectively, of the available bonus, with the remaining amount being made available for distribution to our remaining officers, subject to adjustment at the discretion of the board. Payment of any bonuses under the plan will be in cash or our ordinary shares (to be purchased in the open market), at the board’s sole discretion. The plan has taken effect beginning with the fiscal year ended April 30, 2011.

 

As Net Profit Target was met for the year ended December 31, 2014, we will pay bonus in cash in the total sum of approximately HK$2,428,000 to our executive officers accordingly after the year end.

 

Summary Executive Compensation Table

 

The following table sets forth the compensation of our executive officers for the year ended December 31, 2014:

 

Name and Principal Position  Year ended
December
31,		   Salary
(HK$)		   Bonus(1)
(HK$)		   Total
(HK$)		 
Kin Sun Sze-To   2014    4,997,588    37,000    5,034,588 
Chairman of the Board and Chief Executive Officer                    
Chin Hien Tan   2014    2,148,052    28,000    2,176,052 
Chief Operating Officer                    
Ho Leung Ning   2014    2,008,750    28,000    2,036,750 
Chief Financial Officer                    

 

(1)Bonus paid during the financial year ended December 31, 2014 was made with respect to financial results for year ended December 31, 2013.

 

 Compensation of Non-Executive Independent Directors

 

During the year ended December 31, 2014, each of Eli D. Scher (our non-executive Vice Chairman), J. David Selvia, Chung Wing Lai and Joseph Yiu Wah Chow, our four non-executive independent directors, was paid HK$39,000, HK$20,000, HK$20,000 and HK$20,000, respectively, for each month that they continue to serve on our board. The aggregate amount of compensation paid to our non-executive independent directors during the year ended December 31, 2014 was HK$1,188,000.

 

C. Board Practices

 

Independence of Directors

 

Although we are not required to have a majority of independent directors on our board of directors, we have elected to have a majority of independent directors and have determined to utilize the definition of an “independent director” utilized by the NASDAQ Stock Market. Under the listing standards of the NASDAQ Stock Market, an “independent director” is generally defined as a person other than an officer or employee of the company or its subsidiaries or any other individual having a relationship which, in the opinion of the company’s board of directors, would interfere with the director’s exercise of independent judgment in carrying out the responsibilities of a director. Accordingly, consistent with the above-referenced considerations, our board of directors has affirmatively determined that each of Eli D. Scher, J. David Selvia, Chung Wing Lai and Joseph Yiu Wah Chow is an independent director, constituting a majority of our board of directors.

 

52
 

  

Board Committees

 

We have standing executive, audit, compensation and nominating and corporate governance committees. Except for the executive committee, each of these committees is comprised entirely of independent directors, as defined by the listing standards of the NASDAQ Stock Market. Moreover, the compensation committee is composed exclusively of individuals intended to be, to the extent required by Rule 16b-3 of the Exchange Act, non-employee directors and will, at such times as we are subject to Section 162(m) of the Internal Revenue Code, qualify as outside directors for purposes of Section 162(m) of the Internal Revenue Code.

 

Executive Committee

 

Our executive committee is currently comprised of Kin Sun Sze-To, Chin Hien Tan and Ho Leung Ning. While the executive committee does not have a formal written charter, the board has determined that the executive committee’s responsibilities will be to generally manage our business affairs and exercise all powers of the board (other than actions that would require the board to act as a whole or which actions are vested in other committees of the board or require shareholder approval).

 

Audit Committee Information

 

Our audit committee is currently comprised of Joseph Yiu Wah Chow, Chung Wing Lai and Eli D. Scher, with Joseph Yiu Wah Chow serving as chairman. The audit committee, pursuant to the audit committee charter, is responsible for engaging independent certified public accountants, preparing audit committee reports, reviewing with the independent certified public accountants the plans and results of the audit engagement, approving professional services provided by the independent certified public accountants, reviewing the independence of the independent certified public accountants, considering the range of audit and non-audit fees, reviewing the adequacy of our internal accounting controls and reviewing all related party transactions.

 

Financial Experts on Audit Committee

 

The audit committee will at all times be composed exclusively of “independent directors” who are “financially literate” as defined under NASDAQ listing standards. The definition of “financially literate” generally means being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement.

 

In addition, our board of directors has determined that Joseph Yiu Wah Chow satisfies the definition of financial sophistication and also qualifies as an “audit committee financial expert,” as defined under rules and regulations of the SEC.

 

Nominating and Corporate Governance Committee

 

Our nominating and corporate governance committee is currently comprised of Chung Wing Lai, Joseph Yiu Wah Chow and Eli D. Scher, with Chung Wing Lai serving as chairman. The nominating and corporate governance committee is responsible for seeking, considering and recommending to the board qualified candidates for election as directors and will approve and recommend to the full board of directors the appointment of each of our executive officers. It also periodically prepares and submits to the board of directors for adoption the committee’s selection criteria for director nominees. It reviews and makes recommendations on matters involving the general operation of the board and our corporate governance, and annually recommends to the board nominees for each committee of the board. In addition, the committee annually facilitates the assessment of the board of directors’ performance as a whole and of the individual directors and report thereon to the board.

 

Compensation Committee

 

Our compensation committee currently is comprised of Joseph Yiu Wah Chow, Chung Wing Lai and J. David Selvia, with Joseph Yiu Wah Chow serving as chairman. The principal functions of the compensation committee are to:

 

  • evaluate the performance of our officers;

 

53
 

  

  • review any compensation payable to our directors and officers;

 

  • prepare compensation committee reports; and

 

  • administer the issuance of any ordinary shares or other equity awards issued to our officers and directors.

 

D. Employees

 

The disclosure set forth under “Employees” in Item 4.B of this Form 20-F is incorporated herein by reference.

 

E. Share Ownership

 

The disclosure relating to the share ownership of the persons listed in Item 6.B set forth in Item 7.A of this Form 20-F is incorporated herein by reference.

 

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS.

 

A. Major Shareholders

 

The following table sets forth, as of April 20, 2015, certain information regarding beneficial ownership of our shares by each person who is known by us to beneficially own more than 5% of our shares. The table also identifies the share ownership of each of our directors, each of our named executive officers, and all directors and officers as a group. Except as otherwise indicated, the shareholders listed in the table have sole voting and investment powers with respect to the shares indicated. Our major shareholders do not have different voting rights than any other holder of our shares.

 

Shares which an individual or group has a right to acquire within 60 days pursuant to the exercise or conversion of options, warrants or other similar convertible or derivative securities, if any, are deemed to be outstanding for the purpose of computing the percentage ownership of such individual or group, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person shown in the table.

 

Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting and investment power. Except as otherwise indicated below, each beneficial owner holds voting and investment power directly. The percentage of ownership is based on 12,938,128 shares issued and outstanding as of April 20, 2015.

 

Name and Address of Beneficial Owner  (1)  Amount and
Nature of
Beneficial
Ownership		   Percent
of Class		 
Major Shareholders:          
Jing Dong Gao   633,787(2)   4.9%
Cathay Plastic Limited (3)   1,208,292(4)   9.3%
Kwok Wa Hung   1,014,753(5)   7.8%
Directors and Executive Officers:          
Kin Sun Sze-To   8,275,424(6)   63.9%
Chin Hien Tan   449,538(7)   3.5%
Eli D. Scher   12,169(8)   *
Ho Leung Ning   241,971(9)   1.9%
J. David Selvia   0      
Chung Wing Lai   0      
Joseph YiuWah Chow   0      
All directors and executive officers as a group (7 individuals)   8,979,102    69.4%

 

 

  * Represents less than 1% of outstanding.

 

54
 

  

  (1) Unless otherwise indicated, the business address of each of the individuals is Unit 01, 21/F, Aitken Vanson Centre, 61 Hoi Yuen Road, Kwun Tong, Kowloon, Hong Kong. Unless otherwise indicated, none of the individuals have voting rights that differ from other shareholders.

 

  (2) Being the aggregate of (i) 291,262 ordinary shares purchased in a private transaction on December 8, 2010, as disclosed in Schedule 13D filed with the SEC on December 29, 2010, (ii) 208,800 ordinary shares released upon consummation of the merger with Plastec pursuant to the terms of Amendment No.1 to Stock Escrow Agreement dated as of December 16, 2010 plus (iii) 133,725 initial shares continue to be held in escrow pursuant to the terms of Amendment No.2 to Stock Escrow Agreement dated as of December 16, 2011 held by MCK Capital Co., Limited, an entity controlled by Mr. Gao. The business address of each is 762 West Beijing Road, Shanghai, China 200041.

 

  (3) The business address of Cathay Plastic Limited is c/o New China Management, Ltd., 14th Floor, St. John’s Building, 33 Garden Road, Central, Hong Kong.

 

  (4) Each of the following entities and individuals may be considered the beneficial owner of the ordinary shares held by Cathay Plastic Limited: Cathay Capital Holdings, L.P., as the sole shareholder of Cathay Plastic Limited; Cathay Master GP, Ltd., as the general partner of Cathay Capital Holdings, L.P.; New China Capital Management, LP, as the investment manager of Cathay Capital Holdings, L.P.; NCCM, LLC and TAM China, LLC, as the general partners of New China Capital Management, LP; Hermann Leung, as an officer or director of Cathay Capital Holdings, L.P.; Paul Wolanksy, as an officer or director of Cathay Capital Holdings, L.P. and Cathay Master GP, Ltd. and sole member of NCCM, LLC; and Donald Sussman, as an officer or director of Cathay Master GP, Ltd. and sole member of TAM China, LLC. The foregoing information is derived from a Schedule 13D/A filed with the SEC on January 23, 2012.

 

  (5) The business address of Mr. Hung is c/o 16th Floor, Guangdong Finance Building, 88 Connaught Road West, Central, Hong Kong. The foregoing information is derived from a Schedule 13G/A filed with the SEC on March 03, 2015 and other information known to us.

 

  (6) Consists of 7,386,523 ordinary shares held by Sun Yip Industrial Company Limited and 888,901 ordinary shares held by Tiger Power Industries Limited (“Tiger Power”), each of which is an entity controlled by Mr. Sze-To. The foregoing information is derived from a Schedule 13D/A filed with the SEC on October 15, 2013.

 

  (7) Consists of 449,538 ordinary shares held by Fine Colour Limited, of which Mr. Tan is a 50% owner.

 

  (8) Representing Mr. Scher’s initial shares held in escrow pursuant to the terms of Amendment No.2 to Stock Escrow Agreement dated as of December 16, 2011. The foregoing information is derived from other information known to us.

 

  (9) Includes 241,971 ordinary shares held by Expert Rank Limited, an entity controlled by Mr. Ning.

  

  As of April 20, 2015, there were 22 shareholders of record holding a total of 12,938,128 of our ordinary shares. To the best of our knowledge there were 7 shareholders of record with addresses in the United States holding approximately 2,072,467 (16.0%) of our outstanding ordinary shares. The foregoing calculations include 1 unit holder with a United States address holding 2,485 units, each consisting of 1 ordinary share. Ordinary shares held in the names of banks, brokers and other intermediaries were assumed to be held by residents of the same country in which the bank, broker or other intermediary was located.

 

55
 

 

  

 

B. Related Party Transactions

 

Our Code of Ethics and Related Person Policy

 

In November 2009, our board of directors adopted a code of ethics that applies to our directors, officers and employees as well as those of our subsidiaries.

 

Our Code of Ethics requires it to avoid, wherever possible, all related party transactions that could result in actual or potential conflicts of interest, except under guidelines approved by the board of directors (or the audit committee, if one exists). Related-party transactions with respect to smaller reporting companies such as us are defined under SEC rules as transactions in which (1) the aggregate amount involved will or may be expected to exceed the lesser of $120,000 or one percent of the average of the smaller reporting company’s total assets at year end for the last two completed years, (2) we or any of our subsidiaries is a participant, and (3) any (a) executive officer, director or nominee for election as a director, (b) greater than 5 percent beneficial owner of our shares, or (c) immediate family member of the persons referred to in clauses (a) and (b), has or will have a direct or indirect material interest (other than solely as a result of being a director or a less than 10 percent beneficial owner of another entity). A conflict of interest situation can arise when a person takes actions or has interests that may make it difficult to perform his or her work objectively and effectively. Conflicts of interest may also arise if a person, or a member of his or her family, receives improper personal benefits as a result of his or her position.

 

Our audit committee, pursuant to its written charter, is responsible for reviewing and approving related-party transactions to the extent we enter into such transactions. The audit committee will consider all relevant factors when determining whether to approve a related party transaction, including whether the related party transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related party’s interest in the transaction. No director will be able to participate in the approval of any transaction in which he is a related party, but that director will be required to provide the audit committee with all material information concerning the transaction. Additionally, we will require each of our directors and executive officers to complete a directors’ and officers’ questionnaire on an annual basis that elicits information about related party transactions.

 

These procedures are intended to determine whether any such related party transaction impairs the independence of a director or presents a conflict of interest on the part of a director, employee or officer.

 

Our Related Person Transactions

 

Personal guarantees provided by Kin Sun Sze-To

 

Kin Sun Sze-To has been providing personal guarantees as collateral to secure various credit facilities and the financing of machineries for Plastec and certain of its subsidiaries. As at December 31, 2014, the total amount of personal guarantees outstanding for such purposes was approximately HK$353.3 million.

 

Bonus Plan for Management/Executive Officers

 

The disclosure on the bonus plan sets forth under the section titled “ Directors, Senior Management and Employees — Compensation ” in Item 6.B of this Form 20-F is incorporated herein by reference.

 

56
 

 

We require that all ongoing and future transactions between us and any of our officers and directors or their respective affiliates will be on terms that we believe to be no less favorable to us than are available from unaffiliated third parties. Such transactions require prior approval by a majority of our uninterested “independent” directors or the members of our board who do not have an interest in the transaction, in either case who have access, at our expense, to our attorneys or independent legal counsel.

C. Interest of Experts and Counsel

 

Not applicable.

 

ITEM 8.           FINANCIAL INFORMATION.

 

A. Consolidated Statements and Other Financial Information

 

List of Financial Statements

 

See Item 18 of this Form 20-F for a list of the financial statements filed as part of this Form 20-F.

 

Export Sales

 

We categorize our sales by geographic market as described in the table below on the basis of the location of the customers that we are billing, regardless of the actual location of those goods we ship to such customers.

  

   Year ended
April 30,		   8 months ended
December 31,		   Year ended December 31, 
Revenues by geographic market  2012   2012   2012   2013   2014 
Asia-Pacific Region   57.5%   49.6%   51.2%   41.4%   44.6%
Europe   42.0%   40.7%   41.3%   49.1%   43.4%
United States   0.5%   9.7%   7.5%   9.5%   12.0%
Total   100.0%   100.0%   100.0%   100.0%   100.0%

 

57
 

 

Dividend Policy

 

While we have paid dividends in the past, we currently do not intend to pay additional dividends in the future. The payment of dividends in the future will be entirely within the sole discretion of our board of directors. Whether future dividends will be declared will depend upon our future growth and earnings, of which there can be no assurance, and our cash flow needs for future development; all of which may be adversely affected by one or more of the factors discussed in Item 3.D of this Form 20-F “ Risk Factors ”. Accordingly, we may not declare or pay any additional dividends in the future. Even if the board of directors decides to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board may deem relevant.

 

 B. Significant Changes

 

See the notes to the financial statements included under Item 18 of this Form 20-F.

 

ITEM 9.      THE OFFER AND LISTING.

 

A. Offer and Listing Details

 

Our units and ordinary shares are quoted on the OTC Bulletin Board under the symbols “PLTEF” and “PLTYF,” respectively. Our warrants were quoted on the OTC Bulletin Board under the symbol “PLTWF” before their expiry on November 18, 2014. Prior to February 4, 2011, our units, shares and warrants were quoted on the OTC Bulletin Board under the symbols “GSMEF,” “GSMXF” and “GSMWF,” respectively. The following table sets forth the range of high and low closing sale prices for the units, shares and warrants for the periods indicated.

