F-1/A 1 a2215620zf-1a.htm F-1/A

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As filed with the Securities and Exchange Commission on June 12, 2013

Registration No. 333-188771

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Amendment No. 2
FORM F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933



GDC Technology Limited
(Exact name of registrant as specified in its charter)

Not Applicable
(Translation of registrant's name into English)

Cayman Islands
(State or other jurisdiction of
incorporation or organization)
  3663
(Primary Standard Industrial
Classification Code Number)
  Not Applicable
(I.R.S. Employer
Identification Number)

Unit 1-7, 20/F, Kodak House II
39 Healthy Street East, North Point
Hong Kong
+852.2523.6851

(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)



GDC Technology (USA), LLC
1016 West Magnolia Boulevard
Burbank, CA 91506
United States of America
+1.818.972.4370

(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Matthew Bersani
Shuang Zhao
Shearman & Sterling LLP
c/o 12th Floor, Gloucester Tower, The Landmark
15 Queen's Road Central
Hong Kong
+852.2978.8000
  Z. Julie Gao
Skadden, Arps, Slate, Meagher & Flom LLP
c/o 42nd Floor, Edinburgh Tower, The Landmark
15 Queen's Road Central
Hong Kong
+852.3740.4700



          Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement

          If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.    o

          If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earliest effective registration statement for the same offering.    o



CALCULATION OF REGISTRATION FEE

               
 
Title of each class of securities to be registered(1)(2)
  Amount of Shares to be Registered(1)(3)
  Proposed Maximum Aggregate Offering Price per Share(1)(3)
  Proposed maximum aggregate offering price(3)
  Amount of registration fee
 

Ordinary shares, par value US$0.0001 per share

  99,104,700   US$0.93   US$92,497,720   US$12,616.69(4)

 

(1)
Includes ordinary shares initially offered and sold outside the United States that may be resold from time to time in the United States either as part of their distribution or within 40 days after the later of the effective date of this registration statement and the date the shares are first bona fide offered to the public. These ordinary shares are not being registered for the purposes of sales outside of the United States. Also includes 12,926,700 ordinary shares that may be purchased by the underwriters pursuant to their option to purchase additional ADSs.

(2)
American depositary shares issuable upon deposit of the ordinary shares registered hereby have been registered under a separate registration statement on Form F-6 (Registration No. 333-189228). Each American depositary share represents 15 ordinary shares.

(3)
Estimated solely for the purpose of determining the amount of registration fee in accordance with Rule 457(a) under the Securities Act of 1933.

(4)
Of this amount, US$10,230 was previously paid.



          The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to such Section 8(a), may determine.

   


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The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated June 12, 2013

PROSPECTUS


5,745,200 American Depositary Shares

LOGO

GDC Technology Limited

Representing 86,178,000 Ordinary Shares


This is the initial public offering of American depositary shares, or ADSs, of GDC Technology Limited. We are offering 5,745,200 ADSs. Each ADS represents 15 ordinary shares, par value US$0.0001 per share. No public market currently exists for our ADSs.

We have applied to list our ADSs on the Nasdaq Global Market under the symbol "GDCT."

We currently anticipate that the initial public offering price will be between US$12.00 and US$14.00 per ADS.

We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012 and will therefore be subject to reduced reporting requirements.

Investing in our ADSs involves risks. See "Risk Factors" beginning on page 12 of this prospectus.

 
  Per ADS   Total  

Price to the public

  US$     US$    

Underwriting discounts and commissions

  US$     US$    

Proceeds to us (before expenses)

  US$     US$    

We have granted the underwriters a 30-day option to purchase up to 861,780 ADSs at the initial public offering price less the underwriting discounts and commissions.

Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the ADSs evidenced by the ADRs on or about                                        , 2013.


Barclays   Jefferies   Piper Jaffray

   

Prospectus dated                           , 2013


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IFC


TABLE OF CONTENTS

Prospectus Summary

  1

Risk Factors

  12

Special Note Regarding Forward-Looking Statements

  39

Use of Proceeds

  41

Dividend Policy

  42

Capitalization

  43

Dilution

  44

Enforceability of Civil Liabilities

  46

Corporate History and Structure

  48

Selected Consolidated Financial Data

  50

Management's Discussion and Analysis of Financial Position and Results of Operations

  52

Industry

  75

Business

  80

Management

  94

Principal Shareholders

  102

Related Party Transactions

  105

Description of Share Capital

  108

Description of American Depositary Shares

  118

Shares Eligible for Future Sale

  128

Taxation

  131

Underwriting

  138

Expenses Related to This Offering

  146

Legal Matters

  147

Experts

  147

Where You Can Find Additional Information

  148

Index to Consolidated Financial Statements

  F-1



        No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus or in any free writing prospectus we may authorize to be delivered or made available to you. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information in this prospectus is current only as of its date.

        Neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus or any filed free writing prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons outside the United States who come into possession of this prospectus or any filed free writing prospectus must inform themselves about, and observe any restrictions relating to, the offering of the ADSs and the distribution of this prospectus or any filed free writing prospectus outside of the United States.

        Until         , 2013 (the 25th day after the date of this prospectus), all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.

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CONVENTIONS THAT APPLY TO THIS PROSPECTUS

        Unless otherwise indicated, references in this prospectus to:

    "GDC Technology Limited," the "Company," "we," "us," "our," "our company" and "our business" are to GDC Technology Limited (Cayman), together with its subsidiaries as a consolidated entity;

    "GDC Technology Limited (BVI)" are to GDC Technology Limited, a company incorporated in the British Virgin Islands;

    "GDC Technology Limited (Cayman)" are to GDC Technology Limited, a company incorporated in the Cayman Islands, which became the ultimate holding company of our business after the Reorganization Transactions;

    "ADSs" are to our American depositary shares, each of which represents 15 ordinary shares, par value US$0.0001 per share;

    "Central and South America" are to the countries in the Americas excluding the United States and Canada;

    "China" and the "PRC" are to the People's Republic of China, excluding, for the purposes of this prospectus only, Taiwan and the special administrative regions of Hong Kong and Macau;

    "HK$" and "H.K. dollar" are to the legal currency of the special administrative region of Hong Kong;

    "Hollywood studios" are to the major motion picture studios in the United States, including Twentieth Century Fox Film Corporation, Paramount Pictures Corporation, Sony Pictures Entertainment Inc., Universal Studios, Inc., The Walt Disney Company and Warner Bros. Entertainment Inc. and their respective subsidiaries and affiliates;

    "incremental installed base" are to the net increase in installed base over a period of time;

    "installed base" are to the equipment installed in a region at a certain point in time;

    "ordinary shares" are to our ordinary shares, par value US$0.0001 per share;

    "North America" are to the United States and Canada;

    "RMB" and "Renminbi" are to the legal currency of China;

    "US$" and "U.S. dollar" are to the legal currency of the United States of America; and

    "VPF" arrangement are to the "virtual print fee" arrangement, which is an arrangement where studios or distributors subsidize the purchase costs of digital cinema equipment by paying exhibitors fees for showing digital cinema content from such studios or distributors using such digital cinema equipment.

        Unless otherwise indicated, information in this prospectus assumes that the underwriters do not exercise their option to purchase additional ADSs.

        We report under International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or the IASB. None of the financial statements were prepared in accordance with generally accepted accounting principles in the United States.

        We have historically conducted our business through GDC Technology Limited (BVI) and its subsidiaries. Therefore, our historical financial statements present the results of operations of GDC Technology Limited (BVI). In May 2013, we underwent the Reorganization Transactions described in "Prospectus Summary—The Reorganization Transactions" pursuant to which GDC Technology Limited

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(BVI) became a wholly owned subsidiary of GDC Technology Limited (Cayman), a newly formed holding company. Beginning in the second quarter of 2013, our financial statements will present the results of operations of GDC Technology Limited (Cayman) and its consolidated subsidiaries.

        This prospectus contains statistical data that we obtained from various government and private publications. We have not independently verified the data in these reports. Statistical data in these publications also include projections based on a number of assumptions. If any one or more of the assumptions underlying the statistical data turns out to be incorrect, actual results may differ from the projections based on these assumptions. Unless context otherwise requires, market data regarding the digital cinema industry, including data concerning our installed base, represents management's estimates based on third-party sources.

        We calculated our incremental installed base, the net increase in our installed base over a period of time, by subtracting our installed base as of the beginning of a period from our installed base as of the end of the period. We calculated our market share of incremental digital cinema server installations in a region for a period by dividing our incremental installed base in the region for the period by the total incremental installed base in the region for the period.

        This prospectus contains conversions of H.K. dollar amounts into U.S. dollars solely for the convenience of the reader. Unless otherwise noted, all conversions from H.K. dollars to U.S. dollars and from U.S. dollars to H.K. dollars in this prospectus were made at a rate of HK$7.80 to US$1.00. The noon buying rate certified for customs purposes by the Federal Reserve Bank of New York in effect as of March 29, 2013 was HK$7.7629 to US$1.00. On June 7, 2013, the noon buying rate was HK$7.7629 to US$1.00.

        Any discrepancies in any table between totals and sums of amounts listed therein are due to rounding. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures preceding them.

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PROSPECTUS SUMMARY

        The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements appearing elsewhere in this prospectus. In addition to this summary, we urge you to read the entire prospectus carefully, especially the risks of investing in the ADSs discussed under "Risk Factors," before deciding whether to buy our ADSs.

Our Business

        We are a leading global digital cinema solutions provider with the largest installed base of digital cinema servers in the Asia-Pacific region and the second largest globally as of March 31, 2013. In the first quarter of 2013, we became the global market leader by capturing the largest market share of incremental digital cinema servers installations on a worldwide basis. We develop, manufacture and sell digital cinema servers that meet the highly demanding performance, security and reliability requirements established by Hollywood studios. Since our inception, we have shipped over 25,000 digital cinema servers worldwide. We also partner with other manufacturers to offer a one-stop solution for exhibiting digital cinema content, including integrated projection systems and 3D products.

        We have the largest installed base of digital cinema servers in a number of territories, including China, Japan, South Korea, Taiwan, Singapore and Hong Kong as of March 31, 2013. All of the top 10 cinema chains in China, as measured by their respective number of cinema screens at the end of 2012, have installed our digital cinema servers. We have installed digital cinema servers for 7,927 screens in China as of March 31, 2013. We have installed 8,377 digital cinema servers in the United States as of March 31, 2013. In 2012, we shipped 300 integrated projection systems to the second largest cinema chain in India, as measured by its total number of cinema screens at the end of 2012. We have entered into a contract to ship 1,750 digital cinema servers to the second largest cinema chain in Mexico, as measured by its total number of cinema screens at the end of 2012, and have shipped over 400 units as of March 31, 2013. We believe our substantial installed base provides us with strong market recognition and significant long-term revenue opportunities from repeat purchases by both exhibitors and resellers.

        We are one of the few manufacturers in the world with digital cinema servers that are compliant with the specifications of Digital Cinema Initiatives, LLC, or DCI, a body formed by Hollywood studios to establish digital cinema industry standards. Our digital cinema servers allow exhibitors to exhibit digital cinema content securely in a wide range of formats, including 3D, high frame rate playback and live broadcasting. Our proprietary theatre management system, or TMS, enables exhibitors to effectively and remotely manage multiple screens and streamline theatre operations. We also resell a comprehensive suite of digital cinema products that includes integrated projection systems, 3D systems, projector lamps and silver screens. We maintain a broad service network that provides prompt and reliable services 24/7 to exhibitors, with offices in Hong Kong, the United States, China, Japan, Singapore, Spain, India and Mexico.

        We have developed a number of proprietary technologies that improve the audiovisual experience, security, delivery and exhibition of digital cinema content. In 2011, we were the first company to showcase a standalone integrated media block, which we believe will eliminate the need for the projection booths found in many exhibition halls today and, as a result, reduce equipment footprint and personnel costs. We were honored as Hong Kong's "Most Innovative Company of 2012" by Mediazone Publishing, a media consulting firm based in Hong Kong, which presented the annual award to select winners for, among other criteria, innovation in products or services and industry accolades. In 2013, we entered into a content distribution agreement with China Film Digital Film Development (Beijing) Limited and have begun offering cinema-grade digital cinema content to private venues, providing high-net-worth individuals in China with the ability to watch the latest

 

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theatrical releases in the privacy of their own homes. We also recently became the exclusive reseller and licensee of China Film Giant Screen systems in Asia (excluding China) and a non-exclusive reseller and licensee in the rest of the world.

        We have experienced significant growth in recent years. Our market share of incremental digital cinema server installations grew from 16% in 2010 to 35% in the first quarter of 2013. Our revenue grew from US$72.7 million in 2010 to US$90.0 million in 2011 and US$116.6 million in 2012. Our revenue for the three months ended March 31, 2013 amounted to US$32.4 million, representing an increase of 37.5% from the same period in 2012. Our profit for the year grew from US$19.9 million in 2010 to US$22.7 million in 2011 and US$27.7 million in 2012. Our profit for the three months ended March 31, 2013 amounted to US$5.3 million, representing an increase of 10.7% from the same period in 2012, after reflecting listing expenses of US$0.4 million.

Our Industry

        The global cinema industry as measured by box office revenues grew from US$29.4 billion in 2009 to an estimated US$34.4 billion in 2012 and is forecasted to grow at a three-year compound annual growth rate, or CAGR, of 6.4% to US$41.4 billion by 2015.

        The number of cinema screens grew by a CAGR of 3.1% from 118,491 at the end of 2009 to 129,766 at the end of 2012. Over the same period, the number of cinema screens expected to be equipped with DCI-compliant or other equipment capable of exhibiting digital cinema content, or digital cinema screens, grew by a CAGR of 76.3% from 16,375 to 89,744.

        The first digital projector was commercially tested in June 1999 when Texas Instruments publicly demonstrated its DLP Cinema® projector technology, the digital light processing technology widely used today in projectors for cinemas. By the end of 2013, over 80% of the world's cinema screens are expected to be digital cinema screens.

        The key drivers of analog-to-digital cinema screen conversion have been distribution cost savings, equipment incentive programs and growing consumer demand for new types of content that can only be shown using digital cinema technology.

        The key sources of demand for digital cinema equipment are expected to come from: (i) the analog-to-digital cinema screen conversion; (ii) new digital cinema screen installations as a result of new cinema construction; (iii) upgrades and replacements for digital cinema products, driven by new technology requirements and product replacement cycles; and (iv) installations of digital cinema solutions in private venues.

Our Strengths

        We believe the following competitive strengths enable us to successfully compete in the growing digital cinema market:

    Strong global market leadership—We believe our proven track record of delivering comprehensive, high-quality and innovative solutions has and will continue to help us expand our market share. For instance, our market share of incremental digital cinema servers installations in the United States increased from less than 1% in 2009 to approximately 34% in the first quarter of 2013. We were also the market leader in incremental digital cinema servers installations globally (35%), as well as in the Asia-Pacific region (54%) and China (66%) in the first quarter of 2013. We had the largest installed base of digital cinema servers in the Asia-Pacific region (44%) and the second largest installed base globally (23%) as of March 31, 2013. We also had the largest installed base in a number of territories, including China (56%), Japan (36%), South Korea (51%), Taiwan (52%), Singapore (84%) and Hong Kong (79%) as of

 

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      March 31, 2013. We believe our large market share provides us with significant long-term revenue opportunities from repeat purchases by both exhibitors and resellers.

    Proven track record of technology leadership and innovation—Since our inception in 1999, we have been at the forefront of technological advancements for the digital cinema industry. We have worked closely with Hollywood studios and international industry standards-setting bodies such as the Society of Motion Picture and Television Engineers to help define digital cinema industry standards. We have developed a number of proprietary technologies that have improved the audiovisual experience, security, delivery and exhibition of digital cinema content. We are one of a few manufacturers in the world to achieve DCI compliance for all of our digital cinema server models.

    Comprehensive portfolio of digital cinema solutions—We offer a one-stop solution for exhibiting digital cinema content, including: digital cinema servers; integrated projection systems, 3D systems, projector lamps and silver screens from our partners; TMS and network operations center, or NOC, which offer exhibitors a centralized point of control to automate and streamline their cinema operations; and support services globally 24/7 through a NOC and 27 support centers.

    Close collaboration with industry leaders providing insights and opportunities—We collaborate closely with digital cinema industry leaders, including standards-setting bodies, production companies, distributors, digital cinema equipment manufacturers and exhibitors, to anticipate and capitalize on changing technology requirements. Together, we jointly develop and market our solutions to capture additional revenue opportunities and satisfy our customers' needs for a one-stop solution, including 3D products, projector lamps and silver screens. We work with China Film Digital Film Development (Beijing) Limited to offer cinema-grade digital cinema content to private venues. We are the exclusive reseller and licensee of China Film Giant Screen systems in Asia (excluding China) and a non-exclusive reseller and licensee in the rest of the world. Our collaboration with reseller partners in the United States, Korea and Japan expands our customer base and geographic reach.

    Experienced management team with strong industry expertise—We have an experienced management team focused on developing innovative technologies and solutions for the digital cinema industry. Dr. Man-Nang Chong, our chairman of the board of directors and chief executive officer, founded our company in Singapore in 1999, our chief technology officer, Mr. Pranay Kumar, has been with us since 2001 and our chief financial officer, Mr. Kent (Ming-Kin) Chiu, has been with us since 2006. They are experienced in managing our growing digital cinema business and have led us through a number of significant challenges. We believe that our experienced and dedicated management team, coupled with our proven track record and strong technological and execution capabilities, has contributed significantly to our past success and will continue to lead our future growth.

Our Strategies

        We intend to capitalize on our global market leadership, technology capabilities, industry relationships and market reputation to continue developing and delivering innovative digital cinema solutions. Key elements of our strategies include:

    Increase global market share;

    Maintain and enhance technology leadership;

    Expand our digital cinema solutions offerings;

    Leverage existing technologies to expand into complementary markets; and

    Pursue strategic partnerships and acquisitions.

 

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Our Challenges

        Our ability to successfully execute our strategies is subject to risks and uncertainties, including but not limited to those relating to the following:

    Industry demand for digital cinema products and services—Our revenue and profitability depend on continuing demand for digital cinema equipment from (i) analog-to-digital cinema screen conversion, (ii) new digital cinema screen installations, (iii) upgrades and replacements for digital cinema products and (iv) installations of digital cinema solutions in private venues. We cannot assure you that any of these sources of demand will be sustained over time. We expect that the demand for digital cinema products from analog-to-digital conversion will decrease in most developed markets such as the United States, Europe and Japan, primarily as a result of the substantial completion of the industry transition from analog to digital cinema.

    Our ability to continue to develop and deliver innovative products and services—Our success will depend on our ability to address the varied needs of existing and prospective customers by responding to rapid technological changes, evolving industry standards, such as support for high frame rate playback, as well as changes in consumer preferences and behavior, such as the increasing use of digital cinema technologies in private venues and online content streaming services.

    Our ability to comply with DCI specifications for our digital cinema equipment—From time to time, DCI may release new recommendations and specifications which require technical improvements to both hardware and software. We cannot assure you that we will always be able to develop products that meet new DCI specifications in a timely or cost-effective manner or that all of the products that we manufacture, distribute and market as DCI-compliant products, including those supplied by third-party manufacturers, will always comply with DCI specifications. We may incur significant costs to develop and manufacture DCI-compliant products. If we or our suppliers, partners or customers use technology that does not comply with DCI specifications, there may be no viable market for our products and services.

    Competition within existing and new markets for digital cinema products and services—The markets for our digital cinema products and services are highly competitive. Our reseller and digital projector partners may also be our current or potential competitors. Our competitors may be able to offer digital cinema products and services at more competitive prices than us. Exhibitors may perceive our competitors' products and services to be superior to ours. In addition, we may not be able to provide exhibitors the level and scope of localized after-sales services and support that our competitors provide in certain markets.

    Decreases in cinema attendance worldwide—Cinema admissions worldwide may decrease, as home theatre and other private venues attract viewership away from cinemas. An increase in the popularity of alternative film distribution channels and competing forms of entertainment could drive down cinema attendance further and potentially cause exhibitors to close their theatres. Large scale theatre closures could significantly reduce demand from analog-to-digital cinema screen conversion, new installations, extend the product replacement cycle and discourage exhibitors from making additional investments on upgrades.

    Our ability to manage our business expansion and growth, including geographical expansion and expansion of our product and service offerings—We have business expansion plans to increase our global market share and to expand our product and service offerings. We aim to increase our market share in key emerging markets, such as China, India, Central and South America and South East Asia. We also aim to increase our market share in key developed markets, such as North America and Western Europe, by capturing demand from upgrades and replacements. We plan to open new post-production facilities across Asia. We

 

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      also intend to pursue VPF agreements for markets with significant analog-to-digital cinema screen conversion demand, such as Central and South America. We cannot assure you that any of these plans will be successful. Moreover, this business expansion could place significant additional demands on our operational and financial resources.

    Seasonality in our business—We have historically experienced higher sales in the fourth quarter of a year, compared to the other three quarters of the same year, as our customers tend to purchase digital cinema equipment immediately before the winter holiday season, which is typically the peak season for box office revenues. We have historically experienced the lowest sales in the first quarter of a year for similar reasons. The timing of movie releases can have a significant effect on our results of operations. The results of one quarter are not necessarily indicative of results for the next quarter or any other quarter.

    Our customer concentration—We depend upon a few major customers for a significant portion of our revenue. Our top five customers collectively accounted for 31.9%, 33.3%, 41.4% and 54.0% of our revenue for 2010, 2011, 2012 and the three months ended March 31, 2013, respectively. Our top customer in 2010, 2011 and 2012 was our largest reseller partner in the United States. It accounted for 12.3%, 11.8% and 14.4% of our revenue for 2010, 2011 and 2012, respectively. Our top customer for the three months ended March 31, 2013 was an exhibitor in the Asia-Pacific region. It accounted for 19.7% of our revenue for the period. A decision by any of our major customers not to purchase our products, or any failure to pay amounts owed to us could materially and adversely affect our business. In particular, we rely significantly on reseller partners, some of whom are our major customers, to market and distribute our digital cinema servers in certain regions. The loss of a major reseller partner or the inability or unwillingness of our reseller partners to dedicate the resources necessary to promote our portfolio of products could materially and adversely affect our revenue.

    Our relationships with exhibitors and studios—Our relationships with exhibitors and studios are critical to our business. For example, our business expansion strategies, including signing additional VPF agreements and providing post-production services, may depend on our relationships with the studios and exhibitors in any given geographic market.

    Our relationships with suppliers—We rely on third-party manufacturers for key components of our products as well as the digital projectors we use in our integrated projection systems and other digital cinema products that we resell, such as 3D products, projector lamps and silver screens. We do not have formal agreements in place with all of our suppliers for the continued supply of components and we may have no recourse or remedies in the event our suppliers fail to meet our requirements.

    Our reliance on sole-source suppliers for some of our key components—We rely on sole-source suppliers for some of the key components that we use in our products, such as media decoders and processors used in our digital cinema servers, and for some of the products that we resell, such as 3D products. Our inability to obtain timely delivery of key components of acceptable quality and quantity, any significant increases in the prices of components or the redesign of our products could result in material production delays, increased costs and reductions in shipments of our products, any of which could increase our operating costs or harm our customer relationships.

        See "Risk Factors" and "Special Note Regarding Forward-Looking Statements" for a discussion of these and other risks and uncertainties associated with our business and investing in our ADSs.

 

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The Reorganization Transactions

        We have historically conducted our business through GDC Technology Limited (BVI), a company with limited liability incorporated in the British Virgin Islands, and its subsidiaries.

        In anticipation of this offering, GDC Technology Limited (Cayman) was incorporated as our listing vehicle on April 11, 2013 in the Cayman Islands. On May 21, 2013, GDC Technology Limited (Cayman) became the ultimate holding company of our business by issuing ordinary shares to existing shareholders of GDC Technology Limited (BVI) in exchange for the respective ordinary shares that these shareholders held in GDC Technology Limited (BVI). The proportionate shareholdings of the shareholders' interests did not change.

        As a result of these reorganization transactions, GDC Technology Limited (BVI) became a wholly owned subsidiary of GDC Technology Limited (Cayman). In this prospectus, we refer to all of these events as the "Reorganization Transactions."

        The following diagram illustrates our principal subsidiaries as of the date of this prospectus.

GRAPHIC

        A description of the material terms of GDC Technology Limited (Cayman)'s amended and restated memorandum and articles of association and ordinary shares as will be in effect immediately prior to the completion of this offering are described in the section entitled "Description of Share Capital."


Corporate Information

        Our principal executive offices are located at GDC Technology Limited, Unit 1-7, 20/F, Kodak House II, 39 Healthy Street East, North Point, Hong Kong. Our telephone number at this address is +852 2523 6851 and our fax number is +852 2579 1131. Our registered office in the Cayman Islands is located at the offices of Intertrust Corporate Services (Cayman) Limited, 190 Elgin Avenue, George Town, Grand Cayman KY1-9005, Cayman Islands.

        Investor inquiries should be directed to us at the address and telephone number of our principal executive offices set forth above. Our website is www.gdc-tech.com. The information contained on our website is not part of this prospectus. Our agent for service of process in the United States is GDC Technology (USA), LLC, 1016 West Magnolia Boulevard, Burbank, CA 91506, USA.

 

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Implications of Being an Emerging Growth Company

        As a company with less than US$1.0 billion in revenue for the last fiscal year, we qualify as an "emerging growth company" pursuant to the Jumpstart Our Business Startups Act of 2012, or 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 that are not emerging growth 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. We intend to take advantage of the exemption from the auditor attestation requirement for as long as we remain an emerging growth company.

        The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. However, we have elected to "opt out" of this provision and will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

        We will remain an emerging growth company until the earliest of (i) the last day of our fiscal year during which we have total annual gross revenues of at least US$1.0 billion; (ii) the last day of our fiscal year following the fifth anniversary of the completion of this offering; (iii) the date on which we have, during the previous three-year period, issued more than US$1.0 billion in non-convertible debt; or (iv) the date on which we are deemed to be a "large accelerated filer" under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our ADSs that are held by non-affiliates exceeds US$700 million as of the last business day of our most recently completed second fiscal quarter. Once we cease to be an emerging growth company, we will not be entitled to the exemptions provided in the JOBS Act. See "Risk Factors—Risks Related to Our Business and Industry—We are an emerging growth company within the meaning of the Securities Act and any decision on our part to comply with certain reduced disclosure requirements applicable to emerging growth companies could make our ADSs less attractive to investors."

 

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The Offering

Price per ADS   We currently estimate that the initial public offering price will be between US$12.00 and US$14.00 per ADS.

ADS offered by us

 

5,745,200 ADSs (or 6,606,980 ADSs if the underwriters exercise their option to purchase additional ADSs in full)

Options to purchase additional ADSs

 

We have granted the underwriters an option, exercisable within 30 days from the date of this prospectus, to purchase up to an aggregate of 861,780 additional ADSs.

ADSs outstanding immediately after the offering

 

5,745,200 ADSs (or 6,606,980 ADSs if the underwriters exercise their option to purchase additional ADSs in full).

Ordinary shares outstanding immediately after the offering

 

344,710,839 ordinary shares (or 357,637,539 ordinary shares if the underwriters exercise their option to purchase additional ADSs in full).

Nasdaq Global Market symbol

 

GDCT

The ADSs

 

Each ADS represents 15 ordinary shares, par value US$0.0001 per share.

 

 

The depositary will be the holder of the ordinary shares underlying your ADSs. You will have the rights of an ADS holder as provided in the deposit agreement among us, the depositary and holders and beneficial owners of ADSs from time to time.

 

 

You may surrender your ADSs to the depositary to withdraw the ordinary shares underlying your ADSs. The depositary will charge you a fee for such an exchange.

 

 

We may amend or terminate the deposit agreement without your consent. If an amendment becomes effective and you continue to hold your ADSs, you will be bound by the deposit agreement as amended.

 

 

To better understand the terms of the ADSs, you should carefully read "Description of American Depositary Shares" in this prospectus. You should also read the deposit agreement, which is an exhibit to the registration statement that includes this prospectus.

Depositary

 

Deutsche Bank Trust Company Americas

Directed share program

 

At our request, the underwriters have reserved for sale, at the initial public offering price, up to 287,260 ADSs offered by this prospectus to some of our directors, officers, employees, business associates and related persons.

Use of proceeds

 

We intend to use the net proceeds from this offering for working capital and other corporate purposes and potential acquisitions.

 

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    See "Use of Proceeds" for additional information.

Risk factors

 

See "Risk Factors" and other information included in this prospectus for a discussion of the risks you should carefully consider before deciding to invest in our ADSs.

Lock-up

 

We, our directors, executive officers and existing shareholders and other option holders have agreed with the underwriters, subject to certain exceptions, not to sell, transfer or dispose of any of our ADSs, ordinary shares or similar securities for a period of 180 days after the date of this prospectus. See "Underwriting."

        The number of ordinary shares that will be outstanding immediately after this offering:

    is based on 258,532,839 ordinary shares outstanding as of the date of this prospectus;

    excludes 395,000 ordinary shares issuable upon the exercise of options to purchase ordinary shares under our 2013 Equity Incentive Plan;

    excludes 9,291,733 awarded but not yet issued restricted shares; and

    excludes 19,954,000 ordinary shares underlying granted but not yet vested options to purchase ordinary shares under our 2013 Equity Incentive Plan.

 

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Summary Consolidated Financial Data

        The following summary consolidated statements of comprehensive income data for 2010, 2011 and 2012 and the summary consolidated statements of financial position data as of December 31, 2011 and 2012 have been derived from our consolidated financial statements included elsewhere in this prospectus. Our consolidated financial statements are prepared and presented in accordance with IFRS as issued by the IASB.

        The following summary consolidated statement of comprehensive income data for the three months ended March 31, 2012 and 2013 and the summary consolidated statement of financial position data as of March 31, 2013 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The unaudited condensed consolidated financial statements were prepared on a basis consistent with our audited consolidated financial statements and include, in the opinion of management, all adjustments necessary, which include only normal recurring adjustments, for the fair statement of the financial information contained in those statements.

        We have historically conducted our business through GDC Technology Limited (BVI) and its subsidiaries. Therefore, our historical financial statements present the results of operations of GDC Technology Limited (BVI). In May 2013, we underwent the Reorganization Transactions pursuant to which GDC Technology Limited (BVI) became a wholly owned subsidiary of GDC Technology Limited (Cayman), a newly formed holding company with nominal assets and liabilities which had not conducted any operations. Beginning in the second quarter of 2013, our financial statements will present the results of operations of GDC Technology Limited (Cayman) and its consolidated subsidiaries. GDC Technology Limited (Cayman)'s financial statements will be the same as GDC Technology Limited (BVI)'s financial statements, as adjusted for the Reorganization Transactions. Upon consummation, the Reorganization Transactions will be reflected retroactively in GDC Technology Limited (Cayman)'s earnings per share and earnings per ADS calculations. See "—The Reorganization Transactions."

        Our audited consolidated financial statements as of and for the years ended December 31, 2011 and 2012 have been restated to reflect the material adjustments on the revenue recognition for sales of digital cinema equipment under VPF arrangement in Hong Kong by GDC Digital Cinema Network Limited, which was consolidated with us since September 2011. The restatement reduced the receivables related to VPF arrangement as of December 31, 2011 and 2012 by US$6.9 million and US$6.0 million, respectively, and merger reserves by the same amounts as of December 31, 2011 and 2012, respectively. The restatement increased our revenue in 2011 and 2012 by nil and US$1.0 million, respectively. For more details, see Note 38 to our audited consolidated financial statements included elsewhere in this prospectus.

        You should read the summary consolidated financial data in conjunction with those financial statements and the related notes and "Management's Discussion and Analysis of Financial Position and Results of Operations" included elsewhere in this prospectus. Our historical results do not necessarily indicate our results expected for any future periods.

 

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  Year ended December 31,   Three months
ended March 31,
 
 
  2010
  2011
  2012
(restated)
  2012
(restated)
  2013
 
 
  (in thousands of US$, except for per share and per ADS data)
 

Summary Consolidated Statements of Comprehensive Income of GDC Technology Limited (BVI)

                               

Revenue

  $ 72,693   $ 89,983   $ 116,552   $ 23,539   $ 32,367  

Cost of sales and services rendered

    (42,111 )   (48,872 )   (66,118 )   (13,986 )   (21,177 )
                       

Gross profit

    30,582     41,111     50,434     9,553     11,190  

Other income

    1,392     1,133     636     57     322  

Selling and marketing expenses

    (1,940 )   (3,950 )   (5,480 )   (1,038 )   (1,330 )

Administrative expenses

    (6,891 )   (9,536 )   (11,219 )   (2,682 )   (3,406 )

Research and development expenses

    (1,187 )   (1,935 )   (1,796 )   (305 )   (468 )

Finance costs on bank borrowings

    (103 )   (51 )   (140 )   (9 )   (116 )

Share of loss of an associate

            (10 )       (28 )

Share of profit of a joint venture

            10         13  
                       

Profit before tax

    21,853     26,772     32,435     5,576     6,177  

Income tax expense

    (1,953 )   (4,059 )   (4,703 )   (816 )   (907 )
                       

Profit for the year/period attributable to owners of our company

    19,900     22,713     27,732     4,760     5,270  

Other comprehensive income:

                               

Exchange differences arising on translation of foreign operations

    514     688     86     2     207  
                       

Total comprehensive income for the year/period attributable to owners of our company

  $ 20,414   $ 23,401   $ 27,818   $ 4,762   $ 5,477  
                       

Earnings per share

                               

Basic

  $ 0.08   $ 0.09   $ 0.11   $ 0.02   $ 0.02  
                       

Diluted

  $ 0.08   $ 0.09   $ 0.11   $ 0.02   $ 0.02  
                       

Earnings per ADS(1)

                               

Basic

  $ 1.27   $ 1.39   $ 1.61   $ 0.28   $ 0.31  
                       

Diluted

  $ 1.27   $ 1.37   $ 1.61   $ 0.28   $ 0.31  
                       

(1)
Each ADS represents 15 ordinary shares.


