On Real International : FIRST QUARTERLY REPORT 2017

On Real International Holdings Limited‌‌

安悅國際控股有限公司

(incorporated in the Cayman Islands with limited liability) Stock Code: 8245

2017

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

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

Financial Highlights 3

Management Discussion and Analysis 4

Other Information 9

Unaudited Condensed Consolidated Statements 14

Notes to Condensed Consolidated Financial Information 17

FINANCIAL HIGHLIGHTS

• Revenue of the Company for the three months ended 30 June 2017 amounted to approximately HK$77.3 million, representing an increase of approximately 24.6% as compared with that of approximately HK$62.1 million for the three months ended 30 June 2016.

• Loss attributable to the owner of the Company for the three months ended 30 June 2017 amounted to approximately HK$4.4 million compared with loss of approximately HK$0.6 million for the three months ended 30 June 2016.

• Basic and diluted losses per share for the three months ended 30 June 2017 amounted to approximately HK cents 0.11 (losses per share (restated) for the three months ended 30 June 2016: HK cents 0.02).

• The Directors do not recommend the payment of any dividend in respect of the three months ended 30 June 2017.

MANAGEMENT DISCUSSION AND ANALYSIS

The board of Directors (the "Board") of the Company is pleased to present the unaudited condensed consolidated results of the Group for the three months ended 30 June 2017, together with the unaudited comparative figures for the corresponding periods in 2016.

We are a two-way radio product designer and manufacturer established in 2001. We derive the revenue principally from designing, manufacturing and selling two-way radios and baby monitor products on original design manufacturing (the "ODM") basis.

The revenue increased from approximately HK$62.1 million for the three months ended 30 June 2016 to approximately HK$77.3 million for the three months ended 30 June 2017, representing an increase of approximately 24.6%. The increase was mainly due to (i) increase in the provision of providing electric manufacturing servicing business to utilize the spare manufacturing capacity of the factory; and (ii) increase in other business for the three months ended 30 June 2017 due to increase in the sales of plastic materials and molds.

The revenue of two-way radios slightly decreased by approximately 2.9% from approximately HK$53.8 million for the three months ended 30 June 2016 to approximately HK$52.2 million for the three months ended 30 June 2017 mainly due to the decrease in unit selling price for matching with the change in business strategy of market positioning of client. The revenue of baby monitor increased by 87.9% from approximately HK$4.0 million for the three months ended 30 June 2016 to approximately HK$7.5 million for the three months ended 30 June 2017 mainly due to the increase in the sales of baby monitor with low margin.

Due to reasons mentioned in above, the revenue of servicing business significantly increased by approximately 332.5 times from approximately HK$19 thousand for the three months ended 30 June 2016 to approximately HK$6.3 million for the three months ended 30 June 2017, and the revenue of other segment increased by 1.6 times from approximately HK$4.3 million for the three months ended 30 June 2016 to approximately HK$11.3 million for the three months ended 30 June 2017.

The Company will continue to diversify the revenue stream and expand the customer base by expanding product offerings and exploring business opportunity with current and potential customers.

The following tables set forth the breakdowns of the turnover of the Group by product categories for each of the three months ended 30 June 2017 and 2016:

Unaudited

For the three months ended 30 June

The new products pipeline of the Group has competitive power, with new models in all three product categories of consumer two-way radios, commercial two-way radios and baby monitors. During the period, we received a new project awards from our customer.

Our business objectives are to grow our existing business, diversify the revenue streams and expand our customer base by expanding product offerings and features, improving information technology system and strengthening management and widening sales channel. We are also reviewing our business and manufacturing processes and will implement cost saving measures in operation if appropriate.

Below are the progress of the implementation of our objectives and strategies as disclosed in our prospectus (the "Prospectus") dated 18 September 2015:

1. Strengthen our product portfolio: we are going to develop new high-end two- way radio and baby monitor products with new features and technologies, such as Internet-of-Things ("IoT") connectivity. The process of develop IoT is delayed and we have incorporated a new subsidiary for the IoT in June 2017.

2. Enhance our information management system: We have started the feasibility evaluation of our information management system and the enhancement program will start in late 2017.

3. Strengthen our marketing efforts: we continue to maintain our market presence and expand our sales channels and strengthen our presence in The United States of America (the "US") and the People's Republic of China (the "PRC") by introducing our products and services to potential customers. We have started to explore new sales channels to launch new products in North America through participating in a crowd-funding activity, of which the first launch will start in mid of July 2017.

We will continue to put effort in developing new model of our products which is expected to bring growth potential for turnover to the Group and returns to the shareholders.

The majority of the Group's cost of sales comprised of raw material cost and labour cost. Our cost of sales increased by approximately 34.0% from approximately HK$53.5 million for the three months ended 30 June 2016 to approximately HK$71.7 million for the three months ended 30 June 2017, increase in mainly due to increase in sales as well as costs of materials and subcontracting charges. The gross margin decreased from approximately 13.8% for the three months ended 30 June 2016 to approximately 7.3% for the three months ended 30 June 2017, the decrease in the gross margin was mainly due to the increase the sales in business segment of servicing business and other, which are lower profit margin than two-way radios and baby monitors.