 

 

   Ordinary Shares    Units 
Period (1)  High   Low    High   Low 
April 2015 (2)  $6.50   $6.50    $4.00   $4.00 
March 2015  $6.50   $6.50    $4.00   $4.00 
February 2015  $6.50   $6.50    $4.00   $4.00 
January 2015  $6.50   $6.50    $5.00   $5.00 
December 2014  $6.50   $6.30    $5.00   $3.00 
November 2014  $6.50   $6.50    $3.00   $3.00 
October 2014  $6.50   $6.50    $3.00   $3.00 
                      
Fiscal Quarter for                      
FY Ending Dec. 31, 2015:                     
First Quarter  $6.50   $6.50    $5.00   $4.00 
                      
Fiscal Quarter for                     
FY Ended Dec. 31, 2014:                     
Fourth Quarter  $6.50   $6.30    $5.00   $3.00 
Third Quarter  $7.00   $6.00    $3.00   $3.00 
Second Quarter  $6.20   $5.00    $3.00   $3.00 
First Quarter  $6.30   $5.50    $3.00   $3.00 
FY Ended Dec. 31, 2013:                     
Fourth Quarter  $9.00   $6.24    $3.00   $3.00 
Third Quarter  $6.50   $5.74    $7.50   $3.00 
Second Quarter  $6.25   $6.00    $6.50   $6.50 
 First Quarter  $6.45   $6.15    $6.50   $6.50 
FY Ended Dec. 31, 2012:                     
Fourth Quarter  $7.00   $6.45    $6.50   $6.50 
Third Quarter  $9.90   $6.30    $6.50   $6.50 
Second Quarter  $6.30   $5.50    $6.50   $6.50 
 First Quarter  $6.51   $5.25    $   $ 
                      
FY Ended Dec 31,                     
2013  $9.00   $5.50    $7.50   $3.00 
2012  $9.90   $5.25    $6.50   $6.50 
FY Ended April 30,                     
2012  $9.00   $5.25    $9.85   $6.25 
2011  $10.30   $8.00    $10.50   $8.25 
2010  $10.28   $9.65    $10.50   $9.95 

 

 

(1) In September 2012, the Company changed its fiscal year end from April 30 to December 31. Limited trading information is available for our securities prior to February 2011. Accordingly, we continue to provide information for full fiscal years ended April 30, 2010, 2011 and 2012. We also provide information for full fiscal years ended December 31, 2012 and 2013.
(2) Through April 20, 2015.

 

58
 

  

B. Plan of Distribution

 

Not applicable.

 

C. Markets

 

Our units and ordinary shares are quoted under the symbols “PLTEF” and “PLTYF,” respectively, on the OTC Bulletin Board. Our warrants were quoted on the OTC Bulletin Board under the symbol “PLTWF” before their expiry on November 18, 2014. Prior to February 4, 2011, our units, shares and warrants were quoted on the OTC Bulletin Board under the symbols “GSMEF,” “GSMXF” and “GSMWF,” respectively.

 

We intend to apply to have our ordinary shares listed on a national securities exchange at an opportune time. We can provide no assurance, however, that we will so apply, that any such exchange will approve our application, if made, or that our ordinary shares will ever become so listed.

 

D. Selling Shareholders

 

Not applicable.

 

E. Dilution

 

Not applicable.

 

F. Expenses of the Issue

 

Not applicable.

 

ITEM 10. ADDITIONAL INFORMATION.

 

A. Share Capital

 

Not applicable.

 

B. Memorandum and Articles of Association

 

The summary below relates to our second amended and restated memorandum and articles of association as currently in effect. The summary below is of the key provisions of our second amended and restated memorandum and articles of association and does not purport to be a summary of all of the provisions thereof or of all relevant provisions of Cayman Islands law governing the management and regulation of Cayman Islands exempted companies.

 

Incorporation

 

We were incorporated in the Cayman Islands on March 27, 2008 under the Companies Law with company registration number 207509.

  

We are an exempted company incorporated in the Cayman Islands. A Cayman Islands company qualifies for exempted status if its operations will be conducted mainly outside of the Cayman Islands. Exempted companies are exempted from complying with certain provisions of the Cayman Islands Companies Law. An exempted company is not required to obtain prior approval for registration or to hold an annual general meeting and the annual return that must be filed with the Registrar is considerably more simple than for non-exempted Cayman Islands companies. Names of shareholders are not required to be filed with the Registrar of Companies in the Cayman Islands. While there are currently no forms of direct taxation, withholding or capital gains tax in the Cayman Islands, an exempted company is entitled to apply for a tax exemption certificate from the Governor in Cabinet which provides written confirmation that, amongst other things, should the laws of the Cayman Islands change, the company will not be subject to taxes for the period during which the certificate is valid (usually 20 years) (see the section titled “Taxation — Cayman Islands Taxation” below).

 

59
 

  

Objects and Purposes

 

Our second amended and restated memorandum and articles of association grants us full power and authority to carry out any object not prohibited by the Companies Law or as the same may be revised from time to time, or any other law of the Cayman Islands.

 

Directors

 

We have seven directors with each director serving until the Company’s next annual general meeting, if one is called for, and until his successor is elected and qualified. There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares eligible to vote for the election of directors can elect all of the directors.

 

Cayman Islands law imposes duties on directors of Cayman Islands companies. These duties can be summarised as comprising (i) fiduciary duties of loyalty, honesty and good faith owed to the company, which in practical terms means that directors must act bona fide in what they consider to be the best interests of the company as a whole, exercising their powers for a proper purpose, using unfettered discretion in their decision making and avoiding positions where there is a conflict between their duty to the company and their personal interests; and (ii) duties of care, diligence and skill owed to the company.

 

Our second amended and restated articles of association provide that no person shall be disqualified from the office of director or prevented by such office from contracting with us, nor shall any such contract or any contract or transaction entered into by or on our behalf in which any director shall be in any way interested be or be liable to be avoided, nor shall any director so contracting or being so interested be liable to account to us for any profit realised by or arising in connection with any such contract or transaction by reason of such director holding office or of the fiduciary relationship thereby established. A director shall be at liberty to vote in respect of any contract or transaction in which he is interested provided that the nature of the interest of any director in any such contract or transaction shall be disclosed by him at or prior to its consideration and any vote thereon.

 

Subject to their fiduciary duties and our second amended and restated memorandum and articles of association (described above), directors may engage in transactions with us and vote on such transactions, provided the nature of the interest is disclosed in accordance with the procedures under our second amended and restated memorandum and articles of association. Directors also may exercise all the powers of the company to borrow money and to mortgage or charge its undertaking, property and uncalled capital or any part thereof and to issue debentures, debenture stock, mortgages, bonds and other such securities whether outright or as security for any debt, liability or obligation of the company or of any third party.

 

Rights and Obligations of Shareholders

 

Dividends

 

Subject to the Companies Law (see summary below), directors may declare dividends and distributions on our ordinary shares in issue and authorize payment on the dividends or distributions out of lawfully available funds. No dividend or distribution may be paid except out of our realized or unrealized profits, or out of the share premium account or as otherwise permitted by the Companies Law. The Companies Law provides that a Cayman Islands company may declare and pay a dividend on its shares out of either profit or share premium account. Subscription monies received by the company by way of pure share capital (i.e. the par value of the shares) may not be used for the payment of dividends. A dividend may not be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business.

 

60
 

 

Voting Rights

 

Subject to any rights or restrictions attached to any shares (our second amended and restated memorandum and articles of association do not contain any special voting right or restrictions on our ordinary shares), every member who (being an individual) is present in person or by proxy or, if a corporation or other non-natural person is present by its duly authorized representative or proxy has one vote for every share of which he is the holder.

 

In the case of joint holders of record the vote of the senior holder who tenders a vote, whether in person or by proxy, is accepted to the exclusion of the votes of the other joint holders, and seniority is determined by the order in which the names of the holders stand in the Register of Members.

 

A member of unsound mind, or in respect of whom an order has been made by any court, having jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by his committee, receiver, curator bonis, or other person on such member's behalf appointed by that court, and any such committee, receiver, curator bonis or other person may vote by proxy.

 

No person is entitled to vote at any general meeting or at any separate meeting of the holders of a class of shares unless he is registered as a member on the record date for such meeting or unless all calls or other monies then payable by him in respect of shares have been paid.

 

Votes may be cast either personally or by proxy. A member may appoint more than one proxy to attend and vote at a meeting.

 

A member holding more than one share need not cast the votes in respect of his shares in the same way on any resolution and therefore may vote a share or some or all such shares either for or against a resolution and/or abstain from voting a share or some or all of the shares and, subject to the terms of the instrument appointing him, a proxy appointed under one or more instruments may vote a share or some or all of the shares in respect of which he is appointed either for or against a resolution and/or abstain from voting.

 

Any person in consequence of the death or bankruptcy or winding-up of a member (or in any other way than by transfer) who becomes the holder of a share may vote at any general meeting in respect thereof in the same manner as if he were the registered holder of such shares, provided that forty-eight hours at least before the time of the holding of the meeting or adjourned meeting, as the case may be, at which he proposes to vote, he satisfies the directors of his entitlement to such shares, or the directors have previously admitted his right to vote at such meeting in respect thereof.

 

Change to Rights of Shareholders

 

Shareholders may change the rights of their class of shares by:

 

  • getting the written consent of not less than two-thirds of the shareholders of that class; or

 

  • passing a special resolution at a general meeting of the shareholders of that class.

 

There are no general limitations on the rights to own shares specified by our second amended and restated memorandum and articles of association.

 

General Meetings

 

A general meeting may be convened by a majority of directors at any time. Additionally, the directors shall convene an extraordinary general meeting upon a members’ requisition (a requisition of members holding at the date of deposit of the requisition not less than 10% in par value of our capital which as at that date carries the right of voting at general meetings). The requisition must state the objects of the meeting and must be signed by the requisitionists and deposited at the registered office, and may consist of several documents in like form each signed by one or more requisitionists.

 

If the directors do not within twenty-one days from the date of the deposit of the requisition duly proceed to convene a general meeting to be held within a further twenty-one days, the requisitionists, or any of them representing more than one-half of the total voting rights of all of them, may themselves convene a general meeting, but any meeting so convened shall not be held after the expiration of three months after the expiration of the said twenty-one days.

 

61
 

 

 A general meeting convened as aforesaid by requisitionists shall be convened in the same manner as nearly as possible as that in which general meetings are to be convened by the directors. 

 

Notice of a general meeting is to be given to all shareholders. All business transacted at an extraordinary general meeting or an annual general meeting is considered special business except:

 

  · the declaration and sanctioning of dividends;

 

  · consideration and adoption of the accounts and balance sheet and the reports of directors and auditors and other documents required to be annexed to the balance sheet;

 

  · the election of directors;

 

  · appointment of auditors (where special notice of the intention for such appointment is not required by applicable law) and other officers;

 

  · the fixing or remuneration of the auditors, and the voting of remuneration or extra remuneration to the directors;

 

  · the granting of any mandate or authority to the directors to offer, allot, grant options over or otherwise dispose of the unissued shares in the capital of the company representing not more than 20% in nominal value of its existing share capital; and

 

  · the granting of any mandate or authority to the directors to repurchase our securities.

 

A quorum of shareholders is required to be present at any meeting in order to carry out business. The holders of a majority of the shares being individuals present in person or by proxy or if a corporation or other non-natural person by its duly authorized representative or proxy shall be a quorum.

 

Changes in Capital

 

We may increase our share capital by ordinary resolution. The new shares will be subject to all of the provisions to which the original shares are subject. We may also by ordinary resolution:

 

  · consolidate and divide all or any of our share capital into shares of a larger amount;

 

  · sub-divide existing shares into shares of a smaller amount; and

 

  · cancel any shares which, at the date of the resolution, are not held or agreed to be held by any person.

 

We may reduce our share capital and any capital redemption reserve by special resolution in accordance with relevant provisions of Cayman Islands law.

 

Indemnity

 

Pursuant to our second amended and restated memorandum and articles of association, every director, agent or officer of our company shall be indemnified out of our assets against any liability incurred by him as a result of any act or failure to act in carrying out his functions other than such liability (if any) that he may incur by his own actual fraud or willful default. No such director, agent or officer shall be liable to us for any loss or damage in carrying out his functions unless that liability arises through the actual fraud or willful default of such director, agent or officer. Additionally, we entered into an indemnification agreement with each of our officers and directors in February 2011 whereby we agreed to indemnify, and advance expenses to, each officer and director to the fullest extent permitted by applicable law.

  

C. Material Contracts

 

The following summarizes each material contract, other than contracts entered into in the ordinary course of business, to which we or any subsidiary of ours is a party for the immediately preceding two years.

   

Tenancy Agreements and Leases.   Each of the Tenancy Agreements and leases summarized under the section titled “Properties” in Item 4.B of this Form 20-F is incorporated herein by reference.

 

62
 

  

Employment Agreements.  At the closing of the merger in December 2010, amendments to certain employment agreements were entered into between Sun Line (HK) (an indirect subsidiary of ours) and each of Kin Sun Sze-To, our Chairman of the Board and Chief Executive Officer, Chin Hien Tan, our Chief Operating Officer, and Ho Leung Ning, our Chief Financial Officer, to provide for their services to be extended to cover us with no additional compensation in terms of base salary. On June 1, 2012, Broadway (Macao), another indirect subsidiary of ours, entered into an amendment to its employment agreement with Mr. Tan to cover his services as our Chief Operating Officer on like terms as those covered under an employment agreement between him and Sun Line (HK) which was superseded thereby and terminated by mutual consent on June 1, 2012. On March 28, 2013, Broadway Precision (HK) (an indirect subsidiary of ours) entered into employment agreements with Kin Sun Sze-To and Ho Leung Ning to take effect from April 1, 2013, on which date their respective employment agreements with Sun Line (HK) (as amended) were terminated by mutual consents. On April 1, 2013, Broadway Precision (HK) entered into amendments to its employment agreements with Kin Sun Sze-To and Ho Leung Ning to cover their services as the Company’s Chairman of the Board-cum-Chief Executive Officer and Chief Financial Officer, respectively on like terms as those covered under their previous employment agreements with Sun Line (HK) (as amended). On December 5, 2013, the employment agreements between (i) Broadway Precision (HK) and Kin Sun Sze-To, (ii) Broadway Precision (HK) and Ho Leung Ning and (iii) Broadway (Macao) and Chin Hien Tan, each of which had previously been amended to provide for the executives’ services to be extended to cover us as such companies’ indirect parent, were each amended to extend the term of the respective contracts from December 17, 2013 to December 16, 2016 with all other terms of the employment agreements remain materially the same as in the prior agreements. Additionally, the overall annual compensation to be paid to each of Kin Sun Sze-To, Ho Leung Ning and Chin Hien Tan for their services at our subsidiaries level was increased to HK$5,070,000, HK$2,028,000 and HK$2,197,000, respectively. For a description of the material terms of the current employment agreements, as amended, see the section titled “ Compensation of Senior Management/Executive Officers ” in Item 6.B of this Form 20-F.

 

Repurchase 600,000 shares.   On January 15, 2013, we entered into share purchase agreements with certain shareholders for the repurchase by us of an aggregate of 600,000 shares at a price of $6.00 per share, or $3,600,000.

 

Repurchase 660,000 shares.   On September 16, 2013 and October 02, 2013, we entered into share purchase agreements with certain shareholders for the repurchase by us of an aggregate of 660,000 shares at a price of $6.00 per share, or $3,960,000.

 

Sale of Heyuan Sun Line Industrial Ltd. (PRC). On March 3, 2014, we sold one of our wholly-owned subsidiaries, Heyuan Sun Line Industrial Ltd. (PRC), for consideration of RMB35 million (equivalent to approximately HK$43.75 million). The sale transaction closed on March 6, 2014.

 

D. Exchange Controls and Other Limitations Affecting Security Holders

 

Under Cayman Islands law, there are currently no restrictions on the export or import of capital, including foreign exchange controls or restrictions that affect the remittance of dividends, interest or other payments to nonresident holders of our shares.

 

E. Taxation

 

The following summary of the material Cayman Islands, PRC and U.S. federal income tax consequences of the acquisition, ownership, and disposition of our ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date of this Form 20-F, all of which are subject to change. This summary does not deal with all possible tax consequences relating to an investment in our ordinary shares, such as the tax consequences under state, local and other tax laws, except to the extent local tax consequences are discussed under the PRC taxation section.

 

As used in this discussion, references to “the company,” “we,” “our” or “us” refer only to Plastec Technologies, Ltd.

 

Cayman Islands Taxation

 

The government of the Cayman Islands will not, under existing legislation, impose any income, corporate or capital gains tax, estate duty, inheritance tax, gift tax or withholding tax upon the company or its shareholders. The Cayman Islands are not party to any double taxation treaties that are applicable to payments made to or by us.

 

No Cayman Islands stamp duty will be payable by you in respect of the issue or transfer of ordinary shares. However, an instrument transferring title to an ordinary share, if brought to or executed in the Cayman Islands, would be subject to Cayman Islands stamp duty.

 

We have received an undertaking from the Governor-in-Cabinet of the Cayman Islands, dated January 11, 2011, that, in accordance with section 6 of the Tax Concessions Law (Revised) of the Cayman Islands, for a period of 20 years from the date of the undertaking, no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciations shall apply to us or our operations and, in addition, that no tax to be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable (i) on the ordinary shares, or on the debentures or other obligations, of the company or (ii) by way of the withholding in whole or in part on a payment of a dividend or other distribution of income or capital by the company to its shareholders or a payment of principal or interest or other sums due under a debenture or other obligation of the company.

 

63
 

  

PRC Taxation

 

The following is a summary of the material PRC tax consequences of the acquisition, ownership and disposition of our ordinary shares. You should consult with your own tax adviser regarding the PRC tax consequences of the acquisition, ownership and disposition of our ordinary shares in your particular circumstances.

