Page 1


Halcyon Technology Public Company Limited

Contents Page General Information

2

Financial Highlights

4

Message form the Board of Directors

6

Board of Directors

7

History

10

Nature of Business Operations

13

Market and Competition Conditions

20

Risk Factors

24

Shareholders’ Structure

26

Management

27

Internal Control

43

Related Transactions

44

Financial Status and Operating Results

45

The Board of Directors’ Responsibilities for Financial Statements

53

Audit Committee’s Report

54

Report of Certified Public Account

55

Financial Statements

57

Annual Report of 2012 - page 1


Halcyon Technology Public Company Limited

General Information Company Detail

Company Name Type of Business

Company Address Registration No. Home Page Telephone Fax Paid-up Share Capital Registrar

Auditor

Investor Relation Coordinator

HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED Manufacturing, customized production and distribution of polycrystalline diamond (PCD), natural diamond, polycrystalline carbon boron (PCBN) and special carbide cutting tools for high-precision parts to serve the manufacturers of electronic parts, automotive parts, and other mechanical related industries 41 Mu.14 Bangchan Industrial Estate Soi 6, Serithai Road, Minburi, Bangkok 10510 0107551000096 www.halcyon.co.th 02-906-3259-60 02-906-3261 As of December 31, 2012 Baht 256,209,000 (256,209,000 common shares at par value of Baht 1 per share) Thailand Securities Depository Co., Ltd. The Stock Exchange of Thailand Building, 62 Rachadapisek Road, Klongtoey, Bangkok 10110 Telephone: 02-359-1201 Fax: 02-359-1271 Mr. Pradit Rodloytuk, CPA Registration no. 218 AST Master Co., Ltd. 790/12 Thong Lor Tower Soi Thong Lor 18, Sukhumvit 55 Rd., Wattana, Bangkok 10110 Telephone: 02-714-8842-3 Fax: 02-185-0225 Mr. Pete Rimchala Telephone 02-906-3559-60, Fax 02-906-3261

Annual Report of 2012 - page 2


Halcyon Technology Public Company Limited Company’s Subsidiary Detail

Company Name Type of Business

Company Address Registration No. Home Page Telephone Fax Company Name Type of Business

Company Address Telephone Fax

HALCYON METAL COMPANY LIMITED Manufacturing, customized production and distribution of tooling and metal fabricated product to serve the manufacturers of electronic parts, automotive parts, and other mechanical related industries. 41 Mu.14 Bangchan Industrial Estate Soi 6, Serithai Road, Minburi, Bangkok 10510 0107551000096 www.halcyon.co.th 02-906-3242-50 02-906-3251 HALCYON TECHNOLOGY (PHILIPPINES) INC. Manufacturing and distribution of cutting tools made of PCD, CBN, Carbide, and Natural diamond including Jigs & Fixtures and metal fabrication to customers only in the Philippines. Orient Goldcrest Building 6, Unit 1, Lot 3281-J, Phase 6, Laguna Technopark, Binan, Laguna, Philippines +63 49 5022295 +63 49 5022296

Telephone Fax

ATEK PRECISION TOOLS INC. Marketing and distribution of standard carbide cutting tool and metal fabrication in the Philippines CJRS Parkview Bldg., Level 2 Rodeo Drive Laguna Bel-Air 2, Santa Rosa, Laguna, Philippines +63 49 5440520 +63 49 5440520

Company Name Type of Business Company Location Telephone Fax

FDM TECHNOLOGY COMPANY LIMITED Marketing and distribution of standard carbide cutting tool and metal fabrication in Thailand 888/3 Srinakarintara Rd. Suan Luang, Suan Luang, Bangkok 10250 0-2347-6255 -

Company Name Type of Business Company Address

Annual Report of 2012 - page 3


Halcyon Technology Public Company Limited

Financial Highlights Items (Unit: Thousand Baht)

Total Assets Total Liabilities Equity attributable to parent company Revenues from Sales and Services Total Revenues Gross Profit Earning before Interest and tax Interest and tax Comprehensive Income attributable to owner of the company

2012 793,904 195,512 555,583 528,581 533,625 215,013 117,792 11,289 92,394

Consolidated Financial Statement 2011 674,999 201,339 455,594 412,470 420,504 178,973 103,276 14,773 86,449

2010 562,248 141,762 405,550 360,483 368,823 146,801 95,584 9,484 85,305

Financial Ratios Items Gross Profit Margin Comprehensive Income Margin Return on Equity Return on Total Assets Current Ratio Debt to Equity Ratio

2012

40.68% 17.31% 17.52% 12.06% 1.88 0.35

Consolidated Financial Statement 2011

2010

43.39% 20.56% 20.17% 14.04% 1.55 0.44

40.72% 23.13% 24.18% 17.23% 1.63 0.35

2012

Consolidated Financial Statement 2011

2010

256,209,000 0.36 2.17 0.17***** 40.82%***** 4.26

240,000,000 0.36 1.90 0.16 **** 43.39%**** 2.80

240,000,000 0.37 1.69 0.14 *** 38.80%*** 3.66

Share Value Items Paid-up Share Capital (Shares) Earning Per Share (Baht)* Book Value Per Share (Baht)** Dividend Per share (Baht) Dividend Payout Ratio Market Price as of December 31

Notes: * The calculation based on weighted average number of shares as of 2010, 2011, and 2012 of 238,465,753 shares, 240,000,000 shares, and 247,208,000 shares, respectively, at par value of Baht 1 per share. ** The calculation based on number of shares at the end of 2010, 2011, and 2012 of 240,000,000shares, 240,000,000 shares, and 256,209,000 shares, respectively, at par value of Baht 1 per share. *** The Company dividend payment in 2010 was Baht 33.60 million (paid on September 1, 2010 amounting Baht 21.60 million and additional to pay on April 29, 2011 of 12.00 million for 240 million shares). **** The Company dividend payment in 2011 was Baht 38.40 million (paid on September 9, 2011 amounting Baht 21.60 million and additional to pay on May 2, 2012 of 16.80 million for 240 million shares). ***** The Company dividend payment in 2012 was Baht 43.47 million (paid on September 3, 2012 amounting Baht 30.66 million for 255.50 million shares and additional to pay on May 17, 2013 of 12.81 million for 256.209 million shares).

Annual Report of 2012 - page 4


Halcyon Technology Public Company Limited

Graphs presenting the Company’s Performance

Total Revenue

THB Million 600

+ 26.90% + 26.90%

500

178.97 146.80 23%

120

533.63

100

17% 92.39

86.45

85.30

60 0

2010

2011

113.96

100

2010

Gross Profit

102.76

0.44

80

0.35

60

49.49

0%

2012

Debt to Equity Ratio

THB Million 120

2.00

0.5

1.60

0.4 0.3

1.63

1.55

2010

2011

0.80

0.2

20

0.1

0.40

0

0.00

2010 2011 Interest Bearing Debt

2012 Debt to Equity Ratio

Capital Structure

THB Million 900

793.9 675.0

750 600

562.3

555.6 455.6

405.6

450 300 150

201.3

141.8

195.5

0 2010 Assets

Liabilities

2012

Comprehensive Income

1.88

1.20

40

0

2011

Lquidity Ratio (Times)

Times 0.6

0.35

20% 10%

30

0

40% 30%

21%

90

420.50

368.82

215.01 41%

180 150

300

50%

43%

41%

210

400

200

Profitability

THB Million 240

2011 2012 Equity attributable to parent company

Annual Report of 2012 - page 5

2012


Halcyon Technology Public Company Limited

Message from the Board of Directors Dear Shareholders, The Board of Directors is pleased to inform all shareholders of the group business achievement in 2012. Total revenues were Baht 533.63 million, increasing 26.90% from Baht 420.50 million in 2011. Total revenue excelled in sales growth target which specified the growth rate in the range of 20-25%, following market and customer base expansion policy. The rapid recovery in Hard Disk Drive Industry after the flooding impact in late 2011 resulted to sale growth in 1H/2012 and the Company has begun to diversify customer bases to other industries such as automotive parts industry, camera parts manufacturer, aircraft parts manufacturer, clock and accessories part industry since the Company has seen the movement of hard disk drive industry (main customer base of the company), of transition of technology development of new product to complete against other types of memory storage. Nevertheless in 3Q/2012, the Company acquired 60% ownership control of FDM Technology Company Limited (“FDM�) to distribute the standard carbide cutting tool and metal fabrication to service local customer group in the automotive parts industry. In late 2012, the Company put more effort to increase customer base in automotive parts industry with newly developed products, thereby increasing in manufacturing cost and selling expenses. As a result, the proportion of non - hard disk drive volume increased to 31% of 2012 total sales, compared with that of 28% in 2011. Having recognized in rapid change of technology in hard disk drive industry threatening ability to generate revenue and profitability, thus the company will continue to expand its customer base of the non - hard disk drive segment; especially that of automotive parts industry, which is continuously growing in order to mitigate the risk of relying on the hard disk drive industry. In addition, the company plans to increase overseas market penetration including Indonesia, Malaysia, Singapore and the USA, etc. where the head office remains as research and development center of the Group. The Board of Directors would like to assure to all shareholders that the Company, its management and staff dedicate to develop the Company’s business for long-term sustainability, with good corporate governance and responsibility to all stakeholders. Finally, we would like to express a sincere thank to all shareholders, investors, customers, management, staff, and any person who have provided continuing support to the Company and its Directors all along.

(Lieutenant General Preecha Wanarat) Chairman

Annual Report of 2012 - page 6

(Mr. Pete Rimchala) Managing Director


Halcyon Technology Public Company Limited

Board of Directors

รูปภาพ

รูปภาพ

Name Lieutenant General Preecha Wanarat Position Chairman Shareholding Education Background: - Master of Arts ( Military Science ), ROYAL THAI ARMY COMMAND AND GENERAL STAFF COLLEGE - Bachelor of Science , Chulachomklao Royal Military Academy Work Experience (within the last 5 years): 2012 – Present Audit Committee IRPC Plc. 2008 – Present Chairman Halcyon Technology Plc. 2006 – Present President Aiyapura Resort & Spa World Residence Natural Beach Resort Co., Ltd.

Name Mrs. Chollada Fuvatanasilp Position Director Shareholding Education Background: - MPA , NIDA - LL.B , SukhothaiThammatirat University - BBA (Accounting) , Ramkhamhaeng University Work Experience (within the last 5 years): 2008 – Present Director Halcyon Technology Plc. 2007 – Present VP. –Tax Department PTT Plc.

Annual Report of 2012 - page 7


Halcyon Technology Public Company Limited

รูปภาพ

รูปภาพ

Name Narong Rattana Position Director Shareholding Education Background: - The Master’s Degree of Engineering, Urban Transportation Planning, Villanova University, USA - The Bachelor’s Degree of Engineering, Chulalongkorn University Work Experience (within the last 5 years): 2009 – Present Director Thai Nondestructive Testing Plc. 2008 – Present Director Halcyon Technology Plc. 2004 – Present Director High Quality Semens Co., Ltd. 2004 – Present Consultant Thai – German Institute 2004 – Present Consultant Mittraphap Product Pcl. 2004 – 2010 Director and Consultant Mittraphap Product Pcl.

Name Mr. Pete Rimchala Position Managing Director Shareholding 35,000,000 shares Education Background: - Faculty of Technical Education and Science in Mechanical Engineering, King Mongkut’s Institute of Technology North Bangkok Work Experience (within the last 5 years): 2012 – Present Director FDM Technology Co., Ltd. 2011 – Present Director Atek Precision Tools Inc. 2010 – Present Director Halcyon Technology (Philippines) Inc. 2010 – 2012 Director Haltek Co., Ltd. 2002 – Present Managing Director Halcyon Technology Plc. 1993 – Present Managing Director Halcyon Metal Co., Ltd.

Annual Report of 2012 - page 8


Halcyon Technology Public Company Limited

รูปภาพ

Name Mr. Chua Cheng Khuan Position Director Shareholding 12,000,000 shares Education Background: - Precision Machining Singapore Technical Institute Work Experience (within the last 5 years): 2012 – Present Director FDM Technology Co., Ltd. 2011 – Present Director Atek Precision Tools Inc. 2010 – Present Director Halcyon Technology (Philippines) Inc. 2010 – 2012 Director Haltek Co., Ltd. 2008 – Present Senior Deputy Managing Director Halcyon Technology Plc. 2002 – 2008 General Manager Halcyon Technology Plc.

Name Mr. Norawee Changlum Position Director Sharholding 5,666,700 shares Education Background: - Master of Business Management, Bangkok University Work Experience (within the last 5 years): 2012 – Present Director FDM Technology Co., Ltd. 2010 – Present Director Halcyon Metal Co., Ltd. 2010 – Present Director Halcyon Technology Plc. 2008 – Present Deputy Managing Director Halcyon Technology Plc. 2002 – 2008 Operation Manager Halcyon Technology Plc.

Annual Report of 2012 - page 9


Halcyon Technology Public Company Limited

History Halcyon Technology Public Company Limited (“the Company” or “HTECH”) was established on September 11, 2002 with registered capital of Baht 3.00 million through joint venture between Halcyon Metal Company Limited (“HM”) with a group of Thai investors, holding in total of 78%, and Singapore investors, holding of 22%. The Company is engaged in manufacturing, customized production, and distribution of PCD cutting tools to serve the manufacturers of electronic parts and automotive parts industries. In 2007, the Company restructured the organization by increasing paid-up capital to Baht 179.25 million to exchange its shares with HM’s shares from HM’s existing shareholders in order to hold 100% in HM (paidup capital of 50.00 million). The Company was converted into a public company limited on May 14, 2008. Halcyon Metal Company Limited (“HM”) was established on November 25, 1993 with registered capital of Baht 2.00 million by the major shareholders consisting Mr. Pete Rimchala and Mr. Viboon Rujiraksathorn with the proportion of shareholding of 35% and 20%, respectively. HM is engaged in manufacturing, customized production, and distribution of tooling and metal fabricated products such as jigs & fixtures, Toolholders, jewelry box hinge and Trolley, etc. to serve the demand of computer part business, automotive parts and mechanical related industries. Later on, the management has a vision on potential growth of special diamond cutter which was the new business in Thailand so that HM expanded its business by joint venture with the Singapore investors to run cutting tool business in Thailand under the name of “Halcyon Technology Company Limited”. In 2010, the Company and Atek Precision Tooling Pte Ltd., registered and located in Singapore, jointly set up Haltek Company Limited (“HC”) with registered capital of Baht 10 million (paid-up capital of Baht 7 million) with the ownership of 70% and 30%, respectively, in order to distribute standard carbide cutting tool and metal fabrication in Thailand. In addition, the Company, Mr. Tok Chee Chuan, (Singaporean citizen) and Mr. Hamilcar Azarias (Philippino citizen) established Halcyon Technology (Philippines) Co., Ltd. (“HP”) with registered capital of Peso 145 million (paid-up of Peso 58 million) in order to manufacture and distribute cutting tools made of PCD, CBN, Carbide, and Natural diamond including Jigs & Fixtures and metal fabrication to customers only in Philippines, China, and Taiwan. In 2011, Atek Precision Tools Inc. was established, 100% owned by HP, with the registered and paid-up capital of Peso 10 million in order to distribute standard carbide cutting tools and metal fabrication mainly in Philippines. In 2012, HTECH acquired FDM technology Company Limited (“FDM”) with the ownership of 60% and registered to liquidate the business of Haltek Company Limited (“HC”) on 4 Oct 2012 since HC had conflicts of interest with that of FDM because both companies sell and market common products of standard carbide cutting tools. HC imported products from China under “ZCC.CT” brand and many times faced delays in production and delivery of goods, causing some customers to lose satisfaction with the service, resulting in HC’s sales revenue not reaching its initial targets. Thus, the Company decided to liquidate the business of HC and sell all remaining inventory including transfer some of customer base to other parties. HC completed liquidation process on December 27, 2012.

