Table of Contents
| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| Title of Each Class |
Trading Symbol |
Name of Each Exchange on Which Registered | ||
Class A ordinary shares, par value US$0.0001 per share |
| * | |
| Large accelerated filer | ☐ | Accelerated filer | ☐ | ☒ | ||||||
| Emerging growth company | ||||||||||
| U.S. GAAP ☐ | Other ☐ | |||
| International Accounting Standards Board ☒ |
Table of Contents
TABLE OF CONTENTS
i
Table of Contents
INTRODUCTION
In this annual report, unless otherwise indicated or unless the context otherwise requires:
| • | “ADRs” refers to the American depositary receipts that evidence the ADSs; |
| • | “ADSs” refers to our American depositary shares, every five of which represents two Class A ordinary shares; |
| • | “AMTD Group” refers to the Controlling Shareholder and its subsidiaries; |
| • | “AMTD Assets” refers to AMTD Assets Group, a Cayman Islands exempted company with limited liability, and its subsidiaries; |
| • | “China” or “PRC” refers to the People’s Republic of China; |
| • | “Class A ordinary shares” refers to our Class A ordinary shares of par value US$0.0001 each; |
| • | “Class B ordinary shares” refers to our Class B ordinary shares of par value US$0.0001 each; |
| • | “Controlling Shareholder” refers to AMTD Group Inc. (formerly known as AMTD Group Company Limited), a British Virgin Islands company; |
| • | “France” refers to French Republic; |
| • | “HK$” or “Hong Kong dollars” refers to the legal currency of Hong Kong; |
| • | “Hong Kong” refers to the Hong Kong Special Administrative Region of the People’s Republic of China; |
| • | “NYSE” refers to the New York Stock Exchange; |
| • | “SEC” refers to the United States Securities and Exchange Commission; |
| • | “SG$” or “Singapore dollars” refers to the legal currency of Singapore; |
| • | “SEHK” refers to the Stock Exchange of Hong Kong Limited; |
| • | “SGX-ST” refers to the Singapore Exchange Securities Trading Limited; |
| • | “shares” or “ordinary shares” refers to our Class A ordinary shares and Class B ordinary shares; |
| • | “US$” or “U.S. dollars” refers to the legal currency of the United States; and |
| • | “we,” “us,” or “our company” refers to AMTD Digital Inc., a Cayman Islands exempted company with limited liability, and its subsidiaries. |
Any discrepancies in any table between the amounts identified as total amounts and the sum of the amounts listed therein are due to rounding. Our reporting currency is United States dollars.
We have elected to change the presentation currency in our financial statements from HK$ to US$ which better reflects the economic footprint of our business. We believe that the presentation currency change will give investors and other stakeholders a clearer understanding of our performance over time. The change in presentation currency is a voluntary change. We have applied the change of presentation currency retrospectively to our historical results of operations and financial statements included in this annual report.
1
Table of Contents
FORWARD-LOOKING INFORMATION
This annual report 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.
You can identify these forward-looking statements by words or phrases such as “may,” “might,” “will,” “would,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “likely to,” “potential,” “continue,” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to, statements about:
| • | our goals and strategies; |
| • | our future business development, financial condition and results of operations; |
| • | the trends in, expected growth and market size of our industries; |
| • | expected changes in our revenues, costs or expenditures; |
| • | our expectations regarding demand for and market acceptance of our products and services; |
| • | competition in our industries; |
| • | our proposed use of proceeds; |
| • | government policies and regulations relating to our industries; |
| • | fluctuations in general economic and business conditions globally; and |
| • | assumptions underlying or related to any of the foregoing. |
These forward-looking statements involve various risks and uncertainties. Although we believe that our expectations expressed in these forward-looking statements are reasonable, our expectations may later be found to be incorrect. Our actual results could be materially different from our expectations. Important risks and factors that could cause our actual results to be materially different from our expectations are generally set forth in “Item 3. Key Information—D. Risk Factors,” “Item 4. Information on the Company—B. Business Overview,” “Item 5. Operating and Financial Review and Prospects,” and other sections in this annual report. You should read thoroughly this annual report and the documents that we refer to in this annual report with the understanding that our actual future results may be materially different from and worse than what we expect. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. We qualify all of our forward-looking statements by these cautionary statements.
You should not rely upon forward-looking statements as predictions of future events. The forward-looking statements made in this annual report relate only to events or information as of the date on which the statements are made in this annual report. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
This annual report contains certain data and information that we obtained from industry publications and reports generated by third-party providers of market intelligence. We have not independently verified the
2
Table of Contents
accuracy or completeness of the data and information contained in these publications and reports. Statistical data in these publications also include projections based on a number of assumptions. Our industries may not grow at the rate projected by market data, or at all. Failure of these markets to grow at the projected rate may have a material and adverse effect on our business and the market price of the ADSs. If any one or more of the assumptions underlying the market data are later found to be incorrect, actual results may differ from the projections based on these assumptions.
3
Table of Contents
PART I
Our Corporate Structure
AMTD Digital Inc. is not an operating company but a Cayman Islands holding company with operations primarily conducted by its subsidiaries. Investors in the ADSs thus are purchasing equity interest in a Cayman Islands holding company. As used in this annual report, “we,” “us,” or “our company” refers to AMTD Digital Inc. and its subsidiaries. This structure involves unique risks to investors. As a holding company, we may rely on dividends from our subsidiaries for our cash requirements, including any payment of dividends to our shareholders. The ability of our subsidiaries to pay dividends to us may be restricted by the debt they incur on their own behalf or laws and regulations applicable to them. For a detailed description, see “—Cash Transfers and Dividend Distribution.”
Risks Relating to Doing Business in China
We face various legal and operational risks and uncertainties relating to our operations. Although we do not have any material operation or maintain any office or personnel in mainland China and we do not have any variable interest entities structure in place, we face risks and uncertainties associated with the complex and evolving PRC laws and regulations and as to whether and how the recent PRC government statements and regulatory developments, such as those relating to variable interest entities, data and cyberspace security, and anti-monopoly concerns, would apply to us. Should these statements or regulatory actions apply to us in the future, or if we expand our business operations into mainland China leveraging our fusion-in program, through AMTD SpiderNet ecosystem or in some other ways such that we become subject to them to a greater extent, our ability to conduct our business, invest into or maintain our investment in mainland China as foreign investments or accept foreign investments, or conduct securities issuance outside of the PRC may be restricted. For example, PRC regulators have been increasingly focusing on regulation in areas of data security and data protection and the PRC authorities requirements regarding cybersecurity are constantly evolving. Various regulatory authorities in China, specifically the Cyberspace Administration of China, have enforced data privacy and protection laws and regulations with varying and evolving standards and interpretations. As of the date of this annual report, we do not have any material operation in mainland China and we have not collected, stored, or managed any personal information in mainland China. Our management have conducted an analysis of the status and scope of our operations, including data compliance, and have concluded that currently we do not expect that laws and regulations in mainland China on data security, data protection or cybersecurity to be applied to us or that the oversight of the Cyberspace Administration of China will be extended to our operations outside of mainland China. However, we still face uncertainties regarding the interpretation and implementation of these laws and regulations in the future and if the recent PRC regulatory actions on data security or other data-related laws and regulations were to apply to us, we could become subject to certain cybersecurity and data privacy obligations, including the potential requirement to conduct a cybersecurity review for our public offerings at a foreign stock exchange, and the failure to meet such obligations could result in penalties and other regulatory actions against us and may materially and adversely affect our business, financial condition, and results of operations. These risks could result in a material adverse change in our operations and the value of the ADSs, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause the value of such securities to significantly decline. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Failure to comply with cybersecurity, data privacy, data protection, or any other laws and regulations related to data may materially and adversely affect our business, financial condition, and results of operations.”
The PRC government has significant authority to regulate, influence or intervene in the mainland China operations of an offshore holding company at any time. It also oversees and controls and may exert more control over offerings conducted outside mainland China by, and foreign investment in, China-based issuers. We cannot assure you that such oversight and control will not be extended to us. These risks, together with uncertainties in the legal system and the interpretation and enforcement of laws, regulations, and policies in mainland China, could hinder our ability to offer or continue to offer the ADSs, result in a material adverse change to our business
4
Table of Contents
operations, and damage our reputation, which could cause the ADSs to significantly decline in value or become worthless. For a detailed description of risks relating to doing business in China, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China.”
We also face risks relating to the lack of inspection on our auditor from the Public Company Accounting Oversight Board, or the PCAOB, which may cause our securities to be delisted from the NYSE, or prohibited from being traded over-the-counter in the future under the Holding Foreign Companies Accountable Act, or the HFCAA, as amended by the Consolidated Appropriations Act, 2023, if the SEC determines that we have filed annual report containing an audit report issued by a registered public accounting firm that the PCAOB has determined it is unable to inspect or investigate completely for two consecutive years. On December 16, 2021, the PCAOB issued a report to notify the SEC its determinations that it was unable to inspect or investigate completely registered public accounting firms headquartered in China, including our auditor. In September 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended April 30, 2022. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed China from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F for the fiscal year ended April 30, 2023. On December 29, 2022, the Consolidated Appropriations Act, 2023, was signed into law, which amended the HFCAA (i) to reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two, and (ii) so that any foreign jurisdiction could be the reason why the PCAOB does not have complete access to inspect or investigate a company’s auditors. As it was originally enacted, the HFCAA applied only if the PCAOB’s inability to inspect or investigate because of a position taken by an authority in the foreign jurisdiction where the relevant public accounting firm is located. As a result of the Consolidated Appropriations Act, 2023, the HFCAA now also applies if the PCAOB’s inability to inspect or investigate the relevant accounting firm is due to a position taken by an authority in any foreign jurisdiction. The denying jurisdiction does not need to be where the accounting firm is located. Each year, the PCAOB will determine whether it can inspect and investigate completely registered public accounting firms in China, among other jurisdictions. If PCAOB determines in the future that it no longer has full access to inspect and investigate completely registered public accounting firms in China and we continue to use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. There can be no assurance that we would not be identified as a Commission-Identified Issuer for any future fiscal year, and if we were so identified for two consecutive years, we would become subject to the prohibition on trading under the HFCAA. The delisting or the cessation of trading of the ADS, or the threat of their being delisted or prohibited from being traded, may materially and adversely affect the value of your investment. Furthermore, whether the PCAOB will continue to conduct inspections and investigations completely to its satisfaction of PCAOB-registered public accounting firms headquartered in China is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control, including positions taken by authorities of the PRC or any other foreign jurisdiction. If authorities in the PRC or another foreign jurisdiction were to take a position at any time in the future that would prevent the PCAOB from continuing to inspect or investigate completely registered public accounting firms headquartered in China, and if such lack of inspection were to extend for the requisite period of time under the HFCAA, our securities will be prohibited from being traded on U.S. markets and this could result in a determination by the NYSE to delist our securities. Additionally, the inability of the PCAOB to conduct inspections in the past has deprived our investors with the benefits of such inspections. These risks could result in a material adverse change in our operations and the value of the ADSs, or significantly limit or completely hinder our ability to offer or continue to offer securities to investors, and cause the value of such securities to significantly decline or become worthless. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.,” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—The ADSs may be prohibited from
5
Table of Contents
trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely registered public accounting firms located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.”
As of the date of this annual report, we do not have any material operation or maintain any office or personnel in mainland China. We have not collected, stored, or managed any personal information in mainland China. As such, we believe that we are not required to obtain any permission from or complete filing with the PRC authorities to operate and issue the ADSs to foreign investors as of the date of this annual report, including the China Securities Regulatory Commission, or the CSRC, or the Cyberspace Administration of China, or the CAC. If (i) we do not receive or maintain any permission or approval, or complete filing required of us, (ii) we inadvertently concluded that certain permissions or approvals have been acquired or are not required, or (iii) applicable laws, regulations, or interpretations thereof change and we become subject to the requirement of additional permissions or approvals in the future, we may have to expend significant time and costs to procure them. If we are unable to do so, on commercially reasonable terms, in a timely manner or otherwise, we may become subject to sanctions imposed by the PRC authorities, which could include fines and penalties, proceedings against us, and other forms of sanctions, and our ability to conduct our business, invest into or maintain our investment in mainland China as foreign investments or accept foreign investments, or conduct securities issuance outside of the PRC may be restricted, and our business, reputation, financial condition, and results of operations may be materially and adversely affected. See also “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—The PRC government’s significant authority to intervene in or influence the mainland China operations of an offshore holding company at any time could limit our ability to transfer or use our cash outside of China, and otherwise result in material adverse change in our operations and the value of the ADSs” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Uncertainties arising from the legal system in mainland China, including uncertainties regarding the interpretation and enforcement of laws in mainland China and the possibility that regulations and rules can change quickly with little advance notice, could hinder our ability to offer or continue to offer the ADSs, result in a material adverse change to our business operations, and damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause the ADSs to significantly decline in value or become worthless.”
Cash Transfers and Dividend Distribution
We conduct the majority of our operations in Asia. In addition, we plan to emphasize Europe as our core future area of growth. We maintain our bank accounts and balances primarily in licensed banks in the United States and Asia. Most of our cash is in U.S. dollars. If needed, cash can be transferred between our Cayman Islands holding company and subsidiaries through intercompany fund advances, and there are currently no restrictions of transferring funds between our Cayman Islands holding company and subsidiaries. During the year ended April 30, 2023, a total of US$17.5 million was transferred in the form of cash advances from our subsidiaries to our Cayman Islands holding company and a total of US$25.0 million was transferred from our Cayman Islands holding company to our subsidiaries. No material transfer of other assets was made between our holding company and subsidiaries during the year ended April 30, 2023 and we intend to settle amounts owed between our Cayman Islands holding company and subsidiaries to the extent required by our business operations.
Our Cayman Islands holding company has not declared or paid dividends in the past given the early development stage of our businesses, nor any dividends or distributions were made by a subsidiary to the Cayman Islands holding company. We intend to have our holding company distribute dividends in the future, but we do not have a fixed dividend policy. Although we intend to distribute dividends in the future, the amount, timing, and whether or not we actually distribute dividends at all is at the discretion of our board of directors. Our board of directors has complete discretion on whether to distribute dividends, subject to applicable laws. Even if our 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 of directors may deem relevant.
6
Table of Contents
Our Cayman Islands holding company has not declared or made any dividend or other distribution to its shareholders, including U.S. investors, in the past. U.S. investors will not be subject to Cayman Islands, Hong Kong, or Singapore taxation on dividend distributions, and no withholding will be required on the payment of dividends or distributions to them while they may be subject to U.S. federal income tax. See “Item 10. Additional Information—E. Taxation—United States Federal Income Tax Considerations—Dividends.”
One of our subsidiaries, AMTD Risk Solutions Group Limited, or AMTD RSG, a licensed insurance intermediary under the Insurance Ordinance (Cap. 41) of Hong Kong, is subject to minimum paid-up capital requirements under relevant rules. BaoXianBaoBao Pte. Ltd., a wholly-owned subsidiary of PolicyPal Pte. Ltd. for which we hold a 51% equity interest, is a registered insurance broker and an exempt financial adviser in Singapore and is subject to a paid-up share capital requirement of an amount of not less than SG$300,000 under relevant rules. In considering any distribution of the earnings by our subsidiaries to their respective holding companies, we must consider their respective financial conditions before making a decision. There are no other significant restrictions and limitations on our ability to distribute earnings from our businesses, including our subsidiaries, to the parent company and U.S. investors or our ability to settle amounts owed. There are no significant restrictions on foreign exchange or our ability to transfer cash between entities within our group, across borders, or to U.S. investors.
The PRC government has significant authority to intervene in or influence the mainland China operations of an offshore holding company at any time, and such oversight may also extend to us. We cannot assure you that the PRC government will not prevent us from transferring the cash we maintain outside of China, or restrict our ability to deploy our cash into business or to pay dividends. We could also be subject to limitations on the transfer or the use of our cash if we expand our business operations into mainland China or conduct our operations in some other ways such that we become subject to laws in mainland China that regulate these activities. Any limitation on our ability to transfer or use our cash could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—The PRC government’s significant authority to intervene in or influence the mainland China operations of an offshore holding company at any time could limit our ability to transfer or use our cash outside of China, and otherwise result in material adverse change in our operations and the value of the ADSs.”
| 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. | [Reserved] |
| B. | Capitalization and Indebtedness |
Not applicable.
| C. | Reasons for the Offer and Use of Proceeds |
Not applicable.
7
Table of Contents
| D. | Risk Factors |
Summary of Risk Factors
An investment in the ADSs involves significant risks. Below is a summary of material risks that we face, organized under relevant headings. These risks are discussed more fully in “Item 3. Key Information—D. Risk Factors.”
Risks Relating to Doing Business in China
| • | The PRC government’s significant authority to intervene in or influence the mainland China operations of an offshore holding company at any time could limit our ability to transfer or use our cash outside of China, and otherwise result in material adverse change in our operations and the value of the ADSs. |
| • | Uncertainties arising from the legal system in mainland China, including uncertainties regarding the interpretation and enforcement of laws in mainland China and the possibility that regulations and rules can change quickly with little advance notice, could hinder our ability to offer or continue to offer the ADSs, result in a material adverse change to our business operations, and damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause the ADSs to significantly decline in value or become worthless. |
| • | The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections. |
| • | The ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely registered public accounting firms located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment. |
| • | Although we do not have any material operation in mainland China and plan to emphasize Europe as our core future area of growth, we face risks and uncertainties associated with the complex and evolving laws and regulations in mainland China and as to whether and how the recent PRC government statements and regulatory developments, such as those relating to data and cyberspace security and anti-monopoly concerns, would apply to us. Should these statements or regulatory actions apply to us in the future, or if we expand our business operations into mainland China leveraging our fusion-in program, through AMTD SpiderNet ecosystem or in some other ways such that we become subject to them to a greater extent, our ability to conduct our business, invest into mainland China as foreign investments or accept foreign investments, or list on a U.S. or other overseas exchange may be restricted. For example, if the recent PRC regulatory actions on data security or other data-related laws and regulations were to apply to us, we could become subject to certain cybersecurity and data privacy obligations, including the potential requirement to conduct a cybersecurity review for our public offerings at a foreign stock exchange, and the failure to meet such obligations could result in penalties and other regulatory actions against us and may materially and adversely affect our business, financial condition, and results of operations. |
| • | As we do not currently have any material operation or maintain any office or personnel in mainland China and have not collected, stored, or managed any personal information in mainland China, we believe that we are not required to obtain any permission from PRC authorities to operate and issue our securities to foreign investors as of the date of this annual report, including permissions requirements from the CSRC or CAC. However if (i) we inadvertently concluded that certain permissions or approvals are not required, or (ii) applicable laws, regulations, or interpretations thereof change and we become subject to the requirement of additional permissions or approvals in the future, we may have to expend significant time and costs to procure them. If we are unable to do so, on commercially reasonable terms, in a timely manner or otherwise, we may become subject to sanctions imposed by the PRC authorities, which could include fines and penalties, proceedings against us, and other forms of sanctions, and our ability to conduct our business, invest into mainland China as foreign investments or accept foreign investments, or list on a U.S. or other overseas exchange may be restricted, and our |
8
Table of Contents
| business, reputation, financial condition, and results of operations may be materially and adversely affected. |
| • | Failure to comply with cybersecurity, data privacy, data protection, or any other laws and regulations related to data may materially and adversely affect our business, financial condition, and results of operations. |
| • | If we were to be required to obtain any permission or approval from or complete filing with the CSRC, the CAC, or other PRC authorities in connection with our overseas offering under PRC law, we may be fined or subject to other sanctions, and our business, reputation financial condition, and results of operations may be materially and adversely affected. |
Risks Relating to Our Business and Industries
| • | We operate in the emerging, dynamic, and competitive digital financial services industry, which makes it difficult for investors to evaluate our future prospects, and we cannot assure you that our current or future strategies will be successfully implemented or will generate sustainable profit. |
| • | We have a limited operating history and experience in our digital solutions services—non financial services business, which makes it difficult to evaluate our business. We cannot assure you that the market for our services will develop as we expect or that we will be able to maintain the growth rate that we have experienced to date. |
| • | Our Controlling Shareholder has a limited operating history and experience in the newly developed digital banking business in Asia, which makes it difficult to evaluate our business. We cannot assure you that the digital banking initiatives of our Controlling Shareholder will develop or succeed as we expect. |
| • | We face additional risks as we offer new products and services, transact with a broader array of clients and counterparties, and expose ourselves to new geographical markets. |
| • | If we fail to develop market leading products or provide satisfactory services to address the rapidly evolving market in a timely manner, and if we are not able to implement successful enhancements and new features for our products and services, we may not be able to attract or retain clients. |
| • | Failure to maintain and enlarge our AMTD SpiderNet ecosystem including our client base or strengthen client engagement may adversely affect our business and results of operations. |
| • | Failure to obtain, renew, or retain licenses, permits, or approvals may affect our ability to conduct or expand our business. |
| • | We are subject to extensive and developing regulatory requirements, and noncompliance with or changes to these regulatory requirements may affect our business operations and financial results. |
| • | Our digital solutions services—financial services business is subject to intense competition, and we may fail to compete successfully against existing or new competitors, which may reduce demand for |
9
Table of Contents
| our services, reduce operating margins, and further result in loss of market share, departures of qualified employees, and increased capital expenditures. |
| • | The film and entertainment industries are highly competitive. |
| • | Industry changes in the film and entertainment industries may have a negative impact on our operations. |
| • | The hospitality market is highly competitive, and our subsidiary AMTD Assets may be unable to compete successfully with its current or future competitors. |
| • | Our hospitality services are subject to the business, financial, and operating risks inherent to the hospitality industry, any of which could reduce our revenue and limit opportunities for growth. |
| • | AMTD Digital Inc. is not an operating company but a holding company incorporated in the Cayman Islands, and this structure involves unique risks to investors. We may rely on dividends from our subsidiaries for our cash requirements, including any payment of dividends to our shareholders. The ability of our subsidiaries to pay dividends to us may be restricted by the debt they incur on their own behalf or laws and regulations applicable to them. Our digital investments business is subject to liquidity risks, and we may need additional financing but may not be able to obtain it on favorable terms or at all. All of these may impose liquidity risks on us and adversely affect our ability to pay dividends to our shareholders. See “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Holding Company Structure,” “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industries—Our digital investment business is subject to liquidity risks,” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industries—We may need additional financing but may not be able to obtain it on favorable terms or at all.” |
Risks Relating to Our Relationship with the Controlling Shareholder
| • | We have limited experience operating as a stand-alone public company. |
| • | Our financial information included in this annual report may not be representative of our financial condition and results of operations if we had been operating as a stand-alone company. |
| • | We may not continue to receive the same level of support from our Controlling Shareholder. |
Risks Relating to the ADSs
| • | The trading price of the ADSs has been volatile and could continue to fluctuate significantly, which could result in substantial losses to you. |
| • | An active public market may not develop for the ADSs on the NYSE, and you may not be able to resell the ADSs at or above the price you paid, or at all. |
| • | You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions against us or our directors and officers named in this annual report based on foreign laws |
Risks Relating to Doing Business in China
The PRC government’s significant authority to intervene in or influence the mainland China operations of an offshore holding company at any time could limit our ability to transfer or use our cash outside of China, and otherwise result in material adverse change in our operations and the value of the ADSs.
Our business, prospects, financial condition, and results of operations may be influenced to a significant degree by political, economic, and social conditions in China generally. The PRC government has significant
10
Table of Contents
authority to intervene in or influence the mainland China operations of an offshore holding company at any time as the government deems appropriate to advance regulatory and social objectives and policy positions. For instance, the PRC government has recently published new policies that significantly affected certain industries. We cannot assure you that the oversight of the PRC government will not be extended to us or that new policies will not be introduced to regulate our industries. The PRC government may also prevent us from transferring the cash we maintain outside of China, or restrict our ability to deploy our cash into business or to pay dividends. Any such action could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct our business, and could result in a material adverse change to our business operations, our prospects, financial condition, and results of operations, require us to seek additional permission to continue our operations, and damage our reputation, which could cause the ADSs to significantly decline in value or become worthless. See also “—Failure to comply with cybersecurity, data privacy, data protection, or any other laws and regulations related to data may materially and adversely affect our business, financial condition, and results of operations.”
Uncertainties arising from the legal system in mainland China, including uncertainties regarding the interpretation and enforcement of laws in mainland China and the possibility that regulations and rules can change quickly with little advance notice, could hinder our ability to offer or continue to offer the ADSs, result in a material adverse change to our business operations, and damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause the ADSs to significantly decline in value or become worthless.
We may be affected directly or indirectly by laws and regulations in mainland China. The legal system in mainland China is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases may be cited for reference but have less precedential value. The laws, regulations, and legal requirements in China are quickly evolving and their interpretation and enforcement involve uncertainties. These uncertainties could limit the legal protections available to you and us. In addition, we cannot predict the effect of future developments in the legal system in mainland China, particularly with regard to new economies, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. Furthermore, the legal system in mainland China is based in part on government policies and internal rules, some of which are not published on a timely basis or at all. As a result, we may not be aware of our violation of these policies and rules. In addition, any administrative and court proceedings in China may be protracted and result in substantial costs and diversion of resources and management attention.
New laws and regulations may be enacted from time to time and substantial uncertainties exist regarding the interpretation and implementation of current and any future laws and regulations in mainland China applicable to our businesses. In particular, the PRC government authorities may continue to promulgate new laws, regulations, rules, and guidelines governing new economy companies with respect to a wide range of issues, such as intellectual property, unfair competition and antitrust, privacy and data protection, and other matters. Compliance with these laws, regulations, rules, guidelines, and implementations may be costly, and any incompliance or associated inquiries, investigations, and other governmental actions may divert significant management time and attention and our financial resources, bring negative publicity, subject us to liabilities or administrative penalties, or materially and adversely affect our business, financial condition, results of operations, and the value of the ADSs.
The PCAOB had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections of our auditor in the past has deprived our investors with the benefits of such inspections.
Our auditor, the independent registered public accounting firm that issues the audit report included elsewhere in this annual report, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts
11
Table of Contents
regular inspections to assess its compliance with the applicable professional standards. Our auditor is located in China, a jurisdiction where the PCAOB was historically unable to conduct inspections and investigations completely before 2022. As a result, we and investors in the ADSs were deprived of the benefits of such PCAOB inspections. The inability of the PCAOB to conduct inspections of auditors in China in the past made it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China that are subject to the PCAOB inspections. On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed China from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. However, if the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in China, and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we and investors in the ADSs would be deprived of the benefits of such PCAOB inspections again, which could cause investors and potential investors in the ADSs to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.
The ADSs may be prohibited from trading in the United States under the HFCAA in the future if the PCAOB is unable to inspect or investigate completely registered public accounting firms located in China. The delisting of the ADSs, or the threat of their being delisted, may materially and adversely affect the value of your investment.
Pursuant to the HFCAA, if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspections by the PCAOB for two consecutive years, the SEC will prohibit our shares or the ADSs from being traded on a national securities exchange or in the over-the-counter trading market in the United States.
On December 16, 2021, the PCAOB issued a report to notify the SEC of its determination that the PCAOB is unable to inspect or investigate completely registered public accounting firms headquartered in China and our auditor was subject to that determination. In September 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended April 30, 2022. On December 15, 2022, the PCAOB removed China from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F for the fiscal year ended April 30, 2023. In accordance with the HFCAA, our securities would be prohibited from being traded on a national securities exchange or in the over-the-counter trading market in the United States if we are identified as a Commission-Identified Issuer for two consecutive years. On December 29, 2022, the Consolidated Appropriations Act, 2023, was signed into law, which amended the HFCAA (i) to reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two, and (ii) so that any foreign jurisdiction could be the reason why the PCAOB does not have complete access to inspect or investigate a company’s auditors. As it was originally enacted, the HFCAA applied only if the PCAOB’s inability to inspect or investigate because of a position taken by an authority in the foreign jurisdiction where the relevant public accounting firm is located. As a result of the Consolidated Appropriations Act, 2023, the HFCAA now also applies if the PCAOB’s inability to inspect or investigate the relevant accounting firm is due to a position taken by an authority in any foreign jurisdiction. The denying jurisdiction does not need to be where the accounting firm is located.
Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in China, among other jurisdictions. If the PCAOB determines in the future that it no longer has full access to inspect and investigate completely accounting firms in China and we use an accounting firm headquartered in one of these jurisdictions to issue an audit report on our financial statements filed with the SEC, we would be identified as a Commission-Identified Issuer following the filing of the annual report on Form 20-F for the relevant fiscal year. In accordance with the HFCAA, our securities would be prohibited from being traded on a national securities exchange or in the over-the-counter trading market in the United States if we are identified as
12
Table of Contents
a Commission-Identified Issuer for two consecutive years in the future. Furthermore, whether the PCAOB will continue to conduct inspections and investigations completely to its satisfaction of PCAOB-registered public accounting firms headquartered in China is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control, including positions taken by authorities of the PRC or any other foreign jurisdiction. If authorities in the PRC or another foreign jurisdiction were to take a position at any time in the future that would prevent the PCAOB from continuing to inspect or investigate completely registered public accounting firms headquartered in China, and if such lack of inspection were to extend for the requisite period of time under the HFCAA, our securities will be prohibited from being traded on U.S. markets and this could result in a determination by the NYSE to delist our securities. If our shares and the ADSs are prohibited from trading in the United States, there is no certainty that we will be able to list on a non-U.S. exchange or that a market for the ADSs will develop outside of the United States. A prohibition of being able to trade in the United States would substantially impair your ability to sell or purchase the ADSs when you wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of the ADSs. Also, such a prohibition would significantly affect our ability to raise capital on terms acceptable to us, or at all, which would have a material adverse impact on our business, financial condition, results of operations, and prospects.
Failure to comply with cybersecurity, data privacy, data protection, or any other laws and regulations related to data may materially and adversely affect our business, financial condition, and results of operations.
We may be subject to a variety of cybersecurity, data privacy, data protection, and other laws and regulations related to data, including those relating to the collection, use, sharing, retention, security, disclosure, and transfer of confidential and private information, such as personal information and other data. These laws and regulations apply not only to third-party transactions, but also to transfers of information within our organization. These laws and regulations may restrict our business activities and require us to incur increased costs and efforts to comply, and any breach or noncompliance may subject us to proceedings against us, damage our reputation, or result in penalties and other significant legal liabilities, and thus may materially and adversely affect our business, financial condition, and results of operations.
In some jurisdictions, including mainland China where we do not have material operations, the cybersecurity, data privacy, data protection, or other data-related laws and regulations are relatively new and evolving, and their interpretation and application may be uncertain. For example, on December 28, 2021, the CAC, the National Development and Reform Commission, or the NDRC, the Ministry of Industry and Information Technology, or the MIIT, and several other PRC government authorities jointly issued the Cybersecurity Review Measures, which took effect on February 15, 2022 and further restates and expands the applicable scope of the cybersecurity review in effect. Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services and network platform operators engaging in data processing activities must be subject to the cybersecurity review if their activities affect or may affect national security. The Cybersecurity Review Measures further stipulates that network platform operators holding personal information of over one million users must apply to the Cybersecurity Review Office for a cybersecurity review before a foreign listing. Although our securities have been listed on the New York Stock Exchange, given that the Cybersecurity Review Measures was recently promulgated, there are substantial uncertainties as to its interpretation, application, and enforcement. On July 30, 2021, the state council promulgated the Regulations on Protection of Critical Information Infrastructure, which became effective on September 1, 2021. Pursuant to the Regulations on Protection of Critical Information Infrastructure, critical information infrastructure shall mean any important network facilities or information systems of the important industry or field such as public communication and information service, energy, transportation, water conservation, finance, public services, e-government affairs and national defense science, which may endanger national security, people’s livelihood and public interest in case of damage, function loss or data leakage. In addition, relevant administration departments of each critical industry and sector, or Protection Departments, shall be responsible to formulate eligibility criteria and determine the critical information infrastructure operator in the respective industry or sector. The operators shall be informed about the final determination as to whether they are categorized as critical information infrastructure operators. As of the date of this annual report, no
13
Table of Contents
detailed rules or implementation have been issued by any authority and the exact scope of “critical information infrastructure operators” under the current regulatory regime remains unclear, and the PRC government authorities may have wide discretion in the interpretation and enforcement of these laws. On November 14, 2021, the CAC released the Regulations on the Network Data Security (Draft for Comments), or the Draft Data Security Regulations. The Draft Data Security Regulations provide that data processors refer to individuals or organizations that autonomously determine the purpose and the manner of processing data. In accordance with the Draft Data Security Regulations, data processors shall apply for a cybersecurity review for the following activities: (i) merger, reorganization or division of internet platform operators that have acquired a large number of data resources related to national security, economic development or public interests to the extent that affects or may affect national security; (ii) listing abroad of data processors which process over one million users’ personal information; (iii) the listing of data processors in Hong Kong which affects or may affect national security; or (iv) other data processing activities that affect or may affect national security. However, there have been no clarifications from the authorities as of the date of this annual report as to the standards for determining such activities that “affects or may affect national security.” There is also no timetable as to when the Draft Data Security Regulations will be enacted. As such, it remains unclear whether the final version adopted in the future will have any further material changes, and it is uncertain how the draft regulations will be enacted, interpreted, or implemented and how they will affect us. It remains uncertain whether future regulatory changes in China would impose additional restrictions on companies like us. We cannot predict the impact of these future regulatory changes, if any, at this stage, and we will closely monitor and assess any development in the rule-making process. If future regulatory updates mandate clearance of cybersecurity review and other specific actions to be completed by us, we face uncertainties as to whether such clearance can be timely obtained, or at all. As of the date of this annual report, we do not have any material operation in mainland China. We have not collected, stored, or managed any personal information in mainland China. In addition, we plan to emphasize Europe as our core future area of growth. As such, we currently do not expect the Cybersecurity Review Measures, the Draft Data Security Regulations or other recent regulations will have an impact on our business or results of operations, and we believe that we are compliant with the regulations and policies that have been issued by the CAC to date. However, we still face uncertainties regarding the interpretation and implementation of these laws and regulations in the future. Cybersecurity review could result in disruption in our operations, negative publicity with respect to our company, and diversion of our managerial and financial resources. Furthermore, if we were found to be in violation of applicable laws and regulations in China during such review, we could be subject to fines or other government sanctions and reputation damages. Therefore, potential cybersecurity review, if applicable to us, could materially and adversely affect our business, financial condition, and results of operations.
In addition, the PRC Data Security Law, which was promulgated by the Standing Committee of the National People’s Congress on June 10, 2021 and took effect on September 1, 2021, requires data collection to be conducted in a legitimate and proper manner, and stipulates that, for the purpose of data protection, data processing activities must be conducted based on data classification and hierarchical protection system for data security. Furthermore, the recently issued Opinions on Strictly Cracking Down Illegal Securities Activities require (i) speeding up the revision of the provisions on strengthening the confidentiality and archives management relating to overseas issuance and listing of securities and (ii) improving the laws and regulations relating to data security, cross-border data flow, and management of confidential information. The PRC Personal Information Protection Law, which was promulgated by the Standing Committee of the National People’s Congress on August 20, 2021 and took effect on November 1, 2021, integrates previously scattered rules with respect to personal information rights and privacy protection and applies to the processing of personal information within China as well as certain personal information processing activities outside China, including those for the provision of products and services to natural persons within China or for the analysis and assessment of acts of natural persons within China. Although as of the date of this annual report, we have not collected, stored, or managed any personal information in China, given that there remain uncertainties regarding the further interpretation and implementation of those laws and regulations, if they are deemed to be applicable to us, we cannot assure you that we will be compliant with such new regulations in all respects, and we may be ordered to rectify and terminate any actions that are deemed illegal by the government authorities and become
14
Table of Contents
subject to fines and other government sanctions, which may materially and adversely affect our business, financial condition, and results of operations.
If we were to be required to obtain any permission or approval from or complete filing with the CSRC, the CAC, or other PRC authorities in connection with our overseas offering under PRC law, we may be fined or subject to other sanctions, and our business, reputation financial condition, and results of operations may be materially and adversely affected.
The Regulations on Mergers and Acquisitions of Domestic Companies by Foreign Investors, or the MA Rules, adopted by six PRC regulatory agencies in 2006 and amended in 2009, purport to require offshore special purpose vehicles that are controlled by PRC companies or individuals and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies or assets to obtain CSRC approval prior to publicly listing their securities on an overseas stock exchange. The interpretation and implementation of the regulations remain unclear.
In addition, the PRC government authorities may strengthen oversight over offerings that are conducted overseas. For instance, on July 6, 2021, the relevant PRC governmental authorities promulgated the Opinions on Strictly Cracking Down on Illegal Securities Activities, which emphasized the need to strengthen the supervision over overseas listings by PRC companies. Effective measures, such as promoting the establishment of relevant regulatory systems, are to be taken to deal with the risks and incidents of overseas listings of China-based companies, cybersecurity and data privacy protection requirements and similar matters. On December 28, 2021, the Cyberspace Administration of China and other PRC authorities promulgated the Cybersecurity Review Measures, which took effect on February 15, 2022, and further restates and expands the applicable scope of the cybersecurity review in effect. Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services and network platform operators engaging in data processing activities must be subject to the cybersecurity review if their activities affect or may affect national security. The Cybersecurity Review Measures further stipulates that network platform operators holding personal information of over one million users must apply to the Cybersecurity Review Office for a cybersecurity review before an overseas listing. On December 27, 2021, the NDRC and the Ministry of Finance jointly issued the Special Administrative Measures (Negative List) for Foreign Investment Access (2021 Version), or the 2021 Negative List, which became effective on January 1, 2022. In October 2022, the NDRC and the Ministry of Finance jointly issued the Encouraged Foreign Investment Industry Catalog (2022 Version), which became effective on January 1, 2023. Pursuant to such Special Administrative Measures, if a domestic company engaging in the prohibited business stipulated in the 2021 Negative List seeks an overseas offering and listing, it must obtain the approval from the competent governmental authorities. Besides, the foreign investors of the company should not be involved in the company’s operation and management, and their shareholding percentage should be subject to the relevant regulations on the domestic securities investments by foreign investors. On February 17, 2023, the CSRC issued the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies, or the Overseas Listing Regulations, and five supporting guidelines, which became effective on March 31, 2023. Pursuant to the Overseas Listing Regulations, companies in Mainland China that directly or indirectly offer or list their securities in an overseas market, including a company in Mainland China limited by shares and an offshore company whose main business operations are in Mainland China and intends to offer shares or be listed in an overseas market based on its equities, assets or similar interests in Mainland China are required to file with the CSRC within three business days after submitting their listing application documents to the regulator in the place of intended listing. The Overseas Listing Regulations also provide that a company in Mainland China must file with the CSRC within three business days for its follow on offering of securities after it is listed in an overseas market. The foregoing regulations are either recently issued or remain in draft form and there remain substantial uncertainties with respect to their interpretation and implementation.
As of the date of this annual report, we do not have any material operation or maintain any office or personnel in mainland China. We have not collected, stored, or managed any personal information in mainland China. In addition, we plan to emphasize Europe as our core future area of growth. As such, we believe that we
15
Table of Contents
are not required to obtain any permission from or complete filing with the PRC authorities to operate and issue the ADSs to foreign investors as of the date of this annual report, including permissions from the CSRC or the CAC. If (i) we do not receive or maintain any permission or approval, or complete filing required of us, (ii) we inadvertently concluded that certain permissions or approvals have been acquired or are not required, or (iii) applicable laws, regulations, or interpretations thereof change and we become subject to the requirement of additional permissions or approvals in the future, we may have to expend significant time and costs to procure them. If we are unable to do so, on commercially reasonable terms, in a timely manner or otherwise, we may become subject to sanctions imposed by the PRC regulatory authorities, which could include fines and penalties, proceedings against us, and other forms of sanctions, and our ability to conduct our business, invest into or maintain our investment in mainland China as foreign investments or accept foreign investments, or conduct securities issuance outside of the PRC may be restricted, and our business, reputation, financial condition, and results of operations may be materially and adversely affected. See also “—Risks Relating to Doing Business in China—The PRC government’s significant authority to intervene in or influence the mainland China operations of an offshore holding company at any time could limit our ability to transfer or use our cash outside of China, and otherwise result in material adverse change in our operations and the value of the ADSs” and “—Risks Relating to Doing Business in China—Uncertainties arising from the legal system in mainland China, including uncertainties regarding the interpretation and enforcement of laws in mainland China and the possibility that regulations and rules can change quickly with little advance notice, could hinder our ability to offer or continue to offer the ADSs, result in a material adverse change to our business operations, and damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause the ADSs to significantly decline in value or become worthless.”
Risks Relating to Our Business and Industries
We operate in the emerging, dynamic, and competitive digital financial services industry, which makes it difficult for investors to evaluate our future prospects, and we cannot assure you that our current or future strategies will be successfully implemented or will generate sustainable profit.
We primarily operate in Asia’s digital financial services industry. The digital financial services industry is relatively new and rapidly evolving, business models continue to evolve, and the industry may not develop as we anticipate. The regulatory framework in Asia governing the digital financial services industry is also developing and may remain uncertain in the near future. As our business develops and in response to the evolving client needs and market competition, we need to continually introduce new products and services, improve our existing products and services, or adjust and optimize our business model. In response to new regulatory requirements or industry standards, or in connection with the introduction of new products, we may need to impose more rigorous risk management systems and policies, which may adversely affect the growth of our business. Any significant change to our business model may not achieve expected results and may materially and adversely affect our financial condition and results of operations. It is therefore difficult to accurately predict our future prospects.
You should consider our business and prospects in light of the risks and challenges that we encounter or may encounter as an entrant in the newly emerging and rapidly evolving market in which we operate and our limited operating history. These risks and challenges include our ability to, among other things:
| • | maintain the value proposition of AMTD SpiderNet ecosystem; |
| • | build a well-recognized and respected brand; |
| • | acquire and/or operate existing or future digital financial licenses; |
| • | establish and expand our client base; |
| • | maintain and enhance our relationships with our business partners; |
| • | attract, retain, and motivate talented employees; |
| • | anticipate and adapt to changing market conditions and competitive landscape; |
16
Table of Contents
| • | manage our future growth; |
| • | ensure that the performance of our products and services meets client expectations; |
| • | maintain or improve our operational efficiency; |
| • | navigate a complex and evolving regulatory environment; |
| • | defend ourselves in any legal or regulatory actions against us; |
| • | enhance our technology infrastructure and maintain the security of our system and the confidentiality of the information provided and utilized across our system; |
| • | avoid and remedy operating errors as a result of human or system errors; and |
| • | identify and address conflicts of interest. |
If we fail to address any or all of these risks and challenges, if we fail to educate business partners and clients about the value of our platform and services, if the market for our products and services does not develop as we expect, if we fail to address the needs of our target clients, or if we are not able to effectively tackle other risks and challenges that we may encounter, our business and results of operations may be adversely affected.
We have a limited operating history and experience in our digital solutions services—non financial services business, which makes it difficult to evaluate our business. We cannot assure you that the market for our services will develop as we expect or that we will be able to maintain the growth rate that we have experienced to date.
We commenced operations of our digital solutions services—non financial services business in December 2017, primarily providing clients with exclusive paid membership access to the AMTD SpiderNet. Since then we have achieved rapid growth in terms of client base and revenue. For the fiscal years ended April 30, 2021, 2022, and 2023, our digital solutions services—non financial services business accounted for 94.0%, 93.7% and 84.8% of our total revenue, respectively. However, our limited operating history in our digital solutions services—non financial services business may not be indicative of our future growth or financial results. We cannot assure you that we will be able to maintain our historical growth rates in future periods. Our growth prospects should be considered in light of the risks and uncertainties that fast-growing companies with a limited operating history and experience in our industries may encounter, including, among others, risks and uncertainties regarding our ability to:
| • | enrich the AMTD SpiderNet ecosystem; |
| • | identify business synergies and enhance connectivity for our clients; |
| • | enrich our content offerings; |
| • | retain existing clients and attract new clients; |
| • | offer customized and comprehensive services tailored to corporates’ needs throughout their lifecycles; |
| • | upgrade existing technology and infrastructure and develop new technologies; |
| • | successfully compete with other companies that are currently in, or may in the future enter, our industries or similar industries; and |
| • | observe and strategize on the latest market trends. |
All of these endeavors involve risks and will require significant allocation of management and employee resources. We cannot assure you that we will be able to effectively manage our growth or implement our business strategies effectively. If the market for our services does not develop as we expect or if we fail to address the needs of this dynamic market, our business, results of operations, and financial condition will be materially and adversely affected.
17
Table of Contents
Our Controlling Shareholder has a limited operating history and experience in the newly developed digital banking business in Asia, which makes it difficult to evaluate our business. We cannot assure you that the digital banking initiatives of our Controlling Shareholder will develop or succeed as we expect.
Airstar Bank, a virtual bank jointly established by our Controlling Shareholder and Xiaomi Corporation, or Xiaomi, provides digital banking services in Hong Kong. Airstar Bank launched a pilot trial of its digital banking services to a limited and selected number of clients, including deposit, loan, and fast payment and remittance in March 2020, and fully launched its platform to the general public in June 2020. It will gradually expand its product and service offerings as its business develops. We have entered into an agreement with our Controlling Shareholder to provide Airstar Bank with the support from our digital solutions services—non financial services, including resources, capital support, and expertise in the financial services industry to support its business development and support them to gradually build up their own ecosystem for an annual service fee. Airstar Bank expects to rely on the industry experience and technological and operational support of our business partner, Xiaomi, to provide online banking services to retail and corporate clients. The existing client base of Xiaomi and AMTD Group will also initially be a key target customer segment for Airstar Bank. Although we expect Airstar Bank to continuously improve its product designs and services based on client feedback, we cannot assure you that Airstar Bank will be able to achieve the expected results with respect to its product and service offerings.
We face additional risks as we offer new products and services, transact with a broader array of clients and counterparties, and expose ourselves to new geographical markets.
We are committed to providing new products and services in order to strengthen our market position in the industries that we operate in. We expect to expand our product and service offerings as permitted by relevant regulatory authorities, transact with new clients not in our traditional client base, and enter into new markets.
Our Controlling Shareholder operates its digital banking business in Hong Kong. We aim to continue our expansion into Asia and Europe as we grow our business and as regulations permit. As such, our historical financial results may not be indicative of our future financial results, and investors may find it difficult to evaluate our business.
If we are unable to achieve the expected results with respect to our offering of new products and services, our new client base, and in new geographical markets, our business, financial condition, and results of operations could be materially and adversely affected.
If we fail to develop market leading products or provide satisfactory services to address the rapidly evolving market in a timely manner, and if we are not able to implement successful enhancements and new features for our products and services, we may not be able to attract or retain clients.
Our success depends on our ability to attract or retain clients through the provision of a strong value proposition of our SpiderNet ecosystem, high-quality products, and satisfactory services, and to generate recurring business from existing clients. To attract and retain clients, we need to further enrich our product and service offerings by producing and providing new high-quality products and satisfactory services in a cost-effective and timely manner. Furthermore, we need to anticipate and quickly respond to changing client preferences and development in the market trends. We make bespoke recommendations of insurance products and services to clients based on their needs, and we also develop insurance products in cooperation with our insurer partners to meet the evolving needs of insurance solutions clients. Our ability to provide these products and services is dependent on our industries expertise and innovative ideas and technologies. However, we cannot assure you that the products and services that we design and develop on our own or together with our insurer partners will cater to the needs of potential or existing clients, sustain for a period of time that we expect them to, or be welcomed or accepted by the market at all. If we fail to cater to the needs and preferences of our clients or deliver high-quality product or provide satisfactory service in an efficient manner, or our clients cannot find their desired products or services at attractive prices and terms, they may turn to other channels for their needs and we may suffer from reduced client base. If we are unable to grow our client base or increase client satisfaction, our business, financial condition, and results of operations may be materially and adversely affected.