 

Dividends From Our PRC Operating Companies

 

If we and/or our non-PRC subsidiaries are not treated as resident enterprises under the EIT Law, then dividends that we and/or our non-PRC subsidiaries receive may be subject to PRC withholding tax. The EIT Law and the implementing rules of the EIT Law provide that (A) an income tax rate of 25% normally will be applicable to “non-resident enterprises” that (i) have an establishment or place of business inside the PRC, and (ii) have income in connection with their establishment or place of business that is sourced from the PRC or is earned outside the PRC but has an actual connection with their establishment or place of business inside the PRC, and (B) a PRC withholding tax at a rate of 10% will normally be applicable to dividends payable to non-resident enterprises that (i) do not have an establishment or place of business in the PRC or (ii) have an establishment or place of business in the PRC, but the relevant income is not effectively connected with such establishment or place of business, to the extent such dividends are derived from sources within the PRC.

 

As described above, the PRC tax authorities may determine the resident enterprise status of entities organized under the laws of foreign jurisdictions on a case-by-case basis. Each of our non-PRC subsidiaries is a holding company, substantially all of the income of which may be derived from dividends. Thus, if our non-PRC subsidiaries are considered “non-resident enterprises” under the EIT Law and the dividends paid to our non-PRC subsidiaries are considered income sourced within the PRC, such dividends received may be subject to PRC withholding tax as described in the foregoing paragraph.

 

The State Council of the PRC or a tax treaty between China and the jurisdiction in which the non-resident enterprise resides may reduce such income or withholding tax, with respect to such non-resident enterprise. For instance, pursuant to the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income (“PRC-Hong Kong Tax Treaty”) and relevant circulars issued by the SAT, if the Hong Kong resident enterprise that is not deemed to be a conduit by the PRC tax authorities owns more than 25% of the equity interests in a PRC resident enterprise, the 10% PRC withholding tax on the dividends the Hong Kong resident enterprise receives from the PRC resident enterprise is reduced to 5% after obtaining approval from the competent tax authorities.

 

We are a Cayman Islands holding company, and we have subsidiaries in Hong Kong which in turn own equity interests in certain of our PRC operating subsidiaries. As a result, if our Hong Kong subsidiaries were treated as “non-resident enterprises” under the EIT Law, then dividends that such subsidiaries receive from our PRC operating subsidiaries (assuming such dividends were considered sourced within the PRC) (i) may be subject to a 5% PRC withholding tax, if the PRC-Hong Kong Tax Treaty were applicable and after obtaining approval from the competent tax authorities, or (ii) if such treaty does not apply (i.e., because the PRC tax authorities may deem such Hong Kong subsidiaries to be conduits not entitled to treaty benefits), may be subject to a 10% PRC withholding tax. Similarly, if we were treated as a “non-resident enterprise” under the EIT Law, and our Hong Kong subsidiaries were treated as “resident enterprises” under the EIT Law, then dividends that we receive from such Hong Kong subsidiaries (assuming such dividends were considered sourced within the PRC) may be subject to a 10% PRC withholding tax. Any such taxes on dividends could materially reduce the amount of dividends, if any, we could pay to our shareholders.

 

As of the date of this Form 20-F, there has not been a definitive determination as to the “resident enterprise” or “non-resident enterprise” status of us or our non-PRC subsidiaries. Our PRC operating subsidiaries and our non-PRC subsidiaries that are determined to be resident enterprises will make any necessary tax withholding if, in the future, such PRC operating subsidiaries or such non-PRC subsidiaries were to pay any dividends, and the PRC tax authorities determine that the recipient of any such dividend is a non-resident enterprise under the EIT Law.

 

64
 

  

Notice Regarding the Determination of Chinese-Controlled Offshore Incorporated Enterprises as PRC Tax Resident Enterprises on the Basis of De Facto Management Bodies issued by the State Tax Administration issued on 22 April 2009 (“Circular 82”) provides certain criteria for determining whether the “de facto management body” of an offshore-incorporated enterprise controlled by PRC enterprises is located in China. The criteria include whether: (i) the enterprise’s day-to-day operational management is primarily exercised in China, (ii) decisions relating to the enterprise’s financial and human resource matters are made or subject to approval by organizations or personnel in China, (iii) the enterprise’s primary assets, accounting books and records, company seals, and board and shareholders’ meeting minutes are located or maintained in China, and (iv) 50% or more of voting board members or senior executives of the enterprise habitually reside in China.

 

Although Circular 82 applies only to offshore enterprises controlled by the PRC enterprises, it remains unclear how the tax authorities will treat an overseas enterprise invested or controlled by foreign shareholders or PRC individuals, as is in our case, and the determining criteria set forth in Circular 82 may reflect the State Administration of Taxation’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises. We have not been, and are currently not, notified by the relevant tax authorities that we are treated as a PRC resident enterprise. However, since substantially our day-to-day operational management is primarily exercised in China, we cannot assure you that we will not be considered a “resident enterprise” under the EIT Law and, therefore, be subject to the enterprise income tax at 25% on our worldwide income, which could significantly increase our tax burden and materially and adversely affect our cash flow and profitability.

 

Penalties for Failure to Pay Applicable PRC Income Tax

 

A non-resident investor in us may be responsible for paying PRC income tax on any gain realized from the sale or transfer of our ordinary shares or warrants, if such non-resident investor and the gain satisfy the requirements under the PRC tax laws, as described above.

 

According to the EIT Law and its implementing rules, the PRC Tax Administration Law (the “Tax Administration Law”) and its implementing rules, the Provisional Measures for the Administration of Source-based Withholding of Enterprise Income Tax for Non-Resident Enterprises (the “Administration Measures”) and other applicable PRC laws or regulations (collectively the “Tax Related Laws”), where any gain derived by a non-resident investor from the sale or transfer of our ordinary shares or warrants, is subject to any income tax in the PRC, and such non-resident investor fails to file any tax return or pay tax in this regard pursuant to the Tax Related Laws, such investor may be subject to certain fines, penalties or punishments, including without limitation: (1) if the non-resident investor fails to file a tax return and present the relevant information in connection with tax payments, the competent PRC tax authorities may order it to do so within the prescribed time limit and may impose a fine up to RMB 2,000, and in egregious cases, may impose a fine ranging from RMB 2,000 to RMB 10,000; (2) if the non-resident investor fails to file a tax return or fails to pay all or part of the amount of tax payable, the non-resident investor may be required to pay the unpaid tax amount payable, a surcharge on overdue tax payments (the daily surcharge is 0.05% of the overdue amount, beginning from the day the deferral begins) and a fine ranging from 50% to 500% of the unpaid amount of the tax payable; (3) if the non-resident investor fails to file a tax return and to pay the tax within the prescribed time limit according to the order by the PRC tax authorities, the PRC tax authorities may collect and check information about the income receivable by the non-resident investor in the PRC from other payers (the “Other Payers”) who will pay amounts to such non-resident investor and the information about the Other Payers, and send a “Notice of Tax Issues” to the Other Payers to collect and recover the tax payable and overdue fines imposed on such non-resident investor from the amounts otherwise payable to such non-resident investor by the Other Payers; (4) if the non-resident investor fails to pay the tax payable within the prescribed time limit as ordered by the PRC tax authorities, a fine ranging from 50% to 500% of the unpaid tax payable and a surcharge on overdue tax payments (the daily surcharge is 0.05% of the overdue amount, beginning from the day the deferral begins) may be imposed on the non-resident investor, and the PRC tax authorities may, upon approval by the director of the tax bureau (or sub-bureau) of, or higher than, the county level, take the following compulsory measures: (i) notify in writing the non-resident investor’s bank or other financial institution to withhold from the account thereof for payment of the amount of tax payable, and (ii) detain, seal off, or sell by auction or on the market the non-resident investor’s commodities, goods or other property in a value equivalent to the amount of tax payable; or (5) if the non-resident investor fails to pay all or part of the amount of tax payable or the surcharge for the overdue tax payment, and cannot provide a guarantee to the PRC tax authorities, the tax authorities may notify the frontier authorities to prevent the non-resident investor or its legal representative from leaving the PRC.

 

65
 

  

U.S. Taxation

 

With respect to the U.S. tax matters discussed, this summary only applies to you if all of the following three points apply to you:

  

  · You own, directly or indirectly less than 10% of our capital stock;
     
  · You are any one of (a), (b), (c) or (d) below:

 

  (a) an individual citizen or resident of the United States,

 

  (b) a corporation (including an entity treated as a corporation for U.S. federal income tax purposes) that is created or organized under the laws of the United States, any of its states or the District of Columbia,

 

  (c) an estate whose income is subject to U.S. federal income taxation regardless of its source, or

 

  (d) a trust if (i) a U.S. court is able to exercise primary supervision over the administration of such trust and one or more U.S. persons have the authority to control all of the substantial decisions of such trust or (ii) it has a valid election in place to be treated as a U.S. person;

 

  · You hold our ordinary shares as capital assets.

 

The following description of tax consequences should be considered only as a summary and does not purport to be a complete analysis of all potential tax effects of owning or disposing of our ordinary shares.

 

Special rules may apply to U.S. expatriates, insurance companies, tax-exempt organizations, regulated investment companies, real estate investment trusts, real estate mortgage investment conduits, financial institutions, persons subject to the alternative minimum tax, securities broker-dealers, traders in securities that elect to use a mark-to-market method of accounting for the securities’ holdings, and persons holding their ordinary shares as part of a hedging, straddle, conversion transaction or other integrated investment, among others. Those special rules are not discussed in this Form 20-F. This summary does not address all potential tax implications that may be relevant to you as a holder, in light of your particular circumstances. You should consult your tax advisor concerning the overall U.S. federal, state and local tax consequences, of your ownership of our ordinary shares.

 

We have not sought, and will not seek, any ruling from the IRS or any opinion of counsel with respect to the tax consequences discussed below.

 

Taxation of Dividends

 

For U.S. federal income tax purposes, the gross amount of any dividend we pay on our ordinary shares will be included in your gross income as dividend income to the extent paid or deemed paid out of our current or accumulated earnings and profits as calculated for U.S. federal income tax purposes. You must include the gross amount treated as a dividend in income in the year the dividend is paid to you. Cash dividends paid on our ordinary shares will be taxable at ordinary U.S. federal income tax rates. Dividends paid on our ordinary shares do not qualify for the lower rates of federal income tax applicable to non-corporate U.S. Holders because our shares are currently quoted only on the OTC Bulletin Board and are not treated as readily tradable on an established securities market in the United States.

 

To the extent that any distributions paid exceed our current and accumulated earnings and profits as calculated for U.S. federal income tax purposes, the distribution will be treated as follows:

 

  · First, as a tax-free return of capital to the extent of your basis (determined for U.S. federal income tax purposes) in your ordinary shares which will reduce your adjusted tax basis of your ordinary shares. This adjustment will increase the amount of gain, or decrease the amount of loss, which you will recognize if you later dispose of those ordinary shares.
     
  · Second, the balance of the distribution in excess of your adjusted tax basis will be taxed as capital gain.

 

Dividends paid by us will not give rise to any dividends-received deduction generally allowed to a U.S. corporation under Section 243 of the Internal Revenue Code of 1986, as amended (the “Code”).

 

66
 

 

Taxation of Capital Gains

 

In general, for U.S. federal income tax purposes, you will recognize capital gain or loss if you sell or otherwise dispose of your ordinary shares based on the difference between the amount realized on the disposition and your adjusted tax basis in the ordinary shares. Any gain or loss generally will be U.S. source gain or loss. If you are a non-corporate holder, and you satisfy certain minimum holding period requirements, any capital gain generally will be treated as long-term capital gain that generally is subject to U.S. federal income tax at preferential rates under current law. Long-term capital gains realized upon a sale or other disposition of the ordinary shares generally will be subject to U.S. federal income tax at the rate of 15%, increased to 20% on taxpayers with taxable income exceeding certain thresholds.

 

Unearned Income Medicare Tax

 

A 3.8% Medicare contribution tax will generally apply to all or some portion of net investment income of a U.S. Holder that is an individual with adjusted gross income that exceeds a threshold amount. Net investment income includes dividend income and realized capital gains.

 

U.S. Information Reporting and Backup Withholding

 

In general, if you are a non-corporate U.S. holder of our ordinary shares (or do not come within certain other exempt categories), information reporting requirements will apply to distributions paid to you and proceeds from the sale, exchange redemption or disposal of your ordinary shares. U.S. holders that are corporations generally are excluded from these information reporting and backup withholding tax rules.

 

Additionally, if you are a non-corporate U.S. holder of our ordinary shares (or do not come within certain other exempt categories) you may be subject to backup withholding at the current applicable rate with respect to such payments, unless you provide a correct taxpayer identification number (your social security number or employer identification number), and with respect to dividend payments, certify that you are not subject to backup withholding and otherwise comply with applicable requirements of the backup withholding rules. Generally, you will be required to provide such certification on Internal Revenue Service Form W-9 (“Request for Taxpayer Identification Number and Certification) or a substitute Form W-9.

 

If you do not provide your correct taxpayer identification number, you may be subject to penalties imposed by the Internal Revenue Service, as well as backup withholding. Backup withholding is not an additional tax. In general, any amount withheld under the backup withholding rules should be allowable as a credit against your U.S. federal income tax liability (which might entitle you to a refund), provided that you timely furnish the required information to the Internal Revenue Service.

 

Disclosure of Information with Respect to Foreign Financial Assets

 

Certain U.S. holders are required to report information with respect to their investment in our ordinary shares not held through a custodial account with a U.S. financial institution to the Internal Revenue Service. In general, U.S. taxpayers holding specified “foreign financial assets” (which generally would include our ordinary shares) with an aggregate value exceeding $50,000 will report information about those assets on new IRS Form 8938, which must be attached to the taxpayer’s annual income tax return. Higher asset thresholds apply to U.S. taxpayers who file a joint tax return or who reside abroad. Investors who fail to report required information could become subject to substantial penalties. You should consult your own tax advisor concerning the effect, if any, of holding your ordinary shares on your obligation to file new Form 8938.

 

U.S. State and Local Taxes

 

In addition to U.S. federal income tax, you may be subject to U.S. state and local taxes with respect to your ordinary shares. You should consult your own tax advisor concerning the U.S. state and local tax consequences of holding your ordinary shares.

 

Passive Foreign Investment Company

 

In general, we would be treated as a PFIC for any taxable year in which either (1) at least 75% of our gross income (looking through certain 25% or more-owned corporate subsidiaries) is passive income or (2) at least 50% of the average value of our assets (looking through certain 25% or more-owned corporate subsidiaries) is attributable to assets that produce, or are held for the production of, passive income. Passive income generally includes, without limitation, dividends, interest, rents, royalties, and gains from the disposition of passive assets.

 

67
 

  

If we were a PFIC for any taxable year during which a taxable U.S. holder held ordinary shares, gain recognized by the U.S. holder on a sale or other disposition (including certain pledges) of the ordinary shares would be allocated ratably over the U.S. holder’s holding period for the ordinary shares. The amounts allocated to the taxable year of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate, for that taxable year, and an interest charge would be imposed on the amount allocated to that taxable year. Further, to the extent that any distribution received by a U.S. holder on its ordinary shares exceeds 125% of the average of the annual distributions on the ordinary shares received during the preceding three years or the U.S. holder’s holding period, whichever is shorter, that distribution (an “excess distribution”) would be subject to taxation in the same manner as gain, described immediately above. Certain elections may be available that would result in alternative treatments (such as mark-to-market treatment) of the ordinary shares. In addition, each U.S. holder of a PFIC is required to file an annual report containing such information as the U.S. Department of the Treasury may require. If we were classified as a PFIC in any year with respect to which a U.S. holder owns ordinary shares, we would continue to be treated as a PFIC with respect to the U.S. holder in all succeeding years during which the U.S. holder owns ordinary shares, regardless of whether we continue to meet the tests described above. However, if we ceased to be a PFIC, a U.S. holder of our ordinary shares could avoid some of the adverse effects of the PFIC regime by making a deemed sale election with respect to our ordinary shares.

 

A U.S. holder that owns (or is deemed to own) shares in a PFIC during any taxable year of the U.S. holder, may have to file an IRS Form 8621 (whether or not a QEF or market-to market election is made) and such other information as may be required by the U.S. Treasury Department.

 

We do not expect to be treated as a PFIC for the current taxable year or in the near future based on the current nature of our assets and income and current plans of operation. However, our actual PFIC status for any taxable year will not be determinable until after the end of such taxable year. Accordingly, there can be no assurance with respect to our status as a PFIC for our current taxable year or any subsequent taxable year. We urge U.S. investors to consult their own tax advisors regarding the possible application of the PFIC rules.

 

F. Dividends and Paying Agents

 

Not applicable.

 

G. Statement by Experts

 

Not applicable.

 

H. Documents on Display

 

We file annual or transition reports on Form 20-F and furnish certain reports and other information with the SEC as required by the Exchange Act in accordance with our status as a foreign private issuer. You may read and copy any report or other document filed or furnished by us, including the exhibits, at the SEC’s public reference room located at 450 Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. Such materials can also be obtained on the SEC’s site on the internet at http://www.sec.gov.