Annual Report of 2012 - page 10


Halcyon Technology Public Company Limited Business Targets

The Company’s business objectives are to develop new ranges of products in order to serve the various industries which need the cutting tools. The Company always gives the priority for quality, precision, and accuracy of the products. The Company’s business targets are as following: - Expand product ranges of PCD, Carbide, and PCBN cutting tools for the manufacturers of hard-disk drive, automotive parts and other businesses. - Reduce cost of production in order to increase competitive potential by upgrading the machine from manual system to semi-automatic and automatic system, respectively. - Maintain the net profit margin to be not less than 25% with the BOI privileges. - Continue to develop new ranges of products in order to serve the requirements of customers in various industries. - Continue to provide training to Company’s staff and to develop new generations with knowledge and ability to keep up with the change of production technology. Major Corporate Development

September 11, 2002 The Company was established with registered capital of Baht 3.00 million, paid-up of Baht 1.50 million, divided to 30,000 shares at par value of Baht 100.00 per share. The Company’ head office is at 41 Mu.14 Bangchan Industrial Estate Soi 6, Serithai Road, Minburi, Bangkok. December 21, 2002 Registered capital was fully paid from the remaining of Bath 1.5 million. January 27, 2004 Paid-up capital was increased to Baht 10.00 million to use for capital expenditure (purchase new machines) and working capital April 27, 2004 Paid-up capital was increased to Baht 12.00 million to use for capital expenditure (purchase new machines) and working capital September 5, 2005 Paid-up capital was increased to Baht 17.00 million to use for capital expenditure (purchase new machines) and working capital December 3, 2007 Paid-up capital was increased of Baht 162.25 million to Baht 179.25 million in order for the purpose of the Company respective shareholders restructing as following detail: 1. HTECH increased the paid-up capital for another Baht 50.00 million (5000,000 shares) to exchange with the shares held by HM’s existing shareholders with ratio of 1:1 as book value of HTECH and HM were almost equivalent. 2. HTECH increased another paid-up capital of Baht 112.2534 million (1,122,534 shares) for a right offering to HTECH’s existing shareholders as a part of the restructuring plan in which HM declined to participate in this capital increase. March 20, 2008 In order to eliminate cross shareholding between HM and HTECH, HM sold HTECH’s shares to HTECH’s shareholders at the price of Baht 101.00 per share, equivalent to HTECH’s book value

Annual Report of 2012 - page 11


Halcyon Technology Public Company Limited

May 14, 2008

March 9, 2009

March 27, 2009 December 4, 2009

January 28, 2010 February 2, 2010 March 3, 2010

August 3, 2010

March 31, 2011

May 13, 2011 June 6, 2011 July 9, 2012

July 16, 2012

Oct 4, 2012

The Company was converted into a public company limited and changed par value of shares from Baht 100 per share to Baht 1 per share. Registered capital was increased from Baht 179.25 million to Baht 240.00 million for initial public offering (IPO) of 60.75 million shares at par value of Baht 1 per share Board of Director No. 1/2009 has resolution to change number of IPO shares from 60.75 million shares to 40.75 million shares, reducing the paid-up capital after IPO to Baht 220.00 million (par value at 1 baht per share) and the IPO’s offering period was March 19 – 20, 2008 Commencing the trading of the Company’s securities in MAI. The EGM No.1/2009 had a resolution to sell the unpaid capital of 20,000,000 shares thorugh Private Placement. The Executive Board of Directors’ Meeting No.1/2010 on January 11, 2010 and No. 3/2010 on January 19, 2010 determined the offering price at Baht 2.50 per share allocated through Private Placement of 27 shareholders and determined the offering period on January 21-26, 2010. Increased paid-up capital to Baht 240,000,000 with number of shares of 240,000,000 shares Commencing the trading of the Company’s securities (Private Placement Portion) in MAI. Joint-venture with Atek Precision Tooling Pte Ltd. to establish Haltek Co., Ltd. with registered capital of Baht 10.00 million (paid-up capital of Baht 7.00 million). HTECH’s shareholding is 70% of paid-up capital or equivalent to Baht 4.90 million. Joint-venture with Mr. Tok chee Chuan (Singaporean citizen) and Mr. Hamilcar Azarias (Philippino citizen) to establish Halcyon Technology (Philippines) Co., Ltd. with registered capital of Peso 145 million (paid-up of Peso 58 million). HTECH’s shareholding is 65% of paidup capital or equivalent to Baht 26.26 million. Halcyon Technology (Philippines) Inc. established Atek Precision Tools Inc. located in Philippines, with 100% ownership. Halcyon Technology (Philippines) Inc. is the Company’s subsidiary with 65% shareholding. Haltek Company Limited increased its paid-up capital from Baht 7.00 million to Baht 10.00 million. Halcyon Technology Plc. and Halcyon Metal Co., Ltd. were granted the certificate of ISO 9001: 2008 Increased registered capital from Baht 240,000,000 to Baht 300,000,000 (Paid up capital of Baht 240,000,000) in order to support the warrant exercising of the existing shareholders, to invest in FDM’s Common stock and to offer the remaining shares through the private placement. Increased paid-up capital to Baht 255,500,000 to pay for FDM’s common stock with the ownership of 60% with the objective of expanding customer base and distribution channel of FDM. HTECH issued common shares to exchange with existing shareholders of FDM. FDM increased its paid-up capital to Baht 10.00 million. HC business liquidated since it had conflicts of interest with that FDM due to identical product of standard carbide cutting tools and HC completed liquidation process on December 27, 2012.

Annual Report of 2012 - page 12


Halcyon Technology Public Company Limited

Nature of Business Operations Structure of Company and its Subsidiaries (As of December 31, 2012) Halcyon Technology Plc. Registered capital of Baht 300 million (Paid-up capital of Baht 256.209 million) 60%

100%

Halcyon Metal Company Limited Registered and paid-up capital of Baht 50 million

FDM Technology Company Limited Registered and paid-up capital of Baht 10 million

65%

Halcyon Technology (Philippines) Inc. Registered capital of Peso 145 million (Paid-up capital of Peso 58 million) 100%

Atek Precision Tools Inc.

Registered and paid-up capital of Peso

10 million Halcyon Technology Public Company Limited (“HTECH”)

The Company is engaged in manufacturing, customized production and distribution of polycrystalline diamond (PCD), natural diamond, Carbide, and Polycrystalline Cubic Boron Nitride (PCBN) cutting tools for high-precision parts. Halcyon Metal Company Limited (“HM”)

The Company’s subsidiary is engaged in manufacturing, customized production and distribution of assembly jigs & fixtures according to client requirements to apply in the production processes in various industries such as hard-disk drive parts, automotive parts and mechanical related industries, and other metal fabrication industry . The products can be categorized into the following 2 groups 1. Tooling 2. Metal Fabrication Haltek Company Limited (“HC”)

HC was established on March 3, 2010 with registered capital of Baht 10.00 million (paid-up capital of Baht 7.00 million) by joint-venture between Halcyon Technology Public Company Limited (“HTECH”) and Atek Precision Tooling Pte Ltd. (“ATEK SG”) with shareholding of 70% and 30% of paid-up capital, respectively. HC increases its paid-up share capital to Baht 10.00 million on May 13, 2011 which the shareholding proportion remains the same. ATEK SG, registered and located in Singapore, is the authorized distributor for cutting tools from China and distribute to many countries in South-East Asia such as Singapore, Malaysia, Philippines, and Thailand. ATEK SG shall transfer all customers in Thailand to HC to continue marketing. ATEK SG shall provide the back up stock and technical support including the training for salesperson to HC. In addition, ATEK SG shall not and will not directly supply its products to Thailand market under the MOU stating that HTECH will pay goodwill and franchise fee for 3 years to ATEK SG. Annual Report of 2012 - page 13


Halcyon Technology Public Company Limited

HC is the distributor for standard carbide cutting tool under the trademark of “ZCC.CT” such as Endmills, Drill, Inserts, and Toolholding Systems etc. including metal fabrication to apply in the production processes in various industries by sourcing such products from domestic and oversea such as Singapore and China. The target customers are mainly in the automobile industry as its demand of standard carbide cutting tools in the production, mostly for cutting through steel. In 2012, HC registered to liquidate the business since it had conflict of interest with FDM (HTECH has 60% ownership) due to selling same product of standard carbide cutting tools and HC completed the liquidation process on December 27, 2012. Halcyon Technology (Philippines) Inc. (“HP”)

HP was established on August 3, 2010 in Philippines with registered capital of Peso 145 million or approximately Baht 100 million (paid-up capital of Peso 58 million) as the joint-venture between Halcyon Technology Public Company Limited (“HTECH”), Mr. Tok Chee Chuan (Singaporean citizen), and Mr. Hamilcar Azarias (Philippino citizen) with shareholding of 65%, 24%, and 30% of paid-up capital, respectively. HP is engaged in manufacturing and distribution of cutting tools made of PCD, CBN, Carbide, and Natural diamond including Jigs & Fixtures and metal fabrication in order to distribute to customers only in Philippines, China, and Taiwan. The target customers are in hard-disk drive and automobile industries as the propotion of 70% and 30%, respectively. HTECH shall provide technical support and research & development by sending personel who experts in production to train HP’s staffs in Philippines. HTECH shall also provide back up stock for the complicated producing products and for the case of insufficience of HP’s production to serve the demand. HP has a plan to operate in the first quarter of 2011. Mr. Tok Chee Chuan has the control power over Atek Precision Tools Co. (in Philippines) (“AP”) which is the distributor of carbide cutting tools from China in Philippines. Mr. Hamilcar Azarias is the Management of FDM Tools Supply (in Philippines) (“FDM”) which is the distributor of PCD cutting tool from HTECH in Philippines. AP and FDM shall transfer all their customers in Philippines to HP. AP and FDM ended their businesses on January 31, 2011. ATEK PRECISION TOOLS INC. (“ATEK”)

ATEK, 100% owned by HP, was established on March 31, 2011 in Philippines with registered and paid-up capital of Peso 10 million. ATEK is the trading company for standard carbide cutting tools under the trademark of “ZCC.CT” and “Vargus” such as Endmills, Drill, Inserts, and Toolholding Systems etc. including metal fabrication to apply in the production processes in various industries by sourcing such products from domestic and oversea such as Singapore. The target customers are in the electronic component, automobile, and machinery industries. The customer base is mainly in Philippines. FDM Technology Co., Ltd. (“FDM”)

FDM was established on October 30, 2002 in Thailand with registered and paid-up capital of Baht 1 million. FDM is a distributor of Polycrystalline Diamond (PCD) cutting tools and standard carbide cutting tool for supporting electronic parts industry and automotive parts industry.

Annual Report of 2012 - page 14


Halcyon Technology Public Company Limited

In 2012, HTECH acquired FDM Technology Company Limited (“FDM”) with the ownership of 60% with the objective of expanding customer base and distribution channels. HTECH issued 15.5 million shares of common stock (par value at Baht 1) in exchange with FDM, existing shares and FDM transferred the business of PCD distribution to HTECH. After business transferred, FDM still operates the business of distributing standard carbide cutting tool under “Kyocera” brand which is imported from Japan and Singapore. In addition, it has other brands such as “Access”, “Vargus” and others to fulfill all customers’ demand. The target customers are local manufacturers, hard disk drive industry consisting 10% of total sales, 20% to other electronic parts manufacturers, 45% to the motorcycle parts manufacturers and 25% to automotive parts manufacturers. FDM increased paid-up capital to Baht 10 millions on July 16, 2012 with the same proportion of existing shareholders.

Revenue Structure of Halcyon Group

Revenue Structure

Company

Company in Thailand Revenue from manufacturing and distribution: 1. Cutting Tools HTECH 2. Tooling HM 3. Metal Fabrication HM 4. Other sales1 HM/HTECH Revenue from trading HC/FDM Total Company in Philippines Revenue from manufacturing and distribution: 1. Cutting Tools HP 2. Tooling HP 3. Other sales1 HP Revenue from trading Atek Total Total revenues from sales Other revenues 2 Total Revenues Notes:

1 2

2010 Million % 263.03 60.08 28.53 2.30 6.54 360.48

71.32 16.29 7.74 0.62 1.77 97.74

360.48 97.74 8.34 2.26 368.82 100.00

2011 % Million 230.00 62.37 17.44 3.31 16.24 329.35

54.70 14.83 4.15 0.79 3.86 78.32

62.30 14.82 5.05 1.20 15.77 3.75 83.12 19.77 412.47 98.09 8.03 1.91 420.50 100.00

2012 Million

222.19 55.50 12.48 3.02 105.89 399.08

%

41.64 10.40 2.34 0.57 19.84 74.79

91.39 17.13 8.40 1.57 7.93 1.49 21.78 4.08 129.50 24.27 528.58 99.05 5.04 0.95 533.63 100.00

Other sales consist of revenue from sales of saw jaw, revenue from servicees of welding, and turning works Other revenues consist of proceeds from disposal equipment, gain from exchange rate, interest income, revenue from sales of scrap, and the write-off of a duplicated account payable.

Annual Report of 2012 - page 15


Halcyon Technology Public Company Limited Products and Services

The Company divides its products and service into 4 categories as follows: (1) Product Line of Cutting Tools

The Company is engaged in the manufacturing, customized production and distribution of cutting tools. The products can be designed according to the shape and size of the workpiece, ideal for high-precision parts with tolerance control. The product line can be categorized into 3 groups as follow: • Polycrystalline Diamond (PCD) Cutting Tools – PCD possesses the properties of high hardness and high abrasive resistance, resulting in longer tool life for PCD Cutting Tools compared to carbide. PCD Cutting Tools are used for controlled quality, size, and tolerance specified by the customers. They also produce high quality surface finish, while creating less pressure on the cutting edge. PCD Cutting Tools are most suitable for non-ferrous materials such as aluminum, brass, and copper; abrasive materials such as graphite; and other materials such as carbon-fiber-reinforced polymers (CFRP), plastics, and woods. Core products in this line PCD Insert, PCD Boring Tools, PCD Endmill, PCD Drill, PCD Reamer, PCD Brazed Tools, and PCD Hollow Tools. In 2012, the Company introduced PCD Chipbreaker, which is a modified form of regular PCD Cutting Tools, where it reduces the problem of long, curling chips resulting in longer continuous run and better surface finishes due to less scratch from the chips. Finally, it allows for higher RPM feed rate as well. Samples of PCD Cutting Tools

PCD Insert

PCD Reamer

PCD Boring Tools

PCD Brazed Tools

PCD Endmill

PCD Hollow Tools

PCD Drill

PCD Chipbreaker

• Polycrystalline Carbon Boron Nitride (CBN) Cutting Tools – CBN has high resistance to heat and abrasion, suitable for iron, cast iron, and other high-hardness materials (above 50 HRc). Core products in this line include CBN Insert and CBN Boring Tools Samples of CBN Cutting Tools

CBN Insert

CBN Boring Tools

Annual Report of 2012 - page 16


Halcyon Technology Public Company Limited

• Special Carbide Cutting Tools – designed according to customer’s workpiece, different from other standard carbide cutting tools in the market because shape, size and tolerance can be controlled according to the customer. Core products in this line include Carbide Insert, Carbide Boring Tool, Carbide Drill, Carbide Endmill, Carbide Reamer, and Carbide Hollow Tools. In 2012, the Company introduced a new product, PCD Micro Drills, with cutting diameter less than 1 mm., suitable for small workpiece such as watch links, HDD parts, automotive high-precision injection, etc. Samples of Special Carbide Cutting Tools

Carbide Cutting Tools

Carbide Micro Drill

The Company’s products are used in the manufacturing of parts which require high precision and delication. The Company has targeted the manufacturing of electronic components, mainly Hard Disk Drive (HDD) parts. In 2012, the Company started to expand its customer base into manufacturing of automotive components. However, the Company’s products can be applicable for many other industries, such as the manufacturing of plastic molds, medical equipments, aerospace components, cameras, watch and jewelry, including manufacturing of furniture and other woods related industry, etc. (2) Product Line of Tooling

Tooling can be categorized into the following two main lines • Jigs & Fixtures: The Company’s subsidiary designs and manufactures, and assemble jigs and fixtures according to client requirements to firmly put parts into right position of hard-disk drive parts, automotive parts and mechanical related parts. The well design of jigs and fixtures can reduce production waste and make standardized products of each production batch. Samples of Jigs & Fixtures

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Halcyon Technology Public Company Limited

• Toolholders: The Company’s subsidiary is engaged in manufacturing, customized production and distribution of toolholders in order to facilitate working process such as PCD insert holders. The Company’s toolholders are made of Carbide. Toolholders can be used in the various industries. Toolholders of each manufacturer have different specifications Samples of Toolholders

(3) Product Line of Metal Fabrication

The Company’s subsidiary is a manufacturer of customized metal fabrication for specific client requirements. The products can be categorized into the following two main lines; • Mass Product: Mass products are the group of products with a steady flow of orders including jewelry box hinge as well as strain gauge, a main component of a gauging tool to measure pressure and compressive yield stress of plastic injection molding machine or small scales up to large 38-ton scales, and hot runner, a supplementary tool for plastic injection molds which control temperature and plastic flows before putting into mold & cavity. Samples of Mass Products

Jewelry Box Hinge

Pressure Element

• Batch Product: such as tool spare parts, machine spare parts and other metal equipment The Company has track record in manufacturing of a variety of metal fabricated products including machine spare parts, toggle, washing basket, indicator stand, gear carrier, trolley and Surgical Knife.

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Halcyon Technology Public Company Limited Samples of Batch Products

Machine Part

Toggle

Washing Basket

Indicator Stand

Gear Carrier

Surgical Knife

(4) Trading for Standard Carbide Cutting Tools

FDM is the distributor for standard carbide cutting tool under the trademark of “Kyocera” brand which is imported from Japan and Singapore. In addition, it has other brands such as “Access”, “Vargus” and others for responding all customers’ demand. Samples of Standard Carbide Cutting Tools

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Halcyon Technology Public Company Limited

Marketing and Competitive Condition Marketing Strategy

1. 2. 3. 4. 5.