18
Table of Contents
Failure to maintain and enlarge our AMTD SpiderNet ecosystem including our client base or strengthen client engagement may adversely affect our business and results of operations.
Our revenue growth depends on our ability to maintain and enlarge our client base and strengthen client engagement so that more of our clients will use our products and services more often and contribute to our revenue growth. Our clients may not continue to use our solutions once their existing contract expires or they may not purchase additional solutions from us. This risk is especially apparent in circumstances where it is inexpensive for them to switch service providers. Our ability to maintain and enlarge our client base and strengthen our client engagement will depend on many factors, some of which are out of our control, including:
| • | our ability to continually innovate our technologies to keep pace with rapid technological changes; |
| • | our ability to continually innovate our solutions in response to evolving client demands and expectations and intense market competition; |
| • | our ability to customize solutions for our clients; |
| • | client satisfaction with our solutions, including any new solutions that we may develop, and the competitiveness of our pricing and payment terms; and |
| • | the effectiveness of our solutions in helping our clients improve efficiency, enhance service quality, and reduce costs. |
In addition, historically, we have derived a significant number of our clients either through referrals from the Controlling Shareholder or through the AMTD SpiderNet ecosystem. We may not be able to develop clients organically as rapidly or at the same pace as we have historically done through referrals. In addition, if we do not receive as many client referrals from the Controlling Shareholder or the AMTD SpiderNet ecosystem as we have historically, we may not be able to grow our client base as quickly or at all.
Failure to obtain, renew, or retain licenses, permits, or approvals may affect our ability to conduct or expand our business.
Financial services is a highly-regulated industry, and we are required to obtain applicable licenses, permits, and approvals from different regulatory authorities in order to conduct or expand our business. Various government authorities in Asia have promulgated various regulations on the financial services, including regulations requiring insurance brokerage license, and exempt financial advisor status. We have maintained our insurance brokerage license for general and long term business (including linked long term business) issued by the Hong Kong Insurance Authority on September 9, 2022 through AMTD RSG. In Singapore, BaoXianBaoBao Pte. Ltd., a digital insurance platform in which we hold a 51% equity interest, is a registered insurance broker with respect to direct insurance and exempt financial advisor in relation to advising on investment products that are life policies and arranging of life policies, other than for reinsurance (and has notified the MAS of the same), and offering technology services to insurance partners. Additionally, there is no assurance that the regulatory authorities will not issue new regulations governing the financial product and service industry that might require us or our business partners to obtain additional licenses, permits, or approvals for our current or future business operations, which may materially and adversely affect our business operations and financial condition. Failure to obtain additional licenses under current or new regulations may also impair our ability to expand our businesses across new geographical regions.
We are subject to extensive and developing regulatory requirements, and noncompliance with or changes to these regulatory requirements may affect our business operations and financial results.
The digital financial services industry is highly regulated in Asia. In the Asia markets where we currently or plan to operate, the government or other regulatory authorities regulate the financial services industry extensively. A number of regulatory authorities, oversee different aspects of the financial services business in
19
Table of Contents
Asia, and promulgate and enforce laws and regulations that cover banking, insurance, stored-value facilities, and money-lending services, including entry into such businesses, scope of permitted activities, licenses and permits for various operations, and pricing. See “Item 4. Information on the Company—B. Business Overview—Regulations in Singapore” and “Item 4. Information on the Company—B. Business Overview—Regulations in Hong Kong.”
As the digital financial services industry is an emerging and evolving market, the applicable laws, rules, and regulations are continually developing and evolving. Compliance with these regulations is complicated, time consuming, and expensive. Any changes in the relevant rules and regulations may result in an increase in our cost of compliance, or might restrict our business activities. Our ability to comply with all applicable laws and regulations is largely dependent on the relevant internal compliance system, as well as the relevant license holder’s ability to attract and retain qualified compliance personnel. While we maintain systems and procedures designed to ensure that we comply with applicable laws and regulations, we cannot assure you that we are able to prevent all possible violations. If we fail to comply with the applicable rules and regulations, we may face fines or restrictions on our business activities, or even a suspension or revocation of some or all of our licenses that allow us to carry on our business activities.
We are subject to regular and ad hoc regulatory inspections. If the results of the inspections reveal any noncompliance or misconduct, the regulatory authorities may take disciplinary action such as imposing monetary fines, or even revocation or suspension of license. Any material disciplinary actions taken against or penalties imposed on us or our business partners in the future could have an adverse impact on our business operations and financial results.
Our digital solutions services—financial services business is subject to intense competition, and we may fail to compete successfully against existing or new competitors, which may reduce demand for our services, reduce operating margins, and further result in loss of market share, departures of qualified employees, and increased capital expenditures.
The digital financial services industry is intensely competitive and subject to rapid change, and we expect it to remain so. We currently compete primarily in Asia, and on the basis of a number of factors, including the ability to adapt to evolving financial needs of a broad spectrum of clients, our ability to identify market demands and business opportunities, the quality of our services, our employees, the range and price of our products and services, our innovation, our reputation, and the strength of our relationships. If we fail to compete effectively against our competitors, our business, financial conditions, results of operations, and prospects will be materially and adversely affected.
Our digital solutions services—financial services business generally requires us to react promptly to the evolving demand of our clients and be able to provide innovative financial solutions tailored to their needs. If we are unable to differentiate ourselves from our competitors, drive value for our clients, or effectively align our resources with our goals and objectives, we may not be able to compete effectively. Our competitors may introduce their own value-added services or solutions more effectively than we do, which could adversely impact our growth. Failure to compete effectively against any of these competitive threats could have a material adverse effect on us. In addition, the highly competitive nature of our industries could lead to increased pricing pressure which could have a material impact on our overall business and results of operations. We may not be able to compete effectively with our competitors at all times and always be able to provide innovative financial solutions that promptly and accurately address our clients’ needs. If this were to happen, our ability to attract new or retain existing clients will suffer, which would materially and adversely affect our revenue and earnings.
Some of our competitors include other digital and traditional financial institutions and, within the insurance solutions industry, our competitors include (i) other online insurance product and service platforms, (ii) traditional insurance intermediaries, including agents, brokers, and consultants, (iii) online direct sales channels of large insurance companies, (iv) major internet companies that have commenced insurance
20
Table of Contents
distribution businesses, and (v) other online insurance technology companies. Some of our competitors have far broader financial and other resources and significant name recognition than us and have the ability to offer a wider range of products, which may enhance their competitive position. They may also offer services which we do not currently provide or more attractive products, which may put us at a competitive disadvantage and could result in pricing pressures or lost opportunities, which in turn could materially and adversely affect our results of operations. In addition, we may be at a competitive disadvantage with regard to some of our competitors that have larger client bases, and more professionals.
We operate in the highly competitive advertising and marketing industry and face significant competition for advertising spending from operators of new and traditional advertising channels. If we cannot compete successfully, our results of operations would be materially and adversely affected.
The advertising and marketing business is highly competitive and constantly changing. We face competition for general advertising spending from operators of many other forms of advertising channels, including television, print media, Internet and other types of advertising. Our advertising and marketing services compete with other providers of creative, marketing or media services to maintain existing client relationships and to develop new business. Our competitors include not only other large multinational advertising and marketing communications companies, but also smaller entities that operate in local or regional markets as well as new forms of market participants.
Significant competition could reduce our operating margins and profitability and result in a loss of market share. Some of our existing and potential competitors may have competitive advantages, such as significant greater brand recognition, financial, marketing or other resources. Significant competition will provide advertising clients with a wider range of media and advertising service alternatives, which could lead to lower prices and decreased revenues, gross margins and profits.
Competitive challenges also arise from rapidly-evolving and new technologies in the advertising and marketing space, creating opportunities for new and existing competitors and a need for continued significant investment in tools, technologies and process improvements. As data-driven marketing solutions become increasingly core to the success of our advertising and marketing business, any failure to keep up with rapidly changing technologies and standards in this space could harm our competitive position.
The competitive market for advertising and marketing requires us to continuously identify new advertising trends of advertisers and consumers. In response to these new advertising trends, we may need to quickly develop and adopt new formats, features and enhancements for our advertising network and/or cost-effectively expand into additional advertising media and platforms beyond print advertising. We may be required to incur development and acquisition costs in order to keep pace with new advertising trends. If we fail to identify or respond adequately to these changing advertising trends, demand for our advertising and marketing services may decrease and we may not be able to compete effectively or attract advertising clients, which would have a material and adverse effect on our business prospects, financial condition and results of operations.
The film and entertainment industries are highly competitive.
The film and entertainment industries are highly competitive. It is also partially dependent on the availability of potential viable projects and necessary funding to successfully complete such projects. Accordingly, we will need to locate promising projects and be able to secure necessary funding, in what may be uncertain markets. We are therefore susceptible to not only the economics of the film and entertainment businesses, but also the economy in general. Any significant downturn in the market or in general economic conditions would likely negatively affect our business and your investment in the ADSs.
Further, we believe the successful production and distribution of any movie project involves being able to secure qualified personnel to produce, finalize and market the project. Production requires qualified directors,
21
Table of Contents
writers, performers and a variety of technical persons to produce a final product. Once produced, it is necessary to distribute and market the project to a receptive public. Because we are a new entry into the industry, we may not have the experience, history and reputation to attract qualified persons, who may be more inclined to work for a larger and more established company. It is also necessary to work with a distributor that will be capable of distributing the finished project to a suitable and receptive audience. The inability to locate and secure qualified professionals to produce, distribute and market our projects would have a severe, negative affect our business and ability to generate revenues.
Industry changes in the film and entertainment industries may have a negative impact on our operations.
The film and entertainment industries, in general, are continually undergoing significant changes, primarily due to technological developments. These developments have resulted in the availability of alternative forms of leisure time entertainment, including expanded on demand services, independent productions, streaming and video games. The level of theatrical success remains a critical factor in generating revenues in these ancillary markets. It is difficult to accurately predict the effect that these and other new technological developments may have on the film industry. These uncertainties, among others, may have a negative impact on our business, financial condition, and results of operations.
The hospitality market is highly competitive, and our subsidiary AMTD Assets may be unable to compete successfully with its current or future competitors.
The market to provide hospitality services is highly competitive and fragmented. The barriers to entry are low and new competitors may enter the market at any time. Our current or potential competitors include global hotel brands, regional hotel chains, independent hotels, online travel agencies and home-sharing and rental services and short term/vacation rental. Our competitors may adopt aspects of our business model, which could reduce our ability to differentiate our offerings. Additionally, current or new competitors may introduce new business models or services that we may need to adopt or otherwise adapt to in order to compete, which could reduce our ability to differentiate our business or services from those of our competitors. Increased competition could result in a reduction in revenue, fewer attractive properties, higher costs or reduced market share.
Furthermore, some of our current or potential competitors, such as major hotel brands, are larger and have more resources than we do. Many of our current and potential competitors enjoy substantial competitive advantages, such as greater name recognition in their markets, well-established loyalty programs, longer operating histories and larger marketing budgets, as well as substantially greater financial, technical and other resources. Moreover, the hospitality services industry has experienced significant consolidation, and we expect this trend may continue as companies attempt to strengthen or hold their market positions in a highly competitive industry. Consolidation amongst our competitors will give them increased scale and may enhance their capacity, abilities and resources, as well as lower their cost structures. As a result, our competitors may be able to respond more quickly and effectively than we can to new or changing opportunities, technologies, standards or customer requirements. For all of these reasons, AMTD Assets may not be able to compete successfully against current and future competitors.
Our hospitality services are subject to the business, financial, and operating risks inherent to the hospitality industry, any of which could reduce our revenue and limit opportunities for growth.
Our hospitality services through our subsidiary AMTD Assets are subject to a number of business, financial, and operating risks inherent to the hospitality industry, including:
| • | competition from hospitality providers in the localities where we operate our hotels and serviced apartments; |
| • | relationships with business partners; |
22
Table of Contents
| • | increases in costs due to inflation or other factors that may not be fully offset by increases in revenue in our business, as well as increases in overall prices and the prices of our offerings due to inflation, which could weaken consumer demand for travel and the other products we offer and adversely affect our revenue; |
| • | the ability of third-party Internet and other travel intermediaries who sell our hospitality services to guests to attract and retain customers; |
| • | cyclical fluctuations and seasonal volatility in the hospitality industry; |
| • | changes in desirability of geographic regions of our properties, changes in geographic concentration of our operations and customers, and shortages of desirable locations for development; |
| • | changes in the supply and demand for hospitality services, including rooms, food and beverage, and other products and services; |
| • | affluence of tourists, which can be affected by a slowdown in global economy; |
| • | political instability, pandemics, geopolitical conflict, heightened travel security measures, and other factors that may affect travel; and |
| • | taxes and governmental regulations affecting wages, prices, interest rates, construction procedures and costs. |
Any of these factors could increase our costs or limit or reduce the prices we are able to charge for hospitality products and services, or otherwise affect our ability to maintain existing properties or develop new properties. As a result, any of these factors can reduce our revenue and limit opportunities for growth.
Our Controlling Shareholder and we may have limited control over Airstar Bank.
Our Controlling Shareholder has limited control over Airstar Bank in light of our Controlling Shareholder’s ownership of 10% of equity interest in Airstar Bank and lack of any contractual arrangements providing our Controlling Shareholder and us with any rights or control over Airstar Bank. Although we believe that we exert our influence through the directors whom our Controlling Shareholder has nominated on Airstar Bank’s board of directors, we do not have the necessary power to mandate or block material corporate actions of Airstar Bank. In addition, we do not consolidate the financial results of Airstar Bank into our financial statements. If Airstar Bank fails to carry out business in a compliant manner, incurs overly excessive amount of debt or goes bankrupt, or its business operations decline, our reputation and prospects may be adversely affected. We are subject to the risk that the controlling shareholder or the board of directors of Airstar Bank may act in a manner that does not serve our interests. The general operational risks, such as inadequate or failing internal control of Airstar Bank, may also expose us and our Controlling Shareholder to reputational and other risks. Furthermore, Airstar Bank or its controlling shareholder may fail to abide by their agreements with us, for which we may have limited or no recourse. Failure of Airstar Bank to perform their obligations or to achieve their expected results, or any negative publicity, whether or not substantiated, may adversely affect our reputation and brand. If any of the foregoing were to occur, our business and reputation could be materially and adversely affected.
We depend on our cooperation with our business partners and participants in the AMTD SpiderNet ecosystem. Our business may be negatively affected if such partners do not continue their relationship with us or if their operations fail.
We cooperate with various business partners and participants in the AMTD SpiderNet ecosystem in developing our various businesses. The AMTD SpiderNet ecosystem is a key contributor to our large and expanding client base. If we are not able to attract new partners to our ecosystem, retain our existing ecosystem partners, or renew our existing contracts with major ecosystem partners on terms favorable to us, we may not be able to increase our client base, which will hinder our business growth. Additionally, we may rely on our partners
23
Table of Contents
to drive the growth of our client base, and we may incur significant client acquisition costs in the future. The occurrence of any of these circumstances may significantly hinder our ability to carry out our business operations and increase our client base, and may significantly increase our expense and thus our business, financial condition, results of operation, and prospects may be materially and adversely affected.
A significant portion of our income is contributed by a limited number of clients. If we cannot retain these clients for any reason or expand our client base, our income may decrease and our financial condition and results of operations may be materially and adversely affected.
For the fiscal years ended April 30, 2021, 2022, and 2023, the top five clients in terms of overall income contribution aggregately accounted for 41.5%, 43.6%, and 42.2% of our total revenue, respectively. Although we plan to continue to expand our client base, launch more tailor-made products and solutions, and generate income from a wider range of clients, we cannot guarantee you that we will be able to succeed, and that such client concentration will decrease. If we fail to retain our top clients, our overall income may decrease and our financial condition and results of operations may be materially and adversely affected.
Our businesses depend on key management executives and professional staff, and our business may suffer if we are unable to recruit and retain them.
Our businesses depend on the skills, reputation, and professional experience of our key management executives, the network of resources and relationships they generate during the ordinary course of their activities, and the synergies among the diverse fields of expertise and knowledge held by our senior professionals. Therefore, the success of our business depends on the continued services of these individuals. If we lose their services, we may not be able to execute our existing business strategy effectively, and we may have to change our current business direction. These disruptions to our business may take up significant energy and resources of our company, and materially and adversely affect our future prospects.
Moreover, our business operations depend on our professional staff, our most valuable assets. Their skills, reputation, professional experience, and client relationships are critical elements in obtaining and executing client engagements. We devote considerable resources and incentives to recruiting and retaining these personnel. However, the market for quality professional staff is increasingly competitive. We expect to face significant competition in hiring such personnel. Additionally, as we mature, current compensations scheme to attract employees may not be as effective as in the past. The intense competition may require us to offer more competitive compensation and other incentives to our talent, which could materially and adversely affect our financial condition and results of operations. As a result, we may find it difficult to retain and motivate these employees, and this could affect their decisions about whether or not they continue to work for us. If we do not succeed in attracting, hiring and integrating quality professional staff, or retaining and motivating existing personnel, we may be unable to grow effectively.
We may undertake acquisitions, share swaps, investments, joint ventures, or other strategic alliances in the digital financial services industry, which could present unforeseen integration difficulties or costs and may not enhance our business as we expect.
Our strategy includes plans to grow both organically and through acquisitions, share swaps, participation in joint ventures or other strategic alliances in the digital financial services industry. Joint ventures and strategic alliances may expose us to new operational, regulatory and market risks, as well as risks associated with additional capital requirements. We may not be able, however, to identify suitable future acquisition or share swap candidates or alliance partners. Even if we identify suitable candidates or partners, the evaluation, negotiation, and monitoring of the transactions could require significant management attention and internal resources and we may be unable to complete an acquisition, share swap, or alliance on terms commercially acceptable to us. Even when acquisitions or share swaps are completed, we may encounter difficulties in integrating the acquired entities and businesses, achieving expected synergies, or aligning the interests of our
24
Table of Contents
businesses, such as difficulties in retention of clients and personnel, implementation of our business plan for the combined business or to achieve anticipated revenue or profitability targets, challenge of integration and effective deployment of operations or technologies, for acquisitions in which the acquired company’s financial performance is incorporated into our financial results (either in full or in part), the dependence on the acquired company’s accounting, financial reporting, internal controls and processes, and assumption of unforeseen or hidden material liabilities or regulatory noncompliance issues. Any of these events could disrupt our business plans and strategies, which in turn could have a material adverse effect on our financial condition and results of operations. Such risks could also result in our failure to derive the intended benefits of the acquisitions, share swaps, digital investments, joint ventures or strategic alliances, and we may be unable to recover our investment in such initiatives. We expect that acquisitions and share swaps will continue to be a key part of business strategy. Our success in this regard will depend on ability to identify and compete for appropriate acquisition candidates and to complete the transactions we decide to pursue with favorable results. We cannot assure you that we could successfully mitigate or overcome these risks.
We may not be able to ensure the accuracy and completeness of third-party insurance product information and the effectiveness of our recommendation of insurance products.
Our insurance brokerage clients rely on the third-party insurance product information we provide. While we believe that such information is generally accurate, complete and reliable, there can be no assurance that the accuracy, completeness, or reliability of the information can be maintained in the future. We are legally required to provide certain disclosures to our clients, including how we are paid as an insurance broker. If we provide any inaccurate or incomplete information, or we fail to present accurate or complete information of any insurance products which could lead to our clients’ failure to get the protection or us being warned or punished by regulatory authorities, our reputation could be harmed and we could experience reduced client engagement, which may adversely affect our business and financial performance.
We may not be able to recommend suitable insurance products to our clients. The data provided to us by our clients, insurer partners, and other channels may not be accurate or up to date. Our risk consultation team may not fully understand our clients’ insurance and risk management needs and recommend suitable products to them. If our clients are recommended insurance solutions that do not suit their protection or related needs, or such solutions are ineffective, they may lose trust in us. Our insurance clients and insurer partners may consequently be reluctant to continue to engage or partner with us. As a result, our business, reputation, financial performance, and prospects will be materially and adversely affected.
Because the brokerage income we earn on the sale of insurance products is based on premiums, and commission fee rates agreed between us and our insurer partners, any decrease in these premiums or commission fee rates may have an adverse effect on our results of operations.
We derive a significant portion of revenue in our insurance solutions business from commission fees paid to us out of the premiums that insurer partners charge our clients for coverage. The commission fee rates are negotiated between insurer partners and us, and are typically based on the premiums that the insurer products charge. Commission fee rates and premiums can change based on the prevailing economic, regulatory, taxation, competitive, and other possible factors that affect our commission fee agreement with insurer partners. These factors, which are not within our control, include the capacity of insurer partners to place new business, profits of insurer partners, client demand for insurance products, the availability of comparable products from other insurance companies at lower costs, and the availability of alternative insurance products, such as government benefits and self-insurance plans, to clients. Because we do not determine, and cannot predict, the timing or extent of premium or commission fee rate changes, we cannot predict the effect any of these changes may have on our operations. Any decrease in premiums or commission fee rates may significantly affect our financial condition and results of operations.
25
Table of Contents
Unfavorable financial market and economic conditions could materially and adversely affect our business, financial condition, and results of operations.
Our businesses are or will be materially affected by conditions in the financial markets and economic conditions in Asia and throughout the world. Financial markets and economic conditions could be negatively impacted by many factors beyond our control, such as inability to access credit markets, rising interest rates or inflation, terrorism, political uncertainty, pandemic, social unrest, fiscal policy of governments and the timing and nature of any regulatory reform. The rising political tensions between the United States and China, which is caused by, among other things, trade disputes, the COVID-19 outbreak, sanctions imposed by the U.S. Department of Treasury on officials and the executive orders issued by the U.S. government in August 2020 that prohibit certain transactions with certain selected leading Chinese internet companies as well as their products, may also give rise to uncertainties in global economic conditions and adversely affect general investor confidence. The global spread of coronavirus disease (COVID-19) in a significant number of countries around the world has resulted in, and may intensify, global economic distress, and the extent to which it may affect our results of operations will depend on future developments, which are highly uncertain and cannot be predicted.
The credit and financial markets have experienced extreme volatility and disruptions due to the current conflict between Ukraine and Russia. The conflict is expected to have further global economic consequences, including but not limited to the possibility of severely diminished liquidity and credit availability, declines in consumer confidence, declines in economic growth, increases in inflation rates and uncertainty about economic and political stability. In addition, the United States and other countries have imposed sanctions on Russia which increases the risk that Russia may resort to retaliatory actions, including the launching of cyberattacks. Any of the foregoing consequences, including those we cannot yet predict, may cause our business, financial condition, results of operations and the price of the ADSs to be adversely affected.
We make investments using our own capital and may not realize any profits from these investments for a considerable period of time.
Our investments consist of investments in equity securities of private companies using our own capital. We make investment decisions based on a number of factors, including how the investment can contribute to the AMTD SpiderNet ecosystem, rather than purely targeting for investment returns. We may make unsound investment decisions for this reason or due to fraudulent and concealed, inaccurate or misleading statements from a target company in the course of our due diligence, which could lead us to mistakenly estimate the value of the target company and affect our ability to derive profit from such investments. In addition, our understanding and judgment of the industry in which the target company operates may be mistaken and result in unwise investment decisions.
We make investments in digital finance and new economy sectors in Asia and are subject to concentration risks. Our investment portfolio may be concentrated in certain sectors, geographic regions, individual investments, or types of securities that may or may not be listed. Any significant decline in the value of our investment portfolio may therefore adversely impact our business, results of operations, and financial condition.
In addition, we have limited control over all of our investee companies. Even if we have a board seat in certain investee companies, we do not have the necessary power to mandate or block material corporate actions.
If these investee companies fail to carry out business in a compliant manner, incur overly excessive amount of debt or go bankrupt, or the business operations decline, the fair value of our investment in these companies may deteriorate or, in extreme cases, decrease to zero. We are subject to the risk that the majority shareholders or the management of these investee companies may act in a manner that does not serve our interests. The general operational risks, such as inadequate or failing internal control of these investee companies, may also expose our investments to risks. Furthermore, these investee companies may fail to abide by their agreements with us, for which we may have limited or no recourse. Our investees may not declare dividend, or even if they do, we may
26
Table of Contents
not be able to secure liquidity conveniently until we receive such dividend. Failure of our investees to perform their obligations or to achieve their expected results, or any negative publicity, whether or not substantiated, may adversely affect our reputation and brand. If any of the foregoing were to occur, our business, reputation, financial condition and results of operations could be materially and adversely affected.
Our digital investments business is subject to liquidity risks.
All of our digital investments are in the form of securities that are not publicly traded and are subject to liquidity risks. In many cases, there may be prohibition by contract or by applicable laws from selling such securities for a period of time or there may not be a public market for such securities. Accordingly, under certain conditions, we may be forced to either sell securities at lower prices than we had expected to realize or defer, potentially for a considerable period of time, sales that we had planned to make. Investing in these securities can involve a high degree of risk, and we may lose some or all of the principal amount of such investments.
Our results of operations may be materially affected by fluctuations in the fair value of our equity investments in our investee companies.
We have made equity investments in private companies and recognize changes in fair value on financial assets measured at fair value through profit or loss, or FVTPL, on our consolidated statement of profit or loss. For the fiscal years ended April 30, 2021, 2022, and 2023, changes in fair value on financial assets measured at FVTPL accounted for 41.0%, 65.6%, and 38.3% of our profit for the year, respectively. Fair value of our equity investments is subject to market fluctuations due to changes in the market prices of securities, interest rates, or other market factors, such as liquidity. While we may seek to hedge the market risk for some of these investments, an effective hedge may not be available, and if available, may not be fully effective. We measure their fair value based on an assessment of each underlying security, considering rounds of financing, third-party transactions, and market-based information, including comparable company transactions, trading multiples, and changes in market outlook.
Our international expansion is subject to various risks.
We have been pursuing and will continue to pursue international expansion strategies, particularly in Europe. International expansion may expose us to additional risks, including:
| • | ever changing global environment, including changes in U.S. and international trade policies; |
| • | challenges associated with relying on local partners in markets that are not as familiar to us, including joint venture partners to help us establish our business; |
| • | difficulties managing operations in new regions, including complying with the various regulatory and legal requirements; |
| • | different approval or licensing requirements; |
| • | recruiting sufficient suitable personnel in new markets; |
| • | challenges in providing services and solutions as well as support in these new markets; |
| • | challenges in attracting business partners and clients; |
| • | potential adverse tax consequences; |
| • | foreign exchange losses; |
| • | limited protection for intellectual property rights; |
| • | inability to effectively enforce contractual or legal rights; and |
| • | local political, regulatory and economic instability or wars, civil unrest, and terrorist incidents. |
27
Table of Contents
If we are unable to effectively avoid or mitigate these risks, our ability to expand our business internationally will be affected, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.
We depend on our cooperation with insurer partners. Our business may be negatively affected if our insurer partners do not continue their relationship with us or if their operations fail.
Our insurance solutions business is, to a significant extent, dependent on our continued and healthy relationship with our insurer partners, and may be negatively affected if our insurer partners terminate their relationship with us or fail to meet performance obligations. Certain insurer partners have been associated with a significant portion of our revenue generated from clients in the past. Our ability to attract clients depends on the quantity and quality of insurance products offered by insurer partners. Our arrangements with our insurer partners are typically not exclusive, and they may have similar arrangements with our competitors. Our partners may terminate their relationships with us or decide to exclusively or preferentially cooperate with our competitors. There can be no assurance that we can maintain relationships with our existing insurer partners on commercially desirable terms. If our insurer partners terminate their relationship with us, our supply of products and services may be interrupted and affect our ability to maintain existing clients and secure new clients.
If our insurer partners or the reinsurance company partners fail to properly fulfill their obligations as insurers under the insurance policies sold by us, it may affect our ability to maintain existing clients and secure new clients. If our insurer partners or the reinsurance companies with whom they or we partner become insolvent, our clients may not be able to realize the protection expected from the insurance policies, which will negatively affect our reputation and, in turn, our performance and financial results.
Our business is subject to various cybersecurity and other operational risks.
We face various cybersecurity and other operational risks relating to our businesses on a daily basis. We rely heavily on financial, accounting, communication and other data processing systems as well as the people who operate them to securely process, transmit and store sensitive and confidential client information, and communicate globally with our staff, clients, partners, and third-party vendors. We also depend on various third-party software and cloud-based storage platforms as well as other information technology systems in our business operations. These systems, including third-party systems, may fail to operate properly or become disabled as a result of tampering or a breach of our network security systems or otherwise, including for reasons beyond our control.
Our clients typically provide us with sensitive and confidential information as part of our business arrangements. We are susceptible of attempts to obtain unauthorized access of such sensitive and confidential client information. We also may be subject to cyber-attacks involving leak and destruction of sensitive and confidential client information and our proprietary information, which could result from an employee’s or agent’s failure to follow data security procedures or as a result of actions by third parties, including actions by government authorities. Although cyber-attacks have not had a material impact on our operations to date, breaches of our or third-party network security systems on which we rely could involve attacks that are intended to obtain unauthorized access to and disclose sensitive and confidential client information and our proprietary information, destroy data or disable, degrade or sabotage our systems, often through the introduction of computer viruses and other means, and could originate from a wide variety of sources, including state actors or other unknown third parties. The increase in using mobile technologies can heighten these and other operational risks.
We cannot assure you that we or the third parties on which we rely will be able to anticipate, detect or implement effective preventative measures against frequently changing cyber-attacks. We may incur significant costs in maintaining and enhancing appropriate protections to keep pace with increasingly sophisticated methods of attack. In addition to the implementation of data security measures, we require our employees to maintain the confidentiality of the proprietary information that we hold. If an employee’s failure to follow proper data security
28
Table of Contents
procedures results in the improper release of confidential information, or our systems are otherwise compromised, malfunctioning or disabled, we could suffer a disruption of our business, financial losses, liability to clients, regulatory sanctions, and damage to our reputation.
We operate in businesses that are highly dependent on proper processing of financial transactions. We also rely on third-party service providers for certain aspects of our business. Any interruption or deterioration in the performance of these third parties or failures of their information systems and technology could impair our operations, affect our reputation and adversely affect our businesses.
The technologies we use for the operation of our business are new and require continuous developments and upgrades. We cannot assure you that these technologies will fully support our business.
We regard technology as critical to our ability to provide high-quality products and superior client services in our businesses and operations. We rely on our business partners and investees in developing the sophisticated and innovative technology systems that we use for our business activities. We expect these technologies to support the smooth performance of key functions in our platform. To adapt to evolving client needs, requirements of our business partners, and emerging industry trends, we may need to continue to invest in new technologies or the upgrade of existing technologies to deliver our products and services. We have a number of strategic initiatives involving investments in or partnerships with technology companies as well as investments in technology systems and infrastructure to support our growth strategy. These investments may be costly, may not be profitable or may be less profitable than what we have experienced historically. If these business partners or investees fail to perform their obligations or otherwise cease to work with us, our ability to execute on our strategic initiatives could be adversely affected. If our efforts to invest in the development of new technologies or the upgrade of existing technologies are unsuccessful, our business, financial condition, and results of operations may be materially and adversely affected. In addition, the maintenance and processing of various operating and financial data is essential to our data analytical capabilities and the day-to-day operation of our business. Our ability to provide products and services and to conduct day-to-day business operations depend, in part, on our ability to maintain and make timely and cost-effective enhancement and introduce innovative functions which can meet changing business and operational needs. Failure to do so could put us at a disadvantage to our competitors and cause economic losses. We can provide no assurance that we will be able to keep up with technological improvements or that the technology developed by others will not render our services less competitive or attractive.
The proper functioning of our online platform and technology infrastructure is essential to our business. Any errors in or disruption to our IT systems and infrastructure and those on which we rely could materially affect our ability to maintain the satisfactory performance of our platform and deliver consistent services to our clients.
Our business is dependent on the ability of our IT systems and those of our business partners, vendors, and investee companies to timely process a large amount of information and transactions. The reliability, availability and satisfactory performance of our IT systems and those on which we rely are critical to our success, our ability to attract and retain clients and our ability to maintain a satisfactory user experience and client service. Our servers and those of our business partners and investee companies may be vulnerable to computer viruses, traffic spike that exceeds the capacity of our or their servers, electricity power interruptions, physical or electronic break-ins, and similar disruptions, which could lead to system interruptions, website slowdown and unavailability, delays in transaction processing, loss of data, and the inability to accept and fulfill client orders.
Our software, hardware, and systems and those on which we rely may contain undetected errors that could have a material adverse effect on our business, particularly to the extent such errors are not detected and remedied quickly. The solutions we provide are designed to process complex transactions and deliver reports and other information related to those transactions, all at high volumes and processing speeds. Since clients use our services for important aspects of their businesses, any errors, defects, disruptions in services, or other
29
Table of Contents
performance problems with our services could hurt our reputation and damage our clients’ businesses. Software and system errors, or human error, could delay or inhibit settlement of payments, result in over-settlement, cause reporting errors, or prevent us from collecting transaction fees. We can provide no assurance that we, our business partners or our investee companies will not experience unexpected human errors, system errors or interruptions in the future. We can provide no assurance that our current security mechanisms and those of our business partners and investee companies will be sufficient to protect our and their IT systems and technology infrastructure from any third-party intrusions, electricity power interruptions, viruses and hacker attacks, information and data theft, and other similar activities. Any such future occurrences could damage our reputation and result in a material decrease in our revenue.
Maintaining and upgrading the technology infrastructure on which we rely require significant investment of time and resources, including adding new hardware, updating software, and recruiting and training new engineering personnel. During updates, systems on which we rely may experience interruptions, and the new technologies and infrastructures may not be fully integrated with the existing systems timely, or at all. Any failure to maintain and improve the technology infrastructure on which we rely could result in unanticipated system disruptions, slower response times, impaired quality of user experience and delays in reporting accurate operating and financial information, which, in turn, could materially and adversely affect our business, financial condition and results of operations.
Any negative publicity with respect to us, our directors, officers, employees, shareholders, or other beneficial owners, our peers, business partners, or our industries in general, may materially and adversely affect our reputation, business, and results of operations.
Our reputation and brand recognition play an important role in earning and maintaining the trust and confidence of our existing and prospective clients. Our reputation and brand are vulnerable to many threats that can be difficult or impossible to control, and costly or impossible to remediate. Negative publicity about us, such as alleged misconduct, other improper activities, or negative rumors or investigations relating to our business, shareholders, or other beneficial owners, founder, affiliates, directors, officers, or other employees, can harm our reputation, business, and results of operations, even if they are baseless or satisfactorily addressed. For example, there have been allegations about certain regulatory matters in relation to the HKSFC against Dr. Calvin Choi, our founder, in relation to his previous work at a different financial firm independent from us. These allegations or investigations, even if unproven or meritless, may lead to additional inquiries, investigations, or other legal actions against us, our shareholders, founder, affiliates, directors, officers, or other employees by any regulatory or government authorities. Any such regulatory inquiries or investigations and lawsuits, and perceptions of conflicts of interest, inappropriate business conduct by us or perceived wrongdoing by any key member of our management team, board of directors or founder, among other things, could substantially damage our reputation regardless of their merits, and cause us to incur significant costs to defend ourselves. As we reinforce our ecosystem and stay close to our clients and other “AMTD SpiderNet” stakeholders, any negative market perception or publicity on our business partners that we closely cooperate with, or any regulatory inquiries or investigations and lawsuits initiated against them, may also have an impact on our brand and reputation, or subject us to regulatory inquiries or investigations or lawsuits. Moreover, any negative media publicity about our industries in general or product or service quality problems of other firms in our industries, including our competitors, may also negatively impact our reputation and brand. If we are unable to maintain a good reputation or further enhance our brand recognition, our ability to attract and retain clients, third-party partners, and key employees could be harmed and, as a result, our business, financial position, and results of operations would be materially and adversely affected.
Our operations may be subject to transfer pricing adjustments by competent authorities.
We may use transfer pricing arrangements to account for business activities between us and our Controlling Shareholder, the different entities within our consolidated group, or other related parties. We cannot assure you that the tax authorities in the jurisdictions where we operate would not subsequently challenge the
30
Table of Contents
appropriateness of our transfer pricing arrangements or that the relevant regulations or standards governing such arrangements will not be subject to future changes. If a competent tax authority later finds that the transfer prices and the terms that we have applied are not appropriate, such authority may require us or our subsidiaries to re-assess the transfer prices and re-allocate the income or adjust the taxable income. Any such reallocation or adjustment could result in a higher overall tax liability for us and may adversely affect our business, financial condition, and results of operations.
Our risk management and internal control systems, as well as the risk management tools available to us, may not fully protect us against various risks inherent in our business.
We follow our comprehensive internal risk management framework and procedures to manage our risks, including, but not limited to, reputational, legal, regulatory, compliance, operational, market, liquidity, and credit risks. However, our risk management policies, procedures, and internal controls may not be adequate or effective in mitigating our risks or protecting us against unidentified or unanticipated risks. In particular, some methods of managing risks are based upon observed historical market behavior and our experience in the financial industry. These methods may fail to predict future risk exposures, which could be significantly greater than those indicated by our historical measures. Other risk management methods depend upon an evaluation of available information regarding operating and market conditions and other matters, which may not be accurate, complete, up-to-date, or properly evaluated. In addition, the capital markets are constantly developing, the information and experience that we rely on for our risk management methods may become quickly outdated as capital markets and regulatory environment continue to evolve. Other than certain material weaknesses in our internal control over financial reporting identified as of April 30, 2022, which had been remediated in the current year ended April 30, 2023, any other deficiencies or failure in our risk management and internal control systems and procedures may adversely affect our ability to identify or report our deficiencies or non-compliance. In addition, failure of our employees to effectively enforce such risk management and internal controls procedures, or any of the foregoing risks, may have a material and adverse effect on our business, financial condition and operating results.
Fraud or misconduct by our directors, officers, employees, shareholders, agents, clients, or other third parties could harm our reputation and business and may be difficult to detect and deter.
It is not always possible to detect and deter fraud or misconduct by our directors, officers, employees, shareholders, agents, clients or other third parties. The precautions that we take to detect and prevent such activity may not be effective in all cases, and we may suffer significant reputational harm and financial loss for any fraud misconduct by any of these individuals. The potential harm to our reputation and to our business caused by such fraud or misconduct is impossible to quantify.
There is a risk that our directors, officers, employees, shareholders, agents, clients or other third parties could engage in fraud or misconduct that materially and adversely affects our business, including a decrease in returns on our own invested capital. We are subject to a number of obligations and standards arising from our businesses. The violation of these obligations and standards by any of our directors, officers, employees, shareholders, agents, clients or other third parties could materially and adversely affect us and our investors. For example, our businesses require that we properly handle confidential information. If our directors, officers, employees, shareholders, agents, clients or other third parties were to improperly use or disclose confidential information, we could suffer serious harm to our reputation, financial position, and existing and future business relationships. If any of our directors, officers, employees, shareholders, agents, clients or other third parties were to engage in fraud or misconduct or were to be accused of such fraud or misconduct, our business and reputation could be materially and adversely affected.
We may be subject to litigation and regulatory investigations and proceedings and may not always be successful in defending ourselves against such claims or proceedings.
We face significant litigation and regulatory risks, especially operating in the financial services and insurance industries, including the risk of lawsuits and other legal actions relating to compliance of regulatory
31
Table of Contents
requirements in areas such as information disclosure, sales practices, product design, fraud and misconduct, as well as protection of sensitive and confidential client information. From time to time we may be subject to lawsuits and arbitration claims in the ordinary course of our business brought by external parties or disgruntled current or former employees, inquiries, investigations, and proceedings by regulatory and other governmental agencies. Actions brought against us, with or without merits, may result in administrative measures, settlements, injunctions, fines, penalties, negative publicities, or other results adverse to us that could have material adverse effect on our reputation, business, financial condition, results of operations, and prospects. Even if we are successful in defending ourselves against these actions, the costs of such defense may be significant.
In market downturns, the number of legal claims and amount of damages sought in litigation and regulatory proceedings may increase. In addition, our affiliates may also encounter litigation, regulatory investigations and proceedings for the practices in their business operations. Our clients may also be involved in litigation, investigation or other legal proceedings, some of which may relate to deals that we have advised, whether or not there has been any fault on our part.
We may not be able to fully detect money laundering and other illegal or improper activities in our business operations on a timely basis or at all, which could subject us to liabilities and penalties.
We are required to comply with applicable anti-money laundering and anti-terrorism laws and other regulations in the jurisdictions where we operate. The anti-money laundering laws and regulations around the world to which we are subject require us to establish sound internal control policies and procedures with respect to anti-money laundering monitoring and reporting activities. Although we have adopted policies and procedures aimed at detecting, and preventing being used for, money-laundering activities by criminals or terrorist-related organizations and individuals or improper activities (including but not limited to market manipulation and aiding and abetting tax evasion), such policies and procedures may not completely eliminate instances where our networks may be used by other parties to engage in money laundering and other illegal or improper activities. If we fail to fully comply with applicable laws and regulations, the relevant government agencies may impose fines and other penalties on us, which may adversely affect our business.
We regularly encounter potential conflicts of interest, and our failure to identify and address such conflicts of interest could adversely affect our business.
We face the possibility of actual, potential, or perceived conflicts of interest in the ordinary course of our business operations. Conflicts of interest may exist between (i) our different businesses; (ii) us and our clients; (iii) our clients; (iv) us and our employees; (v) our clients and our employees, or (vi) us and our controlling shareholders and their controlling entities. As we expand the scope of our business and our client base, it is critical for us to be able to timely address potential conflicts of interest, including situations where two or more interests within our businesses naturally exist but are in competition or conflict. We have put in place internal control and risk management procedures that are designed to identify and address conflicts of interest. However, appropriately identifying and managing actual, potential, or perceived conflicts of interest is complex and difficult, and our reputation and our clients’ confidence in us could be damaged if we fail, or appear to fail, to deal appropriately with one or more actual, potential, or perceived conflicts of interest. It is possible that actual, potential, or perceived conflicts of interest could also give rise to client dissatisfaction, litigation, or regulatory enforcement actions. Regulatory scrutiny of, or litigation in connection with, conflicts of interest could have a material adverse effect on our reputation, which could materially and adversely affect our business in a number of ways, including a reluctance of some potential clients and counterparties to do business with us. Any of the foregoing could materially and adversely affect our reputation, business, financial condition, and results of operations.
32
Table of Contents
The current tensions in international economic relations may negatively affect the demand for our services, and our results of operations and financial condition may be materially and adversely affected.
Recently there have been heightened tensions in international economic relations, such as the one between the United States and China and also as a result of the conflict in Ukraine and sanctions on Russia.
The U.S. government has recently imposed, and has recently proposed to impose additional, new, or higher tariffs on certain products imported from China to penalize China for what it characterizes as unfair trade practices. China has responded by imposing, and proposing to impose additional, new, or higher tariffs on certain products imported from the United States. In addition, political tensions between the United States and China have escalated due to, among other things, trade disputes, the COVID-19 outbreak, sanctions imposed by the U.S. Department of Treasury on officials and the executive orders issued by the U.S. government in August 2020 that prohibit certain transactions with certain selected leading Chinese internet companies as well as their products. Rising political tensions could reduce levels of trades, investments, technological exchanges, and other economic activities between the two major economies. Such tensions between the United States and China, and any escalation thereof, may have a negative impact on the general, economic, political, and social conditions in China and, in turn, adversely impacting our business, financial condition, and results of operations.
Amid these tensions, the U.S. government has imposed and may impose additional measures on entities in China, including sanctions.
Uncertainty surrounding the escalating conflict between Russia and Ukraine could also negatively impact global and regional financial markets. Poor relations between the United States and Russia, sanctions by the United States and the European Union against Russia, and any escalation of political tensions or economic instability could increase the threat of armed conflict, cyberwarfare and economic instability that could further increase market volatility and uncertainty.
As a financial services firm with business exposure and operations in Asia, our businesses are materially affected by the financial markets and economic conditions in Asia and elsewhere in the world. Escalations of the tensions may lead to slower growth in the global economy in general, which in turn could negatively affect our clients’ businesses and materially reduce demand for our services, thus potentially negatively affect our business, financial condition, and results of operations.
We may need additional financing but may not be able to obtain it on favorable terms or at all.
We may require additional financing for further growth and development of our business, including any investments or acquisitions we may decide to pursue. If our existing resources are insufficient to satisfy our requirements, we may seek to issue equity or debt securities or obtain new or expanded credit facilities. Our ability to obtain external financing in the future is subject to a variety of uncertainties, including our future financial condition, results of operations, cash flows, share price performance, liquidity of international capital and lending markets, and the financial industry in Asia. We cannot assure you that we will be able to secure financing in a timely manner or in amounts or on terms favorable to us, or at all. Any failure to raise needed funds on terms favorable to us, or at all, could severely restrict our liquidity as well as have a material adverse effect on our business, financial condition, and results of operations. Moreover, any issuance of equity or equity-linked securities could result in significant dilution to our existing shareholders.
We may be subject to legal or regulatory liability if we are unable to protect the personal and sensitive data and confidential information of our clients.
We collect, store, and process certain personal and sensitive data from our clients, particularly under our insurance solutions business, and we make certain personal information provided by clients or third party data providers available to insurer or other partners with client consent. We also collect, store, and process operating
33
Table of Contents
data and other information from our clients under our digital solutions services—non financial services business. We are required to protect the personal and sensitive data and confidential information of our clients under applicable laws, rules and regulations. While we have taken steps to protect the personal and sensitive data and confidential information of clients that we have access to, our security measures could be breached. In addition, we enter into non-disclosure agreements with potential business partners from time to time which may contain personal and sensitive data and confidential information of our clients. Any breach or leakage of such non-disclosure agreements by our potential business partners may subject us to liability. The relevant authorities may impose sanctions or issue orders against us if we fail to protect the personal and sensitive data and confidential information of our clients, and we may have to compensate our clients if we fail to do so. We routinely transmit and receive personal and sensitive data and confidential information of our clients through the internet and other electronic means. Any inability to adequately address privacy concerns, even if unfounded, or to comply with applicable privacy or data protection laws, regulations and privacy standards, or any misuse or mishandling of such personal and sensitive data and confidential information could result in additional cost, legal liabilities, regulatory actions, and reputational damage to us, which could in turn inhibit the use of our platform, and materially and adversely affect our business prospects and results of operation.
If our insurance coverage is insufficient, we may be subject to significant costs and business disruption.
We currently have insurance coverage such as professional indemnity insurance for certain of our regulated activities, and property, office, computer insurance, employee compensation and benefits, and travel insurance through policies maintained by our Controlling Shareholder. We have purchased directors and officers insurance from reputable global insurers and we do not plan on purchasing key-man insurance coverage. We consider our insurance coverage to be reasonable in light of the nature of our business, but we cannot assure you that our insurance coverage is sufficient to prevent us from any loss or that we will be able to successfully claim our losses under the current insurance policies on a timely basis, or at all. If we incur any loss that is not covered by our Controlling Shareholder’s insurance policies, or the compensated amount is significantly less than our actual loss, our business, financial condition and results of operations could be materially and adversely affected.