 

We will also provide without charge to each person, including any beneficial owner, upon written or oral request of that person, a copy of any and all of the information that has been incorporated by reference in this Form 20-F. Please direct such requests to us, Attention Kin Sun Sze-To, Unit 01, 21/F, Aitken Vanson Centre, 61 Hoi Yuen Road, Kwun Tong, Kowloon, Hong Kong.

 

I. Subsidiary Information

 

Not applicable.

 

68
 

  

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

The disclosure set forth under “Market Risk” in Item 5.A of this Form 20-F is incorporated herein by reference.

 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

 

A. Debt Securities

 

Not applicable.

 

B. Warrants and Rights

 

Not applicable.

 

C. Other Securities

 

Not applicable.

 

D. American Depositary Shares

 

Our securities trade directly on U.S. markets and do not trade through the use of American depositary receipts.

 

69
 

  

PART II

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

 

There has been no default in the payment of principal, interest or sinking or purchase fund installments, or any other default relating to indebtedness, nor has there been any arrearage in the payment of dividends on any class of our preferred shares or the preferred shares of our subsidiaries.

 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS.

 

On December 10, 2010, we held an extraordinary general meeting of our shareholders, at which our shareholders approved the merger and other related proposals, including proposals to amend our memorandum and articles to:

 

  · increase our authorized share capital to U.S.$101,000 divided into 100,000,000 ordinary shares of a par value of U.S.$0.001 each and 1,000,000 preferred shares of a par value of U.S.$0.001 each;

 

  · change our name from “GSME Acquisition Partners I” to “Plastec Technologies, Ltd.”; and

 

  · enable us to repurchase ordinary shares in order to facilitate the approval of the merger proposal and the conversion of shares in accordance with shareholders’ conversion rights and in certain other circumstances and provide for ordinary shares to be uncertificated if requested by a holder rather than requiring shares to be issued in certificated form.

 

Except for the foregoing, there have been no changes to the instruments defining the rights of the holders of any class of our registered securities, and the rights of holders of our registered securities have not been altered by the issuance or modification of any other class of our securities. There has been no removal or substitution of assets securing any class of our registered securities. None of our registered securities have a trustee or paying agent.

 

ITEM 15. CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

As required by Rules 13a-15 and 15d-15 under the Exchange Act, our principal executive officer and principal financial officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2014. Based upon their evaluation, they concluded that our disclosure controls and procedures were effective as of such date.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting of the Company. Our internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with the authorization of our board of directors and management; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

 

70
 

  

Our management assessed the effectiveness of our internal control over financial reporting as of the year ended December 31, 2014. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework . Based on management’s assessment and those criteria, our management believes that we maintained effective internal control over financial reporting as of December 31, 2014.

 

This Annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. An attestation report is not required pursuant to the Sarbanes-Oxley Act of 2002, as amended, and the rules and regulations of the SEC.

 

Changes in Internal Control over Financial Reporting

 

During the most recently completed fiscal year, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT.

 

Since December 16, 2010, we have had a standing audit committee, consisting of Joseph Yiu Wah Chow, Chung Wing Lai and Eli D. Scher, with Joseph Yiu Wah Chow serving as chairman. Each is an independent director under the NASDAQ listing standards. The audit committee will at all times be composed exclusively of “independent directors” who are “financially literate” as defined under NASDAQ listing standards. The definition of “financially literate” generally means being able to read and understand fundamental financial statements, including a company’s balance sheet, income statement and cash flow statement. In addition, our board of directors has determined that Joseph Yiu Wah Chow satisfies the definition of financial sophistication under the NASDAQ listing standards and also qualifies as an “audit committee financial expert” as defined under rules and regulations of the SEC.

 

ITEM 16B. CODE OF ETHICS.

 

In November 2009, our board of directors adopted a code of ethics that applies to our directors, officers and employees as well as those of our subsidiaries. We will provide to any person upon request, without charge, a copy of our code of ethics. Please direct such requests in writing to us, Attention Kin Sun Sze-To, Unit 01, 21/F, Aitken Vanson Centre, 61 Hoi Yuen Road, Kwun Tong, Kowloon, Hong Kong.

 

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

 

Our independent registered public accounting firm for the audit of our financial statements for the years ended December 31, 2014 and 2013 was Dominic K. F. Chan &Co.

 

The following table presents the aggregate fees for professional services and other services rendered by Dominic K. F. Chan & Co. to us for the years ended December 31, 2014 and 2013:

 

          Fiscal Year
Ended
December 31,		     Fiscal Year
Ended
December 31,		  
Service Category         2014     2013  
Audit Fees           HK$ 880,000     HK$ 850,000  
Audit-Related Fees           HK$ 220,000     HK$ 380,000  
Tax Fees           HK$ —     HK$ —  
All Other Fees           HK$ —     HK$ —  
Total Fees           HK$ 1,100,000     HK$ 1,230,000  

 

71
 

  

In the above tables, in accordance with the SEC’s definitions and rules, “audit fees” are fees for professional services for the audit and review of our annual financial statements, as well as the audit and review of our financial statements included in our registration statements filed under the Securities Act and issuance of consents and for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements except those not required by statute or regulation; “audit-related fees” are fees for assurance and related services that were reasonably related to the performance of the audit or review of our financial statements, including attestation services that are not required by statute or regulation, due diligence and services related to acquisitions; “tax fees” are fees for tax compliance, tax advice and tax planning; and “all other fees” are fees for any services not included in the first three categories.

 

Pre-Approval Policies and Procedures

 

Our audit committee of the board of directors pre-approves all audit, audit-related and non-audit services not prohibited by law to be performed by our independent auditors and associated fees prior to the engagement of the independent auditor with respect to such services.

 

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.

 

Our securities are not listed on a national securities exchange.

 

ITEM 16E. PURCHASE OF SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS.

 

The following table summarizes our repurchases of our ordinary shares and public warrants during the period covered by this Form 20-F:

 

Period*  Total number of
securities purchased		  Average price
paid per
security purchased		  

Total number of
securities purchased
as part of publicly
announced
repurchase plan (1)

  Approximate dollar
value of securities
that may yet be
purchased under the
plan		 
August 2014  PUBLIC WARRANTS 547,600  $0.095   PUBLIC WARRANTS 547,600  $1,431,918 

 

* Each period covers the full calendar month indicated. There were no repurchases made in omitted months.

 

 

(1) In November 2011, our board of directors approved a $5 million share repurchase program expiring initially in June 2012, which was extended twice through December 9, 2013 and expanded to cover public warrants. Under the 2011 Repurchase Program, we could make repurchases of shares and public warrants from time to time in open market or in privately negotiated transactions. The timing of repurchases under the 2011 Repurchase Program was dependent on a variety of factors, including price and market conditions prevailing from time to time. The 2011 Repurchase Program was completed on September 25, 2013. On the same date, we announced a new $5 million repurchase plan approved by our board of directors to cover repurchases of shares and public warrants from time to time in open market or in privately negotiated transactions through September 25, 2014. On May 13, 2014, we announced expansion of the scope of the 2013 Repurchase Program to include our units, with all other terms thereunder remained unchanged. On August 11, 2014, we announced a 12-month extension of the 2013 Repurchase Program (as expanded) through September 25, 2015. The timing of repurchases under the 2013 Repurchase Program would depend on a variety of factors, including price and market conditions prevailing from time to time, and the program may be suspended, modified or discontinued without notice at any time.

 

72
 

  

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT.

 

Not Applicable.

 

ITEM 16G. CORPORATE GOVERNANCE.

 

Our securities are not listed on a national securities exchange.

  

ITEM 16H. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

73
 

  

PART III

 

ITEM 17. FINANCIAL STATEMENTS.

 

We have provided financial statements pursuant to Item 18.

 

74
 

  

ITEM 18. FINANCIAL STATEMENTS.

  

  Page
   
Report of Independent Registered Public Accounting Firm F–1
   
Consolidated Balance Sheets F–2
   
Consolidated Statements of Income and Comprehensive Income F–3
   
Consolidated Statements of Shareholders’ Equity F–4
   
Consolidated Statements of Cash Flows F–5
   
Notes to Consolidated Financial Statements F–6 – F–27

 

75
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Shareholders of

Plastec Technologies, Ltd.

 

We have audited the accompanying consolidated balance sheets of Plastec Technologies, Ltd. (the “Company”, formerly known as GSME Acquisition Partners I) and its subsidiaries (where the context permits, references to the “Company” below shall include references to its subsidiaries collectively as the “Group”) as of December 31, 2014 and 2013 and 2012 and April 30, 2012, and the related statements of operations, shareholders’ equity and comprehensive income, and cash flows for the years ended December 31, 2014 and 2013 and for the 8-month period ended December 31, 2012 and for the year ended April 30, 2012. The preparation of these consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

 

We were not engaged to examine management’s assertion about the effectiveness of the Company’s internal control over financial reporting as of December 31, 2014 included in the Company’s Item 15 “Controls and Procedures” in the Annual Report on Form 20-F and, accordingly, we do not express an opinion thereon.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated balance sheet of the Company and its subsidiaries as of December 31, 2014, 2013 and 2012 and as of April 30, 2012, and the consolidated results of their operations and their cash flows for the years ended December 31, 2014 and 2013 and for the 8-month period ended December 31, 2012 and for the year ended April 30, 2012, are in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Dominic K.F. Chan & Co.

 

Dominic K.F. Chan & Co

Certified Public Accountants

Hong Kong

Date: April 15, 2015

 

F-1
 

PLASTEC TECHNOLOGIES, LTD.

 

CONSOLIDATED BALANCE SHEETS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

   April 30,   December 31,   December 31,   December 31, 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
ASSETS                    
                     
Current assets                    
Cash and cash equivalents   199,818    309,862    348,901    528,527 
Trade receivables, net of allowances for doubtful accounts of HK$nil, HK$nil, HK$nil and HK$nil as of April 30, 2012 and December 31, 2012 and 2013 and 2014, respectively   282,869    257,299    269,419    278,553 
Inventories (note 3)   128,387    97,467    107,058    96,030 
Deposits, prepayment and other receivables (note 4)   20,514    35,471    28,139    50,204 
Total current assets   631,588    700,099    753,517    953,314 
                     
Property, plant and equipment, net (note 5)   524,137    440,383    364,149    283,500 
Prepaid lease payments, net (note 6)   24,753    23,719    22,167    19,692 
Other assets   12,813    14,503    2,325    - 
Deferred tax assets (note 10)   -    -    12,225    14,212 
Intangible assets   438    438    438    438 
Total assets   1,193,729    1,179,142    1,154,821    1,271,156 
                     
LIABILITIES AND SHAREHOLDERS’ EQUITY                    
                     
Current liabilities                    
Bank borrowings (note 7)   156,866    96,892    37,782    21,429 
Capital lease obligations (note 8)   303    -    -    - 
Trade payables   121,964    151,436    105,428    125,854 
Other payables and accruals (note 9)   115,109    115,715    116,608    103,576 
Tax payable   72,936    25,225    41,389    58,736 
Total current liabilities   467,178    389,268    301,207    309,595 
                     
Borrowings   -    -    50,000    28,571 
Deferred tax liabilities (note 10)   14,504    11,629    -    - 
Total liabilities   481,682    400,897    351,207    338,166 
                     
Commitments and contingencies (note 12)   -    -    -    - 
                     
Shareholders’ equity                    
Ordinary shares (U.S.$0.001 par value; 100,000,000 authorized, 14,352,903, 14,292,228, 12,938,128 and 12,938,128 shares issued and outstanding as of April 30, 2012 and December 31, 2012 and 2013 and 2014, respectively)   112    112    101    101 
Additional paid-in capital   77,967    85,332    26,455    26,049 
Accumulated other comprehensive income   15,514    14,524    17,901    10,137 
Retained earnings   618,454    678,277    759,157    896,703 
Total shareholders’ equity   712,047    778,245    803,614    932,990 
                     
Total liabilities and shareholders’ equity   1,193,729    1,179,142    1,154,821    1,271,156 

 

 

See accompanying notes to consolidated financial statements.

 

F-2
 

PLASTEC TECHNOLOGIES, LTD.

 

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

   Year ended
April 30,		   8-month
Period ended
December 31,		   Year ended
December 31,		   Year ended
December 31,		 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
                 
Revenues   1,291,223    933,888    1,167,115    1,207,811 
Cost of revenues   (1,142,653)   (807,104)   (899,400)   (905,280)
Gross profit   148,570    126,784    267,715    302,531 
                     
Operating expenses, net                    
Selling, general and administrative expenses   (81,557)   (66,330)   (166,969)   (152,912)
Other income   2,431    6,266    2,508    7,737 
Write-off of property, plant and equipment   (690)   (4,058)   (14,920)   (442)
Gain / (Loss) on disposal of property, plant and equipment   938    1,898    (2,836)   5,420 
Gain on disposal of subsidiary   -    -    -    29,125 
Total operating expenses, net   (78,878)   (62,224)   (182,217)   (111,072)
                     
Income from operations   69,692    64,560    85,498    191,459 
                     
Interest income   218    166    276    1,530 
Interest expense   (2,695)   (1,559)   (1,160)   (1,688)
Income before income tax expense   67,215    63,167    84,614    191,301 
                     
Income tax expense (note 10)   (16,811)   (3,344)   (3,734)   (23,480)
Net income   50,404    59,823    80,880    167,821 
                     
Other comprehensive income                    
Foreign currency translation adjustment   7,408    (990)   3,377    (7,764)
Comprehensive income attributable to Plastec Technologies, Ltd.   57,812    58,833    84,257    160,057 
                     
Net income per share (note 11):                    
                     
Weighted average number of ordinary shares   15,944,233    14,303,544    13,503,623    12,938,128 
                     
Weighted average number of diluted ordinary shares   15,944,233    14,303,544    13,503,623    12,938,128 
                     
Basic income per share attributable to Plastec Technologies, Ltd.  HK$3.2   HK$4.2   HK$6.0   HK$13.0 
                     
Diluted income per share attributable to Plastec Technologies, Ltd.  HK$3.2   HK$4.2   HK$6.0   HK$13.0 

 

See accompanying notes to consolidated financial statements.

 

F-3
 

 

PLASTEC TECHNOLOGIES, LTD.

 

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

   Ordinary shares       Accumulated         
   Number of
shares
outstanding		   Amount   Additional
paid-in
capital		   other
comprehensive
income		   Retained
earnings		   Shareholders’
equity		 
       HK$   HK$   HK$   HK$   HK$ 
                         
Balance at April 30, 2011 and at May 1, 2011   16,733,196    131    169,973    8,106    568,050    746,260 
                               
Net income for the year   -    -    -    -    50,404    50,404 
Share repurchases   (1,574,000)   (13)   (92,012)   -    -    (92,025)
Share redeemed and cancelled   (806,293)   (6)   6    -    -    - 
Cumulative translation adjustment   -    -    -    7,408    -    7,408 
                               
Balance at April 30, 2012 and at May 1, 2012   14,352,903    112    77,967    15,514    618,454    712,047 
                               
Net income for the period   -    -    -    -    59,823    59,823 
Share repurchases   (60,675)   -    (2,840)   -    -    (2,840)
Capital contribution   -    -    10,205    -    -    10,205 
Cumulative translation adjustment   -    -    -    (990)   -    (990)
                               
Balance at December 31, 2012 and at January 1, 2013   14,292,228    112    85,332    14,524    678,277    778,245 
                               
Net income for the year   -    -    -    -    80,880    80,880 
Share repurchases   (1,354,100)   (11)   (63,360)   -    -    (63,371)
Warrants repurchases   -    -    (33)   -    -    (33)
Capital contribution   -    -    4,516    -    -    4,516 
Cumulative translation adjustment   -    -    -    3,377    -    3,377 
                               
Balance at December 31, 2013 and at January 1, 2014   12,938,128    101    26,455    17,901    759,157    803,614 
                               
Net income for the year   -    -    -    -    167,821    167,821 
Dividend paid   -    -    -    -    (30,275)   (30,275)
Warrants repurchases   -    -    (406)   -    -    (406)
Cumulative translation adjustment   -    -    -    (7,764)   -    (7,764)
                               
Balance at December 31, 2014   12,938,128    101    26,049    10,137    896,703    932,990 

 

See accompanying notes to consolidated financial statements.

 

F-4
 

 

PLASTEC TECHNOLOGIES, LTD.