Maintain existing customers Maintain product quality Provide fully integrated services Expand product ranges to meet customer’s requirement Expand customer base to cover other industries

Target Customers

The Company’s target customers can be categorized into 2 following groups 1. Electronics computer sector aiming at manufacturers of electronics computer components such as harddisk drive or HDD. The key customers of the Company are the manufacturers of hard-disk drive who are brand owners including the First Tier and Second Tier suppliers. The Company‘s production process still concentrate on product accurate and qualify in order to maintain the customers’ confidence and reliance of the Company’s products so that the product orders are repeated with higher level of product complication. 2. Automotive parts industry and metal fabrication parts focusing on manufacturers of alloy wheels and engine parts who are the First Tier and Second Tier suppliers in automobile business.

Distribution Channels

The Company’s distribution channels can be categorized into 2 following routes 1. Direct sale to customers: the Company has sale and marketing team to contact and provide services to local key customers primarily as manufacturers 2. Through distribution agent: the Company appoints agent with strong marketing penetration capability as its distribution agents in both domestic and overseas to distribute products and to open up new markets.

Industrial Outlook and competitive Environment The Hard-Disk Drive Industry

The industry concerning the production of hard-disk drive is competitive in price and technology. The manufacturers had prepared for such situation by relocating the production bases to the countries which offer relatively lower cost, especially to those in Asia. Thailand has set the policy to support foreign direct investment, whereby the industry of hard-disk drive production is ranked in top priority under which certain privileges are provided by the Board of Investment (BOI) such as tax exemption for the imported machine and corporate income, etc. The overall Hard Disk Drive Industry in 2012 recorded production of 140 million units per quarter in Q4/2012, lower than before the period of major flood which recorded production at 170-180 million units per quarter or 600-700 million units per year of which 40 – 50% of unit production are derived from local production base. Major manufacturers are Western Digital (WD), Seagate and Toshiba; all together representing 40% of world consumption, with export value of USD 12,000 million. The main causes of decreasing in HDD manufacture are derived from rapid change in technology and disruption of Thai manufacturing base from the flood. Therefore, HDD orders in Thailand were replaced by other manufacturing base. (Source: Thansettakij News, January 13-16, 2013)

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Halcyon Technology Public Company Limited

The market trend of hard disk drive industry in 2013 is expected of little to no growth when compared with that of the past years that increased approximately 10-15% per year since the effects from the 3 main factors. 1. Global economic crisis causes the reduction of hard disk drive orders. 2. Impact of the flood in late 2011 to HDD manufacturing bases in Thailand - their customers turned to purchase from other manufacturing bases, where until now, some orders had not return to normal level. 3. As a result of the rapid change of technology, the non HDD segments such as mobile phones or tablets with SD card memory continue to grow, whereas the HDD drive users of notebook and PC do not increase much in volume. Therefore, the market of HDD in 2013 is unlikely to grow, compared to historical data of 10-15% per year. (Source: Thansettakij News, January 13-16, 2013) The Automotive Parts Industry

Thai automotive parts also post a bright potential in the Southeast Asia region due to its strong production base and Thailand is geographical superior as the ASEAN hub with good infrastructure to attract the world’s car manufacturers to set up production plants. The Government has expressed its policy to support the local auto industry to be Detroit of Asia, thus its supporting industries such as the parts manufacturing also moves along such growth path. The markets of the automotive parts manufacturer are divided into 2 main segments as the followings: 1. The Original Equipment Market (OEM), which is the segment of supporting the car and motorcycle manufacturers based in Thailand for the orders to produce car and motorcycle for domestic distribution and export. 2. The Replacement Equipment Market (REM) to be the spare parts to replace the originals as a result of required usage conditions. The overall automotive parts industry in 2012 expanded to keep up with the growth of automobile industry due to the acceleration of manufacturing of automobile in order to keep pace with the customer’s need including with supporting factors of first car policy and launching new model car. Major export markets are Indonesia, Japan, Malaysia, Brazil and India which are high growth in automotive industry. The estimated export values of automobile part in 2013 will be USD 15,000 million, higher from USD 11,000 million in the previous year. (Source: Thai Auto – Parts Manufacturers Association) The Competition

The sellers of cutting tool products consist of both the manufacturers and/or the distributors. For the manufacturers, the product segments are differentiated to those of the Company in both product types and raw materials due to the different proposes of usage or different industries of the customers. In addition, a few manufacturers of cutting tools produce other products such as PCD saw, plating wheel, and carbide drill, etc. Therefore, it is unlikely to estimate the market value of the cutting tools. Those manufacturers of cutting tools, however, are considered indirect competitors of the Company as they produce or are able to produce cutting tools, too. The supply market of PCD cutting tools in Thailand are divided into local manufacturer market and the imported products. As more than 10 years experience in manufacturer of cutting tools business, the Company’s management estimated that the Company’s market share in 2012 was approximately 50% of the total volume of the PCD cutting tools consumed in Thailand. Whereas, the combined market shares of the Company’s major competitors and other local PCD

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Halcyon Technology Public Company Limited

cutting tools manufacturers, was approximately 20%. The rest of the market share of 30% was imported products. PCD cutting tools, in general, are used in various industries such as the automotive parts and Hard-Disk Drives manufacturing companies. The Company’s management estimated that in 2012, the Company’s market share for PCD cutting tools was 80% of the total volume consumed in the hard disk drive market whereas the rest of 15-20% was from the customers in manufacturers of automotive parts market. The Competitive advantage of the cutting tools manufacturer lies on the capability to produce variety of products to cover customer needs. The Company’s management believes that the Company has the following competitive advantages: • Being the market leader of PCD cutting tool for the segment of hard-disk drive manufacturing. • With fully integrated services • The Company has a strong customer base, mainly manufacturers of high-quality products. • Possesses advance machine and technology • Receives BOI privileges in 2008 (HTECH) and 2011 (HM) • Receives the certificate of ISO 9001:2008 Product Procurement and Service Production

The production capacity of the cutting tool, the tooling and metal fabricated products in total, is measured by the working hour of 572 hours per month in 2012 (22 hours per day / 6 days per week). In 2012, the Company and its subsidiary installed new machines in total 16 machines. The key machines consisted of Wire Cut Machines, PCD and PCBN Grinding Machines, Carbide Grinding Machines and Lasermark Machines with total value of approximately Baht 51.50 million. In addition, the Company and its subsidiary purchased new tools and equipments to enhance productivity and quality inspection with total value of approximately Baht 5 million. In 2013, the Company and its subsidiary plan to purchase new specialized automatic machine for CBN Cutting tools in order to increase production capacity of aforementioned product, and support market penetration of customer base in automotive parts industry. Sourcing of Raw Materials / Products for Sale

The Company sources out raw materials form both the domestic and import. The Company always set the production plan to be able to determine the procurement schedule of raw materials available and ready for the production. The order of raw materials is normally made one month in advance, depending on the demand and customer order of each of the production batch. The purchasing policy of the Company is not to depend on single supplier, rather sourcing from quotations of at least two suppliers for bargaining purposes. Raw material sourcing does not depend only on the pricing; the Company also considers other factors all together such as quality and service, as well as payment term to ensure the standard of products and cost saving. An appropriate production plan is determined to allocate raw materials, labor and machine for the production of products according to the batch size and time requirement on an efficient basis. The Company’s raw materials and products are classified as the followings:

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Halcyon Technology Public Company Limited

1. Raw material for special cutting tools Raw materials for the cutting tools consist of carbide, PCD, blank Insert, Brazed tool, etc. In 2012, raw materials were purchased from the following sources: - HTECH purchased raw materials locally and imported in a proportion of 56% and 44%, respectively. Such imported raw materials are from Singapore, China, Japan, United States, Italy, Germany, etc. - HP purchased all raw materials from overseas such as Singapore, Japan and Thailand, equivalent to 92% and the rest were purchased from within the Philippines. 2. Raw material for tooling and other metal fabricated Raw materials for tooling and other metal fabricated are steel, carbide, aluminum, stainless, and plastic, of which 99% are sourced locally. 3. Products for sale In 2012, Products for sale such as Drill, Endmill, Toolholders, Insert and Tap, Coolant Oil, etc. are purchased from the following sources: - HC purchased the products for sale locally and imported in an equal portion. Such products are imported from China and Singapore, etc. - Atek purchased the products for sale locally and from imported, proportionate to 5% and 95%, respectively. Such products are imported from Singapore. - FDM purchased the products for sale locally and imported, proportionate to 98% and 2%, respectively. Privileges from the BOI

The Company’s business activity is granted the BOI privileges under Type 4.2 concerning the manufacturer of machinery and equipment under the benefits stated in the Investment Promotion Act for the period of 8 years. The date of the BOI approve is July 8, 2008 and the date at which the Company commenced the use of the BOI benefits is August 5, 2008. In addition, the Company’s subsidiary (HM) business activity is granted the BOI privileges under Type 4.2 concerning the manufacturer of machinery, equipment, and parts and Type 4.3 concerning the manufacturer of metal and metal fabrication under the benefits stated in the Investment Promotion Act for the period of 8 years. The date of the BOI approve is March 21, 2011 and the date at which the Company commenced the use of the BOI benefits is April 22, 2011. Halcyon Technology (Philippines) Inc., the Company’s subsidiary, is granted the tax exemption for the import and export from Philippine Economic Zone Authority (PEZA). HP would commence such benefit during September 2, 2010 – September 2, 2014 and able to extend such benefit when it is due.

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Halcyon Technology Public Company Limited

Risk Factors (1)

Risk Associated with the Dependence on Hard-Disk Drive Industry

(2)

Risk Associated with Small Customer Base

(3)

Risk Associated with the Dependence on Personnel

The Company’s total revenue was attributable to the key customers in the manufacturing of hard-disk drive products. Although such industry had shown continuous growth in the past, the competition of the hard-disk drive market from the development of new information storage of flash memory, which is becoming more widely used and cheaper, may adversely affect the manufacturing of hard-disk drive. The Company would therefore have a risk of relying on the hard-disk drive industry as its main customer segment. However, the Company plans to reduce such risk through the development plan to expand the customer base to increase the services to other industries such as automotive parts, mechanical related industry, medical parts and other metal fabrication manufacturing by developing new types of cutting tools such as PCD Drill and Carbide Cutting Tools (as detail in product lines of cutting tools), through the utilization of new machines. In 2012, the percentage of sales from customers in the manufacturing of hard-disk drive and non-hard-disk drive were 69% and 31%of total sales, respectively, comparing to those of 72% and 28% of total sales in 2011, respectively.

As the products of the Company are specifically made to order, its customer base is limited. The Company’s revenues concentrated on 4 major customers to whom total sales in 2012 represented 21% of revenue from sales decreasing from that of 2011 represented 40% of revenue from sales as following the policy to increase the revenues from new customers. The Company may have a risk of having revenue concentration to a limited customer base and, therefore, its future revenue may adversely affect if such major customers change orders not to purchase from the Company. However, those 4 customers have continued business with the Company for more than 5 years. The Company has maintained constant liaison to be able to indicate any changes of the customers’ orders. In addition, the Company has a policy to reduce such risk by making effort to increase the customer base in both hard-disk drive segment, the automotive parts, the mechanical related industry, the medical products and other metal fabrication manufacturing, through utilizing its research and development capability and launching new products.

The businesses of the Company and its subsidiaries require knowledge, skill and experience of the personnel to make products with high standard and precision per various requirements of the customers. Therefore, the Company relies on key personnel both in the production line, which utilizing high and complicated technology and in the marketing area to market and distribute products locally and overseas. Therefore, one of the Company’s policies is to develop its staff through training and learning the transfer of production technology from machine suppliers. In addition, the Company has arranged for job rotation to allow the staff to work with various types of machines to be able to work in substitution to reduce the risk of relying on a single person. The Company also supports the qualified staff to become the management and shareholders to create the ownership participation and increase the morale to keep their royalty.

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Halcyon Technology Public Company Limited (4)

Risk Associated with the Overdue Receivable

(5)

Risk Associated with the Fluctuation of Foreign Exchange Rates

One of the Company’s major foreign customers, who is an overseas distribution agent with trading transaction over 5 years, is an overdue receivable. If such receivable failed to repay the whole outstanding amount, the Company would set a provision for bad debt, from which the Company’s net profit will be adversely affected. Currently, the Company stopped trading with such customers due to its business closing down and the debt has been paid out.

The Company shares the risk associated with the fluctuation of foreign exchange rates from both import and export in foreign currencies. In 2012, the proportion of sale transactions which were dominated in foreign currency was 26.33% of total sale. If Thai baht is appreciated, revenue would be adjusted down. While those of foreign-currency purchase transactions were 19.80% of total cost of sale. If Thai baht is depreciated, cost would be adjusted up. In addition, the Company also imported machines and equipments from overseas so that the fluctuation of foreign exchange rates would have an effect to the Company’s financial status and performance. The Company may confront with risk of the fluctuation of foreign exchange rates. However, partial import of raw materials by USD, SGD, JPY, EUR, GBP and CHF currencies and partial export of products by USD, SGD and EUR currencies. So, it is partial offset through Natural Hedge. In the past, the foreign exchange rate did not have a significant effect to the Company’s overall performance.

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Halcyon Technology Public Company Limited

Shareholders’ Structure As of December 31, 2013, the Company has the registered capital of Baht 300,000,000 and paid-up capital of Baht 256.209 million, divided into 256.209 million shares with par value at Baht 1 per share. Top 10 Major Shareholders of the Company are as following

Shareholders’ name

As of 12 March 2013 Amount (shares) Percentage

1. Mr. Pete Rimchala 2. Mr. Sorat Wanitwarakit 3. Mr. Viboon Rujiraksathorn 4. Mr. Rattipat Aramwattanaphong 5. Mr. Chua Cheng Khuan 6. Ms. Petara Rimchala 7. Ms. Joy Rimchala 8. Mr. Norawee Changlum 9. Mr. Punya Chutpunya 10. Mr. Sontaya Changlum 11. Others Total

35,000,000 29,500,000 17,130,000 15,500,000 12,000,000 11,555,300 10,000,000 5,666,700 5,392,000 5,000,000 109,465,000 256,209,000

13.66 11.51 6.69 6.04 4.68 4.51 3.90 2.21 2.10 1.95 42.72 100.00

Dividend Policy

The Company has a policy to pay dividends to shareholders at least twice a year at the rate of not less than 40% of net profit after deduction of corporate income tax and reserves according to the law. The Company’s subsidiary (HM) has a policy to pay out dividends to Company at the rate of 100% of net profit after deduction of corporate income tax and reserves according to the law. HP has a policy to pay out dividends to shareholders at the rate of 40% of net profit after deduction of corporate income tax and reserves according to the law. However, the Company and its subsidiaries may pay out dividend at the rate lower than mentioned above if it is necessary for the Company to use such net profit for expansion of business.

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บริษัท แฮลเซี่ยน เทคโนโลยี่ จํากัด (มหาชน)

Management Organization Chart of Halcyon Technology Public Company Limited

* In 2012, the Company hires MMN Syndicate Co.,Ltd as an internal audit. In the future, the Company plans to train its internal staff for the job.

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Halcyon Technology Public Company Limited Management Structure

Management structure comprises three groups, Board of Directors, Executive Committee (Board of Executive Directors), and Audit Committee, with details as following: (1) Board of Directors

The Company’s Board of Directors consists of 6 persons as following: Name 1. Lieutenant General. Preecha Wanarat 2. Mr. Pete Rimchala 3. Mr. Chua Cheng Khuan 4. Mr. Norawee Changlum 5. Mrs. Chollada Fuvatanaslip 6. Mr. Narong Rattana

Position Chairman of the Board / Chairman of the Audit Committee / Independent Director Director / Chairman of the Executive Committee / Managing Director Director / Executive Director Director / Executive Director / Company’s Secretary / Audit Committee’s Secretary Director / Audit Committee / Independent Director Director / Audit Committee / Independent Director

Authorized Signatory Directors Directors who have the authority to sign on behalf of the Company are Mr. Pete Rimchala or Mr. Chua Cheng Khuan or Mr. Norawee Changlum, two of the three sign together with Company’s stamp. Scope of Duties and Responsibilities of the Board of Directors The Board of Directors has authority and duties and responsibilities in management of the Company according to the laws, purposes, and articles of the Company. In summary, essential authorities and responsibilities are as follows: 1. To hold the annual shareholders meeting within 4 months from the end of accounting period of the Company. 2. To hold the Board of Directors’ meeting at least once every three months. 3. To prepare balance sheet and income statements of the Company at the end of accounting period of the Company for which the auditor audited and present to shareholders assembly to consider and approve. 4. The Board may delegate its power to one or more directors or any other person to act on behalf of the Board under the Board’s control; or delegates its power to such person for other things that the Board regards as appropriate and within a certain period. The Board may revoke or alter or change the delegate when it sees proper. In addition, the Board may delegate its power to the Executive Board to have power to conduct any thing which has details according to the scope of power and duties of the Executive Board. Nevertheless, such delegation must not have a feature that allow the Executive Board to consider or approve anything that the Executive Board or other persons may have conflict, interest, or any conflict of interest with the Company or its subsidiary, except for approvals of normal trade practice in accordance with policies and rules that the Board of Directors or Shareholders has considered and approved as prescribed by laws. 5. To set up targets, directions, policies, plans, and budgets of the Company, oversee management of the Executive Board to conform with the assigned policy except for these following matters, which the Board

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Halcyon Technology Public Company Limited

6. 7. 8.

