Ahsay Backup Software Development : Interim Report 2017 (792KB, PDF)

2017

Interim Report

CHARACTERISTICS OF THE GROWTH ENTERPRISE MARKET ("GEM") OF THE STOCK EXCHANGE OF HONG KONG LIMITED (THE "STOCK EXCHANGE") GEM has been positioned as a market designed to accommodate companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors. Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board and no assurance is given that there will be a liquid market in the securities traded on GEM.

Hong Kong Exchanges and Clearing Limited and the Stock Exchange take no responsibility for the contents of this report, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this report.

This report, for which the directors (the "Directors") of Ahsay Backup Software Development Company Limited (the "Company") collectively and individually accept full responsibility, includes particulars given in compliance with the Rules Governing the Listing of Securities on GEM of the Stock Exchange (the "GEM Listing Rules") for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief the information contained in this report is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this report misleading.

MANAGEMENT DISCUSSION AND ANALYSIS

FINANCIAL REVIEW Overview

For the six months ended 30 June 2016 and 2017, the Company and its subsidiaries (collectively, the "Group") recorded a revenue of approximately HK$26.2 million and HK$28.5 million respectively, representing an increase of approximately 8.8%. The Group recorded a loss of approximately HK$2.8 million and HK$3.9 million for the six months ended 30 June 2016 and 2017 respectively. The loss was mainly due to the additional costs and expenses arose that from the information sharing platform ("KINTIPS"), which overwhelms the result increment of the Group's core backup business.

Revenue

The Group's revenue mainly represented income derived from software license sales and leasing, software upgrades and maintenance services and other services. Revenue of approximately HK$26.2 million and HK$28.5 million was recognised for the six months ended 30 June 2016 and 2017, respectively, representing an increase of approximately 8.8%.

The increase for the six months ended 30 June 2017 was mainly due to the increase in revenue from (1) software license sales and leasing of approximately HK$0.4 million, (2) software upgrades and maintenance service fee of approximately HK$1.1 million and (3) other services of approximately HK$0.6 million, an increase compared with that of the same period in 2016.

Other Income

Other income decreased by approximately HK$88,000 or 26.7%, to approximately HK$242,000 for the six months ended 30 June 2017 from approximately HK$330,000 for the six months ended 30 June 2016. The decrease for the six months ended 30 June 2017 was mainly due to the decrease of bank interest income as a result of the decrease in average bank balances as compared with the same period in 2016.

Staff Costs and Related Expenses

Staff costs and related expenses primarily comprised of salaries, performance bonuses, directors' fee, MPF contributions, other staff welfare and other related expenses. Staff costs and related expenses increased by approximately HK$1.9 million or 8.9%, to approximately HK$23.2 million for six months ended 30 June 2017 from approximately HK$21.3 million for six months ended 30 June 2016. The increase for the six months ended 30 June 2017 was mainly due to the increase in total headcount, salaries increment and offset by the development cost capitalised as compared with that of the same period in 2016.

Other Expenses

Other expenses primarily comprised of depreciation, advertising and marketing expenses, merchant credit card charges, legal and professional fees, office rental expenses and other regular office expenses such as utilities. Other expenses increased by approximately HK$0.9 million or 10.7%, to approximately HK$9.3 million for six months ended 30 June 2017 from approximately HK$8.4 million for six months ended 30 June 2016. The increase for the six months ended 30 June 2017 was mainly due to the increase in advertising and marketing expenses and impairment loss recognised on intangible assets and was offset by the decrease in legal and professional fees and auditor's remuneration as compared with the same period in 2016.

Finance Costs

Finance costs primarily represented interest expenses on bank borrowings. Finance costs decreased by approximately HK$100,000 or 57.8%, to approximately HK$73,000 for six months ended 30 June 2017 from approximately HK$173,000 for six months ended 30 June 2016. The decrease for the six months ended 30 June 2017 was mainly due to repayment of bank borrowings during the period.

Income Tax Credit

The Group recorded an income tax credit of HK$0.6 million for the six months ended 30 June 2016. The recognition of an income tax credit was mainly due to the deferred tax assets of approximately HK$0.6 million being recognised in respect of unused tax losses available for offsetting against future taxable profit as at 30 June 2016.