If we fail to develop and maintain an effective system of internal control over financial reporting, we may be unable to accurately report our financial results or prevent fraud.
If we do not appropriately maintain effective internal control over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002, we may be unable to accurately report our financial results and the market price of the ADSs may be adversely affected.
We are subject to reporting obligations under the U.S. securities laws. The SEC, as required under Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company’s internal control over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal control over financial reporting. In addition, an independent registered public accounting firm must attest to and report on the effectiveness of the company’s internal control over financial reporting. Our management has concluded that our internal control over financial reporting was effective as of April 30, 2023. See “Item 15. Controls and Procedures.” An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2012 relating to internal controls over financial reporting. Our independent registered public accounting firm, after conducting its own independent testing, may issue an adverse report if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.
If we fail to maintain effective internal control over financial reporting in the future, our management and our independent registered public accounting firm may not be able to conclude that we have effective internal
34
Table of Contents
control over financial reporting at a reasonable assurance level. This could in turn result in the loss of investor confidence in the reliability of our financial statements and negatively impact the trading price of the ADSs. Furthermore, we have incurred and may need to incur additional costs and use additional management and other resources in an effort to comply with Section 404 of the Sarbanes-Oxley Act and other requirements going forward.
We may face intellectual property infringement claims, which could be time-consuming and costly to defend and may result in the loss of significant rights by us.
Although we have not been subject to any litigation, pending or threatened, alleging infringement of third parties’ intellectual property rights, we cannot assure you that such infringement claims will not be asserted against us in the future. Third parties may own copyrights, trademarks, trade secrets, ticker symbols, internet content, and other intellectual properties that are similar to ours in jurisdictions where we currently have no active operations. If we expand our business to or engage in other commercial activities in those jurisdictions using our own copyrights, trademarks, trade secrets, and internet content, we may not be able to use these intellectual properties or face potential lawsuits from those third parties and incur substantial losses if we fail to defend ourselves in those lawsuits. We have policies and procedures in place to reduce the likelihood that we or our employees may use, develop, or make available any content or applications without the proper licenses or necessary third-party consents. However, these policies and procedures may not be effective in completely preventing the unauthorized posting or use of copyrighted material or the infringement of other rights of third parties.
Intellectual property litigation is expensive and time-consuming and could divert resources and management attention from the operation of our business. If there is a successful claim of infringement, we may be required to alter our services, cease certain activities, pay substantial royalties and damages to, and obtain one or more licenses from third parties. We may not be able to obtain those licenses on commercially acceptable terms, or at all. Any of those consequences could cause us to lose revenue, impair our client relationships and harm our reputation.
Any failure to protect our intellectual property could harm our business and competitive position.
We maintain a number of registered domain names. As of the date of this annual report, we had two trademarks registered in Asia. We may in the future acquire new intellectual property such as trademarks, copyrights, domain names, and know-how. We will rely on a combination of intellectual property laws and contractual arrangements to protect our intellectual property rights. It is possible that third parties may copy or otherwise obtain and use our trademarks without authorization or otherwise infringe on our rights. We may not be able to successfully pursue claims for infringement that interfere with our ability to use our trademarks, website, or other relevant intellectual property or have adverse impact on our brand. We cannot assure you that any of our intellectual property rights would not be challenged, invalidated, or circumvented, or such intellectual property will be sufficient to provide us with competitive advantages. In addition, other parties may misappropriate our intellectual property rights, which would cause us to suffer economic or reputational damages.
We may incur losses or experience disruption of our operations as a result of unforeseen or catastrophic events, including the emergence of an epidemic, pandemic, social unrest, terrorist attacks, or natural disasters.
Our business could be materially and adversely affected by catastrophic events or other business continuity problems, such as natural or man-made disasters, pandemics, social unrest, war, riots, terrorist attacks, or other public safety concerns. If we were to experience a natural or man-made disaster, disruption due to social or political unrest, or disruption involving electronic communications or other services used by us or third parties with which we conduct business, the continuity of our operations will partially depend on the availability of our people and office facilities and the proper functioning of our computer, software, telecommunications,
35
Table of Contents
transaction processing, and other related systems. A disaster or a disruption in the infrastructure that supports our businesses, a disruption involving electronic communications or other services used by us or third parties with whom we conduct business, or a disruption that directly affects our business exposure and operations, could have a material adverse impact on our ability to continue to operate our business without interruption. Our business could also be adversely affected if our employees are affected by epidemics, pandemics, natural or man-made disasters, disruptions due to social or political unrest or disruption involving electronic communications. In addition, our results of operations could be adversely affected to the extent that any epidemic or pandemic harms the global economy in general. The incidence and severity of disasters, epidemics or pandemics or other business continuity problems are unpredictable, and our inability to timely and successfully recover could materially disrupt our businesses and cause material financial loss, regulatory actions, reputational harm, or legal liability.
In addition, although the COVID-19 pandemic increased demand for online financial solutions, digital media marketing, and other online-based products and services, its impact, including impact on our employees, clients, business partners, and third-party service providers, could continue to have a material and adverse effect on our business, financial condition, and results of operations. The COVID-19 pandemic has caused, and may continue to cause us and certain of our business partners, to implement temporary adjustment of work schedules and travel plans, mandating employees to work from home and collaborate remotely. As a result, we may experience lower efficiency and productivity, internally and externally, which may adversely affect our service quality. Moreover, our business operations depend on our professional staff and the continued services of these individuals. If any of our employees is suspected of having contracted COVID-19, we may be required to apply quarantines or suspend our operations. The extent to which this outbreak impacts our results of operations will depend on future developments, which are highly uncertain and unpredictable, including new information which may emerge concerning the severity of this outbreak and future actions we take, if any, to contain this outbreak or treat its impact, among others.
Increases in labor costs may adversely affect our business and results of operations.
The global economy has experienced general increases in inflation and labor costs in recent years. As a result, average wages in different regions are expected to continue to increase. In addition, we are required by laws and regulations to pay various statutory employee benefits, including mandatory provident fund to designated government agencies for the benefit of our employees. The relevant government agencies may examine whether an employer has made adequate payments to the statutory employee benefits, and those employers who fail to make adequate payments may be subject to fines and other penalties. We expect that our labor costs, including wages and employee benefits, will continue to increase. Unless we are able to control our labor costs or pass on these increasing labor costs, our financial condition, and results of operations may be adversely affected.
Risks Relating to Our Relationship with the Controlling Shareholder
We have limited experience operating as a stand-alone public company.
AMTD Digital Inc. was incorporated in September 2019 as a wholly-owned subsidiary of our Controlling Shareholder. Our Controlling Shareholder also controls AMTD IDEA Group, a leadingcomprehensive financial institution dual-listed on both the NYSE and SGX-ST (NYSE: AMTD; SGX: HKB). However, we have limited experience conducting our operations as a stand-alone public company. Prior to our initial public offering in July 2022, our Controlling Shareholder has provided us with financial, administrative, human resources, and legal services, and also has provided us with the services of a number of its executives and employees. After we become a stand-alone public company, we expect our Controlling Shareholder to continue to provide us with certain support services, but to the extent our Controlling Shareholder does not continue to provide us with such support, we will need to create our own support system. We may encounter operational, administrative, and strategic difficulties as we adjust to operating as a stand-alone public company. This may cause us to react more slowly than our competitors to industry changes and may divert our management’s attention from running our business or otherwise harm our operations.
36
Table of Contents
In addition, since we have become a public company, our management team will need to develop the expertise necessary to comply with the numerous regulatory and other requirements applicable to public companies, including requirements relating to corporate governance, listing standards and securities and investor relationships issues. As a stand-alone public company, our management will have to evaluate our internal controls system with new thresholds of materiality, and to implement necessary changes to our internal controls system. We cannot guarantee that we will be able to do so in a timely and effective manner.
Our financial information included in this annual report may not be representative of our financial condition and results of operations if we had been operating as a stand-alone company.
Prior to our establishment, the operations of our digital solutions services and digital investments businesses were carried out by companies owned or controlled by our Controlling Shareholder. For all periods presented, our consolidated financial statements include all assets, liabilities, revenue, expenses, and cash flows that were directly attributable to our digital solutions services and digital investments businesses whether held or incurred by our Controlling Shareholder or by us. With respect to costs of operations, an allocation of certain costs and expenses of our Controlling Shareholder were also included. These allocations were made using a proportional cost allocation method by considering the proportion of revenue and actual usage metrics, among other things attributable to us. We made numerous estimates, assumptions, and allocations in our historical financial statements because our Controlling Shareholder did not account for us, and we did not operate as a stand-alone company for any period prior to the completion of our initial public offering in July 2022. Although our management believes the assumptions underlying our financial statements and the above allocations are reasonable, our financial statements may not necessarily reflect our results of operations, financial position, and cash flows as if we operated as a stand-alone public company during the periods presented. See “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions—Transactions with Our Controlling Shareholder” for our arrangements with our Controlling Shareholder and “Item 5. Operating and Financial Review and Prospects” and the notes to our consolidated financial statements included elsewhere in this annual report for our historical cost allocation. In addition, we are in the process of establishing our own financial, administrative, and other support systems to replace our Controlling Shareholder’s systems, the cost of which could be significantly different from cost allocation with our Controlling Shareholder for the same services. Therefore, you should not view our historical results as indicators of our future performance.
We may not continue to receive the same level of support from our Controlling Shareholder.
We have benefitted significantly from our Controlling Shareholder’s strong market position and brand recognition. We may enter into a series of agreements relating to our ongoing business operations and service arrangements with our Controlling Shareholder in the future, we cannot assure you we will continue to receive the same level of support from our Controlling Shareholder as we now operate as a stand-alone public company. Our current clients may react negatively to our restructuring. This effort may not be successful, which could materially and adversely affect our business.
Our agreements with our Controlling Shareholder or any of its controlling shareholders may be less favorable to us than similar agreements negotiated between unaffiliated third parties. In particular, our non-competition agreement with our Controlling Shareholder limits the scope of business that we are allowed to conduct.
In May 2021, we entered into a series of agreements with our Controlling Shareholder and the terms of such agreements may be less favorable to us than would be the case if they were negotiated with unaffiliated third parties. In particular, under the non-competition agreement that we entered into with our Controlling Shareholder, we agree during the non-competition period (which will end on the later of (1) two years after the first date when our Controlling Shareholder ceases to own in aggregate at least 20% of the voting power of our then outstanding securities and (2) the fifth anniversary after July 15, 2022 being the date of our initial public offering of the ADSs listed and traded on the NYSE) not to compete with our Controlling Shareholder in the businesses then conducted by our Controlling Shareholder, except that we may own non-controlling equity
37
Table of Contents
interest in any company competing with our Controlling Shareholder. Such contractual limitations significantly affect our ability to diversify our revenue sources and may materially and adversely impact our business and prospects should the growth of our businesses slow down. In addition, pursuant to our master transaction agreement that we entered into with our Controlling Shareholder, we agree to indemnify our Controlling Shareholder for liabilities arising from litigation and other contingencies related to our business and assumed these liabilities as part of our restructuring. The allocation of assets and liabilities between our Controlling Shareholder and our company may not reflect the allocation that would have been reached by two unaffiliated parties. Moreover, so long as our Controlling Shareholder continues to control us, we may not be able to bring a legal claim against our Controlling Shareholder or its controlling shareholders in the event of contractual breach, notwithstanding our contractual rights under the agreements described above and other inter-company agreements we may enter into from time to time.
We are a “controlled company” within the meaning of the NYSE Listed Company Manual and, as a result, can rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.
Our Controlling Shareholder controls, through AMTD IDEA Group, a majority of the voting power of our issued outstanding ordinary shares. As a result, we are a “controlled company” within the meaning of the NYSE Listed Company Manual. Under these rules, a listed company of which more than 50% of the voting power for the election of directors is held by an individual, group, or another company is a “controlled company” and will be permitted to elect not to comply with certain corporate governance requirements, including the requirement that a majority of the board of directors consist of independent directors, the requirement that we have a nominating and corporate governance committee that is composed entirely of independent directors, and the requirement that we have a compensation committee that is composed entirely of independent directors. As we may intend to rely on some or all of the exemptions available to issuers like us, our shareholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE.
We may have conflicts of interest with our Controlling Shareholders or any of its controlling shareholders and, because of our Controlling Shareholder’s controlling ownership interest in our company, we may not be able to resolve such conflicts on terms favorable to us.
As of the date of this annual report, our Controlling Shareholder beneficially owned 33.9% of our outstanding ordinary shares, representing 84.8% of our total voting power. Accordingly, our Controlling Shareholder continues to be our controlling shareholder and may have significant influence in determining the outcome of any corporate actions or other matters that require shareholder approval, such as mergers, consolidations, change of our name, and amendments of our memorandum and articles of association.
The concentration of ownership and voting power may cause transactions to occur in a way that may not be beneficial to you as a holder of the ADSs and may prevent us from pursuing transactions that would be beneficial to you. Conflicts of interest may arise between our Controlling Shareholder or any of its controlling shareholders and us in a number of areas relating to our past and ongoing relationships. Potential conflicts of interest that we have identified include the following:
| • | Indemnification arrangements with our Controlling Shareholder. In May 2021, we entered into a master transaction agreement under which we agree to indemnify our Controlling Shareholder with respect to lawsuits and other matters relating to our digital solutions services—financial services, digital solutions services—non financial services, digital media, contents, and marketing, and digital investments businesses, including operations of those businesses when we were a private company and a subsidiary of our Controlling Shareholder. These indemnification arrangements could result in our having interests that are adverse to those of our Controlling Shareholder, for example, with respect to settlement arrangements in litigation. In addition, under these arrangements, we agreed to reimburse |
38
Table of Contents
| our Controlling Shareholder for liabilities incurred (including legal defense costs) in connection with any third party claim if it is ultimately determined that we are obligated to indemnify our Controlling Shareholder with respect to such third party claim. |
| • | Non-competition arrangements with our Controlling Shareholder. In May 2021, we entered into a non-competition agreement under which our Controlling Shareholder agrees not to compete with us in our digital solutions services—financial services, digital solutions services—non financial services, digital media, content, and marketing, and digital investments businesses, except for owning non-controlling equity interest in any company competing with us. We agree not to compete with our Controlling Shareholder in the respective businesses then conducted by our Controlling Shareholder, except that we may own non-controlling equity interests in any company competing with our Controlling Shareholder. |
| • | Employee recruiting and retention. Because we, and our Controlling Shareholder are engaged in financial service-related businesses in Asia, we may compete with our Controlling Shareholder in the hiring of new employees. In May 2021, we entered into a non-competition agreement and have a non-solicitation arrangement with our Controlling Shareholder that restricts us and our Controlling Shareholder from hiring any of each other’s employees. |
| • | Our board members or executive officers may have conflicts of interest. Our director and chief executive officer, Mark Chi Hang Lo, is also the group vice president of our Controlling Shareholder. Our chief financial officer, Xavier Ho Sum Zee, is also the chief financial officer of our Controlling Shareholder and AMTD IDEA Group. Our independent director, Dr. Feridun Hamdullahpur, is also a director of our Controlling Shareholder and an independent director of AMTD IDEA Group. As a result, they may not have sufficient capacity to perform their duties in our company. These overlapping relationships could create, or appear to create, conflicts of interest when these persons are faced with decisions with potentially different implications for our Controlling Shareholder and us. |
| • | Sale of shares or assets in our company. Upon expiration of the lock-up period and subject to certain restrictions under relevant securities laws and stock exchange rules, as well as other relevant restrictions, our Controlling Shareholder may decide to sell all or a portion of our shares that it holds to a third party, including to one of our competitors, thereby giving that third party substantial influence over our business and our affairs. In addition, our Controlling Shareholder may decide, or be obligated under any of its applicable debt covenant, to sell all or a portion of our shares or our assets in the event of default of our Controlling Shareholder or any of its controlling shareholders under any applicable debt or other obligations or otherwise becomes insolvent. Such a sale of our shares or our assets could be contrary to the interests of our employees or our other shareholders. In addition, our Controlling Shareholder 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 and might reduce the price of the ADSs. |
| • | Allocation of business opportunities. Business opportunities may arise that both we and our Controlling Shareholder find attractive, and which would complement our respective businesses. Although we entered into a master transaction agreement under which our Controlling Shareholder agrees not to pursue investment opportunities without first presenting them to us, our Controlling Shareholder may discourage, delay, or prevent a profitable investment opportunity before our board of directors or shareholders and subsequently decide to pursue investment opportunities or take business opportunities for itself, which would prevent us from taking advantage of those opportunities. These actions may be taken even if they are opposed by our other shareholders. |
| • | Developing business relationships with our Controlling Shareholder’s competitors. So long as our Controlling Shareholder remains as our controlling shareholder, we may be limited in our ability to do business with its competitors. This may limit our ability to market our services for the best interests of our company and our other shareholders. |
39
Table of Contents
Risks Relating to the ADSs
The trading price of the ADSs has been volatile and could continue to fluctuate significantly, which could result in substantial losses to you.
The trading price of the ADSs has been and will likely to be volatile and could fluctuate widely due to factors beyond our control. Since their initial listing on the NYSE on July 15, 2022, the price of the ADSs has ranged from US$4.80 to US$2,555.30.
The market price of the ADSs is likely to continue to be highly volatile and could be significantly affected by broad market and industry factors, such as performance and fluctuation in the market prices or underperformance or deteriorating financial results of other U.S.-listed companies based in China. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial price declines in the trading prices of their securities. The trading performances of other Chinese companies’ securities after their offerings may affect the attitudes of investors towards China-based, U.S.-listed companies, which consequently may affect the trading performance of the ADSs, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have conducted any inappropriate activities. Furthermore, securities markets may from time to time experience significant price and volume fluctuations that are not related to our operating performance, which may have a material and adverse effect on the trading price of the ADSs.
In addition to the above factors, the price and trading volume of the ADSs may be highly volatile due to multiple factors, including the following:
| • | regulatory developments affecting us or our industries; |
| • | variations in our revenue, profit, and cash flow; |
| • | changes in the economic performance or market valuations of other financial services firms; |
| • | actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results; |
| • | changes in financial estimates by securities research analysts; |
| • | detrimental negative publicity about us, our services, our officers, directors, Controlling Shareholder, other beneficial owners, our business partners, or our industries; |
| • | announcements by us or our competitors of new service offerings, acquisitions, strategic relationships, joint ventures, capital raisings or capital commitments; |
| • | additions to or departures of our senior management; |
| • | litigation or regulatory proceedings involving us, our officers, directors, or Controlling Shareholders; |
| • | release or expiry of any transfer restrictions on our outstanding shares or the ADSs; and |
| • | sales or perceived potential sales of additional ordinary shares or ADSs. |
As a result of any of these factors, there may be large and sudden changes in the volume and price at which the ADSs will trade and the market price of the ADSs may not necessarily bear any relationship to our book value, assets, past operating results, financial condition or any other established criteria of value, and may not be indicative of the market price for the underlying shares in the future.
In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. If we were involved in a class
40
Table of Contents
action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
An active public market may not develop for the ADSs on the NYSE, and you may not be able to resell the ADSs at or above the price you paid, or at all.
Although the ADSs are listed on the NYSE, we cannot assure you that a liquid public market for the ADSs will develop. If an active public market for the ADSs does not develop, the market price of the ADSs may decline and the liquidity of the ADSs may decrease significantly. We cannot assure you that the price at which the ADSs are traded will not decline below the initial public offering price on the NYSE. As a result, investors in the ADSs may experience a significant decrease in the value of their ADSs due to insufficient or a lack of market liquidity of the ADSs.
If securities or industry analysts do not publish or publish inaccurate or unfavorable research about our business, or if they adversely change their recommendations regarding the ADSs, the market price or trading volume for the ADSs could decline.
The trading market for the ADSs will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not establish or maintain adequate research coverage or if one or more of the analysts who covers us downgrades the ADSs or publishes inaccurate or unfavorable research about our business, the market price for the ADSs would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for the ADSs to decline.
The sale or availability for sale of substantial amounts of the ADSs in the public market could adversely affect their market price.
Sales of substantial amounts of the ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price of the ADSs and could materially impair our ability to raise capital through equity offerings in the future. We cannot predict what effect, if any, market sales of securities held by the Controlling Shareholder or any other shareholder or the availability of these securities for future sale will have on the market price of the ADSs.
Our dual-class share structure with different voting rights will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares and ADSs may view as beneficial.
Under our dual-class share structure, our ordinary shares consist of Class A ordinary shares and Class B ordinary shares. In respect of matters requiring the votes of shareholders, holders of Class B ordinary shares will be entitled to twenty votes per share, while holders of Class A ordinary shares will be entitled to one vote per share based on our dual-class share structure. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale, transfer, assignment, or disposition of any Class B ordinary shares by a holder thereof to any person other than our founder, Dr. Calvin Choi, or any other person or entity designated by Dr. Choi, such Class B ordinary shares are automatically and immediately converted into an equal number of Class A ordinary shares.
As of the date of this annual report, AMTD IDEA Group beneficially own all of our issued and outstanding Class B ordinary shares. These Class B ordinary shares constitute approximately 85.6% of our total issued and
41
Table of Contents
outstanding ordinary shares and 99.2% of the aggregate voting power of our total issued and outstanding ordinary shares due to the disparate voting powers associated with our dual-class share structure. See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.” As a result of the dual-class share structure and the concentration of ownership, holders of Class B ordinary shares will have considerable influence over matters such as decisions regarding mergers, consolidations, and the sale of all or substantially all of our assets, election of directors, and other significant corporate actions. Such holders may take actions that are not in the best interest of us or our other shareholders. This concentration of ownership may discourage, delay, or prevent a change in control of our company, which could have the effect of depriving our other shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of the ADSs. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover, or other change of control transactions that holders of Class A ordinary shares and ADSs may view as beneficial.
The dual-class structure of our ordinary shares may adversely affect the trading market for the ADSs.
SP Dow Jones and FTSE Russell have recently announced changes to their eligibility criteria for inclusion of shares of public companies in certain indices, including the SP 500, to exclude companies with multiple classes of shares and companies whose public shareholders hold no more than 5% of total voting power from being added to such indices. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class capital structures. As a result, the dual class structure of our ordinary shares may prevent the inclusion of the ADSs in such indices and may cause shareholder advisory firms to publish negative commentary about our corporate governance practices or otherwise seek to cause us to change our capital structure. Any such exclusion from indices could result in a less active trading market for the ADSs. Any actions or publications by shareholder advisory firms critical of our corporate governance practices or capital structure could also adversely affect the value of the ADSs.
Because the amount, timing, and whether or not we distribute dividends at all is entirely at the discretion of our board of directors, you must rely on price appreciation of the ADSs for return on your investment.
Although we currently intend to distribute dividends in the future, the amount, timing, and whether or not we actually distribute dividends at all is entirely at the discretion of our board of directors.
Our board of directors has complete discretion as to whether to distribute dividends. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. In either case, all dividends are subject to certain restrictions under the Cayman Islands law, namely that our company may only pay dividends out of profits or share premium, and provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiary, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in the ADSs will likely depend entirely upon any future price appreciation of the ADSs. We cannot assure you that the ADSs will appreciate in value in the future or even maintain the price at which you purchased the ADSs. You may not realize a return on your investment in, and you may even lose your entire investment in, the ADSs.
The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and you may not be able to exercise your right to direct how the Class A ordinary shares represented by your ADSs are voted.
Holders of the ADSs do not have the same rights as our registered shareholders. As a holder of ADSs, you will not have any direct right to attend general meetings of our shareholders or to cast any votes at such meetings. You will only be able to exercise the voting rights that are carried by the underlying Class A ordinary shares
42
Table of Contents
represented by your ADSs indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. Under the deposit agreement, you may vote only by giving voting instructions to the depositary. If we instruct the depositary to ask for your instructions, then upon receipt of your voting instructions, the depositary will try, as far as practicable, to vote the underlying Class A ordinary shares represented by your ADSs in accordance with your instructions. If we do not instruct the depositary to ask for your instructions, the depositary may still vote in accordance with instructions you give, but it is not required to do so. You will not be able to directly exercise your right to vote with respect to the underlying Class A ordinary shares represented by your ADSs unless you surrender and cancel your ADSs, withdraw the shares, and become the registered holder of such shares prior to the record date for the general meeting. Under our currently effective memorandum and articles of association, the minimum notice period required to be given by our company to our registered shareholders for convening a general meeting is seven (7) days.
When a general meeting is convened, you may not receive sufficient advance notice of the meeting to withdraw the Class A ordinary shares underlying your ADSs and become the registered holder of such shares to allow you to vote directly with respect to any specific matter or resolution to be considered and voted upon at the general meeting. In addition, under our currently effective memorandum and articles of association, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of members and fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a record date may prevent you from withdrawing the Class A ordinary shares underlying your ADSs and becoming the registered holder of such shares prior to the record date, so that you would not be able to attend the general meeting or to vote directly. If we ask for your instructions, the depositary will notify you of the upcoming vote and will arrange to deliver our voting materials to you. We have agreed to give the depositary at least 40 days’ prior notice of shareholder meetings. Nevertheless, we cannot assure you that you will receive the voting materials in time to ensure that you can instruct the depositary to vote the underlying Class A ordinary shares represented by your ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out your voting instructions. This means that you may not be able to exercise your right to direct how the Class A ordinary shares underlying your ADSs are voted and you may have no legal remedy if the Class A ordinary shares underlying your ADSs are not voted as you requested.
The depositary for the ADSs will give us a discretionary proxy to vote our Class A ordinary shares underlying your ADSs if you do not vote at shareholders’ meetings, except in limited circumstances, which could adversely affect your interests.
Under the deposit agreement for the ADSs, if you do not vote, the depositary will give us a discretionary proxy to vote our Class A ordinary shares underlying your ADSs at shareholders’ meetings if:
| • | we have instructed the depositary that we wish a discretionary proxy to be given; |
| • | we reasonably do not know of any substantial opposition to the matter to be voted on at the meeting; and |
| • | the matter to be voted on at the meeting is not materially adverse to the interests of shareholders. |
The effect of this discretionary proxy is that if you do not vote at shareholders’ meetings, you cannot prevent our Class A ordinary shares underlying your ADSs from being voted, except under the circumstances described above. This may make it more difficult for shareholders to influence the management of our company. Holders of our Class A ordinary shares are not subject to this discretionary proxy.
Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register both the rights and the
43
Table of Contents
securities to which the rights relate under the Securities Act or an exemption from the registration requirement is available. Under the deposit agreement, the depositary will not make rights available to you unless both the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act or exempt from the registration requirement under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective and we may not be able to establish a necessary exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings in the future and may experience dilution in your holdings.
You may not receive cash dividends if the depositary decides it is impractical to make them available to you.
The depositary will pay cash distributions on the ADSs only to the extent that we decide to distribute dividends on our Class A ordinary shares or other deposited securities. To the extent that there is a distribution, the depositary has agreed to pay you the cash dividends or other distributions it or the custodian receives on our Class A ordinary shares or other deposited securities after deducting its fees and expenses and any taxes or other governmental charges. You will receive these distributions in proportion to the number of Class A ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property, or that the value of certain distributions may be less than the cost of distribution. In these cases, the depositary may decide not to distribute such property to you.
We and the depository are entitled to amend the deposit agreement and to change the rights of ADS holders under the terms of such agreement, and we may terminate the deposit agreement, without the prior consent of the ADS holders.
We and the depositary are entitled to amend the deposit agreement and to change the rights of the ADS holders under the terms of such agreement, without the prior consent of the ADS holders. We and the depositary may agree to amend the deposit agreement in any way we decide is necessary or advantageous to us. Amendments may reflect, among other things, operational changes in the ADS program, legal developments affecting ADSs or changes in the terms of our business relationship with the depositary. In the event that the terms of an amendment prejudice a substantial existing right of ADS holders, ADS holders will only receive 30 days’ advance notice of the amendment, and no prior consent of the ADS holders is required under the deposit agreement. Furthermore, we may decide to terminate the ADS facility at any time for any reason. For example, terminations may occur when we decide to list our shares on a non-U.S. securities exchange and determine not to continue to sponsor an ADS facility or when we become the subject of a takeover or a going-private transaction. If the ADS facility terminates, ADS holders will receive at least 90 days’ prior notice, but no prior consent is required from them. Under the circumstances that we decide to make an amendment to the deposit agreement that may prejudice a substantial existing right of is ADS holders or terminate the deposit agreement, the ADS holders may choose to sell their ADSs or surrender their ADSs and become direct holders of the underlying Class A ordinary shares, but will have no right to any compensation whatsoever.
ADSs holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiffs in any such action.
The deposit agreement governing the ADSs representing our Class A ordinary shares provides that, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim that they may have against us or the depositary arising out of or relating to our ordinary shares, the ADSs, or the deposit agreement, including any claim under the U.S. federal securities laws.
If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in
44
Table of Contents
connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement.
If you or any other owners and holders of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, you or such other owner or holder may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us or the depositary. If a lawsuit is brought against us or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action.
Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any owner or holder of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.
You may be subject to limitations on transfer of your ADSs.
Your ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems it expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate actions such as a rights offering, in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of the ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.
You may experience difficulties in effecting service of legal process, enforcing foreign judgments or bringing actions against us or our directors and officers named in this annual report based on foreign laws.
We are a company incorporated under the laws of the Cayman Islands. We conduct our operations outside the United States and substantially all of our assets are located outside the United States. In addition, substantially all of our directors and executive officers and the experts named in this annual report reside outside the United States, and some of their assets are located outside the United States. As a result, it may be difficult or impossible for investors to effect service of process within the United States upon these individuals or to bring an original action against us or against them in the United States or in a court in the Cayman Islands in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise, including those based on the civil liability provisions of the U.S. federal securities laws. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands or other relevant jurisdiction may render you unable to enforce a judgment against our assets or the assets of our directors and officers.
You may face difficulties in protecting your interests, and your ability to protect your rights through U.S. courts may be limited, because we are incorporated under Cayman Islands law.
We are a company incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Act of the Cayman Islands (as revised from time
45
Table of Contents
to time), and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors to us under the 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 the common law of England, 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 duties of our directors under the Cayman Islands law may not be as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands may have a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, the Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.
Shareholders of Cayman Islands companies like us have no general rights under the Cayman Islands law to inspect corporate records, other than the memorandum and articles of association and any special resolutions passed by such companies, and the registers of mortgages and charges of such companies. Our directors have discretion under our currently effective memorandum and articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. If we choose to follow home country practice in the future, our shareholders may be afforded less protection than they otherwise would under rules and regulations applicable to U.S. domestic issuers.
As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by our management, members of our board of directors, or our Controlling Shareholder than they would as public shareholders of a company incorporated in the United States.
Our currently effective memorandum and articles of association contain anti-takeover provisions that could discourage a third party from acquiring us, which could limit our shareholders’ opportunity to sell their shares, including Class A ordinary shares represented by the ADSs, at a premium.
Our currently effective memorandum and articles of association contain provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to create and issue new classes or series of shares (including preferred shares) and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares, in the form of ADSs or otherwise. Preferred shares could therefore be created and issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to create and issue new class or series of preferred shares, the price of the ADSs may fall and the voting and other rights of the then existing holders of our ordinary shares and the ADSs may be materially and adversely affected.
46
Table of Contents
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
| • | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K; |
| • | the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; |
| • | the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and |
| • | the selective disclosure rules by issuers of material nonpublic information under Regulation FD. |
We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.
As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that may differ significantly from the NYSE listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the NYSE.
As a Cayman Islands company to be listed on the NYSE, we are subject to the NYSE listing standards. The NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the NYSE listing standards. For example, Cayman Islands does not require us to comply with the following corporate governance listing standards of the NYSE: (i) having the majority of our board of directors composed of independent directors, (ii) having a minimum of three members in our audit committee, (iii) holding annual shareholders’ meetings, (iv) having a compensation committee composed entirely of independent directors, and (v) having a nominating and corporate governance committee composed entirely of independent directors. If we choose to follow home country practice, our shareholders may be afforded less protection than they otherwise would under the NYSE corporate governance listing standards applicable to U.S. domestic issuers.
If we are deemed an “investment company” under the Investment Company Act of 1940, it could adversely affect the price of the ADSs and could materially and adversely affect our business, results of operations, and financial condition.
We are primarily engaged in businesses relating to digital solutions services—financial services, digital solutions services—non financial services, and digital media, content, and marketing services. We also invest directly in various innovative technology companies to leverage, enhance, and enrich the AMTD SpiderNet ecosystem by including them in our ecosystem. These investments and other future investments may be deemed to be “investment securities” within the meaning of the Investment Company Act of 1940, or the 1940 Act. Under Section 3(a)(1)(C) of the 1940 Act, a company is deemed to be an “investment company” if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding, or trading in securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets
47
Table of Contents
(exclusive of government securities and cash items) on an unconsolidated basis, or the 40% Test. We believe we are not an investment company within the meaning of the 1940 Act, as we do not hold ourselves out as being primarily engaged in the business of investing, reinvesting, or trading in securities, and we pass the 40% Test with our “investment securities” not exceeding 40% of the value of our total assets on an unconsolidated basis.
We seek to conduct our operations so that we are in compliance with the 40% Test or with an exclusion or exemption from investment company status under the 1940 Act. If we fail to comply with the 40% Test and we are unable to structure or operate our business in a manner that avoids investment company status under the 1940 Act, we may be deemed to be an investment company within the meaning of the 1940 Act. As a foreign private issuer, we would not be eligible to register under the 1940 Act unless the SEC issued an order permitting us to do so. As a result, if we are deemed to be an investment company within the meaning of the 1940 Act, we would either have to obtain exemptive relief from the SEC or dispose of investment securities in order to fall outside the definition of an investment company. Additionally, we may have to forego potential future acquisitions of interests in companies that may be deemed to be “investment securities” within the meaning of the 1940 Act. Failure to avoid being deemed an investment company under the 1940 Act, coupled with our inability as a foreign private issuer to register under the 1940 Act, could make us unable to comply with our reporting obligations as a public company in the United States and lead to our being delisted from the NYSE, which would materially and adversely affect the liquidity and value of the ADSs. We would also be unable to raise capital through the sale of securities in the United States or to conduct business in the United States. In addition, we may be subject to SEC enforcement action or purported class action lawsuits for alleged violations of U.S. securities laws. Defending ourselves against any such enforcement action or lawsuits would require significant attention from our management and divert resources from our existing businesses and could materially and adversely affect our business, results of operations, and financial condition.
There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year. If we are a PFIC for any taxable year, United States investors in the ADSs or ordinary shares could be subject to significant adverse U.S. federal income tax consequences.
We will be classified as a “passive foreign investment company,” or “PFIC,” for any taxable year if either (a) 75% or more of our gross income for such year consists of certain types of “passive” income or (b) 50% or more of the value of our assets (determined on the basis of a quarterly average) during such year produce or are held for the production of passive income (the “asset test”).
Based upon our current and expected income and assets, including goodwill, we do not presently expect to be classified as a PFIC for the current taxable year or foreseeable future taxable years. Nevertheless, because the value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles, may be determined by reference to our market capitalization (determined based on the market price of the ADSs), fluctuations in the market price of the ADSs may cause us to become a PFIC for the current or subsequent taxable years. The determination of whether we will be or become a PFIC will also depend, in part, on the composition and classification of our income and the value of our assets, including the relative amounts of income generated by and the value of assets of our strategic investment business as compared to our other businesses. Because there are uncertainties in the application of the relevant rules, it is possible that the Internal Revenue Service, or the IRS, may challenge our classification of certain income and assets as non-passive, which may result in our being or becoming a PFIC in the current or subsequent years. In addition, the composition of our income and assets will also be affected by how, and how quickly, we use our liquid assets. If we determine not to deploy significant amounts of cash for active purposes, our risk of being a PFIC may substantially increase. Because there are uncertainties in the application of the relevant rules and because PFIC status is a factual determination made annually after the close of each taxable year, there can be no assurance that we will not be a PFIC for the current taxable year or any future taxable year.
If we are a PFIC in any taxable year during which a U.S. Holder (as defined in “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations”) holds the ADSs or ordinary shares, such
48
Table of Contents
holder may incur significantly increased U.S. federal income tax on gain recognized on the sale or other disposition of the ADSs or ordinary shares and on the receipt of distributions on the ADSs or ordinary shares to the extent such gain or distribution is treated as an “excess distribution” under the U.S. federal income tax rules, and such holder may be subject to burdensome reporting requirements. Further, if we are a PFIC for any year during which a U.S. Holder holds the ADSs or our ordinary shares, we will generally continue to be treated as a PFIC with respect to such holder for all succeeding years during which such holder holds the ADSs or our ordinary shares, ever if we do not satisfy either of the above tests to be classified as a PFIC in a subsequent year. For more information see “Item 10. Additional Information—E. Taxation—U.S. Federal Income Tax Considerations—Passive Foreign Investment Company Rules.”
We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an emerging growth company.
We are a public company and expect to incur significant legal, accounting and other expenses that we did not incur as a private company. The Sarbanes-Oxley Act of 2002 and the rules subsequently implemented by the SEC and the NYSE detailed requirements concerning corporate governance practices of public companies. As a company with less than US$1.07 billion in net revenues for our last fiscal year, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2012 relating to internal controls over financial reporting.
We expect these rules and regulations to increase our legal and financial compliance costs and to make some corporate activities more time-consuming and costly. After we are no longer an “emerging growth company,” we expect to incur significant expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and the other rules and regulations of the SEC. Our management is and may continue to be required to devote substantial time and attention to our public company reporting obligations and other compliance matters. In addition, we incur additional costs associated with our public company reporting requirements and it may be more difficult for us to find qualified persons to serve on our board of directors or as executive officers.
In the past, shareholders of a public company often brought securities class action suits against the company following periods of instability in the market price of that company’s securities. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations, which could harm our results of operations and require us to incur significant expenses to defend the suit. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material and adverse effect on our financial condition and results of operations.
| ITEM 4. | INFORMATION ON THE COMPANY |
| A. | History and Development of the Company |
Our Company
Our Controlling Shareholder, commenced our current digital solutions services—financial services business in October 2004. Our Controlling Shareholder commenced our current digital investments business in July 2016 and digital solutions services—non financial services business in December 2017.
In December 2019, we carried out a restructuring to carve out the digital solutions services business and digital investments business from our Controlling Shareholder. As part of the restructuring, in September 2019, AMTD Digital Inc. was incorporated under the laws of the Cayman Islands initially as a wholly-owned
49
Table of Contents
subsidiary of our Controlling Shareholder. Following the restructuring, AMTD Digital Inc. became the holding company of our businesses. We commenced our digital media, content, and marketing business in May 2020.
We are a holding company incorporated in the Cayman Islands and conduct our businesses through our subsidiaries. See “Item 4. Information on the Company—C. Corporate Structure” for a diagram illustrating our corporate structure as of the date of this annual report.
On February 23, 2022, AMTD IDEA Group, a leading comprehensive financial institution dual-listed on both the NYSE and SGX-ST (NYSE: AMTD; SGX: HKB) controlled by our Controlling Shareholder, acquired a majority stake in us. As of the date of this annual report, AMTD IDEA Group owns 85.6% of our issued and outstanding shares, and 99.2% of our total voting power.
The ADSs have been listed on NYSE since July 15, 2022 and trade under the ticker symbol “HKD.”
In October 2022, we issued 1,600,000 Class A ordinary shares to an investor at a consideration of US$100,000,000.
In December 2022, we repurchased 616,346 Class B ordinary shares from AMTD IDEA Group for HK$2.5 billion.
In February 2023, we acquired 96.1% of the equity interest in AMTD Assets from AMTD IDEA Group and issued a total of 515,385 Class B ordinary shares out of our treasury shares at US$520 per share to AMTD IDEA Group in settlement of the consideration payable for the acquisition.
In August 2023, we, AMTD Group, and AMTD IDEA Group, announced our decision to set up a joint entity in Paris, France, to embark and focus on global strategies and developments of a multi-media, entertainment and cultures worldwide platform.
Our principal executive offices are located at 27-29 rue de Bassano 75008 Paris. Our telephone number at this address is +33 (0) 1 7673 2800. Our registered office in the Cayman Islands is located at Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. Our agent for service of process in the United States is Puglisi Associates, located at 850 Library Avenue, Suite 204, Newark, DE 19711. Our website is www.amtdigital.net. The information on our websites should not be deemed to be part of this annual report. The SEC also maintains a website at https://www.sec.gov that contains reports, proxy, and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system.
| B. | Business Overview |
As the fusion reactor at the core of the AMTD SpiderNet ecosystem, we are a comprehensive digital solutions platform in Asia with four main business lines: digital solutions services—financial services, digital solutions services—non financial services, digital media, content, and marketing, and digital investments.
| • | Digital Solutions Services—Financial Services. Primarily through our controlled entities, investees, and business partners, we provide one-stop, cross-market and intelligent digital solutions services—financial services for retail and corporate clients in Asia. We possess some of the most scarce digital financial licenses in Asia and provide a variety of digital solutions services—financial services. |
| • | Digital Solutions Services—Non Financial Services. We serve as a super connector and digital accelerator for global entrepreneurs and corporates by connecting them to resources and technologies, and providing them with access to our unique AMTD SpiderNet ecosystem. Centered on our ecosystem-powered strategy, we empower entrepreneurs and corporates with capital, technologies, mentorship, connectivity, and other resources essential to accelerating and enhancing their business digital transformation and corporate development journeys. |
50
Table of Contents
| • | Digital Media, Content, and Marketing Services. We create and promote digital solutions content by investing and developing multimedia channels to provide users and audiences access to content medium through a comprehensive library of traditional and digital movies, podcasts, webinars and live videos offered by content providers and online media platforms. |
| • | Digital Investments. We invest directly in various innovative technology companies to leverage, enhance and enrich the AMTD SpiderNet ecosystem by including them in our ecosystem. |
In February 2023, we acquired AMTD Assets, which holds a global portfolio of premium whole building properties and provides hospitality services. AMTD Assets is the real estate arm of AMTD Group, focusing on and specializing in hospitality and lifestyle concepts globally. AMTD Assets offers a customer-centric VIP members approach for its business portfolio in the key areas comprising stylish hotels and serviced apartments, food and beverage, and club membership services across major cities.
Our Ecosystem Approach
AMTD Group’s diverse and enriching initiatives and network of connections have contributed to the formation of the AMTD SpiderNet ecosystem—an ever-extending network in which AMTD Group, together with its clients, shareholders, business partners, and investee companies, actively explore business collaboration opportunities.
We are the core fusion reactor that is the AMTD SpiderNet, building a digital foundation to accelerate the growth of AMTD SpiderNet and unlocking greater synergies for all stakeholders. We are dedicated to building a cross-border digital solutions platform that provides comprehensive digital services with industry-leading technologies. Our various solutions are divided into four business units, which enable us to create various touchpoints to a broad range of clients. We deepen our relationship with clients by cross-selling solutions that fulfill different needs of clients and expanding opportunities for collaboration with partners in AMTD SpiderNet.
Digital Solutions Services—Financial Services
Digital Banking
Airstar Bank
Airstar Bank, a virtual bank jointly-established by our Controlling Shareholder and Xiaomi in which our Controlling Shareholder holds 10% of its equity interest, provides comprehensive digital banking services to retail and corporate clients in Hong Kong. We have entered into an agreement with our Controlling Shareholder to enable Airstar Bank to access our SpiderNet ecosystem and support them to gradually build up their own ecosystem.
The services that Airstar Bank provides or plans to provide include:
| • | Deposit. Airstar Bank provides customized deposits at attractive interest rates with flexibility in maturity dates. Airstar Bank currently offers two types of deposit services: (i) tiered-pricing savings deposits and (ii) time deposits where clients enjoy favorable interest rate, compared to traditional banks. |
| • | Personal Loan. Airstar Bank offers loans to clients based on automated credit assessment capabilities utilizing big data analytics, models, and algorithms. Airstar Bank’s credit assessment system analyzes a client’s background information, including financial status, behavior patterns, and credit history to determine loan amount, loan tenor, and interest rate. Airstar Bank currently offers (i) personal loan with efficient application process and attractive annual percentage rate, and (ii) debt consolidation loan. |
| • | Virtual Credit Card. Airstar Bank intends to offer virtual credit cards through its automated online application system. The virtual credit cards may be used in various online and offline payment channels. |
51
Table of Contents
| • | Fund Transfer. Airstar Bank offers inter-bank fund transfer services through Faster Payment System and Real Time Gross Settlement with no service fee charged. |
| • | Corporate Services. Airstar Bank will provide integrated services to corporates covering a full range of corporate operations, including transaction settlement services, payroll services, transfers, and remittance. To facilitate tailor-made credit and financing services for corporates, Airstar Bank will adopt blockchain technology to gain real-time access to the corporate’s information, such as cash flows, sales and purchase transactions, and inventory information. |
| • | Cross Border Remittance. Airstar Bank will collaborate with third-party FinTech companies to offer low cost cross-border remittance services. |
| • | Near Field Communication (NFC) Payment. Airstar Bank will offer NFC payment services, which allow clients to make payments via their mobile phone at local retail shops. |
Airstar Bank offers its digital banking services primarily through its Airstar app. Airstar Bank targets retail and corporate clients in Hong Kong. Airstar Bank seeks to take advantage of Xiaomi’s existing user-base from its smart devices, Xiaomi’s corporate clients from its supply chain, and resources in AMTD SpiderNet ecosystem to quickly scale its client base.
Airstar Bank’s digital banking platform utilizes cutting-edge technologies to provide comprehensive banking services, which serve as the gateway for clients to access other services and solutions offered on our platform. The synergies created by partners in AMTD SpiderNet will support Airstar Bank’s digital banking services and expand the resources available in the AMTD SpiderNet with clients acquired through Airstar Bank.
“More than Banking”
We aim to provide comprehensive solutions that go beyond banking services and provide an unrivalled client experience. The cohesiveness of our business units strengthens our value proposition to significantly reduce client acquisition costs, increase the efficiency with which we can cross-sell our solutions and boost client stickiness.
| • | Comprehensive Corporate Solutions. Apart from offering digital solutions services—financial services for corporates, our corporate solutions will integrate payment gateway, taxation, accounting, risk management, digital marketing, business intelligence, capital market advisory, and talent training services, all while leveraging the capabilities of our ecosystem, our portfolio companies and partners in the AMTD SpiderNet. |
| • | Personal Lifestyle Banking. Our service offerings to retail clients will not be limited to personal financial needs. We will integrate online banking services, wealth management, insurance solutions, and asset exchange into our ecosystem, as well as incorporate the capabilities of AMTD Group’s long-term strategic partners to optimize our services. |
Insurance Solutions
AMTD RSG, our wholly-owned subsidiary, was a member of the Hong Kong Confederation of Insurance Brokers since October 2004. Pursuant to the new statutory regime for regulation of insurance intermediaries established in September 2019, AMTD RSG was granted a deemed insurance brokerage license issued by the Hong Kong Insurance Authority. AMTD RSG had been subsequently granted the insurance broker company license for general and long term business (including linked long term business) by the HKIA on September 9, 2022.
Traditional Insurance Brokerage
We offer a wide spectrum of general and life insurance solutions to clients in various industries. Our services are led by a team of experienced members in the insurance industry, and we have established long-standing cooperation with a variety of global insurers, re-insurers, and insurance solution provider partners.