9.

must obtain an approval from the shareholders meeting in advance, i.e. a matter that an approval from the shareholders meeting is required by laws such as increasing or decreasing of capital, debenture issuing, whole or partial selling or transfer of the business of the Company to other persons, acquiring or receiving of other company’s business, revision of Memorandum or Articles of Association, etc. In addition, The Board of Directors has duty to oversee the Company to conform with laws regarding securities and securities exchange, regulations of the stock exchange such as related transactions, acquisition or disposal of assets according to the rules of the Stock Exchange of Thailand, or laws relating to the Company’s business. To consider management structure, appoint the Executive Board, Managing Director, or other committees as appropriate. To continuously follow up the operation to be in accordance with plans and budgets. the Board neither operates any business that has similar nature and competes with the Company’s business, nor be a partner in any ordinary partnership, a general partner in any limited liability partnership, a director of a private company, nor other companies that involved in the business of similar nature and compete with business of the Company, whether for themselves or for other persons, except the shareholders’ meetings has been informed of that fact prior to the appointment. The director has to inform the Company immediately when he or she has an interest, whether direct or indirect, in a contract that the Company has concluded, or has more or less shares or other forms of securities of the Company or associated company.

(2) Audit Committee

The Company’s Audit Committee consists of 3 persons as following: 1. Lieutenant General Preecha Wanarat Chairman of the Audit Committee 2. Mrs. Chollada Fuvatanaslip Audit Committee 3. Mr. Narong Rattana Audit Committee Mrs. Chollada Fuvatanaslip has knowledge and adequate experiences to verify the credibility of financial statements. Mr. Norawee Changlum acts as the Audit Committee’s Secretary. Qualifications of the Audit Committee 1. Holds no more than 1% of the total voting shares of the Company, its parent company, its subsidiaries, its associated companies or a juristic person who may have conflicts of interest, including shares held by any related person. 2. Not be and have not been a director participating in management role, employee, staff, advisor who receives regular salary, or controlling person of the Company, its parent company, its subsidiaries, its associated companies, same-level subsidiaries or a juristic person who may have conflicts of interest, unless the foregoing status has ended for more than 2 years. 3. Not being a person related by blood or legal registration, such as father, mother, spouse, sibling, and child, including spouse of the children, management, major shareholders, controlling persons, or persons to be nominated as management or controlling person of the Company or its subsidiaries.

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Halcyon Technology Public Company Limited

4. Not having a business relationship with the Company, its parent company, its subsidiaries, its associated companies or a juristic person who may have conflicts of interest, in the manner that may interfere with his/her independent judgment, or not being a major shareholder, non-independent director or management of any person having business relationship with the Company, its parent company, its subsidiaries, its associated companies or a juristic person who may have conflicts of interest. 5. Not being an auditor of the Company, its parent company, its subsidiaries, its associated companies or a juristic person who may have conflicts of interest, in the manner that may interfere with his/her independent judgment, or not being a major shareholder, non-independent director or management of any person having business relationship with the Company, its parent company, its subsidiaries, its associated companies or a juristic person who may have conflicts of interest. 6. Not being an professional advisor including legal or financial advisor who receives an annual service fee of exceeding Baht 2 million from the Company, its parent company, its subsidiaries, its associated companies or a juristic person who may have conflicts of interest, or not being a major shareholder, non-independent director, management or partner of the professional advisor. 7. Not being appointed to represent the Company’s Director, its major shareholders or shareholders who are related to the Company’s major shareholders. 8. Not having any characteristics by which him/her independent opinion may be affected. 9. Not being a director assigned by the Company’s Board of Directors to take part in the business decisions of the Company, its parent company, its subsidiaries, its associated companies, same-level subsidiaries or a juristic person who may have conflicts of interest, and not being a director of the Company, its parent company, its subsidiaries, its associated companies, same-level subsidiaries. 10. Having duties according to the Stock Exchange of Thailand’s regulations regarding the qualifications and scope of work of the Audit Committee. In the case that the independent director being appointed as the independent director of the parent company, its subsidiaries, its associated companies, same-level subsidiaries, the Company has to disclose such information, including the remuneration received by the independent director in the Filing, Form 56-1 and Form 56-2. Scope of Duties and Responsibilities of the Audit Committee 1. To verify that the Company has an accurate and adequate disclosure on financial statements by coordinating with the external auditor and the management responsible for the disclosure of quarterly and yearly financial statements. The Audit Committee may propose to the auditor to review or audit any transaction deemed necessary or importance during financial statement auditing. 2. To verify that the Company has proper and effective internal control and internal audit system. 3. To verify that the Company conforms with laws regarding securities and stock exchange, regulations of the stock exchange, or laws regarding businesses of the Company. 4. To consider, select, propose an appointment, and propose remuneration to auditors of the Company to be approved by the shareholders’ meeting.

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Halcyon Technology Public Company Limited

5. To disclose the Company’s information when there is a related transaction or transaction that may have conflict of interest correctly and completely, including approval of such transaction in order to proposed to the Board of Directors and/or the shareholders’ meeting. 6. To review the financial management and risk management policies assigned by the Board of Director with consent from the Audit Committee. 7. To prepare corporate governance report of the Audit Committee for disclosure in the annual report of the Company which such report must be signed by the Audit Committee Chairman. 8. To conduct any other works as assigned by the Board of Directors with consent from the Audit Committee. (3) Executive Board

The Executive Board consists of 4 persons as following: 1. 2. 3. 4.

Mr. Pete Rimchala Mr. Chua Cheng Khuan Mr. Norawee Changlum Mr. Soraj Sutanadhan

Chairman of the Executive Board Executive Director Executive Director Executive Director

Notes: Mr. Soraj Sutanadhan was approved to be the Executive Director as the resolution of the Board of Directors Meeting No. 1/2013 dated 14 February 2013

Scope of Duties and Responsibilities of the Executive Board The Executive Board have the authority, duties and responsibilities in the normal operation and administration of the Company, establishing policies, business plan, budget, administrative structure and any the Company’s administrative authority and direction in operating business of the Company in line with the prevailing economic situations for proposing to the Board of Directors’ meeting for consideration and approval and/or ratification as well as verifying and monitoring the operation of the Company according to the specified policies. The key authority, duties and responsibilities can be summarized as following: 1. Operating and administering the Company according to the objectives, regulations, policies, rules, limitations, directions and resolutions of the Board of Directors and/or resolutions of the shareholders’ meetings according to the rules and regulations of the Executive Board’s meeting. 2. Considering the establishment of the policy, direction and strategy of operating the business of the Company, financial budgeting plan, human resource management, investment, expansion of the business, public relations according to the scope that the Board of Directors’ pre-approved, and monitoring the process of the operation of the appointed working group. 3. Considering the allocation of annual budget as proposed by the management before proposing the Board of Directors to consider and approve, including considering and approving the change and addition of the annual budget when there is no Board of Directors’ meeting to propose to the next Board of Directors’ meeting. 4. Approving the expenditure on the purchasing of raw materials, according to the Company’s normal operation, of no more than Baht 30 million (Baht Thirty Million) per transaction.

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Halcyon Technology Public Company Limited

5. Approving the expenditure on the purchasing of the equipment or fixed assets, according to the Company’s normal operation, of no more than Baht 50 million (Baht Fifty Million) per transaction. 6. Approving of selling, according to the Company’s normal operation, such as selling of goods, made to order contracts, etc, of no more than Baht 50 million (Baht Fifty Million) per transaction. 7. Approving the opening and closing of any bank or financial institution accounts, including the terms and conditions on the withdrawal or any juristic acts related to such accounts. 8. Approving the lending, procuring credit line, issuing of debentures, overdraft contracts or any loans from bank or financial institution or general persons according to normal business conditions, of no more than Baht 60 million (Baht Sixty Million) per transaction, including approving of bank guarantee for beneficial of the Company’s business of no more than Baht 50 million (Baht Fifty Million) per transaction. 9. Approving of the pledging and mortgage of the Company’s assets to warrantee the Company’s debts, whether existing debts or debts to be incurred in the future, of no more than Baht 60 million (Baht Sixty Million) per transaction. 10. Approving of the significant expenditure, this is already set in the annual budget assigned or approved in principle by the Board of Directors. 11. Acting as the advisory body on policies concerning finance, marketing, personnel management and other operations. 12. Specifying the organization structure, administrative authority of the organization as well as appointing, hiring, removing, determining the wages, payment, bonus of the executives and layoff. 13. Authorizing mandate of one or more directors or any person to perform any act under the supervision of the Executive Board or to authorize such person to perform acts as deemed appropriate by the Executive Board within a certain period. The Executive Board may repeal, withdraw, change or amend the authorized person or the authority as it deems appropriate. However, such authorization shall not be given to persons who may have conflicts of interest. 14. Performing any act authorized by the Board of Directors from time to time. The Executive Board shall not approve any conflicting transaction or any transaction the Executive Board has interests in or any other benefits which is contrary to the interests of the Company and its subsidiary, except such transactions that the Company’s Board of Directors or shareholders’ meeting has considered and pre-approved and in accordance with the law. The Board of Directors authorizes to repeal, withdraw, change or amend the Executive Board’s authorization. Scope of Duties and Responsibilities of the Managing Director 1. Managing and supervising daily operations and/or administration of the Company. 2. Managing and operating in accordance with the policy, plan and budget approved by the Board of Directors and/or Executive Board of the Company. 3. Acting as the authorized person of the Company in operating the Company’s business in compliance with the objectives, regulations, policies, rules, limitations, directions and resolutions of the shareholders’ meetings and/or resolutions of the Board of Directors’ meetings and/or the Executive Board.

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Halcyon Technology Public Company Limited

4. Being authorized to sub-authorize and/or mandate other person to perform certain acts. The aforesaid subauthorization or mandatory shall be under the scope of the authorization as specified herein and/or in accordance with the regulation, limitation or order which the Board of Directors and/or the Company has specified, whereas the sub-authorization shall not be given to persons who may have conflicts of interest. 5. Monitoring and evaluating the operation of the Company at all time in order to minimize the risk arising from internal or external factors. 6. Considering the entry into agreements regarding Company’s business and any agreement which is in the interest of the Company including specifying the procedures and process of such agreement for proposing to the Executive Board and/or the Board of Directors. 7. Approving of the expenditure on normal business operation such as purchasing of raw materials, equipment or fix assets, excluding machines, of no more than Baht 5 million (Baht Five Million) per transaction. 8. Approving of the purchasing of operating machines of no more than Baht 20 million (Baht Twenty Million) per transaction. 9. Approving of selling, according to the Company’s normal operation, such as selling of goods, made to order contracts, etc, of no more than Baht 15 million (Baht Fifteen Million) per transaction. 10. Considering the allocation on pension, bonus or any remuneration as approved by the Board of Directors to the employees or workers of the Company or any person performed any act for the Company. 11. Considering the employment and appointment as well as removal, relocation between the field/department/division or layoff, determining wage rate, remuneration, bonus including welfare regarding all employee of the Company except those employees at the management level. 12. Specifying the orders, regulations, notifications, memorandum in order to operate the business according to the policy and in the interests of the Company and to maintain the internal discipline of the organization. 13. Performing other functions authorized by the Board of Directors from time to time. The Managing Director shall not approve any conflicting transaction or any transaction the Managing Director has interests in or any other benefits which is contrary to the interests of the Company and its subsidiary, except such transactions that the Company’s Board of Directors or shareholders’ meeting has considered and pre-approved and in accordance with the law. The Board of Directors authorizes to repeal, withdraw, change or amend the Managing Director’s authorization. (4) Nomination and Remuneration Committee

The Nomination and Remuneration Committee consist of 3 persons as follows: 1. Lieutenant General Preecha Wanarat 2. Mrs. Chollada Fuvatanaslip 3. Mr. Pete Rimchala

Chairman of the Nomination and Remuneration Committee Nomination and Remuneration Committee Nomination and Remuneration Committee

Note: Nomination and Remuneration Committee, with the term of 2 years, was appointed on February 21, 2011 as the resolution of Board of Director’s Meeting No. 1/2012

Annual Report of 2012 - page 33


Halcyon Technology Public Company Limited

Scope of Duties and Responsibilities of the Normination and Remuneration Committee 1. To express opinion to the Board of Directors with respect to the rate of remuneration of Chairman of the Board of Directors, Directors, Chairman of the Audit Committee, Audit Committee and any Sub-Committee (if any) (Such matter shall be proposed to the Shareholders’ meeting for consideration and approval afterward). 2. To nominate and propose the name list of person, who has the suitable qualifications to be a director at the first time and to monitor the performance and suitability of the director who will be retired by rotation and reelected, to the Board of Directors for consideration and approval and propose to the Shareholders’ meeting for appointment to be the director. 3. To consider and give an opinion to the Board of Directors and to follow up the operation regarding vision and strategy of human resource including management development plan. 4. To assess the Company’s overall performance in order to determine the bonus and salary increase by using a suitable industrial standard for consideration. 5. To propose the salary structure and other benefits.

Appointment of Directors and Management

The Company has a particular committee for recruiting directors and the management. However, election of directors is based on qualification, competency, experience, and the ability to attend the Board of Directors’ meetings consistently. The directors shall be appointed by a majority vote of the shareholders’ meeting in accordance with the following conditions and procedures: 1. Each shareholder shall be entitled to the number of votes equivalent to the number of share held by him. One share shall have one vote. 2. Each Shareholder may exercise all the votes to elect one or several persons, as the shareholders’ meeting may deem fit, as directors, but may not allot his votes to any person at any number. 3. The directors shall be appointed in accordance with the majority vote. In the event of equal votes among the persons elected in order of respective high numbers of votes, the Chairman of that meeting shall have a casting vote.

Management Team

The Company’s management team consists of 5 persons as follows: 1. Mr. Pete Rimchala Managing Director 2. Mr. Chua Cheng Khuan Senior Executive Vice President 3. Mr. Norawee Changlum Executive Vice President 4. Mr. Soraj Sutanadhan Executive Vice President 5. Ms. Sasipimol Wasuwat Executive Vice President

Annual Report of 2012 - page 34


Halcyon Technology Public Company Limited Remunerations of the Management (1)

Cash Remunerations

Total remunerations of the directors

Position

The Board of Director’s meetings Chairman of the Board of Directors Directors The Audit Committee’s meetings Chairman of the Audit Committee Audit Committee The Nomination and Remuneration Committee’s meetings* Chairman of the Nomination and Remuneration Nomination and Remuneration Committee

Meeting Allowance Baht 13,750 per one meeting Baht 11,000 per one meeting Baht 13,750 per one meeting Baht 11,000 per one meeting Baht 11,000 per one meeting Baht 11,000 per one meeting

Note: * being appointed on February 21, 2012 as the resolution of Board of Director’s Meeting No. 1/2012

In 2012, the Directors and the Audit Committee received remunerations as follows: Name – Surname 1. LT.Gen.Preecha Wanarat * 2. Mrs.Chollada Fuvatanaslip * 3. Mr.Narong Rattana * 4. Mr.Pete Rimchala 5. Mr.Chua Cheng Khuan 6. Mr.Norawee Changlum

The Board of Directors’ Meetings The Audit Committee’s Meeting Attendance Total Remuneration Attendance Total Remuneration (meeting) (Baht) (meeting) (Baht) 4/4 50,000 4/4 50,000 4/4 50,000 4/4 40,000 4/4 40,000 4/4 40,000 4/4 40,000 4/4 40,000 4/4 40,000 -

The Shareholders’ Meeting Attendance Total Remuneration (meeting) (Baht) ** 2/2 140,000 2/2 105,000 2/2 105,000 2/2 40,000 2/2 40,000 2/2 40,000

Notes: * Audit Committee ** Including Meeting Allowance

In 2012, the Nomination and Remuneration Committee received remunerations as follows: Name – Surname 1. LT.Gen.Preecha Wanarat * 2. Mrs.Chollada Fuvatanaslip * 4. Mr.Pete Rimchala

The Nomination and Remuneration Committee Meetings Attendance Total Remuneration (meeting) (Baht) 2/2 20,000 2/2 20,000 2/2 20,000

Notes: * Audit Committee Remunerations for the Management

Number of Management Total Remuneration (Baht) Form of Remuneration

2012 5 persons 13,673,450 Salary, Bonus and Director’s Compensation

Annual Report of 2012 - page 35


Halcyon Technology Public Company Limited (2) Other Remunerations

The Company established its provident funds for its employees since September 2008 onwards, employees must contribute 2% of their basic salary and the Company will contribute at the same rate. Corporate Governance

The Company is aware of the significance of good governance principles. Therefore, the Board of Directors has established the Code of Conduct for the Company’s directors which corresponds to the Code of Best Practices for Directors of Listed Company under the guideline of Stock Exchange of Thailand. All rules and provisions are stipulated based on actual practice. Furthermore, the Company applies the Good Corporate Governance for guideline on development of the policy of right and equality of all shareholders and stakeholders, structure, duties, responsibilities and independency of the directors, information disclosure and transparency, risk control and management, and business code of conduct for the purpose of efficiency and transparency of the Company’s operation and management. The Board of Directors’ Meeting No. 1/2013 held on February 14, 2013 approved the code of company’s good corporate governance consisted of 5 categories as follows. Category 1 Rights of Shareholders

The Company is aware and pays attention to rights of shareholders. It shall avoid any actions that violate those rights and shall encourage shareholders to exercise their basic rights, which are buying, selling, or transferring shares, sharing in the profit of the company, obtaining relevant and adequate information on the Company in a timely manner and on a regular basis and participating and voting in the shareholder meetings to elect or remove members of the board, appoint the external auditor, and make decisions on any transactions that affect the Company such as dividends payment, amendments to the Company’s articles or memorandum of association, capital increases or decreases, and the approval of extraordinary transactions, etc. The Company shall perform things that encourage and facilitate the exercise of shareholders’ rights as follows: • The Company will mandate the directors to prepare notice of the shareholders’ meeting in writing with sufficient information, to send to shareholders for at least 7 days before the actual meeting or for the certain period according to the rules and regulations of the Securities Exchange Commission or those of the Stock Exchange of Thailand. • During each meeting, the Chairman will inform shareholders of the criteria and procedures governing the Company’s shareholders meetings, including the voting procedure and allocate appropriate time for the meeting. • Shareholders are able to send their questions and suggestions prior to the meeting date, and are able to comment or query during the meeting, whereas directors and managements will attend the meeting to answer. • In case that the shareholders are not able to attend the shareholders’ meeting, the Company will enable shareholders to appoint an independent director or any person as their proxy. • The Company will record important queries and comments on the shareholders’ meeting report, which is auditable by shareholders.