The other income increased from approximately HK$0.5 million for the three months ended 30 June 2016 to approximately HK$0.7 million for the three months ended 30 June 2017, which was mainly due to gain on disposal of non-current assets and machinery rental income approximately HK$0.4 million in the three months ended 30 June 2017.

We recorded other gains of approximately HK$0.4 million for the three months ended 30 June 2016 and become other losses of approximately HK$23 thousand for the three months ended 30 June 2017, which was mainly due to decease of exchange gain in the three months ended 30 June 2017.

The selling and distribution expenses remained stable at approximately HK$1.0 million for the three months ended 30 June 2016 and approximately HK$0.9 million for the three months ended 30 June 2017.

The administrative expenses increased from approximately HK$9.0 million for the three months ended 30 June 2016 to approximately HK$9.5 million for the three months ended 30 June 2017, which was mainly due to increase in staff costs for the three months ended 30 June 2017.

The loss increased from approximately HK$0.6 million for the three months ended 30 June 2016 to approximately HK$4.4 million for the three months ended 30 June 2017, was mainly due to the decrease in gross profit of approximately HK$3.0 million and increase in administrative expenses for reasons mentioned in above.

The Board does not recommend the payment of a dividend for the three months ended 30 June 2017.

As stated in the section headed "Future Plans and Use of Proceeds" in the Prospectus, the Group intended to use the proceeds for (i) strengthen our product portfolio; (ii) enhance our information management systems; (iii) strengthen our marketing efforts; and (iv) working capital and other general corporate purposes.

On 30 September 2015, 120,000,000 ordinary shares of the Company were allotted at HK$0.57 per placing share pursuant to the Placing (as defined in the Prospectus). The net proceeds from the Placing received by the Company were approximately HK$30.9 million (after deduction of any related expenses). As at 30 June 2017, the unused proceeds of approximately HK$15.0 million were deposited into licensed banks in Hong Kong. The Company intends to continue to apply the remaining net proceeds in accordance with the proposed applications set out above.

During the three months ended 30 June 2017, the net proceeds had been utilized as follows:

OTHER INFORMATION

As at 30 June 2017, Mr. Tam Wing Ki being the chairman, CEO and executive director of the Company, and Mr. Gao Hong being the executive director of the Company had the following interests in the shares and underlying shares of the Company and its associated corporations, within the meaning of Part XV of the Securities and Futures Ordinance ("SFO") as recorded in the register required to be kept under section 352 of SFO:

Note:

1. All interests stated above represent long positions.

During the three months ended 30 June 2017, there were no debt securities issued by the Group at any time. Save as disclosed herein, as at 30 June 2017, none of the Directors or chief executive of the Company or their associates had any interests and short positions in any shares, underlying shares or debentures of the Company or any associated corporations (within the meaning of Part XV of the SFO) (i) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which each of them has taken or deemed to have taken under the provisions of the SFO); or (ii) which were required, pursuant to section 352 of the SFO, to be entered into the register referred to therein; or (iii) which were required, pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules, to be notified to the Company and the Stock Exchange.

So far as is known to the Directors, at 30 June 2017, the following shareholders had interests in the shares or underlying shares of the Company as recorded in the register required to be kept under Section 336 of the SFO:

Notes:

1. Mr. Yeung is the sole beneficial shareholder of SW Venture Asia, which is the sole beneficial shareholder of Solution Smart. Therefore, Mr. Yeung and SW Venture Asia are deemed to be interested in the Shares in which Solution Smart is interested for the purpose of the SFO.

2. Mr. Tam is the sole beneficial shareholder of SMK. Therefore, Mr. Tam is deemed to be interested in the Shares in which SMK is interested for the purpose of the SFO.

3. Ms. Tang is the spouse of Mr. Tam. Therefore, Ms. Tang is deemed to be interested in the Shares in which Mr. Tam is interested for the purpose of the SFO.

4. All interests stated above represent long positions.

Save as disclosed above, the Directors are not aware of any other person who has an interest or short position in the shares or underlying shares (including interest in options, if any) of the Company as recorded in the register required to be kept under section 336 of the SFO.

No contracts of significance in relation to the Group's business to which the Group was a party and in which a Director had a material interest, whether directly or indirectly, subsisted during the three months ended 30 June 2017.

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

The Company is committed to ensure a high standard of corporate governance in the interests of the shareholders and devotes considerable effort to maintain high level of business ethics and corporate governance practices. The Company has complied with the Corporate Governance Code (the "CG Code") as set out in Appendix 15 to the GEM Listing Rules throughout the three months ended 30 June 2017. The Company has applied the principles of, and complied with, the applicable code provisions of the CG Code during the three months ended 30 June 2017, except for certain deviations as specified with considered reasons for such deviations as explained below.

Under Code Provision A.2.1 of the CG Code, the roles of the chairman and chief executive officer should be separated and should not be performed by the same individual.