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

   Year ended
April 30,		   8-month
Period ended
December
31,		   Year ended
December 31,		   Year ended
December 31,		 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
Operating activities                    
Net income   50,404    59,823    80,880    167,821 
Adjustments to reconcile net income to net cash provided by operating activities:                    
Depreciation and amortization   157,219    103,513    123,741    108,927 
Net (gain)/loss on disposal of property, plant and equipment   (938)   (1,897)   2,836    (5,420)
Gain on disposal of a subsidiary   -    -    -    (29,125)
Write-off of property, plant and equipment   690    4,058    14,920    442 
Impairment on inventories   6,920    4,108    7,037    7,391 
Deferred tax charge   (652)   (2,732)   (23,854)   (2,681)
Changes in operating assets and liabilities:                    
Trade receivables   (12,106)   25,553    (12,120)   (9,134)
Inventories   (17,574)   26,812    (16,628)   3,637 
Deposits, prepayment and other receivables   (12,158)   (13,772)   7,332    (14,280)
Trade payables   (6,023)   29,472    (46,008)   20,427 
Other payables and accruals   34,299    12,212    891    (12,444)
Tax payables   16,547    416    19,276    20,660 
Net cash provided by operating activities   216,628    247,566    158,303    256,221 
                     
Investing activities                    
Purchase of property, plant and equipment   (126,167)   (87,224)   (54,436)   (50,521)
Proceeds from disposal of property, plant and equipment   5,252    29,665    6,634    7,138 
Net proceeds from disposal of a subsidiary   -    -    -    43,015 
Deposits for purchase of property, plant and equipment   (12,813)   (15,690)   (2,325)   - 
Net loss on disposals of subsidiaries   -    (165)   -    - 
Net cash used in investing activities   (133,728)   (73,414)   (50,127)   (368)
                     
Financing activities                    
Repurchases of shares/warrants   (92,025)   (2,841)   (63,404)   (406)
Proceeds from bank borrowings   379,465    220,809    195,214    74,155 
Repayment of bank borrowings   (392,309)   (280,783)   (204,324)   (111,937)
Repayment of capital lease obligations   (5,311)   (303)   -    - 
Dividends paid   -    -    -    (30,275)
Net cash used in financing activities   (110,180)   (63,118)   (72,514)   (68,463)
                     
Net increase/(decrease) in cash and cash equivalents   (27,280)   111,034    35,662    187,390 
                     
Effect of exchange rate changes on cash and cash equivalents   7,341    (990)   3,377    (7,764)
Cash and cash equivalents, beginning of year / period   219,757    199,818    309,862    348,901 
Cash and cash equivalents, end of year / period   199,818    309,862    348,901    528,527 
                     
Supplementary disclosures of cash flow information:                    
Interest paid, net   2,477    1,393    886    158 
                     
Income taxes paid   916    5,660    8,312    5,501 

 

See accompanying notes to consolidated financial statements.

F-5
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

1.Organization and Business Background

 

Plastec Technologies, Ltd. (“Company”) (formerly known as “GSME Acquisition Partners I”), incorporated under the laws of Cayman Islands on March 27, 2008, and its subsidiaries (where the context permits, references to the “Company” below shall include references to its subsidiaries collectively as a group) are principally engaged in the provision of integrated plastic manufacturing services from mold design and fabrication, plastic injection manufacturing to secondary-process finishing as well as parts assembly. The Company’s manufacturing activities are performed in the People’s Republic of China (the “PRC” or “China”) and Thailand. The selling and administrative activities are mainly performed in China. During the year, the Company disposed of a PRC incorporated subsidiary, namely Heyuan Sun Line Industrial Ltd. 河源新丽工业有限公司 (“Heyuan Sun Line”).

 

As of December 31, 2014, details of the Company’s subsidiaries are as follows:

 

Name  Date of
incorporation/
establishment		  Place of
incorporation/
registration and
operation		  Percentage of
equity interest
attributable to
the Company		   Principal activities
              
Allied Sun Corporation Limited  August 20, 2008  Hong Kong   100%  Trading and investment holding
               
Broadway Industrial Holdings Limited  March 22, 2006  Hong Kong   100%  Trading and investment holding
               
Broadway Industries (Thailand) Co., Ltd.  August 2, 2011  Thailand   100%  Trading
               
Broadway Manufacturing Company Limited  August 17, 2005  BVI   100%  Property investment
               
Broadway Precision (Shenzhen) Co., Ltd.
百汇精密塑胶模具(深圳)有限公司		  August 3, 2012  PRC   100%  Manufacturing of plastic parts and utensils
               
Broadway Precision (Thailand) Co., Ltd.  May 10, 2012  Thailand   100%  Manufacturing of plastic parts and utensils
               
Broadway Precision Co. Limited (previously named, Sun Luck Trading Limited)  March 18, 2010  Hong Kong   100%  Management services
               
Broadway Precision Industrial (Kunshan) Ltd.
昆山海汇精密模具工业有限公司		  August 26, 2008  PRC   100%  Manufacturing of plastic parts and utensils
               
Broadway Precision Technology Limited  April 28, 2011  Hong Kong   100%  Dormant
               
Broadway Precision Technology Ltd.
百汇精密科技有限公司
  (previously named, Pan Sino International Limited)		  February 8, 2011  BVI   100%  Trading and investment holding

 

F-6
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

1.Organization and Business Background - Continued

 

Name of subsidiaries  Date of
incorporation/
establishment		  Place of
incorporation/
registration and
operation		  Percentage of
equity interest
attributable to
the Company		   Principal activities
               
Dongguan Sun Chuen Plastic Products Co., Ltd. (“Dongguan Sun Chuen”)   December 8, 2004  PRC   100%  Manufacturing of plastic parts and utensils
东莞新川塑胶制品有限公司              
               
Plastec International Holdings Limited  February 18, 2004  BVI   100%  Investment holding
               
Source Wealth Limited  March 18, 2010  Hong Kong   100%  Investment holding
               
Sun Line Industrial Limited  April 27, 1993  Hong Kong   100%  Investment holding
               
Broadway (Macao Commercial Offshore) Company Limited (Previously named Sun Line (Macao Commercial Offshore) Company Limited)  August 13, 2004  Macau   100%  Trading
               
Sun Line Precision Industrial (Zhuhai) Ltd.
  October 10, 2008  PRC   100%  Dormant
珠海新丽模具有限公司              
               
Sun Line Precision Ltd.
(previously named, “Fast Achieve Enterprises Ltd.”)		  March 10, 2004  BVI   100%  Trading and investment
holding
               
Sun Line Services Limited  January 8, 2013  Hong Kong   100%  Management services
               
Sun Ngai Spraying and Silk Print Co., Ltd.  July 25, 1995  BVI   100%  Dormant
               
Sun Ngai Spraying and Silk Print (HK) Co., Limited  March 22, 2006  Hong Kong   100%  Dormant
               
Sun Terrace Industries Limited  March 2, 2004  BVI   100%  Investment holding
               
Viewmount Developments Ltd.  November 12, 2013  BVI   100%  Investment holding
               

 

F-7
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

1.Organization and Business Background - Continued

 

The Merger Transaction with Plastec International Holdings Limited

 

On March 27, 2008, the Company was established as a special purpose acquisition company whose objective is to consummate an acquisition, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses located in the PRC.

 

On August 6, 2010, the Company entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) with GSME Acquisition Partners I Sub Limited (“GSME Sub”), Plastec International Holdings Limited (“Plastec”) and all former shareholders of Plastec (“Plastec Shareholders”) (together, the “Parties”). Upon the consummation of the transactions contemplated by the Merger Agreement, GSME Sub was to be merged with and into Plastec, with Plastec surviving as a wholly-owned subsidiary of the Company (the “Merger”). The Plastec Shareholders were then entitled to receive up to an aggregate of 16,948,053 ordinary shares, par value U.S.$0.001 per share, of the Company.

 

On September 13, 2010, in connection with the Merger, the Parties entered into an Amended and Restated Agreement and Plan of Reorganization (the “Amended and Restated Merger Agreement”) to, amongst other matters, revise the terms of the merger consideration to be paid to the Plastec Shareholders. Pursuant to the Amended and Restated Merger Agreement, upon consummation of the Merger, the Plastec Shareholders became entitled to receive up to an aggregate of 16,778,571 ordinary shares of the Company, of which 7,054,583 shares were issued to the Plastec Shareholders on the closing of the Merger and the remaining of up to 9,723,988 shares (2,944,767, 3,389,610 and 3,389,611 shares for 2011, 2012 and 2013 respectively) (the “Earnout Shares”) would have been issued to the Plastec Shareholders, if Plastec had net income as defined in the Amended and Restated Merger Agreement in the following amounts for the indicated years ending April 30 below:

 

Year ending April 30,  Net Income 
   HK$ 
      
2011   130,700 
2012   176,000 
2013   250,000 

 

At the Special Meeting held on December 10, 2010, the merger proposal was approved by the shareholders. On December 16, 2010, the Company consummated the transactions contemplated by the Amended and Restated Merger Agreement, pursuant to which, amongst other things, Plastec became a wholly owned subsidiary of the Company (the “Merger Transaction”). The Merger Transaction was accounted for as a reverse acquisition with Plastec being considered the accounting acquirer in the Merger.

 

The completion of the Merger enabled the Plastec Shareholders to obtain a majority voting interest in the Company. Generally accepted accounting principles in the United States require that a company whose shareholders retain the majority interest in a combined business be treated as the acquirer for accounting purposes. Accordingly, the aforementioned Merger Transaction was accounted for as a reverse acquisition of a private operating company (Plastec) with a non-operating public company (the Company) with significant amount of cash. The reverse acquisition process utilized the capital structure of the Company and the assets and liabilities of Plastec were recorded at historical cost. The transaction was recorded as a recapitalization of Plastec and thus was reflected retrospectively in Plastec’s historical financial statements. Although Plastec is deemed to be the accounting acquirer for financial accounting and reporting purposes, the legal status of Plastec as the surviving company did not change.

 

Under the reverse acquisition accounting, the historical consolidated financial statements of the Company for the periods prior to December 16, 2010 are those of Plastec and its subsidiaries. Since Plastec is deemed as accounting acquirer, Plastec’s fiscal year replaced the Company’s fiscal year. The fiscal year end changed from October 31 to April 30. The financial statements of the Company reflected the aforementioned Merger Transaction in the consolidated statement of shareholders’ equity through a line of “Recapitalization in connection with the reverse merger” to present the net assets of the Company as of December 16, 2010. The net assets of the Company as of December 16, 2010 were as follows:

 

Net assets acquired:  HK$ 
     
Cash   58,160 
Accounts payable and accrued liabilities   (1,524)
      
    56,636 

 

On April 30, 2011, the Parties entered into an amendment to the Amended and Restated Merger Agreement to remove the provisions of Earnout Shares and issued an aggregate of 7,486,845 ordinary shares of the Company to the Plastec Shareholders on April 30, 2011.

 

F-8
 

  

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

1.Organization and Business Background - Continued

 

Purchase of securities by the issuer

 

Prior to November 2011, the Company had no plans or programs for the purchase of its outstanding securities.  However, in connection with the Merger, holders of 2,615,732 of the Company public shares elected to exercise their conversion rights (for a description of these rights, see the IPO Prospectus and the Merger Proxy Statement) and, upon the closing of the Merger, such shares were converted into an average U.S. $10.30 (including proceeds that were originally to be from a letter of credit provided by Cohen & Company Securities, LLC but were ultimately paid by Company) in cash and were cancelled.  Under Cayman Islands law, such conversions are technically considered “repurchases.”

 

In November 2011, the board of directors of Company approved a U.S.$5 million share repurchase program expiring initially in June 2012 but which was extended twice through December 2013 and expanded to cover publicly held warrants (“2011 Repurchase Program”).  Under the 2011 Repurchase Program, the Company was permitted to make repurchases of ordinary shares and publicly held warrants from time to time in open market or in privately negotiated transactions.  The timing of repurchases under this program was dependent on a variety of factors, including price and market conditions prevailing from time to time. The 2011 Repurchase Program was completed on September 25, 2013. On the same date, the Company announced a new U.S.$5 million repurchase plan (“2013 Repurchase Program”) approved by the board of directors of the Company to cover repurchases of ordinary shares and publicly held warrants from time to time in open market or in privately negotiated transactions through September 25, 2014. In May 2014, the Company announced expansion of the scope of the 2013 Repurchase Program to include the Company’s units (under ticker “PLTEF”), with all other terms of the 2013 Repurchase Program remained unchanged. In August 2014, the Company announced a 12-month extension of the 2013 Repurchase Program (as expanded) through September 25, 2015. The timing of repurchases under the 2013 Repurchase Program will depend on a variety of factors, including price and market conditions prevailing from time to time, and the program may be suspended, modified or discontinued without notice at any time.

 

The following table summarizes the Company’s repurchases of securities under the 2011 and 2013 Repurchase Programs:

 

Period*  Total number of
publicly held
warrants purchased as
part of the publicly
announced
repurchase plans		   Total number of
ordinary shares
purchased as part of
the publicly
announced repurchase
plans		   Total number of units
purchased as part of the
publicly announced
repurchase plans		 
February 2012   -    4,000    - 
June 2012   -    60,675    - 
January 2013   -    600,000    - 
June 2013   80,000    94,100    - 
August 2013   5,000    -    - 
September 2013   -    73,990    - 
October 2013   -    586,010    - 
August 2014   547,600    -    - 

 

* Each period covers the full calendar month indicated. There were no repurchases made in omitted months. Repurchases for September 2013 and earlier months were under the 2011 Repurchase Program. Repurchases for October 2013 onward were under the 2013 Repurchase Program.

 

In addition to the purchases made pursuant to the 2011 and 2013 Repurchase Programs, the Company also repurchased 1,570,000 ordinary shares held by Sun Yip Industrial Company Limited, an entity controlled by Mr. Sze-To, pursuant to a purchase agreement on December 1, 2011 at a price of U.S.$7.5 per share or approximately U.S.$11.8 million in cash, which shares were cancelled.

 

Further, pursuant to the mandatory redemption terms of an escrow agreement (as amended on December 16, 2011), a total of 806,293 ordinary shares held in escrow on account of the Company’s initial shareholders were automatically repurchased by the Company at the close of business on March 16, 2012 for an aggregate consideration of U.S.$0.01, which redeemed shares were likewise cancelled.

 

F-9
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

2.Summary of Significant Accounting Policies

 

Principles of consolidation

 

The consolidated financial statements, prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”), include the assets, liabilities, revenues, expenses and cash flows of all subsidiaries. All significant intercompany balances, transactions and cash flows are eliminated on consolidation.

 

Foreign currency translation

 

The functional currency of the Company is United States Dollar. The functional currency of the subsidiaries other than the subsidiaries in the PRC and the Thailand is Hong Kong dollar. The subsidiaries in the PRC and Thailand have their local currency, Renminbi, Thai Baht as their functional currencies.

 

In the individual financial statements of the consolidated entities, foreign currency transactions are translated into the functional currency of the individual entity using the exchange rates prevailing at the dates of the transactions. At the reporting date, monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the reporting date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the reporting date retranslation of monetary assets and liabilities are recognized in the consolidated statement of income. Aggregate net foreign currency transaction gain (loss) were HK$10,127, HK$2,102, (HK$8,206) and (HK$5,223) for the year ended April 30, 2012, the 8-month period ended December 31, 2012 and for the years ended December 31, 2013 and 2014, respectively.

 

Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined and are reported as part of the fair value gain or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

 

In the consolidated financial statements, all individual financial statements originally presented in a currency different from the Company’s reporting currency have been converted into Hong Kong dollars. Assets and liabilities have been translated into Hong Kong dollars at the closing rates at the reporting date. Income and expenses have been converted into the Hong Kong dollars at the exchange rates ruling at the transaction dates, or at the average rates over the reporting period provided that the exchange rates do not fluctuate significantly. Any differences arising from this procedure have been recognized in other comprehensive income and accumulated separately in the shareholders’ equity.

 

Use of estimates

 

The preparation of consolidated financial statements in conformity with the US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The most significant estimates relate to allowances for doubtful accounts, inventory valuation, useful lives of property, plant and equipment, valuation allowance for deferred tax assets and contingencies. Actual results could differ from those estimates made by management.

 

Cash and cash equivalents

 

Cash and cash equivalents include cash at bank and in hand and demand deposits with banks with original maturities of three months or less that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value.

 

Trade receivables

 

Trade receivables are stated at the amount management expects to collect from balances outstanding at reporting period end. Based on management’s assessment of the credit history with customers having outstanding balances and current relationships with them, it has concluded that realization losses on balances outstanding at reporting period end will be immaterial.

 

Allowance for doubtful account

 

The Company regularly monitors and assesses the risk of not collecting amounts owed to the Company by customers. This evaluation is based upon a variety of factors including: ongoing credit evaluations of its customers’ financial condition, an analysis of amounts current and past due along with relevant history and facts particular to the customer. Trade receivables are written off if reasonable collection efforts are not successful.

 

Inventories

 

Inventories are stated at the lower of cost or market. Cost is determined on using the first-in first-out method. Work-in-progress and finished goods comprises of raw materials, direct labour and overhead associated with the manufacturing process. Write down of potentially obsolete or slow-moving inventory are recorded based on management’s analysis of inventory levels.

 

F-10
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

2.Summary of Significant Accounting Policies - Continued

 

Property, plant and equipment

 

Property, plant and equipment, other than construction in progress, are stated at acquisition cost less accumulated depreciation and impairment losses. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use.

 

Depreciation is provided to write off the cost less their residual values over their estimated useful lives, using the straight-line method, at the following rates per annum:

 

Buildings   4%-5%
Plant and machineries   20%-33.33%
Furniture, fixtures and equipment   20%-33.33%
Leasehold improvements   20%-33.33%
Computer equipment   33.33%-50%
Motor vehicles   20%
Moulds   33.33%-92%

 

The assets’ estimated residual values, depreciation methods and estimated useful lives are reviewed, and adjusted if appropriate, at each reporting date.