Annual Report of 2012 - page 36


Halcyon Technology Public Company Limited Category 2 Equitable Treatment of Shareholders

The Company shall treat all shareholders, including those with management positions, non-executive shareholders, foreign shareholders and minority shareholders in an equal way as follows: • Facilitate minority shareholders to nominate, in advance of the meeting dates, a candidate for director position. • The Board of Directors will not add any agenda items without notifying other shareholders in advance, especially if it is an issue that will require shareholders to spend a good deal of time to study relevant information before making their decisions. • The Company established procedures concerning the protection of inside information that prohibit its employees to disclose the inside information to irrelevant persons. In case that its employees or management use or disclose the information for their or their related persons’ behalf, the action will be considered misdeed and will be subject to take disciplinary action. In addition, the Company established the policy to audit its directors and managements of disclosure of inside information on their benefits of stock trading, which is disclosed in the section of Policy and Guidance Relating to Insider Information. • In the shareholders’ meeting, the directors and managements will disclose whether they and their related parties have any interest in any issue, in order for the Board of Directors to consider such issue entirely for the Company’s benefits. Directors and managements who have such interests should not participate in the decision making process on such issues. Category 3 Role of Stakeholders

The Company pays attention to rights of each stakeholder group and has established a policy for each group as

follows: The Company aims to conduct the business using its best knowledge and management skills, with honesty and fairness to majority and minority shareholders in the best interests of all shareholders and disclose the information completely and accurately. Staff: The Company will pay reasonable remunerations to all staff, provide safe working environment for life and property, seriously and continuously develop the staff’s potentials, strictly comply with all laws and regulations in conjunction with the staff, avoid unfair practice which could affect staff’s career, and treat all staff with respect to honor them humanity. Customers: The Company aims to produce goods and provide services in good quality and standard with reasonable price, always and strictly maintain customer’s confidence and search for more opportunity to continuously increase customer’s benefits and strictly follows the terms and conditions that the Company provides to the customers. Suppliers and Creditors: The Company will not conduct its business with suppliers and creditors in bad faith. The Company will strictly perform all agreements between the Company and creditors whether the repayment, reimbursement, care of warrantee assets and any other agreements given to the creditors for mutual benefit. Shareholders:

Annual Report of 2012 - page 37


Halcyon Technology Public Company Limited

Trade Competitors:

Public:

The Company will follow the best practices of competition, avoid using dishonest and improper methods for acquisition of the competitor’s secret and avoid making baseless claims to destroy the competitor’s reputation. The Company will do nothing which will have adverse affect on the public, natural resources and the environment. The Company will seek an opportunity to support social creative activity, simultaneously and seriously educate staff on social responsibility including strictly follow and monitor staff practice as required by laws or regulations issued by the relevant authority.

Category 4 Disclosure and Transparency

The Company intends to disclose information accurately, transparently, timely and in compliance with the standards and criteria set by the Stock Exchange of Thailand to ensure that each person receives information equally. The afore-mentioned includes financial and general information and other information which affect the share price and the decision making process of the investors and stakeholders. The Company posts the information on the Stock Exchange of Thailand’s website and www.halcyon.co.th. The Board of Directors is aware of the responsibility to have accurate, actual, complete and reasonable financial statements. The consolidated financial statements of the Company were made in compliance with the generally accepted accounting principles. The appropriate accounting policies have been consistently adopted. The accountancy information recording is complete in order to maintain the integrity and aware of weaknesses so that the Company can consistently prevent corruption or material crisis conducts including adequate disclosure of important information in the notes to the financial statements. Moreover, the Board of Directors has appointed Audit Committee to examine financial reports, related transactions and internal control system and the result of Audit Committee audits must be reported to each Board of Directors’ meeting. The reports of the Board of Director, the Audit Committee and the Company’s external auditor are disclosed in the Company’s Annual Report. Currently, the Company does not intend to establish the investment relation department, but assigns Mr. Pete Rimchala, the Managing Director, to coordinate with shareholders, analyst and others. Category 5 Responsibilities of the Board

(1) Structure of the Board of Directors The Company’s Board of Directors comprises of ones who have knowledge, ability and experiences in business operations beneficial to the Company. The Board of Directors, appointed by the shareholders’ meeting, consists of 6 directors which include 3 independent directors; of which 1 of them was appointed as the Chairman of the Board of Directors and the Chairman of the Audit Committee whereas the other 2 were appointed as the Audit Committee. One of the Audit Committee has accounting background and is able to verify the credibility of the financial statements. In addition, one-third of the Board of Directors, or at least 3 directors, will be independent directors, who act as representatives of the minority shareholders in examining and balancing the Company's operation for correct and fair operation and for the best interest of shareholders. The Chairman of the Board of Directors will not be the same person as the Chairman of the Executive Board and the Managing Director in order to create a balanced and reviewed management. In addition, the Company has clearly established the scope of authorities, duties and responsibilities of the directors, Executive Board and the Managing Annual Report of 2012 - page 38


Halcyon Technology Public Company Limited

Director, so that the Executive Board and the managing director will not have unlimited authorities regarding management and credit line approval. (2) Subcommittees The subcommittees appointed by The Board of Directors to assist in monitoring the business of the Company are: • The Executive Board, consisting of 3 persons, which facilitates the Company’s operation and authorizes according to the scope of duties given by the Board of Directors. • The Audit Committee, consisting of at least 3 persons, which examine and monitor the business of the Company authorizes according to the scope of duties given by the Board of Directors. All Audit Committee Member have qualifications as stated by the law of securities and securities exchange or the regulations, notifications or rules of the Securities and Exchange Commission or Stock Exchange of Thailand. • The Nomination and Remuneration Committee, consisting of 3 persons, which help the Company to nominate and consider remuneration and to comply with the good corporate governamce according to the scope of duties given by the Board of Directors. However, in the future, the Company may establish subcommittees to assist the Board of Directors on the assigned business of the Company. (3) Scope of Duties and Responsibilities of the Directors The Board of Directors is responsible for establishing policies, visions, strategies, missions, business plans and the Company’s budget including monitoring the management for effective and successful performance of the policies provided under the law, objectives, Articles of Association and resolutions of the shareholders’ meeting. The Board of Directors has established: Corporate Governance Policy The Board of Directors has established, in written, the policy of corporate governance and reviewed the policy and its implementation at least annually Code of Conduct The Company has established the Code of Conduct as a guideline to the Board of Directors, Audit Committee and every staff, which mainly compresses the principles of non-disclosure of the Company’s secret, honesty and compliance with the laws, respect for the right of each other and protection of the Company's internal resources and the environment. Focusing on the Code of Conduct will encourage all levels to work with honesty and support efficient internal control which will create confidence in the capital market and among the investors. Conflicts of Interest Policy The Company has established the policy of conflicts of interest based on the principles that all staff must work in the best interest of the Company. All acts and decisions must be made without influences of personal interest, in the interest of family, kins or other person with whom the employees have personal relationship. This policy includes 2 matters as follows: • Related Transactions: The Company carefully considers the appropriateness of every related transaction prior to enter into such transaction, including pricing and establishing of the conditions on the related transactions on an arm’s length basis. The Audit Committee will consider the necessity and reasonability of Annual Report of 2012 - page 39


Halcyon Technology Public Company Limited

every transaction. In case the transactions are related transactions as stipulated in “Notification of Securities and Exchange Commission of Thailand on Information Disclosure and Operation of the Listed Company in the Related Transaction B.E. 2546”, the Company will comply with the rules, conditions, and procedures of the Notification including disclosure of such transactions in the annual report and annual information disclosure form (Form 56-1) for transparency of the related transactions and avoidance of the conflict of interest and other circumstances under which a conflict of interest may develop. • Other circumstances which may give rise to conflict of interest, which are: 1. General Investment. The Company does not allow the Company’s staffs who are involved in or receive any benefits from the Company’s competitors, to participate in any decisions making for any matters in conjunction with the relationship between the Company and such competitor. Unless the approval of the Company’s Board of Directors or shareholders has been obtains under the requirements of Stock Exchange of Thailand. 2. Gift. Every staff of all levels should not accept any gift, journey ticket, sport ticket, offer of vacation, accommodations or any offer of personal benefits, etc. if such acceptance entails obligations to the Company or loss to the Company's benefits. 3. Academic work, public service work, lecturer or taking any position. Every staff of all levels may request for the approval of the director of their work line in order to engage in any academic work, public service work, and lecturer or taking any position, e.g. Company's director and consultant, which will create more visions and experience, provided that such staff must not involve the Company or his position in the Company without approval. Internal Control The Company has set up an internal control system in order to operate the Company’s business effectively and increase the credibility of its financial statements. The Company has not had the internal audit department; therefore, the Company hired MMN Syndicate Office Co., Ltd. operated by Mr. Marnit Aongphisud, Certified Public Accountant, who is competent in accounting and internal control, as a consultant of the Company to improve the internal control system and eliminate risks and unusual transactions. The Company annually reviews its internal control system and assesses risk management. Upon the expiration of the hiring contract, the Company plans to continue the contract and at the same time training its staffs for the job. In addition, the Company has appointed Mr. Norawee Changlum as the Audit Committee’s secretary, coordinating with MMN Syndicate Office Co., Ltd. and proposing the result of internal audit to the Audit Committee at least once every 3 months. (4) Meeting of the Board of Directors The Board of Directors will arrange a meeting at least once every 3 months and may have special additional meetings, if necessary. The written notice of the meeting will be sent to directors for its consideration in advance at least 7 days before the meeting date except in case of an emergency or preserve the right or benefit of the Company. The directors can request any related disclosure from the Company’s secretary.

Annual Report of 2012 - page 40


Halcyon Technology Public Company Limited

The Chairman of the Board of Directors and Managing Director will set the board meeting agenda together and each director is free to propose issues for a meeting agenda. The executive managements may attend some agendas during the meeting to provide information in details. (5) Remunerations The Company has established a policy to set remunerations of the directors and Audit Committee as an incentive to keep quality directors who meet the Company’s standard. The remuneration shall be at the same rate as paid by a similar industry and which is based on the result of operation of the Company. The remuneration has to be proposed for approval in the shareholders’ meeting. Remuneration of the Managing Director and top executives should be in accordance with the scope of authorities and the policy of the board. For the best interest of the company, executives’ salaries, bonuses, and other long-term compensation will correspond to the company’s performance and that of each executive. (6) Director and Management Training The Board of Director will encourage and facilitate training for all internal parties related to corporate governance such as directors, Audit Committee, managements, etc. Training will enable them to continuously improve their performances. It can be either internal or external training. The Company’s secretary will provide each new director with all documents and information useful to perform their duties, including introduction of the nature of the business and the operations. Policy and Guidance Relating to Insider Information

The Company has a policy and ways to examine directors and executives concerning use of insider information not yet disclosed to the public for personal gains as follows: 1. The Company will educate directors and executives on the duty to report their shareholdings, shareholdings of their spouses and minor children to the Office of the Securities and Exchange Commission and the Stock Exchange of Thailand according to Section 59 and penalties in Section 275 of the Securities and Exchange Act, B.E. 2535. 2. The Company requires that the executives have to report any change in their shareholdings to the Office of the Securities and Exchange Commission according to Section 59 of the Securities and Exchange Act, B.E. 2535 in order that the Company can monitor stock trading of each executive. 3. The Company will send circular notices to executives to advise them of the important information that could affect stock prices in order to restrain trading their shares for the 1-month period before financial statements or such information are disclosed to the public and not to disclose such important information to other people. In case the non-disclosed information was used in a way that the Company or shareholders will suffer lost or damaged and the person responsible is executive-level person, the Board of Directors will consider the punishment and if the misconduct was carried out by lower-level managers, the managing director will be responsible for meting out the punishment.

Annual Report of 2012 - page 41


Halcyon Technology Public Company Limited Staff (1) Company’s Staff and Remuneration

The numbers of the Company’s staff of each department are as follows: No. 1. 2. 3. 4. 5. 6.

Department

Number of Staff as at December 31, 2012

101 21 6 1 7 6 142

Production Quality Assurance Marketing Purchasing Finance and Accounting Administration Total

In 2012, the Company paid remunerations to all staff (excluding management) in form of salary, bonus and etc. such as overtime, allowance, provident fund as follows: Number of Staff (persons) Total Remuneration (Baht)

2012 142 41,496,983

(2) Human Resource Development

The Management is aware of the importance of human resources which is the key factor for a business. Therefore, the Company has set out a policy of staff training on the utilization of new machine imported by the Company in order to understand the operating system as a whole and to be professionally trained. In addition, the staff will directly gain experiences from technology transferred by international machine suppliers. Furthermore, the Company arranges for job rotation to allow the staffs to work with various type of machine to be able to work in substitution.

Annual Report of 2012 - page 42


Halcyon Technology Public Company Limited

Internal Control (1) Adequacy of Internal Control System Assessment by Board of Directors

At the meeting of Board of Directors No. 1/2013 dated February 14, 2013 with participation of Audit Committee. The Board of Directors had assessed internal control system by inquiring information from management on the adequacy of internal control system of the Company in 5 areas consisting of organization and environment, risk management, management control, information system and data communications, and monitoring system. After the assessment, the Board of Directors believed that the Company has the adequate internal control system for transactions with major shareholders, directors, executives or related persons and the Company had sufficient internal control in all 5 areas which are appropriate and sufficient to protect its assets from misuse or unauthorized use by the management. Also, the Company has an independent internal control system, which can be tracked and assessed including the storage system of important documents for examination as in appropriate by directors, auditors and person in authority. (2) Internal Audit Policy

In 2012, the Company hired MMN Syndicate Co., Ltd. led by Mr. Marnit Aongphisud, the certify auditor who has knowledge and experience in accounting system and internal control as well, to be the consultant of the Companay’s internal control system including with assesses risks and directly report about the irregular transactions to Audit Committee. The Company’s internal control department has responsibilities for cooperating and being the Audit Committee’s secretary including with learning with the expert in order to apply in the future. The internal auditor assesses risks, makes annual internal audit program, audits, follows up with the system improvement and directly report to the Audit Committee at least every quarter. (3) Auditor Observations on the Company's Systems of Internal Control

From review of the Company’s internal control system for the year 2012, the auditor reported to Audit Committee’ s Meeting No.1/2013 dated February 14, 2013 that there was no significant issue of internal control system so that there was no report of auditor observations on the Company's systems of internal control in 2012. (4) Observation of Internal Auditor on the Internal Control Systems

In 2012, MMN Syndicate Co., Ltd. was the Company’s internal auditor and assigned to audit the Company internal control systems. The internal auditor had audited the internal control system and provided recommendation for the improvement. The management had corrected and improved the internal control as recommended by internal auditor. As such, there is no significant issue of internal control system.