 
  As of December 31,   As of March 31,  
 
  2011
(restated)
  2012
(restated)
  2013
 
 
  (in thousands of US$)
 

Summary Condensed Consolidated Statements of Financial Position of GDC Technology Limited (BVI)

                   

Total non-current assets

  $ 4,385   $ 14,637   $ 12,188  

Bank balances and cash

    17,637     23,202     16,303  

Total current assets

    53,700     75,058     88,052  

Total current liabilities

    37,472     50,911     63,868  

Total non-current liabilities

        1,881     1,684  

Total equity

  $ 20,613   $ 36,903   $ 34,688  

 

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RISK FACTORS

        An investment in our ADSs involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information contained in this prospectus before making an investment decision. Our business, financial position and results of operations could be materially and adversely affected by any of the risks set forth herein as well as other risks not currently known to us. The trading price of our ADSs could decline due to any of these risks. You may lose all or part of your investment. In assessing the risks described below, you should also refer to the other information contained in this prospectus, including our consolidated financial statements and the related notes thereto, before deciding to purchase any ADSs.


Risks Related to Our Business and Industry

We face risks relating to industry demand for digital cinema products and services.

        Our revenue and profitability depend on continued demand for digital cinema equipment from (i) analog-to-digital cinema screen conversion; (ii) new digital cinema screen installations; (iii) upgrades and replacements for digital cinema products and (iv) installations of digital cinema solutions in private venues. We cannot assure you that any of these sources of demand will lead to continued demand for our digital cinema products and services or that such demand will be sustained over time.

        We cannot assure you that the analog-to-digital cinema screen conversion will continue or lead to demand for our products and services. The adoption of digital cinema systems has been driven primarily by distribution cost savings, equipment incentive programs, such as VPF arrangements, and growing consumer demand for content that can only be shown using digital cinema technology, such as 3D and alternative content. We cannot assure you that these drivers will persist. In particular, exhibitors often rely on equipment incentive programs to purchase equipment and pay other costs related to analog-to-digital cinema screen conversion. Lack of, or the termination of, such arrangements could significantly reduce the attractiveness of adopting digital cinema systems. We expect that the demand for digital cinema products from analog-to-digital conversion will decrease in most developed markets such as the United States, Europe and Japan, primarily as a result of the substantial completion of the industry transition from analog to digital cinema. We derived 30.5%, 30.5%, 34.6% and 15.5% of our revenue for 2010, 2011, 2012 and the three months ended March 31, 2013, respectively, from customers in the United States.

        We cannot assure you that demand for new digital cinema screen installations will continue or lead to demand for our products and services. New digital cinema screen installations have been driven primarily by new cinema construction, which in turn is dependent on box office revenue growth and, to a lesser extent, government initiatives and state-sponsored incentive programs. We cannot assure you that such box office revenue growth will continue. Cinema admissions worldwide have been declining since 2006. See "Decreases in cinema attendance worldwide could lead to significant theatre closures or a substantial decline in digital cinema equipment purchases, which could materially and adversely impact our revenue." In addition, new cinema construction may not necessarily lead to demand for our products and services.

        We cannot assure you that the market for upgrades and replacements for digital cinema products will lead to demand for our products and services. The market for upgrades and replacements for digital cinema products, driven by new technology requirements and product replacement cycles, has not yet developed and remains highly speculative. We cannot assure you that there will be demand for upgrades or replacements of existing digital cinema products once such products have reached the end of their useful lives. The size and extent of the market for upgrades and replacements for digital cinema products is presently unknown to us. In addition, demand for equipment upgrades and replacements may not necessarily lead to demand for our products and services.

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        We cannot assure you that the market for digital cinema content for private venues will materialize or lead to demand for our products and services. Digital cinema content for private venues is a new and relatively untested market that relies on the demand of high-net-worth individuals for high-quality cinema-grade entertainment in private venues. We started this business in 2013 and have installed only one screen in a private venue. Other competitors may be more effective in competing for customers.

        If we are unable to realize sales and generate revenue from any of the above-mentioned key sources of demand for digital cinema equipment, our future growth could be significantly curtailed, which would materially and adversely affect our business, financial position and results of operations.

If we do not continue to develop and deliver innovative products and services in response to industry and technological changes, our business and prospects may be materially and adversely affected.

        The demand for our products and services may be affected by rapid technological changes, changing customer demands and preferences and evolving industry standards. Our success will depend on our ability to address the varied needs of existing and prospective customers by responding to the latest technological developments, such as support for high frame rate playback, as well as changes in consumer preferences and behavior, such as the increasing use of digital cinema technologies in private venues and online content streaming services. Any reduction in the use of our products and services resulting from the development and deployment of new technology may negatively impact our revenue. Furthermore, the products, technologies and services we market may not achieve or sustain market acceptance, may not meet the needs of the cinema industry and may not be widely adopted. If we are unsuccessful in selling our products, technologies and services in the market for digital cinema, our business could be materially and adversely affected. If we do not adapt our products and services to such changes in an effective and timely manner and continue to develop and deliver innovative products and services in response to industry and technology changes, our business and prospects may be adversely affected.

If we fail to comply with DCI specifications for our digital cinema equipment, there may be no viable market for our products and services.

        DCI sets industry specifications for digital cinema equipment intended to ensure that uniform, secure and reliable technology is used across the digital cinema industry. The specifications are intended to promote widespread deployment of interoperable digital cinema equipment providing rigorous content security. From time to time, DCI may release new recommendations and specifications which require technical improvements to both hardware and software. While we generally keep abreast of the latest industry recommendations and specifications to develop our digital cinema technologies and submit both the hardware and software of each of our digital cinema server models to third-party laboratories for DCI compliance testing, we cannot assure you that we will always be able to develop products that meet new DCI specifications in a timely or cost-effective manner. We may incur significant costs to develop and manufacture DCI-compliant products. Furthermore, we cannot assure you that all of the products we sell, including those supplied by third-party manufacturers, will always comply with DCI specifications. If we or our suppliers, partners or customers use technology that does not comply with DCI specifications, there may be no viable market for our products and services.

The markets for our products and services are highly competitive; if we are unable to compete successfully, our business will be materially and adversely affected.

        The markets for our digital cinema products and services are highly competitive. For sales of our digital cinema servers and integrated projection systems, we compete with, among others: Doremi Cinema, LLC, or Doremi; Dolby Laboratories, Inc., or Dolby; and Sony Electronics Inc., or SONY. Some of our current or potential competitors may have significantly greater financial, technical, marketing,

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labor and other resources than us or may have more experience or other advantages in the markets in which they operate. Some of our competitors also have greater name and brand recognition than us in certain markets.

        Our reseller and digital projector partners may also be our current or potential competitors. For example, digital projector manufacturers for our integrated projection systems may also integrate and sell the digital projectors they manufacture with digital cinema servers manufactured by us or our competitors. Likewise, our reseller partners may incorporate our digital cinema servers into their digital projection systems and compete with us. Our reseller partners may also choose to sell competing products they have developed or in which they have an interest, rather than our products. If our reseller partners compete with us in markets in which they currently distribute our products or if our digital projector partners enter into and compete with us in markets in which they currently supply digital projectors to us, we could lose significant market share.

        Our competitors may be able to offer digital cinema products and services at more competitive prices than us. Exhibitors may perceive competing products to be potentially advantageous to our products or they may choose lower priced competing products or competing products with different features. As a result, we may suffer from pricing pressures that could materially and adversely affect our results of operations. In addition, we may not be able to provide exhibitors the level and scope of localized after-sales services and support that our competitors provide in certain markets. If we are unable to compete successfully, our business, financial position and results of operations may be materially and adversely affected.

Decreases in cinema attendance worldwide could lead to a substantial decline in digital cinema equipment purchases, which could materially and adversely impact our revenue.

        Despite global box office revenue growth from US$29.4 billion in 2009 to an estimated US$34.4 billion in 2012, cinema admissions worldwide are estimated to have remained relatively stable at 7.0 billion during the same period, as home theatre and other private venues have attracted viewership away from cinemas. Exhibitors face competition for patrons from a number of alternative motion picture distribution channels, such as blu-ray disc, network and syndicated television, video-on-demand, pay-per-view television, the Internet and other channels. Exhibitors also compete for patrons' leisure time and disposable income with other forms of entertainment such as concerts, amusement parks and sporting events. An increase in popularity of these alternative film distribution channels and competing forms of entertainment could drive down cinema attendance further and potentially cause exhibitors to close their theatres. Large scale theatre closures could significantly reduce demand from analog-to-digital cinema screen conversion, new installations, extend the product replacement cycle and discourage exhibitors from making additional investments on upgrades. Any of the foregoing consequences could negatively impact our receipt of revenue, which in turn would materially and adversely affect our business, financial position and results of operations.

        An increase in the use of alternative film distribution channels could also cause the overall production of motion pictures to decline, which, if substantial, could have an adverse effect on the businesses of the motion picture studios with which we have VPF agreements. Such VPF agreements require that studios or distributors subsidize the purchase costs of digital cinema equipment by paying exhibitors fees for showing digital cinema content from such studios or distributors using such digital cinema equipment. As a result, VPF arrangements have been one of the drivers of the analog-to-digital conversion. The revenue from VPF arrangements represented 1.2%, 3.6% and 4.5% of our revenue for 2011, 2012 and the three months ended March 31, 2013, respectively. A decline in the businesses of these studios could in turn force the termination of VPF agreements prior to the end of their terms. The early termination of the VPF agreements may have a material adverse effect on our business, financial position and results of operations.

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If we fail to manage our expected business expansion and growth, our business, financial position and results of operations may be materially and adversely affected.

        We have business expansion plans to increase our global market share and to expand our product and service offerings. See "Business—Our Strategies." Our business expansion strategies may not be successful.

        We aim to increase our market share in key emerging markets, such as China, India and Central and South America. We also intend to pursue VPF agreements for markets with significant analog-to-digital cinema screen conversion demand, such as Central and South America. We also aim to increase our market share in key developed markets, such as North America and Western Europe, by capturing the demand from upgrades and replacements. However, we cannot assure you that our expansion strategy in these geographical markets will be successful. If we fail to successfully execute our expansion strategy in key growth markets, our business, financial position and results of operations may be materially and adversely affected.

        We also plan to expand our post-production services business and our private digital cinema business. We plan to open new post-production facilities across Asia and to develop new technologies and products that provide private venues with high-quality digital cinema solutions. We cannot assure you that the markets for our post-production services business or for our private digital cinema business will develop or that we will be able to realize the anticipated benefits of such business expansion. Moreover, this business expansion could place significant additional demands on our operational and financial resources. We will need to continue to expand, improve and adapt our personnel, operations and financial and information management systems, which could require significant operating expenses, capital expenditures and allocation of valuable management resources. If we are unable to successfully implement our business expansion plans, our business, financial position and results of operations may be materially and adversely affected.

Our sales are subject to seasonality, which could cause our results of operations to fluctuate.

        Our business is subject to seasonality. We have historically experienced higher sales in the fourth quarter of a year, compared to the other three quarters of the same year, as our customers tend to purchase digital cinema equipment immediately before the winter holiday season, which is typically the peak season for box office revenues. We have historically experienced the lowest sales in the first quarter of a year for similar reasons. The timing of movie releases can have a significant effect on our results of operations. The results of one quarter are not necessarily indicative of results for the next quarter or any other quarter. Our results of operations are likely to continue to fluctuate due to seasonality and other factors.

General economic conditions may materially and adversely affect our financial position and results of operations.

        The direction and relative strength of the global economy as well as the markets in which we compete, including the United States and China, continue to be uncertain. Any weakness in consumer spending may have an adverse effect on our results of operations and financial position. We may not be able to foresee downturns or respond to such downturns in a timely manner. Recent softness in the real estate and mortgage markets, volatility in fuel and other energy costs, deteriorating economic conditions in different countries, difficulties in the financial services sector and credit markets, high levels of unemployment and other macroeconomic factors have created uncertainty about current economic conditions, which could affect consumer confidence and behavior in ways that materially and adversely affect our financial position and results of operations. For example, consumers and businesses may postpone spending in response to tighter credit or declines in income or asset values, which could negatively impact demand for our products and services. In addition, volatility in the financial markets and overall economic uncertainty increases the risk of substantial quarterly and annual fluctuations in our earnings.

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        We derived 30.5%, 30.5%, 34.6% and 15.5% of our revenue for 2010, 2011, 2012 and the three months ended March 31, 2013, respectively, from customers in the United States, and 44.6%, 37.2%, 31.7% and 31.7% of our revenue, respectively, from customers in China for the respective periods. The United States has experienced, and is still in the process of recovery from, a significant economic downturn. The Chinese economy has experienced significant but uneven growth over the past few decades, and has also been affected by the global financial crisis. The credit crisis, deterioration of global economies, rising unemployment and reduced equity valuations all create risks that could harm our business. Any of these factors could have a material adverse effect on our business, financial position and results of operations.

We are subject to the risks of international operations.

        Our operations are conducted in several countries around the world. These international operations can create challenges. We may encounter difficulty in planning and managing operations due to unfavorable political or economic factors, such as cultural and religious conflicts, non-compliance with expected business conduct, local regulations, trade policies and taxation laws and inadequate infrastructure. Moreover, changes in local regulations, trade policies, taxation laws, local content regulations, business or investment permit approval requirements, foreign exchange controls, import or export controls, the nationalization of assets or restrictions on the repatriation of returns from foreign investments in major markets and regions may affect our results of operations. For example, a labor dispute or a change of labor regulations or policies may significantly change local labor environments. Such a condition in China or another country in which we or a digital projector or other partner manufactures could cause interruption in production and shipping of our products and parts, a sharp rise in local labor costs or a shortage of employees, any of which could materially and adversely affect our results of operations. If international or domestic political instability disrupts our business operations or those of our business partners, or depresses consumer confidence in those regions, our business, financial position and results of operations may be materially and adversely affected. In addition, the time required to recover from disruptions, whether caused by these factors or other causes, such as natural disasters or pandemics, may be greater in certain countries. Any of the foregoing risks may have a material adverse effect on our business, financial position and results of operations.

Our customers could experience unfavorable business conditions that could materially and adversely affect our business.

        From time to time, we may sell to certain customers under differing payment terms. Our non-current trade receivables grew from US$0.4 million as of December 31, 2011 to US$8.6 million as of December 31, 2012. Our non-current trade receivables were US$6.8 million as of March 31, 2013. Our customers may not be able to discharge their payment and other obligations to us. Some of our customers may experience, from time to time, difficulty raising capital, supporting their operations or implementing their business plans. The non-payment or late payment of amounts due to us from our customers could negatively impact our financial position. If the business environment for our customers is unfavorable, they may postpone or reduce spending and we may lose potential revenue from products and services. If any of our existing or potential customers were to exit the business to which we provide products and services, declare bankruptcy, suffer other financial difficulties, fail to pay amounts owed to us, demand lower billing rates or terminate or modify its relationships with us, our business, financial position and results of operations could be adversely affected. In the case of bankruptcy or insolvency by one of our significant clients, accounts receivable with respect to that client would potentially be uncollectible, which could materially and adversely affect our financial performance.

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We depend upon a few major customers for a significant portion of our revenue and we have limited control over their actions.

        We depend upon a few major customers for a significant portion of our revenue and we have limited control over their actions. Our top five customers collectively accounted for 31.9%, 33.3%, 41.4% and 54.0% of our revenue for 2010, 2011, 2012 and the three months ended March 31, 2013, respectively. Our top customer in 2010, 2011 and 2012 was our largest reseller partner in the United States. It accounted for 12.3%, 11.8% and 14.4% of our revenue for 2010, 2011 and 2012, respectively. Our top customer for the three months ended March 31, 2013 was an exhibitor in the Asia-Pacific region. It accounted for 19.7% of our revenue for the period.

        We cannot assure you that we will be able to maintain relationships with each of our major customers. A loss of one or more of our major customers could materially and adversely affect our results of operations. Although we have agreements with many of our customers, these agreements may not require any minimum purchases and typically do not prohibit customers from purchasing products and services from competitors. Some arrangements are made by purchase order and are terminable at will by either party. A decision by any of our major customers not to purchase our products, or any failure or inability to pay amounts owed to us in a timely manner, or at all, could materially and adversely affect our business, financial position and results of operations.

        Our major customers include some of our reseller partners. We rely significantly on reseller partners to market and distribute our digital cinema servers in certain regions. The arrangements with our reseller partners are typically non-exclusive and they may sell competing products. The loss of a major reseller partner or the inability or unwillingness of our reseller partners to dedicate the resources necessary to promote our portfolio of products could adversely affect our revenue. Furthermore, our reseller partners could retain product channel inventory levels that exceed future anticipated sales, which could adversely affect future sales to those reseller partners. We do not have direct control over the business and risk management policies adopted by our reseller partners, who could act contrary to our policies.

If we fail to maintain relationships with studios or distributors, our business may be materially and adversely affected.

        Our relationships with studios are critical to our business. Our business expansion in key emerging markets such as Central and South America may hinge upon the availability of VPF arrangements to exhibitors and our ability to develop and maintain relationships with the studios and exhibitors in the market. Although revenue from VPF arrangements does not account for a significant portion of our revenue, early termination of any of our VPF agreements or any deterioration of our relationships with studios in connection with our VPF arrangements could harm our business. In addition, our post-production services business is dependent on our relationships with studios as well as distributors. We cannot assure you that studios or distributors will continue to entrust us with digital cinema content mastering, localization, replication, delivery and security key management services. If we fail to maintain such relationships, our business, financial position and results of operations may be materially and adversely affected.

Our suppliers could experience unfavorable business conditions, force majeure events and other circumstances that could materially and adversely affect our business.

        We rely on third-party manufacturers for key components of our products as well as the digital projectors we use in our integrated projection systems and other digital cinema products that we resell, such as 3D products, projector lamps and silver screens. Our reliance on such suppliers involves risks, including limited control over the price, delivery and quality of such products and components. Our suppliers could experience unfavorable business conditions, force majeure events and other circumstances that could render it difficult or impossible for them to fulfill purchase orders. If our suppliers are unable to fulfill purchase orders for any reason or if we lose any one or more of

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our suppliers and fail to timely secure alternative arrangements, our business, financial position and results of operations could be materially and adversely affected.

        Our suppliers may face catastrophic disasters or similar events, causing supply shortages that may have a material adverse impact on our business, financial position and results of operations. For example, floods in Thailand in the fourth quarter of 2011 caused shortages in hard disk drives, which are one of the key components of our digital cinema servers. As a result, we were required to switch to an alternative supplier and incurred additional installation and maintenance costs, which increased our overall cost of sales in 2012, thereby negatively affecting our margins.

        If our suppliers experience any problems, we could experience difficulty in obtaining products and parts. We do not have formal agreements in place with all of our suppliers for the continued supply of components. We may have no recourse or remedies in the event our suppliers fail to make timely deliveries or otherwise fail to meet our requirements. Any required changes in our suppliers could cause material delays in our operations and increase our costs of sales, which could materially and adversely affect our business, financial position and results of operations.

We rely on sole-source suppliers for some of the key components used in our products and for some of the products that we resell.

        We rely on sole-source suppliers for some of the key components that we use in our products, such as media decoders and processors used in our digital cinema servers, and for some of the products that we resell, such as 3D products. These sole-source suppliers may become unable or unwilling to deliver these components to us at an acceptable cost or at all, which would force us to find a replacement in a short period of time and/or redesign our products. Our inability to obtain timely delivery of key components of acceptable quality, any significant increases in the prices of components or the redesign of our products could result in material production delays, increased costs and reductions in shipments of our products, which could increase our operating costs, harm our customer relationships or materially and adversely affect our business, financial position and results of operations.

Our products may experience quality problems that could result in decreased sales, increased costs and potential product liability claims.

        Our products are complex and sometimes contain undetected software or hardware errors, particularly when first introduced or when new versions are released. Our products are combined with or incorporate products from other vendors, sometimes making it difficult to identify the source of a problem. We rely on third-party manufacturers for hardware components and other products we use or resell. If our products contain defects or errors, we could be required to replace them, which would increase our costs. While we inspect purchase orders upon receipt and perform extensive quality control procedures, we may not be able to detect all defects or errors.

        We have received customer complaints in the past relating to broken hard disks and other equipment failures, which took time and resources to resolve and increased our cost of sales and services rendered. Any such customer complaints may also harm our reputation and our customer relationships. Moreover, unsatisfactory product quality may lead us to write off deposits paid to suppliers. For instance, in 2011, we recorded a US$0.2 million write-off of deposits paid to a 3D products supplier.

        Such defects or errors could result in product liability claims. Defending or settling such claims may involve substantial costs. Such product liability claims may not be sufficiently covered by the warranty terms, if any, provided by third-party manufacturers. Moreover, we may not have effective contractual limitations on liability for defective products in place. If any warranty or indemnity provided by third-party manufacturers is not available to us or does not sufficiently cover product liability claims, if our warranty or indemnity does not sufficiently cover product liability claims or if liabilities arise that are not effectively limited contractually or otherwise, we could incur substantial

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costs in defending and settling product liability claims, which could materially and adversely affect our business, financial position and results of operations.

Our production capacity may not meet fluctuating levels of demand.

        We may not accurately predict the amount and timing of customer orders and may not be able to quickly respond to fluctuations in customer demand, particularly if levels of demand fluctuate beyond expected seasonal fluctuations or if we encounter any production difficulties. While our contracts with some customers provide for monthly rolling sales forecasts, actual customer requirements may exceed or fall short of these sales forecasts. We may not be able to ramp up our production capacity to meet such customer requirements in a timely manner. We may underutilize our production facilities as a result of reduced demand for some of our products, or we may find that customer demand exceeds our supply capacity. Any inability to effectively respond to fluctuations in customer demand for our products may adversely affect our gross profit margins.

        In addition, production difficulties or inefficiencies can interrupt production, resulting in our inability to deliver products on time in a cost effective manner, which could harm our competitive position. While we have two production facilities, one in Hong Kong and one in Shenzhen, China, we outsource certain component manufacture and assembly functions. Our reliance on contract manufacturers to produce components and assemble our products involves risks, including limited control over timely delivery and quality of such products. Moreover, if the production of our products is interrupted, we may not be able to manufacture products on a timely basis. A shortage of manufacturing capacity for our products could adversely affect our operating results and damage our customer relationships. We may be unable to quickly adapt our manufacturing capacity to rapidly changing market conditions and a contract manufacturer may encounter similar difficulties.

Our results of operations may fluctuate due to a number of factors beyond our control.

        A number of factors, many of which are outside our control, may cause or contribute to significant fluctuations in our quarterly and annual results of operations. These fluctuations may make financial planning and forecasting more difficult. In addition, these fluctuations may result in unanticipated decreases in our available cash, which could negatively impact our business and prospects, and could increase the volatility of the market price of our ADSs. Factors that may cause or contribute to fluctuations in our results of operations include those risks set forth in this section as well as the following:

    adverse developments in general economic conditions;

    rapid changes in technology in the digital cinema industry;

    events and conditions in the cinema industry, including box office receipts, the number of movies produced and exhibited, the general popularity of motion pictures and strikes by cinema industry participants;

    fluctuations in demand for our products and services, in particular for our integrated projection systems, which impacts our margins;

    the amount and timing of customer orders;

    the amount and timing of our operating costs, capital expenditures and related charges;

    fluctuations in purchase costs of key components of our products or other digital cinema products that we resell;

    pricing of products supplied by various third-party manufacturers, such as the digital projectors we use in our integrated projection systems;

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    the announcement, introduction or enhancement of technologies, products and services, by us or our competitors and market acceptance of these new or enhanced technologies, products and services;

    variations between our operating results and published analysts' expectations;

    the financial resources of exhibitors to buy our products or to equip their theatres to accommodate upgraded or new technologies;

    costs of litigation and intellectual property protection; and

    adverse outcomes of litigation or governmental proceedings, including any foreign, federal, state, or local tax assessments or audits.

        Any of the foregoing or other factors may cause our results of operations to fluctuate significantly in any particular quarterly or annual period.

We may not be able to access credit and capital markets on satisfactory terms, or at all, as needed to finance our growth plans, working capital requirements and liquidity needs.

        We access the credit and capital markets to fund our growth plans and working capital requirements from time to time. We may in the future need to seek additional equity or debt financing. We may not be able to obtain financing on satisfactory terms or at all and the terms of such financing could impose restrictions on our operations. Market disruptions such as those recently experienced in the United States and abroad may increase our cost of borrowing or adversely affect our ability to access sources of liquidity. If we are not able to obtain financing on satisfactory terms or at all, our ability to finance our operations, meet our short-term obligations and implement our operating strategy could be materially and adversely affected, which may limit our growth potential and our ability to execute our business strategy.

We may engage in acquisitions, joint ventures and other strategic investments in the future, and we may not realize intended benefits from such investments.

        We may engage in acquisitions, joint ventures and other strategic investments in the future in order to deliver more comprehensive digital cinema solutions and expand our marketing and distribution coverage. We may not be able to successfully identify strategic investment targets. Even if we identify suitable candidates, we may be unable to negotiate commercially reasonable terms or finance such strategic investments. We may not be able to effectively integrate acquired businesses, operations, services, assets and personnel with our then existing business and operations. Completing an acquisition and integrating an acquired business could divert management's time and resources and cause significant business disruptions. An acquisition also involves the risk that the assets acquired may prove less valuable than expected. We may assume unknown or unexpected liabilities, costs and problems. Moreover, we may not generate sufficient revenue to recoup investment costs and expenses. We may not achieve strategic objectives, planned revenue improvements or cost savings from such investments. Our relationships with employees or customers could suffer as a result of such acquisitions, joint ventures or other strategic investments. Any of the foregoing could materially and adversely affect our business, financial position and results of operations.

        In October 2012, we formed CFG GDC (Beijing) Technology Limited, or CFG GDC, with China Film Equipment Corporation, a subsidiary of the China Film Group, to own and manage a NOC for monitoring the digital cinema equipment deployed by the China Film Group. We own a 49% equity interest, representing an investment equivalent to US$0.8 million, of which US$0.4 million has been paid as of the date of this prospectus. The profits, risks and losses of CFG GDC are shared by China Film Equipment Corporation and us in proportion to our respective equity interests. We may encounter conflicts of interest, may struggle to maintain sufficient control over our relationships with our partners and may be faced with an increased risk of the loss of proprietary technology or know-how.

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Our success depends upon our executive officers and other key personnel.

        Our success depends to a significant degree upon the contribution of our executive officers and other key personnel. Our executive officers and key personnel, including our chairman of the board of directors and chief executive officer, Dr. Man-Nang Chong, our chief technology officer, Mr. Pranay Kumar, and our chief financial officer, Mr. Kent (Ming-Kin) Chiu, could terminate their employment with us at any time, notwithstanding the notice and other provisions in the employment agreements we have with these employees. Due to the competition for highly qualified personnel, we cannot be sure that we will be able to retain or attract executive, managerial or other key personnel. If any of our executive officers or key personnel decides not to comply with the non-competition restrictions in their employment agreements and leaves us to join our competitors, we may be required to incur significant litigation costs to enforce these non-competition provisions. The loss of any of our key personnel could harm our business if we are unable to effectively replace that person, if we incur significant operating expenses and direct management time to search for a replacement or if that person should join one of our competitors or otherwise compete with us.

We may be unable to attract and retain skilled personnel, which could limit our growth.

        Given the rapid developments in the digital cinema industry, hiring and retaining skilled professionals who are able to deliver high-quality services is critical to our business. Due to intense competition for these individuals from our competitors and other employers, we may not be able to attract or retain highly qualified personnel in the future. Our failure to attract and retain the experienced and highly trained personnel that are integral to our businesses may limit our growth. Additionally, we have experienced recent growth in personnel numbers and expect to continue to hire additional personnel in selected areas. Managing this growth requires significant time and resource commitments from our senior management. If we are unable to effectively manage a large and geographically dispersed group of employees or to anticipate our future growth and personnel needs, we may not be able to retain skilled personnel and our business may be materially and adversely affected.

We may find it necessary to defend or pursue intellectual property claims or competition or trade practices claims, which could be costly and disruptive to our business.

        Third parties may assert that our products or technologies infringe upon or misappropriate their intellectual property rights, or that we are engaging in unfair competition or other illegal trade practices. As of the date of this prospectus, we have 12 registered patents, five pending patent applications and 24 software copyright registrations in China relating to the technologies used in our business. We have two patent applications in the European Union and three patent applications in the United States. We do not have other patents or patent applications in other jurisdictions. Companies, organizations or individuals, including our competitors, may hold or obtain patents or other proprietary rights that would prevent, limit or interfere with our ability to make, use or sell our services or develop new services, which could make it more difficult for us to operate our business. Intellectual property registrations or applications by others relating to the type of services that we provide may give rise to potential infringement claims against us.

        In addition, we have incorporated open source software into our platform and face the risk of intellectual property claims in connection with open source software. Although we closely monitor our use of open source software, the terms of many open source licenses to which we are subject have not been interpreted by U.S. or foreign courts. There is a risk that such licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our ability to provide our products to our customers. In that event, we could be required to seek licenses from third parties in order to continue offering our products, or to redesign our products. Furthermore, we rely on third-party manufacturers for key components of our products and other digital cinema products that we resell. Legal claims regarding infringement by our suppliers of third-party intellectual property

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rights relating to the products we sell or resell could also result in substantial costs, diversion of managerial resources and harm to our reputation.

        Any infringement and other intellectual property claims, whether meritorious or not, are time consuming and costly to resolve. Such claims could divert management resources and attention or require us to make expensive changes in our methods of doing business, to enter into costly royalty or licensing agreements or to cease conducting certain operations. We may be unsuccessful in defending against these claims, which could result in substantial damages, fines or other penalties, such as a temporary or permanent injunction prohibiting us from marketing or selling certain products. Any of these adverse outcomes would negatively impact our business, financial position and results of operations. Even if we successfully defend against such claims, we could still incur significant legal fees and other costs, as well as suffer business disruptions. Any of these claims could also harm our reputation.

        Third parties may infringe upon our intellectual property rights or misappropriate our trade secrets and know-how. We may need to pursue legal action to protect our intellectual property, trade secrets and know-how from unauthorized use. Particularly in emerging markets, we may experience problems with competitors incorporating our technologies and trademarks into their products without our authorization. In addition, there may be limited recognition and enforcement of contractual and intellectual property rights in emerging markets where we seek to expand our business. As a result, we may experience difficulties in enforcing our intellectual property rights in emerging markets where intellectual property rights are not as respected as they are in the United States, Japan and Europe. We may incur significant expenses to protect our software copyrights and our trade secrets and know-how and we may not be successful in obtaining such protection, which could materially and adversely impact our business, financial position and results of operations.

We rely on a licensing arrangement with one of our principal shareholders to use "GDC" trademarks and trade names.

        Our rights to use "GDC" trademarks and trade names are important in marketing our products and services. GDC Technology Limited (BVI) has signed a license agreement with Global Digital Creations Holdings Limited, a company listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited and the registered holder of trademarks and trade names of "Global Digital Creations" and "GDC". Global Digital Creations Holdings Limited is also the parent company of GDC Holdings Limited, or GDC Holdings, GDC Technology Limited (BVI)'s former holding company and one of our current principal shareholders.

        Pursuant to this agreement, Global Digital Creations Holdings Limited has agreed to grant GDC Technology Limited (BVI) an exclusive, world-wide, perpetual, sublicensable and royalty-free license in the trademark and trade names and the rights, title, interests in and to any intellectual property rights containing such trademarks and trade names solely in connection with the manufacture, promotion, marketing, sale, distribution and use (or any of those activities) of media delivery or display related equipment. GDC Technology Limited (BVI) does not have the rights to use the trademarks or trade names in any other business outside the authorized uses, which may not include providing services or software. Global Digital Creations Holdings Limited is restricted from using or exploiting these trade names or trademarks in connection with such activities. Global Digital Creations Holdings Limited reserves the right to use these trademarks and trade names in connection with other activities.

        If Global Digital Creations Holdings Limited does not follow the restrictions in the license agreement, or if Global Digital Creations Holdings Limited, any of its subsidiaries or affiliated entities, or any third party improperly uses "Global Digital Creations" or "GDC" trade names or trademarks, our reputation could be damaged, which could have a material adverse effect on our business, financial position and results of operations.

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        Furthermore, Global Digital Creations Holdings Limited has the right to terminate the license agreement if GDC Technology Limited (BVI) breaches any of its obligations under the agreement, if GDC Technology Limited (BVI) or its affiliates cease to operate, or if GDC Technology Limited (BVI) becomes subject to winding-up proceedings. In particular, GDC Technology Limited (BVI) may be found to be in breach of its obligations under the agreement if it fails to (i) use the trademarks and trade names in a manner reasonably calculated to prevent the trade names and trademarks from becoming generic or (ii) maintain quality levels of any materials bearing any of the trademarks or trade names at least as stringent as the quality standards at the time of the license agreement and, without limiting the foregoing, manufacture, promote and sell such materials in a manner that reflects favourably on Global Digital Creations Holdings Limited and the GDC trade names and trademarks. Upon termination of the license agreement, among other things, we must cease use of the licensed trade names and trademarks and all such rights would revert to Global Digital Creations Holdings Limited, which could curtail our business operations and materially and adversely affect our business, financial position and results of operations.

        In addition, there may be potential conflicts of interest in the execution and enforcement of the licensing agreement between (a) Global Digital Creations Holdings Limited and Zheng Chen, one of our directors, and (b) us. Global Digital Creations Holdings Limited holds shares in our company through GDC Holdings. Mr. Chen is our director, while also serving as chief executive officer and an executive director of Global Digital Creations Holdings Limited. He is also a shareholder of Global Digital Creations Holdings Limited. As a result, Global Digital Creations Holdings Limited and Mr. Chen may experience conflicts of interest in the enforcement and execution of the licensing agreement. Although Mr. Chen owes us a duty of loyalty and care under Cayman Islands law as a member of our board of directors, there are potential conflicts of interests between his duties to us and his interests in Global Digital Creations Holdings Limited. Currently, we do not have existing arrangements to address potential conflicts of interest between Mr. Chen and our company. We rely on Mr. Chen to abide by the laws of the Cayman Islands and Hong Kong, both of which provide that directors owe a fiduciary duty to the company, which requires them to act in good faith and in the best interests of the company and not to use their positions for personal gain. If we cannot resolve any conflicts of interest or disputes between (a) Global Digital Creations Holdings Limited and Mr. Chen and (b) us, we would have to rely on legal proceedings, the outcome of which is uncertain and which could be disruptive to our business.