Loss for the Period

The Group recorded a loss of approximately HK$2.8 million and HK$3.9 million for the six months ended 30 June 2016 and 2017 respectively. Out of the loss for the six months ended 30 June 2017, approximately HK$5.8 million was incurred by KINTIPS, offset by the segment profit of approximately HK$1.7 million from the Group's core backup business.

Financial Position, Liquidity and Financial Resources

The Group adopts a prudent cash and financial management policy. In order to achieve better cost control and minimise the costs of funds, the Group's treasury activities are centralised and substantial cash is generally deposited with banks in Hong Kong and denominated mostly in Hong Kong dollars. Hong Kong dollars are pegged to United States dollars under the current policy of the Government of the Hong Kong Special Administrative Region. As the Group's cash and bank balances and borrowings are substantially denominated in Hong Kong dollars, risk from exchange rate fluctuation is minimal.

The Group is in a sound financial position. As at 30 June 2017, current assets (included cash and bank balances) amounted to approximately HK$86.3 million (31 December 2016: approximately HK$100.8 million). The Group repaid all bank borrowings during the period compared with HK$8.7 million bank borrowings balance as of 31 December 2016. The Group remained at a net cash position as at 30 June 2016 and 2017. With the amount of liquid assets on hand, the management team is of the view that the Group has sufficient financial resources to meet its ongoing operational requirements.

Charges on Assets of the Group

As at 30 June 2017, there was no charge on assets of the Group. (31 December 2016: nil)

Capital Structure

The capital structure of the Company comprised ordinary shares only. As at 30 June 2017, the Company's issued share capital was HK$20.0 million with 2,000,000,000 ordinary shares issued each of HK$0.01.

Capital Commitments and Contingent Liabilities

As at 30 June 2017, the Group did not have any significant capital commitment (31 December 2016: nil) and contingent liability (31 December 2016: nil). The Group did not have plans for material investments or purchases of capital assets in near term.

Material Acquisitions and Disposals

The Group did not have any material acquisition and disposal during the six months ended 30 June 2016 and 2017.

Segmental Information

An analysis of the Group's performance for the six months ended 30 June 2017 by business segment is set out in note 4 to the financial statements.

BUSINESS REVIEW

The Group is a Hong Kong-based online backup software developer that focuses on providing its self-developed backup software products and services to customers. Developed in Hong Kong, the Group's backup software products are equipped with multi-lingual, multi-platform and multi-application features built-in. One of the Group's backup software products, the AhsayTM Backup Software, supports more than 30 languages and dialects, and can be used on various platforms and with different software applications.

Data have become a new essential resource for businesses. The demands of the global backup software market and small and medium enterprises ("SMEs") for backup software products are expected to increase steadily in the coming years. As one of the market leaders in providing online backup software solutions to SMEs worldwide, the Group plans to increase its market share in the backup software sector by focusing on improving products and services, particularly in areas that support both private and public cloud technology.

Revenue of the Group increased by approximately HK$2.3 million, or 8.8% from approximately HK$26.2 million for the six months ended 30 June 2016 to approximately HK$28.5 million for the six months ended 30 June 2017.

Facing keen competition in the global backup software market, the Group will continue to uphold the principle of being "customer-oriented" in operating its businesses. It will focus on product development and refinement, as well as offering outstanding customer services to cater for the changing market needs. To better meet the needs of customers, the Group has introduced a new support service - the 24 x 7 Premium-Lite Loyalty Support service - to provide a fast and customer-focused support service. Appropriate adjustments will be made to ensure good quality products and value-added services are available to customers at all times. The Group believes such efforts can help strengthen its customer relationships and will ultimately enhance its competitiveness.

OUTLOOK Core Backup Business

During the period, the Group released the final version of AhsayTM Backup Software Version 6. The Group will dedicate all resources to delivering the latest features, enhancements and support to the current version, AhsayTM Backup Software Version 7 ("Version 7") which was launched in December 2015 to cope with the changes in the market and to meet the latest needs of enterprises and backup service providers. Version 7 is an advanced client-server-based solution that offers on-premises cloud backup. With the software, users can manage the backup users' authorisation procedures and systems anytime and anywhere. They can also manage the users and monitor system status in real time, thus enjoy enhanced management flexibility. For the six months ended 30 June 2017, the segment profit from core backup business of approximately HK$1.7 million was recorded as compared to the segment loss of approximately HK$3.7 million incurred for the six months ended 30 June 2016.