Annual Report of 2012 - page 43


Halcyon Technology Public Company Limited

The Related Transactions (1)

The Related Transaction in 2012

Detail as describe in the Notes to Financial Statements, Subject: Transactions with related parties. (2)

Measures or Procedures for Related Transaction Approval

The enter of any related transaction with the person who may have a conflict of interest must be submitted to the Audit Committee to consider and approve in the best interest of the Company and to protect investors and persons related to the Company. Such related transactions shall be in accordance with the rules regarding securities and the stock exchange and regulations, notifications, orders or rules of the Stock Exchange of Thailand. A person who may have any conflict of interest in the related transactions shall not be allowed to participate in an approval of such transactions. For the regular traded transactions such as purchases or sales of products from a related company, the Company has the policy to comply such transactions with the normal trade practice with appropriate prices and conditions. However, the price shall not be higher than the price that the Company can purchase from other distributors. Such transactions will be examined by the Audit Committee every quarter and the reasonable of the transactions will be considered through market price, condition, and the necessity of the effect on Company businesses such as delivery period or qualification of product. This is for the best interest of the Company. (3)

Trend of Related Transactions in the Future

Related transactions that may occur in the future will have similar conditions with the normal trade practice with reference to appropriate prices and market conditions. However, the Company and/or the Company group shall invite the Audit Committee and/or independent directors to comment on the price including the necessity and appropriateness of such transaction. If there is any transaction related to any person who might has a conflict of interest with the Company in the future, the Company shall perform in accordance with regulations, notifications, and/or rules of the Office of the Securities and Exchange Commission and/or the Stock Exchange of Thailand. The Company may invite an independent specialist or an auditor of the Company to make a comment on such transaction to supplement the Board of Directors or shareholders determination, depending on the circumstance. At all events, the Company group will disclose related transactions in the supplementary notes to the financial statement which is audited by the auditor of the Company.

Annual Report of 2012 - page 44


Halcyon Technology Public Company Limited

Financial Status and Operating Results Halcyon Technology Public Company Limited and Subsidiary Balanced Sheet As at December 31, 2010 - 2012

Unit: Baht

2010 Amount

%

%

70,486,807 104,419,231 40,842,368 2,296,650 218,045,056

12.54 18.57 7.26 0.41 38.78

73,400,919 97,477,192 70,752,144 9,444,283 251,074,538

10.87 14.44 10.48 1.40 37.20

56,104,883 110,143,782 122,131,961 10,233,944 298,614,570

7.07 13.87 15.38 1.29 37.61

323,945,347 5,697,766 10,864,407 3,695,360 344,202,880 562,247,936

57.62 1.01 1.93 0.66 61.22 100.00

419,670,311 2,871,182 1,189,002 194,300 423,924,795 674,999,333

62.17 0.43 0.18 0.03 62.80 100.00

442,888,318 50,070,854 2,330,200 495,289,372 793,903,942

55.79 6.31 0.00 0.29 62.39 100.00

41,960,570 27,832,678 35,255,310 5,000,000 1,199,069

7.46 4.95 6.27 0.89 0.21

66,048,381 30,889,977 31,472,802 15,671,399 711,328

9.78 4.58 4.66 2.32 0.11

63,168,095 38,481,064 8,730,673 18,735,682 1,744,928

7.96 4.85 1.10 2.36 0.22

2,845,505 17,692,308 2,268,962 134,054,402

0.51 3.15 0.40 23.84

2,296,571 12,335,135 2,902,806 162,328,399

0.34 1.83 0.43 24.05

4,393,047 21,491,619 1,730,322 158,475,430

0.55 2.71 0.22 19.96

6,381,710 1,326,200 7,707,910 141,762,312

1.14 0.24 1.37 25.21

31,342,794 7,482,598 185,514 39,010,906 201,339,305

4.64 1.11 0.03 5.78 29.83

9,322,000 18,398,152 8,603,318 712,635 37,036,105 195,511,535

1.17 2.32 1.08 0.09 4.67 24.63

240,000,000 240,000,000 45,538,579

42.69 42.69 8.10

240,000,000 240,000,000 45,538,579

35.56 35.56 6.75

300,000,000 256,209,000 84,354,431

37.79 32.27 10.63

-

-

-

-

30,216

0.00

11,962,606 107,851,579

2.13 19.18

15,362,606 157,704,528

2.28 23.36

18,762,606 195,403,451

2.36 24.61

0.19

1,308,714

Balance Sheet Assets Current Assets Cash and cash equivalents Trade account receivable - net Inventory Other current assets Total current assets Non-Current Assets Property, plant and equipment Intangible assets – net Advance for acquisition of machineries Other non-current assets Total non-current assets Total Assets Liabilities and shareholders’ equity Current Liabilities Overdrafts and short-term loans from financial institution Trade account payable Payable from fixed asset acquisition Current portion of long-term loan from financial institution Current portion of liabilities under financial lease agreements Other current liabilities Accrued corporate income tax Accrued expenses Others Total current liabilities Non-Current Liabilities Payable from business acquisition Long-term loan from financial institution - net Retirement benefit obligations Liabilities under financial lease agreements - net Total Non-Current Liabilities Total Liabilities Shareholders’ Equity Authorized share capital Issued and paid up share capital Premium on share capital Capital reserve for unvested stock warrant Remaining unvested stock warrant under ESOP Retained Earning: Appropriated for legal reserve Unappropriated Adjustment from the combination of entity under common controls

Adjustment for foreign exchange transaction Total equity attributable to parent company Non-controlling interests Total Shareholders’ Equity Total Liabilities and Shareholders’ Equity

1,308,714

(1,110,613) 405,550,331 14,935,293 420,485,624 562,247,936

Consolidated Financial Statement 2011 2012 Amount % Amount

0.23

(0.20) 72.13 2.66 74.79 100.00

Annual Report of 2012 - page 45

1,308,714

(4,320,369) 455,594,058 18,065,970 473,660,028 674,999,333

(0.64) 67.50 2.68 70.17 100.00

(485,375) 555,583,043 42,809,364 598,392,407 793,903,942

0.16

(0.06) 69.98 5.39 75.37 100.00


Halcyon Technology Public Company Limited

Statements of Income For the Years Ended December 31, 2010 - 2012 Unit: Baht Statements of Income Revenues Revenue from sales and services Other income Total Revenues Expenses Cost of sales and services Selling and administrative expenses Loss distributed to the owners from disposal of investments in subsidiary Total Expenses Profit before interest and tax Interest expenses Income tax Net Profit

Net profit (loss) attributable to: Owner of the Company Non-controlling interests Net profit

2010 Amount 360,483,431

Consolidated Financial Statement 2011 2012 % Amount % Amount 97.74

412,470,690

98.09

528,581,495

% 99.05

8,340,136 2.26 368,823,567 100.00

8,033,422 1.91 420,504,112 100.00

5,043,715 0.95 533,625,210 100.00

213,682,473

57.94

233,497,857

55.21

313,568,599

58.76

59,556,413

16.15

83,730,011

20.23

101,749,045

19.07

273,238,886 95,584,681 (3,087,280)

74.08 25.92 (0.84)

317,227,868 103,276,244

75.44 24.56

515,774 415,833,418 117,791,792

0.10 77.93 22.07

(8,607,611)

(2.05)

(6,383,938)

(1.20)

(6,396,733) 86,100,668

(1.73) 23.34

(6,165,187) 88,503,446

(1.47) 21.05

(4,904,954) 106,502,900

(0.92) 19.96

87,405,375 (1,304,707) 86,100,668

Basic Earning per share Net profit attributable to owner of the Company 0.37 Weighted average number of share (shares) 237,941,176

23.70 (0.35) 23.34

86,853,483 1,649,963 88,503,446

0.36 240,000,000

Annual Report of 2012 - page 46

20.65 0.39 21.05

88,558,904 17,943,996 106,502,900

0.36 247,208,273

16.60 3.36 19.96


Halcyon Technology Public Company Limited

Statement of Comprehensive Income For the Years Ended December 31, 2010 - 2012 Unit: Baht Statements of Comprehensive Income Net profit for the year Foreign currency transaction difference for foreign operations Total comprehensive income for the year

Net profit (loss) attributable to: Owner of the Company Non-controlling interests Total comprehensive income for the year

Consolidated Financial Statement 2010

2011

86,100,668 (1,110,613)

% to total sales 23.34 (0.30)

84,990,055

23.04

Amount

85,304,501 (314,446) 84,990,055

2012

% to total sales 88,503,446 21.05 (3,209,756) (0.76)

Amount

85,293,690

23.13 86,449,233 (0.09) (1,155,543) 23.04 85,293,690

Annual Report of 2012 - page 47

20.28

20.56 (0.27) 20.28

% to total sales 106,502,900 19.96 3,843,994 0.72

Amount

110,337,894

92,393,898 17,943,996 110,337,894

20.68

17.31 3.36 20.68


Halcyon Technology Public Company Limited

Statement of Cash Flows For the Years Ended December 31, 2010 – 2012 Unit: Baht Consolidated Financial Statement Statements of Cash Flows 2010 2011 2012 Cash Flows from Operating Activities Net Profit before income tax Adjustments to reconcile net profit to net cash provided by operating activities Unrealized (gain) loss on foreign exchange rate Depreciation Intangible asset written off Doubtful accounts (reversal) (Gain) loss on disposal of equipment Unrealized loss from inventory obsolescence Loss (Gain) distributed to the owners from disposal of investments in subsidiary (Gain) on disposal of investments Retirement benefit obligations Employee benefit expenses under Employee Stock-Ownership Program (ESOP) Gain from acquiring Fair value of acquired identifiable net assets of FDM Interest expense Profit from operating activities before change in operational assets and liabilities: Decrease (Increase) in operational assets: Trade account receivable – Other companies Inventories Other current assets Other non-current assets Increase (Decrease) in operational liabilities: Trade account payable – Other companies Other current liabilities Cash provided by operations activities Interest paid Income taxes paid Net cash provided by operating activities Cash Flow from Investing activities Cash paid for purchase of property, plant and equipment Cash paid for intangible asset acquisition Proceeds from disposal of equipment Cash distributed to the owners from disposal of investments in HC Cash paid for acquisition of FDM Net Cash Used in Investing Activities Cash Flow from Financing Activities Increase (Decrease) in bank overdrafts and short-term loans from financial Proceeds from long-term loan from financial institution Proceeds from share capital issued under ESOP program Payments for long-term loan from financial institution Dividend paid Proceeds from share subscription from minority interest Dividend paid from subsidiary to non-controlling interest Proceeds from issue of share capital Cash paid for cost of share subscription Net Cash Provided by (Used in) financial activities Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of the year Add : Cash and cash equivalents of the subsidiary as at the acquisition date Less : Cash and cash equivalents including in disposal subsidiary Cash and Cash Equivalents, End of the year Annual Report of 2012 - page 48

92,984,007

94,668,633

111,407,854

(1,715,218) 43,702,926 255,513 (280,092) 3,544,986 486,606 1,973,886 140,466,008

(1,379,242) 55,887,265 267,310 (230,101) 1,341,783 (3,209,756) 1,100,888 8,617,635 157,064,415

349,023 61,731,568 1,000,000 (125,887) 59,786 5,543,173 515,774 3,834,994 1,120,720 1,241,188 (1,375) 6,383,307 193,060,125

(21,892,329) (23,461,537) (1,845,090) 2,144

7,879,365 (31,251,559) (7,147,633) 3,501,060

32,558,246 (24,965,226) (397,606) (2,135,900)

(3,313,479) 4,184,558 94,140,275 (1,973,886) (3,987,949) 88,178,440

3,072,493 (4,723,329) 128,394,812 (8,617,635) (6,714,121) 113,063,056

(55,800,162) 764,786 143,084,263 (6,383,307) (5,951,384) 130,749,572

(128,903,076) (2,000,000) 1,009,138 (129,893,938)

(148,067,748) 3,936,086 (144,131,662)

(104,783,764) 9,074,677 7,430,769 (11,000,000) (99,278,318)

21,960,570 9,000,000 (10,133,000) (40,800,000) 16,240,000 50,000,000 (1,546,392) 44,721,178 3,005,680 67,481,127 70,486,807

24,087,811 47,014,193 (5,000,000) (33,600,000) 1,480,714 33,982,718 2,914,112 70,486,807 73,400,919

(2,880,286) 2,353,880 4,056,190 (13,936,549) (47,459,981) 239,109 (57,627,637) (26,156,383) 73,400,919 16,047,125 (7,186,778) 56,104,883


Halcyon Technology Public Company Limited

Financial Ratios For the Years Ended Decomber 31, 2010 – 2012 Consolidated Financial Statement 2010 2011 2012

Financial Ratios Liquidity Ratios Current Ratio Quick Ratio Operating Cash Flow to Current Liabilities Ratios Accounts Receivable Turnover Average Collection Period Inventory Turnover Average Day’s Sales in Inventory Accounts Payable Turnover Average Payment Period Cash Cycle Profitability Ratios Gross Profit Margin Operation Profit Margin Operating Cash Flow to Operating Profit Ratio Net Profit Margin Comprehensive Income Margin Return on Equity Efficiency Ratios Return on Total Assets Return on Fixed Assets Total Asset Turnover Financial Policy Ratios Debt to Equity Ratio Interest Coverage Ratio Fixed Charged Coverage Ratio (cash basis) Dividend Payout Ratio Earning Per Share *

(Times) (Times) (Times) (Times) (Days) (Times) (Days) (Times) (Days) (Days)

1.63 1.30 0.66 3.85 95 6.92 52 7.24 50 97

1.55 1.05 0.76 4.08 90 4.18 87 7.95 46 131

1.88 1.05 0.82 5.09 72 3.25 112 9.04 40 144

(%) (%) (%) (%) (%) (%)

40.72% 26.52% 92.25% 23.70% 23.13% 14.18%

43.39% 25.04% 109.48% 20.65% 20.56% 20.17%

40.68% 22.28% 111.00% 16.60% 17.31% 17.52%

(%) (%) (Times)

17.23% 43.64% 0.73

14.04% 38.39% 0.68

12.06% 34.85% 0.73

(Times) (Times) (Times) (%) (Baht)

0.35 47.69 0.48 38.80% ** 0.36

0.44 14.90 0.61 43.39% *** 0.36

0.35 22.42 0.79 40.82%**** 0.35

Notes: * The calculation based on number of shares at the end of 2010, 2011, and 2012 of 240,000,000shares, 240,000,000 shares and 256,209,000 shares, respectively, at par value of Baht 1 per share. ** The Company announced to pay dividend for 2010 of Baht 33.60 million (paid on September 1, 2010 amounting Baht 21.60 million and additional to pay on April 29, 2011 amounting of 12.00 million for 240 million shares) from net profit of 2010. *** The Company announced to pay dividend for 2011 of Baht 38.40 million (paid on September 9, 2011 amounting Baht 21.60 million and additional to pay on May 2, 2012 amounting of 16.80 million for 240 million shares) from net profit of 2011. **** The Company announced to pay dividend for 2012 of Baht 43.47 million (paid on September 3, 2012 amounting Baht 30.66 million for 255.5 million shares and additional to pay on May 17, 2013 amounting of 12.81 million for 256.209 million shares) from net profit of 2012.

Annual Report of 2012 - page 49


Halcyon Technology Public Company Limited Explanation and Analysis of Financial Status and Operating Results Analysis of Operating Results for the Year of 2012

Revenue The total revenues of the Company and its subsidiary in 2012 were Baht 533.63 million, equivalent to 26.90% increase from that of previous year. The revenue from sales and services of the Company and its subsidiary were Baht 528.58 million, equivalent to 28.15% increased from that of previous year since sales revenue increased in 1H/2012 as a result of the recovery in Hard Disk Drive industry and the company has begun to recognize the revenues from its subsidiaries “FDM”, which resulted to the increase of total revenues. Other revenues in 2012 were Baht 5.04 million, equivalent to 0.95% of total revenues, consisted of proceeds from disposal equipment, gain from exchange rate, interest income, revenue from sales of scrap, and the write-off of a duplicated account payable. Cost and Gross Profit Margin The Company’s important costs are cost of production, raw material cost, depreciation and labor cost, representing 28.43%, 14.77%, 16.80% and 12.12%, respectively. Total cost of goods sold in 2012 was Baht 313.57 million, equivalent to 34.29% from 2011 since it mainly derived from increasing cost of manufacturing due to penetrate new market of Automotive parts industry in Q4/2012. The higher cost of manufacturing relating to production of samples cost, waste or over and higher cost of raw material due to low volume purchase. These resulted to the gross profit margin of 40.68% which decreased from that of 43.39% in 2011. However, the Company made the gross profit of Baht 215.01 million, equivalent to 20.14% increased from that of 2011 due to the increasing sales revenue of standard carbide cutting tools from its subsidiaries. Selling and Administrative Expenses Selling and administrative expenses in 2012 were Baht 101.75 million, equivalent to 21.52% increased from those of 2011 mainly due to the increase of employee expenses from the investment expansion of setting up subsidiaries, especially those of salary, bonus and commission. However, the percentage of selling and administrative expenses to total revenues decreased from 19.91% in 2011 to 19.07% in 2012. Net Profit Net profit of the Company in 2012 was Baht 106.50 million and net profit attributable to owner of the Company in 2012 was Baht 88.65 million, representing the net profit margin of 19.96 and 16.60, respectively. Net profits attribute to owner of the Company in 2012 decreased from that of 2011 due to higher cost of manufacturing and cost of material to expand new market of Automotive parts Industry. In 2012, there was gain from adjustment for foreign currency transaction of foreign subsidiary of Baht 3.83 million, which resulted to the comprehensive income of Baht 110.34 million and the comprehensive income attributable to owner of the Company of Baht 92.39 million, representing the net profit margin of 20.68% and 17.31% respectively.