We may be subject to litigation or regulatory proceedings in various jurisdictions.

        We face the risk of litigation and regulatory proceedings in different countries in connection with our operations. Legal proceedings, including regulatory actions, may subject us to recovery of very large indeterminate amounts or limit our operations. The possibility that they may arise and their magnitude may remain unknown for substantial periods of time. From time to time we may also face contractual disputes with our suppliers, customers or other parties, such as the studios, distributors, exhibitors and various deploying entities that are parties to our VPF agreements, which could damage our relationships with such parties and lead to early termination of key agreements as well as contractual or other legal liabilities. Our suppliers may breach the terms of supply agreements with us, which could lead to protracted legal action and harm our ability to compete in a particular geographic market. We could incur significant legal fees and other costs to defend or pursue such legal proceedings. Such proceedings could divert management resources and attention and cause significant business disruptions. A substantial legal liability or adverse regulatory outcome may materially and adversely affect our business, financial position and results of operations, as well as harm our reputation.

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Security and privacy breaches could negatively impact our business.

        A security or privacy breach, such as a cyber-attack that bypasses our information technology security systems, may lead to a material disruption of our business and the loss of business information, which could negatively impact our business. Our designated NOC is connected to the digital cinema systems of our customers in China. A security or privacy breach of our NOC could irreparably harm our business and prospects in China. The risks may include such items as:

    theft, destruction, loss, misappropriation or release of confidential data or intellectual property;

    operational or business delays resulting from the disruption of IT systems and subsequent clean-up and mitigation activities; and

    negative publicity resulting in reputation or brand damage with our customers, partners or industry peers.

        Any such security or privacy breach could result in legal claims or legal proceedings, including regulatory investigations and actions, and may materially and adversely affect our business, financial position and results of operations.

We rely on insurance to mitigate some risks facing our business. To the extent our insurance does not mitigate the risks facing our business or our insurers are unable to meet their obligations, our operating results may be negatively impacted.

        We maintain various insurance policies, including commercial insurance, property insurance and liability insurance policies. In addition, we provide healthcare benefits and workers' compensation to our employees pursuant to various statutory requirements. However, it is possible that we may not have adequate insurance to meet our needs, may have to pay high prices for the insurance coverage we have, may have high deductibles or may not be able to, or may choose not to, acquire insurance for certain types of business risk. For example, we do not have general business interruption or key person insurance. This could leave us exposed to potential claims. If we were found liable for a significant claim in the future, our operating results could be negatively impacted. Also, to the extent the cost of maintaining insurance increases, our operating results could be negatively affected. We cannot assure you that our insurance will be adequate to protect us from pending and future claims.

The risk of non-compliance with U.S. and foreign laws and regulations applicable to our international operations could have a significant impact on our results of operations, financial position or strategic objectives.

        Our global operations subject us to regulation by U.S. federal and state laws and multiple foreign laws, regulations and policies, which could result in conflicting legal requirements. These laws and regulations are complex, change frequently, have tended to become more stringent over time and increase our cost of doing business. These laws and regulations include import and export control, local labor laws, intellectual property rights, information security and data protection, data privacy requirements and environmental, health and safety regulations. Our international operations are also subject to U.S. laws, such as the Foreign Corrupt Practices Act, and local laws prohibiting corrupt payments to governmental officials. We are subject to the risk that we, our employees, our partners, agents or their respective officers, directors, employees and agents may take action determined to be in violation of any of these laws. An actual or alleged violation could result in substantial fines, sanctions, civil or criminal penalties, curtailment of operations in certain jurisdictions, competitive or reputational harm, litigation or regulatory actions and other consequences that could materially and adversely affect our results of operations, financial position or strategic objectives.

        Our operations in China are governed by PRC laws and regulations. The PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all, and may have retroactive effects. As a result, we may not be aware of our violation of

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any of these policies and rules until some time after the violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention. Certain products we distribute in the PRC require a China Compulsory Certification, which requires that our products comply with certain environmental, product standards, national security as well as health and safety requirements. If any of our products fail to attain or are sold prior to attaining any required certifications, we may be subject to fines or penalties or other sanctions.

If we grant additional employee share options, restricted shares or other share-based compensation in the future, our net income could be materially and adversely affected.

        As of the date of this prospectus, there were 395,000 ordinary shares issuable upon the exercise of outstanding share options, 19,954,000 ordinary shares underlying granted but not yet vested options to purchase ordinary shares and 9,291,733 awarded but not yet issued restricted shares under our 2013 Equity Incentive Plan. Upon the completion of this initial public offering, we will recognize share-based compensation expenses for 931,267 awarded and issued restricted shares and 3,391,733 awarded but not yet issued restricted shares under our 2013 Equity Incentive Plan, as such shares would have been forfeited had their holders ceased to be employees prior to our initial public offering.

        Our board of directors may authorize the grant of any number of share options to eligible participants under the 2013 Equity Incentive Plan from time to time, up to 50,000,000 of our ordinary shares. GDC Technology Limited (BVI) does not intend to issue share options or restricted shares under the 2006 Share Option Scheme. We may adopt other equity incentive plans in the future. Grants of share-based awards under such plans may lead to incurrence of share-based compensation expenses. The fair value of services received, determined by reference to the fair value of share options granted at the grant date, is recognized as an expense in full at the grant date when the share options granted vest immediately, with a corresponding increase in equity. If we grant additional options, restricted shares and other equity incentives in the future, we could incur significant compensation charges and our net income could be materially and adversely affected.

One shareholder has substantial influence over our company and its interests may not be aligned with the interests of our other shareholders.

        As of the date of the prospectus, CAG Digital Investment Holdings Limited, an investment entity controlled by Carlyle Asia Growth Partners IV, L.P. and CAGP IV Coinvestment, L.P. beneficially owned 48.8% of our outstanding share capital and will beneficially own approximately 36.7% of our outstanding share capital upon completion of this offering. As such, it has substantial influence over our business, including decisions regarding mergers, consolidations and the sale of all or substantially all of our assets, election of directors and other significant corporate actions. This concentration of ownership may 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 may reduce the price of our ADSs.

We are an emerging growth company within the meaning of the Securities Act and any decision on our part to comply with certain reduced disclosure requirements applicable to emerging growth companies could make our ADSs less attractive to investors.

        We qualify as an "emerging growth company," as defined in the JOBS Act, and we may take advantage of certain specified reduced reporting and other requirements that are otherwise applicable generally to public companies that are not emerging growth companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404 in the assessment of the emerging growth company's internal control over financial reporting. As a result, if we elect not to comply with such auditor attestation requirements,

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our investors may not have access to certain information they may deem important. If investors find our ADSs less attractive as a result of our decision to comply with reduced reporting requirements, there may be a less active trading market for our ADSs and the price of our ADSs may be more volatile. In addition, we may incur additional expenses when we are eventually required to comply with the requirements applicable to public companies that are not emerging growth companies.

        The JOBS Act also provides that an emerging growth company does not need to comply with any new or revised financial accounting standards until such date that a private company is otherwise required to comply with such new or revised accounting standards. However, we have elected to "opt out" of this provision and will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

If we fail to implement and maintain an effective system of internal controls, we may be unable to accurately report our results of operations or prevent fraud or fail to meet our reporting obligations and investor confidence and the market price of our ADSs may be materially and adversely affected.

        Prior to this offering, we were a private company with limited accounting personnel and other resources with which to address our internal controls and procedures. However, upon completion of this offering, we will become a public company in the United States subject to the Sarbanes-Oxley Act of 2002. Section 404 will require that we include a report of management on our internal control over financial reporting in our annual report on Form 20-F beginning with our annual report for the fiscal year ending December 31, 2014. In addition, once we cease to be an "emerging growth company" as such term is defined in the JOBS Act, our independent registered public accounting firm may need to report on the effectiveness of our internal control over financial reporting. Our management may conclude that our internal control over financial reporting is not effective. Moreover, even if our management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified 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. In addition, after we become a public company, our reporting obligations may place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We may be unable to timely complete our evaluation testing and any required remediation.

        If we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. If we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations and lead to a decline in the trading price of our ADSs. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions. We may also be required to restate our financial statements from prior periods.

Changes in our accounting policies or in accounting standards could materially affect how we report our financial position and results of operations.

        Our accounting policies are essential to understanding our financial results and position. Some of these policies require the use of estimates and assumptions that may affect the value of our assets or

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liabilities and financial results. Some of our accounting policies are critical because they require management to make difficult, subjective, and complex judgments about matters that are inherently uncertain and because it is likely that materially different amounts would be reported under different conditions or using different assumptions. If such estimates or assumptions underlying our financial statements differ from actual results, we may experience material adjustments.

        Our audited consolidated financial statements as of and for the years ended December 31, 2011 and 2012 have been restated to reflect the material adjustments on the revenue recognition for sales of digital cinema equipment under VPF arrangement in Hong Kong by GDC Digital Cinema Network Limited, which was consolidated with us since September 2011. The restatement reduced the receivables related to VPF arrangement as of December 31, 2011 and 2012 by US$6.9 million and US$6.0 million, respectively, and merger reserves by the same amounts as of December 31, 2011 and 2012, respectively. The restatement increased our revenue in 2011 and 2012 by nil and US$1.0 million, respectively. For more details, see Note 38 to our audited consolidated financial statements included elsewhere in this prospectus.

Fluctuations in exchange rates could have a material adverse effect on our results of operations.

        We maintain sales, marketing and business operations in several countries around the world. Consequently, we are exposed to fluctuations in exchange rates associated with the local currencies of our international business operations. We earn revenue mainly in U.S. dollars and Renminbi. We incur costs mainly in U.S. dollars, H.K. dollars and Renminbi, which are primarily transacted using the functional currencies of the respective group entities. Exchange rate fluctuations between the U.S. dollar, the Renminbi and other currencies could have a material impact on our profitability.

        The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China's political and economic conditions and China's foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. The Renminbi appreciated more than 20% against the U.S. dollar over the following three years. However, the People's Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in Renminbi exchange rates and achieve policy goals. During the period between July 2008 and June 2010, the exchange rate between the Renminbi and the U.S. dollar was stable and traded within a narrow band. However, the Renminbi fluctuated significantly during that period against other freely traded currencies, in tandem with the U.S. dollar. Since June 2010, the Renminbi has gradually appreciated against the U.S. dollar, though there have been periods recently when the U.S. dollar has appreciated against the Renminbi. It is difficult to predict how long the current situation may last and when and how this relationship between the Renminbi and the U.S. dollar may change again. Significant revaluation of the Renminbi may have a material adverse effect on your investment. Substantially all of our revenues and costs are denominated in Renminbi. Any significant revaluation of the Renminbi may materially and adversely affect our revenues, earnings and financial position, and the value of, and any dividends payable on, our ADSs in U.S. dollars.

        The H.K. dollar is freely convertible into other currencies (including the U.S. dollar). Since October 17, 1983, the H.K. dollar has been officially linked to the U.S. dollar at the rate of HK$7.80 to US$1.00. The market exchange rate has not deviated materially from the level of HK$7.80 to US$1.00 since the peg was first established. However, in May 2005, the Hong Kong Monetary Authority broadened the trading band from the original rate of HK$7.80 per U.S. dollar to a rate range of HK$7.75 to HK$7.85 per U.S. dollar. The Hong Kong government has stated its intention to maintain the link at that rate. The Hong Kong government, acting through the Hong Kong Monetary Authority, has a number of means by which it may act to maintain exchange rate stability. The noon buying rate certified for customs purposes by the Federal Reserve Bank of New York in effect as of June 7, 2013 was HK$7.7629 to US$1.00. However, we cannot assure you that the Hong Kong government

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will maintain the link at HK$7.75 to HK$7.85 per U.S. dollar or at all. Significant revaluations of the H.K. dollar could materially and adversely affect our financial position.

        To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions in the future, the availability and effectiveness of these hedges may be limited and we may not be able to adequately hedge our exposure or at all.

Heightened scrutiny of acquisition transactions by PRC tax authorities may have a negative impact on our business operations, our acquisition strategy or the value of your investment in us.

        Pursuant to the Notice on Strengthening Administration of Enterprise Income Tax for Share Transfers by Non-PRC Resident Enterprises, or SAT Circular 698, issued by the State Administration of Taxation, or SAT, with effect from January 1, 2008, where a non-resident enterprise transfers the equity interests of a PRC tax resident enterprise indirectly by disposition of the equity interests of an overseas holding company, or an Indirect Transfer, and such overseas holding company is located in a tax jurisdiction that has an effective tax rate of less than 12.5% and does not impose income tax on foreign income of its residents, the non-resident enterprise must report the Indirect Transfer to tax authorities in the PRC. Using a "substance over form" principle, the PRC tax authorities may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of reducing, avoiding or deferring PRC tax. As a result, gains derived from such Indirect Transfer may be subject to PRC withholding tax at a rate of up to 10%. SAT Circular 698 also provides that, where a non-PRC resident enterprise transfers its equity interests in a PRC tax resident enterprise to related parties of the non-PRC resident enterprise at a price lower than the fair market value, the PRC tax authorities have the power to make a reasonable adjustment to the taxable income resulting from the transaction.

        The SAT released the Announcement on Several Issues concerning the Administration of Income Tax of Non-tax-resident Enterprises, or SAT Public Notice 24, which became effective on April 1, 2011, to clarify several issues related to Circular 698. Under SAT Public Notice 24, the term "effective tax" refers to the effective tax on the gain derived from the disposition of equity interests of an overseas holding company; and the term "does not impose income tax" refers to cases where the gain derived from disposition of the equity interests of an overseas holding company is not subject to income tax in the country or region where the overseas holding company is a resident.

        There is uncertainty as to the application of SAT Circular 698. For example, while the term "Indirect Transfer" is not clearly defined, it appears that PRC tax authorities are authorized to request information from a wide range of foreign entities that have no direct link to China. In addition, there are not any formal rules as to how it is determined whether a foreign investor lacks a commercial purpose and was established in order to reduce, avoid or defer PRC tax. SAT Circular 698 may be determined by PRC tax authorities to be applicable to our reorganization, if the PRC tax authorities determine that the issuance of ordinary shares of GDC Technology Limited (Cayman) to existing shareholders of GDC Technology Limited (BVI) in exchange for the respective ordinary shares that these shareholders held in GDC Technology Limited (BVI) pursuant to our reorganization lacked a reasonable commercial purpose. See "Prospectus Summary—The Reorganization Transactions." As a result, the exchange may be subject to income tax on capital gains generated from such transfers of the shares, and PRC tax authorities might, at their discretion, adjust any capital gains and impose tax return filing obligations on the transferring shareholders or require us to provide assistance for an investigation by PRC tax authorities.

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Discontinuation or revocation of any preferential tax treatment or imposition of any additional taxes could materially and adversely affect our financial position and results of operations.

        Our subsidiaries incorporated in the PRC are governed by applicable PRC income tax laws and regulations. The PRC enterprise income tax law, or the PRC EIT Law, which became effective on January 1, 2008, applies a uniform statutory income tax rate of 25% to enterprises in China. Under the PRC EIT Law and its implementation rules, a newly established "high technology enterprise" may be eligible to enjoy a reduced income tax, subject to periodical review of the qualification as a "high technology enterprise," and approval of relevant taxation administration and other criteria specified in relevant laws and regulations.

        GDC Technology (Shenzhen) Limited qualified as a "high technology enterprise" on October 27, 2011 for a three-year term retroactively beginning on January 1, 2011. As a high technology enterprise, GDC Technology (Shenzhen) Limited has enjoyed a reduced income tax rate of 15% since January 1, 2011 and will continue to enjoy such rate until December 31, 2013, subject to evaluation and review by the relevant governmental authorities every year. As the PRC EIT Law and its implementation rules have only recently taken effect, there are uncertainties on their future interpretation and implementation. We cannot assure you that the qualification of GDC Technology (Shenzhen) Limited as a "high technology enterprise" by the relevant PRC authorities will not be challenged in the future by their supervising authorities and be repealed, or that there will not be future implementation rules that are inconsistent with current interpretation of the PRC EIT Law. Preferential tax treatments and incentives granted to us by PRC governmental authorities are subject to review and may be adjusted or revoked at any time in the future. The discontinuation or revocation of any preferential tax treatments and incentive currently available to us would cause our effective tax rate to increase, which would decrease our net income and materially and adversely affect our financial position and results of operations.

We are a Cayman Islands company and investors may have less protection when it comes to enforcement of civil liabilities as compared to the United States.

        Our company is incorporated in the Cayman Islands and certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include:

    the Cayman Islands has a less developed body of securities laws as compared to the United States and provides significantly less protection to investors; and

    Cayman Islands companies do not have standing to sue before the federal courts of the United States.

        Our constituent documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated.

        A significant portion of our business is conducted in Hong Kong and China. A substantial proportion of our assets are located in Hong Kong and China. A majority of our directors and officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult to enforce against us or such persons judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

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        There are currently no treaties or other arrangements providing for the reciprocal enforcement of foreign judgements between the Cayman Islands and Hong Kong or the United States. There is uncertainty as to whether the courts of the Cayman Islands would:

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

    entertain original actions brought in the Cayman Islands against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

Failure to comply with the registration requirements for employee stock incentive plans may subject our PRC equity incentive plan participants or us to fines and other legal or administrative sanctions.

        In January 2007, the PRC State Administration of Foreign Exchange, or the SAFE, issued implementation rules for the Administrative Measures of Foreign Exchange Matters for Individuals, which, among other things, specified approval requirements for certain capital account transactions such as a PRC citizen's participation in the employee stock ownership plans or stock option plans of an overseas publicly-listed company. On February 15, 2012, the SAFE promulgated the Notice on Foreign Exchange Administration of PRC Residents Participating in Share Incentive Plans of Offshore Listed Companies, or Circular 7. Circular 7 regulates the foreign exchange matters associated with employee stock incentive plans or similar plans permitted under applicable laws and regulations and awards granted under such plans to PRC residents by companies whose shares are listed on offshore stock exchanges.

        Pursuant to Circular 7, all PRC residents participating in share incentive plans of offshore listed companies are required to, through their employers, jointly retain qualified PRC agents to register with the SAFE. PRC residents include PRC nationals or foreign citizens having been consecutively residing in PRC for not less than one year who act as directors, supervisors, senior management personnel or other employees of PRC entities affiliated with such offshore listed company. A qualified PRC agent may be a PRC entity involved in the share incentive plan or a PRC institution eligible for assets trusteeship, which is lawfully selected to handle various foreign exchange matters related to share incentive plans and apply annually for a quota for conversion and payment of foreign currencies in connection with the PRC residents' exercise of the employee stock options. The foreign exchange proceeds received by PRC residents from sale of shares under share incentive plans granted by offshore listed companies must be remitted to bank accounts in China opened by their employers or PRC agents.

        We and our PRC resident employees or other personnel who participate in our stock option plans are subject to these regulations. If we or our PRC optionees fail to make registration after this initial public offering or are otherwise not found to be in compliance by the SAFE, we or our PRC optionees may be subject to fines and other legal or administrative sanctions. For example, certain PRC resident employees have exercised their options before registration with the SAFE under Circular 7, which may result in us being penalized by the SAFE.

The audit report included in this prospectus has been prepared by auditors whose work, in part, is outside the scope of inspection by the Public Company Accounting Oversight Board and, as such, you may be deprived of the benefits of such inspection with respect to such work.

        Deloitte Touche Tohmatsu, our independent registered public accounting firm that issues the audit reports included in our annual reports filed with the SEC, is an auditor of companies that are traded publicly in the United States and a firm registered with the Public Company Accounting Oversight Board (United States), or the PCAOB. As such, Deloitte Touche Tohmatsu is required by the

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laws of the United States to undergo regular inspections by the PCAOB to assess its compliance with the laws of the United States and professional standards.

        The PCAOB is currently unable to inspect the audit work of Deloitte Touche Tohmatsu with respect to our operations in mainland China without the approval of certain Chinese authorities. Because those authorities, to date, have not granted such approval, the work of our auditor as it relates to our operations in mainland China currently is not inspected by the PCAOB.

        Inspections of audit firms that the PCAOB has conducted outside mainland China have identified deficiencies in those firms' audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. The PCAOB's current inability to conduct inspections in mainland China prevents the PCAOB from regularly evaluating our auditor's audit procedures and quality control procedures as they relate to our operations in mainland China, which represented 31.7% of our revenue for both the year ended December 31, 2012 and the three months ended March 31, 2013. As a result, investors may be deprived of the benefits of such regular PCAOB inspections and may lose confidence in our reported financial information and the quality of our financial statements.

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC subsidiaries and limit the use of such funds, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

        Our company is an offshore holding company and we conduct part of our business in China through our PRC subsidiaries, including GDC Technology (Shenzhen) Limited, which is held directly by GDC Technology (Hong Kong) Limited, and GDC Technology (Beijing) Limited and Espedeo Technology (Shenzhen) Limited, which are held directly by GDC Technology (Shenzhen) Limited. We intend to fund our on-going operations through the existing resources in the PRC and revenue generated by our PRC subsidiaries. The use of such funding is not restricted by PRC regulations on foreign-invested enterprises. However, we may also fund our operations in China through making additional capital contributions or loans to our PRC subsidiaries.

        According to relevant PRC regulations on foreign-invested enterprises in China, depending on the amount of total investment and the type of business in which a foreign-invested enterprise is engaged, capital contributions to foreign-invested enterprises may be subject to the approval of Ministry of Commerce, or MOFCOM, or its local branches. Capital contributions to GDC Technology (Shenzhen) Limited are subject to the approval of MOFCOM or its local branch. Similarly, loans by our company or our offshore subsidiaries to GDC Technology (Shenzhen) Limited are subject to PRC regulations and foreign exchange loan registration requirements. Any such loans in foreign currencies must also be approved and registered with the SAFE, or its local branch. In addition, loans by us to GDC Technology (Shenzhen) Limited, which is treated as a foreign-invested enterprise under PRC law, cannot exceed the statutory limit, which is the difference between its approved total investment amount and registered capital. We may not be able to obtain these government approvals or registrations on a timely basis, if at all, with respect to future loans or capital contributions by us. If we fail to receive such approvals and registrations, our ability to fund our operations in China may be negatively affected, which could materially and adversely affect our liquidity and our ability to fund and expand our business.

        The SAFE recently promulgated a number of circulars which further restricted foreign exchange capital contributions. The Circular on the Relevant Operating Issues Concerning the Improvement of the Administration of the Payment and Settlement of Foreign Currency Capital of Foreign-invested Enterprises, or Circular 142, promulgated on August 29, 2008, requires that Renminbi converted from foreign exchange capital contributions only be used for activities within the approved business scope of such foreign-invested enterprise and not for equity investments in China unless otherwise provided

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by PRC laws and regulations. The Notice Relating to Strengthening the Administration of Foreign Exchange Businesses, promulgated on November 9, 2010, tightens the regulation on the settlement of net proceeds from overseas offerings, such as this offering, and requires that the settlement of net proceeds be consistent with the description in the prospectus for the offering. The Circular on Further Clarifying and Regulating Relevant Issues Concerning the Administration of Foreign Exchange under Capital Account, or Circular 45, promulgated on November 9, 2011, strengthens Circular 142 and prohibits a foreign-invested enterprise from converting its registered capital in foreign currencies into Renminbi for the purpose of making equity investments in China, granting entrusted loans, repaying inter-company loans, or repaying bank loans which have been transferred to a third party.

        As a result, GDC Technology (Shenzhen) Limited may not be able to use the foreign currencies contributed by us for making equity investments in China or to increase registered capital of or make entrusted loans to its subsidiaries for funding their operations. Any foreign currencies contributed by us may only be used for permitted business activities within the business scope of GDC Technology (Shenzhen) Limited, including the assembly, production and sale of digital cinema servers, projectors and computer software and hardware, and other matters relating to business operations, such as the lease or purchase of self-used assets. Our intended business activities for GDC Technology (Shenzhen) Limited fit within the business scope of GDC Technology (Shenzhen) Limited. Violations of Circular 142 or related regulations could result in severe penalties, such as heavy fines. Circular 142 and related regulations may significantly limit our ability to fund our operations in China.

Restrictions under PRC law on the ability of our PRC subsidiaries to make dividends and distributions to its parent could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends and otherwise fund and conduct our business.

        PRC legal restrictions permit payments of dividends by our PRC subsidiaries only out of their accumulated after-tax profits, if any, determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries are also required under PRC laws and regulations to allocate at least 10% of its after-tax profit determined in accordance with PRC GAAP to statutory reserves each year until such reserves reach 50% of the company's registered capital. In addition, at its own discretion, GDC Technology (Shenzhen) Limited, as a foreign-invested enterprise, may allocate a portion of its after-tax profits based on PRC GAAP to staff welfare and bonus funds.

        These statutory reserve funds and staff welfare and bonus funds can only be used for specific purposes and are not transferable to us in the form of loans, advances or cash dividends. The total registered capital of GDC Technology (Shenzhen) Limited was RMB10 million as of December 31, 2010 and 2011 and increased to RMB30 million as of December 31, 2012. The statutory reserve of GDC Technology (Shenzhen) Limited as of December 31, 2010, 2011 and 2012 and March 31, 2013 amounted to US$0.7 million, US$0.7 million, US$2.3 million and US$2.3 million, respectively. GDC Technology (Beijing) Limited and Espedeo Technology (Shenzhen) Limited have not regenerated significant after-tax profits as of December 31, 2012 and have not funded their statutory reserves. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.


Risks Related to This Offering and Our ADSs

There has been no public market for our ordinary shares or ADSs prior to this offering. You may not be able to sell our ADSs at or above the price you paid, or at all.

        Prior to this initial public offering, there has been no public market for our ordinary shares or ADSs. We have applied to list our ADSs on the Nasdaq Global Market. Our ordinary shares will not be listed on any exchange or quoted for trading on any over-the-counter trading system. An active and

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liquid trading market for our ADSs may not develop after this offering or be sustained in the future. If an active trading market for our ADSs does not develop or is not sustained, it may be difficult for you to sell the ADSs at an attractive price, or at all. The initial public offering price for our ADSs, determined by negotiations between us and the underwriters, may bear no relationship to the market price for our ADSs after this offering. The market price of our ADSs may decline below the initial public offering price. Furthermore, if an active trading market does not develop or is not sustained, we may not be able to meet the continued listing requirements of the Nasdaq Global Market or seek listing on another globally recognized exchange.

The trading prices of our ADSs may be volatile, which could result in substantial losses to investors.

        The price and trading volume of the ADSs may be highly volatile and subject to wide fluctuations in response to factors including the following:

    changes in conditions of, or any regulatory or other developments in, the digital cinema industry;

    changes in performance or valuation of peer or comparable companies, or of any of our partners;

    actual or anticipated fluctuations in our quarterly or annual results of operations;

    variations in our revenue, earnings and cash flow;

    announcements by us or our competitors of new investments, acquisitions, strategic partnerships or joint ventures;

    announcements of scientific developments or the issuance of patents to us or our competitors;

    announcements of new products or services and expansions by us or our competitors;

    changes in financial estimates by securities research analysts;

    additions or departures of our executive officers and key personnel;

    release or expiry of lock-up or other transfer restrictions on our outstanding equity securities or sales of additional equity securities;

    negative publicity, studies or reports;

    potential litigation or regulatory investigations; and

    fluctuations in market prices for our products or services.

        Any of these factors may result in large and sudden changes in the volume and price at which our ADSs will trade. Furthermore, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also have a material adverse effect on the market price of our ADSs.

Because the initial public offering price of our ADSs is substantially higher than our net tangible book value per share, you will incur immediate and substantial dilution.

        If you purchase ADSs in this offering, you will pay more for your ADSs than the amount paid by our existing shareholders for their ordinary shares on a per ADS basis. As a result, you will experience immediate and substantial dilution of approximately US$8.92 per ADS (assuming no exercise by the underwriters of options to acquire additional ADSs), representing the difference between our net tangible book value per ADS as of March 31, 2013, after giving effect to this offering and the initial public offering price of US$13.00 per ADS, the mid-point of the estimated price range set forth on the cover of this prospectus. In addition, you may experience further dilution to the extent that our

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ordinary shares are issued upon the exercise of outstanding or to-be-issued share options. See "Dilution" for a more complete description of how the value of your investment in our ADSs will be diluted upon the completion of this offering.

Substantial future sales or perceived sales of our ADSs in the public market could cause the price of our ADSs to decline.

        Sales of our ADSs or ordinary shares in the public market after this offering, or the perception that these sales could occur, could cause the market price of our ADSs to decline. Upon completion of this offering, we will have 344,710,839 ordinary shares outstanding, including 86,178,000 ordinary shares represented by 5,745,200 ADSs. All ADSs sold in this offering will be freely transferable without restriction or additional registration under the Securities Act of 1933, as amended, or the Securities Act. The remaining ordinary shares outstanding after this offering will be available for sale, upon the expiration of the 180-day lock-up period beginning from the date of this prospectus, subject to volume and other restrictions as applicable under Rule 144 and Rule 701 under the Securities Act. Any or all of these shares (other than those held by certain option holders) may be released prior to expiration of the lock-up period at the discretion of Barclays Capital Inc. To the extent shares are released before the expiration of the lock-up period and these shares are sold into the market, the market price of our ADSs could decline.

Our articles of association contain anti-takeover provisions that could have a material and adverse effect on the rights of holders of our ordinary shares and ADSs.

        We will adopt our amended and restated articles of association that will become effective immediately upon completion of this offering. Our new articles of association 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 issue preferred shares in one or more series 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 ADS or otherwise. Preferred shares could be 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 issue preferred shares, the price of our ADSs may fall and the voting and other rights of the holders of our ordinary shares and ADSs may be materially and adversely affected.

Holders of ADSs have fewer rights than shareholders and must act through the depositary to exercise those rights.

        Holders of ADSs do not have the same rights as our shareholders and may only exercise the voting rights with respect to the underlying ordinary shares in accordance with the provisions of the deposit agreement. Under our amended and restated articles of association, the minimum notice period required to convene a general meeting is seven days. When a general meeting is convened, you may not receive sufficient notice of a shareholders' meeting to permit you to withdraw your ordinary shares to allow you to cast your vote with respect to any specific matter. In addition, the depositary and its agents may not be able to send voting instructions to you or carry out your voting instructions in a timely manner. We will make all reasonable efforts to cause the depositary to extend voting rights to you in a timely manner, but you may not receive the voting materials in time to ensure that you can instruct the depositary to vote the ordinary shares underlying your ADSs. Furthermore, the depositary and its agents will not be responsible for any failure to carry out any

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instructions to vote, for the manner in which any vote is cast or for the effect of any such vote. As a result, you may not be able to exercise your right to vote and you may lack recourse if the underlying ordinary shares of your ADSs are not voted as you requested. In addition, in your capacity as an ADS holder, you will not be able to call a shareholders' meeting.

Our corporate actions are substantially controlled by our executive officers, directors, principal shareholders and affiliated entities.

        After this offering, our executive officers, directors, principal shareholders and their affiliated entities will beneficially own approximately 71.3% of our outstanding shares. These shareholders, if they act together, could exert substantial influence over matters requiring approval by our shareholders, including electing directors and approving mergers or other business combination transactions and they may not act in the best interests of minority shareholders. This concentration of ownership 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 our ADSs. These actions may be taken even if they are opposed by our other shareholders, including you.

The depositary for our ADSs may give us a discretionary proxy to vote the ordinary shares underlying your ADSs if you do not vote at shareholders' meetings, which could materially and adversely affect your interests.

        Under the deposit agreement for our ADSs, if we asked for your voting instructions but the depositary does not receive your instructions by the cutoff date specified in the related notice, the depositary will give us a discretionary proxy to vote the ordinary shares underlying your ADSs as to all matters at the shareholders' meeting unless:

    we have failed to timely provide the depositary with notice of meeting and related voting materials;

    we have instructed the depositary that we do not wish a discretionary proxy to be given;

    we have informed the depositary that there is substantial opposition as to a matter to be voted on at the meeting;

    a matter to be voted on at the meeting would have a material adverse impact on shareholders; or

    the voting at the meeting is to be made on a show of hands.

        The effect of this discretionary proxy is that if you do not vote at shareholders' meetings, you cannot prevent the ordinary shares underlying your ADSs from being voted, except under the circumstances described above. This may make it more difficult for ADS holders to influence the management of our company. Holders of our ordinary shares are not subject to this discretionary proxy.

You may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.

        The depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on ordinary shares or other deposited securities underlying our ADSs, after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary is not responsible if it decides that it is unlawful or impractical to make a distribution available to any holders of ADSs. For example, it would be unlawful to make a distribution to a holder of ADSs if it consists of securities that require registration under the Securities Act but that are not properly registered or distributed under an applicable exemption from registration. The depositary may also determine that it is not feasible to

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distribute certain property through the mail. Additionally, the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may determine not to distribute such property. We have no obligation to register under U.S. securities laws any ADSs, ordinary shares, rights or other securities received through such distributions. We also have no obligation to take any other action to permit the distribution of ADSs, ordinary shares, rights or anything else to holders of ADSs. This means that you may not receive distributions we make on our ordinary shares or any value for them if it is illegal or impractical for us to make them available to you. These restrictions may cause a material decline in the value of our ADSs.

You may be subject to limitations on transfers of your ADSs.

        Your ADSs are transferable on the books of the depositary. However, the depositary may close its transfer books at any time or from time to time when it deems expedient in connection with the performance of its duties. In addition, the depositary may refuse to deliver, transfer or register transfers of ADSs generally when our books or the books of the depositary are closed, or at any time if we or the depositary deem it 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.