52
Table of Contents
We provide customized insurance products and solutions primarily underwritten by our insurance partners mainly in the following four risk categories:
| • | Property Risk. Property risk relates to physical loss, destruction, or damage to physical property. For example, we provide property all-risk and construction all-risk solutions that may include relevant insurance products underwritten by our insurance partners. |
| • | Liability Risk. Liability risk relates to claims resulting from injuries or damages to a third party. For example, we provide directors and officers liability, professional indemnity, and employee compensation risk solutions that may include relevant insurance products underwritten by our insurance partners. |
| • | Financial Loss Risk. Financial loss risk relates to actions or events that may impact business operations and result in financial loss. For example, we provide business interruption risk solutions that may include relevant insurance products underwritten by our insurance partners. |
| • | Personal Risk. Personal risk relates to injury, illness, or death of individuals or a group of individuals. For example, we provide life and health risk solutions that may include relevant insurance products underwritten by our insurance partners. |
We continually optimize insurance offerings on our platform through cooperation with new insurance, channel, and service partners to meet our clients’ evolving needs. For example, we recently offered various cyber insurances on our platform underwritten by our insurance partners. Cyber insurance solution typically provides analysis, recommendations, and coverage for a variety of risks, including: first-party coverage against losses related to cyber-attacks, such as data destruction, hacking, theft, and extortion; and indemnification against lawsuits related to cyber-attacks and errors and omissions that may have caused such cyber-attacks, such as failure to safeguard data.
Our comprehensive insurance service can be provided with flexibility and typically covers the following stages:
| • | Comprehensive Risk Identification. In consultation with clients, we leverage our expertise in the insurance industry to conduct a comprehensive analysis and determination of total risk exposure and risk tolerance. For insurable risks, we also conduct a mapping of existing risk coverage across industries, types, and geographical regions. |
| • | Optimal Solution and Coverage Structure Design. Based on our extensive knowledge in the insurance industry, we conduct tailored consultation and optimal insurance program structure and solution design to meet the demands of clients. |
| • | Insurance Placement for Insurable Risks. For identified and requested insurable risks, we leverage proprietary industry resources, experience, expertise, and influence to provide tailored design of underwriting syndicate, for example, primary and excess insurance layer design, and select and negotiate with optimal insurers. On behalf of our clients, we then calibrate quotation and key insurance solution terms and conditions, and ultimately proceed to facilitate the inception of cover. |
Our clients for insurance consist primarily of corporate clients and, to a lesser extent, retail clients. As of the date of this annual report, we possess a database of over 500,000 corporate and retail clients.
SpiderNet Ecosystem Solutions
We serve as a super connector and digital accelerator for global entrepreneurs and corporates by connecting them to resources and technologies and providing them with access to our unique AMTD SpiderNet ecosystem. Centered on our ecosystem-powered strategy, we empower entrepreneurs and corporates with capital, technologies, mentorship, connectivity, and other resources essential to accelerating and enhancing their business digital transformation and corporate development journeys.
53
Table of Contents
Through a membership fee scheme, we provide our corporate clients with exclusive access to the AMTD SpiderNet ecosystem and its prestigious corporate members, prominent business executives and partners, creating strategic and synergistic opportunities. In addition, our digital solutions initiatives and programs in partnership with industry leaders and academic institutions serve to support industry professionals and foster next generation entrepreneurs in the region by equipping them with the latest trends and knowledge in the digital space. These entrepreneurs become permanent members of the AMTD alumni network. Our services help our ecosystem members to enhance connectivity, identify business synergies, and create valuable business propositions. We further deepen our relationship with corporate clients by facilitating synergies between their portfolio companies and other partners in the AMTD SpiderNet ecosystem and by connecting innovative minds and bright ideas to smart ideas.
We cultivate next generation entrepreneurs by continuously fueling up our business model and enlarging our AMTD SpiderNet ecosystem. We empower startups, entrepreneurs and innovative talents with capital resources and knowledge through various educational programs. We invite university professors, successful entrepreneurs, and Nobel Prize winners to provide professional guidance for entrepreneurs. Moreover, we groom start-up founders and outstanding entrepreneurs by providing network connectivity and business exposure in regional and global stages. Through our various programs, we engage with entrepreneurs and future leaders from their early development stage and facilitate their growth by providing resources and strategic guidance throughout their business operations. We integrate selected start-ups into AMTD SpiderNet to foster their growth and create value to other stakeholders.
Digital Media, Content, and Marketing
Over the past few years, we have devoted significant resources to promote financial service industry in Asia. Such efforts laid the foundation for our digital media, content, and marketing business as these events established our leadership role for providing insightful content to mass audience.
Based on our extensive experience, unique insights, and deep knowledge in digital finance industry, we create and promote digital solutions content by investing and developing multimedia channels to provide users and audiences access to content medium through a comprehensive library of traditional and digital movies, podcasts, webinars and live videos offered by content providers and online media platforms.
Through our offering of digital media and content, we are able to spearhead industry trends and create effective marketing for our clients and ecosystem partners through innovative content creation, digital marketing platforms and cutting-edge technology.
Digital Investments
Our digital investments business focuses on long-term equity investments in leading FinTech and technology companies that augment the AMTD SpiderNet ecosystem and optimize our business operations. Our portfolio companies allow us to access unique opportunities and resources that complement the AMTD SpiderNet ecosystem, and we engage the portfolio companies with connections in the AMTD SpiderNet. We also established a SG$50 million AMTD ASEAN Solidarity Fund partnering with the Singapore FinTech Association, or SFA, and SG$6 million MAS-SFA-AMTD FinTech Solidarity Grant, partnering with the MAS and the SFA. Both the AMTD ASEAN Solidarity Fund and the MAS-SFA-AMTD FinTech Solidarity Grant focus on investing in or providing funding and business support to those leading FinTech companies with growth potential and possibility to create synergies with AMTD SpiderNet’s stakeholders.
Investment Approach
We source investment opportunities through the AMTD SpiderNet and focus on investing in a small number of select companies that we believe will complement and bring value to our ecosystem, including companies within and outside the digital finance sector.
54
Table of Contents
Leveraging “AMTD SpiderNet.” We leverage resources in the AMTD SpiderNet throughout the investment process to source investments, evaluate opportunities, and provide value added solutions to our portfolio companies after our investment.
Value Investment. We focus on how the investments can contribute to the AMTD SpiderNet ecosystem, rather than looking for investment returns. Our investments allow us to access the management teams of our portfolio companies and provide us with greater insights and connections in various industries.
Synergy with Portfolio Companies. We have an experienced team for post-investment value creation. We proactively seek opportunities to engage our portfolio companies into our SpiderNet ecosystem.
Equity Swap. We may make investments in the future using cash investment combined with an equity swap (i.e. issuance of our ordinary shares in exchange for the equity interests of the investees). Through our equity swap arrangements, we ensure business interests of our portfolio companies are aligned with ours.
Investment Process
Our investment professionals assess the suitability and prospects of potential target companies with a number of factors including the track record of the target’s management team, the target’s operating market, macroeconomic conditions, market cycle and industry background, business model, and other quantitative financial analyses. And most importantly, we also consider the targets’ potential synergies with other business partners in AMTD SpiderNet.
We make strategic investment decisions through our investment committee, which consists of key management team members covering finance, investments, and legal and compliance. All investment proposals will be presented to our investment committee following the satisfactory completion of assessment and due diligence investigation. Our investment committee also assesses, reviews and modifies our investment strategies from time to time based on accumulated deal execution experience and the latest developments in the financial market, of the economic conditions, and regarding government policies.
We closely monitor our portfolio companies in accordance with the guidelines set by the investment committee. Specifically, we track business and technology development, competition landscape, latest technological trends, our holding positions, unrealized profit or loss, and our risk exposure of each portfolio company. We will escalate any significant incidents in our portfolio companies to the investment committee and, for material incidents, to our board of directors.
AMTD ASEAN Solidarity Fund
AMTD ASEAN Solidarity Fund is a solidarity fund established in April 2020 by us in partnership with AFIN with an initial capital of SG$50 million to invest and anchor eligible FinTech companies in ASEAN countries. AFIN is a non-profit entity formed by the MAS, International Finance Corporation, a member of the World Bank Group, and the ASEAN Bankers Association, with the objectives of supporting financial innovation and inclusion around the world. Through AMTD ASEAN Solidarity Fund, we invest into eligible FinTech companies in ASEAN countries with leading positions in their respective specialization. In addition to financial support, the solidarity fund offers the FinTech companies full access to the AMTD SpiderNet ecosystem, which opens opportunities for them to collaborate with each other across ASEAN countries and China. Through the AMTD ASEAN Solidarity Fund, we have invested in five FinTech companies.
MAS-SFA-AMTD FinTech Solidarity Grant
MAS-SFA-AMTD FinTech Solidarity Grant was jointly established in May 2020 by the MAS, SFA, and AMTD Charity Foundation with an amount of SG$6 million to support FinTech companies in generating new
55
Table of Contents
businesses and pursuing growth strategies. As of the date of this annual report, approximately 190 FinTech companies have benefited from our MAS-SFA-AMTD FinTech Solidarity Grant, which have formed a solid enhancement to our AMTD SpiderNet ecosystem.
Hotel Operations, Hospitality and VIP Services
Our subsidiary AMTD Assets, holds a global portfolio of premium whole building properties and provides hospitality services. It focuses on and specializes in hospitality and lifestyle concepts globally and offers a customer-centric VIP members approach for its business portfolio in the key areas comprising stylish hotels and serviced apartments, food and beverage, and club membership services across major cities.
Technology
We integrate multiple innovative technologies to provide comprehensive FinTech solutions on our digital financial platform.
AFIN
AFIN was jointly established by the MAS, the ASEAN Bankers Association, and International Finance Corporation to foster FinTech development in ASEAN countries. AMTD Charity Foundation is AFIN’s first corporate founding member.
AFIN launched the API Exchange (APIX) platform in 2018, the world’s first cross-border, open architecture platform for collaboration between FinTech and financing institutions in which participants can integrate and test solutions with each other via a cloud-based architecture. We will leverage the APIX platform launched by AFIN to deploy innovative digital solutions. APIX is built to facilitate collaboration between FinTech companies and financial institutions to design fintech solutions. APIX facilitates financial institutions and FinTech companies to design and build prototypes collaboratively on its platform and experiment in different scenarios through APIs in a short period of time. This allows financial institutions to deploy innovative digital solutions quickly to underserved markets in ASEAN and other parts of the world.
AFIN / APIX will serve as the technology experimental partner of the company.
We will leverage synthetic data on APIX to test new prototypes designed by FinTech companies and financial institutions. With access to APIX’s platform, we have a competitive advantage to continuously develop and integrate innovative digital solutions in a cost-effective and timely manner.
Airstar Bank
AMTD Group leverages its partnership with Xiaomi to provide innovative technology skills in supporting Airstar Bank’s digital banking platform. Airstar Bank’s digital banking platform is built on Xiaomi’s in-house technologies including credit assessment, fraud detection, and personal loan approval with big data analytics, AI and machine learning algorithms. Xiaomi has also provided other in-house technologies, such as document repository, CRM system, system monitoring tool, development system, and key center to ensure the stability, security, efficiency and scalability of Airstar Bank’s digital banking platform. Xiaomi’s experience in API integration will support our strategy in embracing open API initiatives in the future.
Data Security and Protection
We are committed to protecting our clients’ personal information and privacy. We have established and implemented policy on data collection, processing and usage and disclosure. We collect personal information and other data that is related to the services we provide and use the collected data for our operations, all with our clients’ consent.
56
Table of Contents
To ensure the confidentiality and integrity of our data, we maintain a comprehensive and rigorous data security program. We anonymize and encrypt confidential personal information and take other technological measures to ensure the secure processing, transmission and usage of data. We have also established stringent internal protocols under which we grant classified access to confidential personal data only to limited employees with strictly defined and layered access authority.
See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industries—We may be subject to legal or regulatory liability if we are unable to protect the personal and sensitive data and confidential information of our clients” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Doing Business in China—Failure to comply with cybersecurity, data privacy, data protection, or any other laws and regulations related to data may materially and adversely affect our business, financial condition, and results of operations.”
Intellectual Property
We regard our trademarks, copyrights, patents, domain names, know-how, proprietary technologies, and similar intellectual property as critical to our success, and we rely on trademark, copyright and patent law and confidentiality, invention assignment and non-compete agreements with our employees and others to protect our proprietary rights. As of the date of this annual report, our Controlling Shareholder had six registered trademarks in Asia, including the name and logo “AMTD”, and granted a license to us to use such name and logo. No other person or entity can register or use the name and logo of AMTD as a prefix for any trademark without the written consent of our Controlling Shareholder. As of the date of this annual report, we had two trademark registered in Asia. We also maintained a number of registered domain names.
Competition
Our business model is relatively unique, and few companies can compare with us in terms of the breadth of our business sectors spanning from digital solutions services—financial services, digital solutions services—non financial services, digital media, content, and marketing services to digital investments. We also hold a global portfolio of premium whole building properties and provide hospitality services through AMTD Assets, our subsidiary. However, we face competition in various business verticals. For example, with respect to digital financial services, our primary competitors include FinTech companies, traditional financial institutions and consumer technology platforms in Asia. For our insurance solutions business, we compete with other corporate-focused insurance providers and other insurance solutions platforms in Asia. We also compete with other hotel operators and hospitality service providers with respect to our hotel operations, hospitality and VIP services.
For additional information concerning the competitive risks that we face, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industries—Our digital solutions services—financial services business is subject to intense competition, and we may fail to compete successfully against existing or new competitors, which may reduce demand for our services, reduce operating margins, and further result in loss of market share, departures of qualified employees and increased capital expenditures,” “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industries—We operate in the highly competitive advertising and marketing industry and face significant competition for advertising spending from operators of new and traditional advertising channels. If we cannot compete successfully, our results of operations would be materially and adversely affected,” “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industries—The film and entertainment industries are highly competitive,” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industries—The hospitality market is highly competitive, and our subsidiary AMTD Assets may be unable to compete successfully with its current or future competitors.”
57
Table of Contents
Regulations in Singapore
Part of our business operations are conducted in Singapore. This section summarizes the most significant rules and regulations that affect our business activities in Singapore. These regulations require us to possess various licenses or approvals in order to carry out our business and operations.
Introduction
The Insurance Act 1966 of Singapore, or the IA, including its subsidiary legislation as well as notices and guidelines published by the MAS, is the principal statute regulating insurance business in Singapore. The IA divides insurance business into two classes, namely life business and general business. Division 2, Part IIB of the IA deals with the registration of insurance brokers. Division 2, Part II of the IA deals with the licensing of direct insurers.
The Securities and Futures Act 2001 of Singapore, or the SFA, including its subsidiary legislation as well as notices and guidelines published by the MAS, is the principal statute regulating the capital markets industry in Singapore. Part IV of the SFA deals with holders of a capital markets services license and their representatives.
The Financial Advisers Act 2001 of Singapore, or the FAA, including its subsidiary legislation as well as notices and guidelines published by the MAS, is the principal statute regulating the financial advisory services industry in Singapore. The FAA also regulates registered insurance brokers, licensed direct life insurers, and holders of a capital markets services license as exempt financial advisors where they have duly notified the MAS.
The IA, SFA, and FAA are all administered by the MAS, which is the integrated financial regulatory and supervisory authority that governs the insurance, capital markets, financial advisory and banking sectors in Singapore. The MAS is also the central bank and its powers are set out in the Monetary Authority of Singapore Act 1970 of Singapore or MAS Act and the Financial Services Markets Act 2022 or the FSMA. The FSMA is an omnibus Act for the sector-wide regulation of financial services and market. Parliament passed the FSMA on 5 April 2022. The FSMA will be implemented in phases, with the first phase commencing on 28 April 2023. The remaining phases are targeted to be implemented between 2H 2023 and 2024.
The MAS
The MAS is the statutory body that is responsible for regulating the insurance, capital markets, financial advisory and banking sectors, amongst other financial sectors, in Singapore. As an integrated financial regulatory and supervisory authority, MAS’ mission is to promote sustained non-inflationary economic growth, and a sound and progressive financial center. To fulfil their mission, the MAS has set the following objectives of MAS’ financial sector oversight:
| • | a stable financial system; |
| • | safe and sound financial intermediaries; |
| • | safe and efficient financial infrastructure; |
| • | fair, efficient and transparent organized markets; |
| • | transparent and fair-dealing intermediaries and offerors; and |
| • | well-informed and empowered consumers. |
The MAS has four operational groups, being Economic Policy, Markets and Development, Financial Supervision and Corporate Development. The Financial Supervision Group, in particular, comprises the Banking and Insurance Group, which regulates, inter alia, banks through the Banking Departments, and insurers through the Insurance Department, the Capital Markets Group, which regulates, inter alia, capital markets intermediaries (such as securities and derivatives brokers), insurance brokers and financial advisors.
58
Table of Contents
Regulatory Regime Under the IA for Insurance Brokers and Insurers
The functions of the MAS, as regulatory and supervisory authority for individuals and corporations seeking licensing, authorization, approval or registration with respect to insurance business in Singapore, include the following:
| • | grant licenses, authorization, approvals or registrations to those who meet the relevant criteria to be licensed, authorized, approved or registered, as the case may be, under the IA, and can demonstrate fitness and propriety; |
| • | monitor the ongoing compliance of regulated entities, and their officers and shareholders (where applicable), with business conduct and other requirements; |
| • | maintain online a public register of insurance entities (the MAS Financial Institutions Directory); and |
| • | develop regulatory policies. |
Registration Regime for Insurance Brokers
Under the IA, a person may not carry on business as any type of insurance broker in Singapore unless the person is registered by the MAS as that type of insurance broker or the person is an exempt insurance broker (as referred to in section 35ZN of the IA). Further, a person may not hold himself out to be a registered insurance broker unless he is a registered insurance broker.
In addition to licensing requirements for corporations, any individual appointed as broking staff of a registered insurance broker must comply with the minimum standards and examination requirements for broking staff set out in MAS 502 Minimum Standards and Continuing Professional Development for Insurance Brokers and Their Broking Staff, or Notice 502.
As of the date of this annual report, BaoXianBaoBao Pte. Ltd is a registered insurance broker with respect to direct insurance. In addition to its status as a registered insurance broker, BaoXianBaoBao Pte. Ltd. is also an exempt financial advisor in relation to advising on investment products that are life policies and arranging of life policies, other than for reinsurance (and has notified the MAS of the same).
Registered Insurance Broker
An applicant for registration as a registered insurance broker must be a Singapore-incorporated company with the prescribed minimum paid-up share capital and have a professional indemnity insurance policy, the cover of which is consistent with the prescribed limit and deductible requirements.
In addition, in assessing an application for registration, the MAS will take into account factors such as:
| • | the applicant’s track record (which should be at least 3 years in respect of the type of insurance broking business it intends to carry on in Singapore), financial soundness and reputation; |
| • | whether the applicant has well-developed business plans that reflect the risk profile of the business; and |
| • | the fitness and propriety of the applicant, its directors and chief executive officer, and all its substantial shareholders and broking staff, or the relevant persons. |
The key requirements and expectations of the MAS in respect of applications as well as ongoing obligations applicable to registered insurance brokers are contained in the following documents published by the MAS:
| • | the IA, and its subsidiary legislation, including the Insurance (Intermediaries) Regulations, or the IIR; |
| • | Notice 501 Quarterly Statement on Ageing of Premiums Owing to Insurers; |
59
Table of Contents
| • | Notice 502 Minimum Standards and Continuing Professional Development for Insurance Brokers and Their Broking Staff; |
| • | Notice 504 Reporting of Misconduct of Broking Staff by Insurance Brokers; |
| • | Notice 505 Reporting of Suspicious Activities and Incidents of Fraud; |
| • | Notice 506 Notice on Technology Risk Management; |
| • | Notice 507 Cyber Hygiene; |
| • | Notice 117 Training and Competency Requirement: Health Insurance; |
| • | Notice 120 Disclosure and Advisory Process Requirements For Accident and Health Insurance Products; |
| • | Guidelines on Criteria for the Registration of an Insurance Broker [Guideline No. IA/II-G04]; |
| • | Guidelines on Standards of Conduct for Insurance Brokers [Guideline No. IA/II-G01]; |
| • | Guidelines on Market Conduct and Service Standards for Insurance Brokers [Guideline No. IA/II-G02]; |
| • | Guidelines on Fit and Proper Criteria [Guideline No. FSG-G01], or the Fit and Proper Guidelines; |
| • | Guidelines on Risk Management Practices; |
| • | Guidelines on Outsourcing; |
| • | Guidelines on Individual Accountability and Conduct; |
| • | Notice FAA-N06 on Prevention of Money Laundering and Countering the Financing of Terrorism—Financial Advisers; and |
| • | Guidelines to Notice FAA-N06 on Prevention of Money Laundering and Countering the Financing of Terrorism. |
Validity of Registration
The MAS may cancel the registration of any insurance broker, at its request or on certain grounds set out in section 35ZB(2) of the IA.
Management of Insurance Brokers
The applicant must appoint a chief executive officer and executive directors to manage the broking business. The chief executive officer, who should be employed on a full-time basis and be based in Singapore, should also have at least 5 years of relevant working experience, satisfactory academic and/or professional qualifications and at least 3 years of managerial experience in the relevant field. The executive directors should have at least 5 years of relevant working experience and satisfactory academic and/or professional qualifications.
Broking Staff
The applicant must appoint at least two broking staff, who may be the chief executive officer and/or executive directors, to act on its behalf to provide technical advice to its clients in respect of insurance policies relating to general business and long-term accident and health policies, other than insurance policies relating to reinsurance business. The broking staff must satisfy the minimum standards and examination requirements and the applicant, once registered, must comply with the submission requirements, set out in Notice 502.
60
Table of Contents
Ongoing Obligations for Registered Insurance Brokers
Once the applicant is registered as a registered insurance broker, in addition to the relevant persons remaining fit and proper at all times, the registered insurance broker must comply with all applicable provisions of the IA, the IIR, as well as the other regulations, notices and guidelines issued by the MAS.
Some of the key ongoing obligations for registered insurance brokers are as follows:
| • | maintain minimum paid-up share capital of SG$300,000 (see regulation 3(3) of the IIR); |
| • | maintain a standalone non-hybrid professional indemnity insurance policy of at least $1 million, under which the deductible allowed shall not be more than 20% of its paid-up capital (if the registered insurance broker is in its first financial year of operation) or 20% of its net asset value as at the end of its preceding financial year (in any other case) (see regulation 4(3) of the IIR); |
| • | payment of annual fee of $7,000 to the MAS by January 1 every year (see section 79 of the IA and regulation 16(1)(a) of the IIR); |
| • | maintain net asset value of not less than 50% of the minimum paid-up share capital (see section 81 of the IA and regulation 5 of the IIR); |
| • | maintain an insurance broking premium account with a licensed bank for monies received from or on behalf of an insured or intending insured for or on account of an insurer in connection with a contract of insurance or proposed contract of insurance or from or on behalf of an insurer for or on account of an insured or intending insured (see section 82 of the IA and regulation 7(1) of the IIR); |
| • | maintain a register of its broking staff containing the prescribed particulars (see regulation 9 of the IIR); |
| • | submit the prescribed returns to the MAS within 5 months of the end of each financial year (see section 36(1) of the IA and regulation 10 of the IIR); |
| • | maintain proper records (see section 94(1) of the IA); |
| • | appoint an auditor and audit financial statements (see sections 94(5) and 94(6) of the IA); |
| • | certain business conduct requirements set out in the FAA, including the requirement to disclose material product information, the prohibition against making false or misleading statements, establishing and maintaining a remuneration framework (see section 47 of the FAA); and |
| • | implement appropriate policies and procedures for compliance with the requirements under Notice FAA-N06 on Prevention of Money Laundering and Countering the Financing of Terrorism—Financial Advisers. |
Restrictions on Take-Over of an Insurance Broker
Under section 87 of the IA, no person may enter into an agreement to acquire shares of a registered insurance broker by virtue of which he would, if the agreement is carried out, obtain effective control of that insurance broker without first notifying the MAS of his intention to enter into the agreement and obtaining the approval of the MAS to his entering into the agreement. Such a person must apply for MAS’ approval prior to entering into such an agreement.
A person shall be regarded as obtaining effective control of a registered insurance broker by virtue of an agreement if the person alone or acting together with any associate or associates would, if the agreement is carried out: (i) acquire or hold, directly or indirectly, 20% or more of the issued share capital of the insurance broker; or (ii) control, directly or indirectly, 20% or more of the voting power of the insurance broker.
This restriction applies to all individuals, whether or not resident in or a citizen of Singapore, and bodies corporate or unincorporate, whether incorporated in or carrying on business in Singapore.
61
Table of Contents
Supervision by the MAS
The MAS is empowered under section 98 of the IA to conduct on-site inspections and under section 99 of the IA to conduct such investigations as it considers necessary or expedient to perform any of its functions and duties under the IA or to determine the truth or otherwise of an alleged or suspected contravention of any provision of the IA or any direction issued under the IA.
Disciplinary Power of the MAS
Under section 80 of the IA, the MAS may cancel the registration of any registered insurance broker on the grounds as specified therein, including for failure to comply with any applicable obligations or the contravention of the provisions of the IA. However, this power is subject to section 80(3) of the IA, which provides that the MAS must first: (i) give the registered insurance broker notice in writing of its intention to do so; and (ii) in the notice referred to in paragraph (i), call upon the registered insurance broker to show cause within such time as may be specified in the notice why its registration should not be canceled.
Further, under section 68 of the FAA, the MAS may make a prohibition order against an exempt financial advisor that prohibits the person, whether permanently or for a specified period, from providing any financial advisory service, or providing such financial advisory service in specified circumstances or capacities. This power is subject to section 68(3) of the FAA, which provides the person the opportunity to be heard.
Fit and Proper Requirement
The Fit and Proper Guidelines set out the fit and proper criteria applicable to all relevant persons in relation to the carrying out of any activity regulated by the MAS under any written law. Generally, a fit and proper person is one that is competent and honest, has integrity and is of sound financial standing.
The Fit and Proper Guidelines set out a number of matters that the MAS will consider when assessing the fitness and propriety of a “relevant person”:
| • | honesty, integrity and reputation; |
| • | competence and capability; and |
| • | financial soundness. |
The above fit and proper criteria serve as the fundamental basis on which the MAS will consider each registration and license application. Detailed guidelines are contained in the Fit and Proper Guidelines published by the MAS.
In particular, institutions are expected to have in place appropriate recruitment policies, adequate internal control systems and procedures that would reasonably ensure that the persons that it employs, authorizes or appoints to act on its behalf (e.g. directors, chief executive officers, executive officers, representatives or employees, as the case may be) meet the fit and proper criteria.
The MAS may refuse an application for registration or licensing if an applicant fails to satisfy the MAS that it is, and the applicable relevant persons are, fit and proper. The onus is on the applicant to establish fitness and propriety.
Resolution Powers of the MAS
Under section 53 of the MAS Act, the MAS may, if it considers it to be in the interests of an affected person of a registered insurance broker, a licensed insurer, capital markets services license holder or a licensed bank, make an order prohibiting such financial institution from carrying on its significant business or from doing or performing any act or function connected with its significant business or any aspect thereof that may be specified in the order.
62
Table of Contents
The General Division of the Singapore High Court has the power, on the application of the MAS, to make one or more orders, including an order that no proceedings shall be commenced or continued by or against the financial institution in respect of any business of the financial institution and/or an order that no steps be taken by any person, other than a person specified in the order, to sell, transfer, assign or otherwise dispose of any property of the financial institution, and any such sale, transfer, assignment or other disposition in contravention of such order shall be void. Any such order shall be valid for a period not exceeding 6 months.
Registered insurance brokers, licensed insurers, and capital markets services license holders that are incorporated in Singapore are also subject to additional grounds for winding up under section 54 of the MAS Act. On the application of the MAS, the Singapore court may order the winding up of the registered insurance broker, licensed insurer, capital markets services license holder or licensed bank, as the case may be, if, for example, it has contravened any provision of the MAS Act or any of the written laws set out in the Schedule to the MAS Act, which includes the IA, SFA, and FAA.
Anti-Money Laundering and Countering the Financing of Terrorism
Registered insurance brokers, licensed insurers, capital markets services license holders and licensed banks are required to comply with the applicable anti-money laundering and countering the financing of terrorism, or AML/CFT, laws and regulations in Singapore. This includes the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act 1992 of Singapore and Terrorism (Suppression of Financing) Act 2002 of Singapore, as well as applicable AML/CFT notices and guidelines.
The various MAS Notices on Prevention of Money Laundering and Countering the Financing of Terrorism set out the AML/CFT requirements for the relevant regulated entities, in relation to:
| • | conducting risk assessments and risk mitigation; |
| • | conducting customer due diligence (including enhanced due diligence), ongoing monitoring and screening; |
| • | relying on third parties; |
| • | recordkeeping; |
| • | suspicious transaction reporting; and |
| • | internal policies, compliance, audit and training. |
Registered insurance brokers, licensed insurers, capital markets services license holders and licensed banks are also subject to sanctions requirements under regulations issued under the MAS Act, which impose obligations in the context of individual transactions.
The extent of the prohibitions varies depending on the sanctions program. The following is a list of current economic sanctions regimes applicable in Singapore: Democratic People’s Republic of Korea, Democratic Republic of the Congo, Iran, Libya, Somalia, South Sudan, Sudan and Yemen. The MAS has also issued notices in relation to sanctions against Russia in view of the Ukraine conflict.
Protection of Personal Data
Organizations are required to comply with the Personal Data Protection Act 2012, or the PDPA, when collecting, using or disclosing any individual’s personal data in Singapore. The PDPA sets out a baseline personal data protection law operating alongside existing sector specific laws, and contains two main sets of provisions, covering data protection and the Do Not Call registry. Under the data protection provisions in the PDPA (Parts III to VIA), organizations generally have to:
| • | obtain consent for the collection, use or disclosure of personal data, unless an exception in the PDPA applies; |
63
Table of Contents
| • | have reasonable purposes for the collection, use or disclosure of personal data and notify the individuals concerned of these purposes; |
| • | allow individuals to access and correct their personal data; |
| • | take care of personal data, which relates to ensuring accuracy, protecting personal data (including protection in the case of transfers of personal data outside of Singapore) and not retaining personal data longer than necessary for legal or business purposes, and to serve the purpose for which it was collected; and |
| • | make appropriate notifications of certain data breaches. |
Further, the PDPA provides that the provisions of other written laws shall prevail to the extent that any provision of the data protection provisions in the PDPA is inconsistent with the provision of that other written law. However, data protection provisions relating to the personal data (e.g. in respect of notification of purpose, access, correction, protection and transfer limitation) under the PDPA continue to apply to the individual’s personal data.
The provisions relating to the Do Not Call Registry are set out in Part 9 of the PDPA. An organization that wishes to send a marketing message to a Singapore telephone number must comply with the Do Not Call provisions, such as checking the Do Not Call Registry and confirming that the Singapore telephone number is not listed in the relevant register, before sending a marketing message to that Singapore telephone number, unless the user or subscriber of the Singapore telephone number has given clear and unambiguous consent, or the organization is otherwise exempted.
Regulations in Hong Kong
Our business operations may subject to Hong Kong laws and regulations. This section summarizes the most significant rules and regulations that affect our business activities in Hong Kong. These regulations require us to possess various licenses or approvals in order to carry out our business and operations.
Insurance Brokerage Regulatory Regime
On September 23, 2019, the Hong Kong Insurance Authority, or the HKIA took over regulation of insurance agents and brokers from the self-regulatory bodies, or the SROs, which are the Insurance Agents Registration Board set up by the Hong Kong Federation of Insurers, Hong Kong Confederation of Insurance Brokers, and the Professional Insurance Brokers Association. Intermediaries are and will be subject to statutory licensing and conduct requirements, supplemented by rules, codes, guidelines and circulars issued by the HKIA.
The Insurance Ordinance (along with its subsidiary legislation) (Cap. 41) of Hong Kong, or the HKIO, is the principal legislation to regulate the insurance industry in Hong Kong. The regulatory framework applicable to insurers and insurance intermediaries in Hong Kong is set out in the HKIO. The HKIO sets out the requirements for the authorization / licensing, ongoing compliance and reporting obligations of insurers and insurance intermediaries.
The HKIO provides no person shall carry on any class of insurance business in or from Hong Kong unless authorized to do so. The HKIO prescribes “regulated activities” and offences for carrying them out without a license. The new regulated activities include:
| • | negotiating or arranging a contract of insurance; |
| • | inviting or inducing a person to enter into a contract of insurance (or attempting to do so); |
| • | inviting or inducing a person to make a material decision in relation to a contract of insurance (or attempting to do so); and |
| • | giving regulated advice. |
64
Table of Contents
The new regime also includes statutory conduct requirements for insurance intermediaries under sections 90 to 92 of the HKIO. The fundamental principles include honesty and integrity, exercising care, skill and diligence, disclosure of information and conflicts of interest. Such principles are consistent with the principle of the fair treatment of customers enunciated by the International Association of Insurance Supervisors.
There is a transition period for existing intermediaries for three years. Existing insurance intermediaries who are validly registered with SROs before September 23, 2019 will be deemed licensees during the transition period. For any pending insurance intermediary applications, applicants will need to make a fresh application to the HKIA after commencement of the new regime.
AMTD RSG was validly registered with an SRO before the commencement of the new regulatory regime for insurance intermediaries (i.e. September 23, 2019), as such, under the HKIO, it is deemed to be a licensed insurance intermediary for a period of 3 years from the commencement of the new regime unless the license is revoked in accordance with the HKIO. AMTD RSG has been granted the formal insurance brokerage license from the Hong Kong Insurance Authority on September 9, 2022.
Insurance Brokerage Registration Requirements in Hong Kong Under the Current Regime
Insurance Broker Licence
A licensed insurance broker means a licensed insurance broker company or a licensed technical representative (broker).
A licensed insurance broker company is a company which is granted an insurance broker company licence to carry on regulated activities in one or more lines of business, and to perform the act of negotiating or arranging an insurance contract as an agent of any policy holder or potential policy holder.
A licensed technical representative (broker) is an individual who is granted a technical representative (broker) licence to carry on regulated activities in one or more lines of business, as an agent of any licensed insurance broker company.
Appointment of Responsible Officer
An insurance broker company is required to appoint a Responsible Officer, or the RO. The RO shall be a fit and proper person to discharge his or her responsibilities as a responsible officer of the insurance broker company, and should be provided with sufficient resources and support for discharging his or her responsibilities. Prior approval of the HKIA is required for appointment of the RO.
The RO is expected to:
| 1. | have the minimum education standard of a bachelor degree from a recognized university or tertiary education institution, an insurance qualification specified by the HKIA from time to time and published on the HKIA’s website, or other equivalent qualifications; and |
| 2. | possess experience commensurate with the nature and scale of business of the insurance broker company concerned and the level of responsibilities to be carried out. The general expectation will be a minimum of 5 years’ experience in the insurance industry, including at least 2 years of management experience. |
A person who was a Chief Executive registered with the Hong Kong Confederation of Insurance Brokers, or the CIB, or Professional Insurance Brokers Association, or the PIBA, at any time before September 23, 2019; or was a Technical Representative registered with the CIB or PIBA at any time before September 23, 2019 and already possessed a minimum of 15 years’ experience in insurance-related work in the insurance industry in
65
Table of Contents
Hong Kong on the commencement date, is exempt from the criteria set out above in relation to an application for approval of the person to become a responsible officer of a business entity which is, is applying to be, or is applying for a renewal of a license to be a licensed insurance broker company.
The HKIA will normally not allow a person to be appointed as a responsible officer of more than one licensed insurance broker company unless the insurance broker companies concerned belong to the same group of companies or have common shareholder(s), or there is any other justification acceptable to the HKIA. The HKIA will consider each application on a case-by-case basis.
Financial and Other Requirements for Licensed Insurance Broker Companies
In respect of a company which is, is applying to be, or is applying for a renewal of a license to be a licensed insurance broker company, the HKIA must be satisfied that, among other things, (a) the company is a fit and proper person to carry on regulated activities in the lines of business concerned; (b) each director of the company and the controller in relation to the company (if any) are fit and proper persons to be associated with the carrying on of regulated activities in those lines of business; and (c) the company will be able to comply with the rules made by the HKIA under section 129 of the HKIO that set out the requirements in relation to capital, net assets, professional indemnity insurance, keeping of separate client accounts and keeping of proper books and accounts.
| (A) | Capital and Net Assets |
For an incorporated insurance broker, it shall maintain a minimum net assets value and minimum paid-up capital of HK$500,000 at all times.
In calculating net assets value, it will be conducted in accordance with accounting standards generally accepted in Hong Kong. Intangible assets will be excluded.
For an existing licensed insurance broker company, there is a grace period to comply with the capital requirements under the new regime. For the period from the commencement date to December 31, 2023, the amount of paid-up share capital and net assets which a specified insurance broker company must maintain at all times respectively are for the period that begins on the commencement date and ends on December 31, 2021, not less than $100,000; and for the period that begins on January 1, 2022 and ends on December 31, 2023, not less than $300,000.
| (B) | Professional Indemnity Insurance |
A professional indemnity insurance policy has to be maintained with a minimum limit of indemnity for any one claim and in any one insurance period of 12 months. The minimum limit of indemnity shall be the greater of the following:
| 1. | two times the aggregate insurance brokerage income in the 12 consecutive months immediately preceding the date of commencement of the professional indemnity insurance cover, up to a maximum of HK$75,000,000; or |
| 2. | HK$3,000,000. |
For insurance brokers which are in their first 12 months of operation, the limit of indemnity shall not be less than $3,000,000.
| (C) | Keeping of Separate Client Accounts |
Client money shall be kept in a separate client account. Client money is not allowed to be used for any purposes other than for the client’s purposes.
66
Table of Contents
| (D) | Keeping Proper Books and Accounts |
The insurance broker company’s accounting and financial records need to be sufficient to, among others, explain and reflect the financial position and operation of its insurance brokerage business, and enable financial statements that give a true and fair view of its financial position and financial performance. Such records shall be kept in a manner that enables an audit to be carried out conveniently and properly.
The records shall be kept in writing, showing the particulars of all transactions by the broker, all income received from brokerage and expenses paid by the broker, and all the assets and liabilities of the broker in sufficient detail. Such records shall be retained for a period for not less than 7 years.
Conduct requirements for licensed insurance broker companies
Section 92(1) of the HKIO sets out the relevant conduct requirements for a licensed insurance broker company as follows:
| • | it must establish and maintain proper controls and procedures for securing compliance with the conduct requirements set out in section 90 by the broker company and the licensed technical representatives (broker) appointed by the broker company; |
| • | it must use its best endeavors to secure observance with the controls and procedures established under section 92(1)(a) by the licensed technical representatives (broker) appointed by the broker company; |
| • | it must ensure that its responsible officer has sufficient authority within the broker company for carrying out the responsibilities set out in section 92(2); and |
| • | it must provide its responsible officer with sufficient resources and support for carrying out the responsibilities set out in section 92(2). |
More detailed Corporate Governance and Controls and Procedures are set out in Code of Conduct for Licensed Insurance Brokers published by the HKIA.
Guideline on continuing professional development for licensed insurance intermediaries
The Guideline on Continuing Professional Development for Licensed Insurance Intermediaries, or the CPD, applies to individual licensees and their principals (insurance agencies, broker companies and also insurers that appoint individual insurance agents). It sets out the new CPD requirements under the new regime. To ensure continued professional competence in carrying out their regulated activities, individual licensees need to stay up-to-date on technical and regulatory knowledge and ethical standards. Failure to comply with the CPD Guideline may adversely affect the fitness and properness of that person and may potentially lead to disciplinary action by the HKIA.
Principals must ensure that individual licensees appointed by them comply with applicable CPD requirements and have adequate controls and procedures in place to monitor and ensure this compliance, for example, by requesting, checking and verifying the documentary evidence in support of the CPD declaration forms submitted to the HKIA by the individual licensees.
Personal Data (Privacy) Ordinance (Cap. 486) of Hong Kong, or the PDPO
The PDPO imposes a statutory duty on data users to comply with the requirements of the six data protection principles (the “Data Protection Principles”) contained in Schedule 1 to the PDPO. The PDPO provides that a data user shall not do an act, or engage in a practice, that contravenes a Data Protection Principle unless the act or practice, as the case may be, is required or permitted under the PDPO. The six Data Protection Principles are:
| • | Principle 1—purpose and manner of collection of personal data; |
67
Table of Contents
| • | Principle 2—accuracy and duration of retention of personal data; |
| • | Principle 3—use of personal data; |
| • | Principle 4—security of personal data; |
| • | Principle 5—information to be generally available; and |
| • | Principle 6—access to personal data. |
Non-compliance with a Data Protection Principle may lead to a complaint to the Privacy Commissioner for Personal Data (the “Privacy Commissioner”). The Privacy Commissioner may serve an enforcement notice to direct the data user to remedy the contravention and/ or instigate prosecution actions. A data user who contravenes an enforcement notice commits an offense which may lead to a fine and imprisonment.
The PDPO also gives data subjects certain rights, inter alia:
| • | the right to be informed by a data user whether the data user holds personal data of which the individual is the data subject; |
| • | if the data user holds such data, to be supplied with a copy of such data; and |
| • | the right to request correction of any data they consider to be inaccurate. |
The PDPO criminalizes, including but not limited to, the misuse or inappropriate use of personal data in direct marketing activities, non-compliance with a data access request and the unauthorized disclosure of personal data obtained without the relevant data user’s consent. An individual who suffers damage, including injured feelings, by reason of a contravention of the PDPO in relation to his or her personal data may seek compensation from the data user concerned.
| C. | History and Development of the Company |
Corporate Structure
The following diagram illustrates our corporate structure, including our significant subsidiaries as of April 30, 2023.
68
Table of Contents
| (1) | AMTD Group Inc. beneficially owns 39.6% of the issued and outstanding shares of AMTD IDEA Group by directly holding 30.7% and, through its subsidiaries, indirectly holding 8.9% of the issued and outstanding shares of AMTD IDEA Group. |
| (2) | AMTD Direct Investment IV Limited holds 51% beneficial interest in RCC Holdings Limited and Hotel Versante Limited. |
69
Table of Contents
Our Relationship with the Controlling Shareholder and Other Group Companies
We are the core of the AMTD SpiderNet, and hence, we have created a shareholding structure where the interest of all AMTD Group companies’ interests are aligned with ours, ensuring seamless cooperation between the group companies and that maximum synergies will be achieved. As of the date of this annual report, our Controlling Shareholder beneficially owned 33.9% of our outstanding ordinary shares, representing 84.8% of our total voting power.
Treasury functions are conducted centrally under our Controlling Shareholder and intra-group treasury fund transfers are carried out among the entities within AMTD Group. The treasury function manages available funds at our Controlling Shareholder level and allocates the funds to various entities within AMTD Group for their operations.
Historically, our Controlling Shareholder has provided us with business premises, financial, accounting, administrative, legal, and human resources services, as well as the services of a number of its executive officers and other employees, the costs of which were allocated to us based on actual usage or proportion of revenue and infrastructure usage attributable to our business, among other things. We have begun to invest in our own financial, accounting, and legal functions separate from those of our Controlling Shareholder, and we are establishing other support systems of our own or contract with third parties to provide them to us. We entered into a series of agreements with our Controlling Shareholder with respect to our ongoing relationship in May 2021. These agreements include a master transaction agreement, a transitional services agreement, and a non-competition agreement. The following are summaries of these agreements.
Master Transaction Agreement
Pursuant to the master transaction agreement, we are responsible for all financial liabilities associated with the current and historical digital solutions services—financial services, digital solutions services—non financial services, digital media, content, and marketing services, and digital investments businesses and operations that have been conducted by or transferred to us, and our Controlling Shareholder is responsible for financial liabilities associated with all of our Controlling Shareholder’s other current and historical businesses and operations, in each case regardless of the time those liabilities arise. The master transaction agreement also contains indemnification provisions under which we and our Controlling Shareholder indemnify each other with respect to breaches of the master transaction agreement or any related inter-company agreement.
In addition, we agree to indemnify our Controlling Shareholder, its subsidiaries and each of their directors, officers and employees against liabilities arising from misstatements or omissions in our prospectus dated July 14, 2022 or the registration statement of which it formed a part, except for misstatements or omissions relating to information that our Controlling Shareholder provided to us specifically for inclusion in such prospectus or registration statement. Our Controlling Shareholder will indemnify us including each of our subsidiaries, directors, officers and employees against liabilities arising from misstatements or omissions with respect to information that our Controlling Shareholder provided to us specifically for inclusion in our prospectus dated July 14, 2022 or the registration statement of which it formed a part, or our annual reports or other SEC filings following the completion of our initial public offering.
The master transaction agreement also contains a general release, under which the parties will release each other, including each party’s subsidiaries, directors, officers and employees from any liabilities arising from events occurring on or before the initial filing date of the registration statement for our initial public offering, including in connection with the activities to implement our initial public offering. The general release does not apply to liabilities allocated between the parties under the master transaction agreement, the transitional services agreement, and the non-competition agreement.
The master transaction agreement sets forth the investment opportunity referral procedures, pursuant to which our Controlling Shareholder agrees to first present investment opportunities related to digital financial
70
Table of Contents
services or digital financial licenses, or investment opportunities in new technology or new media companies to us for consideration within a specified period and to refrain from pursuing these investment opportunities. Our Controlling Shareholder agrees to pursue these investment opportunities for itself only after we decline to pursue these investment opportunities or upon expiration of the specified period should we fail to respond, with the exception of subsequent investments by our Controlling Shareholder in its existing investee companies. When determining whether or not to pursue an investment opportunity, members of our investment committee that have overlapping duties as directors or officers in our Controlling Shareholder will abstain from participating in the investment decision-making and approval process.
Furthermore, under the master transaction agreement, we agree to use our reasonable best efforts to select the same independent certified public accounting firm, or auditor, used by our Controlling Shareholder and provide to our Controlling Shareholder as much prior notice as reasonably practical of any change in our auditor until the first fiscal year end occurring after our Controlling Shareholder together with its subsidiaries no longer owns in aggregate at least 20% of the voting power of our then outstanding securities.
Pursuant to the master transaction agreement, we are licensed by our Controlling Shareholder to use any and all of its intellectual properties for free.
The master transaction agreement will automatically terminate the first date upon which our Controlling Shareholder together with its subsidiaries ceases to own in aggregate at least 20% of the voting power of our then outstanding securities. This agreement can be terminated early or extended by mutual written consent of the parties. The termination of this agreement will not affect the validity and effectiveness of the transitional services agreement and the non-competition agreement.
Transitional Services Agreement
Under the transitional services agreement, our Controlling Shareholder agrees that, during the service period, as described below, our Controlling Shareholder will provide us with various corporate support services, including but not limited to:
| • | administrative support; |
| • | marketing and branding support; |
| • | technology support; and |
| • | provision of office space and facilities. |
Our Controlling Shareholder may also provide us with additional services that we and our Controlling Shareholder may identify from time to time in the future.