 

Construction in progress represents assets in the course of construction for production or for its own use purpose. It is stated at cost less any impairment loss and is not depreciated. Cost includes direct costs incurred during the periods on construction, installation and testing plus interest charges arising from borrowings used to finance these assets during the construction period, if any. Construction in progress is reclassified to the appropriate category of property, plant and equipment and depreciation commences when the construction work is completed and the asset is ready for use.

 

The gain or loss arising on retirement or disposal is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in the consolidated statement of income.

 

All other costs, such as repairs and maintenance are charged to the operations during the financial period in which they are incurred.

 

Prepaid lease payments

 

Upfront payments made to acquire land held under an operating lease are stated at costs less accumulated amortization and any accumulated impairment losses. The determination if an arrangement is or contains a lease and the lease is an operating lease is detailed as below. Amortization is calculated on a straight line basis over the term of the lease/right of use except where an alternative basis is more representative of the time pattern of benefits to be derived by the Company from use of the land.

 

Leases

 

Leases are classified at the inception date as either a capital lease or an operating lease. For the lessee, a lease is a capital lease if any of the following conditions exist: a) ownership is transferred to the lessee by the end of the lease term, b) there is a bargain purchase option, c) the lease term is at least 75% of the property’s estimated remaining economic life or d) the present value of the minimum lease payments at the beginning of the lease term is 90% or more of the fair value of the leased property to the lessor at the inception date. A capital lease is accounted for as if there was an acquisition of an asset and an incurrence of an obligation at the inception of the lease. All other leases are accounted for as operating leases. The Company has both capital leases and operating leases in the periods presented.

 

Valuation of long-lived assets

 

The Company periodically evaluates the carrying value of long-lived assets to be held and used when events and circumstances warrant such a review. The carrying value of a long-lived asset is considered impaired when the anticipated undiscounted cash flow from such asset is separately identifiable and is less than its carrying value. In that event, a loss is recognized based on the amount by which the carrying value exceeds the fair market value of the long-lived asset. Fair market value is determined primarily using the anticipated cash flows discounted at a rate commensurate with the risk involved. Losses on long-lived assets to be disposed of are determined in a similar manner, except that fair market values are reduced for the cost to dispose.

 

F-11
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

2.Summary of Significant Accounting Policies - Continued

 

Revenue recognition

 

Sales of goods are recognized when goods are shipped, title of goods sold has passed to the purchaser, the price is fixed or determinable as stated on the sales contract, and its collectability is reasonably assured. Customers do not have a general right of return on products shipped. The Company permits the return of damaged or defective products and accounts for these returns as deduction from sales. Products returns to the Company were insignificant during past years.

 

Comprehensive income

 

The Company presents comprehensive income in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 220 “Comprehensive Income”. FASB ASC 220 states that all items that are required to be recognized under accounting standards as components of comprehensive income be reported in the consolidated financial statements. The components of comprehensive income were the net income for the periods and the foreign currency translation adjustments.

 

Shipping and handling cost

 

Shipping and handling costs related to the delivery of finished goods are included in selling, general and administrative expenses. For the year ended April 30, 2012, the 8-month period ended December 31, 2012 and for the years ended December 31, 2013 and 2014, shipping and handling costs were HK$17,421, HK$12,474, HK$14,630 and HK$11,033, respectively.

 

Income taxes

 

The Company accounts for income taxes in accordance with FASB ASC 740 “Income taxes”, which requires an entity to recognize deferred tax assets and liabilities using the asset and liability method. Under this method, deferred income taxes are recognized for all temporary differences at enacted rates and classified as current or non-current based upon the classification of the related asset or liability in the consolidated financial statements. A valuation allowance is provided to reduce the amount of deferred tax assets if it is considered more likely than not that some portion of, or all, the deferred tax asset will not be realized.

 

FASB ASC 740 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements, and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides accounting guidance on de-recognition, classification, interest or penalties, accounting in interim periods, disclosure and transition. Interest and penalties from tax assessments, if any, are included in income taxes in the consolidated statement of income.

 

Post-retirement and post-employment benefits

 

The Company contributes to a defined contribution retirement benefit plan under the Mandatory Provident Fund Schemes Ordinance for all of its Hong Kong employees who are eligible to participate in the Mandatory Provident Fund (“MPF”) Scheme. Contributions are made based on a percentage of the employees’ basic salaries.

 

The employees of the Company’s subsidiaries which operate in the PRC and Thailand are required to participate in a central pension schemes operated by the local municipal governments, respectively. PRC subsidiaries are required to contribute certain percentage of its payroll costs to the central pension scheme.

 

Contributions are recognized as an expense in consolidated statement of income as employees render services during the period. The Company's obligations under these plans are limited to the fixed percentage contributions payable.

 

Net income per share

 

Basic net income per share is computed by dividing net income available to ordinary shares by the weighted average number of ordinary shares outstanding during the period. Diluted net income per share gives effect to all dilutive potential ordinary shares outstanding during the period. The weighted average number of ordinary shares outstanding is adjusted to include the number of additional ordinary shares that would have been outstanding if the dilutive potential ordinary shares had been issued. In computing the dilutive effect of potential ordinary shares, the average stock price for the period is used in determining the number of treasury shares assumed to be purchased with the proceeds from the exercise of derivative securities.

F-12
 

  

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

2.Summary of Significant Accounting Policies - Continued

 

Derivatives

 

Derivatives are carried at fair value and are reported as other current assets when the Company has a contractual right to receive cash from the counterparty that are potentially favorable to the Company and as accrued and other current liabilities where the Company has a contractual obligation to deliver cash to a counterparty that are potentially unfavorable to the Company.

 

If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and the hedged item are recognized in the consolidated statement of income and comprehensive income. If the derivative is designated as a cash flow hedge, changes in the fair value of the derivative are recorded in other comprehensive income and are recognized in the consolidated statement of income and comprehensive income when the hedged item affects net income. If a derivative does not qualify as a hedge, it is marked to fair value through the consolidated statement of income and comprehensive income.

 

Fair Value Measurements

 

The Company has adopted FASB ASC 820 “Fair Value Measurements and Disclosures” which defines fair value, establishes a framework for measuring fair value in the US GAAP, and expands disclosures about fair value measurements. It does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information.

 

Its establishes a three-level valuation hierarchy of valuation techniques based on observable and unobservable inputs, which may be used to measure fair value and include the following:

 

Level 1 - Quoted prices in active markets for identical assets or liabilities.
   
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
   
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement.

 

Recently issued accounting pronouncements

 

In May 2014, the FASB issued ASU 2014-9, “Revenue from Contracts with Customers”, (ASU 2014-09), which create a new Topic, Accounting Standards Codification Topic 606. The standard is principle based and provides a five-step model to determine when and how revenue is recognized. AUS 2014-09 requires entities to recognize revenue to depict the transfer of promised goods or services to customers in amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 requires entities to disclose both qualitative and quantitative information that enables users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including disclosure of significant judgements effecting the recognition of revenue. The accounting standard is effective for annual and interim periods beginning after December 15, 2016. Early adoption is not permitted. The Company is currently evaluating the impact of adopting this guidance.

 

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-15, Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern, which defines management’s responsibility to assess an entity’s ability to continue as a going concern, and to provide related footnote disclosures if there is substantial doubt about its ability to continue as a going concern. The pronouncement is effective for annual report beginnings ending after December 15, 2016 with early adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

F-13
 

 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

3.Inventories

 

Inventories consist of the following:

 

   April 30,   December 31,   December 31,   December 31, 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
                 
Raw materials   35,519    30,971    27,607    28,298 
Work in progress   60,241    38,904    52,443    40,658 
Finished goods   32,627    27,592    27,008    27,074 
    128,387    97,467    107,058    96,030 

 

The Company made allowances of HK$6,920, HK$4,108, HK$7,037 and HK$7,391 against the cost of inventories during the year ended April 30, 2012, the 8-month period ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively, based on the assessment of the lower of cost or market.

 

4.Deposits, Prepayment and Other Receivables

 

Deposits, prepayment and other receivables consist of the following:

 

   April 30,   December 31,   December 31,   December 31, 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
                 
Prepaid insurance   1,067    833    912    3,372 
Prepaid electricity   380    426    11    720 
Prepaid renovation   1,188    1,188    355    131 
Rental deposits / prepaid rent   7,825    7,618    6,223    12,908 
Deposit for the import processing arrangement   314    320    2,986    1,616 
Loans to workers   5,506    5,217    8,348    11,439 
Other receivables   2,181    18,260    7,333    12,207 
Others   2,053    1,609    1,971    7,811 
    20,514    35,471    28,139    50,204 

 

5.Property, Plant and Equipment

 

Property, plant and equipment consist of the following:

 

   April 30,   December 31,   December 31,   December 31, 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
                 
Property, plant and equipment:                    
Buildings   55,680    123,712    164,074    132,986 
Plant and machineries   793,044    263,618    326,767    303,933 
Furniture, fixtures and equipment   143,837    110,897    136,096    92,370 
Leasehold improvements   8,379    8,108    8,108    1,244 
Computer equipment   16,828    9,262    13,146    15,122 
Motor vehicles   11,018    8,618    10,095    9,895 
Moulds   22,714    8,231    -    - 
    1,051,500    532,446    658,286    555,550 
Accumulated depreciation and amortization   (634,642)   (139,519)   (294,137)   (272,050)
Construction in progress   107,279    47,456    -    - 
Property, plant and equipment, net   524,137    440,383    364,149    283,500 

 

F-14
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

5.Property, Plant and Equipment - Continued

 

As of April 30, 2012 and December 31, 2012, construction in progress mainly represents the new factory building and the staff dormitory located in Shenzhen under construction.

 

Depreciation and amortization of property, plant and equipment were HK$155,668, HK$102,749, HK$122,189 and HK$107,396 during the year ended April 30, 2012, the 8-month period ended December 31, 2012 and the years ended December 31, 2013 and 2014, respectively.

 

Property, plant and equipment recorded under capital leases consist of the following:

 

   April 30,   December 31,   December 31,   December 31, 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
                 
Property, plant and equipment recorded under capital leases:                    
Plant and machineries   5,362    -    -    - 
Accumulated depreciation and amortization   (3,915)   -    -    - 
Property, plant and equipment recorded under capital leases, net   1,447    -    -    - 

 

Depreciation and amortization of property, plant and equipment recorded under capital leases were HK$1,072, HK$Nil, HK$Nil and HK$Nil for the year ended April 30, 2012, the 8-month period ended December 31, 2012 and for the years ended December 31, 2013 and 2014, respectively.

 

6.Prepaid Lease Payments

 

As of April 30, 2012, December 31, 2012 and 2013, prepaid lease payments represented the prepayment of land use right for land located in Heyuan (with an expiry date on March 26, 2054) and for another three pieces of lands located in Shenzhen (with expiry dates on December 31, 2037, December 31, 2037 and February 28, 2040, respectively). During fiscal 2014, the subsidiary, Heyuan Sun Line (which owned the land use right for land located in Heyuan), had been disposed of and as a result of which, prepaid lease payments only comprised of the prepayment of land use right for the aforesaid three pieces of lands located in Shenzhen as of December 31, 2014.

 

Amortization of prepaid lease payments were HK$1,551, HK$1,034, HK$1,552 and HK$1,531 for the year ended April 30, 2012, the 8-month period ended December 31, 2012 and for the years ended December 31, 2013 and 2014, respectively.

 

7.Bank Borrowings and Banking Facilities

 

The subsidiaries of the Company have credit facilities with various banks representing import loans, trust receipt, documentary credits, loans and overdraft. As of April 30, 2012, December 31, 2012, 2013 and 2014, these facilities totaled HK$414,221, HK$340,140, HK$420,200 and HK$380,200, respectively, of which HK$257,355, HK$243,248, HK$332,418 and HK$330,200 were unused as of April 30, 2012, December 31, 2012, 2013 and 2014, respectively. These facilities are granted with the provision of corporate and personal guarantees jointly by the Company, a subsidiary and a director of the Company to the banks.

 

As of April 30, 2012, December 31, 2012, 2013 and 2014, bank borrowings consisted of HK$79,194 import loans and HK$77,672 bank loans, and HK$69,093 import loans and HK$27,799 bank loans, and HK$30,282 import loans and HK$57,500 bank loans, and HK$Nil import loans and HK$50,000 bank loan respectively. All of the outstanding balances were supported by the facilities mentioned above. Import loans were granted from seven, six, six and five banks as of April 30, 2012, December 31, 2012, 2013 and 2014, respectively, as a kind of invoice financing with terms ranged from 3 to 6 months on top of the suppliers’ credit terms or invoice date. The interest margin thereon ranged from 1.25% to 2.20% per annum. Details of the bank loans were set out as follows:

 

F-15
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

7.Bank Borrowings and Banking Facilities - Continued

 

During the year ended April 30, 2012, the 8-month period ended December 31, 2012 and the year ended December 31, 2013, Hang Seng Bank Limited granted the Company two loans including:

 

(i)A term loan of HK$40,000 which is repayable by 16 quarterly installments of HK$2,500 commencing on September 7, 2010 with repayment on demand clauses. The interest thereon is calculated based on 3.32% per annum (with interest rate swap selected). As of April 30, 2010, 2011, an amount of HK$35,000 and HK$25,000 was outstanding, respectively, which was fully paid on December 7, 2012.

 

(ii)A term loan of HK$17,500 which is repayable by 14 quarterly installments of HK$1,250 commencing on September 7, 2012 with repayment on demand clauses. The interest thereon is calculated based on 3.32% per annum (with interest rate swap selected). As of December 31, 2013, an amount of HK$7,500 was outstanding, which will be fully paid on June 6, 2016.

 

During the year ended December 31, 2013, the Bank of Tokyo-Mitsubishi UFJ, Ltd. granted the Company a term loan of HK$50,000, bearing an interest rate of 1.5% per annum above HIBOR. As of December 31, 2013, an amount of HK$50,000 was outstanding which is repayable by 7 quarterly installments of HK$7,143 commencing on April 29, 2015.

 

During the year ended December 31, 2014, under the term loan of HK$50,000 granted by the Bank of Tokyo-Mitsubishi UFJ, Ltd. bearing an interest rate of 1.5% per annum above HIBOR, an amount of HK$50,000 was outstanding which is repayable by 7 quarterly installments of HK$7,143 commencing on April 29, 2015.

 

The weighted average interest rates on the bank loans for the year ended April 30, 2012, the 8-month period ended December 31, 2012 and for the years ended December 31, 2013 and 2014 were 1.75%, 2.04%, 1.70% and 2.8% per annum, respectively.

 

8.Capital Lease Obligations

 

The Company entered into capital leases for items of machinery. The Company has the option to purchase the leased machineries at prices that are expected to be sufficiently lower than the fair values of the leased assets at the end of the lease. The lease terms are for 4 to 5 years.

 

The Company recorded these equipment at the present value of the total lease payments using a discount rate ranging from 4.47% to 6.31% as of April 30, 2012.

 

Future minimum lease payments under these leases are as follows:

 

   April 30,   December 31,   December 31,   December 31, 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
                 
Year ended April 30, 2012   306    -    -    - 
Year ended December 31, 2013   -    -    -    - 
    306    -    -    - 
Less:  Imputed interest   3    -    -    - 
    303    -    -    - 
Less:  Current portion of capital lease obligations   303    -    -    - 
Non-current portion of capital lease obligations   -    -    -    - 

 

The Company recorded interest expense of HK$153, HK$380, HK$Nil and HK$Nil for the year ended April 30, 2012, the 8-month period ended December 31, 2012 and for the years ended December 31, 2013 and 2014, respectively.

 

F-16
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

9.Other Payables and Accruals

 

Other payables and accruals consist of the following:

 

   April 30,   December 31,   December 31,   December 31, 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
                 
Accrued salaries, wages and bonus   37,353    33,303    28,561    25,780 
Accrued electricity and water   5,868    5,933    4,759    5,231 
Deposit received   21,446    23,664    23,375    23,338 
Provision for employees’ retirement benefit   12,175    15,835    20,416    20,967 
Accrued commission and bonus   7,354    7,412    8,640    4,916 
Accrued transportation expense   2,204    1,673    1,224    503 
Accrued audit and professional fees   3,395    3,068    2,568    1,756 
Accrued sundries expenses   16,201    14,118    11,341    8,263 
Other payables   4,010    3,162    12,446    10,742 
Derivative liabilities   811    418    54    - 
Others   4,292    7,129    3,224    2,080 
    115,109    115,715    116,608    103,576 

 

10.Income Taxes

 

The Company and its subsidiaries are subject to taxation in various jurisdictions including Hong Kong, PRC and Thailand. Pursuant to the rules and regulations of the Cayman Islands, the Company is not subject to any income tax in the Cayman Islands. The income of its subsidiaries which are incorporated in the BVI is not subject to taxation in the BVI under the current BVI law. Under the current Samoa law, subsidiary incorporated in Samoa is not subject to income tax as it has no business operations in Samoa. The subsidiary operating in Macao is exempted from income taxes as it is a qualified 58/99/M company. The subsidiaries operating in Thailand are subject to corporate income tax whereas Broadway Precision (Thailand) Co., Ltd. is exempted from corporate income tax for six years under Board of Investment privilege, and Broadway Industries (Thailand) Co., Ltd. is subject to corporate income tax at a prevailing rate of 20% under Board of Investment. The subsidiaries operating in Hong Kong and the PRC are subject to income taxes as described below.