Your right to participate in any future rights offerings may be limited, which may cause dilution to your holdings. You may not receive distributions with respect to the underlying ordinary shares if it is impractical to make them available to you.

        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 the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Also, under the deposit agreement, the depositary bank will not make rights available to you unless the distribution to ADS holders of both the rights and any related securities are either registered under the Securities Act, or exempted from registration 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. Moreover, we may not be able to establish an exemption from registration under the Securities Act. Accordingly, you may be unable to participate in our rights offerings and may experience dilution in your holdings.

        In addition, the depositary of our ADSs has agreed to pay to you the cash dividends or other distributions it or the custodian receives on our ordinary shares or other deposited securities after deducting its fees and expenses. You will receive these distributions in proportion to the number of ordinary shares your ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable 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 through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property and you will not receive such distribution.

We are a Cayman Islands company and, because judicial precedent regarding the rights of shareholders is more limited under Cayman Islands law than under U.S. law, you may have less protection for your shareholder rights than you would under U.S. law.

        Our corporate affairs are governed by our amended and restated memorandum and articles of association, or Memorandum and Articles, which will become effective upon completion of this offering, the Cayman Islands Companies Law and the common law of the Cayman Islands. The rights of shareholders to take action against the directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from

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comparatively limited judicial precedent in the Cayman Islands as well as that from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. In addition, some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands.

        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 management, members of the board of directors or controlling shareholders than they would as shareholders of a U.S. public company.

We have not determined a specific use for a portion of the net proceeds from this offering. We may use these proceeds in ways with which you may not agree.

        We have not determined a specific use for a portion of the net proceeds of this offering. Our management will have considerable discretion in deciding how to apply these proceeds. You will not have the opportunity to assess whether the proceeds are being used appropriately before you make your investment decision. You must rely on the judgment of our management regarding the application of the net proceeds of this offering. We cannot assure you that the net proceeds will be used in a manner that would improve our results of operations or increase our ADS price, nor that these net proceeds will be placed only in investments that generate income or appreciate in value.

We will incur increased costs as a result of being a public company.

        Upon completion of this offering, we will become a public company and expect to incur a significantly higher level of legal, accounting and other expenses than we did as a private company, including costs to address any deficiencies in internal controls and procedures. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the U.S. Securities and Exchange Commission, or the SEC, and the Nasdaq Global Market, have imposed various requirements on the corporate governance practices of public companies. 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. For example, as a result of becoming a public company, we may need to increase the number of our independent directors and implement policies regarding internal controls and disclosure controls and procedures. We also expect that operating as a public company will make it more difficult and more expensive for us to obtain director and officer liability insurance. We may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. In addition, we will incur additional costs associated with our public company reporting requirements. It is difficult to predict or estimate the amount of additional costs we may incur or the timing of such costs accurately.

        After we become a public company, we may face the risk of securities class action suits. 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 adverse effect on our financial position and results of operations.

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We are a "foreign private issuer," and our disclosure obligations differ from those of U.S. domestic reporting companies. As a result, we may not provide you the same information as U.S. domestic reporting companies or we may provide information at different times, which may make it more difficult for you to evaluate our performance and prospects.

        We are a foreign private issuer and, as a result, we are not subject to the same requirements as U.S. domestic issuers. Under the Exchange Act, we will be subject to reporting obligations that, to some extent, are more lenient and less frequent than those of U.S. domestic reporting companies. For example, we will not be required to issue quarterly reports or proxy statements. We will not be required to disclose detailed individual executive compensation information. Furthermore, our directors and executive officers will not be required to report equity holdings under Section 16 of the Exchange Act and will not be subject to the insider short-swing profit disclosure and recovery regime.

        As a foreign private issuer, we will also be exempt from the requirements of Regulation FD (Fair Disclosure) which, generally, are meant to ensure that select groups of investors are not privy to specific information about an issuer before other investors. However, we will still be subject to the anti-fraud and anti-manipulation rules of the SEC, such as Rule 10b-5 under the Exchange Act. Since many of the disclosure obligations imposed on us as a foreign private issuer differ from those imposed on U.S. domestic reporting companies, you should not expect to receive the same information about us and at the same time as the information provided by U.S. domestic reporting companies.

We may be or become a passive foreign investment company for U.S. federal income tax purposes, which could result in material and adverse U.S. federal income tax consequences to U.S. investors in our ADSs or ordinary shares.

        A non-U.S. corporation will be a passive foreign investment company, or PFIC, for any taxable year in which (i) at least 75% of its gross income is passive income or (ii) at least 50% of the value (based on an average of quarterly values) of its assets is attributable to assets that produce or are held for the production of passive income. If we are classified as a PFIC, our ADSs or ordinary shares will continue to be treated as shares in a PFIC for all succeeding years during which a U.S. Holder holds our ADSs or ordinary shares, unless we cease to be a PFIC and the U.S. Holder makes certain elections with respect to the ADSs or ordinary shares.

        We do not believe that we were a PFIC for our taxable year ended December 31, 2012. Based on the projected composition of our income and assets and the valuation of our assets, we do not currently expect to be a PFIC for our taxable year ending December 31, 2013 or the foreseeable future. However, a separate determination must be made at the close of each taxable year as to whether we are a PFIC for such year. In addition, our PFIC status will depend upon the composition of our income and assets from time to time, including the value of our ADSs at any such time. Our PFIC status will also depend, in part, on how, and how quickly, we spend the cash we raise in this offering. Accordingly, there can be no assurance that we will not be a PFIC for our current taxable year or any future taxable year. If we were treated as a PFIC for any taxable year during which a U.S. Holder holds our ADSs or ordinary shares, certain material and adverse U.S. federal income tax consequences and additional reporting requirements could apply to that U.S. Holder. You are urged to consult your tax advisor regarding our possible status as a PFIC. See "Taxation—United States Federal Income Taxation—Passive Foreign Investment Company."

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements that relate to our current expectations and views of future events. The forward-looking statements are contained principally in the sections entitled "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and Analysis of Financial Position and Results of Operations," "Industry" and "Business." These statements relate to events that involve known and unknown risks, uncertainties and other factors, including those listed under "Risk Factors," which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

        In some cases, these forward-looking statements can be identified by words or phrases such as "may," "will," "expect," "anticipate," "aim," "estimate," "intend," "plan," "believe," "potential," "continue," "likely to" 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 position, results of operations, business strategy and financial needs. These forward-looking statements involve risks, uncertainties and assumptions related to, among other things:

    industry demand for digital cinema products and services;

    competitive product and pricing pressures;

    our ability to develop and deliver innovative products and services in response to industry and technological changes;

    worldwide cinema attendance patterns;

    successful execution of our business expansion strategy;

    growth of new markets for our digital cinema products and services;

    our future business development and expansion of our product and service offerings;

    fluctuation of our quarterly and annual results of operations;

    economic and market conditions;

    our ability to realize benefits from strategic partnerships and investments;

    our ability to access credit and capital markets to finance our growth;

    our ability to maintain strong relationships with suppliers, customers and studios;

    our ability to forecast customer demand and match our production capacity to fluctuating levels of demand;

    our ability to effectively protect our intellectual property and not infringe on the intellectual property of others;

    existing or future laws or regulations; and

    our ability to attract and retain skilled personnel.

        The forward-looking statements made in this prospectus relate only to events or information as of the date on which the statements are made in this prospectus. Except as required by law, we undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this prospectus and the documents that we reference in this prospectus and have filed as exhibits to the registration

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statement, of which this prospectus is a part, completely and with the understanding that our actual future results may be materially different from and worse than what we expect. Other sections of this prospectus include additional factors that could adversely impact our business and financial performance. 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.

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USE OF PROCEEDS

        We estimate that we will receive net proceeds of approximately US$66.9 million (or US$77.3 million if the underwriters exercise their option to purchase additional ADSs in full) from this offering, assuming an initial public offering price of US$13.00 per ADS, the midpoint of the estimated range of the initial public offering price as set forth on the cover page of this prospectus, and after deducting the estimated underwriting discounts, commissions and estimated aggregate offering expenses payable by us.

        The principal purposes of this offering are to increase our financial flexibility, improve brand awareness, create a public market for our ADSs and facilitate our future access to the public capital markets. We intend to use the net proceeds that we receive from the offering for working capital and other corporate purposes, including geographical expansion to existing and new markets, research and development including on our new business initiatives such as private digital cinema and China Film Giant Screen, and expanding our services infrastructure and capabilities. We may also use a portion of the net proceeds that we receive to acquire or invest in complementary businesses, products, services, technologies or other assets. We have not entered into any agreements or commitments with respect to any acquisitions or investments as of the date of this prospectus.

        We cannot specify with certainty all of the particular uses of the net proceeds that we will receive from this offering. Accordingly, we will have broad discretion in using these proceeds. Furthermore, the amount and timing of our actual expenditures will depend on numerous factors, including the cash used in or generated by our operations, the status of our development, the level of our sales and marketing activities, the pace of our international expansion plans, and our investments and acquisitions. Pending the use of proceeds from this offering as described above, we plan to invest the net proceeds that we receive in this offering in short-term and intermediate-term interest-bearing obligations, investment-grade investments, certificates of deposit or direct or guaranteed obligations of the U.S. government. We cannot predict whether the invested proceeds will yield a favorable return.

        We currently do not plan to use net proceeds from this offering to fund our operations in China. If we use net proceeds from this offering to fund our operations in China, GDC Technology (Shenzhen) Limited will only be allowed to use the funds for permitted business activities within its business scope and other matters relating to business operations, such as the lease or acquisition of assets. See "Risk Factors—Risks Related to Our Business and Industry—PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to our PRC subsidiaries and limit the use of such funds, which could materially and adversely affect our liquidity and our ability to fund and expand our business."

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DIVIDEND POLICY

        GDC Technology Limited (Cayman) and its predecessor, GDC Tech (BVI), has historically declared dividends and paid dividends. On September 6, 2011, certain shareholders disposed of an 80% equity interest in GDC Technology Limited (BVI) to CAG Digital Investment Holdings Limited. GDC Technology Limited (BVI) declared dividends of US$43.8 million (or approximately US$0.176 per ordinary share) to the former shareholders. Dividends declared and paid by GDC Technology Limited (BVI) amounted to US$11.5 million (or approximately US$0.046 per ordinary share) and US$7.7 million (or approximately US$0.03 per ordinary share) during the year ended December 31, 2012 and the three months ended March 31, 2013, respectively. On May 29, 2013, we declared a second interim dividend that amounted to US$7.7 million (or approximately US$0.03 per share) in respect of the year ending December 31, 2013. The payment was made in June 2013.

        Under the shareholders' agreement we entered into with CAG Digital Investment Holdings Limited and other shareholders on May 21, 2013, we are obligated to distribute an annual dividend of not less than 30% of our profit for the year, if our net profit for the year exceeds HK$160 million. The shareholders' agreement will terminate upon completion of this offering.

        Except as described above, we have no plans to declare or pay any dividends on our ordinary shares in the near future. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business after the completion of this offering. Any determination to pay dividends in the future will be made at the discretion of our board of directors and will depend on our results of operations, financial position, contractual restrictions, restrictions imposed by applicable law and other factors our board of directors deems relevant.

        Our board of directors has complete discretion on whether to pay dividends, subject to the approval of our shareholders. 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 position, contractual restrictions and other factors that the board of directors may deem relevant. If we pay any dividends, we will pay our ADS holders to the same extent as holders of our ordinary shares, subject to the terms of the deposit agreement, including the fees and expenses payable thereunder. See "Description of American Depositary Shares." Cash dividends on our ordinary shares, if any, will be paid in U.S. dollars.

        In China, the payment of dividends is subject to limitations. Regulations in the PRC currently permit payment of dividends by our PRC subsidiaries only out of accumulated profits as determined in accordance with accounting standards and regulations in China. Our PRC subsidiaries are required to set aside at least 10% of each of their respective after-tax profits each year to contribute to each of their respective reserve fund until the accumulated balance of the reserve fund reaches 50% of its registered capital. Each PRC subsidiary is also required to reserve a portion of its after-tax profits to its employee welfare and bonus fund, the amount of which is determined by its respective board of directors. These funds are not distributable in cash dividends. For a detailed discussion, see "Risk Factors—Risks Related to Our Business and Industry—Restrictions under PRC law on the ability of GDC Technology (Shenzhen) Limited to make dividends and distributions to its parent could materially and adversely affect our ability to grow, make investments or acquisitions that could benefit our business, pay dividends and otherwise fund and conduct our business."

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CAPITALIZATION

        The following table sets forth our capitalization as of March 31, 2013:

    on an actual basis reflecting the capitalization of GDC Technology Limited (BVI); and

    on an as adjusted basis to reflect (1) the issuance and sale of 86,178,000 ordinary shares in the form of ADSs by us in this offering, assuming an initial public offering price of US$13.00 per ADS, the midpoint of the estimated range of the initial public offering price as set forth on the cover page of this prospectus, after deducting estimated underwriting discounts and commissions and estimated aggregate offering expenses payable by us and assuming no exercise of the underwriters' option to purchase additional ADSs and (2) the US$7.7 million cash dividend paid to our existing shareholders in June 2013.

        The information below is illustrative only and our capitalization following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ADSs and other terms of this offering determined at pricing. You should read this table together with our consolidated financial statements and the related notes included elsewhere in this prospectus and the information under "Prospectus Summary—The Reorganization Transactions," "Selected Consolidated Financial and Other Data" and "Management's Discussion and Analysis of Financial Position and Results of Operations."

 
  As of
March 31, 2013
 
 
  GDC Technology
Limited (
BVI)(1)
  GDC Technology
Limited (
Cayman)
 
 
  Actual   As adjusted(2)  
 
  (in thousands of US$)
 

Secured bank borrowings—due over one year

  $ 1,684   $ 1,684  

Shareholders' equity:

             

Share capital

    3,315     3,323  

Reserves

    31,373     91,206  
           

Total equity

    34,688     94,529  
           

Total capitalization

  $ 36,372   $ 96,213  
           

(1)
Derived from our consolidated financial statements included elsewhere in this prospectus.

(2)
A US$1.00 increase (decrease) in the assumed initial public offering price of US$13.00 per ADS (the midpoint of the estimated initial public offering price) would increase (decrease) each of share premium reserve, total equity and total capitalization by US$5.34 million.

        On May 27, 2013, we entered into a credit facility for US$5.0 million for working capital purposes at a fixed interest of flat rate 3.25% per annum which is available up to March 2014. As a part of the security for such loan, we pledged 100% of the shares of GDC Digital Cinema Network Limited and certain of its assets. On May 31, 2013, we drew down the loan for the full amount and the loan will be repaid in 36 monthly instalments.

        On May 29, 2013, we declared a second interim dividend that amounted to US$7.7 million (or approximately US$0.03 per share) in respect of the year ending December 31, 2013. The payment was made in June 2013.

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DILUTION

        The following sets forth dilution information for GDC Technology Limited (Cayman). GDC Technology Limited (Cayman)'s financial statements will be the same as GDC Technology Limited (BVI)'s financial statements, as adjusted for the Reorganization Transactions. See "Prospectus Summary—Reorganization Transactions."

        If you invest in our ADSs, your interest will be diluted to the extent of the difference between the initial public offering price per ADS and our net tangible book value per ADS after this offering. Dilution results from the fact that the initial public offering price per ordinary share is substantially in excess of the book value per ordinary share attributable to the existing shareholders for our presently outstanding ordinary shares.

        Our net tangible book value as of March 31, 2013 was approximately US$34.7 million, or US$0.13 per ordinary share and US$2.01 per ADS. Net tangible book value represents the amount of our total consolidated tangible assets, minus the amount of our total consolidated liabilities. Without taking into account any other changes in such net tangible book value after March 31, 2013, other than to give effect to (1) our sale of the ADSs offered in this offering at the assumed initial public offering price of US$13.00 per ADS, the midpoint of the estimated range of the initial public offering price as set forth on the cover page of this prospectus, and after deduction of underwriting discounts, commissions and estimated offering expenses of this offering payable by us, and (2) the US$7.7 million cash dividend paid to our existing shareholders in June 2013, our adjusted net tangible book value as of March 31, 2013 would have increased to US$93.8 million or US$0.27 per ordinary share and US$4.08 per ADS. This represents an immediate increase in net tangible book value of US$0.14 per ordinary share and US$2.07 per ADS, to the existing shareholder and an immediate dilution in net tangible book value of US$0.59 per ordinary share and US$8.92 per ADS, to investors purchasing ADSs in this offering. The following table illustrates such per share dilution:

Estimated initial public offering price per ordinary share

    US$0.87  

Net tangible book value per ordinary share as of March 31, 2013

    US$0.13  

As adjusted net tangible book value after giving effect to this offering

    US$93.8 million  

Amount of dilution in net tangible book value per ordinary share to new investors in this offering

    US$0.59  

Amount of dilution in net tangible book value per ADS to new investors in this offering

    US$8.92  

        A US$1.00 increase (decrease) in the assumed initial public offering price of US$13.00 per ADS would increase (decrease) our net tangible book value after giving effect to the offering by US$5.34 million, or by US$0.02 per ordinary share and by US$0.23 per ADS, assuming no change to the number of ADSs offered by us as set forth on the cover page of this prospectus, and after deducting underwriting discounts and commissions and other expenses of the offering. The information discussed above is illustrative only. Our net tangible book value following the completion of this offering is subject to adjustment based on the actual initial public offering price of our ADSs and other terms of this offering determined at pricing.

        The following table summarizes the differences between existing shareholders and the new investors with respect to the number of ordinary shares (in the form of ADSs or shares) purchased from us, the total consideration paid and the average price per ordinary share and per ADS. In the case of ADSs purchased by new investors, the consideration and price amounts are paid before deducting estimated underwriting discounts and commissions and estimated offering expenses, assuming an initial public offering price of US$13.00 per ADS, the midpoint of the estimated range of the initial public offering price. The total number of ordinary shares in the following table does not

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include ordinary shares underlying the ADSs issuable upon the exercise of the option to purchase additional ADSs granted to the underwriters. The information in the following table is illustrative only and the total consideration paid and the average price per ordinary share and per ADS for new investors is subject to adjustment based on the actual initial public offering price of our ADSs and other terms of this offering determined at pricing.

 
  Ordinary Shares
Purchased
   
   
   
   
 
 
  Total Consideration   Average
Price Per
Ordinary
Share
   
 
 
  Average
Price Per
ADSs
 
 
  Number   Percent   Amount   Percent  

Existing shareholders

    258,532,839     75 % US$ 11,579,046     13 % US$ 0.04   US$ 0.67  

New investors

    86,178,000     25 % US$ 74,687,600     87 % US$ 0.87   US$ 13.00  
                               

Total

    344,710,839     100 % US$ 86,266,646     100 %            

        A US$1.00 increase (decrease) in the assumed initial public offering price of US$13.00 per ADS would increase (decrease) total consideration paid by new investors, total consideration paid by all shareholders and the average price per ADS paid by all shareholders by US$5.7 million, US$5.7 million and US$0.25, respectively, assuming no change in the number of ADSs sold by us as set forth on the cover page of this prospectus and without deducting underwriting discounts and commissions and other expenses of the offering.

        The dilution in net tangible book value to new investors in this offering will be US$0.58 per ordinary share and US$8.63 per ADS, if the underwriters exercise in full their option to purchase additional ADSs.

        The discussion and tables above also do not take into consideration any (i) outstanding share options and (ii) granted but not yet issued restricted shares. As of the date of this prospectus, there were 19,954,000 ordinary shares underlying granted but not yet vested options to purchase ordinary shares, at an exercise price of HK$3.00 (US$0.38), and 395,000 ordinary shares issuable upon the exercise of outstanding share options, at an exercise price of HK$2.00 (US$0.26), under our 2013 Equity Incentive Plan. As of the date of this prospectus, there were 9,291,733 awarded but not yet issued restricted shares under our 2013 Equity Incentive Plan. To the extent that any of these options are exercised or restricted shares are issued, there will be further dilution to new investors.

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ENFORCEABILITY OF CIVIL LIABILITIES

        We are incorporated in the Cayman Islands to take advantage of certain benefits associated with being a Cayman Islands exempted company, such as:

    political and economic stability;

    a relatively effective judicial system;

    a favorable tax system;

    the absence of exchange control or currency restrictions; and

    the availability of professional and support services.

        The court system in the Cayman Islands is generally considered to be effective because litigation practice and procedures are based on established English law principles of civil procedure. The Grand Court of the Cayman Islands is presided over by the Chief Justice and Grand Court judges permanently resident in the islands. Appeals lie from the Grand Court to the Cayman Islands Court of Appeal, which sits in Grand Cayman, and from there to the Judicial Committee of the Privy Council in England. However, certain disadvantages accompany incorporation in the Cayman Islands. These disadvantages include:

    the Cayman Islands has a less developed body of securities laws as compared to the United States and provides significantly less protection to investors; and

    Cayman Islands companies do not have standing to sue before the federal courts of the United States.

        Our constituent documents do not contain provisions requiring that disputes, including those arising under the securities laws of the United States, between us, our officers, directors and shareholders, be arbitrated.

        A significant portion of our business is conducted in Hong Kong and China. A substantial proportion of our assets are located in Hong Kong and China. A majority of our directors and officers are nationals or residents of jurisdictions other than the United States and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a shareholder or ADS holder to effect service of process within the United States upon us or such persons, or to enforce against us or them judgments obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

        We have appointed GDC Technology (USA), LLC as our agent to receive service of process with respect to any action that may be brought against us in the United States District Court for the Southern District of New York under the federal securities laws of the United States or of any state in the United States or any action that may be brought against us in the Supreme Court of the State of New York in the County of New York under the securities laws of the State of New York.

        There are currently no treaties or other arrangements providing for reciprocal enforcement of foreign judgments between the Cayman Islands and Hong Kong or the United States. Walkers, our counsel as to Cayman Islands law, has advised that there is uncertainty as to whether the courts of the Cayman Islands would:

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

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    entertain original actions brought in the Cayman Islands against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States.

        Walkers has further advised us that a final and conclusive judgment in the federal or state courts of the United States under which a sum of money is payable, other than a sum payable in respect of taxes, fines, penalties or similar charges, may be subject to enforcement proceedings as a debt in the courts of the Cayman Islands under common law.

        Any judgment of United States courts will not be directly enforced in Hong Kong. There are currently no treaties or other arrangements providing for reciprocal enforcement of foreign judgments between Hong Kong and the United States. However, subject to certain conditions, including but not limited to when the judgment is for a liquidated amount in a civil matter and not in respect of taxes, fines, penalties or similar charges, the judgment is final and conclusive and has not been stayed or satisfied in full, the proceedings in which the judgment was obtained were not contrary to natural justice and the enforcement of the judgment is not contrary to public policy of Hong Kong, Hong Kong courts may accept such judgment obtained from a United States court as a debt due under the rules of common law enforcement. However, a separate legal action for debt must be commenced in Hong Kong in order to recover such debt from the judgment debtor.

        Our PRC counsel, Commerce & Finance Law Offices, has advised us that the PRC Civil Procedures Law governs the recognition and enforcement of foreign judgments. Under the PRC Civil Procedures Law, courts in China may recognize and enforce foreign judgments pursuant to treaties between China and the country where the judgment is rendered based on reciprocity arrangements for the recognition and enforcement of foreign judgments between jurisdictions. If neither treaties nor reciprocity arrangements exist between China and a foreign jurisdiction where a judgment is rendered, according to the PRC Civil Procedures Law, parties may resolve matters relating to the recognition and enforcement of a foreign judgment in China through diplomatic channels. Currently there are no treaties or other arrangements providing for reciprocal recognition and enforcement of foreign judgments between China and either of the United States or the Cayman Islands. As a result, it is generally difficult to recognize and enforce in China a judgment rendered by a court in either of these two jurisdictions. In addition, given that we are incorporated in the Cayman Islands, a shareholder may not be able to originate a cause of action against us in a PRC court because of the difficulty in establishing both a connection to the PRC and subject matter jurisdiction, as required by PRC Civil Procedure Law, by virtue of only holding the ADSs or ordinary shares.

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CORPORATE HISTORY AND STRUCTURE

        We are a holding company. Our principal executive offices are located at GDC Technology Limited, Unit 1-7, 20/F, Kodak House II, 39 Healthy Street East, North Point, Hong Kong and our phone number is +852-2523-6851.

        GDC Technology Limited (BVI) was incorporated in the British Virgin Islands on December 29, 1999 as the wholly owned subsidiary of GDC Holdings.

        On September 6, 2011, certain shareholders disposed of an 80% equity interest in GDC Technology Limited (BVI) to CAG Digital Investment Holdings Limited, an investment entity controlled by Carlyle Asia Growth Partners IV, L.P. and CAGP IV Coinvestment, L.P., and in which Sweet Light (HK) Limited and Mighty Capital Limited held beneficial interests.

        On September 18, 2012, GDC Technology Limited (BVI) acquired 100% of the equity interests of GDC Digital Cinema Network Limited from CAG Digital Investment Holdings Limited, the majority shareholder of our company, for consideration of 8,240,480 ordinary shares of our company. Such transaction was accounted for as a common control transaction. GDC Digital Cinema Network Limited was consolidated with us since September 6, 2011, which is the date on which GDC Digital Cinema Network Limited and GDC Technology Limited (BVI) first came under the common control of CAG Digital Investment Holdings Limited.

        On April 12, 2013, CAG Digital Investment Holdings Limited disposed of a 9.0% equity interest in GDC Technology Limited (BVI) to Huayi Brothers International Investment Limited.

        In anticipation of this offering, GDC Technology Limited (Cayman) was incorporated as a listing vehicle on April 11, 2013 in the Cayman Islands. On May 21, 2013, GDC Technology Limited (Cayman) became the ultimate holding company of our business by issuing ordinary shares to existing shareholders of GDC Technology Limited (BVI) in exchange for the respective ordinary shares that these shareholders held in GDC Technology Limited (BVI). The proportionate shareholdings of the shareholders' interests did not change.

        On May 22, 2013, Sweet Light (HK) Limited and Mighty Capital Limited disposed of their equity interests in CAG Digital Investment Holdings Limited, and acquired an 18.4% equity interest and a 4.1% equity interest, respectively, in GDC Technology Limited (Cayman) from CAG Digital Investment Holdings Limited, therefore maintaining the same ownership interests in GDC Technology Limited (Cayman).

        The following diagram illustrates our principal subsidiaries as of the date of this prospectus:

CHART

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        We currently conduct substantially all of our operations through our subsidiaries or branch offices in Hong Kong, the United States, China, Japan, Singapore, Spain, India, Mexico and Malaysia. We have the following significant subsidiaries:

    GDC Technology Limited (BVI) is a holding company and it also conducts research and development activities related to digital cinema equipment and provides computing solutions for our digital content distribution and exhibition operating division on a worldwide basis.

    GDC Digital Cinema Network Limited (BVI) is a holding company for entities engaged in the deployment and administration of digital cinema networks under VPF programs, namely GDC Digital Cinema Network GG in Japan, GDC Digital Cinema Network Limited in Hong Kong and GDC Digital Cinema Network (USA), LLC in the United States.

    GDC Technology (Hong Kong) Limited sells our integrated projection systems.

    GDC Digital Cinema Technology Europe SL sells products to our European customers.

    GDC Technology (Shenzhen) Limited operates our business in China and our service network for Southern China, manufactures our digital cinema servers and conducts research and development activities. In addition, it holds a 49% equity interest, in an entity, which was formed to own and manage a NOC for monitoring the digital cinema equipment deployed by the China Film Group, with China Film Equipment Corporation, a subsidiary of the China Film Group.

    GDC Technology (Beijing) Limited mainly operates our service network for Northern China.

    Espedeo Technology (Shenzhen) Limited sells 3D products.

    GDC Technology Pte. Ltd. is a holding company and it also provides sales and servicing for the South Asia region and the Pacific region. It also conducts research and development activities.

    GDC Technology Investment (USA), LLC is a holding company in the United States.

    GDC Technology of America LLC sells digital cinema products in North America and Central and South America.

    GDC Technology (USA), LLC manages logistics, research and development and services in the United States.

    GDC Technology Property USA, LLC was formed to purchase and own the real property for our office in Burbank, California.

    GDC Technology India Private Limited sells products and provides services to our Indian customers.

    GDC Technology SDN BHD sells products and provides services to our Malaysian customers.

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SELECTED CONSOLIDATED FINANCIAL DATA

        We have historically conducted our business through GDC Technology Limited (BVI) and its subsidiaries. Therefore, our historical financial statements present the results of operations of GDC Technology Limited (BVI). In May 2013, we underwent the Reorganization Transactions pursuant to which GDC Technology Limited (BVI) became a wholly owned subsidiary of GDC Technology Limited (Cayman), a newly formed holding company with nominal assets and liabilities, which had not conducted any operations.

        Beginning in the second quarter of 2013, our financial statements will present the results of operations of GDC Technology Limited (Cayman), and its consolidated subsidiaries. GDC Technology Limited (Cayman)'s financial statements will be the same as GDC Technology Limited (BVI)'s financial statements, as adjusted for the Reorganization Transactions. The Reorganization Transactions will be reflected retroactively in GDC Technology Limited (Cayman)'s earnings per share and earnings per ADS calculations. See "Prospectus Summary—The Reorganization Transactions."

        Since the transfer of equity interests of GDC Technology Limited (BVI) to GDC Technology Limited (Cayman) were completed solely for the purpose of this initial public offering and the proportionate shareholdings of the shareholders' interests did not change, the transaction will be accounted for in a manner similar to a pooling-of-interests.

        The following selected consolidated statements of comprehensive income data for 2010, 2011 and 2012 and the selected consolidated statements of financial position data as of December 31, 2011 and 2012 have been derived from our consolidated financial statements included elsewhere in this prospectus. Our audited consolidated financial statements are prepared and presented in accordance with IFRS, and have been audited by Deloitte Touche Tohmatsu, an independent registered public accounting firm.

        The following selected consolidated statement of comprehensive income data for the three months ended March 31, 2012 and 2013 and the selected consolidated statement of financial position data as of March 31, 2013 have been derived from our unaudited condensed consolidated financial statements included elsewhere in this prospectus. The unaudited condensed consolidated financial statements were prepared on a basis consistent with our audited consolidated financial statements and include, in the opinion of management, all adjustments necessary, which include only normal recurring adjustments, for the fair statement of the financial information contained in those statements.

        Our audited consolidated financial statements as of and for the years ended December 31, 2011 and 2012 have been restated to reflect the material adjustments on the revenue recognition for sales of digital cinema equipment under VPF arrangement in Hong Kong by GDC Digital Cinema Network Limited, which was consolidated with us since September 2011. The restatement reduced the receivables related to VPF arrangement as of December 31, 2011 and 2012 by US$6.9 million and US$6.0 million, respectively, and merger reserves by the same amounts as of December 31, 2011 and 2012, respectively. The restatement increased our revenue in 2011 and 2012 by nil and US$1.0 million, respectively. For more details, see Note 38 to our audited consolidated financial statements included elsewhere in this prospectus.

        Our historical results for any period are not necessarily indicative of results to be expected for any future period. You should read the following selected consolidated financial data in conjunction with the consolidated financial statements and related notes and the information under "Management's Discussion and Analysis of Financial Position and Results of Operations," both of which are included elsewhere in this prospectus.

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  Year ended December 31,   Three months
ended March 31,
 
 
  2010
  2011
  2012
(restated)
  2012
(restated)
  2013
 
 
  (in thousands of US$, except for
per share and per ADS data)

 

Selected Consolidated Statements of Comprehensive Income of GDC Technology Limited (BVI)

                               

Revenue

  $ 72,693   $ 89,983   $ 116,552   $ 23,539   $ 32,367  

Cost of sales and services rendered

    (42,111 )   (48,872 )   (66,118 )   (13,986 )   (21,177 )
                       

Gross profit

    30,582     41,111     50,434     9,553     11,190  

Other income

    1,392     1,133     636     57     322  

Selling and marketing expenses

    (1,940 )   (3,950 )   (5,480 )   (1,038 )   (1,330 )

Administrative expenses

    (6,891 )   (9,536 )   (11,219 )   (2,682 )   (3,406 )

Research and development expenses

    (1,187 )   (1,935 )   (1,796 )   (305 )   (468 )

Finance costs on bank borrowings

    (103 )   (51 )   (140 )   (9 )   (116 )

Share of loss of an associate

            (10 )       (28 )

Share of profit of a joint venture

            10         13  
                       

Profit before tax

    21,853     26,772     32,435     5,576     6,177  

Income tax expense

    (1,953 )   (4,059 )   (4,703 )   (816 )   (907 )
                       

Profit for the year/period attributable to owners of our company

    19,900     22,713     27,732     4,760     5,270  

Other comprehensive income:

                               

Exchange differences arising on translation of foreign operations

    514     688     86     2     207  
                       

Total comprehensive income for the year/period attributable to owners of our company

  $ 20,414   $ 23,401   $ 27,818   $ 4,762   $ 5,477  
                       

Earnings per share

                               

Basic

  $ 0.08   $ 0.09   $ 0.11   $ 0.02   $ 0.02  
                       

Diluted

  $ 0.08   $ 0.09   $ 0.11   $ 0.02   $ 0.02  
                       

Earnings per ADS(1)

                               

Basic

  $ 1.27   $ 1.39   $ 1.61   $ 0.28   $ 0.31  
                       

Diluted

  $ 1.27   $ 1.37   $ 1.61   $ 0.28   $ 0.31  
                       

(1)
Each ADS represents 15 ordinary shares.


 
  As of December 31,   As of March 31,  
 
  2011
(restated)
  2012
(restated)
  2013
 
 
  (in thousands of US$)
 

Selected Condensed Consolidated Statements of Financial Position of GDC Technology Limited (BVI)

                   

Total non-current assets

  $ 4,385   $ 14,637   $ 12,188  

Bank balances and cash

    17,637     23,202     16,303  

Total current assets

    53,700     75,058     88,052  

Total current liabilities

    37,472     50,911     63,868  

Total non-current liabilities

        1,881     1,684  

Total equity

  $ 20,613   $ 36,903   $ 34,688  

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION
AND RESULTS OF OPERATIONS

        You should read the following discussion and analysis of our financial position and results of operations in conjunction with the section entitled "Selected Consolidated Financial Data" and our consolidated financial statements and the related notes included elsewhere in this prospectus. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this prospectus.