The price to be paid for the services provided under the transitional service agreement is determined according to the terms of the agreement. The transitional service agreement provides that the performance of a service according to the agreement will not subject the provider of such service to any liability whatsoever except as directly caused by the gross negligence or willful misconduct of the service provider. Liability for gross negligence or willful misconduct is limited to the lower of the price paid for the particular service or the cost of the service’s recipient performing the service itself or hiring a third party to perform the service. Under the transitional services agreement, the service provider of each service is indemnified by the recipient against all third-party claims relating to the provision of services or the recipient’s material breach of a third-party agreement, except where the claim is directly caused by the service provider’s gross negligence or willful misconduct.
The service period under the transitional services agreement commenced on May 20, 2021, being the public filing date of the registration statement for our initial public offering, and had been renewed for an additional 18
71
Table of Contents
months subsequently on November 20, 2022. We may terminate the transitional services agreement with respect to either all or part of the services by giving 30-day prior written notice to our Controlling Shareholder and paying a termination fee equal to the direct costs incurred by our Controlling Shareholder in connection with its provision of services at the time of the early termination. Our Controlling Shareholder may terminate this agreement with respect to either all or part of the services by giving us a 30-day prior written notice if our Controlling Shareholder together with its subsidiaries ceases to own in aggregate at least 20% of the voting power of our then outstanding securities or ceases to be the largest beneficial owner of our then outstanding voting securities, without considering holdings of institutional investors that have acquired our securities in the ordinary course of their business and not with the purpose or the effect of changing or influencing control of our company.
Non-competition Agreement
Our non-competition agreement with our Controlling Shareholder provides for a non-competition period beginning upon the completion of our initial public offering and ending on the later of (1) two years after the first date when our Controlling Shareholder together with its subsidiaries ceases to own in aggregate at least 20% of the voting power of our then outstanding securities and (2) the fifth anniversary of the completion of our initial offering. This agreement can be terminated early by mutual written consent of the parties.
Our Controlling Shareholder has agreed not to compete with us during the non-competition period in our digital solutions services—financial services, digital solutions services—non financial services, digital media, content, and marketing services, except for owning non-controlling equity interest in any company competing with us. We have agreed not to compete with our Controlling Shareholder during the non-competition period in the businesses currently conducted by our Controlling Shareholder, except for owning non-controlling equity interest in any company competing with our Controlling Shareholder.
The non-competition agreement also provides for a mutual non-solicitation obligation that neither we nor our Controlling Shareholder may, during the non-competition period, hire, or solicit for hire, any active employees of, or individuals providing consulting services to the other party, or any former employees of, or individuals providing consulting services to the other party within six months of the termination of their employment or consulting services, without the other party’s consent, except for solicitation activities through generalized non-targeted advertisement not directed to such employees or individuals that do not result in a hiring within the non-competition period.
Contractual Arrangements with respect to Airstar Bank
In October 2022, we entered into an agreement with our Controlling Shareholder, pursuant to which we agree to provide digital solutions services—non financial services to support the management of its 10% investee company, Airstar Bank, for a fixed annual service fee of HK$20.0 million. In addition to the fixed annual service fee, we are entitled to receive 15% of all distributions, in any form, received by our Controlling Shareholder from Airstar Bank, including but not limited to cash or share dividends, regardless of whether on a regular or one-off basis. We are also entitled to receive 15% of any profit generated by our Controlling Shareholder from the disposal of any shares of Airstar Bank. However, we are not liable for any loss arising from the disposal of any shares of Airstar Bank by our Controlling Shareholder. This agreement with our Controlling Shareholder will remain effective until terminated by mutual agreement.
| D. | Property, Plants and Equipment |
Our principal executive offices are located on leased premises in Paris. Our principal executive offices are leased by our fellow subsidiary from independent third parties.
In February 2023, we acquired AMTD Assets, which holds a global portfolio of premium whole building properties and providing hospitality services. After the acquisition, we hold and operate three premium hotel
72
Table of Contents
properties with a fair market value of approximately US$500 million through our subsidiaries and joint ventures in Asia and Canada. A hotel property of approximately US$172 million was pledged for a bank borrowing as at April 30, 2023.
We intend to add new premises or expand our existing premises as we add employees and expand our organization. We believe that suitable additional or alternative space will be available in the future on commercially reasonable terms to accommodate our foreseeable future expansion.
| ITEM 4A. | UNRESOLVED STAFF COMMENTS |
Not applicable.
| ITEM 5. | OPERATING AND FINANCIAL REVIEW AND PROSPECTS |
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 20-F. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Item 3. Key Information—D. Risk Factors” and elsewhere in this annual report.
| A. | Operating Results |
As the fusion reactor at the core of the AMTD SpiderNet ecosystem, we are a comprehensive digital solutions platform in Asia with businesses spanning multiple verticals, including digital solutions services—financial services, digital solutions services—non financial services, digital media, content, and marketing services, and digital investments. We also hold a global portfolio of premium whole building properties and provide hospitality services through AMTD Assets, our subsidiary.
We generated revenue primarily from fees and commissions from our digital solutions services—financial services business, digital solutions services—non financial services business, and digital media, content and marketing services business during the fiscal years ended April 30, 2021 and 2022. We began to generate additional revenue from hotel operations, hospitality and VIP services business during the fiscal year ended April 30, 2023 after our acquisition of AMTD Assets in February 2023. We have achieved tremendous growth since the launch of our digital solutions services—non financial services business in December 2017 as a result of the continued expansion and monetization of AMTD SpiderNet ecosystem. Our revenue remained stable at US$25.3 million for the fiscal years ended April 20, 2021 and 2022, and increased to US$33.1 million for the fiscal year ended April 30, 2023. Our net profit increased from US$22.1 million for the fiscal year ended April 30, 2021 to US$25.8 million for the fiscal year ended April 30, 2022, and to US$40.1 million for the fiscal year ended April 30, 2023. We continue to deepen and monetize our relationship with clients by cross-selling solutions that fill their unique needs.
We have elected to change the presentation currency in our financial statements from HK$ to US$ which better reflects the economic footprint of our business. We believe that the presentation currency change will give investors and other stakeholders a clearer understanding of our performance over time. The change in presentation currency is a voluntary change. We have applied the change of presentation currency retrospectively to our historical results of operations and financial statements included in this annual report.
Key Factors Affecting Our Results of Operations
Our business and results of operations are affected by a number of general factors that impact the digital solutions services—financial services and digital solutions industries in Asia, including, among others, our ability
73
Table of Contents
to provide digital solutions services—financial services across different markets in Asia, our ability to adopt and monetize the increasing reliance and application on digital solutions services—financial services arising from the post-COVID-19 paradigm shift, our ability to empower and extract value from the entrepreneurs joining our fusion-in program, overall economic environment in Asia, conditions and trends of financial and capital markets, the competitive environment, and government policies and initiatives affecting the digital solutions services—financial services and digital solutions industries. Unfavorable changes in any of these general factors could adversely affect demand for our services and materially and adversely affect our results of operations.
Rate of adoption of digital solutions services—financial services in Asia
Consumers in Asia are rapidly embracing digital banking, insurance, and other digital finance services. This shift was further accelerated by the COVID-19 pandemic, which forced a large part of the population to adopt digital means for work, education, and commerce and to conduct their financial transactions electronically as they were subjected to various social distancing measures and travel restrictions. Furthermore, globalization and digitalization have enabled greater movements of people, goods, and services across borders. There has been increasing trade among the economies of Asia, which will benefit financial institutions like us that can provide seamless, comprehensive digital financial solutions across borders.
The revenue that we generate from our digital solutions services—financial services business will depend in a large part on the rate at which the global population embraces digital solutions services—financial services. We anticipate rapid growth in our future digital solutions services—financial services, contributing to the growing scale of our revenue. However, should the global markets not embrace digital solutions services—financial services as rapidly as we anticipate, our future results of operation could be affected.
Our ability to expand into new markets and offer new products and services
Digital solutions services—financial services business is a highly regulated industry, and digital financial licenses are generally regulated separately across different product types and different regions. In order to provide one-stop cross-regional digital solutions services—financial services that meet the evolving needs of clients, it is important for us to obtain licenses from multiple regulatory regimes. In the future, we may consider to apply for banking licenses in Asia, as regulations allow, and may also consider to obtain financial licenses in other areas, such as digital insurance, digital assets exchange, and digital payment. If we are unable to expand into new markets, our future results of operations could be affected.
At the same time, it is imperative for us to continue to offer new products and services in order to attract new customers and retain our existing customers. If we are unable to offer new products and services to attract and retain our clients, our future results of operation could be affected.
Our future capabilities to provide insightful information to support our clients’ strategic decisions
For our digital solutions services—non financial services business, our future service quality and growth depend on our capabilities to provide insightful information to help our clients to actively identify opportunities within our AMTD SpiderNet ecosystem, efficiently deliver their strategic messages, facilitate their corporate communications, and gain intelligence on their industry and general capital markets trend. Our ecosystem and industry expertise allow us to effectively address our clients’ needs. Moreover, as our clientele continue to grow and as we deepen our insights into a greater number of industries, we will have access to more data and our ability to extract valuable information from unstructured data will be enhanced, resulting in a virtuous cycle. We have experienced strong growth in our digital solutions services—non financial services business. Our digital solutions services—non financial services income remained stable at US$23.7 million for the fiscal years ended April 30, 2021 and 2022, and increased to US$28.0 million for the fiscal year ended April 30, 2023.
74
Table of Contents
Our ability to maximize synergies and unlock value through our fusion-in program
We are the core of the AMTD SpiderNet ecosystem, and our success is predicated on our ability to connect the various partners in the AMTD SpiderNet ecosystem, promote business cooperation among partners, empower them with digital solutions services—financial services, and in turn, unlocking substantial value as each of the businesses within the system grows.
Our unique fusion-in program is our core strategy. By swapping equity interests with leading digital financial businesses, we align their business interests with ours. We further benefit from gaining access to new talents, capabilities, and technologies, while our business partners gain the ability to unlock their potential and accelerate their growth by joining the AMTD SpiderNet ecosystem. We believe that additions of business partners will create significant value for us, and we will continue to identify such promising partners for future integration.
Our ability to attract, retain, and motivate talents
It is essential for us to attract, retain, and motivate talent because our businesses are human capital intensive. We believe that it is necessary and customary to invest in talents, arguably our most important assets, with attractive compensation packages, as we compete to attract, retain, and motivate qualified employees. Key members of our management are also shareholders of our company, ensuring that interests and incentives are aligned with our performance. Our staff costs (including directors’ emoluments) for the fiscal years ended April 30, 2021, 2022, and 2023 were US$6.2 million, US$9.3 million, and US$9.9 million, respectively, representing 24.5%, 36.8%, and 29.8% of our total revenue for the corresponding periods. Our staff costs have historically been comprised of cash-based and share-based compensation and benefits. Nevertheless, highly incentivized professionals and other talents could potentially enable us to achieve great business prospects and results of operations.
Key Components of Results of Operations
Revenue
Our revenue consists of (i) digital solutions services—financial services income, (ii) digital solutions services—non financial services income, (iii) hotel operations, hospitality and VIP services income, and (iv) digital media, content, and marketing services income.
75
Table of Contents
We derive fee income primarily from four business lines: (i) digital solutions services—financial services, which currently consists entirely of insurance brokerage income, where we charge fees and commissions from insurance purchasers, which are paid either directly to us or through insurance provider partners, (ii) digital solutions services—non financial services, where we recognize our fee income over the period of contracts. Digital solutions services—non financial services income currently represents the primary source of our fees and commissions income, (iii) digital media, content, and marketing services business income in which we creates and promotes digital content by investing in and developing multimedia channels to provide users and audiences access to content medium through a comprehensive library of traditional and digital movies, podcasts, webinars and live videos offered by content providers and online media platforms, and (iv) hotel operations, hospitality and VIP services, which represents hotel and property investments and hotel operations and management since the acquisition of AMTD Assets in February 2023.
| For the Year Ended April 30, | ||||||||||||||||||||||||
| 2021 | 2022 | 2023 | ||||||||||||||||||||||
| US$ | % | US$ | % | US$ | % | |||||||||||||||||||
| (in thousands, except for percentages) | ||||||||||||||||||||||||
| Revenue |
||||||||||||||||||||||||
| Digital solutions services—non financial services business income |
23,740 | 94.0 | 23,689 | 93.7 | 28,037 | 84.8 | ||||||||||||||||||
| Digital solutions services—financial services business income |
1,511 | 6.0 | 1,514 | 6.0 | 1,540 | 4.7 | ||||||||||||||||||
| Digital media, content, and marketing services business income |
— | — | 68 | 0.3 | 1,294 | 3.9 | ||||||||||||||||||
| Hotel operations, hospitality and VIP services business income |
— | — | — | — | 2,195 | 6.6 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total |
25,251 | 100.0 | 25,271 | 100.0 | 33,066 | 100.0 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Changes in fair value on financial assets measured at FVTPL
We record changes in fair value on financial assets measured at FVTPL with respect to our digital investments and movie investments.
Employee benefits expenses
Our employee benefits expenses mainly consist of staff salaries, bonus and director fee.
Premises and office expenses
Our premises and office expenses mainly consist of premises cost, office utilities, and other miscellaneous office expenses.
Legal and professional fee
Our legal and professional fee mainly consist of audit services, professional liability insurance, and professional and legal expenses in connection with our restructuring.
Depreciation and amortization
Our depreciation and amortization mainly consists of amortization of intangible assets.
Advertising and promotion expenses
Our advertising and promotion expenses mainly consist of expenses incurred to promote and enhance our branding.
76
Table of Contents
Other expenses
Our other expenses mainly consist of traveling and business development expenses, donation, and other miscellaneous expenses.
Other income
Other income consists of interest income, and other non-recurring miscellaneous income.
Other gains and losses
Other gains and losses consist of (i) net exchange gain or loss, and (ii) recovery of accounts and other receivables written off.
Taxation
We had income tax expense of US$3.2 million, US$3.0 million, and US$4.5 million for the fiscal years ended April 30, 2021, 2022, and 2023, respectively. The following summarizes our applicable tax rates in the Cayman Islands and Asia.
Cayman Islands
The Cayman Islands currently levies no taxes on individuals or corporations outside of the Cayman Islands based upon profits, income, gains, or appreciation. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties, which may be applicable on instruments executed in, or, after execution, brought within the jurisdiction of the Cayman Islands. In addition, the Cayman Islands does not impose withholding tax on dividend payments. There are no reciprocal tax treaties between the Cayman Islands and Singapore.
Asia
Our Singapore subsidiaries are subject to the Singapore corporate tax of 17%.
Our Hong Kong subsidiaries are subject to a 8.25% Hong Kong profit tax on the first HK$2,000,000 of the taxable income generated from operations in Hong Kong. Any taxable income above HK$2,000,000 will be subject to a 16.5% Hong Kong profit tax. Under the Hong Kong tax laws, our Hong Kong subsidiaries are exempted from the Hong Kong income tax on our foreign-derived income. In addition, payments of dividends from our Hong Kong subsidiaries to us are not subject to any Hong Kong withholding tax.
For more information on tax regulations, see “Item 10. Additional Information—E. Taxation.”
77
Table of Contents
Results of Operations
| For the Year Ended April 30, | ||||||||||||||||||||||||
| 2021 | 2021 | 2022 | 2022 | 2023 | 2023 | |||||||||||||||||||
| US$ | % | US$ | % | US$ | % | |||||||||||||||||||
| (in thousands, except for percentages) | ||||||||||||||||||||||||
| Revenue |
25,251 | 100.0 | 25,271 | 100.0 | 33,066 | 100.0 | ||||||||||||||||||
| Employee benefits expense |
(6,193 | ) | (24.5 | ) | (9,293 | ) | (36.8 | ) | (9,868 | ) | (29.8 | ) | ||||||||||||
| Advertising and promotion expense |
(328 | ) | (1.3 | ) | (522 | ) | (2.1 | ) | (655 | ) | (2.0 | ) | ||||||||||||
| Premises and office expenses |
(674 | ) | (2.7 | ) | (741 | ) | (2.9 | ) | (996 | ) | (3.0 | ) | ||||||||||||
| Legal and professional fee |
(883 | ) | (3.5 | ) | (3,010 | ) | (11.9 | ) | (2,891 | ) | (8.7 | ) | ||||||||||||
| Depreciation and amortization |
(631 | ) | (2.5 | ) | (846 | ) | (3.3 | ) | (1,988 | ) | (6.0 | ) | ||||||||||||
| Other expenses |
(430 | ) | (1.7 | ) | (405 | ) | (1.6 | ) | (2,439 | ) | (7.4 | ) | ||||||||||||
| Finance costs |
— | — | — | — | (1,195 | ) | (3.6 | ) | ||||||||||||||||
| Changes in fair value on financial assets measured at fair value through profit or loss (“FVTPL”) |
9,063 | 35.9 | 16,940 | 67.0 | 15,386 | 46.5 | ||||||||||||||||||
| Other income |
171 | 0.7 | 867 | 3.4 | 16,052 | 48.5 | ||||||||||||||||||
| Other gains and losses, net |
(39 | ) | (0.2 | ) | 609 | 2.4 | 153 | 0.5 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Profit before tax |
25,307 | 100.2 | 28,870 | 114.2 | 44,625 | 135.0 | ||||||||||||||||||
| Income tax expense |
(3,173 | ) | (12.5 | ) | (3,030 | ) | (11.9 | ) | (4,485 | ) | (13.6 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Profit for the year |
22,134 | 87.7 | 25,840 | 102.3 | 40,140 | 121.4 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Other comprehensive income (expense) for the year: |
||||||||||||||||||||||||
| Items that will not be reclassified to profit or loss: |
||||||||||||||||||||||||
| Exchange differences on translation from functional currency to presentation currency |
(574 | ) | (2.3 | ) | (4,145 | ) | (16.4 | ) | (257 | ) | (0.8 | ) | ||||||||||||
| Surplus on revaluation of hotel properties |
— | — | — | — | 1,145 | 3.5 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| (574 | ) | (2.3 | ) | (4,145 | ) | (16.4 | ) | 888 | 2.7 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Item that may be reclassified subsequently to profit or loss: |
||||||||||||||||||||||||
| Exchange differences arising on translation of foreign operations |
107 | 0.4 | (106 | ) | (0.4 | ) | (920 | ) | (2.8 | ) | ||||||||||||||
| Share of other comprehensive expense of joint ventures |
— | — | — | — | (84 | ) | (0.3 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 107 | 0.4 | (106 | ) | (0.4 | ) | (1,004 | ) | (3.1 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Other comprehensive income (expense) for the year |
(467 | ) | (1.9 | ) | (4,251 | ) | (16.8 | ) | (116 | ) | (0.4 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| Total comprehensive income for the year |
21,667 | 85.8 | 21,589 | 85.5 | 40,024 | 121.0 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Segment Information
In the prior years, we had identified three operating segments, SpiderNet ecosystem solutions services segment, digital financial services segment, and corporate segment. As a result of business acquisitions in 2023, we updated our internal organizational structure and the financial measures provided to the chief operating decision maker (“CODM”). SpiderNet ecosystem solutions services segment, digital financial services segment, and corporate segment are also renamed as digital solutions services—non financial services segment, digital solutions services—financial services segment, and digital media, content, and marketing services and others segment, respectively, to reflect our holistic business services to the customers. See also “Item 4. Information on the Company—A. History and development of the Company.”
These changes in segment presentation do not affect consolidated statements of financial position, consolidated statements of profit or loss and other comprehensive income or consolidated statements of cash flows. We retrospectively revised prior period segment information, to conform to current period presentation.
78
Table of Contents
We now report our results of operations in four reportable segments: digital solutions services—financial services, digital solutions services—non financial services, hotel operations, hospitality and VIP services, and digital media, content and marketing services and others, which correspond to our business lines. The following table sets forth certain financial information of our reportable segments for the periods presented.
| For the Year Ended April 30, | ||||||||||||
| 2021 | 2022 | 2023 | ||||||||||
| US$ | US$ | US$ | ||||||||||
| (in thousands) | ||||||||||||
| Digital Solutions Services—Non Financial Services |
||||||||||||
| Segment revenue |
23,740 | 23,689 | 28,037 | |||||||||
| Segment results(1) |
18,605 | 17,527 | 21,470 | |||||||||
| Digital Solutions Services—Financial Services |
||||||||||||
| Segment revenue |
1,511 | 1,514 | 1,540 | |||||||||
| Segment results(1) |
140 | 122 | 87 | |||||||||
| Hotel Operations, Hospitality and VIP Services |
||||||||||||
| Segment revenue |
— | — | 2,195 | |||||||||
| Segment results(1) |
— | — | (1,858 | ) | ||||||||
| Digital Media, Content and Marketing Services and Others |
||||||||||||
| Segment revenue |
— | 68 | 1,294 | |||||||||
| Changes in fair value on financial assets measured at FVTPL |
9,063 | 16,940 | 15,386 | |||||||||
| Segment results(1) |
9,130 | 17,491 | 19,287 | |||||||||
|
|
|
|
|
|
|
|||||||
| Total segment results |
27,875 | 35,140 | 38,986 | |||||||||
|
|
|
|
|
|
|
|||||||
Note:
| * | Segment result represents segment revenue and changes in fair value on financial assets measured at FVTPLs less direct cost attributable to the applicable segment. |
Fiscal Year Ended April 30, 2023 Compared to Fiscal Year Ended April 30, 2022
Digital solutions services—financial services segment
The revenue and segment profit of the digital solutions services—financial services segment remained stable at US$1.5 million and US$0.1 million, respectively, for the fiscal year ended April 30, 2023.
Digital solutions services—non financial services segment
The revenue of the digital solutions services—non financial services segment increased from US$23.7 million for the fiscal year ended April 30, 2022 to US$28.0 million for the fiscal year ended April 30, 2023 and the segment profit increased from US$17.5 million for the fiscal year ended April 30, 2022 to US$21.5 million for the fiscal year ended April 30, 2023, primarily due to the increase in fee income as the result of the higher contracts sum for the renewed contracts of existing clients and new contracts of new clients in general during the fiscal year ended April 30, 2023.
Hotel operations, hospitality and VIP services segment
The revenue of the hotel operations, hospitality and VIP services segment was US$2.2 million for the fiscal year ended April 30, 2023 and the segment loss was US$1.8 million since the completion of our acquisition of AMTD Assets in February 2023.
Digital media, content, and marketing services and others
The profit of digital media, content, and marketing services and others segment, which mainly consisted of changes in fair value on financial assets measured at FVTPL from our investments in innovative companies and
79
Table of Contents
movies, was US$19.3 million for the fiscal year ended April 30, 2023, compared to US$17.5 million for the fiscal year ended April 30, 2022, primarily due to the realized and unrealized gain in fair value from certain investments and the increase in the digital media, content, and marketing services income during the fiscal year ended April 30, 2023.
For reconciliation of segment revenue to consolidated revenue and reconciliation of segment results to consolidated profit before tax, see note 6 to our consolidated financial statements for the fiscal years ended April 30, 2022 and 2023 included elsewhere in this annual report.
Fiscal Year Ended April 30, 2023 Compared to Fiscal Year Ended April 30, 2022
Revenue
Our revenue from contracts with customers increased from US$25.3 million for the fiscal year ended April 30, 2022 to US$33.1 million for the fiscal year ended April 30, 2023, primarily due to the expansion of our digital solutions services—non financial services business and digital media, content, and marketing services business, and the acquisition of the hotel operations, hospitality and VIP services business.
| • | Digital solution services—financial services. Our commission income from the digital solution services—financial services segment remained stable at US$1.5 million for the fiscal year ended April 30, 2022 and 2023. |
| • | Digital solutions services—non financial services. Our fee income from the digital solutions services—non financial services segment increased from US$23.7 million for the fiscal year ended April 30, 2022 to US$28.0 million for the fiscal year ended April 30, 2023, primarily due to the increase in fee income as the result of the higher contracts sum for the renewed contracts of existing clients and new contracts of new clients in general during the fiscal year ended April 30, 2023. |
The level of membership fee for joining the digital solution services is a bilateral fixed fee negotiated individually and agreed-upon with each particular customer covering a defined period of time. The factors influencing the level of fee include the depth of cooperation and relationship, expected spectrum of services required, expected near term and long-term benefits from participating in the SpiderNet ecosystem, and the relative bargaining power of respective customers taking into consideration the reputation, stage of growth, future revenue potential from other services which can be rendered, and other factors.
| • | Hotel operations, hospitality and VIP services. We acquired the hotel operations, hospitality and VIP services business in February 2023. Since then, our service income from this segment was US$2.2 million. |
| • | Digital media, content, and marketing services and others. Our digital media, content, and marketing services income from digital media, content, and marketing services and others segment increased from US$0.1 million for the fiscal year ended April 30, 2022 to US$1.3 million for the fiscal year ended April 30, 2023, primarily due to the expansion of the digital media, content, and marketing services during the fiscal year ended April 30, 2023. |
Changes in fair value on financial assets measured at FVTPL
Our changes in fair value on financial assets measured at FVTPL was US$16.9 million in the fiscal year ended April 30, 2022, compared to US$15.4 million in the fiscal year ended April 30, 2023, primarily due to the realized and unrealized gain in fair value from certain investments in the fiscal year ended April 30, 2023.
80
Table of Contents
The table below shows the details of our investment portfolio as of April 30, 2022 and 2023 and corresponding investment gains or losses for the fiscal year ended April 30, 2022 and 2023.
| Summary of investments | ||||||||||||||||||||||
| Name of investments |
Purchase price |
Carrying value | Corresponding investment gains (losses) |
Key factors of fluctuation in gains (losses) | ||||||||||||||||||
| As of April 30, | For the Year Ended April 30, |
|||||||||||||||||||||
| 2022 | 2023 | 2022 | 2023 | |||||||||||||||||||
| (US$ in thousands) | ||||||||||||||||||||||
| Investment A (technology-enabled health-care solutions platform) |
10,108 | 9,724 | — | (277 | ) | 14,997 | In the fiscal year ended April 30, 2022, the fair value of the investment decreased by reference to the recent transaction price of shares issuance of the investee. In the fiscal year ended April 30, 2023, the investment was disposed of resulting in a realized gain of US$15.0 million. | |||||||||||||||
| Investment B (digital media platform) |
200 | 198 | 200 | 2 | — | The investment was acquired in April 2021. The fair value of the investment approximated its acquisition cost as of April 30, 2023. | ||||||||||||||||
| Investment C (card payment solutions) |
799 | 880 | — | 90 | 40 | The investment was acquired in November 2020. The fair value of the investment approximated its acquisition cost as of April 30, 2022 with reference to recent transaction price. In the fiscal year ended April 30, 2023, the investment was disposed of resulting in a realized gain of US$39.5 thousands. | ||||||||||||||||
| Investment D (cross-border payment platform) |
288 | 288 | 288 | — | — | The investment was acquired in December 2020. The fair value of the investment approximated acquisition cost as of April 30, 2022 and 2023. | ||||||||||||||||
| Investment E (digital format movie production) |
8,663 | 7,760 | 8,710 | — | — | During the fiscal year ended April 30, 2023, further investment of US$1.0 million was made. The fair value of the investment remained stable at US$8.7 million in the fiscal year ended April 30, 2023 by reference to the estimated box office performance. | ||||||||||||||||
81
Table of Contents
| Summary of investments | ||||||||||||||||||||||
| Name of investments |
Purchase price |
Carrying value | Corresponding investment gains (losses) |
Key factors of fluctuation in gains (losses) | ||||||||||||||||||
| As of April 30, | For the Year Ended April 30, |
|||||||||||||||||||||
| 2022 | 2023 | 2022 | 2023 | |||||||||||||||||||
| (US$ in thousands) | ||||||||||||||||||||||
| Investment F (digital format movie production) |
2,122 | 95 | 95 | 371 | — | The fair value of the investment increased by US$0.4 million in the fiscal year ended April 30, 2022 by reference to the actual box office performance. During the fiscal year ended April 30, 2022, part of the investment was realized through cash settlement of US$2.7 million. During the fiscal year ended April 30, 2023, the fair value of the investment remains stable at US$0.1 million. | ||||||||||||||||
| Investment G (digital format movie production) |
540 | 185 | 534 | — | 349 | In the fiscal year ended April 30, 2022, the fair value of investment remained stable at US$0.2 million by reference to the estimated box office performance. The fair value of the investment increased by US$0.3 million in the fiscal year ended April 30, 2023 by reference to the estimated box office performance. | ||||||||||||||||
| Investment H (digital format movie production) |
3,864 | — | 3,822 | — | — | The investment was acquired in August 2022. The fair value of the investment approximated acquisition cost as of April 30, 2023. | ||||||||||||||||
| Investment I (digital format movie production) |
773 | — | 764 | — | — | The investment was acquired in January 2023. The fair value of the investment approximated the acquisition cost as of April 30, 2023. | ||||||||||||||||
| Investment J (content-driven lifestyle platform) |
10,305 | — |
|
— |
|
16,754 | — | In the fiscal year ended April 30, 2022, the investment was disposed resulting in a realized gain of US$16.8 million. | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 37,662 | 19,130 | 14,413 | 16,940 | 15,386 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Employee benefits expense
Our employee benefits expense increased by 6.5% from US$9.3 million for the fiscal year ended April 30, 2022 to US$9.9 million for the fiscal year ended April 30, 2023, primarily due to an increase in staff cost and number of staff in line with our business growth.
82
Table of Contents
Advertising and promotion expense
Our advertising and promotion expense increased by 40.0% from US$0.5 million for the fiscal year ended April 30, 2022 to US$0.7 million for the fiscal year ended April 30, 2023 mainly due to the increase in promotional activities in line with our business expansion in the fiscal year ended April 30, 2023.
Premises and office expenses
Our premises and office expenses increased by 42.9% from US$0.7 million for the fiscal year ended April 30, 2022 to US$1.0 million for the fiscal year ended April 30, 2023 mainly due to our business expansion in the fiscal year ended April 30, 2023.
Legal and professional fee
Our legal and professional fee slightly decreased by 3.3% from US$3.0 million for the fiscal year ended April 30, 2022 to US$2.9 million for the fiscal year ended April 30, 2023.
Depreciation and amortization
Our depreciation and amortization expenses increased by 150.0% from US$0.8 million for the fiscal year ended April 30, 2022 to US$2.0 million for the fiscal year ended April 30, 2023 mainly due to the increase in depreciation arising from the hotel operations, hospitality and VIP services segment which was acquired in February 2023.
Other expenses
Our other expenses increased by 500.0% from US$0.4 million for the fiscal year ended April 30, 2022 to US$2.4 million for the fiscal year ended April 30, 2023 mainly due to the incurrence of hotel operating cost after the completion of the acquisition of AMTD Assets in February 2023 and the increase in administrative expenses after our listing in July 2022.
Finance costs
Our finance costs increased by 100.0% to US$1.2 million for the fiscal year ended April 30, 2023, primarily due to the interest expenses incurred in respect of the loan payables from the hotel operations, hospitality and VIP services business acquired in February 2023.
Other income
Our other income increased by 1,688.9% to US$16.1 million for the fiscal year ended April 30, 2023, primarily due to the interest income arising from certain note receivables and certain receivables from our ultimate holding company after listing in July 2022.
Income tax expense
We incurred income tax expense of US$3.0 million and US$4.5 million for the fiscal year ended April 30, 2022 and 2023, respectively. The increase in our income tax expense resulted from increase in assessable profits in the fiscal year ended April 30, 2023.
Profit for the year
As a result of the foregoing, our profit increased from US$25.8 million for the fiscal year ended April 30, 2022 to US$40.1 million for the fiscal year ended April 30, 2023.
83
Table of Contents
Fiscal Year Ended April 30, 2022 Compared to Fiscal Year Ended April 30, 2021
Digital solution services—financial services segment
The revenue of the digital financial services segment remained stable at US$1.5 million for the fiscal year ended April 30, 2022 and the segment profit remained stable at US$0.1 million for the fiscal year ended April 30, 2022, primarily due to the slight increase in revenue partially offset by the increase in employee benefits expense incurred during the fiscal year ended April 30, 2022.
Digital solutions services—non financial services segment
The revenue of the digital solutions services—non financial services segment remains stable at US$23.7 million during the fiscal year ended April 30, 2021 and 2022 and the segment profit decreased from US$18.6 million for the fiscal year ended April 30, 2021 to US$17.5 million for the fiscal year ended April 30, 2022, primarily due to the increase in revenue being offset by the increase in employee benefits expense incurred during the fiscal year ended April 30, 2022.
Digital media, content, and marketing services and others
The profit of digital media, content, and marketing services and others segment, which mainly consisted of changes in fair value on financial assets measured at FVTPL from our investments in innovative companies, was US$17.5 million for the fiscal year ended April 30, 2022, compared to US$9.1 million for the fiscal year ended April 30, 2021, primarily due to the realized and unrealized gain from certain investments the fiscal year ended April 30, 2022.
For reconciliation of segment revenue to consolidated revenue and reconciliation of segment results to consolidated profit before tax, see note 6 to our consolidated financial statements for the fiscal years ended April 30, 2021, and 2022 included elsewhere in this annual report.
Fiscal Year Ended April 30, 2022 Compared to Fiscal Year Ended April 30, 2021
Revenue
Our revenue from contracts with customers remained stable at US$25.3 million for the fiscal years ended April 30, 2021 and 2022.
| • | Digital solution services—financial services. Our commission income from the digital solution services—financial services segment remained stable at US$1.5 million during the fiscal year ended April 30, 2021 and 2022. |
| • | Digital solutions services—non financial services. Our fee income from the digital solutions services—non financial services segment remained stable at US$23.7 million for the fiscal years ended April 30, 2021 and 2022. |
The level of membership fee for joining the digital solution services is a bilateral fixed fee negotiated individually and agreed-upon with each particular customer covering a defined period of time. The factors influencing the level of fee include the depth of cooperation and relationship, expected spectrum of services required, expected near term and long-term benefits from participating in the SpiderNet ecosystem, and the relative bargaining power of respective customers taking into consideration the reputation, stage of growth, future revenue potential from other services which can be rendered, and other factors.
| • | Digital media, content, and marketing services and others. Our digital media, content, and marketing services income from digital media, content, and marketing services and others segment increased from nil for the fiscal year ended April 30, 2021 to US$0.1 million for the fiscal year ended April 30, 2022, primarily due to commencement of the digital media, content, and marketing services during the fiscal year ended April 30, 2022. |
84
Table of Contents
Changes in fair value on financial assets measured at FVTPL
Our changes in fair value on financial assets measured at FVTPL was US$9.1 million in the fiscal year ended April 30, 2021, compared to US$16.9 million in the fiscal year ended April 30, 2022, primarily due to the realized and unrealized gain from certain investments in the fiscal year ended April 30, 2022.
The table below shows the details of our investment portfolio as of April 30, 2021 and 2022 and corresponding investment gains or losses for the fiscal year ended April 30, 2021 and 2022.
| Summary of investments | ||||||||||||||||||||||
| Name of investments |
Purchase price |
Carrying value | Corresponding investment gains (losses) |
Key factors of fluctuation in gains (losses) | ||||||||||||||||||
| As of April 30, | For the Year Ended April 30, |
|||||||||||||||||||||
| 2021 | 2022 | 2021 | 2022 | |||||||||||||||||||
| (US$ in thousands) | ||||||||||||||||||||||
| Investment A (technology-enabled health-care solutions platform) |
10,000 | 10,105 | 9,724 | (3,878 | ) | (277 | ) | In the fiscal year ended April 30, 2021, the fair value of the investment decreased by reference to the recent transaction price of shares issuance of the investee. In the fiscal year ended April 30, 2022, the fair value of the investment decreased mainly due to the financial and business performance of the investee. | ||||||||||||||
| Investment B (digital media platform) |
200 | 200 | 198 | — | 2 | The investment was acquired in April 2021. The fair value of the investment approximated its acquisition cost as of April 30, 2022. | ||||||||||||||||
| Investment C (card payment solutions) |
800 | 799 | 880 | — | 90 | The investment was acquired in November 2020. The fair value of the investment approximated its acquisition cost as of April 30, 2021 with reference to recent transaction price. In the fiscal year ended April 30, 2022, the fair value of the investment increased due to the financial and business performance of the investee. | ||||||||||||||||
| Investment D (cross-border payment platform) |
288 | 288 | 288 | — | — | The investment was acquired in December 2020. The fair value of the investment approximated acquisition cost as of April 30, 2021 and 2022. | ||||||||||||||||
| Investment E (digital format movie production) |
7,700 | 7,842 | 7,760 | 142 | — | The fair value of the investment remained stable at US$7.8 million in the fiscal year ended April 30, 2022 by reference to the estimated box office performance. | ||||||||||||||||
85
Table of Contents
| Summary of investments | ||||||||||||||||||||||
| Name of investments |
Purchase price |
Carrying value | Corresponding investment gains (losses) |
Key factors of fluctuation in gains (losses) | ||||||||||||||||||
| As of April 30, | For the Year Ended April 30, |
|||||||||||||||||||||
| 2021 | 2022 | 2021 | 2022 | |||||||||||||||||||
| (US$ in thousands) | ||||||||||||||||||||||
| Investment F (digital format movie production) |
2,122 | 2,416 | 95 | 293 | 371 | The fair value of the investment increased by US$0.3 million in the fiscal year ended April 30, 2021 by reference to the estimated box office performance. The fair value of the investment increased by US$0.4 million in the fiscal year ended April 30, 2022 by reference to the actual box office performance. During the fiscal year ended April 30, 2022, part of the investment was realized through cash settlement of US$2.7 million. | ||||||||||||||||
| Investment G (digital format movie production) |
540 | 187 | 185 | (354 | ) | — | The fair value of the investment decreased by US$0.3 million in the fiscal year ended April 30, 2021 by reference to the estimated box office performance. In the fiscal year ended April 30, 2022, the fair value of investment remained stable at US$0.2 million by reference to the estimated box office performance. | |||||||||||||||
| Investment J (content-driven lifestyle platform) |
10,305 | 16,021 | — | 5,747 | 16,754 | The fair value of the investment increased by US$5.7 million in the fiscal year ended April 30, 2021 due to the financial and business performance of the investee. In the fiscal year ended April 30, 2022, the investment was disposed resulting in a realized gain of US$16.8 million. | ||||||||||||||||
| Investment K (artificial intelligence technology services) |
2,500 | — | — | 7,113 | — | In the fiscal year ended April 30, 2021, the fair value increased mainly due to the financial and business performance of the investee. The investment was disposed in April 2021. | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
| 34,455 | 37,858 | 19,130 | 9,063 | 16,940 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Employee benefits expense
Our employee benefits expense increased by 50.0% from US$6.2 million for the fiscal year ended April 30, 2021 to US$9.3 million for the fiscal year ended April 30, 2022, primarily due to an increase in staff cost, share-based compensation and number of staff in line with our business growth.
86
Table of Contents
Premises and office expenses
Our premises and office expenses remains stable at US$0.7 million during the fiscal year ended April 30, 2021 and 2022.
Legal and professional fee
Our legal and professional fee increased significantly by 233.3% from US$0.9 million for the fiscal year ended April 30, 2021 to US$3.0 million for the fiscal year ended April 30, 2022 mainly due to legal and professional fee incurred in preparation for our listing.
Depreciation and amortization
Our depreciation and amortization expenses increased by 33.3% from US$0.6 million for the fiscal year ended April 30, 2021 to US$0.8 million for the fiscal year ended April 30, 2022 mainly due to a full year amortization of intangible assets acquired as part of a business combination that took place in August 2020 and certain acquired intangible assets in the fiscal year ended April 30, 2022.
Advertising and promotion expense
Our advertising and promotion expense increased by 66.7% from US$0.3 million for the fiscal year ended April 30, 2021 to US$0.5 million for the fiscal year ended April 30, 2022 mainly due to increase in promotion activities to cope with our business expansion in the fiscal year ended April 30, 2022.
Other expenses
Our other expenses remained stable at US$0.4 million during the fiscal year ended April 30, 2021 and 2022 mainly due to tight cost control in view of the pandemic situation in the fiscal year ended April 30, 2022.
Income tax expense
We incurred income tax expense of US$3.2 million and US$3.0 million for the fiscal year ended April 30, 2021 and 2022, respectively. The decrease in our income tax expense resulted from decrease in assessable profits in the fiscal year ended April 30, 2022.
Profit for the year
As a result of the foregoing, our profit increased from US$22.1 million for the fiscal year ended April 30, 2021 to US$25.8 million for the fiscal year ended April 30, 2022.
Recently Issued Accounting Pronouncements
A list of recently issued accounting pronouncements that are relevant to us is included in note 3 to our consolidated financial statements included elsewhere in this annual report.
| B. | Liquidity and Capital Resources |
Our principal sources of liquidity to finance our operating and investing activities are net cash provided from operating activities, funding from our Controlling Shareholder, historical equity financing activities, bank borrowing and proceeds from public offerings. As of April 30, 2023, we had US$152.9 million in cash and cash equivalents, out of which US$146.9 million was held in U.S. dollars, US$5.8 million was held in Hong Kong dollars, US$25.5 thousand was held in Singapore dollars and US$0.1 million was held in Canadian Dollar. Our cash and cash equivalents primarily consist of cash on hand and general bank balances excluding cash and cash equivalents of disposal group fiduciary bank balances representing client’s cash, which are unrestricted for withdrawal or use.
87
Table of Contents
Our total bank borrowings was US$65.8 million as of April 30, 2023. One of our bank borrowings of US$50.8 million was secured by a hotel property, carried interest rate at 1.65% above the Hong Kong Interbank Offered Rate with repayment dates from October 2023 to April 2025 and contains repayable on demand clause. Another bank borrowing of US$15.0 million was unsecured, carried interest rate at 0.25% below daily Wall Street Journal Prime Rate and repayable by February 2024.
Our net cash generated from operating activities for the fiscal years ended April 30, 2021, 2022, and 2023 was US$10.7 million, US$10.3 million, and US$15.5 million, respectively. We believe that our current cash and cash equivalents and our anticipated cash flows from operations will be sufficient to meet our anticipated working capital requirements and capital expenditures at least for the next 12 months. We may from time to time decide to enhance our liquidity position or increase our cash reserve for future operations and investments through additional financing. The issuance and sale of additional equity would result in further dilution to our shareholders. The incurrence of indebtedness would result in an increase in fixed obligations and could result in operating covenants that would restrict our operations. We cannot assure you that financing will be available in amounts or on terms acceptable to us, if at all.
Cash Flows
The following table sets forth a summary of our cash flows for the periods indicated:
| For the Year Ended April 30, | ||||||||||||
| 2021 | 2022 | 2023 | ||||||||||
| US$ | US$ | US$ | ||||||||||
| (in thousands) | ||||||||||||
| Summary Consolidated Cash Flow Data |
||||||||||||
| Net cash generated from operating activities |
10,690 | 10,250 | 15,501 | |||||||||
| Net cash from/(used in) investing activities |
16,528 | (49,139 | ) | (119,494 | ) | |||||||
| Net cash from financing activities |
1,018 | — | 243,462 | |||||||||
|
|
|
|
|
|
|
|||||||
| Net increase/(decrease) in cash and cash equivalents |
28,236 | (38,889 | ) | 139,469 | ||||||||
| Cash and cash equivalents at beginning of the year |
25,317 | 53,631 | 14,337 | |||||||||
| Effect of foreign exchange rate changes |
78 | (405 | ) | (145 | ) | |||||||
|
|
|
|
|
|
|
|||||||
| Cash and cash equivalents at end of the year |
53,631 | 14,337 | 153,661 | |||||||||
|
|
|
|
|
|
|
|||||||
| Represented by: |
||||||||||||
| Cash and cash equivalents |
53,631 | 14,337 | 152,930 | |||||||||
| Cash and cash equivalents classified as assets held for sale |
— | — | 731 | |||||||||
|
|
|
|
|
|
|
|||||||
| 53,631 | 14,337 | 153,661 | ||||||||||
|
|
|
|
|
|
|
|||||||
Operating Activities
Net cash generated from operating activities for the fiscal year ended April 30, 2023 was US$15.5 million, which consists of our profit before tax of US$44.6 million as adjusted for non-cash items and the effects of changes in operating assets and liabilities. Adjustments for non-cash items included US$15.4 million of changes in fair value on financial assets measured at FVTPL, US$15.9 million of bank and other interest income, US$0.2 million of share-based payment, US$0.4 million of share of losses of joint ventures, US$1.2 million of finance costs, and US$2.0 million of depreciation and amortization. The principal items accounting for the changes in operating assets and liabilities were (i) US$4.3 million of increase in account receivables primarily attributable to the digital solutions services—non financial services income rendered, (ii) US$4.5 million of increase in contract liabilities primarily attributable to the upfront fee for received from digital solutions services—non financial services business, (iii) US$1.5 million of decrease in prepayments, deposits and other receivables, and (iv) tax payment of US$4.1 million.
88
Table of Contents
Net cash generated from operating activities for the fiscal year ended April 30, 2022 was US$10.3 million, which consists of our profit before tax of US$28.9 million as adjusted for non-cash items and the effects of changes in operating assets and liabilities. Adjustments for non-cash items included US$16.9 million of changes in fair value on financial assets measured at FVTPL, US$0.7 million of bank and other interest income, US$1.1 million of share-based payment, and US$0.8 million of depreciation and amortization. The principal items accounting for the changes in operating assets and liabilities were (i) US$3.8 million of decrease in account receivables primarily attributable to the increase in settlement of digital solutions services—non financial services income, (ii) US$3.0 million of decrease in contract liabilities primarily attributable to the digital solutions services—non financial services rendered, (iii) US$1.4 million of increase in accruals and other payables primarily due to the increase in accrued expenses for listing, and (iv) tax payment of US$5.3 million.
Net cash generated from operating activities for the fiscal year ended April 30, 2021 was US$10.7 million, which consists of our profit before tax of US$25.3 million as adjusted for non-cash items and the effects of changes in operating assets and liabilities. Adjustments for non-cash items included US$9.1 million of changes in fair value on financial assets measured at FVTPL, US$0.6 million of depreciation and amortization, and US$0.1 million of share-based payment. The principal items accounting for the changes in operating assets and liabilities were (i) US$7.5 million of increase in account receivables primarily attributable to the increase in digital solutions services—non financial services income, (ii) US$1.6 million of decrease in prepayments and other receivables primarily attributable to the decrease in prepayment, (iii) US$2.3 million of decrease in other payables and accruals primarily attributable to the decrease in other payables, and (iv) US$1.2 million of increase in contract liabilities primarily attributable to the receipts in advance of digital solutions services—non financial services income.
Investing Activities
Net cash used in investing activities for the fiscal year ended April 30, 2023 was US$119.5 million, which was mainly attributable to (i) US$179.2 million of net cash outflow from movement in amount due from AMTD Group in connection with intra-group treasury fund allocation, (ii) proceeds from disposal of financial assets at FVTPL of US$58.2 million, (iii) US$3.9 million of net cash inflow on acquisition of AMTD Assets, (iv) consideration paid of US$5.5 million for the acquisition of a movie right investments and (v) interest received of US$3.1 million.
Net cash used in investing activities for the fiscal year ended April 30, 2022 was US$49.1 million, which was mainly attributable to (i) US$47.8 million of net cash outflow from movement in amount due from AMTD Group in connection with intra-group treasury fund allocation, (ii) settlements from a movie income right investment of US$2.7 million, (iii) US$0.2 million of acquisition of intangible assets, and (iv) consideration paid of US$3.8 million for the acquisition of a movie right investment.