 

The provision for current income taxes of the subsidiaries operating in Hong Kong has been calculated by applying the rate of taxation of 16.5%, 16.5%, 16.5% and 16.5% for the year ended April 30, 2012, the 8-month period ended December 31, 2012 and for the years ended December 31, 2013 and 2014, respectively, to the estimated income earned in or derived from Hong Kong if applicable.

 

Enterprise income tax in the PRC was generally charged at 33% of the assessable profit prior to January 1, 2008. From January 1, 2008, with the effect of the new PRC Enterprise Income Tax Law and Implementation Rules (“EIT Law”), the enterprise income tax rate on all domestic-invested enterprises and foreign investment enterprises in the PRC has been reduced from the rate of 33% to 25%, unless they qualify for certain exemptions.

 

Two of the PRC subsidiaries, Dongguan Sun Chuen and Heyuan Sun Line (disposed of during fiscal 2014), were granted with a five-year grandfather period in accordance with the PRC tax regulation, “GuoShuiFa (2007) No. 39” issued in 2007. Under the new EIT Law, they were entitled to a full exemption for two years starting from the first profit-making year followed by a 50% exemption for the next three years. For Dongguan Sun Chuen, the grandfather period started from January 1, 2007 as this was the first profit-making year and expired on December 31, 2011. Heyuan Sun Line had not been making profit so far, under the new EIT Law, the five-year grandfather period was deemed started on January 1, 2008 and expired on December 31, 2012.

 

For years prior to January 1, 2013, Dongguan Sun Line Processing Factory was operated pursuant to the processing agreement entered into between Sun Line Industrial Limited, which is incorporated in Hong Kong, and the PRC counterparty approved by Dongguan City Foreign Trade and Economic Cooperation Bureau.

 

F-17
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

10.Income Taxes - Continued

 

Under the processing agreement, Sun Line Industrial Limited was not considered by local tax authorities to be doing business in China. Accordingly, it was not subject to local taxes in China. The PRC counterparty was responsible for paying taxes it incurred as a result of its operation under the processing agreement. By the end of December 2012, Sun Line Industrial Limited ceased Dongguan operations so that the Dongguan operations are no longer conducted through the PRC counterparty.

 

In accordance with the Hong Kong Inland Revenue Departmental Interpretation and Practice Note No. 21, 50% of the related income for the year arising in Hong Kong under the processing agreement has been determined is not subject to Hong Kong profits tax. The calculation of Hong Kong Profits Tax has been based on such tax relief.

 

Prior to December 2011, the operations of our Shenzhen Broadway Processing Factory were conducted pursuant to a processing agreement entered into between one of our former subsidiaries, Broadway Industrial Holdings Limited (“Broadway Industrial (BVI)”), incorporated in BVI, and a PRC counterparty approved by Shenzhen City Baoan District Economic Development Bureau. In December, 2011, Broadway Precision Technology Ltd., another of our wholly-owned subsidiaries incorporated in BVI, took up the role of Broadway Industrial (BVI) under the processing agreement. Operations of Shenzhen Broadway Processing Factory ceased as the processing agreement come to an end in December 2012.

 

Due to the complexity involved with certain tax matters, the Company has engaged an independent tax advisor to perform assessment in accordance with FASB ASC 740 “Income Taxes” during the year. The Company’s liability for income taxes includes the liability for unrecognized tax benefits, interest and penalty as estimated which relate to tax years still subject to review by taxing authorities. Review periods remain open until the statute of limitations has passed.

 

Uncertain tax positions of all PRC subsidiaries have been also assessed and in the opinion of the independent tax advisor, there are no significant uncertain tax positions except for the transactions in between the PRC subsidiaries and their holding companies being subject to transfer pricing rulings in the PRC. The Company has evaluated the possibility of being charged with the under pricing arrangement by the relevant authorities. Accordingly, provision has been made for the estimated transfer pricing tax liabilities.

 

The Company recognizes interest expense and penalties related to income tax matters in interest and penalties expense within income tax expense. The sum of accrued interest or penalties accrued on the consolidated balance sheets accumulated to HK$1,553 on the consolidated balance sheets as at December 31, 2014. The Company had no significant unrecognized tax benefits at December 2012, December 2013 and December 2014.

 

As of April 30, 2012, December 31, 2012, 2013 and 2014, board of directors considered that the Company had accounted for the uncertain tax positions affecting its consolidated financial position, results of operations or cash flows, and will continue to evaluate for any uncertain position in future. The Company’s tax positions related to open tax years are subject to examination by the relevant tax authorities.

 

The provision for income taxes consists of the following:

 

   Year ended
April 30,		   8-month
Period ended
December 31,		   Year ended
December 31,		   Year ended
December 31,		 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
                 
Current tax                    
- Hong Kong   3,637    1,800    23,550    22,020 
- PRC   13,826    4,276    3,429    6,393 
- Other countries   -    -    609    (2,252)
Deferred tax   (652)   (2,732)   (23,854)   (2,681)
    16,811    3,344    3,734    23,480 

 

F-18
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

10.Income Taxes - Continued

 

Reconciliations between the provision for income taxes computed by applying the Hong Kong profits tax to income before income tax expense are as follows:

 

   Year ended
April 30,		   8-month
Period ended
December 31,		   Year ended
December 31,		   Year ended
December 31,		 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
                 
Provision for income taxes at Hong Kong profits tax rate   2,990    1,747    18,095    21,126 
Effect of different tax rates in other jurisdictions   13,676    1,544    (5,456)   1,459 
Effect of income not chargeable for tax purpose   (21)   (6)   (661)   (941)
Effect of expenses not deductible for tax purpose   818    19    12    126 
Tax effect of unused tax losses not recognized   -    40    -    459 
Tax effect of tax losses utilized   -    -    (593)   - 
(Over)/under provision in previous years   (652)   -    (7,663)   1,251 
    16,811    3,344    3,734    23,480 

 

The components of deferred tax (liability)/asset recognized are as follows:

 

   April 30,   December 31,   December 31,   December 31, 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
                 
Deferred tax (liability)/asset:                    
Net operating loss carry forwards   -    -    -    - 
Reversal/(Accelerated) tax depreciation   (15,156)   (11,629)   12,225    14,212 
Others   652    -    -    - 
                     
Net deferred tax (liability)/asset   (14,504)   (11,629)   12,225    14,212 

 

11.Net Income Per Share

 

The following table sets forth the computation of basic and diluted income per share for the years indicated:

 

   Year ended
April 30,		   8-month
Period ended
December 31,		   Year ended
December 31,		   Year ended
December 31,		 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
                 
Basic and diluted income per share                    
Net income for the year – numerator   50,404    59,823    80,880    167,821 
Weighted average number of basic and diluted ordinary shares outstanding - denominator   15,944,233    14,303,544    13,503,623    12,938,128 
                     
Basic and diluted income per share  HK$3.2   HK$4.2   HK$6.0   HK$13.0 

 

In connection with the reverse acquisition and recapitalization, all share and per share amounts have been retroactively restated.

 

F-19
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

12.Commitments and Contingencies

 

Operating lease

 

The Company leases a number of properties under operating leases. Rental expenses under operating leases for the year ended April 30, 2012, the 8-month period ended December 31, 2012 and for the years ended December 31, 2013 and 2014, were HK$21,728, HK$16,480, HK$23,238 and HK20,391, respectively.

 

As of December 31, 2014, the Company was obligated under non-cancellable operating leases minimum rentals as follows:

 

   HK$ 
     
Years ending December 31,     
2015   13,653 
2016   6,004 
2017   4,030 
Thereafter   4,463 
Total minimum lease payments   28,150 

 

Capital commitment

 

As of December 31, 2014, the Company had capital commitments for purchase of plant and machineries totaling HK$13,590, which are expected to be disbursed during the year ending December 31, 2015.

 

Bonus Plan

 

The Company has established a bonus plan for the management/executive officers. Pursuant to the plan, in order for any bonus to be paid, the Company must achieve an annual net profit (excluding any extraordinary items) of HK$78,000 in any fiscal year, which is refer to as the “Net Profit Target”. If the Net Profit Target is achieved in any fiscal year, a pool of 4% of any amount over the Net Profit Target will be set aside to provide bonuses to the management/executive officers. Of the bonus pool that is created, Kin Sun Sze-To, Chin Hien Tan and Ho Leung Ning would currently be entitled to 32%, 24% and 24%, respectively, of the available bonus, with the remaining amount being made available for distribution to the remaining officers, subject to adjustment at the discretion of the board. Payment of any bonuses under the plan will be in cash or ordinary shares (to be purchased in the open market), at the board’s sole discretion. The plan has taken effect beginning with the fiscal year ended April 30, 2011. No bonuses were provided under the plan for the year ended April 30, 2012 and for the 8-month period ended December 31, 2012, as the Company did not meet the Net Profit Target for the year ended April 30, 2012 and there were only eight months operations for the 8-month period ended December 31, 2012. The Company met the Net Profit Target for the year ended December 31, 2013 and accordingly paid bonuses in the total sum of HK$115 under the plan to its management/executive officers.

 

The Company will pay bonus in cash according to the bonus plan for the year ended December 31, 2014 as Net Profit Target was met for the year.

 

13.Employee Benefits

 

The Company contributes to a defined contribution retirement benefit plan under the Mandatory Provident Fund Schemes Ordinance, for all of its HK employees who are eligible to participate in the MPF Scheme. The total MPF contributions were HK$429, HK$330, HK$518 and HK$517 for the year ended April 30, 2012, the 8-month period ended December 31, 2012 and for the years ended December 31, 2013 and 2014, respectively.

 

Full time employees of the PRC and Thailand entities participate in government mandated multi-employer defined contribution plans pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. The total provisions for such employee benefits were HK$32,928, HK$21,550, HK$33,053 and HK$43,050 for the year ended April 30, 2012, the 8-month period ended December 31, 2012 and for the years ended December 31, 2013 and 2014, respectively.

 

14.Statutory Reserve Appropriation for PRC Subsidiaries

 

Pursuant to the laws and regulations applicable to the PRC, the Company’s wholly foreign owned subsidiaries must make appropriations from after-tax profit to non-distributable reserves funds including: (i) the statutory surplus reserve and; (ii) the statutory public welfare fund. Subject to the law applicable to foreign invested enterprises in the PRC, they were required annual appropriations of the general reserve fund no less than 10% of after-tax profit (as determined under accounting principles generally accepted in the PRC at each year-end). These reserve funds can only be used for specific purposes of enterprise expansion and staff welfare and are not distributable as cash dividends. Dongguan Sun Chuen has made appropriation at 10% of its accumulated after-tax profit upto its PRC year ended December 31, 2009 in May 31, 2011, while it has been operating at loss thereafter. For other PRC subsidiaries, no appropriation had been made as a result of their accumulated after-tax losses incurred in those years.

 

F-20
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

15.Warrants and Unit Purchase Options

 

On November 25, 2009, the Company sold 3,600,000 units in its initial public offering (the “Offering”) at an offering price of U.S.$10.00 per unit. Each unit consisted of one ordinary share, U.S.$0.001 par value, of the Company and one redeemable purchase warrant (“warrants”). Each warrant entitled the holder to purchase from the Company one ordinary share at an exercise price of U.S.$11.50. The warrants expired on November 18, 2014. As of April 30, 2012, December 31, 2012, 2013 and 2014, there were 4,781,122, 4,781,122, 4,696,122 and nil warrants outstanding.

 

The Company agreed to pay the underwriters in the Offering an underwriting discount of 7.0% of the gross proceeds of the Offering. However, the underwriters had agreed that 4.0% of the underwriting discounts would not be payable unless and until the Company completed a business combination and had waived their right to receive such payment upon the Company's liquidation if it was unable to complete a business combination. The underwriters subsequently agreed to waive their deferred discounts upon consummation of the business combination with Plastec described above. The Company also issued a unit purchase option (the “UPOs”), for U.S.$100, to Cohen & Company Securities, LLC (“Cohen Securities”), the representative of the underwriters in the Offering, and its designees to purchase 360,000 units (10% of the total number of units sold in the Offering) at an exercise price of U.S.$15.00 per unit (150% of the public offering price). The units issuable upon exercise of the UPOs were identical to the units sold in the Offering. This option became exercisable on December 16, 2010 and expired on November 18, 2014. The Company accounted for the fair value of the unit purchase option, net of the receipt of the U.S. $100 cash payment, as an expense of the Offering resulting in a charge directly to shareholders' equity. The Company estimated the fair value of this unit purchase option, as of the date of issuance, was approximately U.S.$2.14 per unit using a Black-Scholes option-pricing model.

 

The fair value of the unit purchase option granted to the underwriter was estimated as of the date of grant using the following assumptions: (1) expected volatility of 35%, (2) risk-free interest rate of 2.59% and (3) expected life of 5 years.

 

No UPOs were exercised before the end of the reporting period. The Company repurchased 70,375 UPOs on April 23, 2012. Outstanding UPOs as of April 30, 2012, December 31, 2012, 2013 and 2014 were 289,625, 289,625, 289,625 and nil, respectively.

 

For the year ended April 30, 2012, the 8-month period ended December 31, 2012 and the years ended December 31, 2013 and 2014, potential ordinary shares of 4,781,122, 4,781,122, 4,696,122 and nil shares related to warrants and 579,250, 579,250, 579,250 and nil shares related to UPOs, retroactively and respectively are excluded from the computation of diluted net income per share as their exercise prices were higher than the average market price.

 

16.Financial Instruments and Derivatives

 

The Company adopted FASB ASC 820 “Fair Value Measurements and Disclosures” to measure its assets and liabilities. The fair value of a financial instrument is defined as the exchange price that would be received from an asset or paid to transfer a liability (as exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. Except for the interest rate swap contracts described below, the carrying amounts of financial assets and liabilities, such as cash and cash equivalents, trade receivables, deposits, prepayment and other receivables, other current assets, trade payables, and other current liabilities, approximate at their fair values because of the short maturity of these instruments and market rates of interest.

 

As a result of the various floating rate bank borrowings being obtained during the period to support the Company's expansion, the Company entered into two interest rate swap contracts with two commercial banks to reduce the exposure to variability in future cash flows attributable to a portion of its borrowings. The Company did not use these derivative financial instruments for speculative or trading purpose, nor did it hold or issue leveraged derivative financial instruments. As of April 30, 2012 and December 31, 2012, the fair value of the two interest rate swap contracts amounted to HK$811 and HK$418, respectively. As of December 31, 2013, there was one interest rate swap contract outstanding and amounted to HK$54. During the year 2014, the outstanding interest rate swap contracts expired in September, 2014. The provision of the contract provides that the Company will pay the commercial banks a fixed rate of 2.07% p.a. and the commercial bank will pay the Company a variable rate equal to three-month HIBOR, which was 0.40%. The interest rate swap contracts were not designated as a hedging instrument under derivative accounting guidance, and gains and losses from changes in its fair value were therefore included in interest expenses. These interest rate swap contracts are classified as Level 2 in the fair value hierarchy under FASB ASC 820. The fair value of the interest rate swap contracts is arrived at by discounting the present value of the difference between the contractual swap rate and the current market swap rates on April 30, 2012, December 31, 2012 and 2013, respectively, utilizing the notional amounts and the remaining terms of the swap contracts.

 

F-21
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

16.Financial Instruments and Derivatives - Continued

 

The following table summarizes the Company’s fair value of outstanding derivatives:

 

   Consolidated
Balance Sheet		  April 30,   December
31,		   December
31,		   December
31,		 
   Presentation  2012   2012   2013   2014 
      HK$   HK$   HK$   HK$ 
Derivatives not designated as hedging instruments                       
Fair value of interest rate swap contracts  Other payables and accruals   811    418    54    - 

 

The impact on net income from derivatives activity for the year ended April 30, 2012, the 8-month period ended December 31, 2012, the years ended December 31, 2013 and 2014 are as follows:

 

   Presentation of
gain or loss
recognized on		  Year ended
April 30,		   8-month
Period ended
December 
31,		   Year ended
December
31,		   Year ended
December
31,		 
   derivatives  2012   2012   2013   2014 
      HK$   HK$   HK$   HK$ 
Derivatives not designated as hedging instruments                       
Interest rate swap contracts  Changes in fair value of derivatives included in administrative expenses   215    271    42    - 

 

17.Operating risks

 

Concentrations of Major Suppliers

 

Three major suppliers provided approximately 27.4%, 23.3%, 29.0% and 23.6% of the Company’s purchases of raw materials which are mainly resins for the year ended April 30, 2012, the 8-month period ended December 31, 2012 and for the years ended December 31, 2013 and 2014, respectively. A substantial percentage of the Company’s trade payables are due to these suppliers which accounted for 21.7%, 13.9%, 12.8% and 26.5% of the total accounts payables as of April 30, 2012, December 31, 2012, 2013 and 2014, respectively.