Overview

        We are a leading global digital cinema solutions provider with the largest installed base of digital cinema servers in the Asia-Pacific region and the second largest globally as of March 31, 2013. In the first quarter of 2013, we became the global market leader by capturing the largest market share of incremental digital cinema servers installations on a worldwide basis. We develop, manufacture and sell digital cinema servers that meet the highly demanding performance, security and reliability requirements established by Hollywood studios. Since our inception, we have shipped over 25,000 digital cinema servers worldwide. We also partner with other manufacturers to offer a one-stop solution for exhibiting digital cinema content, including integrated projection systems and 3D products.

        We derive substantially all of our revenue from sales of digital cinema equipment, including:

    digital cinema servers, which we manufacture and sell to both exhibitors and resellers;

    integrated projection systems, which we offer as a convenient one-stop solution for exhibiting digital cinema content by integrating digital cinema servers we manufacture with digital projectors manufactured by third parties; and

    complementary digital cinema products, which we procure from third-party manufacturers and resell.

        We also derive a smaller portion of our revenues from other sources. We provide technical services. Under our VPF arrangements, we generate (i) service income for verifying and billing the VPFs; and (ii) proceeds from sales of digital cinema equipment related to VPF arrangements in Hong Kong. In 2013, we entered into a content distribution agreement with China Film Digital Film Development (Beijing) Limited and began offering cinema-grade digital cinema content to private venues in 2013. We also recently became the exclusive reseller and licensee of China Film Giant Screen systems in Asia (excluding China) and a non-exclusive reseller and licensee in the rest of the world. We expect to derive revenue from initial equipment sales and box office revenue for movies in China Film Giant Screen format beginning in the second half of 2013 or in 2014.

        We have experienced significant growth in recent years. Our market share of incremental digital cinema server installations grew from 16% in 2010 to 35% in the first quarter of 2013. Our revenue grew from US$72.7 million in 2010 to US$90.0 million in 2011 and US$116.6 million in 2012. Our revenue for the three months ended March 31, 2013 amounted to US$32.4 million, representing an increase of 37.5% from the same period of 2012. Our profit for the year grew from US$19.9 million in 2010 to US$22.7 million in 2011 and US$27.7 million in 2012. Our profit for the three months ended March 31, 2013 amounted to US$5.3 million, representing an increase of 10.7% from the same period of 2012, after reflecting listing expenses of US$0.4 million.

        We operate and manage our business under two segments: (i) digital content distribution and exhibition; and (ii) deployment and administration of digital cinema networks. Under our operating division for digital content distribution and exhibition, we sell digital cinema equipment, provide technical services and lease digital cinema equipment. Under our operating division for the

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deployment and administration of digital cinema networks, we earn service income and interest income from our VPF arrangements. We do not account for our results of operations on a geographic or other basis.

Factors Affecting Our Results of Operations

        The most significant factors that directly or indirectly affect our financial performance and results of operations are:

    industry demand;

    our market position;

    our product mix;

    seasonality; and

    technological changes.

Industry Demand

        Our business and revenue growth depend on demand for digital cinema systems, driven primarily by the number of digital cinema screens. The digital cinema industry has experienced rapid growth in recent years. From the end of 2009 to the end of March 2013, the number of digital cinema screens globally increased from 16,379 to 94,817, representing a CAGR of 76.1%. Our market share of worldwide incremental installed base grew from 16% in 2010 to 35% in the first quarter of 2013. During the same periods, our incremental installed base in the Asia-Pacific region grew from 30% to 54% and our incremental installed base in Central and South America grew from less than 1% to 22%.

        The key sources of our business and revenue growth are:

    The analog-to-digital cinema screen conversion.  The analog-to-digital cinema screen conversion, or the adoption of digital cinema technology, has been driven primarily by distribution cost savings, equipment incentive programs, such as VPF arrangements, and growing consumer demand for new types of content that can only be shown using digital cinema technology. Demand for analog-to-digital cinema screen conversion is likely to be higher in markets with low digital cinema screen penetration.

    New digital cinema screen installations.  New digital cinema screen installations have been driven primarily by new cinema construction, which in turn is dependent on box office revenue growth. We estimate that a majority of new cinema screens that have been added in recent years are digital cinema screens. We believe substantially all new cinema screens added will be digital cinema screens. In recent years, demand for new digital cinema screen installations has primarily come from emerging markets such as China. We expect these trends to continue.

    Upgrades and replacements for digital cinema products.  Upgrades in digital cinema equipment are expected to be driven by advances in digital cinema technology, the introduction of new DCI specifications and enhanced content formats, such as 3D and high frame rate playback. Replacements of digital cinema equipment are expected to follow product replacement cycles. Demand for replacements is expected before products reach the end of their useful lives.

    Private Venues.  Demand for watching newly-released in private venues in China, such as villas, luxury homes, private clubs, museums and educational institutions, is expected to be driven by increasingly sophisticated high-net-worth individuals. According to a 2012 Hurun Report, the number of people with over RMB100 million in total assets in China is estimated to be 63,500. Our digital cinema equipment can deliver and replicate authentic cinema-like viewing experiences in the comfort and privacy of private venues.

        We cannot assure you that the digital cinema industry will continue to grow rapidly, or that we will be able to benefit from the growth in the digital cinema industry. See "Risk Factors—Risks

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Related to Our Business and Industry—We face risks relating to industry demand for digital cinema products and services."

Our Market Position

        Our financial performance is affected by our market position, as measured by our market share of digital cinema server installations, in various geographic regions. Our market position significantly affects our bargaining power with potential customers.

        Our market share of incremental digital cinema server installations in the United States increased from less than 1% in 2009 to approximately 34% for the three months ended March 31, 2013. Our revenue from the United States grew from US$22.2 million in 2010 to US$27.4 million in 2011 and US$40.3 million in 2012. Our revenue from the United States for the three months ended March 31, 2013 amounted to US$5.0 million.

        In China, we had the largest market share of incremental digital cinema server installations (66%) for the three months ended March 31, 2013. Our revenue from China grew from US$32.4 million in 2010 to US$33.4 million in 2011 and US$37.0 million in 2012. Our revenue from China for the three months ended March 31, 2013 amounted to US$10.3 million.

        We aim to increase our market share in certain emerging markets, such as India and Central and South America. In 2012, we shipped 300 integrated projection systems to the second largest cinema chain in India, as measured by its total number of cinema screens at the end of 2012. We have entered into a contract to ship 1,750 digital cinema servers to the second largest cinema chain in Mexico, as measured by its total number of cinema screens at the end of 2012 and have shipped over 400 units as of March 31, 2013. We have opened offices in India and Mexico to expand our sales and services footprint.

        We believe that our market position will continue to affect our future growth opportunities. See "Risk Factors—Risks Related to Our Business and Industry—The markets for our products and services are highly competitive; if we are unable to compete successfully, our business will be materially and adversely affected."

Our Product Mix

        Our results of operations are affected by our product mix. In particular, our revenues and margins are affected by the proportion of our revenue that is generated from products we manufacture and sell ourselves relative to the products we resell. We manufacture digital cinema servers and sell them either on a stand-alone basis or integrated with third-party digital projectors as integrated projection systems. We resell other digital cinema products, such as 3D products, projector lamps and silver screens. Our margins fluctuate based on the relative proportion of sales of digital cinema servers, integrated projection systems and other digital cinema products, which changes from time to time. Digital cinema servers, which are manufactured by us, typically generate higher margins than integrated projection systems and other digital cinema products.

        As we plan to continue to focus on offering integrated projection systems in order to provide exhibitors a one-stop solution, our margins may be adversely affected. However, the absolute amount of our revenue and gross profit is expected to increase as we sell more integrated projection systems, as unit prices of our integrated projection systems are significantly higher than unit prices of our digital cinema servers.

Seasonality

        Our customers generally purchase digital cinema products from us based on the number of digital cinema screens they expect to add in the immediate near term, resulting in significant fluctuations in our revenue from period to period due to the uncertainty of both the timing and the amount of such customer orders. We have historically experienced higher sales in the fourth quarter

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of a year, compared to the other three quarters of the same year, as our customers tend to purchase digital cinema equipment immediately before the winter holiday season, which is typically the peak season for box office revenues.

Technological Changes

        Our business and the digital cinema industry are characterized by rapid technological changes, evolving industry trends and frequent product enhancements. We developed a number of proprietary technologies that have improved the audiovisual experience, security, delivery and exhibition of digital cinema content. Our continued success will depend on our ability to develop and market products and services that respond to technological changes, evolving industry trends and changing audience preferences in a timely and cost-effective manner. Generally, introduction of new features or software upgrades may spur demand for upgrades and replacements for digital cinema products and increase our sales volume. In addition, changing audience preferences may also drive demand for digital cinema content, for example, in private venues. If we are the first to enter the market with such new features, we will be able to enjoy greater bargaining power with our customers.

Major Components of Our Results of Operations

Revenue

        We currently derive revenue from two segments: (i) digital content distribution and exhibition; and (ii) deployment and administration of digital cinema networks.

        Digital Content Distribution and Exhibition.    Under this operating division, we sell digital cinema equipment, provide technical services and lease digital cinema equipment.

        Sales of digital cinema equipment accounted for 96.4%, 96.1%, 93.3% and 90.5% of our revenue for 2010, 2011, 2012 and the three months ended March 31, 2013, respectively. We manufacture digital cinema servers and sell them either on a stand-alone basis or integrated with digital projectors as integrated projection systems. Sales of digital cinema servers and the servers in our integrated projection systems and other products we manufactured represented approximately 66.7%, 79.9%, 78.6% and 72.3% of our sales of digital cinema equipment for 2010, 2011, 2012 and the three months ended March 31, 2013, respectively. Products we resell represented 33.3%, 20.1%, 21.4% and 27.7% of our sales of digital cinema equipment for 2010, 2011, 2012 and the three months ended March 31, 2013, respectively. In China, Central and South America, India and South East Asia, we primarily sell products directly to exhibitors. In the United States, Japan, Korea and Europe, we primarily sell products through reseller partners. We derived a substantial portion of our revenue from both resellers and exhibitors for 2010, 2011, 2012 and the three months ended March 31, 2013.

        Technical service income accounted for 3.5%, 2.7%, 3.1% and 5.0% of our revenue for 2010, 2011, 2012 and the three months ended March 31, 2013, respectively. We earn technical service income for providing services to customers who purchase extended warranties beyond the standard warranty period. Such services include maintenance and support services as well as system upgrades.

        Rental income from leasing of digital cinema equipment accounted for 0.1% of our revenue in 2010. Our digital cinema equipment leasing programs ended in 2010.

        Deployment and Administration of Digital Cinema Networks.    Our VPF arrangements refer to the arrangements under our VPF agreements with distributors, exhibitors and various deploying entities in connection with the deployment of digital cinema equipment in cinemas. We began generating revenue from our VPF arrangements in September 2011 when GDC Digital Cinema Network Limited was consolidated with us in a transaction among entities under common control. Under this operating division, which is operated and managed under GDC Digital Cinema Network Limited and its subsidiaries, we earn (i) service income for verifying and billing the VPFs; and (ii) proceeds from sales of digital cinema equipment related to VPF arrangements in Hong Kong. Proceeds from sales of

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digital cinema equipment related to VPF arrangements in Hong Kong and service income from our VPF arrangements, in aggregate, represented 1.2%, 3.6% and 4.5% of our revenue for 2011, 2012 and the three months ended March 31, 2013, respectively.

        In Hong Kong, we act as both the administrator and the deployment entity under our VPF arrangements. As the deployment entity, GDC Digital Cinema Network retains all of the VPF fees until the conclusion of the VPF arrangements and recognizes proceeds from sales of digital cinema equipment related to VPF arrangements in Hong Kong. In addition, as the administrator under the VPF arrangements, we will also continue to recognize service income.

        In Japan and the United States, we only act as the administrator under our VPF arrangements and recognize service income. In the United States, we remit VPF fees, after deducting our administration fee under the VPF arrangements. The roll-out periods of equipment installation under our VPF arrangements in Japan will end in 2014. The roll-out periods of equipment installation under our VPF arrangements in the United States will end on various dates in 2013 and 2014.

        In the United States, we receive VPFs on a defined fee schedule for a fixed period. In Hong Kong and Japan, we receive VPFs on a defined fee schedule until the earlier of (i) ten years from the date each system is installed, or (ii) when cost recoupment is achieved.

        Proceeds from sales of digital cinema equipment related to VPF arrangements in Hong Kong accounted for 0.2%, 1.5% and 1.2% of our revenue for 2011, 2012 and the three months ended March 31, 2013, respectively. The amount of proceeds from sales of digital cinema equipment related to VPF arrangements in Hong Kong primarily depends on the VPFs we bill based on number of movie titles released and displayed using our digital cinema equipment in any given period.

        Service income from our VPF arrangements accounted for 1.0%, 2.1% and 3.3% of our revenue for 2011, 2012 and the three months ended March 31, 2013, respectively. The amount of service income we derive from our VPF arrangements depends on the number of movie titles released and displayed using our digital cinema equipment in any given period.

        We do not anticipate that income from our VPF arrangements will represent a significant portion of our future revenue.

        The following table sets forth the breakdown of our revenue by source of income for the periods indicated:

 
  Year ended December 31,   Three months ended March 31,  
 
  2010   2011   2012   2012   2013  
 
  US$   % of total
revenue
  US$   % of total
revenue
  US$   % of total
revenue
  US$   % of total
revenue
  US$   % of total
revenue
 
 
  (in thousands of US$, except for percentages)
 

Sales of digital cinema equipment

  $ 70,061     96.4 % $ 86,498     96.1 % $ 108,779     93.3 % $ 21,937     93.2 % $ 29,290     90.5 %

Technical service income

    2,580     3.5 %   2,456     2.7 %   3,645     3.1 %   879     3.7 %   1,614     5.0 %

Service income from our VPF arrangements

            912     1.0 %   2,458     2.1 %   406     1.7 %   1,077     3.3 %

Proceeds from sales of digital cinema equipment under VPF arrangement

            117     0.2 %   1,670     1.5 %   317     1.4 %   386     1.2 %

Rental income from leasing of digital cinema equipment

    52     0.1 %                                
                                           

Total revenue

  $ 72,693     100.0 % $ 89,983     100.0 % $ 116,552     100.0 % $ 23,539     100 % $ 32,367     100 %

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        We currently sell our products and provide relevant technical services globally. The following table sets forth the breakdown of our revenue by geography for the periods indicated:

 
  Year ended December 31,   Three months ended March 31,  
 
  2010   2011   2012   2012   2013  
 
  US$   % of total
revenue
  US$   % of total
revenue
  US$   % of total
revenue
  US$   % of total
revenue
  US$   % of total
revenue
 
 
  (in thousands of US$, except for percentages)
 

United States

  $ 22,203     30.5 % $ 27,404     30.5 % $ 40,302     34.6 % $ 9,406     40.0 % $ 5,030     15.5 %

China

    32,401     44.6 %   33,433     37.2 %   36,971     31.7 %   6,301     26.8 %   10,250     31.7 %

Other Asia-Pacific region

    12,497     17.2 %   19,525     21.7 %   32,254     27.7 %   5,230     22.2 %   13,009     40.2 %

Central and South America

                    19     <1 %   10     <1 %   3,023     9.3 %

Other territories

    5,592     7.7 %   9,621     10.6 %   7,006     6.0 %   2,592     11.0 %   1,055     3.3 %
                                           

Total revenue

  $ 72,693     100.0 % $ 89,983     100.0 % $ 116,552     100.0 % $ 23,539     100 % $ 32,367     100 %

        Our revenue is driven by the continuing demand for digital cinema equipment which depends on (i) analog-to-digital cinema screen conversion, (ii) new digital cinema screen installations, (iii) upgrades and replacements for digital cinema products and (iv) installations of digital cinema solutions in private venues. Sales of our digital cinema servers in the United States are driven primarily by the analog-to-digital conversion. Sales of our digital cinema servers in China are driven primarily by new screen installations. Our sales in China as a percentage of our revenue has decreased in recent years and may continue to decrease. Our sales outside the United States and China as a percentage of our revenue have been increasing in recent years. We plan to increase our efforts to penetrate new markets, such as Central and South America, India and other Asia-Pacific region.

        We sell our products both to exhibitors and to reseller partners. The sales channels we use vary by geographic market. In China, Central and South America, India and South East Asia, our products are mainly sold directly to exhibitors, to whom we also provide or will provide direct technical and support services. In the United States, Japan, Korea and Europe, our products are mainly sold indirectly though reseller partners. We provide support services to the reseller partners who provide direct services to exhibitors. We may allow certain customers to provide us with a down payment, maintain an accounts receivable balance with us and pay the remainder by installments. For select customers, we have granted an extended payment period.

        Our top five customers collectively accounted for 31.9%, 33.3%, 41.4% and 54.0% of our revenue for 2010, 2011, 2012 and the three months ended March 31, 2013, respectively. Our top customer in 2010, 2011 and 2012 was our largest reseller partner in the United States. It accounted for 12.3%, 11.8% and 14.4% of our revenue for 2010, 2011 and 2012, respectively. Our top customer for the three months ended March 31, 2013 was an exhibitor in the Asia-Pacific region. It accounted for 19.7% of our revenue for the period. The following table sets forth our top five customers by customer type and percentage of revenue contribution for the periods indicated:

Year ended December 31,   Three months ended March 31,  
2010   2011   2012   2013  
Customer
type
  % of
revenue
  Customer
type
  % of
revenue
  Customer
type
  % of
revenue
  Customer
type
  % of
revenue
 
Reseller A     12.3 % Reseller A     11.8 % Reseller A     14.4 % Exhibitor D     19.7 %
Reseller B     6.2 % Reseller E     8.9 % Exhibitor C     10.3 % Reseller C     9.7 %
Exhibitor A     5.1 % Reseller B     5.0 % Reseller B     9.5 % Exhibitor E     9.3 %
Reseller C     4.4 % Exhibitor B     4.4 % Reseller F     3.9 % Reseller B     8.6 %
Reseller D     3.9 % Exhibitor A     3.2 % Reseller E     3.3 % Reseller A     6.7 %

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        We enjoy repeat purchases from both exhibitors and reseller partners over the long term. However, our top five customers differed from period to period primarily because exhibitors in the digital cinema industry tend to purchase a majority of their digital cinema equipment within a very short period of time. Such exhibitors generally do not place large orders again until they need to add new digital screens or replace existing equipment as a result of technological obsolescence or equipment age. As a result of exhibitors' purchasing patterns, orders placed by resellers also differ from period to period.

Cost of Sales and Services Rendered

        Our cost of sales and services rendered primarily consists of: (i) cost of direct materials, including media blocks, hard drives, other circuit boards and casings; (ii) labor costs for production, including manufacturing and assembly; and (iii) labor costs for services such as installations, maintenance, backups and upgrades. Other costs include licensing fees, delivery costs, inventory allowances and consumable costs.

        Our cost of sales and services rendered is mainly driven by cost of direct materials, which represented 82.3%, 79.6%, 77.6% and 86.6% of our cost of sales for 2010, 2011, 2012 and the three months ended March 31, 2013, respectively.

Selling and Marketing Expenses

        Our selling and marketing expenses primarily consist of sales commissions, travel expenses and marketing expenses.

        The table below sets forth our selling and marketing expenses for the periods indicated:

 
  Year ended December 31,   Three months ended March 31,  
 
  2010   2011   2012   2012   2013  
 
  US$   % of
revenue
  US$   % of
revenue
  US$   % of
revenue
  US$   % of
revenue
  US$   % of
revenue
 
 
  (in thousands of US$, except for percentages)
 

Selling and marketing expenses

  $ 1,940     2.7 % $ 3,950     4.4 % $ 5,480     4.7 % $ 1,038     4.4 % $ 1,330     4.1 %

        Our selling and marketing expenses have increased in absolute terms in recent years due to our marketing efforts to increase market share in key markets, such as the United States and China, and penetrate new growth markets, such as India and Central and South America. Our selling and marketing expenses generally increase in proportion to our revenue growth.

Administrative Expenses

        Our administrative expenses consist primarily of: salaries and employee benefits for our administrative personnel; office expenses, including rental costs; fees for professional services; depreciation of equipment used for general corporate purposes; and other general corporate expenses. Our personnel costs also include share-based payment expenses. We adopted our share option scheme on September 19, 2006, which has a term of ten years to September 18, 2016. We granted 12,000,000 share options in 2010. Our fees for professional services in 2012 and for the three months ended March 31, 2013 also included listing expenses of US$0.3 million and US$0.4 million, respectively.

        The table below sets forth our administrative expenses for the periods indicated:

 
  Year ended December 31,   Three months ended March 31,  
 
  2010   2011   2012   2012   2013  
 
  US$   % of
revenue
  US$   % of
revenue
  US$   % of
revenue
  US$   % of
revenue
  US$   % of
revenue
 
 
  (in thousands of US$, except for percentages)
 

Administrative expenses

  $ 6,891     9.5 % $ 9,536     10.6 % $ 11,219     9.7 % $ 2,682     11.4 % $ 3,406     10.5 %

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        We expect our administrative expenses to increase in absolute terms as we recruit additional professionals, open new offices and incur additional costs related to the growth of our business and as we become a listed company in the United States upon the completion of this offering.

Research and Development Expenses

        Our research and development expenses primarily consist of: salaries and employee benefits for our research and development personnel; cost of materials used in our research and development activities; and other costs related to the design, development, testing and enhancement of our products.

        The table below sets forth our research and development expenses for the periods indicated:

 
  Year ended December 31,   Three months ended March 31,  
 
  2010   2011   2012   2012   2013  
 
  US$   % of
revenue
  US$   % of
revenue
  US$   % of
revenue
  US$   % of
revenue
  US$   % of
revenue
 
 
  (in thousands of US$, except for percentages)
 

Research and development expenses

  $ 1,187     1.6 % $ 1,935     2.1 % $ 1,796     1.5 % $ 305     1.3 % $ 468     1.4 %

        We expect our research and development expenses to increase in absolute terms as we continue to research and develop new digital cinema technologies to maintain and enhance our technology leadership.

Income Tax Expenses

        We are subject to taxation primarily in Hong Kong and the PRC. Generally, our effective tax rate (calculated as a ratio of income tax expense to profit before tax) changes from year to year due to the effect of different tax rates applied to respective amounts of profit before tax of our subsidiaries by tax jurisdiction. The following table sets forth a breakdown of our income tax expenses for the periods indicated:

 
  Year ended
December 31,
  Three months ended March 31,  
 
  2010   2011   2012   2012   2013  
 
  (in thousands of US$)
 

PRC enterprise income tax, or PRC EIT, and withholding tax

  $ 1,683   $ 1,817   $ 2,156   $ 354   $ 527  

Hong Kong profits tax

    143     2,237     2,461     439     303  

United States income tax

    72     28     84     23     77  

Singapore income tax

    55     (23 )   2          
                       

  $ 1,953   $ 4,059   $ 4,703   $ 816   $ 907  

    Hong Kong

        We and our subsidiaries conducting business in Hong Kong are subject to a profits tax at the rate of 16.5% on assessable profit determined under relevant Hong Kong tax regulations.

    PRC

        Effective January 1, 2008, the standard enterprise income tax rate applicable to our PRC subsidiaries is 25%, except for subsidiaries that enjoy preferential tax incentive rates. GDC Technology (Shenzhen) Limited, which qualified as a "high technology enterprise" in 2007, enjoys preferential tax

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incentive rates. It was exempted from PRC EIT for two years starting from its first profit-making year, followed by a 50% reduction for the next three years, as approved by the relevant governmental authority in 2008. GDC Technology (Shenzhen) Limited was further examined in 2011 and qualified as a "high technology enterprise" on October 27, 2011 for a three-year term retroactively beginning on January 1, 2011. GDC Technology (Beijing) Limited and Espedeo Technology (Shenzhen) Limited do not engage in research and development activities, so they do not enjoy preferential tax incentive rates for high technology enterprises.

        As a "high technology enterprise" that enjoys the above-mentioned tax concession, GDC Technology (Shenzhen) Limited was eligible to elect to be entitled to either a progressive tax rate increasing up to 25%, with possible reduction, or the preferential tax rate of 15% for high technology enterprises, without reduction.

        The first profit-making year for GDC Technology (Shenzhen) Limited was 2007. Accordingly, the applicable tax rate on this PRC subsidiary was 11% and 12% for 2010 and 2011, respectively, as it enjoyed the 50% reduced rate during these years, and 15% for 2012 and the three months ended March 31, 2013, as it enjoyed the preferential tax rate for high technology enterprises during this period. GDC Technology (Shenzhen) Limited will continue to enjoy a reduced income tax rate of 15% until December 31, 2013.

        Under the PRC EIT Law, a withholding tax is imposed on dividends declared in respect of profits earned by our PRC subsidiaries. In 2011, our PRC subsidiaries distributed all their retained profits prior to the transfer of the ordinary shares of our company from GDC Holdings and certain other shareholders to CAG Digital Investment Holdings Limited on September 6, 2011.

    Others

        Our subsidiaries incorporated in the United States were subject to progressive federal income tax rates ranging from 15% to 35% and were subject to state income tax rates ranging from 6% to 8.84% for 2010, 2011, 2012 and the three months ended March 31, 2013.

        Our subsidiaries incorporated in Singapore were subject to a prevailing income tax at the rate of 17% for 2010, 2011, 2012 and the three months ended March 31, 2013.

Critical Accounting Policies

        We prepare our consolidated financial statements in accordance with IFRS, which requires us to make estimates and assumptions that affect the reported amounts of our assets and liabilities as of the date of our financial statements, and our revenue and expenses during the financial reporting period. Our estimates and assumptions are based on available information and our historical experience, as well as other estimates and assumptions that we believe to be reasonable. The estimates and assumptions that form the basis for our judgments may not be readily apparent from other sources. We continually evaluate these estimates and assumptions based on the most recently available information, our own experience and other assumptions that we believe to be reasonable. Our actual results may differ significantly from estimated amounts as a result of changes in our estimates or changes in the facts or circumstances underlying our estimates and assumptions. Some of our accounting policies require higher degrees of judgment than others in their application. We consider the policies discussed below to be critical to an understanding of our financial statements as their application places the most significant demands on our management's judgment. When reading our financial statements, you should consider (i) our selection of critical accounting policies; (ii) the judgment and other uncertainties affecting the application of such policies; (iii) the sensitivity of reported results to changes in conditions and assumptions; and (iv) the risks and uncertainties described under "Risk Factors." We believe the following accounting policies involve the most significant judgment and estimates used in the preparation of our financial statements.

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Revenue recognition

        Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods sold and services provided in the normal course of business, net of returns, discounts and sales related taxes.

        Revenue from the sale of digital cinema equipment is recognized when the goods are delivered and title has passed, and when all the following conditions are satisfied:

    we have transferred to the buyer the significant risks and rewards of ownership of the goods;

    we retain neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

    the amount of revenue can be measured reliably;

    it is probable that the economic benefits associated with the transaction will flow to us; and

    the costs incurred or to be incurred in respect of the transaction can be measured reliably.

        For sales to exhibitors, revenue is recognized when the products are delivered to the exhibitors (cinemas) and the installation is completed, when we have transferred to the exhibitors the significant risks and rewards of ownership of the products. For sales to reseller partners, revenue is recognized when the products are delivered in accordance with the shipment terms, when we have transferred to the reseller partners the significant risks and rewards of ownership of the products. We do not offer any right of return to either exhibitors or reseller partners. There is also no history of returns from either exhibitors or reseller partners.

        Deposits received from sale of digital cinema equipment or services to be provided prior to meeting the revenue recognition criteria are included in the consolidated statement of financial position as receipt in advance.

        Technical service income is recognized when the service is provided.

        Under our VPF arrangements in Hong Kong, we earn:

    (i)
    service income as an administrator covering our operating costs incurred in the period in direct relation to the performance of the obligations under the agreements with the film distributors plus a pre-agreed profit margin over the operating costs; and

    (ii)
    proceeds from the sale of digital cinema equipment. The upfront payments collected from the exhibitors for the sales of digital cinema equipment are recognized as revenue upon installation of the equipment. The remaining sales price is settled through VPF payments from the film distributors, the timing and amount of which is contingent on number of movie released by the film distributors and exhibited by the exhibitors using the deployed digital cinema equipment, over a period of not more than 10 years and, therefore, is recognized as revenue upon the billing of VPFs, which is the time when the amount of revenue can be measured reliably and collection is considered probable.

        Under our VPF arrangements in Japan, we earn service income as an administrator based on the number of screens deployed in the period at a pre-agreed regressive rate per screen.

        Under our VPF arrangements in the United States, we earn service income as an administrator based on a pre-agreed portion of the VPFs collected in the period.

        Service income from VPF arrangements is recognized according to the stage of completion of services provided. Service income from VPF arrangements is recognized in the period in which the billing of VPFs occurs, after VPF verification and reconciliation, which constitute substantially all of the total labor hours of the VPF arrangements, have been completed. In order to issue the billing of VPFs

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to film distributors, we obtain the booking report of a movie from the film distributors and the booking report of the same movie from exhibitors, and reconcile them with the log report generated from the playlist of the deployed digital cinema equipment. We calculate the duration of the engagement of the movie and the number of screens showing the movie and issue the billing of VPFs accordingly.

        Rental income from leasing of digital cinema equipment is recognized on a straight-line basis over the term of the relevant lease.

        Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to our group and the amount of income can be measured reliably. Interest income from a financial asset is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.

Estimated impairment of trade receivables and receivables related to our VPF arrangements

        In determining whether there is objective evidence of impairment loss, we take into consideration the estimation of future cash flows. The amount of the impairment loss is measured as the difference between the assets' carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset's original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the timing and amount of actual future cash flows differs from the original estimates, a material impairment loss may arise.

Merger accounting for business combination involving entities under common control

        The consolidated financial statements incorporate the items of the financial statements of the combining entities or businesses in which the common control combination occurs as if they had been combined from the date when the combining entities or businesses first came under the control of the controlling party.

        The assets and liabilities of the combining entities or businesses are consolidated using the existing book values. No amount is recognized in respect of goodwill or excess of acquirer's interest in the net fair value of acquiree's identifiable assets, liabilities and contingent liabilities over cost at the time of the common control combination, to the extent of the continuation of the controlling party's interest.

        The consolidated statement of comprehensive income includes the results of each of the combining entities or businesses from the earliest date presented or since the date when the combining entities or businesses first came under the common control, where this is a shorter period, regardless of the date of the common control combination.

        The comparative amounts in the consolidated financial statements are presented as if the entities or businesses had been combined at the end of the previous reporting period or when they first came under common control, whichever is shorter.

Share-based payment transactions

        The fair value of services received determined by reference to the fair value of share options granted at the grant date is recognized as an expense in full at the grant date when the share options granted vest immediately, with a corresponding increase in equity (share-based payment reserve).

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        When share options are exercised, the amount previously recognized in share-based payment reserve will be transferred to share premium reserve. When the share options are forfeited after the vesting date or are still not exercised at the expiry date, the amount previously recognized in share-based payment reserve will be transferred to retained earnings.

        The following table sets out the movements in our share options in 2010, 2011, 2012 and the three months ended March 31, 2013. See "Management—2006 Share Option Scheme."

 
   
   
  Number of share options  
Category of grantees
  Date of grant   Exercise
price
per share
  Balance
as of
January 1,
2010
  Granted
during
the year
  Exercised
during
the year
  Balance
as of
December 31,
2010
 

Directors

  November 2, 2007   HK$ 2.00     3,300,000             3,300,000  

  December 14, 2010   HK$ 2.00         3,100,000         3,100,000  

Employees

  December 14, 2010   HK$ 2.00         2,600,000         2,600,000  

Other participants(2)

  November 2, 2007   HK$ 2.00     3,630,000         (3,300,000 )   330,000  

  December 14, 2010   HK$ 2.00           6,300,000           6,300,000  
                             

Total

              6,930,000     12,000,000     (3,300,000 )   15,630,000  
                             

 

 
   
   
  Number of share options  
Category of grantees
  Date of grant   Exercise
price
per share
  Balance
as of
January 1,
2011
  Exercised
during
the year
  Cancelled/
forfeited
during
the year
  Balance
as of
December 31,
2011
 

Directors

  November 2, 2007   HK$ 2.00     3,300,000     (3,300,000 )        

  December 14, 2010   HK$ 2.00     3,100,000     (3,100,000 )        

Employees

  December 14, 2010   HK$ 2.00     2,600,000     (2,066,000 )   (95,000 )(1)   439,000  

Other participants

  November 2, 2007   HK$ 2.00     330,000     (330,000 )        

  December 14, 2010   HK$ 2.00     6,300,000     (4,300,000 )   (2,000,000 )(2)    
                             

Total

              15,630,000     (13,096,000 )   (2,095,000 )   439,000  
                             

 

 
   
   
  Number of share options  
Category of grantees
  Date of grant   Exercise
price
per share
  Balance
as of
January 1,
2012
  Exercised
during
the year
  Forfeited
during
the year
  Balance
as of
December 31,
2012
 

Employees

  December 14, 2010   HK$ 2.00     439,000         (14,000 )(1)   425,000  
                             

 

 
   
   
  Number of share options  
Category of grantees
  Date of grant   Exercise
price
per share
  Balance
as of
January 1,
2013
  Exercised
during
the period
  Forfeited
during
the period
  Balance
as of
March 31,
2013
 

Employees

  December 14, 2010   HK$ 2.00     425,000             425,000  
                             

(1)
Such share options were lapsed when those grantees ceased to be our employees during the year.

(2)
Share options were granted to directors of the former holding company. Such share options were cancelled by mutual agreement between the grantee and our company on September 6, 2011.