Net cash from investing activities for the fiscal year ended April 30, 2021 was US$16.5 million, which was attributable to (i) US$10.0 million of collection of proceeds from disposal of investments and US$6.5 million of payments for additions of financial assets at fair value through profit or loss, (ii) net cash inflow from acquisition of subsidiaries of US$2.7 million, and (iii) US$10.3 million net cash inflow of movement in amounts due from group companies in connection with intra-group treasury fund allocation.
Financing Activities
Net cash from financing activities for the fiscal year ended April 30, 2023 was US$243.5 million, which was attributable to (i) US$15.0 million of proceeds from bank borrowings, and (ii) US$229.2 million of net proceeds from issue of shares and IPO listing.
There was no cash from financing activities for the fiscal year ended April 30, 2022.
89
Table of Contents
Net cash from financing activities for the fiscal year ended April 30, 2021 was US$1.0 million, which was attributable to (i) US$3.5 million through issuance of ordinary shares, and (ii) US$2.5 million net cash outflow of movement in amounts due to group companies in connection with intra-group treasury fund allocation.
Capital Expenditures
Our capital expenditures was US$22.3 thousand for the fiscal year ended April 30, 2021, US$232.7 thousand for the fiscal year ended April 30, 2022, and to US$1.7 thousand for the fiscal year ended April 30, 2023. We will make capital expenditure to meet the expected growth of our business. We intend to fund our future capital expenditure with our existing cash and bank balances.
We entered into several movie income right agreements with third party independent production houses, pursuant to which we are entitled to benefits generated from the distribution of certain film programs. Under the agreements, we are obligated to make further contributions in case of budget overrun of film programs and the amount of contribution is subject to the terms of the agreements.
We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. Except for the warrants issued in December 2019 and fully exercised in March 2020, 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 consolidated 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 us or engages in leasing, hedging or research and development services with us.
Other than as discussed above, we did not have any significant capital and other commitments, long-term obligations or guarantees as of April 30, 2023.
Holding Company Structure
AMTD Digital Inc. is a holding company with no material operations of its own. We conduct our operations primarily through our subsidiaries. As a result, our ability to pay dividends depends upon dividends paid by our subsidiaries. If our existing subsidiaries or any newly formed subsidiaries incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us.
| C. | Research and Development, Patents and Licenses, etc. |
See “Item 4. Information on the Company—B. Business Overview—Technology” and “Item 4. Information on the Company—B. Business Overview—Intellectual Property.”
| D. | Trend Information |
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events for the fiscal year ended April 30, 2023 that are reasonably likely to have a material adverse effect on our total revenues, profitability, liquidity, or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial conditions.
| E. | Critical Accounting Estimates |
The Critical Accounting Estimates are consistent with the disclosure presented in the consolidated financial statements for the years ended April 30, 2021, 2022 and 2023.
90
Table of Contents
| ITEM 6. | DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
| A. | Directors and Senior Management |
The following table sets forth information regarding our directors and executive officers as of the date of this annual report.
| Directors and Executive Officers |
Age | Position/Title | ||||
| Timothy Wai Cheung Tong |
70 | Chairman of the Board of Directors and Independent Director | ||||
| Feridun Hamdullahpur |
68 | Chairman of Executive Management Committee and Independent Director | ||||
| Joanne Shoveller |
62 | Independent Director | ||||
| Mark Chi Hang Lo |
45 | Director and Chief Executive Officer | ||||
| Xavier Ho Sum Zee |
49 | Chief Financial Officer | ||||
Dr. Timothy Wai Cheung Tong was appointed as chairman of the board of directors and an independent director of AMTD Digital Inc. in February 2021 and February 2020, respectively. Dr. Tong has also been an independent director of AMTD IDEA Group (NYSE: AMTD; SGX: HKB) since February 2022. As the chief executive officer of AMTD Charity Foundation, Dr. Tong has been instrumental in establishing various collaborative initiatives with academic institutions to enhance talent preparation. For example, the formation of the AMTD FinTech Centre of PolyU Faculty of Business has spawned the first doctoral degree in FinTech in Asia. Dr. Tong served as president of The Hong Kong Polytechnic University from January 2009 to December 2018 and as dean of the school of engineering and applied science at the George Washington University from August 2000 to July 2008. For community engagement, Dr. Tong serves as chairman of the Hong Kong Laureate Forum, which is an organization formed by distinguished personalities and academics in Hong Kong. The mission is to connect the current and next generation of leaders in scientific pursuit and to promote the interest of science and technology to the young generation and arouse their interest in scientific research. Dr. Tong is former chairman of the steering committee of the Pilot Green Transport Fund of the Environmental Protection Department, a fellow of the American Society of Mechanical Engineers, and a fellow and former president of the Hong Kong Academy of Engineering Sciences. Currently, Dr. Tong serves as an independent non-executive director of Airstar Bank Limited, an independent non-executive director of Xiaomi Corporation (SEHK: 1810); an independent non-executive director of Gold Peak Technology Group Limited (SEHK: 40); a non-executive director of Freetech Road Recycling Technology (Holdings) Limited (SEHK: 6888); and an independent non-executive director of Gold Peak Industries Limited (SGX: G20). Dr. Tong has been a Justice of the Peace in Hong Kong since July 2010. Dr. Tong received a Ph.D. and a master of science in engineering from the University of California at Berkeley in December 1980 and June 1978, respectively, and a bachelor of science in mechanical engineering from Oregon State University in June 1976.
Dr. Feridun Hamdullahpur is chairman of our Executive Management Committee, and an independent director. Dr. Hamdullahpur has served as an independent director of our Controlling Shareholder since January 2019, Dr. Hamdullahpur is also the chairman and independent director of AMTD IDEA Group and currently serves as the Chancellor of International Business University. Dr. Hamdullahpur served as the sixth president and vice-chancellor of the University of Waterloo from 2010 to 2021. Prior to that, he served as a vice-president academic and provost at the University of Waterloo from September 2009 to September 2010. Dr. Hamdullahpur has served as a member of the strategic advisory board of Sorbonne University since 2014, and member of the international advisory board of King Abdulaziz University since 2017. He has served as chair of the Waterloo Global Science Initiative since 2016. In 2022, Dr. Hamdullahpur was named a member of the Order of Canada. In 2015, Dr. Hamdullahpur was appointed chair of the Leadership Council for Digital Infrastructure in Canada. Dr. Hamdullahpur was named a fellow of the Canadian Academy of Engineering in July 2014 and was awarded the Queen Elizabeth II Diamond Jubilee Medal in January 2013 in acknowledgement of his leadership in education and innovation. In 2019, he received the recognition of Knight of the order of Palmes Academiques awarded by the Republic of France. Dr. Hamdullahpur graduated from the Technical University of Istanbul with a bachelor’s degree in mechanical engineering in 1976 and a master’s degree in mechanical engineering from
91
Table of Contents
Technical University of Istanbul in 1979. Dr. Hamdullahpur received his Ph.D. in chemical engineer from the Technical University of Nova Scotia in 1985.
Joanne Shoveller is our independent director. Ms. Shoveller has been the president and vice chancellor of International Business University since January 2022, and has served on the executive team of four higher education institutions, most recently as vice president of advancement at the University of Waterloo from 2017 to 2021. Prior to that, Ms. Shoveller held progressive roles in part-time and continuing education, university advancement and the Ivey Business School at Western University. In 1997 she was assigned to Hong Kong as part of the small team that founded Ivey’s Asian campus, executive MBA, research, case-writing and fundraising programs. In 2001 Ms. Shoveller influenced the successful closure of the Ivey Campaign then assumed leadership of the Ivey MBA program until 2004, diversifying and strengthening its student cohort and steering curriculum development. Ms. Shoveller led the advancement teams at the University of Guelph from 2004 to 2012 and INSEAD Business School in France from 2012 to 2016, building alumni, donor and corporate relations, multiplying charitable giving, contributing to strategic direction and launching two capital campaigns. With a strong focus on business – university partnerships, Ms. Shoveller has volunteered and consulted with organizations based in North America, Europe, Asia, Australia and Africa, from which she brings a rich international perspective to her work, along with unique insights into the student, faculty, employer and alumni experience. Ms. Shoveller holds a Bachelor of Arts from Wilfrid Laurier University, an MBA from Ivey Business School, Western University and achieved the ICD.D, June 2022 designation from the Institute of Corporate Directors, through the University of Toronto ICD-Rotman, Directors Education Program, April 2022.
Mark Chi Hang Lo is our director and chief executive officer and has over 19 years of experience in global financial markets including investing, researching and trading capital markets in Asian and global markets. Mr. Lo was appointed as our director in January 2021. Mr. Lo joined AMTD Group in December 2015 and is the Group Vice President of our Controlling Shareholder. Prior to joining the AMTD Group, from December 2010 to December 2015 Mr. Lo served as vice president of PineBridge Investments emerging markets fixed income group, a global asset manager with offerings that span the asset class and capital structure spectrum. Prior to joining PineBridge Investments, Mr. Lo served as a vice president of RBS Coutts and associate director of OSK Securities and BNP Paribas. Mr. Lo obtained a bachelor degree of arts in economics with first class honors from the University of Calgary in 2001 and a master’s degree of arts in economics from the University of British Columbia in 2002.
Xavier Ho Sum Zee is our chief financial officer. Mr. Zee is also the chief financial officer of AMTD IDEA Group. Mr. Zee currently serves as a non-executive director of Airstar Bank Limited. Mr. Zee was admitted to the partnership of PricewaterhouseCoopers in 2008, and has over 24 years of professional experience in providing assurance, business advisory, and capital market services to companies, especially in the financial service industry. Mr. Zee obtained his bachelor’s degree in business administration with first class honors in The Chinese University of Hong Kong in 1996. Mr. Zee is currently a member of Hong Kong Institute of Certified Public Accountants and American Institute of Certified Public Accountants, and is a Chartered Global Management Accountant.
| B. | Compensation |
For the fiscal year ended April 30, 2023, we incurred an aggregate of US$1.5 million in cash and benefits to our directors and executive officers.
We have not set aside or accrued any amount to provide pension, retirement or other similar benefits to our executive officers and directors. Under the Central Provident Fund Act 1953 of Singapore, our Singapore subsidiaries are required, among others, to make contributions, as employers, to the Central Provident Fund for our executive officers who are employed by our Singapore subsidiaries and are Singapore citizens or Singapore permanent residents. The contribution rates vary, depending on the age of the executive officers, and whether such executive officer is a Singapore citizen or Singapore permanent resident. Our Hong Kong subsidiaries are
92
Table of Contents
required by the Hong Kong Mandatory Provident Fund Schemes Ordinance to make monthly contributions to the mandatory provident fund scheme in an amount equal to at least 5% of an employee’s salary subject to a cap of HK$1,500 per month per employee.
Employment Agreements and Indemnification Agreements
We have entered into employment agreements with our senior executive officers. Pursuant to these agreements, we are entitled to terminate a senior executive officer’s employment for cause at any time without remuneration for certain acts of the officer, such as being convicted of any criminal conduct, any act of gross or willful misconduct or any serious, willful, grossly negligent or persistent breach of any employment agreement provision, or engaging in any conduct which may make the continued employment of such officer detrimental to our company. In connection with the employment agreement, each senior executive officer has entered into an intellectual property ownership and confidentiality agreement and agree to hold all information, know-how and records in any way connected with the products of our company, including, without limitation, all software and computer formulas, designs, specifications, drawings, data, manuals and instructions and all customer and supplier lists, sales and financial information, business plans and forecasts, all technical solutions and the trade secrets of our company, in strict confidence perpetually. Each executive officer agrees that we shall own all the intellectual property developed by such officer during his or her employment.
None of our directors has entered, or proposes to enter, into service agreements with us which provide for benefits upon termination of employment.
We have entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify them against certain liabilities and expenses that they incur in connection with claims made by reason of their being a director or officer of our company.
Stock Incentive Plan
In May 2021, our board of directors approved the AMTD SpiderNet Share Incentive Plan, which we refer to as the Plan in this annual report, to attract and retain the best available personnel, provide additional incentives to employees, directors and consultants, and promote the success of our business. The maximum aggregate number of ordinary shares that may be issued under the Plan is initially 6,500,000 and on January 1 of each year after the effective date of the Plan, will (i) automatically increase to the number of shares that is equal to ten percent (10%) of the total issued and outstanding share capital of our company as of December 31 of the preceding year, and (ii) also automatically increase by the number of shares representing 1.0% of the total issued and outstanding share capital of our company as of December 31 of the preceding year, or such less number as our board of directors shall determine. As of the date of this annual report, no awards have been granted under the Plan.
The following paragraphs summarize the principal terms of the Plan.
Type of Awards. The Plan permits the awards of options, restricted share units, restricted shares, or other types of award approved by the plan administrator.
Plan Administration. Our board of directors or a committee appointed by the board of directors will administer the Plan. The plan administrator will determine the participants to receive awards, the type and number of awards to be granted to each participant, and the terms and conditions of each grant.
Award Agreement. Awards granted under the Plan are evidenced by an award agreement that sets forth the terms, conditions and limitations for each award, which may include the term of the award, the provisions applicable in the event that the grantee’s employment or service terminates, and our authority to unilaterally or bilaterally amend, modify, suspend, cancel or rescind the award.
Eligibility. We may grant awards to our directors, employees and consultants.
93
Table of Contents
Vesting Schedule. In general, the plan administrator determines the vesting schedule, which is specified in the relevant award agreement.
Exercise of Options. The plan administrator determines the exercise price for each award, which is stated in the relevant award agreement. Options that are vested and exercisable will terminate if they are not exercised prior to the time as the plan administrator determines at the time of grant. However, the maximum exercisable term is ten years from the date of grant.
Transfer Restrictions. Awards may not be transferred in any manner by the participant other than in accordance with the exceptions provided in the Plan or the relevant award agreement or otherwise determined by the plan administrator, such as transfers by will or the laws of descent and distribution.
Termination and Amendment of the Plan. Unless terminated earlier, the Plan has a term of ten years from the date of effectiveness of the Plan. Our board of directors has the authority to terminate, amend, suspend or modify the Plan in accordance with our articles of association. However, without the prior written consent of the participant, no such action may adversely affect in any material way any award previously granted pursuant to the Plan.
| C. | Board Practices |
Board of Directors
Our board of directors consists of four directors. A director is not required to hold any shares in our company to qualify to serve as a director. Subject to the rules of the relevant stock exchange and disqualification by the chairman of the board of directors, a director may vote with respect to any contract, proposed contract, or arrangement in which he or she is materially interested. A director may exercise all the powers of the company to borrow money, mortgage its business, property and uncalled capital and issue debentures or other securities whenever money is borrowed or as security for any obligation of the company or of any third party.
Executive Management Committee of the Board of Directors
We have established an executive management committee under the board of directors as the core of our management decision hub and comprehensive and robust risk management system to conclude key management decisions, evaluate risks across our business lines, and ensure compliance with relevant laws and regulations.
Our executive management committee is responsible for (i) overseeing our operational and business activities, (ii) managing risks across all business units and mid-to-back office functions, and (iii) implementing and executing policies and strategies as determined by our board of directors. The executive management committee supervises our chief executive officer and the rest of the management team, and our chief executive officer regularly reports to the executive management committee as part of our overall corporate management and oversight.
Our executive management committee is chaired by Dr. Feridun Hamdullahpur. Members of our executive management committee will be appointed on a rotation basis by the chairperson of the executive management committee, among different members of the senior management team and/or invitation of external industry experts, depending on the specific agenda to be discussed and resolved by the executive management committee.
Other Committees of the Board of Directors
We have established an audit committee, a compensation committee, a nominating and corporate governance committee, and a business and strategy committee under the board of directors. We have adopted a charter for each of these committees. Each committee’s members and functions are described below.
94
Table of Contents
Audit Committee. Dr. Feridun Hamdullahpur is the chairperson and sole member of our audit committee. Dr. Hamdullahpur satisfies the “independence” requirements of Section 303A of the Corporate Governance Rules of the NYSE and meets the independence standards under Rule 10A-3 under the Exchange Act. We have determined that Dr. Hamdullahpur qualifies as an “audit committee financial expert.” The audit committee will oversee our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee will be responsible for, among other things:
| • | selecting the independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by the independent registered public accounting firm; |
| • | reviewing with the independent registered public accounting firm any audit problems or difficulties and management’s response; |
| • | reviewing and approving all proposed related party transactions, as defined in Item 404 of Regulation S-K under the Securities Act; |
| • | discussing the annual audited financial statements with management and the independent registered public accounting firm; |
| • | reviewing major issues as to the adequacy of our internal controls and any special audit steps adopted in light of material control deficiencies; |
| • | annually reviewing and reassessing the adequacy of our audit committee charter; |
| • | meeting separately and periodically with management and the independent registered public accounting firm; and |
| • | reporting regularly to the board. |
Compensation Committee. Dr. Timothy Wai Cheung Tong is the chairperson and sole member of our compensation committee. Dr. Tong satisfies the “independence” requirements of Section 303A of the Corporate Governance Rules of the NYSE. The compensation committee will assist the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated upon. The compensation committee will be responsible for, among other things:
| • | reviewing the total compensation package for our executive officers and making recommendations to the board with respect to it; |
| • | reviewing the compensation of our non-employee directors and making recommendations to the board with respect to it; and |
| • | periodically reviewing and approving any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, and employee pension and welfare benefit plans. |
Nominating and Corporate Governance Committee. Dr. Timothy Wai Cheung Tong is the chairperson and sole member of our nominating and corporate governance committee. Dr. Tong satisfies the “independence” requirements of Section 303A of the Corporate Governance Rules of the NYSE. The nominating and corporate governance committee will assist the board in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee will be responsible for, among other things:
| • | recommending nominees to the board for election or re-election to the board, or for appointment to fill any vacancy on the board; |
| • | reviewing annually with the board the current composition of the board with regards to characteristics such as independence, age, skills, experience and availability of service to us; |
95
Table of Contents
| • | selecting and recommending to the board the names of directors to serve as members of the audit committee and the compensation committee, as well as of the nominating and corporate governance committee itself; and |
| • | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
Business and Strategy Committee. Dr. Feridun Hamdullahpur is the chairperson and sole member of our business and strategy committee. The primary objective of the business and strategy committee is to assist the board in discharging its duties by: (i) periodically reviewing and making recommendations on the medium and long-term strategies and strategic plans of our company and our subsidiaries, (ii) periodically meeting with our management to monitor our progress against our strategic goals, (iii) ensuring that the board is regularly apprised of our progress with respect to the implementation of any approved strategy, and (iv) carrying out any other duties at the instructions of the board, within the limits of applicable laws and regulations.
Cybersecurity and Operational Risk Management
As cybersecurity and operational risks are material to our business, all of our board members are involved in the oversight of our cybersecurity and operational risk management function. The board is responsible for reviewing major issues related to our cybersecurity and operations risks and any steps adopted in light of material deficiencies, if any. Our board receives periodic reporting from our chief executive officer on cybersecurity and operational incidents, and ad hoc board meetings are held to discuss major incidents. Cybersecurity and operational risks are also topics that are discussed at each board meeting. In forming the board, we have ensured that the board has a sufficient number of members that are experts in cybersecurity and operational risks.
Duties of Directors
Under Cayman Islands law, our directors owe fiduciary duties to us, including a duty of loyalty, a duty to act honestly, in good faith and with a view to our best interests. Our directors must also exercise their powers only for a proper purpose. Our directors also owe to our company a duty to act with skill and care. English and Commonwealth courts have moved towards an objective standard with regard to the required skill and care and these authorities are likely to be followed in the Cayman Islands. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association and the class rights vested thereunder in the holders of the shares. A shareholder may in certain limited exceptional circumstances have the right to seek damages in our name if a duty owed by our directors is breached.
Our board of directors has all the powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among others:
| • | convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings; |
| • | declaring dividends and distributions; |
| • | appointing officers and determining the term of office of the officers; |
| • | exercising the borrowing powers of our company and mortgaging the property of our company; and |
| • | approving the transfer of shares in our company, including the registration of such shares in our share register. |
Terms of Directors and Officers
Members of our executive management committee will be appointed on a rotation basis by the chairperson of the executive management committee, among different members of the senior management team and/or invitation of external industry experts, depending on the specific agenda to be discussed and resolved by the executive management committee.
96
Table of Contents
Our other officers are elected by and serve at the discretion of the board of directors. Our directors are not subject to a term of office and hold office until such time as they are removed from office by ordinary resolution of the shareholders or by the board. A director will be removed from office automatically if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; or (ii) is found by our company to be or becomes of unsound mind.
| D. | Employees |
Inclusive of our joint ventures, we had 51, 50, and 199 employees as of April 30, 2021, 2022, and 2023, respectively.
The following tables sets forth the number of our employees by function as of April 30, 2023.
| Function |
Number of Employees |
Percentage | ||||||
| Senior management |
4 | 2 | % | |||||
| Frontline staff |
123 | 62 | % | |||||
| Supporting staff |
72 | 36 | % | |||||
|
|
|
|
|
|||||
| Total |
199 | 100 | % | |||||
|
|
|
|
|
|||||
Our success depends on our ability to attract, retain, and motivate qualified employees. We offer employees competitive salaries, performance-based cash bonuses, comprehensive training and development programs and other fringe benefits and incentives. We believe that we maintain a good working relationship with our employees, and we have not experienced any material labor disputes or work stoppages. None of our employees are represented by labor unions, and no collective bargaining agreement has been put in place.
As required by Hong Kong laws and regulations, we participate in a pension scheme under the rules and regulations of the Mandatory Provident Fund Scheme Ordinance, or MPF Scheme, for all employees in Hong Kong. The contributions to the MPF Scheme are based on a minimum statutory contribution requirement of 5% of eligible employees’ relevant aggregate income up to a maximum of HK$1,500 per employee per month. The assets of this pension scheme are held separately from those of our group in independently administered funds. Other than the contributions, we have no further obligation for the payment of retirement and other post-retirement benefits of our employees in Hong Kong. Under the Central Provident Fund Act 1953 of Singapore, our Singapore subsidiaries are required, among others, to make contributions, as employers, to the Central Provident Fund for our executive officers who are employed by our Singapore subsidiaries and are Singapore citizens or Singapore permanent residents. The contribution rates vary, depending on the age of the executive officers, and whether such executive officer is a Singapore citizen or Singapore permanent resident.
We enter into standard employment agreements with our employees. We also enter into standard confidentiality and non-compete agreements with our senior management in accordance with market practice.
| E. | Share Ownership |
For information regarding the share ownership of our directors and officers, see “Item 7. Major Shareholders and Related Party Transactions—A. Major Shareholders.” For information as to stock options granted to our directors, executive officers and other employees, see “Item 6. Directors, Senior Management and Employees—B. Compensation—Stock Incentive Plan.”
97
Table of Contents
| ITEM 7. | MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
| A. | Major Shareholders |
The following table sets forth information with respect to the beneficial ownership of our ordinary shares as of the date of this annual report by:
| • | each of our directors and executive officers; and |
| • | each person known to us to own beneficially more than 5% of our ordinary shares. |
The ordinary shares of AMTD Digital Inc. consist of Class A ordinary shares and Class B ordinary shares. In respect of matters requiring the votes of shareholders, holders of Class B ordinary shares are entitled to twenty votes per share, while holders of Class A ordinary shares are entitled to one vote per share. The calculations in the shareholder table below are based on 76,578,142 ordinary shares issued and outstanding as of the date of this annual report, comprising of (i) 10,928,142 Class A ordinary shares, and (ii) 65,650,000 Class B ordinary shares (inclusive of 100,961 treasury shares).
| Class A Ordinary Shares |
Class B Ordinary Shares |
% of Beneficial Ownership† |
% of Aggregate Voting Power†† |
|||||||||||||
| Directors and Executive Officers:* |
||||||||||||||||
| Timothy Wai Cheung Tong |
— | — | — | — | ||||||||||||
| Feridun Hamdullahpur |
— | — | — | — | ||||||||||||
| Joanne Shoveller |
— | — | — | — | ||||||||||||
| Mark Chi Hang Lo |
— | — | — | — | ||||||||||||
| Xavier Ho Sum Zee |
— | — | — | — | ||||||||||||
| All directors and executive officers as a group |
— | — | — | — | ||||||||||||
| Principal Shareholder: |
||||||||||||||||
| AMTD IDEA Group(1) |
— | 65,549,039 | 85.6 | 99.2 | ||||||||||||
| * | The address of our directors and executive officers is 27-29 rue de Bassano 75008 Paris. |
| † | For each person and group included in this column, percentage ownership is calculated by dividing the number of shares beneficially owned by such person or group by the sum of the total number of shares outstanding and the number of shares such person or group has the right to acquire upon exercise of option, warrant or other right within 60 days after the date of this annual report. |
| †† | For each person and group included in this column, percentage of voting power is calculated by dividing the voting power beneficially owned by such person or group by the voting power of all of our Class A and Class B ordinary shares as a single class. Each holder of Class B ordinary shares is entitled to twenty votes per share, and each holder of our Class A ordinary shares is entitled to one vote per share on all matters submitted to them for a vote. Our Class A ordinary shares and Class B ordinary shares vote together as a single class on all matters submitted to a vote of our shareholders, except as may otherwise be required by law. Our Class B ordinary shares are convertible at any time by the holder thereof into Class A ordinary shares on a one-for-one basis. |
| (1) | Represents 65,549,039 Class B ordinary shares held by AMTD IDEA Group, a Cayman Islands company whose registered address is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands. The board of directors of AMTD IDEA Group consists of Dr. Feridun Hamdullahpur, Dr. Timothy Tong, Dr. Annie Koh, Marcellus Wong, and Raymond Yung. AMTD IDEA Group is dual-listed on the NYSE and SGX, and is 39.6% beneficially owned by AMTD Group Inc., whose registered address is at the offices of Vistra (BVI) Limited, Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands. Infinity Power Investments Limited, which is wholly-owned by Dr. Calvin Choi, holds 32.9% of the issued and outstanding shares of AMTD Group Inc. and is its largest shareholder. The registered address of Infinity Power Investments Limited is at the offices of Vistra Corporate Services Center, Wickham Cay II, Road Town, Tortola, VG1110, British Virgin Islands. |
98
Table of Contents
As of the date of this annual report, AMTD IDEA Group beneficially owns all of our issued and outstanding Class B ordinary shares and our Controlling Shareholder beneficially owned 33.9% of our outstanding ordinary shares, representing 84.8% of our total voting power. We are indirectly controlled by our Controlling Shareholder as a result of its beneficial ownership of our ordinary shares and voting power.
To our knowledge and based on our review of our register of shareholders as of the date of this annual report, 8,960,000 Class A ordinary shares are held of record by one holder that resides in the United States, being The Bank of New York Mellon, the depositary of our ADS program. The number of beneficial owners of the ADSs in the United States is likely to be much larger than the number of record holders of our Class A ordinary shares in the United States. We are not aware of any arrangement that may, at a subsequent date, result in a change of control of our company.
| B. | Related Party Transactions |
Employment Agreements and Indemnification Agreements
See “Item 6.A. Directors, Senior Management and Employees—Directors and Senior Management—Employment Agreements and Indemnification Agreements.”
Agreements with Our Controlling Shareholder
See “Item 4. Information on the Company—A. History and Development of the Company.”
Transactions with Our Controlling Shareholder
Our Controlling Shareholder recharged premises costs, office utilities and office renovation, staff cost, and certain other operating expenses to us. For the fiscal year ended April 30, 2021, 2022, and 2023, the total amount of recharge from our Controlling Shareholder for the aforementioned costs and expenses was US$0.8 million, US$0.9 million, and US$1.2 million, respectively.
We provided our Controlling Shareholder with insurance brokerage services. For the fiscal year ended April 30, 2021, 2022, and 2023, the total amount of insurance brokerage commissions that we charged our Controlling Shareholder was US$61.5 thousand, US$10.8 thousand, and US$6.9 thousand, respectively.
In October 2020, we entered into an agreement with our Controlling Shareholder, pursuant to which we agree to provide digital solutions services—non financial services to support the management of its 10% investee company, Airstar Bank, for a fixed annual service fee of HK$12.8 million. The fee was adjusted to HK$20 million per annum from October 1, 2022. In addition to the fixed annual service fee, we are entitled to receive 15% of all distributions, in any form, received by our Controlling Shareholder from Airstar Bank, including but not limited to cash or share dividends, regardless of whether on a regular or one-off basis. We are also entitled to receive 15% of any profit generated by our Controlling Shareholder from the disposal of any shares of Airstar Bank. However, we are not liable for any loss arising from the disposal of any shares of Airstar Bank by our Controlling Shareholder. This agreement with our Controlling Shareholder will remain effective until terminated by mutual agreement. For the fiscal year ended April 30, 2021, 2022, and 2023, the total amount of digital solutions services—non financial services income that we charged our Controlling Shareholder was US$1.0 million, US$1.6 million, and US$2.2 million, respectively.
Other Transactions with Related Parties and Non-controlling Shareholders
Treasury functions are conducted centrally under our Controlling Shareholder and intra-group treasury fund transfers were carried out among the entities within AMTD Group. The treasury function manages available funds at our Controlling Shareholder level and allocates the funds to various entities within AMTD Group for
99
Table of Contents
their operations. As of April 30, 2021, 2022, and 2023, the amount due from group companies in connection with intra-group treasury fund allocation was US$275.4 million, US$321.4 million, and US$126.4 million, respectively.
We provide our fellow subsidiary with insurance brokerage services. For the fiscal year ended April 30, 2021, 2022, and 2023, the total amount of insurance brokerage commission that we charged our fellow subsidiary was US$11.2 thousand, US$73.5 thousand, and US$52.3 thousand, respectively.
We provide our non-controlling shareholders and a related company digital solutions services—non financial services. For the fiscal year ended April 30, 2021, the total amounts of service fees that we charged our non-controlling shareholders and a related company were US$5.0 million and US$0.6 million, respectively. For the fiscal year ended April 30, 2022, the total amount of service fees that we charged our non-controlling shareholder was US$1.6 million.
| C. | Interests of Experts and Counsel |
Not applicable.
| ITEM 8. | FINANCIAL INFORMATION |
| A. | Consolidated Statements and Other Financial Information |
We have appended consolidated financial statements filed as part of this annual report.
Legal Proceedings
We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of our business. We are not and have not been, and none of our subsidiaries or joint ventures is or has been, a party to any litigation, arbitration or administrative proceedings that we believe would, individually or taken as a whole, have a material adverse effect on our business, financial condition or results of operations, and, insofar as we are aware, no such litigation, arbitration or administrative proceedings are pending, threatened, or contemplated.
Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial costs and diversion of our resources, including our management’s time and attention. For potential impact of legal or administrative proceedings on us, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industries—We may be subject to litigation and regulatory investigations and proceedings and may not always be successful in defending ourselves against such claims or proceedings” and “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business and Industries—We may face intellectual property infringement claims, which could be time-consuming and costly to defend and may result in the loss of significant rights by us.”
Dividend Policy
We have not declared or paid dividends in the past given the early development stage of our businesses. We intend to distribute dividends in the future, but we do not have a fixed dividend policy and the amount, timing, and whether or not we actually distribute dividends at all is at the discretion of our board of directors.
We are a holding company incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries for our cash requirements, including any payment of dividends to our shareholders. Our board of directors has complete discretion on whether to distribute dividends, subject to applicable laws. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount
100
Table of Contents
recommended by our board of directors. Under the Cayman Islands law, a Cayman Islands company may pay a dividend either out of profit or share premium account, provided that in no circumstances may a dividend be paid if the dividend payment would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if our 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 of directors may deem relevant.
If we pay any dividends on our ordinary shares, we will pay those dividends that are payable in respect of the ordinary shares underlying the ADSs to the depositary, as the registered holder of such ordinary shares, and the depositary then will pay such amounts to the ADS holders in proportion to the ordinary shares underlying the ADSs held by such ADS holders, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.
| B. | Significant Changes |
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included in this annual report.
| ITEM 9. | THE OFFER AND LISTING |
| A. | Offer and Listing Details |
See “—C. Markets.”
| B. | Plan of Distribution |
Not applicable.
| C. | Markets |
The ADSs have been listed on NYSE since July 15, 2022. The ADSs trade under the ticker symbol “HKD.” Every five ADSs represent two of our Class A ordinary shares, par value US$0.0001 per share.
| 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 following are summaries of material provisions of our currently effective memorandum and articles of association and the Companies Act of the Cayman Islands (as revised) insofar as they relate to the material terms of our ordinary shares.
101
Table of Contents
Registered Office and Objects
Our registered office is at the offices of Conyers Trust Company (Cayman) Limited, Cricket Square, Hutchins Drive, PO Box 2681, Grand Cayman, KY1-1111, Cayman Islands, or at such other location within the Cayman Islands as the Directors may from time to time determine. The objects of our company are unrestricted and we have the full power and authority to carry out any object not prohibited by the law of the Cayman Islands.
Directors
See “Item 6. Directors, Senior Management and Employees—C. Board Practices.”
Ordinary Shares
General. Our share capital is divided into Class A ordinary shares and Class B ordinary shares. Holders of our Class A ordinary shares and Class B ordinary shares will have the same rights except for voting and conversion rights. Each Class B ordinary Share shall entitle the holder thereof to twenty (20) votes on all matters subject to vote at our general meetings, and each Class A ordinary share shall entitle the holder thereof to one (1) vote on all matters subject to vote at our general meetings. Our ordinary shares are issued in registered form and are issued when registered in our register of members.
Conversion. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any direct or indirect sale, transfer, assignment or disposition of any Class B ordinary shares by a holder thereof to any person other than our founder, Dr. Calvin Choi, or any other person or entity designated by Dr. Choi, each of such Class B ordinary shares will be automatically and immediately converted into an equal number of Class A ordinary share.
Dividends. The holders of our ordinary shares are entitled to such dividends as may be declared by our board of directors or declared by our shareholders by ordinary resolution (provided that no dividend may be declared by our shareholders which exceeds the amount recommended by our directors). Our currently effective memorandum and articles of association provide that, subject to any rights and restrictions attached to any shares, our directors may from to time declare dividends (including interim dividends) and other distributions on our shares in issue and authorize payment of the same out of our funds lawfully available therefor.
Under the laws of the Cayman Islands, our company may pay a dividend out of either profit or share premium account, provided that in no circumstances may a dividend be paid if the dividend payment would result in our company being unable to pay its debts as they fall due in the ordinary course of business.
Voting Rights. Our ordinary shares vote together as a single class on all matters submitted to a vote of our shareholders, except as may otherwise be required by law, or otherwise agreed in our currently effective memorandum and articles of association. On a poll, each holder of Class B ordinary shares is entitled to twenty votes per share, and each holder of our Class A ordinary shares is entitled to one vote per share on all matters submitted to them for a vote. On a show of hands, each holder of Class A ordinary shares or Class B ordinary shares has one vote. Voting at any shareholders’ meeting is by show of hands unless a poll is demanded. A poll may be demanded by the chairman of such meeting or any one or more shareholders who together hold not less than 10% of the total number of votes attaching to all issued and outstanding ordinary shares which are present in person or by proxy entitled to vote at the meeting.
An ordinary resolution to be passed at a meeting by the shareholders requires the affirmative vote of a simple majority of the votes attaching to the ordinary shares cast at a meeting, while a special resolution requires the affirmative vote of no less than two-thirds of the votes cast attaching to the issued and outstanding ordinary shares at a meeting. A special resolution will be required for important matters such as a change of name or making changes to our currently effective memorandum and articles of association. Our shareholders may, among other things, divide or combine their shares by ordinary resolution.
102
Table of Contents
General Meetings of Shareholders. As a Cayman Islands exempted company, we are not obliged by the Companies Act of the Cayman Islands to call shareholders’ annual general meetings. Our currently effective memorandum and articles of association provide that we may (but are not obliged to) in each year hold a general meeting as our annual general meeting in which case we shall specify the meeting as such in the notices calling it, and the annual general meeting shall be held at such time and place as may be determined by our directors.
Shareholders’ general meetings may be convened by a majority of our board of directors. Advance notice of at least seven days is required for the convening of our annual general shareholders’ meeting (if any) and any other general meeting of our shareholders. A quorum required for any general meeting of shareholders consists of at least one shareholder present or by proxy, representing not less than one-third of all votes attaching to all of our shares in issue and entitled to vote.
The Companies Act of the Cayman Islands provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our currently effective memorandum and articles of association provide that upon the requisition of any one or more of our shareholders who together holds shares which carry in aggregate not less than one-third of the total number of votes attaching to the issued and outstanding shares of our company entitled to vote at general meetings, our board will convene an extraordinary general meeting and put the resolutions so requisitioned to a vote at such meeting. However, our currently effective memorandum and articles of association do not provide our shareholders with any right to put any proposals before annual general meetings or extraordinary general meetings not called by such shareholders.
Election, Removal and Remuneration of Directors. Unless otherwise determined by our company in general meeting, our currently effective memorandum and articles of association provide that our board will consist of not less than three directors. There are no provisions relating to retirement of directors upon reaching any age limit.
The directors have the power to appoint any person as a director either to fill a vacancy on the board or as an addition to the existing board. Our shareholders may also appoint any person to be a director by ordinary resolution. A director shall not be required to hold any shares in our company by way of qualification.
A director may be removed with or without cause by ordinary resolution.
The remuneration of the directors may be determined by the directors or by ordinary resolution of shareholders.
Transfer of Ordinary Shares. Subject to the restrictions set out below, any of our shareholders may transfer all or any of his or her ordinary shares by an instrument of transfer in the usual or common form or any other form approved by our board of directors.
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share which is not fully paid up or on which we have a lien. Our board of directors may also decline to register any transfer of any ordinary share unless:
| • | the instrument of transfer is lodged with us, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; |
| • | the instrument of transfer is in respect of only one class of shares; |
| • | the instrument of transfer is properly stamped, if required; |
| • | in the case of a transfer to joint holders, the number of joint holders to whom the ordinary share is to be transferred does not exceed four; and |
103
Table of Contents
| • | a fee of such maximum sum as the NYSE may determine to be payable or such lesser sum as our directors may from time to time require is paid to us in respect thereof. |
If our directors refuse to register a transfer they shall, within three months after the date on which the instrument of transfer was lodged, send to each of the transferor and the transferee notice of such refusal.
The registration of transfers may, after compliance with any notice required of the NYSE, be suspended and the register closed at such times and for such periods as our board of directors may from time to time determine, provided, however, that the registration of transfers shall not be suspended nor the register closed for more than 30 days in any year as our board may determine.
Liquidation. On the winding up of our company, if the assets available for distribution amongst our shareholders shall be more than sufficient to repay the whole of the share capital at the commencement of the winding up, the surplus shall be distributed amongst our shareholders in proportion to the par value of the shares held by them at the commencement of the winding up, subject to a deduction from those shares in respect of which there are monies due, of all monies payable to our company for unpaid calls or otherwise. If our assets available for distribution are insufficient to repay all of the paid-up capital, the assets will be distributed so that the losses are borne by our shareholders in proportion to the par value of the shares held by them.
Calls on Shares and Forfeiture of Shares. Our board of directors may from time to time make calls upon shareholders for any amounts unpaid on their shares in a notice served to such shareholders at least 14 days prior to the specified time and place of payment. The shares that have been called upon and remain unpaid are subject to forfeiture.
Repurchase and Surrender of Shares. Our company may repurchase any of our shares on such terms and in such manner as have been approved by our board of directors or by an ordinary resolution of our shareholders. Under the Companies Act of the Cayman Islands, the redemption or repurchase of any share may be paid out of our company’s profits or out of the proceeds of a new issue of shares made for the purpose of such redemption or repurchase, or out of capital (including share premium account and capital redemption reserve) if our company can, immediately following such payment, pay its debts as they fall due in the ordinary course of business. In addition, under the Companies Act of the Cayman Islands no such share may be redeemed or repurchased (a) unless it is fully paid up, (b) if such redemption or repurchase would result in there being no shares outstanding or (c) if the company has commenced liquidation. In addition, our company may accept the surrender of any fully paid share for no consideration.
Variations of Rights of Shares. If at any time, our share capital is divided into different classes or series of shares, the rights attached to any such class or series of shares may, subject to any rights or restrictions for the time being attached to any class or series, only be materially and adversely varied with the consent in writing of the holders of all of the issued shares of that class or series or with the sanction of an ordinary resolution passed at a separate meeting of the holders of the shares of that class or series. The rights conferred upon the holders of the shares of any class or series issued with preferred or other rights will not, subject to any rights or restrictions for the time being attached to the shares of that class or series, be deemed to be materially and adversely varied by the creation, allotment, or issue of further shares ranking pari passu with or subsequent to them or the redemption or purchase of any shares of any class or series by us. The rights of the holders of shares will not be deemed to be materially and adversely varied by the creation or issue of class or series of shares with preferred or other rights including, without limitation, the creation of class or series of shares with enhanced or weighted voting rights.
Issuance of Additional Shares. Our currently effective memorandum and articles of association authorizes our board of directors to allot and issue additional shares from time to time as our board of directors shall determine, to the extent of available authorized but unissued shares.
104
Table of Contents
Our currently effective memorandum and articles of association also authorizes our board of directors to create from time to time one or more classes or series of shares and to determine, with respect to any class or series of shares, the terms and rights of that class or series, including:
| • | the designation of the class or series; |
| • | the number of shares of the class or series; |
| • | the dividend rights, dividend rates, conversion rights, voting rights; and |
| • | the rights and terms of redemption and liquidation preferences. |
Our board of directors may also re-designate and re-classify shares of any classes or series into any number of existing or new classes or series of shares (including classes or series of preferred shares).
Our board of directors may therefore create and issue new class or series of preferred shares without action by our shareholders to the extent authorized but unissued. Issuance of these shares may dilute the voting power of holders of ordinary shares.
Inspection of Books and Records. Holders of our ordinary shares will have no general right under Cayman Islands law to inspect our corporate records other than the memorandum and articles of association and any special resolutions passed by our company, and the register of mortgages and charges of our company. However, we will provide our shareholders with annual audited financial statements.
Anti-Takeover Provisions. Some provisions of our currently effective memorandum and articles of association may discourage, delay or prevent a change of control of our company or management that shareholders may consider favorable, including provisions that:
| • | authorize our board of directors to create and issue new classes or series of share (including preferred shares) and to designate the price, rights, preferences, privileges, and restrictions of such classes or series of shares without any further vote or action by our shareholders; |
| • | authorize our board of directors to re-designate and re-classify shares of any classes or series into any number of existing or new classes or series of shares (including classes or series of preferred shares); |
| • | authorize our board of directors to create and issue any new class or series of shares with such preferred or other rights, all or any of which may be greater than the rights of ordinary shares, at such time and on such terms as they may think appropriate; and |
| • | limit the ability of shareholders to requisition and convene general meetings of shareholders by requiring requisitioning shareholders to hold as of the date of deposit of the requisition shares that carry in aggregate not less than one-third of all votes attaching to all issued and outstanding shares of our company that as of the date of the deposit carry the right to vote at general meetings of our company. |
However, under Cayman Islands law, our directors may only exercise the rights and powers granted to them under our currently effective memorandum and articles of association for a proper purpose and for what they believe in good faith to be in the best interests of our company.
Exempted Company. We are incorporated as an exempted company with limited liability under the Companies Act of the Cayman Islands. The Companies Act of the Cayman Islands distinguishes between ordinary resident companies and exempted companies. Any company that is incorporated in the Cayman Islands but conducts business mainly outside of the Cayman Islands may apply to be incorporated as an exempted company. The requirements for an exempted company are essentially the same as for an ordinary company except that an exempted company:
| • | does not have to file an annual return of its shareholders with the Registrar of Companies; |
105
Table of Contents
| • | is not required to open its register of members for inspection; |
| • | does not have to hold an annual general meeting; |
| • | may issue shares with no par value; |
| • | may obtain an undertaking against the imposition of any future taxation (such undertakings are usually given for 20 years in the first instance); |
| • | may register by way of continuation in another jurisdiction and be deregistered in the Cayman Islands; |
| • | may register as a limited duration company; and |
| • | may register as a segregated portfolio company. |
“Limited liability” means that the liability of each shareholder is limited to the amount unpaid by the shareholder on the shares of the company (except in exceptional circumstances, such as involving fraud, the establishment of an agency relationship or an illegal or improper purpose or other circumstances in which a court may be prepared to pierce or lift the corporate veil).
| C. | Material Contracts |
Other than in the ordinary course of business and other than those described under this item, in “Item 4. Information on the Company,” “Item 7. Major Shareholders and Related Party Transactions—B. Related Party Transactions,” or elsewhere in this annual report, we have not entered into any material contract during the two years immediately preceding the date of this annual report.
| D. | Exchange Controls |
There are currently no foreign exchange control restrictions or similar laws, decrees, regulatory or other requirements that may affect the following:
| (a) | The ability to transfer funds by or to the Company in the form of repatriation of capital and remittance of profits; |
| (b) | The availability of cash and cash equivalents for use by the Company; and |
The remittance of dividends, interest or other payments to holders of the Company’s securities.
| E. | Taxation |
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to us levied by the government of the Cayman Islands except for stamp duties which may be applicable on instruments executed in, or after execution brought within the jurisdiction of the Cayman Islands. There are no exchange control regulations or currency restrictions in the Cayman Islands.
Payments of dividends and capital in respect of the shares will not be subject to taxation in the Cayman Islands and no withholding will be required on the payment of a dividend or capital to any holder of the ADSs or ordinary shares, nor will gains derived from the disposal of the ADSs or ordinary shares be subject to Cayman Islands income or corporation tax.
106
Table of Contents
Hong Kong Taxation
The following summary of certain relevant taxation provisions under the laws of Hong Kong is based on current law and practice and is subject to changes therein. This summary does not purport to address all possible tax consequences relating to purchasing, holding or selling the ADSs, and does not take into account the specific circumstances of any particular investors, some of whom may be subject to special rules. Accordingly, holders or prospective purchasers (particularly those subject to special tax rules, such as banks, dealers, insurance companies and tax-exempt entities) should consult their own tax advisors regarding the tax consequences of purchasing, holding or selling the ADSs. Under the current laws of Hong Kong:
| • | No profits tax is imposed in Hong Kong in respect of capital gains from the sale of the ADSs. |
| • | Revenue gains from the sale of ADSs by persons carrying on a trade, profession or business in Hong Kong where the gains are derived from or arise in Hong Kong from the trade, profession or business will be chargeable to Hong Kong profits tax, which is currently imposed at the rate of 16.5% on corporations and at a maximum rate of 15% on individuals and unincorporated businesses. |
| • | Gains arising from the sale of ADSs, where the purchases and sales of ADSs are effected outside of Hong Kong such as, for example, on the NYSE, should not be subject to Hong Kong profits tax. |
According to the current tax practice of the Hong Kong Inland Revenue Department, dividends paid on the ADSs would not be subject to any Hong Kong tax.
No Hong Kong stamp duty is payable on the purchase and sale of the ADSs.
Singapore Taxation
Individual Income Tax
Individual taxpayers who are Singapore tax residents are subject to tax on income accrued or derived from Singapore. All foreign-sourced income (except for income received through a partnership in Singapore) in Singapore by tax resident individuals will be exempt from tax. Certain Singapore sourced investment income (such as interest from debt securities) derived by tax resident individuals from certain financial instruments (other than income derived through a partnership in Singapore or from the carrying on of a trade, business or profession) will be exempt from tax.