Looking forward, the Group aims to strengthen the quality of its customer support services as well as introducing new features to Version 7 in order to speed up adoption rate in coming years.

Information Sharing Platform

KINTIPS LIMITED, an indirect wholly-owned subsidiary of the Company, has developed an online information sharing platform (the "Platform"), which includes a website and a mobile-application both named KINTIPS (堅料) designed to provide information sharing services in Hong Kong. KINTIPS was officially launched in December 2016, and the mobile application can be installed on mobile devices that operate on the Android OS or Apple iOS systems. KINTIPS is a trading platform for horse racing tips in Hong Kong designed for information providers (horse racing tipsters) and subscribers to share information via its website or mobile phone application.

With advantages of the Group's expertise and experience in the IT industry, the KINTIPS mobile application is the first step of the Group in exploring new markets in the application industry. It is a brand new channel that allows horse racing tipsters to share their knowledge and views with other horse racing fans. In July 2017, KINTIPS LIMITED launched a trial version of KINTIPS Football (堅料足球) on its website for football fans and football information providers (football tipsters) to share football tips. KINTIPS will be a new source of revenue for the Group and it will be overseen by Mr. Chong Siu Ning, one of the Group's founders. For the six months ended 30 June 2017, the revenue contribution of the information sharing platform to the Group was not material.

Comparison of Business Objectives with Actual Business Progress

An analysis comparing the business objectives as set out in the Prospectus with the Group's actual business progress from the date of Listing to 30 June 2017 is set out below:

Business objectives for the

period since the date of Listing

Actual business progress during

Business Strategy up to 30 June 2017 ("Review Period") the Review Period

Strengthen our software development capabilities

Conduct research and development ("R&D") to improve product features and the next version of our Ahsay™ Backup Software

The Group conducted R&D to improve product features and develop the next version of Ahsay™ Backup Software during the Review Period.

Review the remuneration package of existing members of R&D team and candidates who will join the team

The Group reviewed the remuneration package of existing R&D team members and candidates who will join the team and the new remuneration packages took effect on 1 January 2017.

Broaden our customer base Place advertisements in magazines in the IT industry

The Group has placed advertisements in an IT industry magazine (i.e. PC Market) during the Review Period.

Participate in exhibitions in the IT industry

The Group is in the process of identifying IT industry exhibitions to participate in.

Increase our exposure on various online search platforms

The Group has paid various online search platforms (i.e. Google AdWords and Bing Ads) to increase exposure during the Review Period.

Pursue selective acquisition and partnership

Complete due diligence works on potential targets

The Group is in the process of identifying potential acquisition and partnership targets.

Acquire companies with software development expertise and/or regional client-expertise

Use of Proceeds

Reference is made to the Prospectus in relation to the Placing for the Listing. Unless otherwise defined, capitalised terms used in this report shall have the same meanings as those defined in the Prospectus. As stated in the section headed "Business Objectives and Future Plans" in the Prospectus, among the net proceeds of approximately HK$77.3 million from the Placing, the Group originally intended to apply the net proceeds in the manner as follows:

• approximately HK$11.1 million for strengthening our software development capabilities;

• approximately HK$7.9 million for broadening our customer base;

• approximately HK$50.6 million for pursuing selective acquisition and partnership; and

• approximately HK$7.7 million for working capital and other general corporate purpose.

The net proceeds from the Listing after deducting the underwriting commission and actual expenses related to the Placing were approximately HK$77.2 million.

As at 17 March 2017, the net proceeds of approximately HK$50.6 million allocated for pursuing selective acquisition and partnership has not been utilised by the Group due to the lack of potential acquisition and partnership targets.