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        The fair values of share options granted were calculated using the Binomial model. The following table sets forth the specific assumptions made by the independent valuation firm for the valuation of our grant of options:

 
  2010

Share Price

  HK$1.89

Exercise price

  HK$2.00

Expected volatility

  41.3%

Risk-free rate

  2.04%

Expected dividend yield

  NIL

Likelihood of early exercise of Directors and other participants

  2.8 times*

Likelihood of early exercise of employees

  1.5 times*

Forfeiture rates for Directors and other participants

  23.46%

Forfeiture rates for employees

  30.59%

*
Assuming directors and other participants and employees would exercise the options once share price is 2.8 and 1.5 times of the exercise prices, respectively.

        Our share price was determined by a discounted cash flow model based on management's best estimate. Expected volatility was determined by the average annualized standard derivations of the continuously compounded rate of return on the share price of other companies in the similar industry on the grant date. The expected life used in the model has been adjusted, based on management's best estimate, for the effects of non-transferability, exercise restrictions and behavioral considerations.

        We recognized share-based payment expenses of US$0.8 million in 2010, in relation to share options granted by us. We did not grant any share options and had nil share-based compensation expenses for 2011, 2012 and the three months ended March 31, 2013. The Binomial model has been used to estimate the fair value of the options. The variables and assumptions used in computing the fair value of the share options were based on the Directors' best estimates. The value of an option varied with different variables of certain subjective assumptions.

Internal Control over Financial Reporting

        Prior to this offering, we have been a private company with limited accounting personnel and other resources with which to address our internal control and procedures over financial reporting. Management has not, nor has our independent registered public accounting firm, conducted an audit of our internal control over financial reporting.

JOBS Act and Adoption of Accounting Standards

        For as long as we remain an "emerging growth company" as defined in the JOBS Act, we intend to take advantage of certain exemptions from reporting and other requirements that are otherwise applicable generally to public companies. Under the JOBS Act, emerging growth companies are not required to comply with the auditor attestation requirements under Section 404 of the Sarbanes-Oxley Act of 2002 for up to the end of the fifth full fiscal year following the date of their initial public offerings. The JOBS Act also provides that an emerging growth company can delay adopting new or revised accounting standards until such time as those standards apply to private companies. However, we have elected to "opt out" of this provision and will comply with new or revised accounting standards as required when they are adopted for public companies. This decision to opt out of the extended transition period under the JOBS Act is irrevocable.

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Unaudited Quarterly Results of Operations

        The following table sets forth our selected unaudited quarterly results of operations for each quarter during the period from January 1, 2011 to March 31, 2013. You should read the following table in conjunction with our audited consolidated financial statements and related notes included elsewhere in this prospectus. We have prepared the selected unaudited quarterly financial information and it reflects all adjustments that we consider necessary for a fair presentation of our operating results for the periods presented. Our quarterly operating results may fluctuate from quarter to quarter due to changes in customer demand and other variations. The historical quarterly results presented below are not necessarily indicative of the results that may be expected for any future quarters or for any full year. There are many factors, including those discussed under "Risk Factors," that could have a material effect on our business and operating results.

 
  Three Months Ended  
 
  March 31,
2011
  June 30,
2011
  September 30,
2011
  December 31,
2011
  March 31,
2012
(restated)
  June 30,
2012
(restated)
  September 30,
2012
(restated)
  December 31,
2012
(restated)
  March 31,
2013
 
 
  (in thousands of US$)
 

Revenue

  $ 16,718   $ 20,651   $ 22,638   $ 29,976   $ 23,539   $ 27,116   $ 29,502   $ 36,395   $ 32,367  

Cost of sales and services rendered

    (9,393 )   (11,172 )   (12,310 )   (15,997 )   (13,986 )   (14,722 )   (16,319 )   (21,091 )   (21,177 )
                                       

Gross profit

    7,325     9,479     10,328     13,979     9,553     12,394     13,183     15,304     11,190  

Other income

    380     405     334     14     57     83     199     297     322  

Selling and marketing expenses

    (732 )   (720 )   (1,303 )   (1,195 )   (1,038 )   (1,617 )   (1,226 )   (1,599 )   (1,330 )

Administrative expenses

    (1,981 )   (2,118 )   (2,647 )   (2,790 )   (2,682 )   (2,754 )   (2,820 )   (2,963 )   (3,406 )

Research and development costs

    (276 )   (290 )   (277 )   (1,092 )   (305 )   (490 )   (598 )   (403 )   (468 )

Finance costs on bank borrowings

    (13 )   (10 )   (26 )   (2 )   (9 )   (15 )   (54 )   (62 )   (116 )

Share of loss of an associate

                            (1 )   (9 )   (28 )

Share of profit of a joint venture

                                10     13  
                                       

Profit before tax

    4,703     6,746     6,409     8,914     5,576     7,601     8,683     10,575     6,177  

Income tax expense

    (733 )   (1,052 )   (998 )   (1,276 )   (816 )   (1,132 )   (1,253 )   (1,502 )   (907 )
                                       

Profit for the period

  $ 3,970   $ 5,694   $ 5,411   $ 7,638   $ 4,760   $ 6,469   $ 7,430   $ 9,073   $ 5,270  
                                       

        We have generally experienced consistent growth in our quarterly revenue from January 1, 2011 to March 31, 2013, although our revenue was higher in the last quarter of 2011 than the first quarter of 2012 and higher in the last quarter of 2012 than the first quarter of 2013, due to seasonal fluctuations discussed below. The growth in our quarterly revenue was primarily attributable to increases in revenue from our sales of digital cinema equipment, mainly due to an increase in the sales volume of our digital cinema servers and integrated projection solutions, as we continued to grow our customer base and expand our presence in the United States, China and internationally.

        Seasonal fluctuations and industry cyclicality have affected, and are likely to continue to affect, sales of our digital cinema equipment, which has and will continue to account for the majority of our revenue. We have historically experienced higher sales in the fourth quarter of a year, compared to the other three quarters of the same year, as our customers tend to purchase digital cinema equipment immediately before the winter holiday season, which is typically the peak season for box office revenue. We have historically experienced the lowest sales in the first quarter of a year for similar reasons. Our rapid growth has lessened the impact of the seasonal fluctuations and cyclicality. However, we expect that seasonal fluctuations and cyclicality will continue to cause our quarterly and annual operating results to fluctuate. See "Risk Factors—Risks Related to Our Business and Industry—Our sales are subject to seasonality, which could cause our results of operations to fluctuate."

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        Other factors have caused, and in the future may cause, our quarterly results of operations to fluctuate. For example, we had relatively lower gross margins during the fourth quarter of 2012 and the first quarter of 2013, as a result of deriving a higher proportion of our sales volume during the quarters from sales of integrated projection solutions, as sales of integrated projection solutions generally offer us lower gross margins than sales of digital cinema servers on a stand-alone basis.

Results of Operations

        The following table sets forth our results of operations for the periods indicated, both in absolute amounts and as percentages of our revenue for the respective periods. Our historical results presented below are not necessarily indicative of the results that may be expected for future periods.

 
  Year ended December 31,   Three months ended March 31,  
 
  2010
  2011
  2012
(restated)
  2012
(restated)
  2013
 
 
  US$   % of
revenue
  US$   % of
revenue
  US$   % of
revenue
  US$   % of
revenue
  US$   % of
revenue
 
 
  (in thousands of US$, except for percentages)
 

Revenue

  $ 72,693     100.0 % $ 89,983     100.0 % $ 116,552     100.0 % $ 23,539     100.0 % $ 32,367     100.0 %

Cost of sales and services rendered

    (42,111 )   57.9 %   (48,872 )   54.3 %   (66,118 )   56.7 %   (13,986 )   59.4 %   (21,177 )   65.4 %
                                           

Gross profit

    30,582     42.1 %   41,111     45.7 %   50,434     43.3 %   9,553     40.6 %   11,190     34.6 %

Other income

    1,392     1.9 %   1,133     1.3 %   636     0.5 %   57     0.2 %   322     1.0 %

Selling and marketing expenses

    (1,940 )   2.7 %   (3,950 )   4.4 %   (5,480 )   4.7 %   (1,038 )   4.4 %   (1,330 )   4.1 %

Administrative expenses

    (6,891 )   9.5 %   (9,536 )   10.6 %   (11,219 )   9.7 %   (2,682 )   11.4 %   (3,406 )   10.5 %

Research and development expenses

    (1,187 )   1.6 %   (1,935 )   2.1 %   (1,796 )   1.5 %   (305 )   1.3 %   (468 )   1.4 %

Finance costs on bank borrowings

    (103 )   0.1 %   (51 )   0.1 %   (140 )   0.1 %   (9 )   0.0 %   (116 )   0.4 %

Share of loss of an associate

                    (10 )   0.0 %           (28 )   0.1 %

Share of profit of a joint venture

                    10     0.0 %           13     0 %
                                           

Profit before tax

    21,853     30.1 %   26,772     29.8 %   32,435     27.8 %   5,576     23.7 %   6,177     19.1 %

Income tax expense

    (1,953 )   2.7 %   (4,059 )   4.5 %   (4,703 )   4.0 %   (816 )   3.5 %   (907 )   2.8 %
                                           

Profit for the year/period

  $ 19,900     27.4 % $ 22,713     25.3 % $ 27,732     23.8 % $ 4,760     20.2 % $ 5,270     16.3 %
                                           

Three Months Ended March 31, 2013 Compared to Three Months Ended March 31, 2012

        Revenue.    Our revenue increased by 37.5% to US$32.4 million for the three months ended March 31, 2013 from US$23.5 million for the same period in 2012.

        Revenue from our digital content distribution and exhibition increased by 35.4% to US$30.9 million for the three months ended March 31, 2013 from US$22.8 million for the same period in 2012, mainly as a result of increased sales volume. Sales of digital cinema equipment increased by 33.5% to US$29.3 million for the three months ended March 31, 2013 from US$21.9 million for the same period in 2012. This was primarily due to an increase in the sales volume of our digital cinema servers and integrated projection systems to 2,649 units for the three months ended March 31, 2013 from 1,904 units for the same period in 2012. Sales volume in China increased to 963 units for the three months ended March 31, 2013 from 474 units for the same period in 2012. In other Asia-Pacific region and Central and South America, sales volume increased to 592 units and 433 units, respectively, for the three months ended March 31, 2013, from 293 units and one unit to customers in other Asia-Pacific region and Central and South America, respectively, for the same period in 2012. Our technical service income increased by 83.8% to US$1.6 million for the three months ended March 31, 2013 from US$0.9 million for the same period in 2012, primarily due to an increase in maintenance service income as a result of increased sales of extended warranties.

        Revenue from the deployment and administration of digital cinema networks increased significantly to US$1.5 million for the three months ended March 31, 2013 from US$0.7 million for

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the same period in 2012, mainly as a result of more service income earned from VPF arrangements in the United States and Japan.

        Cost of sales and services rendered.    Our cost of sales and services rendered increased by 51.4% to US$21.2 million for the three months ended March 31, 2013 from US$14.0 million for the same period in 2012. This was primarily due to an increase in the cost of direct materials for the three months ended March 31, 2013 from the same period in 2012, as a result of a general increase in sales of digital cinema equipment in absolute amounts, as well as an increase in sales of integrated projection systems as a percentage of our revenue.

        Gross profit and gross margin.    Our gross profit increased by 17.1% to US$11.2 million for the three months ended March 31, 2013 from US$9.6 million for the same period in 2012, while our gross margin decreased to 34.6% for the three months ended March 31, 2013 from 40.6% for the same period in 2012. Our gross margin decreased primarily due to an increase in the percentage of revenue derived from sales of integrated projection systems which commanded lower margins for the three months ended March 31, 2013.

        Other income.    Our other income increased to US$0.3 million for the three months ended March 31, 2013 from US$0.1 million for the same period in 2012, primarily due to an increase in interest income on trade receivables and bank deposits by US$0.2 million in total.

        Selling and marketing expenses.    Our selling and marketing expenses increased by 28.1% to US$1.3 million for the three months ended March 31, 2013 from US$1.0 million for the same period in 2012. This increase was primarily due to an increase in sales commissions to US$0.7 million for the three months ended March 31, 2013 from US$0.4 million for the same period in 2012 as a result of an increase in sales.

        Administrative expenses.    Our administrative expenses increased by 27.0% to US$3.4 million for the three months ended March 31, 2013 from US$2.7 million for the same period in 2012. This increase was primarily due to listing expenses of US$0.4 million for the three months ended March 31, 2013 and an increase in operating expenses as a result of both the expansion of our existing facilities and the opening of our new offices in India, Malaysia and Mexico during this period.

        Research and development expenses.    Our research and development expenses increased by 53.4% to US$0.5 million for the three months ended March 31, 2013 from US$0.3 million for the same period in 2012. This increase was primarily due to an increase in testing materials and technical support by US$0.1 million during this period.

        Income tax expense.    Our income tax expense increased by 11.2% to US$0.9 million for the three months ended March 31, 2013 from US$0.8 million for the same period in 2012. Our effective tax rates were 14.7% for the three months ended March 31, 2013 and 14.6% for the same period in 2012.

        Profit for the period.    Primarily as a result of the foregoing, our profit for the period increased by 10.7% to US$5.3 million for the three months ended March 31, 2013 from US$4.8 million for the same period in 2012. Our profit for the three months ended March 31, 2013 reflected listing expenses of US$0.4 million incurred during the period.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

        Revenue.    Our revenue increased by 29.5% to US$116.6 million in 2012 from US$90.0 million in 2011.

        Revenue from our digital content distribution and exhibition increased by 26.4% to US$112.4 million in 2012 from US$89.0 million in 2011, mainly as a result of increased sales. Sales of digital cinema equipment increased by 25.8% to US$108.8 million in 2012 from US$86.5 million in

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2011. This was primarily due to an increase in the sales volume of our digital cinema servers and integrated projection systems to 8,971 units in 2012 from 6,826 units in 2011. Sales volume in the United States increased to 4,182 units in 2012 from 2,705 units in 2011. Sales volume in China increased to 2,924 units in 2012 from 2,296 units in 2011. Our technical service income increased by 48.4% to US$3.6 million in 2012 from US$2.5 million in 2011, primarily due to an increase in maintenance service income as a result of increased sales of extended warranties.

        Revenue from the deployment and administration of digital cinema networks increased significantly to US$4.1 million in 2012 from US$1.0 million in 2011, since we began to recognize revenue from the deployment and administration of digital cinema networks in September 2011 when GDC Digital Cinema Network Limited was consolidated with us in a transaction involving entities under common control.

        Cost of sales and services rendered.    Our cost of sales and services rendered increased by 35.3% to US$66.1 million in 2012 from US$48.9 million in 2011, primarily due to an increase in cost of direct materials in 2012 from 2011, as a result of a general increase in sales of digital cinema equipment, as well as an increase in sales of integrated projection systems as percentage of our revenue.

        Gross profit and gross margin.    Our gross profit increased by 22.7% to US$50.4 million in 2012 from US$41.1 million in 2011, while our gross margin decreased to 43.3% for 2012 from 45.7% for 2011. Our gross margin decreased primarily due to an increase in sales of relatively lower margin integrated projection systems as a percentage of our revenue, as a result of shipments of integrated projection systems to a new customer in India in 2012.

        Other income.    Our other income decreased by 43.9% to US$0.6 million in 2012 from US$1.1 million in 2011, primarily due to decrease in loan interest income from GDC Digital Cinema Network Limited and GDC Holdings.

        Selling and marketing expenses.    Our selling and marketing expenses increased by 38.7% to US$5.5 million in 2012 from US$4.0 million in 2011. This increase was primarily due to (i) a 50.3% increase in travel expenses and marketing expenses to US$3.0 million in 2012 from US$2.0 million in 2011 in connection with our efforts to penetrate new markets, such as Central and South America, India and other Asia-Pacific region and (ii) a 24.1% increase in sales commissions to US$2.2 million in 2012 from US$1.8 million in 2011 as a result of an increase in sales.

        Administrative expenses.    Our administrative expenses increased by 17.6% to US$11.2 million in 2012 from US$9.5 million in 2011. This increase was primarily due to a 32.1% increase in salaries and other benefits to US$6.5 million in 2012 from US$5.0 million in 2011 as a result of both the expansion of our existing facilities and the opening of our Barcelona office in February 2012, as our non-research-and-development personnel increased to 221 employees as of December 31, 2012 from 181 employees as of December 31, 2011.

        Research and development expenses.    Our research and development expenses decreased by 7.2% to US$1.8 million in 2012 from US$1.9 million in 2011. This decrease was primarily due to a 34.0% decrease in testing materials and technical support to US$0.3 million in 2012 from US$0.5 million in 2011.

        Income tax expense.    Our income tax expense increased by 15.9% to US$4.7 million in 2012 from US$4.1 million in 2011. Our effective tax rates were 15.0% in 2012 and 15.2% in 2011.

        Profit for the year.    Primarily as a result of the foregoing, our profit for the year increased by 22.1% to US$27.7 million in 2012 from US$22.7 million in 2011.

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Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

        Revenue.    Our revenue increased by 23.8% to US$90.0 million in 2011 from US$72.7 million in 2010.

        Revenue from our digital content distribution and exhibition segment increased by 22.4% to US$89.0 million in 2011 from US$72.7 million in 2010, mainly as a result of increased sales. Our sales of digital cinema equipment increased by 23.5% to US$86.5 million in 2011 from US$70.1 million in 2010, primarily due to an increase in the sales volume of our digital cinema servers and integrated projection systems to 6,826 units in 2011 from 4,334 units in 2010, primarily attributable to an increase in sales volume in the United States to 2,705 units in 2011 from 1,982 units for 2010 and in China to 2,296 units in 2011 from 1,575 units in 2010. Our technical service income remained relatively stable, amounting to US$2.5 million and US$2.6 million in 2011 and 2010, respectively.

        Revenue from our deployment and administration of digital cinema networks segment amounted to US$1.0 million in 2011. We began to recognize revenue from this segment after September 2011, when GDC Digital Cinema Network Limited was consolidated with us in a transaction involving entities under common control.

        Cost of sales and services rendered.    Our cost of sales and services rendered increased by 16.1% to US$48.9 million in 2011 from US$42.1 million in 2010, primarily due to an increase in cost of direct materials in 2011 compared to 2010. The increase in cost of direct materials was primarily due to an increase in sales of digital cinema servers as well as a general increase in sales of other digital cinema equipment.

        Gross profit and gross margin.    Our gross profit increased by 34.4% to US$41.1 million in 2011 from US$30.6 million in 2010. Our gross margin increased to 45.7% in 2011 from 42.1% in 2010. Our gross margin increased primarily due to an increase in sales of higher margin digital cinema servers.

        Other income.    Our other income decreased by 18.6% to US$1.1 million in 2011 from US$1.4 million in 2010, primarily because of a decrease in loan interest income from GDC Holdings of US$0.2 million as result of the repayment of the loan from GDC Holdings in 2011.

        Selling and marketing expenses.    Our selling and marketing expenses increased by 103.6% to US$4.0 million in 2011 from US$1.9 million in 2010. This increase was primarily due to (i) a 236.0% increase in sales commissions to US$1.8 million in 2011 from US$0.5 million in 2010 as a result of an increase in sales volume and (ii) a 55.3% increase in travel expenses and marketing expenses to US$2.0 million in 2011 from US$1.3 million in 2010 in connection with our marketing efforts in the United States, Europe and a number of Asia-Pacific region.

        Administrative expenses.    Our administrative expenses increased by 38.4% to US$9.5 million in 2011 from US$6.9 million in 2010. This increase was primarily due to a 64.3% increase in salaries and other benefits to US$5.0 million in 2011 from US$3.0 million in 2010 as a result of our business expansion, as our non-research-and-development personnel increased to 181 employees as of December 31, 2011 from 128 employees as of December 31, 2010. We recorded a share-based payment expense of US$0.8 million in 2010 in relation to the grant of share options pursuant to GDC Technology Limited (BVI)'s 2006 Share Option Scheme. We did not record any share-based payment expenses in 2011.

        Research and development expenses.    Our research and development expenses increased by 63.0% to US$1.9 million in 2011 from US$1.2 million in 2010. This increase was primarily due to a 62.9% increase in salaries and other benefits to US$1.5 million in 2011 from US$0.9 million in 2010, as we employed 27 employees in research and development as of December 31, 2011, compared to 21 employees as of December 31, 2010.

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        Income tax expense.    Our income tax expense increased to US$4.1 million in 2011 from US$2.0 million in 2010, primarily because of an increase in our profit before tax, particularly our profit from our business in Hong Kong subject to Hong Kong profits tax after utilizing tax losses bought forward. Our effective tax rates were 15.2% and 8.9% for 2011 and 2010, respectively. Our effective tax rate increased in 2011 primarily because in 2010 we utilized US$1.2 million of tax losses previously not recognized to offset our income tax expense, whereas in 2011 we utilized only US$0.1 million of such tax losses.

        Profit for the year.    Primarily as a result of the foregoing, our profit for the year increased by 14.1% to US$22.7 million in 2011 from US$19.9 million in 2010.

Liquidity and Capital Resources

        We believe that our anticipated cash flows from operations, current cash and cash equivalents and bank borrowings will be sufficient to fund our operations, including geographical expansion, expanding our servicing infrastructure and capabilities and research and development, for at least the next 12 months following this offering.

        As of March 31, 2013, we had US$16.3 million in cash and cash equivalents and net current assets of US$24.2 million.

        On May 27, 2013, we entered into a credit facility for US$5.0 million for working capital purposes at a fixed interest of flat rate 3.25% per annum which is available up to March 2014. As a part of the security for such loan, we pledged 100% of the shares of GDC Digital Cinema Network Limited and certain of its assets. On May 31, 2013, we drew down the loan for the full amount and the loan will be repaid in 36 monthly installments.

        We may explore other ways to finance our operations in the future, including borrowing from banks and offering of debt or equity securities. As of March 31, 2013, we had bank borrowings from Hong Kong financial institutions with outstanding balances of US$8.5 million and US$5.1 million, bearing interest at a variable rate of HIBOR plus 2.3% per annum and 1.2% per annum, respectively, and US$2.4 million, bearing interest at a fixed rate of 5.82% per annum. These bank borrowings have terms ranging from repayable on demand to four years and expire at various times throughout the year and are secured by pledge of bank deposits. As of March 31, 2013, our pledged bank deposits totaled US$16.7 million and included: (i) bank deposits of US$15.0 million with certain PRC financial institutions to issue a guarantee for a short term loan; (ii) bank deposits of US$1.0 million with a Hong Kong financial institution; and (iii) bank deposits of US$0.7 million with a PRC bank to issue quality guarantees to customers for the quality of goods produced by us. We believe that, given our low levels of bank borrowings net of pledged bank deposits, we would be able to obtain additional bank borrowings to meet our liquidity and capital requirements.

        We may need additional cash resources in the future if we experience changed business conditions or other developments or if we decide to pursue opportunities for investment, acquisition, strategic cooperation or other similar actions. If we determine that our cash requirements exceed our amounts of cash and cash equivalents on hand, we may seek to issue equity or equity-linked securities or obtain a credit facility. Any issuance of equity or equity-linked securities could cause dilution for our shareholders. Any incurrence of indebtedness could increase our debt service obligations and cause us to be subject to restrictive operating and finance covenants. It is possible that, when we need additional cash resources, financing will only be available to us in amounts or on terms that would not be acceptable to us or financing will not be available at all. The unavailability of bank financing or a prolonged delay in obtaining bank financing, if not compensated by a capital injection, may materially and adversely affect our expansion plans and have an adverse impact on our results of operations.

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        The following table sets forth a summary of our net cash flows for the periods indicated:

 
  Year ended December 31,   Three
months
ended
March 31,
 
 
  2010   2011   2012   2013  
 
  (in thousands of US$)
 

Net cash from operating activities

  $ 10,965   $ 25,078   $ 17,288   $ 1,712  

Net cash (used in) from investing activities

    (11,411 )   18,310     (4,976 )   (10,179 )

Net cash from (used in) financing activities

    7,373     (45,463 )   (6,833 )   1,366  
                   

Net increase (decrease) in cash and cash equivalents

    6,927     (2,075 )   5,479     (7,101 )

Cash and cash equivalents at beginning of the year/period, represented by bank balances and cash

    11,690     19,068     17,637     23,202  

Effect of foreign exchange rate changes

    451     644     86     202  
                   

Cash and cash equivalents at end of the year/period, represented by bank balances and cash

  $ 19,068   $ 17,637   $ 23,202   $ 16,303  
                   

Operating Activities

        Net cash from operating activities was US$1.7 million for three months ended March 31, 2013, primarily as a result of: (i) profit before tax of US$6.2 million, (ii) net cash used in movements in working capital of US$3.9 million, primarily due to an increase in trade receivables of US$3.5 million, an increase in inventories of US$2.5 million, an increase in other receivables, prepayments and deposits of US$1.3 million and a decrease in other payables and accruals of US$1.2 million, partially offset by an increase in trade payables of US$4.5 million and (iii) income tax paid of US$0.9 million.

        Net cash from operating activities was US$17.3 million in 2012, primarily as a result of: (i) profit before tax of US$32.4 million, (ii) net cash used in movements in working capital of US$11.1 million, primarily due to an increase in trade receivables of US$16.1 million and an increase in inventories of US$7.0 million, partially offset by an increase in trade payables of US$6.6 million and an increase in receipt in advance of US$6.7 million and (iii) income tax paid of US$5.8 million.

        Net cash from operating activities was US$25.1 million in 2011, primarily as a result of: (i) profit before tax of US$26.8 million; (ii) net cash from movements in working capital of US$0.1 million, which were primarily due to increases in receipt in advance, trade payables and other payables and accruals of US$5.6 million, US$2.9 million and US$3.0 million, respectively, offset by an increase in trade receivables of US$8.1 million; and (iii) income tax paid of US$1.7 million.

        Net cash from operating activities was US$11.0 million in 2010, primarily as a result of: (i) profit before tax of US$21.9 million; (ii) net cash used in movements in working capital of US$10.6 million, which were primarily due to an increase in trade receivables of US$9.7 million, an increase in amount due from GDC Digital Cinema Network Limited of US$3.7 million and an increase in inventories of US$3.1 million, offset by increases in other payables and accruals and receipt in advance of US$4.0 million and US$1.6 million, respectively; and (iii) income tax paid of US$0.5 million.

Investing Activities

        Net cash used in investing activities was US$10.2 million for the three months ended March 31, 2013, primarily attributable to the placement of pledged bank deposits of US$10.3 million.

        Net cash used in investing activities was US$5.0 million in 2012, primarily attributable to the net placement of pledged bank deposits of US$3.8 million and the purchase of computer equipment for existing offices and new offices in Europe of US$1.1 million.

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        Net cash from investing activities was US$18.3 million in 2011, primarily attributable to net repayment from GDC Holdings of US$12.3 million, redemption of structured deposits of US$5.3 million and net withdrawal of pledged bank deposits of US$3.4 million, partially offset by purchase of property, plant and equipment of US$3.0 million.

        Net cash used in investing activities was US$11.4 million in 2010, primarily attributable to the placement of pledged bank deposits of US$5.7 million, the purchase of structured deposits of US$5.3 million and an advance to GDC Holdings of US$1.1 million, partially offset by repayment from GDC Digital Cinema Network Limited of US$1.0 million.

Financing Activities

        Net cash from financing activities was US$1.4 million for the three months ended March 31, 2013, primarily attributable to net proceeds raised from bank loans of US$9.2 million, partially offset by dividends paid of US$7.7 million.

        Net cash used in financing activities was US$6.8 million in 2012, primarily attributable to dividends paid of US$11.5 million and partially offset by net proceeds raised from bank loans of US$4.8 million.

        Net cash used in financing activities was US$45.5 million in 2011, primarily attributable to dividends paid of US$43.8 million and net repayment of bank loans of US$3.7 million, partially offset by proceeds from issue of shares upon exercise of share options of US$3.3 million.

        Net cash from financing activities was US$7.4 million in 2010, primarily attributable to new bank loans raised of US$5.5 million, an advance from a former fellow subsidiary of US$1.1 million and proceeds from issue of shares upon exercise of share options of US$0.8 million.

Capital Expenditures

        Our capital expenditures for 2010, 2011, 2012 and the three months ended March 31, 2013 totaled US$0.6 million, US$3.0 million, US$1.1 million and US$0.1 million, respectively. Our capital expenditures were primarily used for purchases of property, plant and equipment. In 2011, our capital expenditures mainly consisted of land purchased for our office in Burbank, California as well as renovation of offices in Hong Kong and Shenzhen. In 2012, our capital expenditures were primarily used for purchases of computer equipment for existing offices and new office in Europe.

Contractual Obligations

        The following table sets forth our contractual obligations as of December 31, 2012:

 
  Less Than
1 Year
  1-3 Years   3-5 Years   More Than
5 Years
  Total  
 
  (in thousands of US$)
 

Operating lease obligations

  $ 891   $ 1,059           $ 1,950  
                       

Total

  $ 891   $ 1,059           $ 1,950  

Off-Balance Sheet Arrangements

        We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties. We have not entered into any derivative contracts that are indexed to our shares and classified as shareholder's 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,

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liquidity, market risk or credit support to us or engages in leasing, hedging or product development services with us.

Dividends from PRC Subsidiaries

        We are a holding company with no material operations of our own. We conduct our operations partially through our wholly owned subsidiary in China, GDC Technology (Shenzhen) Limited, together with its subsidiaries, GDC Technology (Beijing) Limited and Espedeo Technology (Shenzhen) Limited, in China.

        Under PRC law, each of GDC Technology (Shenzhen) Limited, GDC Technology (Beijing) Limited and Espedeo Technology (Shenzhen) Limited in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation. GDC Technology (Shenzhen) Limited is permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations.

        After GDC Technology (Beijing) Limited and Espedeo Technology (Shenzhen) Limited make appropriations for their respective statutory reserves and retain any profits, each of their remaining net profits are distributable to their sole shareholder, GDC Technology (Shenzhen) Limited, in the form of dividend in Reminbi. After paying the withholding taxes applicable to GDC Technology (Shenzhen) Limited revenue and earnings, making appropriations for its statutory reserve requirement and retaining any profits from accumulated profits, any remaining net profits of GDC Technology (Shenzhen) Limited would be available for distribution to its sole shareholder, GDC Technology (Hong Kong) Limited and from GDC Technology (Hong Kong) Limited to us. We do not have any present plans to make future distributions. We do not believe that these restrictions on the distribution of our net assets will have a significant impact on our ability to timely meet our financial obligations in the future.

Quantitative and Qualitative Disclosure about Market Risk

Currency Risk

        We earn revenue mainly in U.S. dollars and Renminbi. We incur costs mainly in U.S. dollars, H.K. dollars and Renminbi, which are primarily transacted using functional currencies of the respective group entities. We believe that we do not have significant foreign exchange exposures. We do not have a foreign currency hedging policy. However, if necessary, we may consider using forward exchange contracts to hedge against foreign currency exposures. As of December 31, 2010, 2011 and 2012 and March 31, 2013, we had no significant foreign currency exposure.

        The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China's political and economic conditions and China's foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. The Renminbi appreciated more than 20% against the U.S. dollar over the following three years. However, the People's Bank of China regularly intervenes in the foreign exchange market to limit fluctuations in Renminbi exchange rates and achieve policy goals. During the period between July 2008 and June 2010, the exchange rate between the Renminbi and the U.S. dollar was stable and traded within a narrow band. However, the Renminbi fluctuated significantly during that period against other freely traded currencies, in tandem with the U.S. dollar. Since June 2010, the Renminbi has gradually appreciated against the U.S. dollar, though there have been periods recently when the U.S. dollar has appreciated against the Renminbi. It is difficult to predict how long

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the current situation may last and when and how this relationship between the Renminbi and the U.S. dollar may change again.

        The H.K. dollar is freely convertible into other currencies (including the U.S. dollar). Since October 17, 1983, the H.K. dollar has been officially linked to the U.S. dollar at the rate of HK$7.80 to US$1.00. The market exchange rate has not deviated materially from the level of HK$7.80 to US$1.00 since the peg was first established. However, in May 2005, the Hong Kong Monetary Authority broadened the trading band from the original rate of HK$7.80 per U.S. dollar to a rate range of HK$7.75 to HK$7.85 per U.S. dollar. The Hong Kong government has stated its intention to maintain the link at that rate. The Hong Kong government, acting through the Hong Kong Monetary Authority, has a number of means by which it may act to maintain exchange rate stability. However, we cannot assure you that the Hong Kong government will maintain the link at HK$7.75 to HK$7.85 per U.S. dollar or at all.

Interest Rate Risk

        We are exposed to interest rate risks due to the fluctuation of the market interest rate on certain variable-rate bank balances. Our bank balances carried interest at market rates ranging from 0.01% to 1.35% per annum in 2010, 0.01% to 1.49% per annum in 2011 and 0.01% to 1% per annum in 2012.

        We were also exposed to the fair value interest rate risks on the fixed rate amount due from a fellow subsidiary, bank borrowing and fixed rate trade receivables.

        We currently do not use any derivative contracts to hedge our exposure to interest rate risk. However, we will consider hedging significant interest rate exposure should the need arise.

        We consider that our exposure to the fluctuation in interest rates is not significant. Therefore, no sensitivity analysis is presented.

Recent Accounting Pronouncements

        We have not early applied the following new and revised IFRSs that have been issued but are not yet effective:

IFRS 9   Financial Instruments(2)
Amendments to IFRS 9 and IFRS 7   Mandatory Effective Date of IFRS 9 and Transition Disclosure(2)
Amendments to IFRS 10, IFRS 12 and IAS 27   Investment Entities(1)
Amendments to IAS 32   Offsetting Financial Assets and Financial Liabilities(1)
Amendments to IAS 36   Recoverable Amount Disclosures for Non-Financial Assets(1)
IFRIC 21   Levies(1)

(1)
Effective for annual periods beginning on or after January 1, 2014.

(2)
Effective for annual periods beginning on or after January 1, 2015.