 

Concentrations of Major Customers

 

A substantial percentage of the Company’s sales are made to two customers and are typically sold on an open account basis. The sales to the two major customers accounted for 18.7% and 35.6%, 13.7% and 36.4%, 14.7% and 44.4%, 10.8% and 42.0% of the total net sales for the year ended April 30, 2012, the 8-month period ended December 31, 2012, and for the years ended December 31, 2013 and 2014, respectively.

 

Concentrations of Credit Risk

 

The largest trade receivables balances from the five customers as of April 30, 2012, December 31, 2012, 2013 and 2014 respectively accounted for 65.3%, 66.7%, 79.5% and 74.2% of total trade receivables of the time. The Company has not experienced any significant difficulty in collecting its trade receivables in the past and is not aware of any financial difficulties being experienced by its major customers. There were bad debt expenses of HK$Nil, HK$Nil, HK$Nil and HK$Nil for the year ended April 30, 2012, the 8-month period ended December 31, 2012 and for the years ended December 31, 2013 and 2014, respectively.

 

F-22
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

18.Operating Segment and Geographical Information

 

The Company uses the management approach model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance. The Company consists of one reportable business segment which is provision of integrated plastic manufacturing services. All of the Company’s sales are from the manufacturing processes which are conducted in PRC and Thailand. The Company’s sales to customers by geographic destination are analyzed as follows:

 

   Year ended
April 30,		   8-month
Period ended
December 31,		   Year ended
December 31		   Year ended
December 31		 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
                 
Asia-Pacific Region   742,327    462,837    482,725    539,167 
Europe   542,410    380,062    573,102    524,552 
The United States   6,486    90,989    111,288    144,092 
    1,291,223    933,888    1,167,115    1,207,811 

 

The location of the Company’s identifiable assets is as follows:

   April 30   December 31,   December 31,   December 31, 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
                 
PRC   723,210    616,777    598,889    514,260 
Hong Kong   459,029    494,033    478,696    633,656 
Macau   8,348    39,225    10,243    22,560 
Thailand   3,142    27,396    62,899    97,034 
United States   -    1,711    4,094    3,646 
    1,193,729    1,179,142    1,154,821    1,271,156 

 

19.Subsequent Events

 

On April 9, 2015, the Company announced that its board of directors had declared a final cash dividend of U.S.$0.20 per share for the year ended December 31, 2014 payable on or about May 1, 2015 to the shareholders of record as of April 24, 2015.

 

The Company has evaluated all other subsequent events through April 15, 2015, the date these consolidated financial statements were issued, and determined that there were no other subsequent events or transaction, apart from the above described events, that required recognition or disclosures in the financial statements.

 

F-23
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

20.Change in Fiscal Year End

 

On September 11, 2012, the Company determined to change its fiscal year end from April 30 to December 31. The change in fiscal year end was made so that the Company’s fiscal year end would coincide with all the Company’s operating subsidiaries in the People’s Republic of China. The figures below for the 8-month period ended December 31, 2011 and year ended December 31, 2012 have not been audited and are presented for comparative purposes only.

 

   8-month
Period ended December 31,		   Year ended December 31, 
   2011   2012   2012   2013 
   HK$   HK$   HK$   HK$ 
   (Unaudited)   (Audited)   (Unaudited)   (Audited) 
                 
Revenues   911,294    933,888    1,313,818    1,167,115 
Cost of revenues   (801,413)   (807,104)   (1,144,971)   (899,400)
Gross profit   109,881    126,784    168,847    267,715 
                     
Operating expenses, net                    
Selling, general and administrative expenses   (56,498)   (66,330)   (94,743)   (166,969)
Other income   1,600    6,266    7,098    2,508 
Write-off of property, plant and equipment   (690)   (4,058)   (4,058)   (14,920)
Gain/(loss) on disposal of property, plant and equipment   829    1,898    2,007    (2,836)
Total operating expenses, net   (54,759)   (62,224)   (89,696)   (182,217)
                     
Income from operations   55,122    64,560    79,151    85,498 
                     
Interest income   172    166    212    276 
Interest expense   (1,880)   (1,559)   (2,374)   (1,160)
Income before income tax expense   53,414    63,167    76,989    84,614 
                     
Income tax expense   (13,379)   (3,344)   (6,777)   (3,734)
Net income   40,035    59,823    70,212    80,880 
                     
Other comprehensive income                    
Foreign currency translation adjustment   7,157    (990)   (911)   3,377 
Comprehensive income attributable to Plastec Technologies, Ltd.   47,192    58,833    69,301    84,257 
                     
Net income per share                    
                     
Weighted average number of ordinary shares   16,540,951    14,303,544    14,446,515    13,503,623 
                     
Weighted average number of diluted ordinary shares   16,540,951    14,303,544    14,446,515    13,503,623 
                     
Basic income per share attributable to Plastec Technologies, Ltd.  HK$2.4   HK$4.2   HK$4.9   HK$6.0 
                     
Diluted income per share attributable to Plastec Technologies, Ltd.  HK$2.4   HK$4.2   HK$4.9   HK$6.0 

 

F-24
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

21.Condensed financial information of Plastec Technologies, Ltd.

 

The condensed financial statements of Plastec Technologies, Ltd. have been prepared in accordance with accounting principles generally accepted in the United States of America.

 

Balance Sheets

 

   April 30,   December 31,   December 31,   December 31, 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
Assets                    
Current assets                    
Cash and cash equivalents   28,980    23,787    31,048    163,336 
Amounts due from subsidiaries   -    -    100,056    287,836 
Prepaid expenses   574    -    -    1,076 
Dividend receivable   -    -    -    70,000 
Total current assets   29,554    23,787    131,104    522,248 
Investment in subsidiaries   1    1    1    1 
Total assets   29,555    23,788    131,105    522,249 
                     
Liabilities and shareholders’ equity                    
Current liabilities                    
Account payable and accrued liabilities   369    369    609    416 
Due to fellow subsidiaries   66,017    62,012    -    - 
Tax payable   -    -    1,378    2,897 
Total current liabilities   66,386    62,381    1,987    3,313 
NET CURRENT ASSETS/(LIABILITIES)   (36,831)   (38,593)   129,118    518,936 
TOTAL ASSETS AND LIABILITIES   (36,831)   (38,593)   129,118    518,936 
                     
Shareholders’ equity                    
Ordinary shares (US$0.001 par value; 100,000,000 authorized, 14,352,903, 14,292,228, 12,938,128  and 12,938,128 shares issued and outstanding as of April 30, 2012 and December 31, 2012, 2013 and 2014, respectively)   112    112    101    101 
Retained earnings/(Accumulated losses)   (36,943)   (38,705)   129,017    518,835 
Total shareholders’ equity   (36,831)   (38,593)   129,118    518,936 

 

F-25
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

21.Condensed financial information of Plastec Technologies, Ltd. – Continued

 

Statements of operations and comprehensive income

 

   Year ended
April 30,		   8-month
Period ended
December 31,		   Year ended
December 31,		   Year ended
December 31,		 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
                 
Revenues   -    -    224,758    414,000 
Other incomes   4,803    3,323    12,192    12,119 
Administrative expenses   (4,163)   (2,243)   (4,455)   (4,101)
Finance costs   -    (3)   -    - 
Income before income tax expense   640    1,077    232,495    422,018 
Income tax expense   -    -    (1,379)   (1,519)
Total comprehensive income   640    1,077    231,116    420,499 

 

F-26
 

 

PLASTEC TECHNOLOGIES, LTD.

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Hong Kong dollars in thousands, except number of shares, per share data and unless otherwise stated)

 

21.Condensed financial information of Plastec Technologies, Ltd. – Continued

 

Statements of cash flows

 

   Year ended
April 30,		   8-month
Period ended
December 31,		   Year ended
December 31,		   Year ended
December 31,		 
   2012   2012   2013   2014 
   HK$   HK$   HK$   HK$ 
Cash flows from operating activities                    
Net income   640    1,077    231,116    420,499 
Change in operating assets and liabilities                    
Prepaid expenses   (272)   574    -    (1,076)
Accounts payable and accrued liabilities   -    1    239    (193)
Income tax   -    -    1,378    1,519 
Net cash provided by operating activities   368    1,652    232,733    420,749 
                     
Cash flows from investing activity                    
Increase in dividend receivable   -    -    -    (70,000)
Net cash used in investing activity   -    -    -    (70,000)
                     
Cash flows from financing activities                    
Increase/(decrease) in amount due to subsidiaries   65,868    (4,005)   -    - 
Increase in amount due from subsidiaries   -    -   (162,068)   (187,780)
Proceeds used in repurchase of shares and warrants   (92,026)   (2,840)   (63,404)   (406)
Dividend paid   -    -    -    (30,275)
Net cash used in financing activities   (26,158)   (6,845)   (225,472)   (218,461)
Net increase/(decrease) in cash and cash equivalents   (25,790)   (5,193)   7,261    132,288 
Cash and cash equivalents, beginning of year/period   54,770    28,980    23,787    31,048 
Cash and cash equivalents, end of year/period   28,980    23,787    31,048    163,336 

 

F-27
 

   

ITEM 19. EXHIBITS.

 

The list of exhibits set forth under the “Exhibit Index” of this Form 20-F is incorporated herein by reference.

 

76
 

  

SIGNATURES

 

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and has duly caused and authorized the undersigned to sign this annual report on its behalf.

 

Dated: April 22, 2015

 

  PLASTEC TECHNOLOGIES, LTD.
     
  By: /s/ Kin Sun Sze-To
    Name: Kin Sun Sze-To
    Title: Chief Executive Officer

 

77
 

  

EXHIBIT INDEX

 

Exhibit
No.		   Description
1.1   Form of Second Amended and Restated Memorandum and Articles of Association (included as Annex C to the Merger Proxy Statement and incorporated herein by reference).
2.1   Specimen Unit Certificate (included as Exhibit 4.1 to the Company’s Registration Statement on Form F-1 filed on October 16, 2009 and incorporated herein by reference).
2.2   Specimen Warrant Certificate (included as Exhibit 4.2 to the Company’s Registration Statement on Form F-1 filed on October 16, 2009 and incorporated herein by reference).
2.3   Specimen Ordinary Shares Certificate (included as Exhibit 4.3 to the Company’s Registration Statement on Form F-1 filed on October 16, 2009 and incorporated herein by reference).
2.4   Form of Warrant Agreement between Continental Stock Transfer & Trust Company and the Registrant (included as Exhibit 4.4 to the Company’s Registration Statement on Form F-1 filed on November 13, 2009 and incorporated herein by reference).
2.5   Form of Representative’s Unit Purchase Option (included as Exhibit 4.5 to the Company’s Registration Statement on Form F-1 filed on November 13, 2009 and incorporated herein by reference).
 4.1   English translation of Dongguan Sun Chuen Manufacturing Plant lease (included as Exhibit 10.5 to the Company’s Registration Statement on Form F-1/A filed with the Securities and Exchange Commission on March 27, 2013).
 4.2   English translation of Shenzhen Broadway Manufacturing Plant lease (included as Exhibit 10.6 to the Company’s Registration Statement on Form F-1/A filed with the Securities and Exchange Commission on March 27, 2013).
 4.3   English translation of Kunshan Broadway Manufacturing Plant lease (included as Exhibit 10.7 to the Company’s Registration Statement on Form F-1/A filed with the Securities and Exchange Commission on March 27, 2013).
 4.4   Sun Line Industrial Ltd. lease (included as Exhibit 4.12 to the Company’s Shell Company Report on Form 20-F filed with the Securities and Exchange Commission on December 22, 2010 and incorporated herein by reference).
 4.5   English translation of Broadway (Macao Commercial Offshore) Co. Limited lease (included as Exhibit 4.5 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2013 filed on April 25, 2014 and incorporated herein by reference)
 4.6   English translation of Dongguan Sun Line Processing Agreement (included as Exhibit 10.12 to the Company’s Registration Statement on Form F-1/A filed with the Securities and Exchange Commission on March 27, 2013).
 4.7   Registration Rights Agreement (included as Exhibit 4.17 to the Company’s Shell Company Report on Form 20-F filed with the Securities and Exchange Commission on December 22, 2010 and incorporated herein by reference).
 4.8   Amendment No. 1 to Registration Rights Agreement, dated as of November 19, 2009, between Plastec Technologies, Ltd. (formerly GSME Acquisition Partners I) and its initial shareholders (included as Exhibit 4.18 to the Company’s Shell Company Report on Form 20-F filed with the Securities and Exchange Commission on December 22, 2010 and incorporated herein by reference).
 4.9   Amendment No. 1 to Unit Purchase Options (included as Exhibit 4.19 to the Company’s Shell Company Report on Form 20-F filed with the Securities and Exchange Commission on December 22, 2010 and incorporated herein by reference).
 4.10   Agreement between Plastec Technologies, Ltd. (formerly GSME Acquisition Partners I) and certain Underwriters (included as Exhibit 4.20 to the Company’s Shell Company Report on Form 20-F filed with the Securities and Exchange Commission on December 22, 2010 and incorporated herein by reference).
 4.11   Form of Indemnification Agreement (included as Exhibit 99.1 to the Company’s Report of Foreign Private Issuer on Form 6-K filed with the Securities and Exchange Commission on February 16, 2011 and incorporated herein by reference).
 4.12   Amendment No.1 to the Registration Rights Agreement, dated as of April 30, 2011, by and among Plastec Technologies, Ltd. and parties named and listed therein as Investors (included as Exhibit 10.1 to the Company’s Report of Foreign Private Issuer on Form 6-K filed with the SEC on May 3, 2011 and incorporated herein by reference).
 4.13   First Amendment to Employment Contract between Broadway (Macao Commercial Offshore) Company Limited) and Chin Hien Tan dated June 1, 2012 (included as Exhibit 4.24 to the Company’s Report of Foreign Private Issuer on Form 20-F filed with the Securities and Exchange Commission on July 27, 2012 and incorporated herein by reference).
 4.14   Lease agreement between Broadway Industries (Thailand) Co., Ltd. and PIAM Manufacturing Co., Ltd., dated May 1, 2012 (included as Exhibit 10.25 to the Company’s Registration Statement on Form F-1 filed with the Securities and Exchange Commission on November 30, 2012).
 4.15   Termination of Employment Contracts between Sun Line Industrial Limited and each of Kin Sun Sze-To and Ho Leung Ning, dated April 1, 2013 (included as Exhibit 4.31 to the Company’s Transition Report on Form 20-F filed on April 30, 2013 and incorporated herein by reference).

 

78
 

  

Exhibit
No.		   Description
4.16   Employment Contract between Kin Sun Sze-To and Broadway Precision Co. Limited, dated March 28, 2013 (included as Exhibit 4.32 to the Company’s Transition Report on Form 20-F filed on April 30, 2013 and incorporated herein by reference).
4.17   Employment Contract between Ho Leung Ning and Broadway Precision Co. Limited, dated March 28, 2013 (included as Exhibit 4.33 to the Company’s Transition Report on Form 20-F filed on April 30, 2013 and incorporated herein by reference).
4.18   First Amendment to Employment Contract between Kin Sun Sze-To and Broadway Precision Co. Limited, dated April 1, 2013 (included as Exhibit 4.34 to the Company’s Transition Report on Form 20-F filed on April 30, 2013 and incorporated herein by reference).
4.19   First Amendment to Employment Contract between Ho Leung Ning and Broadway Precision Co. Limited, dated April 1, 2013 (included as Exhibit 4.34 to the Company’s Transition Report on Form 20-F filed on April 30, 2013 and incorporated herein by reference).
4.20   English translation of Shenzhen Broadway Manufacturing Plant lease (included as Exhibit 4.20 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2013 filed on April 25, 2014 and incorporated herein by reference)
4.21   Second Amendment to Employment Contract between Kin Sun Sze-To and Broadway Precision Co. Limited, dated December 05, 2013 (included as Exhibit 4.21 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2013 filed on April 25, 2014 and incorporated herein by reference)
4.22   Second Amendment to Employment Contract between Ho Leung Ning and Broadway Precision Co. Limited, dated December 05, 2013 (included as Exhibit 4.22 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2013 filed on April 25, 2014 and incorporated herein by reference)
4.23   Second Amendment to Employment Contract between Chin Hien Tan and Broadway (Macao Commercial Offshore) Company Limited, dated December 05, 2013 (included as Exhibit 4.23 to the Company’s Annual Report on Form 20-F for the year ended December 31, 2013 filed on April 25, 2014 and incorporated herein by reference)
8.1   List of Subsidiaries as of April 22, 2015.
12.1   Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2   Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1   Certification pursuant to 18 USC § 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

79