A Singapore tax resident individual is taxed at progressive rates ranging from 0% to a maximum rate of 22.0% after deduction of qualifying personal reliefs where applicable. The maximum tax rate will be 24% from the year of assessment 2024.
Non-resident individuals, subject to certain exceptions, are generally subject to income tax on income accrued in or derived from Singapore at a flat rate of 22.0%, except that Singapore employment income is taxed at 15.0% or at the progressive resident rates, whichever yields a higher tax. However, Singapore does not tax capital gains. A non-resident individual (other than a director) exercising a short-term employment in Singapore for not more than 60 days may be exempt from tax in Singapore.
An individual is regarded as a tax resident in Singapore if in the calendar year preceding the year of assessment, he was physically present in Singapore or exercised an employment in Singapore (other than as a director of a company) for 183 days or more, or if he ordinarily resides in Singapore except for such temporary absences therefrom as may be reasonable and not inconsistent with a claim by such person to be resident in Singapore.
107
Table of Contents
Corporate Income Tax
A Singapore tax resident corporate taxpayer is subject to Singapore income tax on:
| • | income accrued in or derived from Singapore; and |
| • | foreign sourced income received or deemed received in Singapore, unless otherwise exempted. |
Foreign income in the form of branch profits, dividends and service fee income, or specified foreign income, received or deemed received in Singapore by a Singapore tax resident corporate taxpayer are exempted from Singapore tax subject to meeting the qualifying conditions.
A non-Singapore tax resident corporate taxpayer, subject to certain exceptions, is subject to Singapore income tax on income accrued in or derived from Singapore, and on foreign income received or deemed received in Singapore.
A company is regarded as tax resident in Singapore if the control and management of the company’s business is exercised in Singapore. In general, control and management of the company is vested in its board of directors and therefore if the board of directors meets and conducts the company’s business in Singapore, the company will be regarded as tax resident in Singapore.
The corporate tax rate in Singapore is 17.0% with effect from the Year of Assessment 2010.
Further, new start-up companies will, subject to certain conditions, be eligible for full tax exemption on their normal chargeable income of up to SG$100,000 and 50.0% tax exemption 224 on up to the next SG$200,000 of normal chargeable income in each of the company’s first year of assessment. Tax exemptions are also available in the second and third year of assessment, where there is up to 75.0% tax exemption on the first SG$100,000 and 50.0% tax exemption on the next SG$100,000.
Dividend Distributions
Dividends received in respect of the Class A Shares by either Singapore tax resident or non-Singapore tax resident taxpayers are not subject to Singapore withholding tax if certain conditions are met, even if paid to non-Singapore resident shareholders.
Currently, (subject to certain transitional rules), Singapore has adopted the “One-Tier” Corporate Tax System. Under this one-tier system, the tax collected from corporate profits is the final tax and our company can pay tax exempt (1-tier) dividends which are tax exempt in the hands of the shareholder, regardless of the tax residence status or the legal form of the shareholder.
Capital Gains Tax
Singapore does not impose a tax on capital gains. However, there are no specific laws or regulations which deal with the characterization of capital gains, and hence, gains may be construed to be of an income nature and therefore be subject to tax if they arise from activities which the IRAS regards as the carrying on of a trade or business in Singapore. Any profits from the disposal of the Class A Shares are not taxable in Singapore unless the seller is regarded as having derived gains of an income nature in Singapore, in which case, the disposal profits would be taxable as trading income.
Bonus Shares
Under current Singapore tax law and practice, a capitalization of profits followed by the issue of new shares, credited as fully paid, pro rata to shareholders, or bonus issue, does not represent a distribution of dividends by a company to its shareholders. Therefore, a Singapore resident shareholder receiving shares by way of a bonus issue should not have a liability to Singapore tax.
108
Table of Contents
When a dividend is to be satisfied wholly or in part in the form of an allotment of ordinary shares credited as fully paid, the dividend declared will be treated as income to its shareholders. Similarly, when shareholders are given the right to elect to receive an allotment of ordinary shares credited as fully paid in lieu of cash, the dividend declared will be treated as exempt (one-tier) dividend income and will not be subject to Singapore tax.
Stamp Duty
There is no stamp duty payable on the subscription, allotment or holding of our Class A Shares.
Stamp duty is payable on the instrument of transfer of our Class A Shares at the rate of 0.2% of the consideration paid or market value of our shares, whichever is higher.
The purchaser is liable for stamp duty, unless there is an agreement to the contrary. No stamp duty is payable if no instrument of transfer is executed (such as in the case of scripless shares, the transfer of which does not require instruments of transfer to be executed) or if the instrument of transfer is executed outside Singapore. However, stamp duty may be payable if the instrument of transfer which is executed outside Singapore is subsequently received in Singapore.
Goods and Services Tax (“GST”)
GST in Singapore is a consumption tax that is levied on import of goods into Singapore, as well as nearly all supplies of goods and services in Singapore at a prevailing rate of 8.0%.
Estate Duty
With effect from February 15, 2008, Singapore estate duty has been abolished.
Individuals, whether or not domiciled in Singapore, should consult their own tax advisors regarding the Singapore tax and estate duty consequences of their ownership of the Class A Shares.
Shareholders, whether or not domiciled in Singapore, should consult their own tax advisors regarding the Singapore tax consequences of their acquisition, ownership and/or disposal of our Shares.
U.S. Federal Income Tax Considerations
The following discussion is a summary of U.S. federal income tax considerations generally applicable to the ownership and disposition of the ADSs or our ordinary shares by a U.S. Holder (as defined below). This summary applies only to U.S. Holders that hold the ADSs or our ordinary shares as “capital assets” (generally, property held for investment) as defined in the U.S. Internal Revenue Code of 1986, as amended, or the Code. This discussion is based upon existing U.S. federal tax law, which is subject to differing interpretations or change, possibly with retroactive effect. No opinion of counsel has been sought from the IRS with respect to any U.S. federal income tax considerations described below, and there can be no assurance that the IRS will not assert, or that a court will not sustain a contrary position. This discussion, moreover, does not address the U.S. federal estate, gift, or alternative minimum tax considerations, the Medicare tax on certain net investment income, or any state, local, and non-U.S. tax considerations relating to the ownership or disposition of the ADSs or our ordinary shares. The following summary does not address all aspects of U.S. federal income taxation that may be important to particular investors in light of their individual circumstances or to persons in special tax situations such as:
| • | banks and other financial institutions; |
| • | insurance companies; |
109
Table of Contents
| • | pension plans; |
| • | cooperatives; |
| • | regulated investment companies; |
| • | real estate investment trusts; |
| • | broker-dealers; |
| • | traders that elect to use a mark-to-market method of accounting; |
| • | certain former U.S. citizens or long-term residents; |
| • | tax-exempt entities (including private foundations); |
| • | individual retirement accounts or other tax-deferred accounts; |
| • | persons liable for alternative minimum tax; |
| • | persons who acquire their ADSs or ordinary shares pursuant to any employee share option or otherwise as compensation; |
| • | investors that will hold their ADSs or ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction for U.S. federal income tax purposes; |
| • | investors that have a functional currency other than the U.S. dollar; |
| • | persons that actually or constructively own 10% or more of the ADSs or ordinary shares (by vote or value); or |
| • | partnerships or other entities taxable as partnerships for U.S. federal income tax purposes, or persons holding the ADSs or ordinary shares through such entities, |
all of whom may be subject to tax rules that differ significantly from those discussed below.
Each U.S. Holder is urged to consult its tax advisor regarding the application of U.S. federal taxation to its particular circumstances, and the state, local, non-U.S., and other tax considerations of the ownership and disposition of the ADSs or ordinary shares.
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of the ADSs or ordinary shares that is, for U.S. federal income tax purposes:
| • | a citizen or individual resident of the United States; |
| • | a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created in, or organized under the laws of the United States or any state thereof or the District of Columbia; |
| • | an estate the income of which is includible in gross income for U.S. federal income tax purposes regardless of its source; or |
| • | a trust that (A) is subject to the primary supervision of a U.S. court and the control of one or more U.S. persons with respect to all of its substantial decisions or (B) has a valid election in effect to be treated as a United States person under the Code. |
If a partnership (or other entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of the ADSs or our ordinary shares, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. Partnerships holding the ADSs or our ordinary shares and their partners should consult their tax advisors regarding an investment in the ADSs or our ordinary shares.
110
Table of Contents
The discussion below assumes that the representations contained in the deposit agreement are and will continue to be true, and that the obligations in the deposit agreement and any related agreement have been and will be complied with in accordance with its terms. For U.S. federal income tax purposes, a U.S. Holder of ADSs will generally be treated as the beneficial owner of the underlying shares represented by the ADSs. The remainder of this discussion assumes that a U.S. Holder of the ADSs will be treated in this manner. Accordingly, deposits or withdrawals of our ordinary shares for ADSs will generally not be subject to U.S. federal income tax.
Passive Foreign Investment Company Considerations
A non-U.S. corporation, such as our company, will be classified as a PFIC for U.S. federal income tax purposes for any taxable year if either (i) 75% or more of its gross income for such year consists of certain types of “passive” income or (ii) 50% or more of the average quarterly value of its assets during such year is attributable to assets that produce or are held for the production of passive income. Passive income generally includes, among other things, dividends, interest, rents, royalties, and gains from the disposition of passive assets. Passive assets are those that give rise to passive income, and include assets held for investment, as well as cash, assets readily convertible into cash, and working capital. The company’s goodwill and other unbooked intangibles are taken into account and may be classified as active or passive depending upon the relative amounts of income generated by the company in each category. We will be treated as owning a proportionate share of the assets and earning a proportionate share of the income of any other corporation in which we own, directly or indirectly, 25% or more (by value) of the stock.
Based upon our income and assets and our market capitalization, we do not expect to be classified as a PFIC for the current taxable year or foreseeable future taxable years. There can be no assurance regarding our PFIC status for the current taxable year or foreseeable future taxable years, however, because our PFIC status is a factual determination made annually that will depend, in part, upon the composition and classification of our income and assets, including the relative amounts of income generated by our strategic investment business as compared to our other businesses, and the value of the assets held by our strategic investment business as compared to our other businesses. Because there are uncertainties in the application of the relevant rules, it is possible that the IRS may challenge our classification of certain income and assets as non-passive, which may result in our being or becoming classified as a PFIC in the current or subsequent years. Furthermore, fluctuations in the market price of the ADSs may cause us to be classified as a PFIC for the current or future taxable years because the value of our assets for purposes of the asset test, including the value of our goodwill and unbooked intangibles, may be determined by reference to our market capitalization (determined based on the market price of the ADSs from time to time, which may be volatile). If our market capitalization declines, we may be or become a PFIC for the current or future taxable years. The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets. Under circumstances where our revenue from activities that produce passive income significantly increases relative to our revenue from activities that produce non-passive income, or where we determine not to deploy significant amounts of cash for active purposes, our risk of becoming classified as a PFIC may substantially increase.
If we are a PFIC for any year during which a U.S. Holder holds the ADSs or ordinary shares, the PFIC rules discussed below under “Passive Foreign Investment Company Rules” will generally apply to such U.S. Holder for such taxable year and, in the absence of certain elections, will continue to apply in future years even if we cease to be a PFIC. The discussion below under “—Dividends” and “—Sale or Other Disposition” is written on the basis that we will not be or become classified as a PFIC for U.S. federal income tax purposes. The U.S. federal income tax rules that will generally apply if we are treated as a PFIC are discussed below under “—Passive Foreign Investment Company Rules.”
Dividends
Any cash distributions paid on the ADSs or our ordinary shares out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles, will generally be includible in the gross
111
Table of Contents
income of a U.S. Holder as dividend income on the day actually or constructively received by the U.S. Holder, in the case of our ordinary shares, or by the depositary, in the case of ADSs. Because we do not intend to determine our earnings and profits on the basis of U.S. federal income tax principles, any distribution we pay will generally be treated as a dividend for U.S. federal income tax purposes. Dividends received on the ADSs or our ordinary shares will not be eligible for the dividends received deduction allowed to corporations in respect of dividends received from U.S. corporations.
Individuals and other non-corporate U.S. Holders may be subject to tax on any such dividends at the lower capital gain tax rate applicable to “qualified dividend income,” provided that certain conditions are satisfied, including that (1) the ADSs or ordinary shares on which the dividends are paid are readily tradable on an established securities market in the United States, (2) we are neither a PFIC nor treated as such with respect to a U.S. Holder for the taxable year in which the dividend is paid and the preceding taxable year, and (3) certain holding period requirements are met. The ADSs are listed on the NYSE, and therefore are considered to be readily tradeable on an established securities market in the United States, although there can be no assurance that the ADSs will continue to be so listed. Although the law in this regard is not entirely clear, because our ordinary shares will not be listed on a U.S. exchange, we do not believe that dividends received with respect to our ordinary shares that are not represented by ADSs will be treated as qualified dividends. U.S. Holders should consult their tax advisors regarding the availability of the lower rate for dividends paid with respect to the ADSs or ordinary shares.
For U.S. foreign tax credit purposes, dividends paid on the ADSs or ordinary shares will generally be treated as income from foreign sources and will generally constitute passive category income. The rules governing the foreign tax credit are complex and U.S. Holders should consult their tax advisors regarding the availability of the foreign tax credit in their particular circumstances.
Sale or Other Disposition
A U.S. Holder will generally recognize gain or loss upon the sale or other disposition of the ADSs or our ordinary shares in an amount equal to the difference between the amount realized upon the disposition and the holder’s adjusted tax basis in such ADSs or ordinary shares. Such gain or loss will generally be capital gain or loss and will be long-term if the U.S. Holder’s holding period in the ADSs or ordinary shares exceeds one year at the time of disposition. Non-corporate U.S. Holders (including individuals) will generally be subject to U.S. federal income tax on long-term capital gain at preferential rates. The deductibility of a capital loss may be subject to limitations. Any gain or loss recognized by a U.S. Holder on the sale or other disposition of the ADSs or our ordinary shares will generally be treated as U.S. source income or loss for U.S. foreign tax credit limitation purposes, which could limit the availability of foreign tax credits. The U.S. foreign tax credit rules are complex and each U.S. Holder is advised to consult its tax advisor regarding such rules under its particular circumstances.
Passive Foreign Investment Company Rules
If we are classified as a PFIC for any taxable year during which a U.S. Holder holds the ADSs or our ordinary shares, and unless the U.S. Holder makes a mark-to-market election (as described below), the U.S. Holder will generally be subject to special tax rules on (i) any excess distribution that we make to the U.S. Holder (which generally means any distribution paid during a taxable year to a U.S. Holder that is greater than 125 percent of the average annual distributions paid in the three preceding taxable years or, if shorter, the U.S. Holder’s holding period for the ADSs or ordinary shares), and (ii) any gain realized on the sale or other disposition, including, under certain circumstances, a pledge, of ADSs or our ordinary shares. Under the PFIC rules:
| • | the excess distribution or gain will be allocated ratably over the U.S. Holder’s holding period for the ADSs or ordinary shares; |
112
Table of Contents
| • | the amount allocated to the current taxable year and any taxable years in the U.S. Holder’s holding period prior to the first taxable year in which we are classified as a PFIC (each, a “pre-PFIC year”), will be taxable as ordinary income; and |
| • | the amount allocated to each prior taxable year, other than a pre-PFIC year, will be subject to tax at the highest tax rate in effect for individuals or corporations, as appropriate, for that year, increased by an additional tax equal to the interest on the resulting tax deemed deferred with respect to each such taxable year. |
If we are a PFIC for any taxable year during which a U.S. Holder holds the ADSs or our ordinary shares, and any of our subsidiaries is also a PFIC, such U.S. Holder would be treated as owning a proportionate amount (by value) of the shares of the lower-tier PFIC for purposes of the application of these rules. U.S. Holders should consult their tax advisors regarding the application of the PFIC rules to any of our subsidiaries.
As an alternative to the foregoing rules, a U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election with respect to such stock. If a U.S. Holder makes this election with respect to the ADSs, the holder will generally (i) include as ordinary income for each taxable year that we are a PFIC the excess, if any, of the fair market value of ADSs held at the end of the taxable year over the adjusted tax basis of such ADSs and (ii) deduct as an ordinary loss the excess, if any, of the adjusted tax basis of the ADSs over the fair market value of such ADSs held at the end of the taxable year, but such deduction will only be allowed to the extent of the net amount previously included in income as a result of the mark-to-market election. The U.S. Holder’s adjusted tax basis in the ADSs would be adjusted to reflect any income or loss resulting from the mark- to-market election. If a U.S. Holder makes a mark-to-market election in respect of the ADSs and we cease to be classified as a PFIC, the holder will not be required to take into account the gain or loss described above during any period that we are not classified as a PFIC. If a U.S. Holder makes a mark-to-market election, any gain such U.S. Holder recognizes upon the sale or other disposition of the ADSs in a year when we are a PFIC will be treated as ordinary income and any loss will be treated as ordinary loss, but such loss will only be treated as ordinary loss to the extent of the net amount previously included in income as a result of the mark-to-market election.
The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter, or regularly traded, on a qualified exchange or other market, as defined in applicable U.S. Treasury regulations. The ADSs, but not our ordinary shares, will be treated as marketable stock so long as our ADSs are listed on the NYSE, but no assurances can be given in this regard.
Because a mark-to-market election cannot technically be made for any lower-tier PFICs that we may own, a U.S. Holder may continue to be subject to the PFIC rules with respect to such U.S. Holder’s indirect interest in any investments held by us that are treated as an equity interest in a PFIC for U.S. federal income tax purposes.
We do not intend to provide information necessary for U.S. Holders to make qualified electing fund elections which, if available, would result in tax treatment different from (and generally less adverse than) the general tax treatment for PFICs described above.
If a U.S. Holder owns the ADSs or ordinary shares during any taxable year that we are a PFIC, the holder must generally file an annual IRS Form 8621. Each U.S. Holder should consult its tax advisor regarding the U.S. federal income tax consequences of owning and disposing of the ADSs or our ordinary shares if we are or become a PFIC.
| F. | Dividends and Paying Agents |
Not applicable.
113
Table of Contents
| G. | Statement by Experts |
Not applicable.
| H. | Documents on Display |
We have filed with SEC a registration statement on Form F-1 (File No. 333-256322), including relevant exhibits and securities under the Securities Act with respect to underlying ordinary shares represented by the ADSs. We have also filed a registration statement on Form F-6 (Registration No. 333-256847) with the SEC to register the ADSs.
We are subject to periodic reporting and other informational requirements of the Exchange Act as applicable to foreign private issuers. Accordingly, we are required to file reports, including annual reports on Form 20-F, and other information with SEC. All information filed with SEC can be obtained over the Internet at SEC’s website at https://www.sec.gov.
As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing the furnishing and content of quarterly reports and proxy statements to shareholders, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we will not be required under the Exchange Act to file periodic reports and financial statements with SEC as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we intend to furnish the depositary with our annual reports, which will include a review of operations and annual audited consolidated financial statements prepared in conformity with IFRS, and all notices of shareholders’ meeting and other reports and communications that are made generally available to our shareholders. The depositary will make such notices, reports, and communications available to holders of ADSs and, upon our written request, will mail to all record holders of ADSs the information contained in any notice of a shareholders’ meeting received by the depositary from us.
| I. | Subsidiary Information |
Not applicable.
| J. | Annual Report to Security Holders |
Not applicable.
| ITEM 11. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Foreign exchange risk
Most of our revenue and expenses are denominated in functional currencies of our entities. Certain of our transactions are denominated in foreign currencies and therefore we are exposed to foreign currency risk. We do not believe that we currently have any significant direct foreign exchange risk and have not used any derivative financial instruments to hedge exposure to such risk.
In addition, foreign exchange risk also arises from the possibility that fluctuations in foreign exchange rates can impact the value of financial instruments. The impact of foreign exchange fluctuations in our earnings is included in foreign exchange differences, net in the consolidated statements of cash flows.
To the extent we need to convert U.S. dollars into other currencies for our operations, appreciation of other currencies against U.S. dollars would reduce the amount in other currencies we receive from the conversion. Conversely, if we decide to convert other currencies into U.S. dollars for the purpose of making payments for dividends on our Class A ordinary shares or ADSs, servicing our outstanding debt, or for other business
114
Table of Contents
purposes, appreciation of U.S. dollars against other currencies would reduce the U.S. dollar amounts available to us.
Equity price risk
We are exposed to equity price risk through our investments in equity securities measured at FVTPL. We invested in certain unquoted equity securities for investees operating in digital and technology industry sectors for long term strategic purposes which had been measured as FVTPL. We have appointed a special team to monitor the price risk and will consider hedging the risk exposure should the need arise.
Interest rate risk
Our exposure to interest rate risk primarily relates variable-rate cash held on behalf of customers and bank balances.
Credit risk
Our credit risk exposures are primarily attributable to accounts receivable, other receivables, bank balances, cash held on behalf of customers, due from joint ventures, and amount due from AMTD Group. We do not hold any collateral or other credit enhancements to cover our credit risks associated with our financial assets.
| 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.
115
Table of Contents
| D. | American Depositary Shares |
Fees and Charges ADS Holders May Have to Pay
The Bank of New York Mellon, as depositary, will register and deliver the ADSs. Each ADS represents 0.4 Class A ordinary shares (or a right to receive 0.4 Class A ordinary shares) deposited with The Hongkong and Shanghai Banking Corporation Limited, as custodian for the depositary. Each ADS will also represent any other securities, cash, or other property that may be held by the depositary. The deposited shares together with any other securities, cash, or other property held by the depositary are referred to as the deposited securities. The depositary’s office at which the ADSs will be administered and its principal executive office are located at 240 Greenwich Street, New York, New York 10286.
| Persons depositing or withdrawing shares or ADS holders must pay: |
For: | |
| US$5.00 (or less) per 100 ADSs (or portion of 100 ADSs) | Issuance of ADSs, including issuances resulting from a distribution of shares or rights or other property Cancellation of ADSs for the purpose of withdrawal, including if the deposit agreement terminates | |
| US$0.05 (or less) per ADS | Any cash distribution to ADS holders | |
| A fee equivalent to the fee that would be payable if securities distributed to you had been shares and the shares had been deposited for issuance of ADSs | Distribution of securities distributed to holders of deposited securities (including rights) that are distributed by the depositary to ADS holders | |
| US$0.05 (or less) per ADS per calendar year | Depositary services | |
| Registration or transfer fees | Transfer and registration of shares on our share register to or from the name of the depositary or its agent when you deposit or withdraw shares | |
| Expenses of the depositary | Cable (including SWIFT) and facsimile transmissions (when expressly provided in the deposit agreement)
Converting foreign currency to U.S. dollars | |
| Taxes and other governmental charges the depositary or the custodian has to pay on any ADSs or shares underlying ADSs, such as stock transfer taxes, stamp duty or withholding taxes | As necessary | |
| Any charges incurred by the depositary or its agents for servicing the deposited securities | As necessary | |
Fees and Other Payments Made by the Depositary to Us
The depositary has agreed to reimburse us for a portion of certain expenses we incur that are related to establishment and maintenance of the ADR program, including investor relations expenses. There are limits on the amount of expenses for which the depositary will reimburse us, but the amount of reimbursement available to us is not related to the amounts of fees the depositary collects from investors. Further, the depositary has agreed to reimburse us certain fees payable to the depositary by holders of ADSs. Neither the depositary nor we can determine the exact amount to be made available to us because (i) the number of ADSs that will be issued and outstanding, (ii) the level of service fees to be charged to holders of ADSs and, (iii) our reimbursable expenses related to the program are not known at this time.
In the year ended April 30, 2023, we did not receive any payments from the depositary for its ADR program.
116
Table of Contents
PART II
| ITEM 13. | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES |
None.
| ITEM 14. | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
Material Modifications to the Rights of Security Holders
See “Item 10. Additional Information” for a description of the rights of securities holders, which remain unchanged.
Use of Proceeds
The following “Use of Proceeds” information relates to the registration statement on Form F-1 (File Number: 333-256322) relating to our initial public offering of 16,000,000 ADSs representing 6,400,000 Class A ordinary shares, and the underwriters’ full exercise of their option to purchase from us 2,400,000 additional ADSs representing 960,000 Class A ordinary shares, at an initial offering price of US$7.80 per ADS. The registration statement was declared effective by the SEC on July 14, 2022. AMTD Global Markets Limited was the representative of the underwriters.
We raised US$129.2 million in net proceeds from our initial public offering, after deducting underwriting discounts and commissions and the offering expenses payable by us, including the net proceeds that we received from the underwriters’ full exercise of their option to purchase from us additional ADSs. The total expenses incurred for our company’s account in connection with our initial public offering was US$14.3 million, which included US$10.0 million in underwriting discounts and commissions for the initial public offering and US$4.3 million in other costs and expenses for our initial public offering. None of the transaction expenses included payments to directors or officers of our company or their associates, persons owning more than 10% or more of our equity securities or our affiliates. None of the net proceeds from the initial public offering were paid, directly or indirectly, to any of our directors or officers or their associates, persons owning 10% or more of our equity securities or our affiliates.
For the period from July 15, 2022 to April 30, 2023, we have used approximately US$5.8 million of the net proceeds from our initial public offering to support our business expansion and growth, and for general corporate purposes. We still intend to use the proceeds from our initial public offering, as disclosed in our registration statements on Form F-1, to fulfill the capital requirements for future license applications, acquisitions, IT infrastructure, and human resources, support our business expansion and growth, and use the remainder for general corporate purposes.
| ITEM 15. | CONTROLS AND PROCEDURES |
Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Exchange Act, our senior management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures within the meaning of Rules 13a-15(e) and 15d-15(e) of the Exchange Act. Based upon that evaluation, our senior management has concluded that, as of April 30, 2023, our disclosure controls and procedures were effective.
Disclosure controls and procedures means controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is
117
Table of Contents
recorded, processed, summarized, and reported, within the time periods specified in SEC’s rule and forms and that such information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosures.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15 (f) under the Exchange Act. Our management, with the participation of our chief executive officer and our chief financial officer, evaluated the effectiveness of our internal control over financial reporting based on criteria established in the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management has concluded that our internal control over financial reporting was effective as of April 30, 2023.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
As a company with less than US$1.07 billion in revenue, we qualify as an “emerging growth company” pursuant to the JOBS Act. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 in the assessment of the emerging growth company’s internal control over financial reporting.
Attestation Report of the Registered Public Accounting Firm
See “—Management’s Annual Report on Internal Control over Financial Reporting.”
Changes in Internal Control over Financial Reporting
To remediate our identified material weakness as of April 30, 2022 relating to lack of internal audit function to monitor, evaluate and communicate internal control deficiencies, we have adopted measures to improve our financial control over financial reporting during the year ended April 30, 2023, including the establishment of an internal audit department with sufficient resources and experienced personnel to design, review and monitor internal control over financial reporting and the hiring of sufficient and experienced personnel for the internal audit department.
Except for the measures to improve our internal control over financial reporting as described in this annual report, there were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
| ITEM 16. | [RESERVED] |
| ITEM 16A. | AUDIT COMMITTEE FINANCIAL EXPERT |
See “Item 6. Directors, Senior Management and Employees—C. Board Practices.”
118
Table of Contents
| ITEM 16B. | CODE OF ETHICS |
Our board of directors has adopted a code of ethics that applies to all of the directors, officers and employees of us and our subsidiaries, whether they work for us on a full-time, part-time, consultative, or temporary basis. In addition, we expect those who do business with us, such as consultants, suppliers and collaborators, to also adhere to the principles outlined in the code of ethics. Certain provisions of the code of ethics apply specifically to our chief executive officer, chief financial officer, senior finance officer, controller, vice presidents and any other persons who perform similar functions for us. We have filed our code of business conduct and ethics as an exhibit to our registration statement on Form F-1 (No. 333-256322) in connection with our initial public offering in July 2022, which was incorporated by reference thereto in this annual report.
| ITEM 16C. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by Deloitte Touche Tohmatsu, our independent registered public accounting firm, for the periods indicated. We did not pay or accrue for payment any other fees to our principal accountant during the periods except as indicated below.
| For the Year ended April 30, |
||||||||
| 2022 | 2023 | |||||||
| US$ | US$ | |||||||
| (in thousands) | ||||||||
| Audit Fees(1) |
866 | 965 | ||||||
| Tax Fees(2) |
4 | 4 | ||||||
| (1) | “Audit fees” represent the aggregate fees billed for each of the fiscal years listed for professional services rendered by our principal accountant for the audit of our annual consolidated financial statements and the review of interim condensed consolidated financial statements. |
| (2) | “Tax fees” represent the aggregate fees billed for professional services rendered by our principal external auditors for tax compliance. |
All audit and permitted non-audit services provided by our principal accountant, including audit services, audit-related services, tax services, and other services as described above, must be and have been approved in advance by our audit committee.
| ITEM 16D. | EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES |
None.
| ITEM 16E. | PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
Not applicable.
| ITEM 16F. | CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT |
Not applicable.
| ITEM 16G. | CORPORATE GOVERNANCE |
As a Cayman Islands company to be listed on the NYSE, we are subject to the NYSE listing standards. The NYSE rules permit a foreign private issuer like us to follow the corporate governance practices of its home
119
Table of Contents
country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the NYSE listing standards. We followed home country practice with respect to annual general meetings and did not hold an annual general meeting of shareholders for the fiscal year ended April 30, 2023. We also relied upon the relevant home country exemption (i) in lieu of the requirement with respect to the size of our board committees, (ii) in lieu of the requirement for shareholder approval of share issuances (a) to certain related parties where the number of shares issued exceeded either one percent of the number of shares or of the voting power outstanding before the issuance, and (b) where such share are issued as consideration in a transaction or series of related transactions in which a related party has a five percent or greater interest (or such persons collectively have a ten percent or greater interest), directly or indirectly, in the company or assets to be acquired or in the consideration to be paid in the transaction or series of related transactions and the issuance exceeded either five percent of the number of shares or of the voting power outstanding before the issuance.
In addition, as a “controlled company” as defined under the Nasdaq Stock Market Rules, we are permitted to elect to rely, and are currently relying, on certain exemptions from corporate governance rules. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Relationship with the Controlling Shareholder —We are a “controlled company” within the meaning of the NYSE Listed Company Manual and, as a result, can rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.” As a result, you do not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
| ITEM 16H. | MINE SAFETY DISCLOSURE |
Not applicable.
| ITEM 16I. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS |
In September 2022, the SEC conclusively listed AMTD Digital Inc. as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended April 30, 2022. Our auditor who issued the audit report for us for the fiscal year ended April 30, 2022 is a registered public accounting firm located in China, a jurisdiction where the PCAOB determined that it was unable to inspect or investigate registered public accounting firms headquartered there until December 2022.
On December 15, 2022, the PCAOB issued a report that vacated its December 16, 2021 determination and removed China from the list of jurisdictions where it is unable to inspect or investigate completely registered public accounting firms. For this reason, we do not expect to be identified as a Commission-Identified Issuer under the HFCAA after we file this annual report on Form 20-F.
The Company’s significant consolidated foreign operating entities are organized or incorporated in Cayman Islands, British Virgin Islands, Singapore, Hong Kong, and Canada (the “Relevant Jurisdictions”). As of the date of this annual report, to the best of our knowledge, (i) the government entities in the Relevant Jurisdictions do not own any share of AMTD Digital Inc. or its consolidated foreign operating entities, (ii) the PRC government entities do not have a controlling financial interest in AMTD Digital Inc. or its consolidated foreign operating entities, and (iii) none of the members of the board of directors of AMTD Digital Inc. or its operating entities, is an official of the Communist Party of China. The currently effective memorandum and articles of association (or equivalent organizing document) of AMTD Digital Inc. and its foreign operating entities do not contain wording from any charter of the Communist Party of China.
| ITEM 16J. | INSIDER TRADING POLICIES |
Not applicable.
120
Table of Contents
PART III
| ITEM 17. | FINANCIAL STATEMENTS |
We have elected to provide financial statements pursuant to Item 18.
| ITEM 18. | FINANCIAL STATEMENTS |
The consolidated financial statements of AMTD Digital Inc. are included at the end of this annual report.
ITEM 19. EXHIBITS
121
Table of Contents
122
Table of Contents
| * | Filed with this annual report on Form 20-F. |
| ** | Furnished with this annual report on Form 20-F. |
123
Table of Contents
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| AMTD Digital Inc. | ||
| By: | /s/ Mark Chi Hang Lo | |
| Name: Mark Chi Hang Lo | ||
| Title: Chief Executive Officer | ||
| Date: August 23, 2023 | ||
124
Table of Contents
| PAGE(S) | ||
| F-2 | ||
| F-3 | ||
| F-4 | ||
| F-5 | ||
| F-6 | ||
| F-7 | ||
Year ended April 30, |
||||||||||||||
Notes |
2021* |
2022* |
2023 |
|||||||||||
US$ |
US$ |
US$ |
||||||||||||
| Revenue from contracts with customers |
5 | |||||||||||||
| Employee benefits expense |
( |
) | ( |
) | ( |
) | ||||||||
| Advertising and promotion expense |
( |
) | ( |
) | ( |
) | ||||||||
| Premises and office expenses |
( |
) | ( |
) | ( |
) | ||||||||
| Legal and professional fee |
( |
) | ( |
) | ( |
) | ||||||||
| Depreciation and amortization |
( |
) | ( |
) | ( |
) | ||||||||
| Finance costs |
7 | ( |
) | |||||||||||
| Other expenses |
( |
) | ( |
) | ( |
) | ||||||||
| Changes in fair value on financial assets measured at fair value through profit or loss (“FVTPL”) |
8 | |||||||||||||
| Other income |
9 | |||||||||||||
| Other gains and losses, net |
10 | ( |
) | |||||||||||
| |
|
|
|
|
|
|||||||||
| Profit before tax |
||||||||||||||
| Income tax expense |
11 | ( |
) | ( |
) | ( |
) | |||||||
| |
|
|
|
|
|
|||||||||
| Profit for the year |
12 | |||||||||||||
| |
|
|
|
|
|
|||||||||
| Other comprehensive income for the year: |
||||||||||||||
| Items that will not be reclassified to profit or loss: |
||||||||||||||
| Exchange differences on translation from functional currency to presentation currency |
( |
) | ( |
) | ( |
) | ||||||||
| Surplus on revaluation of hotel properties |
||||||||||||||
| |
|
|
|
|
|
|||||||||
| ( |
) | ( |
) | |||||||||||
| |
|
|
|
|
|
|||||||||
| Item that may be reclassified subsequently to profit or loss: |
||||||||||||||
| Exchange differences arising on translation of foreign operations |
( |
) | ( |
) | ||||||||||
| Share of other comprehensive expense of joint ventures |
( |
) | ||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( |
) | ( |
) | |||||||||||
| |
|
|
|
|
|
|||||||||
| Other comprehensive expense for the year |
( |
) |
( |
) | ( |
) | ||||||||
| |
|
|
|
|
|
|||||||||
| Total comprehensive income for the year |
||||||||||||||
| |
|
|
|
|
|
|||||||||
| Profit (loss) for the year attributable to: |
||||||||||||||
| - Owners of the Company |
||||||||||||||
| - Non-controlling interests |
( |
) | ( |
) | ( |
) | ||||||||
| |
|
|
|
|
|
|||||||||
| |
|
|
|
|
|
|||||||||
| Total comprehensive income (expense) for the year attributable to: |
||||||||||||||
| - Owners of the Company |
||||||||||||||
| - Non-controlling interests |
( |
) | ( |
) | ( |
) | ||||||||
| |
|
|
|
|
|
|||||||||
| |
|
|
|
|
|
|||||||||
| Earnings per share |
13 | |||||||||||||
| - Basic (US$) |
||||||||||||||
| - Diluted (US$) |
||||||||||||||
| |
|
|
|
|
|
|||||||||
* |
The comparative consolidated financial statements have been re-presented from Hong Kong dollar to US$ to reflect the Company’s change in presentation currency. See note 1. |
As of May 1, |
As of April 30, |
|||||||||||||
Notes |
2021* |
2022* |
2023 |
|||||||||||
US$ |
US$ |
US$ |
||||||||||||
ASSETS |
||||||||||||||
Non-current assets: |
||||||||||||||
Goodwill |
17 |
|||||||||||||
Property, plant and equipment |
18 |
|||||||||||||
Intangible assets |
19 |
|||||||||||||
Prepayments, deposits and other receivables |
21 |
|||||||||||||
Financial assets at FVTPL |
20 |
|||||||||||||
Interests in joint ventures |
16 |
|||||||||||||
Total non-current assets |
||||||||||||||
Current assets: |
||||||||||||||
Accounts receivable |
21 |
|||||||||||||
Prepayments, deposits and other receivables |
21 |
|||||||||||||
Amount due from AMTD Group (as defined in note 1) |
30 |
|||||||||||||
Amount due from a non-controlling shareholder |
30 |
|||||||||||||
Financial assets at FVTPL |
20 |
|||||||||||||
Fiduciary bank balances |
||||||||||||||
Cash and cash equivalents |
||||||||||||||
Assets classified as held for sale |
15 |
|||||||||||||
Total current assets |
||||||||||||||
Total assets |
||||||||||||||
EQUITY AND LIABILITIES |
||||||||||||||
Current liabilities: |
||||||||||||||
Clients’ monies held on trust |
||||||||||||||
Accounts payable |
22 |
|||||||||||||
Other payables and accruals |
22 |
|||||||||||||
Bank borrowings |
23 |
|||||||||||||
Amount due to a non-controlling shareholder |
30 |
|||||||||||||
Contract liabilities |
24 |
|||||||||||||
Income tax payable |
||||||||||||||
Liabilities associated with assets classified as held for sale |
15 |
|||||||||||||
Total current liabilities |
||||||||||||||
Non-current liabilities: |
||||||||||||||
Contract liabilities |
24 |
|||||||||||||
Deferred tax liability |
25 |
|||||||||||||
Total non-current liabilities |
||||||||||||||
Total liabilities |
||||||||||||||
Capital and reserves: |
||||||||||||||
Share capital |
26 |
|||||||||||||
Treasury shares |
26 |
( |
) | |||||||||||
Reserves |
||||||||||||||
Equity attributable to owners of the Company |
||||||||||||||
Non-controlling interests |
27 |
|||||||||||||
Total equity |
||||||||||||||
Total equity and liabilities |
||||||||||||||
* |
The comparative consolidated financial statements have been re-presented from Hong Kong dollar to US$ to reflect the Company’s change in presentation currency. See note 1. |
Attributable to owners of the Company |
||||||||||||||||||||||||||||||||||||||||||||
Share capital |
Share premium |
Treasury shares |
Share-based payment reserve |
Exchange reserve |
Property revaluation reserve |
Capital reserve |
Retained earnings |
Total |
Non- controlling interests |
Total equity |
||||||||||||||||||||||||||||||||||
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
||||||||||||||||||||||||||||||||||
At May 1, 2020* |
||||||||||||||||||||||||||||||||||||||||||||
Profit (loss) for the year |
— |
— |
— |
— |
— |
— |
— |
( |
) |
|||||||||||||||||||||||||||||||||||
Other comprehensive (expense) income for the year: |
||||||||||||||||||||||||||||||||||||||||||||
Exchange differences arising on translation |
— |
— |
— |
— |
( |
) |
— |
— |
— |
( |
) |
( |
) | |||||||||||||||||||||||||||||||
Total comprehensive (expense) income for the year |
— |
— |
— |
— |
( |
) |
— |
— |
( |
) |
||||||||||||||||||||||||||||||||||
Acquisition of subsidiaries (note 14(b)) |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||||||||||||
Issuance of shares (note 26(a) and (e)) |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||||||||||||
Share-based compensation (note31) |
— |
— |
— |
— |
— |
— |
— |
— |
||||||||||||||||||||||||||||||||||||
At April 30, 2021* |
( |
) |
||||||||||||||||||||||||||||||||||||||||||
Profit (loss) for the year |
— |
— |
— |
— |
— |
— |
— |
( |
) |
|||||||||||||||||||||||||||||||||||
Other comprehensive expense for the year: |
||||||||||||||||||||||||||||||||||||||||||||
Exchange differences arising on translation |
— |
— |
— |
— |
( |
) |
— |
— |
— |
( |
) |
( |
) |
( |
) | |||||||||||||||||||||||||||||
Total comprehensive (expense) income for the year |
— |
— |
— |
— |
( |
) |
— |
— |
( |
) |
||||||||||||||||||||||||||||||||||
Issuance of shares by a non-wholly owned subsidiary (note 19) |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||||||||||||
Share-based compensation (note 31) |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||||||||||||
At April 30, 2022* |
( |
) |
||||||||||||||||||||||||||||||||||||||||||
Profit (loss) for the year |
— |
— |
— |
— |
— |
— |
— |
( |
) |
|||||||||||||||||||||||||||||||||||
Other comprehensive (expenses) income for the year: |
||||||||||||||||||||||||||||||||||||||||||||
Exchange differences arising on translation |
— |
— |
— |
— |
( |
) |
— |
— |
— |
( |
) |
( |
) |
( |
) | |||||||||||||||||||||||||||||
Surplus on revaluation of hotel properties |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||||||||||||
Share of other comprehensive expense of joint ventures |
— |
— |
— |
— |
( |
) |
— |
— |
— |
( |
) |
( |
) |
( |
) | |||||||||||||||||||||||||||||
Total comprehensive (expense) income for the year |
— |
— |
— |
— |
( |
) |
— |
( |
) |
|||||||||||||||||||||||||||||||||||
Issuance of shares (note 26(g)) |
— |
— |
— |
— |
— |
— |
— |
|||||||||||||||||||||||||||||||||||||
Repurchase of shares of the Company (note 26(h)) |
— |
— |
( |
) |
— |
— |
— |
— |
— |
( |
) |
— |
( |
) | ||||||||||||||||||||||||||||||
Acquisition of subsidiaries under common control (note 14(a)) |
— |
— |
— |
— |
— |
( |
) |
— |
||||||||||||||||||||||||||||||||||||
Share-based compensation (note 31) |
— |
— |
— |
— |
— |
— |
— |
— |
||||||||||||||||||||||||||||||||||||
At April 30, 2023 |
( |
) |
( |
) |
( |
) |
||||||||||||||||||||||||||||||||||||||
* |
The comparative consolidated financial statements have been re-presented from Hong Kong dollar to US$ to reflect the Company’s change in presentation currency. See note 1. |
Year ended April 30, |