Annual Report of 2012 - page 50


Halcyon Technology Public Company Limited Analysis of Financial Status for the year of 2012

Assets Total assets at the end of 2012 were Baht 793.90 million consisting of the current assets of Baht 298.61 million which increased of Baht 47.54 million or equivalent to 18.93% increased from those of 2011. Non current assets were Baht 495.29 million which increased of Baht 71.36 million or equivalent to 16.83% increased from those of 2011. The key assets were as following: (1) Cash and equivalent at the end of 2012 were Baht 56.10 million, equivalent to 23.56% decreased from those of 2011 which mainly derived from short-term and long-term debt repayment including with increasing in dividend payment according to issuing new ordinary shares to existing shareholders and share capital issued under ESOP program. (2) Trade account receivables at the end of 2012 were Baht 110.14 million which increased of Baht 12.66 million or equivalent to 12.99% increased from those of 2011. However, the Company still had the improvement of account receivable collectability. The average collection period decreased from 90 days to 72 days, complying to the Company credit policy for account receivables of approximately 60 – 90 days. The Company’s 6-12 months and more than 12 months overdue receivables were total Baht 1.43 million, representing 1.37% of total receivables. (3) Inventory at the end of 2012 was Baht 122.13 million, which increased of Baht 51.38 million or equivalent to 42.07% increased from that of 2011 due to the stock of finished goods to support the product distribution of FDM and ATEK. The inventories consisted of raw materials, work in process, and finished goods which represented 39.05%, 7.35%, and 53.60%, respectively. An allowance for inventory obsolescence will be set 100% for product aging more than 1 year. In 2012, the Company’s allowance for inventory obsolescence was Baht 10.43 million. (4) Other current assets at the end of 2012 were Baht 10.23 million, which increased of Baht 0.79 million from the end of 2011 since HTECH recorded accrued dividend from HP of Baht 3.3 million. (5) Property, plant and equipment (net) at the end of 2012 were Baht 442.89 million which increased of Baht 23.22 million or equivalent to 5.53% increased from those of 2011 since the company and its subsidiaries purchased new machines for capacity expansion which mostly the new machines are PCD and PCBN Grinding Machine and Carbide Grinding Machine of HTECH, financing by loan from bank and its operating cash. (6) Intangible assets at the end of 2012 were Baht 50.07 million, which increased of Baht 47.20 million from those of 2011 since the Company invested in Common Shares of FDM technology Company Limited (“FDM”) with the ownership of 60% and recorded market share and customer relationship of PCD cutting tool segment and Carbide cutting tool segment of Baht 26.43 million and Baht 25.03 million respectively. (7) Other non - current assets at the end of 2012 were Baht 2.33 million, which increased of Baht 2.14 million from the end of 2011 due to the foreign investment in Indonesia of Baht 2 million. Total Liabilities Most liabilities are current liabilities and these were Baht 158.48 million at the end of 2012, which decreased Baht 3.85 million or equivalent to 2.37% decreased from 2011 mainly due to the repayment of the Payable from purchasing HTECH’s machineries. The non – current liabilities were Baht 37.04 million, which decreased of Baht 1.97 million or equivalent to 5.05% decreased from 2011 mainly due to the repayment of long-term bank debt borrowing. From January 1, 2011, the Group has adopted the Thai Accounting Standard (TAS) No.19 “Employee Benefits”, which resulted to the Company to have the retirement benefit obligation at the end of 2012 of Baht 8.60 million. Annual Report of 2012 - page 51


Halcyon Technology Public Company Limited

Shareholders’ Equities At the end of 2012, the Company’s shareholders’ equities attributable to owner of the Company were Baht 555.58 million which increased Baht 99.99 million from 2011 due to (1) net profit attributable to owner of the Company of Baht 88.56 million and (2) Premium on share capital of Baht 84.35 million, which increased Baht 38.81 million from 2011 since the Company issued new ordinary shares of 15.50 million shares to existing shareholders and exercised stock warrant under ESOP at Baht 3.32 per share, which is higher than par value at Baht 1. In 2012, the non controlling interest was Baht 17.94 million from the investment in FDM Technology Co., Ltd. and Halcyon Technology (Philippines) Inc., which the Company owns 60% and 65% shares in such subsidiaries. The adjustment for foreign exchange transaction was Baht 3.83 million. Debt to equity ratio at the end of 2012 showed impressive figure at 0.35 times, which decreased from the end of 2011 due to the decrease of liability from loan from repayment of bank debt and payable from purchasing machinery including with increasing in paid-up capital and retained earnings.

Liquidity (1) Cash Flows Cash flow form operating activities in 2012 was Baht 130.75 million mainly due to the increase of net profit and the decrease of account receivable. Cash flow from investing activities in 2012 was Baht (99.28) million which mainly used to invest in property plant and equipment in amounting of Baht (104.78) million including with cash paid for business acquisition of FDM. Cash flow from financing activities in 2012 was Baht (57.63) million as result of the decrease of overdraft and short-term loan of Baht (2.88) million, cash repayment of long-term bank debt of Baht (13.94) million and the dividend payment was Baht (47.46) million. (2) Current Ratio and Cash Cycle Current Ratio in 2012 was 1.88 times which decreased from 1.55 times in 2011 since it mainly derived from purchasing finished goods to support the product distribution of FDM and ATEK and Quick ratio showed acceptable level at 1.05 times. Cash cycle increased from 131 days in 2011 to 144 days in 2012 due to the increase of average day’s sale in inventory. Audit Fee

The financial statements were reviewed and audited by Mr. Nongram Laohaareedilok, the certify auditor no. 4334, from AST Master Co., Ltd. and the audit fee for the Company and subsidiaries (HM and HC) in 2012 amounting Baht 980,000 (Audit fee for all). The Significantly Financial Change after December 31, 2011

The Company will identify the rightful shareholders who may receive dividend on May 2, 2013 (Record Date) and will close share registration book on May 3, 2013 to determine the rightful shareholders to receive dividend Baht 0.05 per share on May 17, 2013 as amount of Baht 12.81 million. The effect on retained earning, shareholders’ equity, and book value of the Company after dividend payment will be as following: After dividend payment December 31, 2012 in May 2013 Retained Earning (Million Baht) 195.40 Approximately 182.59 Shareholders’ equity (Million Baht) 555.58 Approximately 542.77 Book value per share (Baht) 2.17 Approximately 2.12 Annual Report of 2012 - page 52


Halcyon Technology Public Company Limited

Report from the Board of Directors for the responsibilities on Financial Statements

The Board of Directors is responsible for the financial statements of Halcyon Technology (Public) Company Limited and consolidated financial statements of the Company and its subsidiary as well as the information shown in the annual report. The financial statements have been prepared in accordance with the generally accepted accounting principles in Thailand using the appropriate accounting policies on the consistent basis. Crucial information was sufficiently disclosed in Notes to Financial Statements for the advantages of the shareholders and general investors. The Board of Directors has appointed the Audit Committee to oversee the accounting policies and the accuracy of financial reports, including the review of the internal control system. The opinion of the Audit Committee is presented in the Audit Committee’s Report, included in this annual report. Moreover, the Company’s external auditor also gives opinion towards financial statements of the Company and subsidiary presented in Report of Certified Public Accountant which is also included in this annual report. The Board of Directors has the opinion that the Company’s overall internal control system is adequacy and be assured that the financial reports of the Company for the year ended December 31, 2012 are accurate and fairly stated, as well as in the compliance with the relevant laws and regulations.

(Lieutenant General Preecha Wanarat) Chairman

Annual Report of 2012 - page 53

(Mr. Pete Rimchala) Managing Director


Halcyon Technology Public Company Limited

Audit Committee’s Report The Company’s Audit Committee consists of the 3 independent directors in accordance with the qualification and rules stipulated by The Stock Exchange of Thailand are as following: 1. Lieutenant General Preecha Wanarat Chairman of the Audit Committee 2. Mr. Narong Rattana Audit Committee 3. Ms. Chollada Fuvatanaslip Audit Committee Ms. Chollada Fuvatanaslip, member of the Committee who possesses knowledge and experience in the accounting field. All of the Audit Committee members do not have any vested interest in the Company. Neither are they shareholders, management, staffs, and employees of the Company. The Audit Committee has performed its duties within scope of work authorized by the Company’s Board of Directors. Its primary responsibilities have been to conduct a review in order that the Company has a financial report that is correct and transparent, to review that the Company has good corporate governance in line with the corporate governance principles. In this regard, the Audit Committee conducted 4 meetings in 2012, the content of which can be summarized as follow: 1. The Accuracy of Financial Statement: The Audit Committee reviewed and provided independent opinions in respect of the quarterly and yearly financial statements prior to submission to the Company’s Board of Directors for approval. A meeting with the Company’s authorized financial auditor was set in order to propose clarification, observations, and recommendation. The Audit Committee had an opinion that the Company’s financial statements are accurate, complete and reliable. 2. The Adequacy of Internal Control System: The Audit Committee evaluated the adequacy of the Company’s internal control system including the review of the internal audit report and had an opinion that the Company’s internal control system is adequate and appropriate. 3. Corporate Governance: The Audit Committee had an opinion that the Company complies with the principles of good corporate governance adequately and appropriately. The Audit Committee intends to perform its duty under the good corporate governance conducts and be responsible to monitor that the Company’s operations and activities follow the policy of the Board of Directors on the efficient transparent and legitimate manner, and to protect the interest of all shareholders with good care and fair treatment. 4. Transaction that may have Potential Conflict of Interest: The Audit Committee considered the related transactions or transaction which may have potential conflict of interest every quarter and had opinion that the related transactions for the year of 2012 were in the ordinary business condition, reasonable and most beneficial to the Compnay. 5. The Appropriateness of Auditor: The Audit Committee made the selection of auditor by considering the independence and appropriateness of auditor and their remuneration. A resolution was made and proposed to the Company’s Board of Directors for approval and to be certified by the annual general meeting of shareholders.

(Lieutenant General Preecha Wanarat) Chairman of the Audit Committee

Annual Report of 2012 - page 54


Halcyon Technology Public Company Limited

REPORT OF CERTIFIED PUBLIC ACCOUNTANT INDEPENDENT AUDITOR’S REPORT

To The Board of Directors and Shareholders of Halcyon Technology Public Company Limited Report on the Financial Statements I have audited the accompanying consolidated financial statements of Halcyon Technology Public Company Limited and its subsidiaries, which comprise the consolidated statements of financial position as at 31 December 2012, the related consolidated statements of income, comprehensive income, the statements of changes in shareholders' equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes, and I have also audited the separate financial statements of Halcyon Technology Public Company Limited for the same period. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's responsibility My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with Standards on Auditing. Those Standards require that I complies with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

Annual Report of 2012 - page 55


Halcyon Technology Public Company Limited

I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion. Opinion In my opinion, these financial statements give a true and fair view of the financial position of Halcyon Technology Public Company Limited and its subsidiaries and of Halcyon Technology Public Company Limited as at 31 December 2012 and of its financial performance and its cash flows for the year then ended, in accordance with Financial Reporting Standards. Other Matter The financial statements of Halcyon Technology Public Company Limited and its subsidiaries and of Halcyon Technology Public Company Limited for the year ended 31 December 2011, were audited by another auditor of our firm who expressed an unmodified opinion on those statements on 21 February 2012.

(NONGRAM LAOHAAREEDILOK) Certified Public Accountant Registration No. 4334 Ast Master Co.,Ltd. 14 February 2013

Annual Report of 2012 - page 56


Halcyon Technology Public Company Limited

HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2012 In Baht Consolidated financial statements Notes

2012

Separate financial statements

2011

2012

2011

ASSETS CURRENT ASSETS Cash and cash equivalents Trade accounts receivable

5

56,104,883

73,400,919

15,400,508

37,853,868

110,143,782

97,477,192

71,943,323

76,806,169

Short-term loan to and interest receivable from related party Inventories

23 6

Other current assets Total current assets NON - CURRENT ASSETS Investments in subsidiaries

7

-

70,752,144

75,417,499

46,364,604

9,444,283

5,410,431

740,490

298,614,570

251,074,538

168,171,761

177,405,080

442,888,318

Intangible assets

9

50,070,854

Total non - current assets TOTAL ASSETS

15,639,949

10,233,944

8

Other non - current assets

-

122,131,961

Property, plant and equipment Advance for acquisition of machineries

-

-

121,614,800

83,260,000

419,670,311

-

276,756,924

244,212,176

2,871,182

25,175,309

1,189,002

-

-

2,330,200

194,300

330,200

194,300

495,289,372

423,924,795

423,877,233

327,666,476

793,903,942

674,999,333

592,048,994

505,071,556

The accompanying notes to financial statements are an integral part of these financial statements.

Annual Report of 2012 - page 57


Halcyon Technology Public Company Limited

HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES STATEMENT OF FINANCIAL POSITION (CON'T) AS AT 31 DECEMBER 2012 In Baht Consolidated financial statements Notes

2012

Separate financial statements

2011

2012

2011

LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Bank overdraft and short-term loans from financial institutions Trade accounts payable

10 11

63,168,095

66,048,381

35,895,921

29,500,000 23,880,222

38,481,064

30,889,977

26,176,010

17,908,652

12,335,135

10,861,318

7,400,268

8,730,673

31,472,802

9,305,263

21,189,055

12

1,744,928

711,328

1,420,788

501,578

16

Other payable Payable from fixed asset acquisition Current portion of liabilities under hire-purchase agreements Current portion of long-term loans

18,735,682

15,671,399

-

Accrued corporate income tax

from financial institutions

4,393,047

2,296,571

20,335

Dividends Payable

3,582,967

Other current liabilities Total current liabilities

1,730,322 158,475,430

2,902,806 162,328,399

466,090 84,145,725

338,601 440,536 83,250,260

NON - CURRENT LIABILITIES Payable from business acquisition

9,322,000

9,322,000

-

12

Retirement benefit obligations

15

Long-term loans from financial institutions

16

37,036,105

39,010,906

15,034,237

4,296,249

195,511,535

201,339,305

99,179,962

87,546,509

Total non - current liabilities TOTAL LIABILITIES

712,635

-

Liabilities under hire-purchase agreements

185,514

712,635

63,163

8,603,318

7,482,598

4,999,602

4,233,086

18,398,152

31,342,794

The accompanying notes to financial statements are an integral part of these financial statements.

Annual Report of 2012 - page 58

-

-


Halcyon Technology Public Company Limited

HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES STATEMENT OF FINANCIAL POSITION (CON'T) AS AT 31 DECEMBER 2012 In Baht Consolidated financial statements Notes

2012

Separate financial statements

2011

2012

2011

LIABILITIES AND SHAREHOLDERS' EQUITY (CON'T) SHAREHOLDERS' EQUITY Share capital

17

Authorised share capital 300,000,000 ordinary shares of Baht 1 each (2011 : 240,000,000 ordinary shares of Baht 1 each)

300,000,000

240,000,000

300,000,000

240,000,000

256,209,000

240,000,000

256,209,000

240,000,000

84,354,431

45,538,579

84,354,431

45,538,579

Issued and paid up share capital 256,209,000 ordinary shares of Baht 1 each (2011 : 240,000,000 ordinary shares of Baht 1 each) Premium on share capital Capital reserve for unvested stock warrant under ESOP

14

30,216

-

30,216

-

Retained earnings Appropriated for legal reserve

18

Unappropriated

18,762,606

15,362,606

18,762,606

15,362,606

195,403,451

157,704,528

133,512,779

116,623,862

1,308,714

1,308,714

-

-

(4,320,369)

-

-

Adjustment from the combination of entity under common controls Adjustment for foreign exchange transaction

(485,375)

Total shareholders' equity attributable to parent company Non-controlling interests

555,583,043

455,594,058

492,869,032

42,809,364

18,065,970

TOTAL SHAREHOLDERS' EQUITY

598,392,407

473,660,028

492,869,032

417,525,047

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

793,903,942

674,999,333

592,048,994

505,071,556

-

-

The accompanying notes to financial statements are an integral part of these financial statements.