As announced on 17 March 2017, the Board has resolved to change the use of net proceeds from the Listing. In order to enhance the allocation of the financial resources and to cope with the continuing development of other businesses of the Group in order to maximise its investment returns, the Board has resolved to change the use of approximately HK$26.2 million originally allocated for pursuing selective acquisition and partnership (the "Unutilised Net Proceeds") as follows:

1. approximately HK$7.7 million for working capital and other general corporate purposes;

2. approximately HK$10.0 million for the development and marketing activities of the Platform which is designed to provide information sharing service in Hong Kong. For more details on the Platform, please refer to the announcement of the Company dated 28 July 2016; and

3. approximately HK$8.5 million for the repayment of bank borrowings.

Revised use of As at 30 June 2017 As at 30 June 2017

net proceeds

HK$'000

Utilised

HK$'000

Unutilised

HK$'000

The revised use of net proceeds from the Placing is set out as follows:

Use of proceeds

Original use of

net proceeds

HK$'000

1.	Strengthen our software development capabilities	11,040	11,040	4,663	6,377
2.	Broaden our customer base	7,874	7,874	5,139	2,735
3.	Pursue selective acquisition	50,566	24,361	-	24,361
and partnership
4.	Working capital and other	7,720 15,440		10,396	5,044
general corporate purpose
5.	Development and marketing	- 10,000		5,544	4,456
activities of the Platform
6.	Repayment of bank borrowings	- 8,485		8,485	-
Total	77,200 77,200		34,227	42,973

Save for the aforesaid changes, there is no other change of use of proceeds from the Placing allocated for other purposes as disclosed in the Prospectus.

The Board has considered the impact of the above changes in the use of net proceeds raised from the Listing and is of the view that the change in the use of net proceeds will enable the Group to meet its overall financial needs more efficiently resulting from the latest development of the Group's operation and business. The Board considers that such changes in the use of net proceeds will not adversely affect the operation and business of the Group and is in the best interests of the Company and its Shareholders as a whole.

DISCLOSURE OF INTERESTS AND OTHER INFORMATION

Directors' and Chief Executive's Interests and Short Positions in Shares, Underlying Shares and Debentures of the Company

As at 30 June 2017, the interests and short positions of the Directors and chief executive in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of Laws of Hong Kong) (the "SFO")) which were notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which he/she is taken or deemed to have under such provisions of the SFO); or which were recorded in the register required to be kept by the Company under Section 352 of the SFO, or which were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules, required to be notified to the Company and the Stock Exchange, were as follows:

Long Positions in Shares

Name of Director	Capacity/nature of interest	Note	Number of Shares	Approximate percentage of total number of Shares (note 1)
Mr. Chong King Fan	Interest of spouse	2	1,500,000,000	75.0%
Mr. Chong Siu Pui	Interest in a controlled corporation	2	1,500,000,000	75.0%
Mr. Chong Siu Ning	Interest in a controlled corporation	2	1,500,000,000	75.0%

Notes:

1. As at 30 June 2017, the Company had 2,000,000,000 Shares in issue.

2. As at 30 June 2017, All Divine Investments Limited ("All Divine") held a long position of 1,500,000,000 Shares, representing 75% of the issued Shares. All Divine is wholly owned by Able Future Investments Limited ("Able Future") which is owned by Mrs. Chong Li Sau Fong, Mr. Chong Siu Pui and Mr. Chong Siu Ning as to 40%, 30% and 30%, respectively. By virtue of the SFO, Mr. Chong King Fan, who is the spouse of Mrs. Chong Li Sau Fong, Mr. Chong Siu Pui and Mr. Chong Siu Ning are deemed to be interested in the Shares held by All Divine.

Save as disclosed above, as at 30 June 2017, none of the Directors and chief executive of the Company had an interest or short position in the Shares, underlying shares and debentures of the Company or any of its associated corporations that was notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO, or was recorded in the register required to be kept by the Company pursuant to Section 352 of the SFO, or as otherwise required to be notified to the Company and the Stock Exchange pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules.