        See note 3 to our audited consolidated financial statements for additional information regarding the above recent accounting pronouncements.

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INDUSTRY

Overview of the Global Cinema Industry

        The global cinema industry as measured by box office revenues grew from US$29.4 billion in 2009 to an estimated US$34.4 billion in 2012 and is forecasted to grow at a three-year CAGR of 6.4% to US$41.4 billion by 2015. The growth in box office revenues is likely to be driven largely by emerging markets such as China, which is expected to grow at a three-year CAGR of 22.9% from 2012 to 2015. The global cinema industry has proved to be relatively resilient despite economic downturns. During the financial crisis from 2008 to 2009, global box office revenues grew by 4.4%.

        The cinema industry involves institutions such as studios, production companies, distributors, exhibitors, equipment manufacturers and service providers. The following diagram sets forth key players in the cinema industry and their roles in the value chain.

CHART

The Emergence of Digital Cinema

        The first digital projector was commercially tested in June 1999 when Texas Instruments publicly demonstrated its DLP Cinema® projector technology, the digital light processing technology widely used today in projectors for cinemas. By the end of 2012, over 70% of the world's cinema screens are expected to be digital cinema screens. Generally, exhibitors in certain countries such as the United States, the United Kingdom and China are expected to stop using traditional celluloid film prints by the end of 2013. The use of traditional celluloid film prints is expected to become obsolete globally by 2016.

        In March 2002, several major Hollywood studios formed DCI to establish and document specifications for digital cinema to attempt to promote uniform, secure and reliable technology across the digital cinema industry. The specifications were intended to promote widespread deployment of interoperable digital cinema equipment providing rigorous content security. The studios currently involved in DCI are Twentieth Century Fox Film Corporation, Paramount Pictures Corporation, Sony Pictures Entertainment Inc., Universal Studios, Inc., The Walt Disney Company and Warner Bros. Entertainment Inc. Since the creation of these specifications, industry participants have widely adopted DCI-compliant digital cinema solutions. New versions of the specifications have historically been published every two or three years. New recommended practices from DCI have historically been announced at least annually.

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        The following tables show the actual and expected global box office revenues and global digital cinema screens from 2008 to 2015.

GRAPHIC

Key Drivers of the Analog-to-Digital Cinema Screen Conversion

        The key drivers of analog-to-digital cinema screen conversion are distribution cost savings, equipment incentive programs and growing consumer demand for new types of content.

    Distribution Cost Savings

        Digital prints offer significant cost savings to distributors over traditional celluloid film prints in terms of print creation and delivery. For example, the target price point for distributing digital prints in the United States is approximately US$50, compared to US$1,000 to US$1,500 for traditional celluloid film prints.

    Equipment Incentive Programs

        Studios and distributors have designed equipment incentive programs such as VPF to incentivize the replacement of analog equipment with digital cinema equipment. The upfront equipment cost required to switch to digital cinema equipment varies depending on system specifications, screen size and other variables. To assist exhibitors with overcoming this upfront cost and to accelerate the analog-to-digital cinema screen conversion, studios have devised country-specific VPF arrangements to assist with digital cinema equipment costs, financing costs and operating costs.

        In order to receive VPF incentives, exhibitors must employ DCI-compliant equipment. The following diagram sets forth a typical VPF arrangement:

CHART

        The major players in VPF arrangements include:

    Studios and distributors of films—Studios and distributors of films enjoy cost savings when exhibitors use digital cinema equipment, since content distributed digitally is cheaper than

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      content distributed as film print. Studios and distributors of films subsidize exhibitors for their purchases of digital cinema equipment from the deployment entity with VPF payments.

    Deployment entities—The deployment entity supplies the digital cinema equipment to exhibitors.

    Administrators—An administrator monitors the deployed digital cinema equipment and manages the calculation, billing, collection and reporting of VPFs. The administrator invoices and collects VPFs from studios and distributors and remits the payment to (a) the deployment entities (if the deployment entities have not received from the exhibitors the full price of the digital cinema equipment it supplied to the exhibitors), or (b) exhibitors (if the exhibitors have fully paid for the digital cinema equipment). The administrator earns an administrative fee for the provision of such services at a pre-agreed rate.

    Exhibitors—Exhibitors purchase digital cinema equipment from the deployment entity. Exhibitors are only allowed to use the deployed digital cinema equipment to display movies released by the studios and distributors of films that subsidized the purchase of the equipment.

        The VPF is designed to cover (a) a subsidy to exhibitors for the purchase of digital cinema equipment; (b) the interest on the outstanding receivable and (c) the costs of administration of the VPF arrangement, including verification that the digital films are displayed as expected and that the equipment is not used for unauthorized films.

        VPFs are typically calculated per title based on (i) geographic region; (ii) the duration of the engagement; and (iii) the number of screens showing the title. Revenue from VPF arrangements generally includes (i) service income for verifying and billing the VPFs; and (ii) interest on receivables from the initial sales of digital cinema equipment.

    Growing Consumer Demand for 3D and Alternative Content

        Another expected driver for the adoption of digital cinema systems is growing demand for new types of content that can only be shown using digital cinema technology, including 3D and alternative content such as live concerts, sporting events and theatre. In particular, the recent box office successes of major 3D film titles, such as Avatar and The Avengers, have driven exhibitors to purchase 3D-capable digital cinema systems.

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Digital Cinema Market Opportunities

Overview

        The number of cinema screens grew by a CAGR of 3.1% from 118,491 at the end of 2009 to 129,766 at the end of 2012. Over the same period, the number of digital cinema screens grew by a CAGR of 76.3% from 16,379 to 89,744. The following chart shows the number of cinema screens and digital cinema screens by region from 2009 to 2012.

CHART

CHART

Key Sources of Demand for Digital Cinema Equipment

        The key sources of demand for digital cinema equipment are expected to come from: (i) the analog-to-digital cinema screen conversion; (ii) new digital cinema screen installations as a result of new cinema construction; (iii) upgrades and replacements for digital cinema products, driven by new technology requirements and product replacement cycles and (iv) installations of digital cinema solutions in private venues.

    The Analog-to-Digital Cinema Screen Conversion

        In 2012, the number of analog screens decreased by 20,934, while the number of digital screens increased by 25,919. The United States recorded the largest number of digital screens added in 2012, followed by China. As a result, there are now more digital screens in the Asia-Pacific region than in Western Europe.

        Regions with relatively low digital cinema screen penetration rates present significant growth opportunities for analog-to-digital cinema screen conversion. For example, only 1,122 screens in India, or 10.2%, of total screens in the country, were DCI-compliant digital cinema screens at the end of 2012. Central and South America have just begun to adopt the VPF model, which has driven multinational exhibitors in the region, such as Cinepolis, to actively increase its digital cinema screens. At the end of 2012, there were 4,153 digital cinema screens in Central and South America, representing only 40.6% of total screens in the region. In Central and Eastern Europe, there were 4,510 digital cinema screens at the end of 2012, representing 60.2% of total screens in the region.

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    New Digital Cinema Screen Installations

        Demand from new digital cinema screens also comes from new cinema construction, most of which has been driven by market demand but some of which has resulted from government initiatives and state-sponsored incentives programs. In recent years, substantially all of the new cinema screens added from new cinema construction have been digital. For example, in China from 2011 to 2012, the number of cinema sites increased from 4,320 to 5,276 and the number of cinema screens increased from 14,482 to 18,053. China is expected to represent more than 50% of new digital cinema screen installations from 2013 to 2015, driven by continued strong growth in box office revenues. Other emerging markets such as Mexico, Brazil and India are also expected to drive demand for new digital cinema screens.

        Some new cinema construction has been sponsored by government incentive programs. For example, in China, a subsidiary of the China Film Group that is affiliated with the State Administration of Radio, Film & Television, formed a joint venture company with Barco in August 2011 to develop the digital cinema market in China in line with the country's 12th five-year plan. In Brazil, public funds through the Brazilian Development Bank have been channeled to support digital cinema, with local film agency ANCINE and local exhibitor Cinesystem involved.

    Upgrades and Replacements for Digital Cinema Products

        Demand from digital cinema equipment upgrades and replacement will be a key source of long-term market demand.

        Advances in digital cinema technology have led to corresponding upgrades in digital cinema equipment. New industry recommendations and specifications are expected to generate demand for digital cinema equipment upgrades. For example, DCI published "High Frame Rates Digital Cinema Recommended Practice" in September 2012, which sets forth high frame rate playback recommendations.

        Digital cinema equipment will also be periodically replaced as a result of equipment aging and technological obsolescence. Developed markets such as North America and Western Europe were the earliest adopters of digital cinema. Exhibitors in those markets are likely to be the first to replace their digital cinema equipment. North America and Western Europe experienced rapid digital cinema adoption with a digital screen count CAGR of 111.7% and 78.4% from 2006 to 2012, reaching 36,377 and 20,517 digital screens, respectively.

    Private Venues

        Demand for watching newly-released digital cinema content in private venues in China, such as villas, luxury homes, private clubs, museums and educational institutions, is expected to be driven by increasingly sophisticiated high-net-worth individuals. According to a 2012 Hurun Report, the number of people with over RMB100 million in total investible assets in China is estimated to be 63,500. Digital cinema content can deliver and replicate authentic cinema-like viewing experiences in the comfort and privacy of private venues.

Complementary Products and Services

        A wide range of products and services complement the delivery and exhibition of digital cinema content, including: 3D systems, projector lamps and silver screens; TMSs; NOCs; and post-production services such as digital cinema content mastering, localization, replication, delivery and security key management services.

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BUSINESS

Overview

        We are a leading global digital cinema solutions provider with the largest installed base of digital cinema servers in the Asia-Pacific region and the second largest globally as of March 31, 2013. In the first quarter of 2013, we became the global market leader by capturing the largest market share of incremental digital cinema servers installations on a worldwide basis. We develop, manufacture and sell digital cinema servers that meet the highly demanding performance, security and reliability requirements established by Hollywood studios. Since our inception, we have shipped over 25,000 digital cinema servers worldwide. We also partner with other manufacturers to offer a one-stop solution for exhibiting digital cinema content, including integrated projection systems and 3D products.

        We have the largest installed base of digital cinema servers in a number of territories, including China, Japan, South Korea, Taiwan, Singapore and Hong Kong as of March 31, 2013. All of the top 10 cinema chains in China, as measured by their respective number of cinema screens at the end of 2012, have installed our digital cinema servers. We have installed digital cinema servers for 7,927 screens in China as of March 31, 2013. We have installed 8,377 digital cinema servers in the United States as of March 31, 2013. In 2012, we shipped 300 integrated projection systems to the second largest cinema chain in India, as measured by its total number of cinema screens at the end of 2012. We have entered into a contract to ship 1,750 digital cinema servers to the second largest cinema chain in Mexico, as measured by its total number of cinema screens at the end of 2012, and have shipped over 400 units as of March 31, 2013. We believe our substantial installed base provides us with strong market recognition and significant long-term revenue opportunities from repeat purchases by both exhibitors and resellers.

        We are one of the few manufacturers in the world with digital cinema servers that are compliant with the specifications of DCI, a body formed by Hollywood studios to establish digital cinema industry standards. Our digital cinema servers allow exhibitors to exhibit digital cinema content securely in a wide range of formats, including 3D, high frame rate playback and live broadcasting. Our proprietary TMS enables exhibitors to effectively and remotely manage multiple screens and streamline theatre operations. We also resell a comprehensive suite of digital cinema products that includes integrated projection systems, 3D systems, projector lamps and silver screens. We maintain a broad service network that provides prompt and reliable services 24/7 to exhibitors, with offices in Hong Kong, the United States, China, Japan, Singapore, Spain, India and Mexico.

        We have developed a number of proprietary technologies that improve the audiovisual experience, security, delivery and exhibition of digital cinema content. In 2011, we were the first company to showcase a standalone integrated media block, which we believe will eliminate the need for the projection booths found in many exhibition halls today and, as a result, reduce equipment footprint and personnel costs. We were honored as Hong Kong's "Most Innovative Company of 2012" by Mediazone Publishing, a media consulting firm based in Hong Kong, which presented the annual award to select winners for, among other criteria, innovation in products or services and industry accolades. In 2013, we entered into a content distribution agreement with China Film Digital Film Development (Beijing) Limited and have begun offering cinema-grade digital cinema content to private venues, providing high-net-worth individuals in China with the ability to watch the latest theatrical releases in the privacy of their own homes. We also recently became the exclusive reseller and licensee of China Film Giant Screen systems in Asia (excluding China) and a non-exclusive reseller and licensee in the rest of the world.

        We have experienced significant growth in recent years. Our market share of incremental digital cinema server installations grew from 16% in 2010 to 35% in the first quarter of 2013. Our revenue grew from US$72.7 million in 2010 to US$90.0 million in 2011 and US$116.6 million in 2012. Our

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revenue for the three months ended March 31, 2013 amounted to US$32.4 million, representing an increase of 37.5% from the same period in 2012. Our profit for the year grew from US$19.9 million in 2010 to US$22.7 million in 2011 and US$27.7 million in 2012. Our profit for the three months ended March 31, 2013 amounted to US$5.3 million, representing an increase of 10.7% from the same period in 2012, after reflecting listing expenses of US$0.4 million.

Our Strengths

        We believe the following competitive strengths enable us to successfully compete in the growing digital cinema market:

Strong global market leadership

        We believe our proven track record of delivering comprehensive, high-quality and innovative solutions has and will continue to help us expand our market share. For instance, our market share of incremental digital cinema servers installations in the United States increased from less than 1% in 2009 to approximately 34% in the first quarter of 2013. In the first quarter of 2013, we were also the market leader in incremental digital cinema servers installations globally (35%), as well as in the Asia-Pacific region (54%) and China (66%).

        We believe our large market share provides us with strong market recognition and significant long-term revenue opportunities from repeat purchases by both exhibitors and resellers. We had the largest installed base of digital cinema servers in the Asia-Pacific region, accounting for approximately 44% of the region's installed base, the second largest installed base globally, with 23% of the market, and the largest installed base in a number of countries, including China (56%), Japan (36%), South Korea (51%), Taiwan (52%), Singapore (84%) and Hong Kong (79%) as of March 31, 2013.

        In Central and South America, one of the world's fastest growing markets in terms of the number of digital cinema screens installed, we have begun securing VPF arrangements with the Hollywood studios. We have also entered into a contract to ship 1,750 digital cinema servers to the second largest cinema chain in Mexico, as measured by its total number of cinema screens at the end of 2012, and have shipped over 400 units as of March 31, 2013. In addition, we shipped 300 integrated projection systems to the second largest cinema chain in India, as measured by its total number of cinema screens at the end of 2012.

Proven track record of technology leadership and innovation

        Since our inception in 1999, we have been at the forefront of technological advancements for the digital cinema industry. We have worked closely with Hollywood studios and international industry standards-setting bodies such as the Society of Motion Picture and Television Engineers to help define digital cinema industry standards. In 2003, we were a part of the MPEG Interop Initiative which defined digital cinema specifications for interoperable mastering, content delivery, security and theatre playback prior to DCI's release of its specifications. We are one of a few manufacturers in the world to achieve DCI compliance for all of our digital cinema server models.

        We have developed a number of proprietary technologies that improve the audiovisual experience, security, delivery and exhibition of digital cinema content, including:

    the first integrated media block to be awarded FIPS 140-2 Level 3 Certification, which is accepted by federal agencies in the United States, including the Department of Defense, for protection of sensitive information;

    the first digital cinema server in the world to simultaneously provide high frame rate playback, 4K resolution and live content playback capabilities;

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    integrated playback of live satellite transmission or cable feeds in both 2D and 3D directly into our digital cinema servers, which allows theatres to become entertainment hubs showing events around the world in real-time; and

    film mastering and exhibition technologies for China Film Giant Screen, one of a few large-screen formats used by Hollywood blockbusters.

        We believe our track record of innovation and technological capabilities provides us with a solid foundation for addressing the future technology challenges and requirements of the digital cinema industry.

Comprehensive portfolio of digital cinema solutions

        We offer a one-stop solution for exhibiting digital cinema content, including:

    digital cinema servers, as well as integrated projection systems, 3D systems, projector lamps and silver screens from our partners;

    TMS and NOC which offer exhibitors a centralized point of control to automate and streamline their cinema operations, including content management, automated scheduling and playback, and remote programming and monitoring;

    support services globally 24/7 through a NOC and 27 support centers; and

    consultation services on site preparation, engineering management, equipment procurement, staging and configuration.

        We started delivering digital cinema solutions to private venues in 2013. We believe our comprehensive portfolio of digital cinema solutions provides us with multiple revenue streams, including revenue from studios, exhibitors and private digital cinema, and allows us to adapt quickly to the rapidly changing digital cinema environment and the changing requirements of studios, production companies, distributors and exhibitors. By continuing to broaden our product and services portfolio, we also significantly expand our total addressable market as the cost per screen of digital cinema solutions, including digital projectors, digital cinema servers and 3D equipment, may be six to seven times that of just digital cinema servers.

Close collaboration with industry leaders providing insights and opportunities

        We collaborate closely with digital cinema industry leaders, including standards-setting bodies, production companies, distributors, equipment manufacturers and exhibitors, to anticipate and capitalize on changing technology requirements. For example, DCI has requested our comments on its specifications from time to time. Furthermore, we have been selected by the China Film Group, the largest film distributor in China, to provide film mastering and exhibition technologies for the China Film Giant Screen format. We have also partnered with the China Film Group to own and manage a NOC for monitoring the digital cinema equipment deployed by the China Film Group.

        We collaborate with other digital cinema leaders to jointly develop and market our solutions to capture additional revenue opportunities and satisfy our customers' needs for a one-stop solution. For instance, we work with China Film Group to offer cinema-grade digital cinema content to private venues. We have partnered with digital projector manufacturers to provide integrated projection systems. We are the exclusive reseller and licensee of China Film Giant Screen systems in Asia (excluding China) and a non-exclusive reseller and licensee in the rest of the world. We are also a reseller for products from other manufacturers, including 3D products, projector lamps and silver screens. Our collaboration with reseller partners in the United States, Korea and Japan expands our customer base and geographic reach. We are also working with Technicolor under an exclusive strategic agreement to provide replication and support services for certain countries in Asia.

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Experienced management team with strong industry expertise

        We have an experienced management team focused on developing innovative technologies and solutions for the digital cinema industry. Our founder, chairman of the board of directors and chief executive officer, Dr. Man-Nang Chong, and chief technology officer, Mr. Pranay Kumar, have been with us since the beginning of our company history. Dr. Chong has over 15 years of experience in the digital cinema industry. He has been actively involved in the field of image processing, video coding, digital cinema and motion picture restoration for over a decade and was an associate professor of computer engineering at Nanyang Technological University, Singapore. He led the architecture and design of the award-winning REVIVAL DIGITAL® product used by Hollywood studios for digital restoration of classic films. Mr. Kumar has over 12 years of experience in the digital cinema industry and was instrumental in leading our research and design team to be the first to design and employ a number of key digital cinema technologies. Our chief financial officer, Mr. Kent (Ming-Kin) Chiu, joined our company in 2006. He has over 14 years of experience in accounting and auditing and was a former audit manager at Deloitte Touche Tohmatsu.

        We believe that our experienced and dedicated management team, coupled with our proven track record and strong technological and execution capabilities, has contributed significantly to our past success and will continue to lead our future growth.

Our Strategies

        We intend to capitalize on our global market leadership, technology capabilities, industry relationships and market reputation to continue developing and delivering innovative digital cinema solutions. Key elements of our strategies include:

Increase global market share

        We aim to increase market share in key emerging markets, such as China, India, Central and South America and South East Asia, to capture demand from analog-to-digital cinema screen conversion, new digital cinema screen installations, equipment upgrades and replacements and private venues. We also aim to increase our market share in key developed markets, such as North America and Western Europe, by capturing demand from upgrades and replacements. We intend to expand our sales and services footprint by opening new offices in selective regions to better serve our existing customers and acquire new customers. We intend to pursue VPF agreements for additional markets that are undergoing analog-to-digital cinema screen conversion, such as Central and South America.

Maintain and enhance technology leadership

        We plan to maintain and enhance our position at the forefront of technological advancements in the digital cinema industry through innovative product offerings and close collaboration with digital cinema industry leaders. We intend to continue to research and develop technologies that meet growing industry demands for enhanced audiovisual experience and alternative content, including:

    improving our digital cinema products and technology with servers that can play 60 frames per second, integrate portable storage devices and seamlessly interface with smart phones and tablets;

    expanding our digital cinema services to include remote-sensing NOC services and advanced diagnostic and notification systems for potential hardware failures in order to improve playback, streamline remote monitoring and reduce maintenance costs;

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    integrating DCI-compliant equipment with consumer electronics for home entertainment to allow day-and-date releases of the latest theatrically-released movies and operation with popular home automation systems such as Creston and AMX; and

    providing technical support on image processing and projector alignment technologies and content mastering technologies for China Film Giant Screen.

        We intend to leverage our extensive understanding of technological trends in digital cinema to design products that can be upgraded to meet the requirements of the next generation of digital cinema. For example, we believe our latest digital cinema product, the SX-3000, will remove the need for a standard projection booth and, as a result, reduce the installation footprints and personnel costs of cinemas. We will also strive to develop new technologies for China Film Giant Screen that improve the audiovisual experience of the large-screen format and increase content security.

Expand our digital cinema solutions offerings

        We intend to leverage our existing customer and industry relationships to expand the range of our digital cinema solutions offerings. Among other things, we aim to:

    strengthen our relationships with manufacturers to provide a more comprehensive and advanced suite of digital cinema products;

    expand our servicing infrastructure and capabilities to improve our customer service, response time and extended warranties; and

    open new post-production facilities across Asia to provide digital cinema content mastering, localization, replication, delivery and security key management services for regional distributors and Hollywood studios.

Leverage existing technologies to expand into complementary markets

        We intend to leverage our existing technologies to enter into new strategically complementary markets.

        We have adapted our existing cinema-grade digital cinema solutions and entered into a content distribution agreement with China Film Digital Film Development (Beijing) Limited to begin offering cinema-grade digital cinema content to private venues. We aim to generate revenues both from the initial installation of our digital cinema solutions as well as recurring revenue from digital cinema content distributed across our digital cinema installed base for private venues.

        We have also leveraged our relationship with China Film Giant Screen to provide content in China Film Giant Screen format, one of a few large-screen formats used by Hollywood studios. We recently became the exclusive reseller and licensee of China Film Giant Screen systems in Asia (excluding China) and a non-exclusive reseller and licensee in the rest of the world. We have already installed 24 screens in China as of March 31, 2013. We expect to derive revenue both from initial equipment sales and box office revenue for movies in China Film Giant Screen format.

Pursue strategic partnerships and acquisitions

        We intend to strengthen our relationships with digital cinema industry leaders to provide additional value to our customers, enhance our business operations and identify potential opportunities. We believe these relationships will allow us to focus on our core competencies while leveraging our business partners' key strengths. For instance, we intend to pursue additional VPF agreements for markets with significant demand for analog-to-digital digital cinema conversion, such as Central and South America. We also plan to continue to form partnerships with leading digital

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cinema players and strategically evaluate acquisition opportunities in order to improve our digital cinema solutions offering and expand our marketing and distribution coverage.

Our Products and Services

        We provide a comprehensive digital cinema solution for managing all aspects of digital cinema exhibition. We manufacture digital cinema servers and sell them either on a stand-alone basis or integrated with digital projectors as integrated projection systems. We resell other digital cinema products, such as 3D products, projector lamps and silver screens.

Digital Cinema Servers

        Our digital cinema servers decode and process digital cinema content, enabling exhibitors to show digital cinema content in compliance with the industry's latest resolution and frame rate requirements.

        We are one of the few digital cinema server manufacturers in the world that have achieved compliance with DCI specifications for digital cinema servers. DCI has set forth voluntary open architecture specifications to promote widespread deployment of high quality, high performance, highly reliable and interoperable digital cinema equipment with rigorous content security. In addition, VPFs will only be distributed for digital cinema content exhibited on DCI-compliant equipment.

        The following diagram sets forth key digital cinema products that we sell.

CHART

        We have two main models of digital cinema servers, the SX-2000 and the SX-3000. Our digital cinema servers are compatible with all DLP Cinema® projectors, including those manufactured by Barco, Christie and NEC. Our digital cinema server models have the following key features to allow exhibitors to efficiently manage and display a wide-range of digital cinema.

    Supports a variety of formats.  Our digital cinema servers support a wide variety of video and audio formats, including JPEG2000, MPEG 2 and MPEG 4 video formats, MPEG 2 audio formats and Dolby Digital (AC-3) formats in pass-through. Our digital cinema servers also integrate

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      with numerous studio-approved 3D systems, including RealD, Dolby 3D, MasterImage and active 3D systems, and 4D systems, including D-Box Motion Code™ and 4D plex.

    Complies with DCI security specifications.  Our digital cinema servers are compliant with the security specifications of FIPS 140-2. They include AES 128-bit encrypted data storage and Civolution (NexGuard®) forensic watermarking.

    Integrates with 3D Live.  Our digital cinema servers can receive high-quality 3D broadcasts, including live concerts and sporting events, through 3D demuxing side-by-side and with certain third-party software. They support the UDP Multicast of MPEG 2 Transport Stream format. Users also have the option to build in 3D receiver-decoders to seamlessly support 3D Live broadcast without an external receiver-decoder.

    Allows for remote access and management.  Our digital cinema servers can be accessed remotely using our TMS and Screen Management System, or SMS, from a personal computer or mobile device. Our digital cinema servers allow for instant playback from a content library to a server, providing greater flexibility for cinema management.

    SX-2000 Digital Cinema Servers

        Our SX-2000 digital cinema server is comprised of a host computer and an integrated media block. The integrated media block is placed inside of the digital projector and connected to the host computer. The integrated media block decodes and processes content from the host computer for display on the digital projector.

    SX-3000 Digital Cinema Servers

        Our SX-3000 digital cinema server is comprised of a single standalone integrated media block placed inside of a digital projector, capable of performing the functions of a host computer in addition to decoding and processing content for display on a digital projector. The SX-3000 eliminates the need for a projection booth and the personnel required for operating the booth, by allowing a projector to play content while suspended from the ceiling of an exhibition hall. By reducing equipment footprint, the SX-3000 creates additional space for theatre seating, lowers operating costs and simplifies cinema construction. The SX-3000 can also be sold with the PSD-3000, a compact and cost-effective external storage solution for digital cinema content that can be mounted on digital projectors, making it suitable for boothless cinema designs.

Integrated Projection System

        We offer integrated projection systems by integrating digital cinema servers manufactured by us with DCI-compliant digital projectors manufactured by third parties. Our integrated projection systems are capable of playing digital cinema content at high frame rates. Our integrated projection system includes software that simplifies the management and operation of digital cinema equipment.

Theatre Management System

        Our TMS allows exhibitors to manage the crucial functions and execute projector and server automations for an entire theatre, such as playback, playlists, show schedules and errors for projection for a number of different servers. As of March 31, 2013, approximately 9,000 screens worldwide were managed by our TMS.

Other Digital Cinema Products

        To provide exhibitors with a one-stop solution, we also resell products of third-party manufacturers. We partner with a third-party manufacturer for 3D products using our brand to export outside of China. We also partner with other manufacturers for projector lamps and silver screens.

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Services and Support

        We maintain service offices in Hong Kong, Los Angeles, Sterling, Barcelona, Tokyo, Singapore, Shenzhen, Beijing, Mumbai and Mexico City. We have a service and support network with 73 engineers at 27 support centers worldwide, including regional technical support across China in Beijing, Changsha, Chengdu, Chongqing, Guangzhou, Nanjing, Shanghai, Shenzhen and Wuhan. We also provide support to our reseller partners and their customers in Europe, the United States, China and other Asia-Pacific region. Our call centers and help desk are available 24/7 to our customers globally. We also provide preventive maintenance, emergency response and parts replenishment services and customized customer training programs.

        We distinguish ourselves from competitors by providing after-sales support and access to our NOC and call center. Our NOC and call center in Shenzhen maintain call systems and customer relationship management, or CRM, systems allow us to remotely diagnose and repair our customers' digital cinema projection systems in China. Issues that do not involve replacing parts or physical contact with the hardware are generally handled remotely by our NOC. We generally respond to customer issues within four hours in China. By utilizing NOC personnel to solve customer issues whenever possible, we eliminate travel time and expenses normally incurred by sending a technician on-site for repairs.

        We also formed CFG GDC with China Film Equipment Corporation, a subsidiary of the China Film Group, to own and manage a NOC for monitoring the digital cinema equipment deployed by the China Film Group. We hold a 49% interest in CFG GDC and China Film Equipment Corporation holds a 51% interest as of the date of this prospectus. The profits, risks and losses of CFG GDC are shared by China Film Equipment Corporation and us in proportion to our respective equity interests. We aim to leverage CFG GDC to establish business relationships with exhibitors under the network of the China Film Group and provide them with higher levels of maintenance and warranty services.

Virtual Print Fee Arrangements

        We have over 200 VPF agreements with a wide range of industry players, including major Hollywood studios, other studios and participating regional motion picture distributors in Hong Kong, Japan, the United States and Central and South America. GDC Digital Cinema Networks Limited manages VPF agreements for over 300 exhibitors in Hong Kong, Japan and the United States. We collect VPFs from studios and distributors for each of their titles shown using digital cinema equipment deployed under our VPF arrangements. See "Industry—The Emergence of Digital Cinema—Key Drivers of the Analog-to-Digital Cinema Screen Conversion—Equipment Incentive Programs" for general information regarding VPF arrangements.

        In Hong Kong, we act as both the administrator and the deployment entity under our VPF arrangements. In Japan and the United States, we only act as the administrator under our VPF arrangements and recognize service income. See "Management's Discussion and Analysis of Financial Position and Results of Operations—Major Components of Our Results of Operations—Revenue—Deployment and Administration of Digial Cinema Networks." We expect to commence our VPF business in the Central and South America in the second half of 2013.

Post-production

        Our facilities in the United States, Hong Kong and Singapore provide digital cinema content mastering, localization, replication, delivery and security key management services for regional distributors and Hollywood studios:

    Digital Cinema Content Mastering.  We compress, encrypt and package video content in digital cinema format;

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    Localization.  We provide editing and subtitling based on local language and content regulation requirements;

    Replication and Delivery.  We replicate digital cinema content onto hard drives for secure delivery to exhibitors, including exclusive replication services with Technicolor in certain countries in Asia; and

    Digital Cinema Content Security Key Management.  We generate and transmit decryption security keys for displaying the encrypted digital cinema content.

Research and Development

        The digital cinema industry is characterized by rapid technological advances and evolving user requirements. We generally keep abreast of the latest industry recommendations by subscribing to trade publications, attending trade shows and liaising with key industry players, including movie studios, distributors, exhibitors and re-sellers. We have worked closely with Hollywood studios and international industry standards setting bodies such as the Society of Motion Picture and Television Engineers to help define digital cinema industry standards. We develop software internally based on our deep understanding of digital cinema specifications and practical requirements in response to the changing technological landscape. We maintain strict control over the security of our key technologies and over technology development processes, such as detailed user specifications.

        We submit both the hardware and software of each of our digital cinema server models to a third-party laboratory for DCI compliance testing. The laboratories test for content playback, content security, interoperability with other cinema devices, as well as the user interface. Our digital cinema servers are also evaluated for sound architectural design. The security of our media blocks is tested against FIPS 140-2, which is accepted by federal agencies in the United States, including the Department of Defense, for protection of sensitive information.

        Our close interaction with leaders of the digital cinema industry has allowed us to develop a number of proprietary technologies that have improved the audiovisual experience, enhanced the security of content delivery, reduced content delivery costs and simplified exhibition, including:

    software based digital cinema servers and encrypted mobile hard disk drives for content delivery in 2001;

    integrated playback of live satellite transmission or cable feeds in both 2D and 3D directly into our cinema playback servers, which allows theatres to become entertainment hubs showing events around the world in real-time in 2010;

    the first integrated media block to be awarded FIPS 140-2 Level 3 Certification in 2011;

    the first digital cinema server in the world to simultaneously provide high frame rate playback, 4K resolution and live content playback capabilities, demonstrated at BIRTV 2011;

    the SX-3000, which allows cinema exhibitors to play digital cinema from an integrated media block and projector suspended from the ceiling of a theatre, without an external server or standard projection booth, thereby reducing the space and cost required for exhibition as well as reducing overall theatre construction time, in 2012;

    film mastering and exhibition technologies for China Film Giant Screen, one of a few large-screen formats used by Hollywood blockbusters, in 2012; and

    DCI-compliance for all models of our digital cinema servers in 2012.

        We intend to continue enhancing our solutions for the digital cinema industry. For instance, we have adapted our digital cinema technology to deliver high-quality digital cinema solutions to private venues in China such as villas, luxury homes, private clubs, museums and educational institutions.

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        Our research and development division, with 26 employees, helps identify and evaluate new opportunities. Our research and development effort is led by our founder, chairman of the board of directors and chief executive officer, Dr. Man-Nang Chong, and our chief technology officer, Mr. Pranay Kumar. Dr. Chong has been actively involved in the field of image processing, video coding, digital cinema and motion picture restoration for over 15 years. Our chief technology officer, Mr. Kumar, has been with us since our inception in 1999. Our core research and development team has been with us for between four to 12 years.

        Each of our research and development personnel is subject to non-disclosure and non-competition provisions. Our research and development personnel generally only access limited portions of our key technologies. We keep our key technologies, which include the original design and source code of our software, in our Hong Kong and Singapore offices. These technologies can only be accessed in their totality by a few specified, authorized individuals.

Intellectual Property

        We rely on a combination of trade secrets, copyrights, patents and trademarks to protect our proprietary technologies and our brand. Our key intellectual property assets include our know-how on digital cinema standards, specifications and exhibition workflow and our copyrighted software and textual materials, such as our system level applications on our servers, software embedded in our media blocks and software application packages provided to licensed customers. We use trade secrets to protect our technology competencies, industry experience and proprietary know-how.