||||||||||||
2021* |
2022* |
2023 |
||||||||||
US$ |
US$ |
US$ |
||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||||||
| Profit before tax |
||||||||||||
| Adjustments for: |
||||||||||||
| Share of losses of joint ventures |
||||||||||||
| Interest income |
( |
) |
( |
) |
( |
) | ||||||
| Finance costs |
||||||||||||
| Depreciation |
||||||||||||
| Amortization |
||||||||||||
| Recovery of accounts receivable written off |
( |
) |
( |
) |
( |
) | ||||||
| Share-based payment |
||||||||||||
| Changes in fair value on financial assets at FVTPL |
( |
) |
( |
) |
( |
) | ||||||
| Unrealized exchange gain |
( |
) |
||||||||||
| |
|
|
|
|
|
|||||||
| Operating cash flows before movements in working capital |
||||||||||||
| Decrease in fiduciary bank balances |
||||||||||||
| (Increase) decrease in accounts receivable |
( |
) |
( |
) | ||||||||
| Decrease in prepayments, deposits and other receivables |
||||||||||||
| Decrease in client’s monies held on trust |
( |
) |
( |
) |
( |
) | ||||||
| (Decrease) increase in accounts payable |
( |
) |
||||||||||
| (Decrease) increase in other payables and accruals |
( |
) |
||||||||||
| Increase (decrease) in contract liabilities |
( |
) |
||||||||||
| |
|
|
|
|
|
|||||||
| Cash generated from operations |
||||||||||||
| Profits tax refunded (paid) |
( |
) |
( |
) | ||||||||
| |
|
|
|
|
|
|||||||
| Net cash from operating activities |
||||||||||||
| |
|
|
|
|
|
|||||||
| CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||||||
| Additions of financial assets at FVTPL |
( |
) |
( |
) |
( |
) | ||||||
| Proceeds from disposal of financial assets at FVTPL |
||||||||||||
| Receipt of return from movie income right investments |
||||||||||||
| Acquisition of property, plant and equipment |
( |
) |
( |
) |
( |
) | ||||||
| Acquisition of intangible assets |
( |
) |
||||||||||
| Acquisition of subsidiaries, net of cash acquired |
||||||||||||
| Interest received |
||||||||||||
| Loan to a third party |
( |
) | ||||||||||
| Repayment of loan to a third party |
||||||||||||
| Advance to AMTD Group |
( |
) |
( |
) |
( |
) | ||||||
| Repayment from AMTD Group |
||||||||||||
| Repayment from a non-controlling shareholder |
||||||||||||
| Advance to fellow subsidiaries |
( |
) |
||||||||||
| Repayment from fellow subsidiaries |
||||||||||||
| |
|
|
|
|
|
|||||||
| Net cash from (used in) investing activities |
( |
) |
( |
) | ||||||||
| |
|
|
|
|
|
|||||||
| CASH FLOW FROM FINANCING ACTIVITIES |
||||||||||||
| Proceeds from bank borrowings |
||||||||||||
| Proceeds from issue of shares |
||||||||||||
| Advance from AMTD Group |
||||||||||||
| Repayment to AMTD Group |
( |
) |
||||||||||
| Advance from fellow subsidiaries |
||||||||||||
| Repayment to fellow subsidiaries |
( |
) |
||||||||||
| Finance costs paid |
( |
) | ||||||||||
| |
|
|
|
|
|
|||||||
| Net cash from financing activities |
||||||||||||
| |
|
|
|
|
|
|||||||
| Net increase (decrease) in cash and cash equivalents |
( |
) |
||||||||||
| Cash and cash equivalents at beginning of the year |
||||||||||||
| Effect of foreign exchange rate changes |
( |
) |
( |
) | ||||||||
| |
|
|
|
|
|
|||||||
| Cash and cash equivalents at end of the year |
||||||||||||
| |
|
|
|
|
|
|||||||
| Represented by: |
||||||||||||
| Cash and cash equivalents |
||||||||||||
| Cash and cash equivalents classified as assets held for sale |
||||||||||||
| |
|
|
|
|
|
|||||||
| |
|
|
|
|
|
|||||||
* |
The comparative consolidated financial statements have been re-presented from Hong Kong dollar to US$ to reflect the Company’s change in presentation currency. See note 1. |
| 1. | GENERAL |
| Name of principal subsidiaries |
Date of incorporation/ acquisition |
Place of incorporation/ establishment |
Issued and fully paid/ registered share capital ( In dollar amount) |
Percentage of shareholdings or voting rights at April 30, |
Principal activities | |||||||||||
2022 |
2023 |
|||||||||||||||
| |
HK$ |
| ||||||||||||||
| |
HK$ |
| ||||||||||||||
| |
US$ |
| ||||||||||||||
| |
US$ |
| ||||||||||||||
| |
US$ |
| ||||||||||||||
| |
US$ |
| ||||||||||||||
| |
2023 |
Islands |
US$ |
| ||||||||||||
| |
2023 |
HK$ |
| |||||||||||||
1. |
GENERAL - (CONTINUED) |
| Name of principal subsidiaries |
Date of incorporation/ acquisition |
Place of incorporation/ establishment |
Issued and fully paid/ registered share capital ( In dollar amount) |
Percentage of shareholdings or voting rights at April 30, |
Principal activities | |||||||||||||
2022 |
2023 |
|||||||||||||||||
| |
2023 |
|
Canada dollar (“CAD”) |
|
| |||||||||||||
| |
2023 |
CAD |
| |||||||||||||||
* |
The Group has equity interests and control over Fine Cosmos Development Limited due to the shareholders’ agreement of which the Group has rights to direct decision making of the relevant activities of Fine Cosmos Development Limited and thus Fine Cosmos Development Limited is a subsidiary of AMTD Assets Group. |
** |
On February 6, 2023, the Company acquired 96.1% of the equity interest of AMTD Assets Group from AMTD Group. The acquisition of AMTD Assets Group and its subsidiaries (“AMTD Assets”) has been accounted for as business combination under common control. See note 14(a) for details. |
| 2. | APPLICATION OF AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) |
| Amendments to IFRS 3 |
Reference to the Conceptual Framework | |
| Amendments to IAS 16 |
Plant and Equipment – Proceeds before Intended Use | |
| Amendments to IAS 37 |
Onerous Contracts – Cost of Fulfilling a Contract | |
| Amendments to IFRS Standards |
Annual Improvements to IFRS Standards 2018-2020 |
| 2. | APPLICATION OF AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) - (CONTINUED) |
IFRS 17 (including the June 2020 and December 2021 Amendments to IFRS 17) |
Insurance Contracts 1 | |
Amendments to IFRS 10 and IAS 28 |
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture 2 | |
Amendments to IFRS 16 |
Lease Liability in a Sale and Leaseback 3 | |
Amendments to IAS 1 |
Classification of Liabilities as Current or Non-current 3 | |
Amendments to IAS 1 |
Non-current Liabilities with Covenants 3 | |
Amendments to IAS 1 and IFRS Practice Statement 2 |
Disclosure of Accounting Policies 1 | |
Amendments to IAS 8 |
Definition of Accounting Estimates 1 | |
Amendments to IAS 12 |
Deferred Tax related to Assets and Liabilities arising from a Single Transaction 1 | |
Amendments to IAS 12 |
International Tax Reform – Pillar Two Model Rules 4 | |
Amendments to IAS 21 |
Lack of Exchangeability 5 |
1 |
Effective for annual periods beginning on or after January 1, 2023. |
2 |
Effective for annual periods beginning on or after a date to be determined. |
3 |
Effective for annual periods beginning on or after January 1, 2024. |
4 |
Effective for annual periods beginning on or after January 1, 2023 (except for IAS 12 paragraphs 4A and 88A which are immediately effective upon issue of the amendments). |
5 |
Effective for annual periods beginning on or after January 1, 2025. |
| 2. | APPLICATION OF AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) - (CONTINUED) |
| • | clarify that if a liability has terms that could, at the option of the counterparty, result in its settlement by the transfer of the entity’s own equity instruments, these terms do not affect its classification as current or non-current only if the entity recognizes the option separately as an equity instrument applying IAS 32 Financial Instruments: Presentation |
| • | specify that the classification of liabilities as current or non-current should be based on rights that are in existence at the end of the reporting period. Specifically, the amendments clarify that the classification should not be affected by management intentions or expectations to settle the liability within 12 months. |
| 2. | APPLICATION OF AMENDMENTS TO INTERNATIONAL FINANCIAL REPORTING STANDARDS (“IFRSs”) - (CONTINUED) |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES |
3.1 |
Basis of preparation of consolidated financial statements |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.1 |
Basis of preparation of consolidated financial statements - (Continued) |
3.2 |
Significant accounting policies |
| (a) | Basis of consolidation |
| • | has power over the investee; |
| • | is exposed, or has rights, to variable returns from its involvement with the investee; and |
| • | has the ability to use its power to affect its returns. |
| • | the size of the Group’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; |
| • | potential voting rights held by the Group, other vote holders or other parties; |
| • | rights arising from other contractual arrangements; and |
| • | any additional facts and circumstances that indicate that the Group has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (a) | Basis of consolidation - (Continued) |
| (b) | Business combinations or asset acquisitions |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (b) | Business combinations or asset acquisitions - (Continued) |
| • | deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognized and measured in accordance with IAS 12 Income Taxes Employee Benefits |
| • | liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment |
| • | assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations |
| • | lease liabilities are recognized and measured at the present value of the remaining lease payments (as defined in IFRS 16 Leases Right-of-use |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (b) | Business combinations or asset acquisitions - (Continued) |
| • | Assets and liabilities of the acquired entity are stated at carrying amounts in the consolidated financial statements of the controlling party. Fair value measurement is not required. |
| • | Income statement reflects the results of the combining parties. |
| • | No new goodwill arises in predecessor accounting. |
| • | Any difference between the consideration given and the aggregate carrying value of the assets and liabilities of the acquired entity at the date of the transaction is recognized in capital reserve. |
| (c) | Goodwill |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (c) | Goodwill - (Continued) |
| (d) | Fair value measurement |
| • | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date; |
| • | Level 2 inputs are inputs other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and |
| • | Level 3 inputs are unobservable inputs for the asset or liability. |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (e) | Revenue from contracts with customers |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (e) | Revenue from contracts with customers - (Continued) |
| (f) | Foreign currencies |
| (g) | Employee benefits |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (g) | Employee benefits - (Continued) |
| (h) | Government grants |
| (i) | Share-based payments |
| (j) | Property, plant and equipment |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (j) | Property, plant and equipment - (Continued) |
| (k) | Intangible assets |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (k) | Intangible assets - (Continued) |
| (l) | Impairment on property, plant and equipment and intangible assets other than goodwill |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (l) | Impairment on property, plant and equipment and intangible assets other than goodwill - (Continued) |
| (m) | Taxation |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (m) | Taxation - (Continued) |
| (n) | Financial instruments |
| • | the financial asset is held within a business model whose objective is to collect contractual cash flows; and |
| • | the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (n) | Financial instruments - (Continued) |
| • | the financial asset is held within a business model whose objective is achieved by both selling and collecting contractual cash flows; and |
| • | the contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. |
| • | it has been acquired principally for the purpose of selling in the near term; or |
| • | on initial recognition it is a part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or |
| • | it is a derivative that is not designated and effective as a hedging instrument. |
| (i) | Amortized cost and interest income |
| (ii) | Financial assets at FVTPL |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (n) | Financial instruments - (Continued) |
| (ii) | Financial assets at FVTPL - (Continued) |
| (i) | Significant increase in credit risk |
| • | an actual or expected significant deterioration in the financial instrument’s external (if available) or internal credit rating; |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (n) | Financial instruments - (Continued) |
| (i) | Significant increase in credit risk - (Continued) |
| • | significant deterioration in external market indicators of credit risk, e.g. a significant increase in the credit spread, the credit default swap prices for the debtor; |
| • | existing or forecast adverse changes in business, financial or economic conditions that are expected to cause a significant decrease in the debtor’s ability to meet its debt obligations; |
| • | an actual or expected significant deterioration in the operating results of the debtor; |
| • | an actual or expected significant adverse change in the regulatory, economic, or technological environment of the debtor that results in a significant decrease in the debtor’s ability to meet its debt obligations. |
| (ii) | Definition of default |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (n) | Financial instruments - (Continued) |
| (iii) | Credit-impaired financial assets |
| (a) | significant financial difficulty of the issuer or the borrower; |
| (b) | a breach of contract, such as a default or past due event; |
| (c) | the lender(s) of the borrower, for economic or contractual reasons relating to the borrower’s financial difficulty, having granted to the borrower a concession(s) that the lender(s) would not otherwise consider; or |
| (d) | it is becoming probable that the borrower will enter bankruptcy or other financial reorganization. |
| (iv) | Write-off policy |
| (v) | Measurement and recognition of ECL |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (n) | Financial instruments - (Continued) |
| (v) | Measurement and recognition of ECL - (Continued) |
| • | Past-due status; |
| • | Nature, size and industry of debtors; and |
| • | External credit ratings where available. |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (n) | Financial instruments - (Continued) |
| (o) | Cash and cash equivalents |
| (a) | cash, which comprises of cash on hand and demand deposits, excluding bank balances that are subject to regulatory restrictions that result in such balances no longer meeting the definition of cash; and |
| (b) | cash equivalents, which comprises of short-term (generally with original maturity of three months or less), highly liquid investments that are readily convertible to a known amount of cash and which are subject to an insignificant risk of changes in value. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes. |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (p) | Fiduciary bank balances |
| (q) | Investments in joint ventures |
| 3. | BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) |
3.2 |
Significant accounting policies - (Continued) |
| (q) | Investments in joint ventures - (Continued) |
| (r) | Non-current assets held for sale |
| (s) | Borrowing costs |
| 4. | KEY SOURCES OF ESTIMATION UNCERTAINTY |
| 4. | KEY SOURCES OF ESTIMATION UNCERTAINTY - (CONTINUED) |
| 4. | KEY SOURCES OF ESTIMATION UNCERTAINTY - (CONTINUED) |
| 5. | REVENUE |
(i) |
Disaggregation of revenue from contracts with customers |
| Segments |
Digital solutions services— non financial services |
Digital solutions services— financial services |
Digital media, content, and marketing services and others |
Total | ||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| Types of services |
||||||||||||||||
| Digital solutions services—non financial services |
||||||||||||||||
| Digital solutions services—financial services |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Timing of revenue recognition |
||||||||||||||||
| A point in time |
||||||||||||||||
| Over time |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| 5. | REVENUE - (CONTINUED) |
(i) |
Disaggregation of revenue from contracts with customers - (Continued) |
| Segments |
Digital solutions services— non financial services |
Digital solutions services— financial services |
Digital media, content, and marketing services and others |
Total | ||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
| Types of services |
||||||||||||||||
| Digital solutions services—non financial services |
||||||||||||||||
| Digital solutions services—financial services |
||||||||||||||||
| Digital media, content, and marketing services |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Timing of revenue recognition |
||||||||||||||||
| A point in time |
||||||||||||||||
| Over time |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Segments |
Digital solutions services— non financial services |
Digital solutions services— financial services |
Hotel operations, hospitality and VIP services |
Digital media, content, and marketing services and others |
Total | |||||||||||||||
| US$ | US$ | US$ | US$ | US$ | ||||||||||||||||
| Types of services |
||||||||||||||||||||
| Digital solutions services—non financial services |
||||||||||||||||||||
| Digital solutions services—financial services |
||||||||||||||||||||
| Digital media, content, and marketing services |
||||||||||||||||||||
| Hotel operations, hospitality and VIP services |
||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Timing of revenue recognition |
||||||||||||||||||||
| A point in time |
||||||||||||||||||||
| Over time |
||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| Total |
||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|||||||||||
| 5. | REVENUE - (CONTINUED) |
(ii) |
Transaction price allocated to the remaining performance obligation for contracts with customers |
Digital solutions services— non financial services |
Hotel operations, hospitality and VIP services |
Digital media, content, and marketing services |
Total |
|||||||||||||||||||||||||||||
2022 |
2023 |
2022 |
2023 |
2022 |
2023 |
2022 |
2023 |
|||||||||||||||||||||||||
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
US$ |
|||||||||||||||||||||||||
| Within one year |
— | — | ||||||||||||||||||||||||||||||
| More than one year but not more than two years |
— | — | ||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| — | — | |||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| 6. | OPERATING SEGMENTS |
| (a) | The digital solutions services—non financial services segment: The Group provides its institutional and corporate clients with exclusive, paid access to the AMTD SpiderNet ecosystem to enhance their investor communication, investor relations and corporate communication to potentially maximize their valuation; |
| (b) | The digital solutions services—financial services segment: The Group provides primarily corporate clients with insurance brokerage services; |
| 6. | OPERATING SEGMENTS - (CONTINUED) |
| (c) | Hotel operations, hospitality and VIP services segment: The Group engages in hotel investments, hotel operations, hospitality and VIP services since the acquisition of AMTD Assets in February 2023; and |
| (d) | The digital media, content, and marketing services and others segment: The Group engages in digital media, content, and marketing business in which the Group creates and promotes digital solutions content by investing in and developing multimedia channels to provide users and audiences access to content medium through a comprehensive library of traditional and digital movies, podcasts, webinars and live videos offered by content providers and online media platforms and invests in innovative technology companies which operate digital non license businesses through strategic investments. |
Digital solutions services— non financial services |
Digital solutions services— financial services |
Digital media, content, and marketing services and others |
Consolidated |
|||||||||||||
US$ |
US$ |
US$ |
US$ |
|||||||||||||
| Segment revenues |
||||||||||||||||
| Revenue from external customers |
— | |||||||||||||||
| Revenue from related parties |
— | |||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| — | ||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Changes in fair value on financial assets measured at FVTPL |
— | — | ||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Segment profits |
||||||||||||||||
| Unallocated: |
||||||||||||||||
| Other gains and losses |
( |
) | ||||||||||||||
| Corporate expenses |
( |
) | ||||||||||||||
| |
|
|||||||||||||||
| Profit before tax |
||||||||||||||||
| |
|
|||||||||||||||
| 6. | OPERATING SEGMENTS - (CONTINUED) |
| Digital solutions services— non financial services |
Digital solutions services— financial services |
Digital media, content, and marketing services and others |
Consolidated | |||||||||||||
| US$ | US$ | US$ | US$ | |||||||||||||
Segment revenues |
||||||||||||||||
Revenue from external customers |
||||||||||||||||
Revenue from related parties |
— | |||||||||||||||
Changes in fair value on financial assets measured at FVTPL |
— | — | ||||||||||||||
Segment profits |
||||||||||||||||
Unallocated: |
||||||||||||||||
Other income |
||||||||||||||||
Other gains and losses |
||||||||||||||||
Corporate expenses |
( |
) | ||||||||||||||
Profit before tax |
||||||||||||||||
Digital solutions services— non financial services |
Digital solutions services— financial services |
Hotel operations, hospitality and VIP services |
Digital media, content, and marketing services and others |
Consolidated |
||||||||||||||||
US$ |
US$ |
US$ |
US$ |
US$ |
||||||||||||||||
Segment revenues |
||||||||||||||||||||
Revenue from external customers |
||||||||||||||||||||
Revenue from related parties |
— | — | ||||||||||||||||||
Changes in fair value on financial assets measured at FVTPL |
— | — | — | |||||||||||||||||
Segment profits/(losses) |
( |
) | ||||||||||||||||||
Unallocated: |
||||||||||||||||||||
Other income |
||||||||||||||||||||
Other gains and losses |
||||||||||||||||||||
Corporate expenses |
( |
) | ||||||||||||||||||
Profit before tax |
||||||||||||||||||||
| 6. | OPERATING SEGMENTS - (CONTINUED) |
| 2021 | 2022 | 2023 | ||||||||||
| US$ | US$ | US$ | ||||||||||
Customer A 1 |
N/A | 3 |
N/A | 3 | ||||||||
Customer B 1 |
N/A | 3 |
N/A | 3 | ||||||||
Customer C 2 |
N/A | 3 |
N/A | 3 |
||||||||
1 |
Revenue from digital solutions services—non financial services segment |
2 |
Revenue from digital solutions services—non financial services segment and digital media, content, and marketing services and others segment |
3 |
Revenue by this customer is less than |
| 6. | OPERATING SEGMENTS - (CONTINUED) |
7. |
FINANCE COSTS |
2021 |
2022 |
2023 |
||||||||||
US$ |
US$ |
US$ |
||||||||||
Interest on bank borrowings |
||||||||||||
Interest on amount due to a non-controlling shareholder |
||||||||||||
| 8. | CHANGES IN FAIR VALUE ON FINANCIAL ASSETS MEASURED AT FVTPL |
2021 |
2022 |
2023 |
||||||||||
US$ |
US$ |
US$ |
||||||||||
Changes in fair value on financial assets at FVTPL |
||||||||||||
| 9. | OTHER INCOME |
| 2021 | 2022 | 2023 | ||||||||||
| US$ | US$ | US$ | ||||||||||
Bank and other interest income (note (i)) |
||||||||||||
Government grant (note (ii)) |
||||||||||||
Others |
||||||||||||
Notes: (i) The amount mainly includes (a) interest income of US$ |
(ii) During the years ended April 30, 2021, 2022 and 2023, the Group recognized government grants of US$ COVID-19-related |
| 10. | OTHER GAINS AND LOSSES, NET |
| 2021 | 2022 | 2023 | ||||||||||
US$ |
US$ |
US$ |
||||||||||
Net exchange (loss) gain |
( |
) | ||||||||||
Recovery of accounts and other receivables written off |
||||||||||||
| ( |
) | |||||||||||
| 11. | INCOME TAX EXPENSE |
| 2021 | 2022 | 2023 | ||||||||||
| US$ | US$ | US$ | ||||||||||
Hong Kong Profits Tax |
||||||||||||
- Current tax |
||||||||||||
- Overprovision in prior years |
( |
) | ( |
) | ( |
) | ||||||
Deferred tax (note 25) |
( |
) | ( |
) | ( |
) | ||||||
| 2021 | 2022 | 2023 | ||||||||||
| US$ | US$ | US$ | ||||||||||
Profit before tax |
||||||||||||
Tax at the domestic income tax rate of |
||||||||||||
Tax effect of income not taxable for tax purpose |
( |
) | ( |
) | ( |
) | ||||||
Tax effect of expenses not deductible for tax purpose |
||||||||||||
Tax effect of share of losses of joint ventures |
||||||||||||
Tax effect of tax losses not recognized |
||||||||||||
Utilization of tax losses previously not recognized |
( |
) | ||||||||||
Overprovision in prior years |
( |
) | ( |
) | ( |
) | ||||||
Effect of different tax rates of subsidiaries operating in other jurisdictions |
( |
) | ( |
) | ||||||||
Others |
( |
) | ( |
) | ||||||||
Income tax expense for the year |
||||||||||||
| 11. | INCOME TAX EXPENSE - (CONTINUED) |
| 12. | PROFIT FOR THE YEAR |
2021 |
2022 |
2023 |
||||||||||
US$ |
US$ |
US$ |
||||||||||
Directors’ emoluments |
||||||||||||
Salaries, allowances and other benefits |
||||||||||||
Retirement benefit scheme contributions (note) |
||||||||||||
Staff costs |
||||||||||||
Salaries, allowances and other benefits |
||||||||||||
Retirement benefit scheme contributions (note) |
||||||||||||
Share of losses of joint ventures (including in other expenses) |
— | — | ||||||||||
Depreciation and amortization |
||||||||||||
| Note: | The Group operates a Mandatory Provident Fund Scheme and Central Provident Fund Scheme for all qualifying employees in Hong Kong and Singapore, respectively. The assets of the schemes are held separately from those of the Group, in funds under the control of trustees. |
| 13. | EARNINGS PER SHARE |
Earnings figures are calculated as follows: |
2021 | 2022 | 2023 | |||||||||
| US$ | US$ | US$ | ||||||||||
Earnings for the purpose of basic and diluted earnings per share |
||||||||||||
Number of shares |
2021 |
2022 |
2023 |
|||||||||
Weighted average number of ordinary shares for the purpose of basic earnings per share |
||||||||||||
Effect of dilutive potential ordinary shares -restricted ordinary shares and restricted shares unit (note 31) |
||||||||||||
Weighted average number of ordinary shares for the purpose of diluted earnings per share |
||||||||||||
| 14. | ACQUISITIONS OF SUBSIDIARIES |
| 14. | ACQUISITIONS OF SUBSIDIARIES - (CONTINUED) |
| US$ | ||||
Interests in joint ventures |
||||
Property, plant and equipment |
||||
Cash and cash equivalents |
||||
Accounts receivable |
||||
Prepayments, deposits and other receivables |
||||
Amount due from a non-controlling shareholder |
||||
Accounts payable |
( |
) | ||
Other payables and accruals |
( |
) | ||
Contract liabilities |
( |
) | ||
Bank borrowings |
( |
) | ||
Amount due to a non-controlling shareholder |
( |
) | ||
Amount due to AMTD Group |
( |
) | ||
Reserves arising on acquisition: |
||||
Consideration transferred |
||||
Plus: non-controlling interests of AMTD Assets |
||||
Plus: non-controlling interests of AMTD Assets’ subsidiaries |
||||
Less: recognized amounts of net assets acquired |
( |
) | ||
Cash consideration paid |
||||
Add: cash and cash equivalent balances acquired |
||||
14. |
ACQUISITIONS OF SUBSIDIARIES - (CONTINUED) |
(b) |
Acquisition of PolicyPal in 2020 |
| US$ | ||||
Cash |
||||
Ordinary shares of the Company |
||||
Total |
||||
| US$ | ||||
Property, plant and equipment |
||||
Intangible asset |
||||
Accounts, deposits and other receivables |
||||
Cash and cash equivalents |
||||
Accounts and other payables |
( |
) | ||
Deferred tax liability |
( |
) | ||
| 14. | ACQUISITIONS OF SUBSIDIARIES - (CONTINUED) |
| (b) | Acquisition of PolicyPal in 2020 - (Continued) |
| US$ | ||||
Consideration transferred |
||||
Plus: non-controlling interests (49% in PolicyPal) |
||||
Less: net assets acquired |
( |
) | ||
Goodwill arising on acquisition |
||||
| US$ | ||||
Cash consideration paid |
( |
) | ||
Add: cash and cash equivalents balances acquired |
||||
| 15. | ASSETS CLASSIFIED AS HELD FOR SALE/ LIABILITIES ASSOCIATED WITH ASSETS CLASSIFIED AS HELD FOR SALE |
| April 30, 2023 |
||||
| US$ | ||||
| Goodwill |
||||
| Property, plant and equipment |
||||
| Intangible assets |
||||
| Accounts receivable |
||||
| Prepayments, deposits and other receivables |
||||
| Fiduciary bank balances |
||||
| Cash and cash equivalents |
||||
| |
|
|||
| Total assets classified as held for sale |
||||
| |
|
|||
| Client’s monies held on trust |
( |
) | ||
| Other payables and accruals |
( |
) | ||
| Deferred tax liabili ty |
( |
) | ||
| |
|
|||
| Total liabilities associated with assets classified as held for sale |
( |
) | ||
| |
|
|||
| 16. | INTERESTS IN JOINT VENTURES |
| 2022 | 2023 | |||||||
| US$ | US$ | |||||||
| Cost of investments in joint ventures |
||||||||
| Share of post-acquisition losses and other comprehensive expense |
( |
) | ||||||
| Exchange realignment |
( |
) | ||||||
| |
|
|
|
|||||
| Due from joint ventures |
||||||||
| |
|
|
|
|||||
| |
|
|
|
|||||
| Name |
Place of incorporation |
Percentage of ownership interest held by the Company |
Principal activity | |||||||
| DHI Holdings (S) Pte Ltd. |
% | and VIP services in Singapore | ||||||||
16. |
INTERESTS IN JOINT VENTURES - (CONTINUED) |
| As of April 30, 2023 |
||||
| US$ | ||||
| Total assets |
||||
| Total liabilities |
( |
) | ||
| |
|
|||
| Net assets |
||||
| Proportion of the Group’s ownership |
% | |||
| |
|
|||
| Group’s share of net assets of joint ventures |
||||
| Due from joint ventures |
||||
| |
|
|||
| Interests in joint ventures |
||||
| |
|
|||
| Addition information of the joint ventures |
||||
| Cash and cash equivalents |
||||
| Amounts due to shareholders |
( |
) | ||
| Bank borrowings |
( |
) | ||
| February 6, 2023 to April 30, 2023 |
||||
| US$ | ||||
| Revenue |
||||
| |
|
|||
| Loss for the period |
( |
) | ||
| Other comprehensive expense for the period |
( |
) | ||
| |
|
|||
| Total comprehensive expense for the period |
( |
) | ||
| |
|
|||
| Addition information of the joint ventures |
||||
| Depreciation of property, plant and equipment |
||||
| Interest expenses |
||||
| |
|
|||
17. |
GOODWILL |
US$ |
||||
| COST |
||||
| At May 1, 2021 |
||||
| Exchange realignment |
( |
) | ||
| |
|
|||
| At April 30, 2022 |
||||
| Reclassified as held for sale (note 15) |
( |
) | ||
| Exchange realignment |
||||
| |
|
|||
| At April 30, 2023 |
||||
| |
|
|||
17. |
GOODWILL - (CONTINUED) |
18. |
PROPERTY, PLANT AND EQUIPMENT |
Hotel properties |
Computer equipment |
Total |
||||||||||
US$ |
US$ |
US$ |
||||||||||
COST OR REVALUATION |
||||||||||||
At May 1, 2021 |
||||||||||||
Additions |
||||||||||||
Exchange realignment |
( |
) | ( |
) | ||||||||
At April 30, 2022 |
||||||||||||
Additions |
||||||||||||
Acquired on acquisition of subsidiaries (note 14(a)) |
||||||||||||
Reclassified as held for sale (note 15) |
( |
) | ( |
) | ||||||||
Exchange realignment |
( |
) | ( |
) | ||||||||
At April 30, 2023 |
||||||||||||
ACCUMULATED DEPRECIATION |
||||||||||||
At May 1, 2021 |
||||||||||||
Provided for the year |
||||||||||||
Exchange realignment |
||||||||||||
At April 30, 2022 |
||||||||||||
Provided for the year |
||||||||||||
Elimination on revaluation |
( |
) | ( |
) | ||||||||
Reclassified as held for sale (note 15) |
( |
) | ( |
) | ||||||||
Exchange realignment |
( |
) | ( |
) | ||||||||
At April 30, 2023 |
||||||||||||
CARRYING VALUES |
||||||||||||
At April 30, 2022 |
||||||||||||
At April 30, 2023 |
||||||||||||
18. |
PROPERTY, PLANT AND EQUIPMENT - (CONTINUED) |
Computer equipment |
||
Hotel properties |
| 19. | INTANGIBLE ASSETS |
| Developed technology |
Brand name |
Total | ||||||||||
| US$ | US$ | US$ | ||||||||||
| COST |
||||||||||||
| At May 1, 2021 |
||||||||||||
| Additions |
||||||||||||
| Exchange realignment |
( |
) | ( |
) | ( |
) | ||||||
| |
|
|
|
|
|
|||||||
| At April 30, 2022 |
||||||||||||
| Reclassified as held for sale (note 15) |
( |
) | ( |
) | ||||||||
| Exchange realignment |
||||||||||||
| |
|
|
|
|
|
|||||||
| At April 30, 2023 |
||||||||||||
| |
|
|
|
|
|
|||||||
| AMORTIZATION |
||||||||||||
| At May 1, 2021 |
||||||||||||
| Charge for the year |
||||||||||||
| Exchange realignment |
( |
) | ( |
) | ||||||||
| |
|
|
|
|
|
|||||||
| At April 30, 2022 |
||||||||||||
| Charge for the year |
||||||||||||
| Reclassified as held for sale (note 15) |
( |
) | ( |
) | ||||||||
| Exchange realignment |
||||||||||||
| |
|
|
|
|
|
|||||||
| At April 30, 2023 |
||||||||||||
| |
|
|
|
|
|
|||||||
| CARRYING VALUES |
||||||||||||
| At April 30, 2022 |
||||||||||||
| |
|
|
|
|
|
|||||||
| At April 30, 2023 |
||||||||||||
| |
|
|
|
|
|
|||||||
| Developed technology | ||
| Brand name |
| 20. | FINANCIAL ASSETS AT FVTPL |
| 2022 | 2023 | |||||||
| US$ | US$ | |||||||
| Unlisted equity securities (note (i)) |
||||||||
| Movie income right investments (note (ii)) |
||||||||
| |
|
|
|
|||||
| |
|
|
|
|||||
| 20. | FINANCIAL ASSETS AT FVTPL - (CONTINUED) |
| Current |
||||||||
| Non-current |
||||||||
| |
|
|
|
|||||
| |
|
|
|
| (i) | The Company classified certain equity securities as non-current when Company considered that these equity securities are held for long-term purposes and would realize their performance potential in the long run. |
| During the year ended April 30, 2022, the Group disposed a financial asset measured at FVTPL to an independent third party with a gain of US$ US$ |
| During the year ended April 30, 2023, the Group disposed financial assets measured at FVTPL to independent third parties at the consideration of US$ |
| (ii) | As of April 30, 2022 and 2023, the financial assets at FVTPL of the Group includes movie income right agreements with a production house, which are independent third parties, with a carrying value of US$ |
| 21. | ACCOUNTS RECEIVABLE, PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES |
| 2022 | 2023 | |||||||
| US$ | US$ | |||||||
| Commission receivable from digital solutions services—financial services |
||||||||
| Accounts receivable arising from the digital solutions services—non financial services |
||||||||
| Accounts receivable from hotel operations, hospitality and VIP services |
— | |||||||
| |
|
|
|
|||||
| Total accounts receivable |
||||||||
| |
|
|
|
|||||
| Consideration receivable on disposal of financial assets at FVTPL (note 20) |
— | |||||||
| Prepayments (note (i)) |
||||||||
| Deposits |
— | |||||||
| Note receivables (note (ii)) |
||||||||
| Other receivables (note (iii)) |
||||||||
| Deferred issue costs |
— | |||||||
| |
|
|
|
|||||
| Prepayments, deposits and other receivables |
||||||||
| |
|
|
|
|||||
| (i) | As of April 30, 2022 and 2023, prepayments mainly included employment incentive paid to the employees amounting to US$ |
| (ii) | As of April 30, 2023 and 2022, the amount represented note receivables from independent third parties. The balances are unsecured, carried at fixed interest rates ranged from |
| (iii) | The amount as of April 30, 2023 mainly represents interest receivables of US$ |
| 22. | ACCOUNTS PAYABLE, OTHER PAYABLES AND ACCRUALS |
| 2022 | 2023 | |||||||
| US$ | US$ | |||||||
| Accounts payable arising from digital solutions services—financial services |
||||||||
| Accounts payable arising from hotel operations, hospitality and VIP services |
||||||||
| |
|
|
|
|||||
| Total accounts payable |
||||||||
| |
|
|
|
|||||
| Other payables and accruals |
||||||||
| Accrued issue cost |
||||||||
| |
|
|
|
|||||
| Total other payables and accruals |
||||||||
| |
|
|
|
|||||
| 23. | BANK BORROWINGS |
| 2022 | 2023 | |||||||
| US$ | US$ | |||||||
| Bank borrowings within one year or on demand |
|
|||||||
| |
|
|
|
|||||
| 24. | CONTRACT LIABILITIES |
| 2022 | 2023 | |||||||
| US$ | US$ | |||||||
| Digital solutions services—non financial services income |
||||||||
| Digital media, content, and marketing services income |
||||||||
| Hotel operations, hospitality and VIP services income |
||||||||
| |
|
|
|
|||||
| |
|
|
|
|||||
| Presented as: |
||||||||
| Current |
||||||||
| Non-current |
||||||||
| |
|
|
|
|||||
| |
|
|
|
|||||
| 24. | CONTRACT LIABILITIES - (CONTINUED) |
| 2022 | 2023 | |||||||
| US$ | US$ | |||||||
| Digital solutions services—non financial services income |
||||||||
| Revenue recognized that was included in the contract liability balance at the beginning of the year |
||||||||
| |
|
|
|
|||||
| 25. | DEFERRED TAX LIABILITY |
| Intangible assets |
||||
| US$ | ||||
| At May 1, 2021 |
||||
| Credit to profit or loss (note 11) |
( |
) | ||
| Exchange realignment |
( |
) | ||
| |
|
|||
| At April 30, 2022 |
||||
| Credit to profit or loss (note 11) |
( |
|||
| Reclassified as liabilities associated with assets classified as held for sale (note 15) |
( |
|||
| Exchange realignment |
||||
| |
|
|||
| At April 30, 2023 |
||||
| |
|
|||
| 26. | SHARE CAPITAL AND TREASURY SHARES |
Class A ordinary shares |
Class B ordinary shares |
Total |
Treasury shares— Class B ordinary shares |
|||||||||||||||||||||||||||||
Number of shares |
Share capital |
Number of shares |
Share capital |
Number of shares |
Share capital |
Number of shares |
Share capital |
|||||||||||||||||||||||||
US$ |
US$ |
US$ |
US$ |
|||||||||||||||||||||||||||||
| Ordinary shares of US$0.0001 each |
||||||||||||||||||||||||||||||||
| Authorized |
||||||||||||||||||||||||||||||||
| At April 30, 2022 and 2023 |
N/A | N/A | ||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| Issued and fully paid |
||||||||||||||||||||||||||||||||
| At May 1, 2020 |
— | — | ||||||||||||||||||||||||||||||
| Issuance of shares (notes (a) and (e)) |
— | — | — | — | ||||||||||||||||||||||||||||
| Share-based compensation (note (b)) |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Acquisitions of subsidiaries (note (c)) |
— | — | — | — | — | — | ||||||||||||||||||||||||||
| Transfer of shares (note (d)) |
( |
) | ( |
) | — | — | — | — | ||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| At April 30, 2021 |
— | — | ||||||||||||||||||||||||||||||
| Transfer of shares (note (f)) |
( |
) | ( |
) | — | — | — | — | ||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| At April 30, 2022 |
— | — | — | |||||||||||||||||||||||||||||
| Issuance of shares (note (g)) |
— | — | — | — | ||||||||||||||||||||||||||||
| Shares repurchases (note (h)) |
— | — | ( |
) | — | ( |
) | — | ||||||||||||||||||||||||
| Acquisition of subsidiaries (note (i)) |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| At April 30, 2023 (note (j)) |
||||||||||||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| (a) | Between May 13, 2020 and August 3, 2020, the Company issued |
| (b) | On August 3, 2020, the Company granted |
| (c) | The Company issued |
| (d) | On June 26, 2020, the then immediate holding company of the Company, AMTD Group, converted its |
| (e) | On March 8, 2021, the Company issued |
26. |
SHARE CAPITAL AND TREASURY SHARES - (CONTINUED) |
| (f) | On February 23, 2022, |
| (g) | During year ended April 30, 2023, the Company issued (i) , and (ii) The total shares issued during the year ended April 30, 2023 amounted to US$ total issuance cost incurred. |
| (h) | During the year ended April 30, 2023, the Company repurchased |
| (i) | The Company acquired |
| (j) | The number of Class A ordinary shares of the Company at April 30, 2023 included |
| 27. | NON-CONTROLLING INTERESTS |
| Share of net assets of subsidiaries |
||||
| US$ | ||||
| At May 1, 2020 |
||||
| Loss for the year attributable to non-controlling interests |
( |
) | ||
| Exchange differences arising on translation |
||||
| Non-controlling interests arising on the acquisition of subsidiaries (note 14(b)) |
||||
| |
|
|||
| At April 30, 2021 |
||||
| Loss for the year attributable to non-controlling interests |
( |
) | ||
| Exchange differences arising on translation |
( |
) | ||
| Issue of shares (note 26 ) |
||||
| Share-based compensation (note 31) |
||||
| |
|
|||
| At April 30, 2022 |
||||
| Loss for the year attributable to non-controlling interests |
( |
) | ||
| Exchange differences arising on translation |
( |
) | ||
| Surplus on revaluation of hotel properties |
||||
| Share of other comprehensive expense of joint ventures |
( |
) | ||
| Non-controlling interests arising on the acquisition of subsidiaries (note 14(a)) |
||||
| |
|
|||
| At April 30, 2023 |
||||
| |
|
|||
| 27. | NON-CONTROLLING INTERESTS - (CONTINUED) |
| Name of subsidiaries |
Proportion of ownership interests and/or voting rights held by non- controlling interests |
Loss allocated to non- controlling interests for the year |
Non-controlling interests |
|||||||||||||||||||||
30/4/2022 |
30/4/2023 |
30/4/2022 |
30/4/2023 |
30/4/2022 |
30/4/2023 |
|||||||||||||||||||
US$ |
US$ |
US$ |
US$ |
|||||||||||||||||||||
| |
— | % | ( |
) | ||||||||||||||||||||
| |
— | % | ( |
) | ||||||||||||||||||||
| |
( |
) | ( |
) | ||||||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||
| ( |
) | ( |
) | |||||||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||||||||||
As of April 30, 2023 |
||||||||
Fine Cosmos Development Limited |
RCC Holdings Limited and Hotel Versante Limited |
|||||||
US$ |
US$ |
|||||||
| Current assets |
||||||||
| Non-current assets |
||||||||
| Current liabilities |
( |
) | ( |
) | ||||
| Equity attributable to owners of the Company |
||||||||
| Non-controlling interests |
||||||||
27. |
NON-CONTROLLING INTERESTS - (CONTINUED) |
February 6, 2023 to April 30, 2023 |
||||||||
Fine Cosmos Development Limited |
RCC Holdings Limited and Hotel Versante Limited |
|||||||
US$ |
US$ |
|||||||
| Revenue |
|
|
||||||
| Expenses |
( |
) | ( |
) | ||||
| Loss for the period |
( |
) | ( |
) | ||||
| Loss attributable to owners of the Company |
( |
) | ( |
) | ||||
| Loss attributable to the non-controlling interests |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| Loss for the period |
( |
) | ( |
) | ||||
| |
|
|
|
|||||
| 28. | CAPITAL RISK MANAGEMENT |
| 29. | FINANCIAL INSTRUMENTS |
| a. | Categories of financial instruments |
| 2022 | 2023 | |||||||
| US$ | US$ | |||||||
| Financial assets |
||||||||
| Financial assets at FVTPL |
||||||||
| Amortized cost |
||||||||
| |
|
|
|
|||||
| Financial liabilities |
||||||||
| Amortized cost |
||||||||
| |
|
|
|
|||||
| 29. | FINANCIAL INSTRUMENTS - (CONTINUED) |
| b. | Financial risk management objectives and policies |
| (i) | Currency risk |
| (ii) | Interest rate risk |
| (iii) | Other price risk |
| 29. | FINANCIAL INSTRUMENTS - (CONTINUED) |
| b. | Financial risk management objectives and policies - (Continued) |
| (iii) | Other price risk - (Continued) |
| 29. | FINANCIAL INSTRUMENTS - (CONTINUED) |
| b. | Financial risk management objectives and policies - (Continued) |
| 29. | FINANCIAL INSTRUMENTS - (CONTINUED) |
| b. | Financial risk management objectives and policies - (Continued) |
| Internal credit rating |
Description |
Commission receivable from digital solutions services—financial services, accounts receivable arising from digital solutions services—non financial services and accounts receivable from hotel operations, hospitality and VIP services |
Other financial assets | |||
| Normal risk |
||||||
| Doubtful |
||||||
| Loss |
||||||
| Write-off |
||||||
| 29. | FINANCIAL INSTRUMENTS - (CONTINUED) |
| b. | Financial risk management objectives and policies - (Continued) |
| Notes | Internal credit rating |
12m ECL or lifetime ECL |
2022 Gross carrying amount |
2023 Gross carrying amount |
||||||||||
| US$ | US$ | |||||||||||||
| Financial assets at amortized costs |
||||||||||||||
| Commission receivable from digital solutions services—financial services |
21 | (Note) | Lifetime ECL (provision matrix) | |||||||||||
| Accounts receivable arising from digital solutions services—non financial services |
21 | (Note) | Lifetime ECL - not credit-impaired |
|||||||||||
| Accounts receivable from hotel operations, hospitality and VIP services |
21 | (Note) | Lifetime ECL (provision matrix) | |||||||||||
| Consideration receivables |
21 | Normal risk | 12-month ECL |
|||||||||||
| Deposits |
21 | Normal risk | 12-month ECL |
|||||||||||
| Note receivables |
21 | Normal risk | 12-month ECL |
|||||||||||
| Other receivables |
21 | Normal risk | 12-month ECL |
|||||||||||
| Amounts due from joint ventures |
16 | Normal risk | 12-month ECL | |||||||||||
| Amount due from AMTD Group |
30 | Normal risk | 12-month ECL |
|||||||||||
| Amount due from a non-controlling shareholder |
30 | Normal risk | 12-month ECL |
|||||||||||
| Cash and cash equivalents |
Aa3 | 12-month ECL |
||||||||||||
| Fiduciary bank balances |
Normal risk | 12-month ECL |
||||||||||||
| |
|
|
|
|||||||||||
| |
|
|
|
|||||||||||
| Note: | For commission receivable from digital solutions services—financial services, accounts receivable arising from digital solutions services—non financial services and accounts receivable from hotel operations, hospitality and VIP services, the Group has applied the simplified approach in IFRS 9 to measure the loss allowance at lifetime ECL. The Group determines the ECL on commission receivable from digital solutions services—financial services and accounts receivable from hotel operations, hospitality and VIP services on a collective basis, grouped by internal credit rating. For accounts receivable arising from digital solutions services—non financial services, the ECL is assessed on an individual basis. |
| 29. | FINANCIAL INSTRUMENTS - (CONTINUED) |
| b. | Financial risk management objectives and policies - (Continued) |
| Weighted average interest rate |
On demand or less than 1 year |
Total undiscounted cash flows |
Carrying amount |
|||||||||||||
| US$ | US$ | US$ | ||||||||||||||
| At April 30, 2022 |
||||||||||||||||
| Accounts payable |
||||||||||||||||
| Clients’ monies held on trust |
||||||||||||||||
| Other payables and accruals |
||||||||||||||||
| |
|
|
|
|
|
|||||||||||
| |
|
|
|
|
|
|||||||||||
| Weighted average interest rate |
On demand or less than 1 year |
Total undiscounted cash flows |
Carrying amount |
|||||||||||||
| US$ | US$ | US$ | ||||||||||||||
| At April 30, 2023 |
||||||||||||||||
| Accounts payable |
||||||||||||||||
| Clients’ monies held on trust |
||||||||||||||||
| Other payables and accruals |
||||||||||||||||
| Interest bearing bank borrowings |
||||||||||||||||
| Interest bearing amount due to a non-controlling shareholder |
||||||||||||||||
| Non-interest bearing amount due to a non-controlling shareholder |
— | |||||||||||||||
| |
|
|
|
|
|
|||||||||||
| |
|
|
|
|
|
|||||||||||
| 29. | FINANCIAL INSTRUMENTS - (CONTINUED) |
| b. | Financial risk management objectives and policies - (Continued) |
| c. | Fair value measurements of financial instruments |
(i) |
Fair value of the Group’s financial assets that are measured at fair value on a recurring basis |
| Financial assets |
Fair value as at | Fair value hierarchy |
Valuation technique(s) and key inputs |
Significant unobservable input(s) | ||||||||||
| 2022 | 2023 | |||||||||||||
| US$ | US$ | |||||||||||||
| Financial assets at FVTPL - unlisted equity securities |
Level 2 | N/A | ||||||||||||
| Level 3 | ||||||||||||||
| 29. | FINANCIAL INSTRUMENTS - (CONTINUED) |
| c. | Fair value measurements of financial instruments - (Continued) |
(i) |
Fair value of the Group’s financial assets that are measured at fair value on a recurring basis - (Continued) |
| Financial assets |
Fair value as at | Fair value hierarchy |
Valuation technique(s) and key inputs |
Significant unobservable input(s) | ||||||||||
| 2022 | 2023 | |||||||||||||
| US$ | US$ | |||||||||||||
| Movie income right investments |
Level 3 | Discount rate, taking into account weighted average cost of capital determined using a Capital Asset Pricing Model ranged from (note (ii)) and expected ticket sales performance and expected movie production costs. | ||||||||||||
| (i) | A change in the expected volatility used in isolation would result in a change in the fair value of the private equity investments. A |
| (ii) | A |
| 29. | FINANCIAL INSTRUMENTS - (CONTINUED) |
| c. | Fair value measurements of financial instruments - (Continued) |
(i) |
Fair value of the Group’s financial assets that are measured at fair value on a recurring basis - (Continued) |
| Unlisted investments classified as equity instruments at FVTPL |
Movie income right investments |
Total | ||||||||||
| US$ | US$ | US$ | ||||||||||
At May 1, 2021 |
||||||||||||
Total gains in profit or loss |
||||||||||||
Transfer from Level 2 to Level 3 |
— | |||||||||||
Receipt of investment return |
— | ( |
) | ( |
) | |||||||
Disposals |
( |
) | — | ( |
) | |||||||
Exchange realignment |
( |
) | ( |
) | ( |
) | ||||||
At April 30, 2022 |
||||||||||||
Total gains in profit or los s |
||||||||||||
New investment |
— | |||||||||||
Disposals |
( |
) | — | ( |
) | |||||||
Exchange realignment |
( |
) | ||||||||||
At April 30, 2023 |
||||||||||||
(ii) |
Fair value of financial assets and financial liabilities that are not measured at fair value on a recurring basis |
| 30. | RELATED PARTY DISCLOSURES |
Relationship |
Nature of transactions |
2021 |
2022 |
2023 |
||||||||||
US$ |
US$ |
US$ |
||||||||||||
rendered |
||||||||||||||
rendered |
||||||||||||||
rendered |
||||||||||||||
rendered |
||||||||||||||
(note 14(a)) |
||||||||||||||
| 30. | RELATED PARTY DISCLOSURES - (CONTINUED) |
| 31. | SHARE-BASED COMPENSATION |
Non-vested RSUs of the Company outstanding |
Non-vested shares outstanding |
|||||||||||
Class A ordinary shares of the Company |
Ordinary shares of PolicyPal |
|||||||||||
| At May 1, 2021 |
||||||||||||
| Grant |
||||||||||||
| Vested |
( |
) | ||||||||||
| |
|
|
|
|
|
|||||||
| At April 30, 2022 |
||||||||||||
| Vested |
( |
) | ||||||||||
| |
|
|
|
|
|
|||||||
| At April 30, 2023 |
||||||||||||
| |
|
|
|
|
|
|||||||
| 31. | SHARE-BASED COMPENSATION - (CONTINUED) |
| 32. | RECONCILIATION OF LIABILITIES ARISING FROM FINANCING ACTIVITIES |
Amount due to AMTD Group |
Amounts due to fellow subsidiaries |
Amount due to a non- controlling shareholder |
Bank borrowings |
Total |
||||||||||||||||
| US$ |
US$ |
US$ |
US$ |
US$ |
||||||||||||||||
| At May 1, 2020 |
|
|
|
|||||||||||||||||
| Financing cash flows |
( |
) | |
|
|
( |
) | |||||||||||||
| Non-cash transaction (note) |
( |
) | ( |
) | |
|
|
( |
) | |||||||||||
| Exchange realignment |
( |
) | ( |
) | |
|
— |
|
— | ( |
) | |||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At April 30, 2021 and 2022 |
|
|
|
|||||||||||||||||
| Financing cash flows |
|
|
|
|||||||||||||||||
| Interest accruals |
|
|
|
|||||||||||||||||
| Acquisition of subsidiaries (note 14(a)) |
|
|
|
|||||||||||||||||
| Non-cash transaction (note) |
( |
) | |
|
|
( |
) | |||||||||||||
| Exchange realignment |
— | — | |
|
( |
) |
( |
( |
) | |||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| At April 30, 2023 |
|
|
|
|||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Note: | Pursuant to the offsetting agreements described in note 30, amount due to AMTD Group and amounts due to fellow subsidiaries, which amounted to US$ amount due from AMTD Group and amounts due from fellow subsidiaries under these agreements during the year ended April 30, 2021. Amount due to AMTD Group of US$ |
| 33. | REGULATORY REQUIREMENT |
| 34. | EVENTS AFTER THE REPORTING PERIOD |
| 35. | APPROVAL OF CONSOLIDATED FINANCIAL STATEMENTS |