Substantial Shareholders' and Other Persons' Interests and Short Positions in the Shares and Underlying Shares and Debentures of the Company

As at 30 June 2017, the following persons (other than the Directors or chief executive of the Company) had interests or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or as required to be recorded in the register required to be kept by the Company under Section 336 of the SFO were as follows:

Long Positions in Shares

Name of Shareholder	Capacity/nature of interest	Notes	Number of Shares	Approximate percentage of total number of Shares (note 1)
All Divine	Beneficial owner	2	1,500,000,000	75.0%
Able Future	Interest in a controlled corporation	2	1,500,000,000	75.0%
Mrs. Chong Li Sau Fong	Interest in a controlled corporation	2	1,500,000,000	75.0%
Ms. Wu Jui-fang	Interest of spouse	3	1,500,000,000	75.0%
Ms. Li Yin Heung	Interest of spouse	4	1,500,000,000	75.0%

Notes:

1. As at 30 June 2017, the Company had 2,000,000,000 Shares in issue.

2. All Divine held a long position of 1,500,000,000 Shares, representing 75% of the issued Shares. All Divine is wholly owned by Able Future which is owned by Mrs. Chong Li Sau Fong, Mr. Chong Siu Pui and Mr. Chong Siu Ning as to 40%, 30% and 30%, respectively. By virtue of the SFO, Mrs. Chong Li Sau Fong, Mr. Chong Siu Pui and Mr. Chong Siu Ning are deemed to be interested in the Shares held by All Divine.

3. Ms. Wu Jui-fang is the spouse of Mr. Chong Siu Pui. By virtue of the SFO, Ms. Wu Jui-fang is deemed to be interested in the Shares in which Mr. Chong Siu Pui is interested.

4. Ms. Li Yin Heung is the spouse of Mr. Chong Siu Ning. By virtue of the SFO, Ms. Li Yin Heung is deemed to be interested in the Shares in which Mr. Chong Siu Ning is interested.

Save as disclosed above, as at 30 June 2017, the Company has not been notified by any persons (other than the Directors or chief executive of the Company) who had an interest or short positions in the shares or underlying shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register required to be kept by the Company under Section 336 of the SFO.

Directors' Rights to Acquire Shares or Debentures

Save as disclosed in the sections headed "Share Option Scheme" and "Directors' and Chief Executive's Interests and Short Positions in Shares, Underlying Shares and Debentures of the Company" in this report, for the six months ended 30 June 2017 and up to the date of this report, none of the Directors and the chief executive of the Company and their respective close associates (as defined under the GEM Listing Rules) had any interest in, or had been granted, or exercised any rights to subscribe for shares or underlying shares of the Company and/or its associated corporations (within the meaning of the SFO).

Directors' and Controlling Shareholders' Interest in Competing Business

For the six months ended 30 June 2017, the Directors are not aware of any business or interest of the Directors, the Controlling Shareholders of the Company and their respective close associates (as defined under the GEM Listing Rules) that compete or may compete with the business of the Group and any other conflicts of interests which any such person has or may have with the Group.

Compliance Adviser's Interests

As notified by VBG Capital Limited ("VBG Capital") (formerly known as V Baron Global Financial Services Limited), the compliance adviser of the Company, neither VBG Capital nor any of its close associates and none of the directors or employees of VBG Capital who have been involved in providing advice to the Company, had any interest in the share capital of the Company or any member of the Group (including options or rights to subscribe for such securities) which is required to be notified to the Company pursuant to Rule 6A.32 of the GEM Listing Rules as at 30 June 2017.

Compliance with the Code of Conduct for Directors' Securities Transactions

The Group has adopted a code of conduct regarding securities transactions by the Directors on terms no less than the required standard of dealings as set out in Rules 5.48 to 5.67 of the GEM Listing Rules. In response to specific enquiry made by the Company, each of the Directors confirms that he/she has complied with the required standard of dealings and the code of conduct regarding securities transactions by the Directors for the six months ended 30 June 2017.

Compliance with the Code on Corporate Governance

The Company is committed to achieve high standards of corporate governance with a view to safeguarding the interests of its shareholders. The Company has complied with all the code provisions set out in the Corporate Governance Code and Corporate Governance Report (the "CG Code") as contained in Appendix 15 to the GEM Listing Rules for the six months ended 30 June 2017.

Share Option Scheme

A share option scheme was adopted and approved by the shareholders of the Company on 4 September 2015 (the "Share Option Scheme"). No share options have been granted pursuant to the Share Option Scheme since its adoption.