        We have 12 registered patents in China (including two for standalone media blocks, two for machine cabinets, two for cinema automated control systems, one for digital cinema systems with integrated media blocks, one for preventing video piracy, one for digital cinema servers (SX-2000), one for digital cinema projection integrated media blocks, one for three-dimensional double machine digital cinema projection cabinets (IPS-2000) and one for three-dimensional double machine digital cinema projection integrated cabinets (IPS-2000)) and five pending patent applications in China (including three for portable storage devices, one for standalone media blocks and one for preventing video piracy). We have two patent applications in the European Union and three patent applications in the United States. We also have 24 software copyright registrations in China.

        We have four registered trademarks in China (including trademarks related to the names GDC Technology, DSR, ETONIQ and EtoniqStereoHD), of which one (ETONIQ) is also registered in the United States, and one registered trademark (SX-3000S Standalone IMB) in the European Union. We have pending trademark applications in the United States, European Union, China and Hong Kong in respect of 11 trademarks (including those related to our standalone integrated media block).

        GDC Technology Limited (BVI) has signed a license agreement with Global Digital Creations Holdings Limited, a company listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited and the registered holder of trademarks and trade names of "Global Digital Creations" and "GDC". Global Digital Creations Holdings Limited is also the parent company of GDC Holdings, GDC Technology Limited (BVI)'s former holding company and a current principal shareholder. Pursuant to this agreement, Global Digital Creations Holdings Limited has agreed to grant GDC Technology Limited (BVI) an exclusive, world-wide, perpetual, sublicensable and royalty-free license in the trademark and trade names and the rights, title, interests in and to any intellectual property rights containing such trademarks and trade names solely in connection with the manufacture, promotion, marketing, sale, distribution and use (or any of those activities) of digital cinema content delivery or display related equipment. GDC Technology Limited (BVI) does not have the rights to use the trademarks or trade names in any other business outside the authorized uses, which may not include providing services or software. Global Digital Creations Holdings Limited is restricted from using or exploiting these trade names or trademarks in connection with such activities. Global Digital Creations Holdings Limited reserves the right to use these trademarks and

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trade names in connection with other activities. See "Risk Factors—Risks Related to Our Business and Industry—We rely on a licensing arrangement with one of our principal shareholders to use "GDC" trademarks and trade names."

Manufacturing, Supply and Quality Control

        We outsource a significant portion of manufacturing functions and certain assembly functions. We utilize our own manufacturing facilities for high value-added procedures and to protect our proprietary technologies. We assemble the final system, install our proprietary software and private keys into the media blocks and perform the final inspection and quality assurance procedures. To protect our intellectual property, each piece of software only operates with a uniquely identified digital cinema server and a uniquely identified integrated media block. For security purposes, the software in our media blocks will self-erase if the device is breached.

        We have two production facilities, one in Hong Kong and one in Shenzhen, to manufacture, assemble, test and ship our completed products. Our production facilities in Hong Kong and Shenzhen are ISO 9001 certified. Our facilities in Hong Kong fulfill our orders globally and our facilities in Shenzhen primarily handle our orders in China.

        Our hardware components are manufactured by third-parties. We use a sole manufacturer on an exclusive basis for our media blocks, the key components of our digital cinema products, in order to improve our control over the security and quality of our products.

        We perform extensive quality assurance procedures intended to ensure performance, security and reliability. We inspect the components upon purchase. We also test the final product with a burn-in test, systems inspection and final playback. We believe that our rigorous quality control procedures and highly reliable digital cinema products have contributed significantly to our success.

Warranty

        We generally provide product warranties of one to four years to our customers, including reseller partners and exhibitors. Our customers have the option to purchase extended warranties beyond the standard warranty period. Providing services and replacing parts after the expiration of our customers' warranties may provide us with additional revenue.

Sales and Marketing

        We maintain sales offices in Hong Kong, Los Angeles, Sterling, Barcelona, Tokyo, Singapore, Shenzhen, Beijing, Mumbai and Mexico City. Our sales team has extensive experience with our product lines and long-term relationships with many current and potential customers.

        In China, Central and South America, India and South East Asia, we primarily sell our products directly to exhibitors and large cinema chains. In the United States, Japan, Korea and Europe, we primarily sell our products to reseller partners. We manage our customer orders using an enterprise resource planning system.

        Our centralized marketing team in Hong Kong manages our global marketing efforts. We use trade shows, industry conferences and trade journals as our primary marketing channels. We allocate a significant portion of our marketing budget to major industry trade shows worldwide where we showcase our latest offerings. We normally participate in over 20 trade shows and industry events around the world a year. We also conduct product launch events to introduce our new products and use publications to present our product offerings. We advertise in trade journals and targeted industry websites. Our designated engineers conduct site visits and customer training on a regular basis. We coordinate joint marketing initiatives with our reseller partners.

        Sales of digital cinema solutions to private venues are conducted by specialized sales staff through a combination of direct sales staff and resellers. We are in the process of building customized

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showrooms in Hong Kong, Beijing and Shenzhen to showcase our private digital cinema solution to prospective customers and partners and plan to expand across all tier-one cities throughout China during 2013.

        Our installed base includes a majority of the top 25 cinema chains in the United States, as well as all top ten cinema chains in China, the top cinema chains in France, Taiwan and Thailand, the top and third top cinema chains in Japan, the top and second top cinema chains in South Korea, the top five cinema chains in Hong Kong, the top three cinema chains in Singapore and the second top cinema chain in India and Mexico, as measured by their respective number of screens at the end of 2012.

Competition

        We believe that the principal competitive factors in each of our markets include:

    features, performance, security and reliability of products and services;

    services and support;

    brand recognition and reputation;

    relationships with digital cinema industry participants;

    breadth of product portfolio;

    price; and

    timeliness and relevance of new product introductions.

        The markets for our digital cinema products and services are highly competitive. Our competitors in the sale of digital cinema servers and integrated projection systems include, among others, Doremi, Dolby and SONY. Some of our competitors also offer VPF arrangements. In addition, digital projector manufacturers for our integrated projection systems may also integrate and sell the digital projectors they manufacture with digital cinema servers manufactured by us or our competitors. We also face competition in service offerings and in each of the product categories that we resell, including 3D systems, projector lamps and silver screens.

        Some of our current or potential competitors may have significantly greater financial, technical, marketing, labor and other resources than us, or may have more experience or other advantages in the markets in which they operate. Many of our competitors also have greater name and brand recognition than us in certain markets. See "Risk Factors—Risks Related to Our Business and Industry—The markets for our products and services are highly competitive; if we are unable to compete successfully, our business will be materially and adversely affected."

Employees

        As of December 31, 2010, 2011 and 2012 and March 31, 2013, we had 148, 197, 250 and 267 full-time employees worldwide, respectively. As of March 31, 2013, we had 75 employees in our headquarters in Hong Kong, 109 in China, 39 in the United States and 44 in other locations. We do not have collective bargaining agreements with our employees, other than those in Spain.

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        The following table shows a breakdown of our employees by department as of March 31, 2013.

Department
  Employees  

Manufacturing

    45  

Service

    73  

Sales and Marketing

    47  

Research and Development

    26  

Administrative

    52  

Finance, Accounting and Legal

    24  
       

Total

    267  

Facilities

        Our principal executive offices are located at Kodak House II, 39 Healthy Street East, North Point, Hong Kong, occupying approximately 23,000 square feet of space. We produce our products in our headquarters in Hong Kong and in our office in Shenzhen, China, which occupies approximately 13,000 square feet of space. Our NOC and call center are also based in our office in Shenzhen. We own an office in Burbank, California which serves as an office building and warehouse and occupies approximately 11,000 square feet. We also have five leased offices in the United States, China, Japan, Singapore and Spain.

        We believe that our facilities are in good condition and generally suitable and adequate for our needs in the foreseeable future. However, we will continue to seek additional space as needed to satisfy our growth.

Regulations

        Our global operations subject us to regulation by U.S. federal and state laws and multiple foreign laws, regulations and policies. These laws and regulations include import and export control, local labor laws, data privacy requirements and environmental, health and safety regulations. See "Risk Factors—Risks Related to our Business and Industry—The risk of non-compliance with U.S. and foreign laws and regulations applicable to our international operations could have a significant impact on our results of operations, financial position or strategic objectives."

North American Regulations

        The products we sell in the United States must be approved by the Federal Communications Commission, or the FCC, under Title 47 of the Code of Federal Regulations for Electromagnetic Compliance, or EMC, which prohibits such products from sending or receiving broadcasting signals that interfere with existing broadcasting signals in the United States.

        We also obtain UL and MET safety certifications for our products sold in the United States and Canada to indicate to customers that our products have met certain safety standards.

European Union Regulations

        The products we sell in certain European Union countries must bear a CE marking for EMC in the European Union, which prohibits such products from sending or receiving broadcasting signals that interfere with existing broadcasting signals in the European Union.

        The products we sell in certain countries in the European Union must also be certified by The European RoHS Directive 2002/95/EC (Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment), which aims to regulate and limit the hazardous substances used in electronics products, by specifying manufacturing materials and processes.

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PRC Regulations

        The business we carry out in the PRC is subject to the supervision and regulations of various government authorities, including the Ministry of Commerce, or MOC, the SAFE, the State Administration for Industry and Commerce, or SAIC, and the State Administration of Radio Film and Television, the SARFT.

    Product Certifications

        Certain products we distribute in the PRC require a China Compulsory Certification, which requires that our products comply with certain environmental, product standards, national security as well as health and safety requirements.

    Restrictions on Foreign Investment

        On December 24, 2011, MOC and the National Development and Reform Commission jointly issued regulations that categorize the various types of industries in which foreign investment is encouraged, permitted, restricted or prohibited. Applicable regulations and approval requirements vary based on the categorizations set forth in this catalogue generally. Investments in the PRC by foreign investors must be in compliance with these regulations. Such investors must obtain governmental approvals as required by these regulations. Our business falls under the category of encouraged and permitted foreign investment industries. The establishment of our subsidiary, GDC Technology (Shenzhen) Limited, only requires the approval from the local branch of MOC and registration with the local branch of SAIC. We have obtained all necessary PRC governmental approvals from competent authority to operate our business.

    Regulations related to Our Digital Cinema Products

        According to the administrative measures promulgated by the SARFT on July 19, 2005, the equipment for projecting digital films must meet the technical standard required by the SARFT. On July 23, 2007, the SARFT issued a notice which requires the certification of digital cinema systems and equipment before being used in digital cinema projection systems. On February 10, 2009, the SARFT issued a notice which further strengthened the certification requirements for digital cinema projectors, particularly for 1.3k and 0.8k digital cinema projectors. All of our digital cinema projectors are 2k and above. Our 2k digital cinema projectors have been certified by the SARFT.

Legal Proceedings

        From time to time, we are subject to certain legal and administrative proceedings that arise in the ordinary course of our business, including claims regarding intellectual property rights, business contracts, employment and other matters. We are not currently involved in any legal proceedings by third parties that our management believes could have a material adverse effect on our business, financial position or results of operations. However, it is possible that an unfavorable resolution of one or more of such proceedings could materially and adversely affect our future operating results or financial position in a particular period.

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MANAGEMENT

Directors and Executive Officers

        The following table sets forth information regarding our directors and executive officers.

Name
  Age   Position/Title

Dr. Man-Nang Chong

    47   Chairman of the board of directors and chief executive officer

Zheng Chen

    53   Director

Brenda Hu Ming

    42   Director

Ying Lee

    33   Director

Sean (Yan-Xiang) Lu

    40   Director

Wayne (Wen-Tsui) Tsou

    46   Director

Anne (Zheng) Wang

    36   Director

Feng Xiao

    40   Director

Wee-Seng Tan

    57   Independent Director Appointee(1)

Kent (Ming-Kin) Chiu

    36   Chief financial officer

Pranay Kumar

    33   Chief technology officer

(1)
Mr. Tan has accepted appointment as our independent director, effective upon the effectiveness of the registration statement of which this prospectus is a part.

        Dr. Man-Nang Chong.    Dr. Man-Nang Chong, our chairman of the board of directors and chief executive officer, founded our company in Singapore in 1999. Dr. Chong has been on the board of directors since August 2001. Dr. Chong was an associate professor of the School of Computer Engineering at Nanyang Technological University, Singapore, from 1992 to 2000. In 1996, Dr. Chong led a team to win the worldwide Texas Instruments' Digital Signal Processing Solutions Challenge award. In 1999, Dr. Chong founded Nirvana Digital Pte Ltd, a leading digital signal processing company which was subsequently acquired by Acterna Incorporation (Nasdaq:ACTR) in 2000. Dr. Chong was the chief consultant of Da Vinci Technologies from 2000 to 2002. Dr. Chong is also credited with the architecture, design and successful commercial release of Nirvana's award-winning REVIVAL DIGITAL® product lines, which have been used to restore a large number of movies. Dr. Chong received his bachelor of engineering and Ph.D. degrees, both in electronic and electrical engineering, from the University of Strathclyde in the United Kingdom.

        Zheng Chen.    Mr. Chen has been our director since April 2005. He is currently an executive director and chief executive officer of Global Digital Creations Holdings Limited, a company listed on the Growth Enterprise Market of The Stock Exchange of Hong Kong Limited in August 2003, the parent company of GDC Holdings and a current principal shareholder. Mr. Chen was previously an executive director of operations of Shougang Concord Grand (Group) Limited. Mr. Chen has extensive experience in investment business and corporate management. Mr. Chen holds a bachelor in chemical engineering and an MBA.

        Brenda Hu Ming.    Ms. Hu Ming has been our director since April 2013. Ms. Hu Ming served as financial manager and project manager of China Tiancheng Group and Beijing PriceSmart Membership Inc., as financial manager of big China Area GTSS department of Motorola (China) Electronics Co., Ltd, as financial manager of Linklaters LLP Beijing Office and as financial manager of Canon (China) Co., Ltd. Ms. Hu has served as director, vice president and board secretary of Huayi Brothers Media Corporation since 2008. She graduated with an MBA from the University of International Business and Economics.

        Ying Lee.    Ms. Ying Lee (legal name: Ying Li) has been our director since September 2011. Ms. Lee is a managing director of Yun Feng Capital, and focuses on investment opportunities in the

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consumer, telecoms, media and technology, or TMT, and clean technology sectors. Prior to her current role, Ms. Lee was a Partner of Kleiner Perkins Caufield & Byers, or KPCB, in their United States office. Ms. Lee helped start KPCB China and invested in innovative companies, including Autonavi (Nasdaq: AMAP), VenusTech (China: 002439), and Sungrow Power Supply (China: 300274). Prior to KPCB, Ms. Lee was the Deputy General Manager of UTStarcom's IPTV business unit based in Hangzhou, China. Ms. Lee began her career as a management consultant in the Silicon Valley office of McKinsey & Company. Ms. Lee earned three degrees from Massachusetts Institute of Technology in three years: a bachelor of science in Computer Science, a bachelor of science in Economics, and a masters in Electrical Engineering & Computer Science. Ms. Lee was an Associate Editor of IEEE 802.3ah.

        Sean (Yan-Xiang) Lu.    Mr. Lu has been our director since September 2011. Mr. Lu is a managing director of The Carlyle Group focused on Asian growth capital opportunities. Prior to joining The Carlyle Group, Mr. Lu was the partner and chief investment officer of Kaisen Capital Management, an alternative asset management company, focusing on its Shenzhen-based Renminbi private equity fund operations. Prior to that, Mr. Lu worked in various private equity positions including managing director and head of China of the Asia Special Situations Group of Lehman Brothers/Nomura International and managing director of Temasek Holdings (HK). Mr. Lu holds an MBA from the University of Chicago with high honors, a master of science in biochemistry from the University of Utah, and a bachelor of science in biology from the University of Science and Technology of China.

        Wayne (Wen-Tsui) Tsou.    Mr. Tsou has been our director since September 2011. Mr. Tsou has been a managing director of The Carlyle Group and the Head of Carlyle Asia Growth Partners since February 2004. Mr. Tsou started Carlyle's growth capital business in Asia when he joined the firm in 2004 and has since built Carlyle Asia Growth Partners into one of the leading growth capital platforms in Asia, currently managing four USD funds and the Carlyle/Fosun RMB Fund. Mr. Tsou also serves on the board of ATMU Inc., China Crane Investment Holdings Limited, Carlyle Silk Road Investment Ltd and CAGP Kaifengde Investment Limited. Mr. Tsou holds a Juris Doctor from Harvard Law School, an MBA from the Harvard Business School, a Master of Science in Electrical Engineering from the California Institute of Technology, and a bachelor of science summa cum laude in Electrical Engineering from the University of Michigan.

        Anne (Zheng) Wang.    Ms. Wang has been our director since September 2011. Ms. Wang is a director of The Carlyle Group focused on growth capital opportunities in Asia. Prior to joining The Carlyle Group, Ms. Wang was an associate at A. T. Kearney in Shanghai, where she engaged in consulting projects for clients in the financial and automotive industries as well as public sectors. Prior to that, Ms. Wang was a senior analyst at A. T. Kearney for three years. Ms. Wang received her MBA. from Kellogg School of Management, and her bachelor in international business from Fudan University, China.

        Wee-Seng Tan.    Mr. Tan will serve as our independent director immediately upon the effectiveness of our registration statement on Form F-1, of which this prospectus is a part. Mr. Tan currently serves as an independent director of ReneSola Ltd and 7 Days Group Holdings Limited, whose shares are listed on the New York Stock Exchange, a non-executive director of Xtep International Holdings Limited and an independent non-executive director of Biostime International Holdings Limited, Sa Sa International Holdings Limited and Cifi Holdings (Group) Company Limited, whose shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited. Mr. Tan has previously held positions as a executive director, chief financial officer and company secretary of Li Ning Company Limited, senior vice president of Reuters for China, Mongolia and North Korea regions based in Beijing, managing director of AFE Computer Services Ltd. in Hong Kong, director of Infocast Australia Pte Ltd. in Sydney and regional finance manager of Reuters East Asia. Mr. Tan is a

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fellow member of the Chartered Institute of Management Accountants in United Kingdom and a fellow member of Hong Kong Institute of Directors.

        Feng Xiao.    Mr. Xiao has been our director since September 2011. Mr. Xiao is a managing director of The Carlyle Group focused on growth capital investments in China. Prior to joining The Carlyle Group, Mr. Xiao was a vice president at China International Capital Corporation, where he had been deeply involved in the restructuring and listing of a number of leading Chinese companies, including China Telecom, Sinopec, China Post and China Construction Bank. Prior to that, Mr. Xiao worked at China Patent Agent (HK) Limited as a lawyer and a registered trademark agent. Mr. Xiao received his MBA. from the China Europe International Business School, holds a bachelor of engineering in computer science and a bachelor of arts in English each from Tsinghua University, China. Mr. Xiao also holds a Lawyer's Qualification Certificate in China.

        Kent (Ming-Kin) Chiu.    Mr. Chiu has been our chief financial officer since 2006. Mr. Chiu previously worked for Deloitte Touche Tohmatsu in the Audit Department for over seven years and was involved in the audit of many listed and multinational companies. Mr. Chiu has sound knowledge of the business practices, accounting and tax systems of Hong Kong and the PRC and IFRS. Mr. Chiu is also a member of the Hong Kong Institute of Certified Public Accountants and a fellow member of the Association of Chartered Certified Accountants. Mr. Chiu has a bachelor of business administration with honours, first class in professional accountancy, from The Chinese University of Hong Kong.

        Pranay Kumar.    Mr. Kumar is our chief technology officer. Mr. Kumar joined us as a research and development engineer in 2001. Mr. Kumar graduated from the top of the class from the Nanyang Technological University in Singapore with a bachelor of applied science (computer engineering) under the accelerated honors stream. While at Nanyang Technological University, Mr. Kumar was awarded the Lee Kuan Yew Gold Medal and the Institute of Engineers, Singapore Gold Medal.

        The address of our directors and executive officers is c/o GDC Technology Limited, Unit 1-7, 20/F, Kodak House II, 39 Healthy Street East, North Point, Hong Kong.

Board of Directors

        Under Cayman Islands law, our directors have a fiduciary duty to act honestly, in good faith and with a view to our best interests. Our directors also have a duty to exercise the skill they actually possess and such care and diligence that a reasonably prudent person would exercise in comparable circumstances. In fulfilling their duty of care to us, our directors must ensure compliance with our memorandum and articles of association, as amended and re-stated from time to time. A shareholder has the right to seek damages if a duty owed by our directors is breached.

        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 officers;

    exercising the borrowing powers of our company and mortgaging the property of our company; and

    approving the transfer of shares of our company, including registering such shares in our register of members.

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        Our board of directors will establish an audit committee, a compensation committee and a corporate governance and nominating committee upon completion of this offering.

Audit Committee

        Our audit committee will initially consist of Mr. Sean (Yan-Xiang) Lu, Mr. Wee-Seng Tan and Mr. Wayne (Wen-Tsui) Tsou. Mr. Tan will be the chairman of our audit committee and meets the criteria of an audit committee financial expert as set forth under the applicable rules of the SEC. Mr. Tan will be an "independent director" within the meaning of Rule 5605(a)(2) of the Nasdaq Listing Rules and will meet the criteria for independence set forth in Rule 10A-3 under the Exchange Act. Our audit committee will consist of two independent directors within 90 days of this offering and solely of independent directors within one year of this offering. The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:

    selecting our independent registered public accounting firm and pre-approving all auditing and non-auditing services permitted to be performed by our independent registered public accounting firm;

    reviewing with our 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 our 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 significant control deficiencies;

    annually reviewing and reassessing the adequacy of our audit committee charter;

    such other matters that are specifically delegated to our audit committee by our board of directors from time to time; and

    meeting separately and periodically with management and our internal auditor and independent registered public accounting firm.

Compensation Committee

        Our compensation committee will initially consist of Mr. Sean (Yan-Xiang) Lu, Mr. Wee-Seng Tan and Mr. Wayne (Wen-Tsui) Tsou. Mr. Tan will be an "independent director" within the meaning of Rule 5605(a)(2) of the Nasdaq Listing Rules. Mr. Lu will be the chairman of our compensation committee. Our compensation committee assists the board in reviewing and approving the compensation structure of our directors and executive officers, including all forms of compensation to be provided to our directors and executive officers. Members of the compensation committee are not prohibited from direct involvement in determining their own compensation. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:

    approving and overseeing the compensation package for our executive officers;

    reviewing and making recommendations to the board with respect to the compensation of our directors; and

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    reviewing periodically and making recommendations to the board regarding any long-term incentive compensation or equity plans, programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans.

Corporate Governance and Nominating Committee

        Our corporate governance and nominating committee will initially consist of Mr. Sean (Yan-Xiang) Lu, Mr. Wee-Seng Tan and Mr. Wayne (Wen-Tsui) Tsou. Mr. Tsou will be the chairman of our corporate governance and nominating committee. The corporate governance and nominating committee assists the board of directors in identifying individuals qualified to become our directors and in determining the composition of the board and its committees. The corporate governance and nominating committee is responsible for, among other things:

    identifying and recommending to the board nominees for election or re-election to the board, or for appointment to fill any vacancy;

    reviewing annually with the board the current composition of the board in light of the characteristics of independence, age, skills, experience and availability of service to us;

    advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to the board on all matters of corporate governance and on any corrective action to be taken; and

    monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance.

Interested Transactions

        A director may vote in respect of any contract or transaction in which he or she is interested, provided that the nature of the interest of any directors in such contract or transaction is disclosed by him or her at or prior to its consideration and any vote in that matter.

Remuneration and Borrowing

        The directors may determine remuneration to be paid to the directors. The compensation committee assists the directors in reviewing and approving the compensation structure for the directors. The directors may exercise all the powers of our company to borrow money and to mortgage or charge its undertaking, property and uncalled capital, and to issue debentures or other securities whether outright or as security for any debt obligations of our company or of any third party.

Qualification

        There is no shareholding qualification for directors.

Terms of Directors and Executive Officers

        Our executive 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 resign or are removed from office without cause by special resolution or the unanimous written resolution of all shareholders or with cause by ordinary resolution or the unanimous written resolutions of all shareholders. A director will be removed from office automatically if, among other things, the director becomes bankrupt or makes any arrangement or composition with his creditors.

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Employment Agreements

        We have entered into employment agreements with all of our executive officers. Under these agreements, we may generally terminate the employment of our executive officers without prior written notice for cause, including but not limited to refusal to perform lawful duties, a breach of the employment agreement, material misconduct, material failure to follow company rules and policies, destruction or theft of company property or breach of any non-disclosure and non-competition agreements. We may terminate the employment agreement at any time without cause upon advance written notice to the other party. We are entitled to pay the employee salary in lieu of any applicable notice period.

        Each executive officer has agreed to hold, both during and subsequent to the terms of his or her agreement, in confidence and not to use for the officer's own benefit or the benefit of any third party, any trade secrets, other information of a confidential nature or non-public information of or relating to us in respect of which we owe a duty of confidentiality to a third party. Each executive officer has also agreed to disclose to us all work product, and acknowledged that all work product shall constitute work made for hire with respect to copyright, patents, trade secrets, trademarks and other proprietary rights. Each executive officer has agreed to execute all documents and perform all lawful acts necessary or advisable for us to secure these rights.

Compensation of Directors and Executive Officers

        In 2012, the aggregate cash compensation to our executive officers was US$1.1 million and we did not provide cash compensation to our non-executive directors. For share-based compensation, see "—2006 Share Option Scheme" and "—Restricted Shares."

2013 Equity Incentive Plan

        We adopted our 2013 Equity Incentive Plan on May 21, 2013. Our 2013 Equity Incentive Plan provides for the grant of options, limited stock appreciation rights, and other stock-based awards such as restricted shares, referred to as "awards," to our directors, officers and employees up to 50,000,000 of our ordinary shares. The purpose of the plan is to aid us in recruiting and retaining key employees, directors or consultants of outstanding ability and to motivate such employees, directors or consultants to exert their best efforts on behalf of our company by providing incentives through the granting of awards. Our board of directors believes that our company's long-term success is dependent upon our ability to attract and retain superior individuals who, by virtue of their ability, experience and qualifications, make important contributions to our business.

        On May 21, 2013, as a part of our Reorganization Transactions, we granted options to purchase 395,000 ordinary shares, with an exercise price of HK$2.00 (US$0.26), to our employees under our 2013 Equity Incentive Plan in exchange for options to purchase 395,000 ordinary shares issued under GDC Technology Limited (BVI)'s 2006 Share Option Scheme, with an exercise price of HK$2.00 (US$0.26). We also awarded 3,391,733 restricted shares to our employees under our 2013 Equity Incentive Plan in exchange for 3,391,733 restricted shares previously issued by GDC Technology Limited (BVI). Out of the 3,391,733 restricted shares: (i) 3,058,400 restricted shares are scheduled to be issued as follows: one-fourth of the 3,058,400 restricted shares, or 764,600 restricted shares, will be issued on each of June 25, 2013, 2014, 2015 and 2016; and (ii) the remaining 333,333 restricted shares are scheduled to be issued as follows: 166,667 and 166,666 restricted shares will be issued on December 31, 2013 and 2014, respectively.

        On May 22, 2013, we granted options to purchase 19,954,000 ordinary shares to our employees under our 2013 Equity Incentive Plan. Out of the 19,954,000 options granted: (i) 12,470,000 options are scheduled to be vested as follows: one-fifth of the 12,470,000 options, or 2,494,000 options, will be vested on each of January 1, 2014, 2015, 2016, 2017 and 2018; and (ii) the remaining

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7,484,000 options are scheduled to be vested as follows: one-third of the 7,484,000 options, or 2,494,667 options, will be vested on each of January 1, 2014, 2015 and 2016.

        On May 22, 2013, we awarded 5,900,000 restricted shares to our employees under our 2013 Equity Incentive Plan. Out of the 5,900,000 restricted shares awarded: (i) 2,980,000 restricted shares are scheduled to be issued as follows: one-fifth of the 2,980,000 restricted shares, or 596,000 restricted shares, will be issued on each of January 1, 2014, 2015, 2016, 2017 and 2018; and (ii) the remaining 2,920,000 restricted shares are scheduled to be issued as follows: one-third of the 2,920,000 restricted shares, or 973,333 restricted shares, will be issued on each of January 1, 2014, 2015 and 2016.

        As of the date of this prospectus, there were 395,000 ordinary shares issuable upon the exercise of outstanding share options, 19,954,000 ordinary shares underlying granted but not yet vested options to purchase ordinary shares and 9,291,733 awarded but not yet issued restricted shares under our 2013 Equity Incentive Plan.

        Termination of Awards.    Options and restricted shares shall have specified terms set forth in an award agreement. The compensation committee will determine in the relevant award agreement whether options granted under the award agreement will be exercisable following the recipient's termination of services with us. If the options are not exercised or purchased on the last day of the period of exercise, they will terminate.

        Administration.    Our 2013 Equity Incentive Plan is administered by the compensation committee of our board of directors. The committee is authorized to interpret the plan, to establish, amend and rescind any rules and regulations relating to the plan, and to make any other determinations that it deems necessary or desirable for the administration of the plan. The committee will determine the provisions, terms and conditions of each award, including, but not limited to, the exercise price for an option, vesting schedule of options and restricted shares, forfeiture provisions, form of payment of exercise price and other applicable terms.

        Option Exercise.    The term of options granted under the 2013 Equity Incentive Plan may not exceed ten years from the date of grant. The consideration to be paid for our ordinary shares upon exercise of an option or purchase of shares underlying the option may include cash, check or other cash-equivalent, ordinary shares, consideration received by us in a cashless exercise, or any combination of the foregoing methods of payment.

        Third-party Acquisition.    If a third party acquires us through the purchase of all or substantially all of our assets, a merger or other business combination, the compensation committee may decide that all outstanding awards that are unexercisable or otherwise unvested or subject to lapse restrictions will automatically be deemed exercisable or otherwise vested or no longer subject to lapse restrictions, as the case may be, as of immediately prior to such acquisition. The compensation committee may also, in its sole discretion, decide to cancel such awards for fair value, provide for the issuance of substitute awards that will substantially preserve the otherwise applicable terms of any affected awards previously granted, or provide that affected options will be exercisable for a period of at least 15 days prior to the acquisition but not thereafter.

        Amendment and Termination of Plan.    Our board of directors may at any time amend, alter or discontinue our 2013 Equity Incentive Plan. Amendments or alterations to our 2013 Equity Incentive Plan are subject to shareholder approval if they increase the total number of shares reserved for the purposes of the plan or change the maximum number of shares for which awards may be granted to any participant, or if shareholder approval is required by law or by stock exchange rules or regulations. Any amendment, alteration or termination of our 2013 Equity Incentive Plan must not adversely affect awards already granted without written consent of the recipient of such awards.

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Unless terminated earlier, our 2013 Equity Incentive Plan shall continue in effect for a term of ten years from the date of adoption.

2006 Share Option Scheme

        On September 19, 2006, GDC Technology Limited (BVI) adopted its 2006 Share Option Scheme, which was amended on December 13, 2010 and March 26, 2012. All of the share options granted under GDC Technology Limited (BVI)'s 2006 Share Option Scheme have been exchanged for share options of GDC Technology Limited (Cayman) under the 2013 Equity Incentive Plan or forfeited. We do not intend to issue share options or restricted shares under the 2006 Share Option Scheme going forward.

        The following paragraphs summarize the principal terms of the 2006 Share Option Scheme.

        Plan Administration.    GDC Technology Limited (BVI)'s board shall, subject to and in accordance with the provisions of the scheme, be entitled to offer to grant an option to any eligible participant, provided that the maximum number of shares in respect of which options may be granted under the scheme to any eligible participant, shall not exceed 1% of the number of shares in issue on the offer date, when aggregated with the following for a 12-month period up to the offer date: (i) any shares issued upon exercise of options under this scheme or other schemes which have been granted to that eligible participant; (ii) any shares which would be issued upon the exercise of options under this scheme or other schemes granted to that participant; and (iii) any cancelled shares which were the subject of options or options under the other schemes which had been granted to and accepted by the participant.

        Award Agreement.    An option shall be deemed to have been granted and accepted by the grantee and to have taken effect when the duplicate offer document constituting acceptances of the options has been duly signed and returned with a remittance in favor of our company of HK$1.00 by way of consideration for the grant thereof before the relevant acceptance date.

        Transfer Restriction.    The options shall not be listed or dealt in any stock exchange unless with approval from the shareholders of our company. The option shall be personal to the grantee and may be exercised or treated as exercised, as the case may be, in whole or in part. No grantee shall in any way sell, transfer, charge, mortgage, encumber or create any interest (legal or beneficial) in favor of any third party over or in relation to any option or attempt to do so.

        Term of Awards.    The period during which an option may be exercised will be determined by GDC Technology Limited (BVI)'s board, save that no option may be exercised more than 10 years after it has been granted.

        Exercise of Options.    An option shall be exercised in whole or in part by the grantee giving notice in writing to our company stating that the option is hereby exercised and the number of shares in respect of which it is exercised. Such notice must be accompanied by a remittance for the aggregate amount of the subscription price for the shares in respect of which the notice is given.

        Voting, Dividend and Other Rights.    The shares to be allotted upon the exercise of an option shall not carry voting rights until completion of the registration, except the shares to be allotted shall be subject to all the provisions of the constitutional documents of our company for the time being in force and shall rank pari passu in all respects with and shall have the same voting right, dividend, transfer and other rights, including those arising on the liquidation of our company as attached to the fully-paid shares in issue on the date of issue and rights in respect of any dividend or other distributions paid or made on or after the date of issue.

        Amendment and Termination.    GDC Technology Limited (BVI)'s board of directors may at any time by resolutions amend the plans, subject to certain exceptions. Unless earlier terminated by GDC Technology Limited (BVI)'s board or directors, the scheme will terminate on September 19, 2016.

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PRINCIPAL SHAREHOLDERS

        The following table sets forth information with respect to the beneficial ownership of our ordinary shares, as of the date of this prospectus, by:

    each of our directors and executive officers; and

    each person known to us to own beneficially more than 5.0% of our ordinary shares.