Annual Report of 2012 - page 59

-

-

417,525,047 -


Halcyon Technology Public Company Limited

HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES STATEMENT OF INCOME FOR THE YEAR ENDED 31 DECEMBER 2012 In Baht Consolidated financial statements Notes

2012

Separate financial statements

2011

2012

2011

Sales and service revenue

528,581,495

412,470,690

256,957,005

271,495,870

Cost of sales and services

(313,568,599)

(233,497,857)

(160,950,466)

(167,892,256)

215,012,896

178,972,833

96,006,539

103,603,614

Gross profit Dividend income from subsidiaries

23

-

-

20,450,392

-

-

430,769

-

Gain (Loss) distributed to the owners from disposal of investments in subsidiary Other income

(515,774) 5,043,715

8,033,422

3,531,129

6,520,838

219,540,837

187,006,255

120,418,829

110,124,452

Selling expenses

(22,977,605)

(12,104,373)

(14,243,416)

(8,853,703)

Administrative expenses

(59,156,598)

(53,644,687)

(25,765,619)

(20,970,508)

Managements’ remuneration

(19,614,842)

(17,980,951)

(9,462,150)

(8,534,386)

(101,749,045)

(83,730,011)

(49,471,185)

(38,358,597)

117,791,792

103,276,244

70,947,644

71,765,855

(8,607,611)

(2,291,301)

(2,351,193)

94,668,633

68,656,343

69,414,662

Profit before expenses

Total expenses Profit before financial costs and income tax Financial costs

(6,383,938)

Profit before income tax

111,407,854

Income tax

(4,904,954)

Profit for the years

(6,165,187)

(907,445)

(1,543,262)

106,502,900

88,503,446

67,748,898

67,871,400

Owners of the Company

88,558,904

86,853,483

67,748,898

67,871,400

Non-controlling interests

17,943,996

1,649,963

106,502,900

88,503,446

67,748,898

67,871,400

0.3582

0.3619

0.2741

0.2828

0.3570

0.3619

0.2731

0.2828

Net profit attributable to:

Net profit BASIC EARNINGS PER SHARE

-

-

20

Net profit attributable to owners of the Company DILUTED EARNINGS PER SHARE

20

Net profit attributable to owners of the Company

The accompanying notes to financial statements are an integral part of these financial statements.

Annual Report of 2012 - page 60


Halcyon Technology Public Company Limited

HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2012 In Baht Consolidated financial statements 2012

Profit for the year

106,502,900

2011

88,503,446

Separate financial statements 2012

2011

67,748,898

67,871,400

Other Comprehensive income Adjustment for foreign exchange transaction

3,834,994

(3,209,756)

-

-

110,337,894

85,293,690

67,748,898

67,871,400

Owners of the Company

92,393,898

86,449,233

67,748,898

67,871,400

Non-controlling interests

17,943,996

(1,155,543)

110,337,894

85,293,690

Total comprehensive income for the year

Comprehensive income attributable to:

67,748,898

The accompanying notes to financial statements are an integral part of these financial statements.

Annual Report of 2012 - page 61

67,871,400


Halcyon Technology Public Company Limited

HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEAR ENDED 31 DECEMBER 2012 In Baht Equity attributable to the parent company Retained earnings

Notes Balance as at 1 January 2011 Legal reserve

240,000,000 18

Investing in subsidiary Adjustment for foreign exchange transaction Dividends paid

Issued and paidup share capital

19

Net profit

1,308,714

11,962,606 3,400,000

-

-

-

-

-

-

-

-

-

-

-

-

(1,110,613)

Total equity attributable to the parent company 405,550,331

-

-

-

-

-

-

-

-

-

(33,600,000)

-

1,480,714

420,485,624 1,480,714

(3,209,756)

-

(3,209,756)

(33,600,000)

-

(33,600,000)

86,853,483

1,649,963

88,503,446

1,308,714

(4,320,369)

455,594,058

18,065,970

473,660,028

15,362,606

157,704,528

1,308,714

(4,320,369)

455,594,058

18,065,970

473,660,028

-

Share capital issued under ESOP program

14, 17

709,000

2,855,852 -

(1,210,972) -

-

-

157,704,528

45,538,579

-

(3,209,756)

14,935,293

Total shareholders' equity

15,362,606

35,960,000

86,853,483

-

Noncontrolling interests

-

15,500,000

-

Adjustment for foreign exchange transaction

45,538,579

240,000,000

-

(3,400,000)

-

-

17, 22 22

107,851,045

-

Share capital issued for business acquisitons Increase from business acquisition

Unappropriated

-

240,000,000

Balance as at 1 January 2012

45,538,579

Appropriated for legal reserve

Adjustment from the combination of entity under common controls

-

-

Balance as at 31 December 2011

Premium on share capital

Capital reserve for unvested stock warrant under ESOP

-

-

-

-

51,460,000

-

-

-

-

-

2,353,880

-

-

-

-

-

-

13,548,917

51,460,000 2,353,880 13,548,917

Decrease from disposal of subsidiary

-

-

-

-

-

-

-

-

(3,405,661)

(3,405,661)

Dividends paid to non-controlling interest

-

-

-

-

-

-

-

-

(3,343,858)

(3,343,858)

-

-

-

-

-

-

-

Adjustment for foreign exchange transaction Stock warrant recognised as expenses

14

-

-

-

-

1,241,188

Legal reserve

18

-

-

-

Dividends paid

19

-

-

-

Net profit Balance as at 31 December 2012

256,209,000

84,354,431

30,216

3,400,000 18,762,606

3,834,994 -

(3,400,000)

-

-

(47,459,981)

-

-

88,558,904 195,403,451

The accompanying notes to financial statements are an integral part of these financial statements.

Annual Report of 2012 - page 62

1,308,714

(485,375)

3,834,994

-

3,834,994

1,241,188

-

1,241,188

(47,459,981)

-

(47,459,981)

88,558,904

17,943,996

106,502,900

555,583,043

42,809,364

598,392,407


HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012

HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED SEPARATE STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEAR ENDED 31 DECEMBER 2012 In Baht

Notes Balance as at 1 January 2011

Issued and paidup share capital

Premium on share capital

240,000,000

45,538,579

Capital reserve for unvested stock warrant under ESOP

Appropriated for legal reserve

Unappropriated

-

11,962,606

85,752,462

3,400,000

Legal reserve

18

-

-

-

Dividends paid

19

-

-

-

Net profit

-

Balance as at 31 December 2011 Balance as at 1 January 2012

-

-

67,871,400

67,871,400

15,362,606

116,623,862

417,525,047

15,362,606

116,623,862

417,525,047

45,538,579

-

15,500,000

35,960,000

-

Share capital issued under ESOP program

14, 17

709,000

2,855,852

-

-

-

-

51,460,000

(1,210,972)

-

-

2,353,880

1,241,188

-

-

1,241,188

Legal reserve

18

-

-

-

Dividends paid

19

-

-

-

Net profit Balance as at 31 December 2012

(33,600,000)

-

240,000,000

256,209,000

84,354,431

-

(3,400,000) (33,600,000)

383,253,647

45,538,579

17, 22 14

-

Total

240,000,000

Share capital issued for business acquisitons Stock warrant recognised as expenses

Retained earnings

30,216

The accompanying notes to financial statements are an integral part of these financial statements.

Annual Report of 2012 - page 63

3,400,000 18,762,606

(3,400,000) (47,459,981)

(47,459,981)

67,748,898

67,748,898

133,512,779

492,869,032


HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2012 In Baht Consolidated

Separate

financial statements 2012

financial statements

2011

2012

2011

Cashflows from operating activities Profit before income tax

111,407,854

94,668,633

68,656,343

69,414,662

Adjustments to reconcile net profit to net cash provided by operating activities Unrealized (gain) loss on foreign exchange rate

349,023

Depreciation and amortization

(1,379,242)

61,731,568

Intangible asset written off

55,887,265

1,000,000

Doubtful accounts (reversal) (Gain) Loss from disposal of equipment

-

267,310

59,786

(107,802)

(230,101)

5,543,173

Interest income on short-term loans to related company

40,573,201

-

(125,887)

Unrealized loss from inventory obsolescence

331,324

(993,870)

1,341,783

-

4,115,751

-

639,949

(1,243,278) 36,075,643 189,930 (294,078) 1,341,783 (949,709)

Loss (Gain) distributed to the owners from disposal of investments in subsidiary Dividend income from subsidiaries

515,774 -

-

(430,769)

-

-

(20,450,392)

-

Adjustment for foreign exchange transaction

3,834,994

(3,209,756)

Retirement benefit obligations

1,120,720

1,100,888

766,516

740,936

Employee benefit expenses under Employee Stock-Ownership Program (ESOP)

1,241,188

-

1,241,188

-

Gain from bargain purchase (supplement cash flows information )

(1,375)

Interest expenses

-

-

-

6,383,307

8,617,635

1,883,719

1,710,535

193,060,125

157,064,415

96,225,158

106,986,424

Profit from operating activities before change in operational assets and liabilities Decrease (Increase) in operational assets Trade accounts receivable Inventories Other current assets Other non - current assets

32,558,246

7,879,365

4,673,439

5,197,427

(24,965,226)

(31,251,559)

(33,168,646)

(16,801,840)

(397,606)

(7,147,633)

(1,370,028)

985,877

(135,900)

41,400

(2,135,900)

3,501,060

(55,800,162)

3,072,493

2,293,332

5,573,517

(5,357,173)

Increase (Decrease) in operational liabilities Trade accounts payable Other payable Other current liabilities Cash receipt from operations activities

3,461,050

(773,926)

633,844

25,554

(575,884)

128,394,812

72,003,959

95,891,139

(4,808,731) 143,084,263

831,661

Interest paid

(6,383,307)

(8,617,635)

(1,883,719)

(1,710,535)

Income tax paid

(5,951,384)

(6,714,121)

(1,225,711)

(1,369,080)

68,894,529

92,811,524

Net cash provided by operating activities

130,749,572

113,063,056

The accompanying notes to financial statements are an integral part of these financial statements.

Annual Report of 2012 - page 64


HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES STATEMENT OF CASH FLOWS (CON'T) FOR THE YEAR ENDED 31 DECEMBER 2012 In Baht Consolidated

Separate

financial statements 2012

financial statements

2011

2012

2011

Cash flows from investing activities Proceeds from short-term loan to related company

-

-

15,000,000

16,229,856

(84,240,119)

(56,492,008)

3,021,162

2,839,515

Cash paid for purchase of property, plant and equipment (supplement cash flows information) Proceeds from disposal of equipment

(104,783,764)

(148,067,748)

9,074,677

3,936,086

Cash distributed to the owners from disposal of investments in subsidiary

7,430,769

Proceeds from dividend from subsidiary

-

-

7,430,769

-

-

17,150,479

-

Cash paid for business acquisition (supplement cash flows information )

(11,000,000)

-

-

-

Cash paid for purchase of the investments in the subsidiary (supplement cash flows information ) Net cash used in investing activities

-

-

(99,278,318)

(144,131,662)

(2,880,286)

24,087,811

(11,000,000)

(2,100,000)

(52,637,709)

(39,522,637)

6,395,921

7,639,430

Cash flows from financing activities Increase (Decrease) in bank overdraft and short-term loans from financial institutions Proceeds from share capital issued under ESOP program

2,353,880

-

2,353,880

-

Proceeds of long-term loans from financial institutions

4,056,190

47,014,193

-

Payments of long-term loans from financial institutions

(13,936,549)

(5,000,000)

-

1,480,714

-

-

-

-

(5,000,000)

Proceeds from non-controlling interest in share capital of subsidiaries

-

Dividend paid from subsidiary to non-controlling interest Dividend paid

239,109

-

(47,459,981)

(33,600,000)

(47,459,981)

(33,600,000)

Net cash provided by (used in) financing activities

(57,627,637)

33,982,718

(38,710,180)

(30,960,570)

Net increase (decrease) in cash and cash equivalents

(26,156,383)

2,914,112

(22,453,360)

22,328,317

73,400,919

70,486,807

37,853,868

15,525,551

Cash and cash equivalents, Beginning of the year Add : Cash and cash equivalents of the subsidiary as at the acquisition date (note 22)

16,047,125

-

-

-

Less : Cash and cash equivalents including in disposal subsidiary Cash and cash equivalents, End of the year

(7,186,778) 56,104,883

-

-

73,400,919 -

-

The accompanying notes to financial statements are an integral part of these financial statements.

Annual Report of 2012 - page 65

-

15,400,508

37,853,868 -

-


HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES STATEMENT OF CASH FLOWS (CON'T) FOR THE YEAR ENDED 31 DECEMBER 2012 In Baht Consolidated

Separate

financial statements 2012

financial statements

2011

2012

2011 -

SUPPLEMENT DISCLOSURE OF CASH FLOWS INFORMATION 1. Property, plant and equipment The detail of "cash paid for purchase of property, plant and equipment" is as follow; Property, plant and equipment acquired during the years

(83,808,068)

(152,491,630)

(73,893,350)

(44,519,950)

Adjust Decrease on advance for acquisition of machineries

1,189,002

9,675,405

-

-

Increase (Decrease) on payable under hire-purchase agreements

609,090

(1,628,427)

1,568,682

(876,830)

(22,773,788)

(3,623,096)

(11,915,451)

(11,095,228)

(104,783,764)

(148,067,748)

(84,240,119)

(56,492,008)

(45,354,800)

(2,100,000)

Decrease on payable from acquisition of fixed assets Cash paid for purchase of property, plant and equipment 2. Investments in subsidiary The detail of "cash paid for purchase of investments in the subsidiary" is as follow; Investments in the subsidiary acquired during the year

-

-

Adjust Consideration transferred : Fair value of -

-

25,032,800

Consideration transferred : Cash consideration

the Company's equity instruments issued

-

-

(20,322,000)

Adjust Increase on payable from business acquisition

-

-

9,322,000

Cash paid for purchase of investments in the subsidiary

-

-

(11,000,000)

The accompanying notes to financial statements are an integral part of these financial statements.

Annual Report of 2012 - page 66

(2,100,000) (2,100,000)


HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES STATEMENT OF CASH FLOWS (CON'T) FOR THE YEAR ENDED 31 DECEMBER 2012 In Baht Consolidated

Separate

financial statements 2012

financial statements

2011

2012

2011 -

SUPPLEMENT DISCLOSURE OF CASH FLOWS INFORMATION (CON'T) 3. Cash paid for business acquisition The detail of "cash paid for business acquisition" is as follow; Fair value of the acquiree's identifiable net assets Less

Non-controlling interests of acquiree

Fair value of acquired identifiable net assets Adjust Gain from bargain purchase

(85,332,292)

-

-

-

13,548,917

-

-

-

(71,783,375)

-

-

-

-

-

-

(71,782,000)

-

-

-

51,460,000

-

-

-

(20,322,000)

-

-

-

-

-

-

1,375

Consideration transferred Adjust Consideration transferred : Fair value of the Company's equity instruments issued Consideration transferred : Cash consideration Adjust Increase on payable from business acquisition Cash paid for business acquisition

9,322,000 (11,000,000)

4. Non-Cash transactions : The acquisition of investments in the subsidiary and intangible assets At the Board of Directors' meeting held on 10 May 2012, the meeting passed the resolution to acquire the business of the subsidiary. The Company purchased 6,000 ordinary shares of FDM Technology Company Limited at the par value of Baht 100 per shares accounting for the proportion of 60% of total share capital of such company. In addition, the Company entered into Memorandum of Understanding with FDM Technology Company Limited on 2 May 2012 requiring such company to transfer all of its trading business and customer database of PCD cutting tools segment to operate under the Company. The Company agreed to pay for a purchase consideration by issue the new ordinary shares of 15,500,000 shares at the par value of Baht 1 per shares with the offering price of Baht 3.32 per shares with total investment value of approximately Baht 51.46 million and by the cash payment of Baht 20.32 million.

The accompanying notes to financial statements are an integral part of these financial statements.

Annual Report of 2012 - page 67


HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012

1. GENERAL INFORMATION Halcyon Technology Public Company Limited has the address of its registered office located at 41 Moo 14 Bangchan Industrial Estate, Soi 6, Serithai Rd., Minburi, Bangkok. The principal business operation of the Company is to produce and sell of cutting tools, jig & fixtures and custom metallic devices. The Company was listed on the Stock Exchange of Thailand on 27 March 2009 and the Company’s stock were trade on the MAI (on Market for Alternative Investment). “The Company” represents “Halcyon Technology Public Company Limited,” while “The Group” represents “Halcyon Technology Public Company Limited” and its subsidiaries. 2. BASIS OF FINANCIAL STATEMENT PREPARATION The consolidated and separate financial statements are prepared in accordance with Thai Generally Accepted Accounting Principles under the Accounting Act B.E. 2543, being those Thai Financial Reporting Standards issued under the Accounting Profession Act B.E.2547, and the financial reporting requirements of the Securities and Exchange Commission under the Securities and Exchange Act. The preparation of financial statements in conformity with Thai Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the amounts of revenues and expenses in the reported periods. Although these estimates are based on management’s best knowledge of current events and actions, actual results may differ from those estimates. The accompanying consolidated financial statements include the financial statements of Halcyon Technology Public Company Limited and the subsidiaries over which the Company has control. The details of subsidiaries are as follows; The date of Name of subsidiaries Direct shareholding 1. Halcyon Metal Co.,Ltd.

Country of incorporation

Nature of business

Percentage of shareholding

commencing control

2012

2011

Thailand

Production of metallic device

Before the year 2006

100

100

2. Haltek Co.,Ltd. (A)

Thailand

Sale of carbide cutting tools

The first quarter of 2010

-

70

3. FDM Techonology Co.,Ltd (B)

Thailand

Retail sale of cutting tools

The third quarter of 2012

60

-

Philippines

Production of cutting tools to supply for foreign markets

The third quarter of 2010

65

65

65

65

4. Halcyon Technology (Philippines) Inc.

Indirect shareholding through Halcyon Technology (Philippines) Inc. 5. Atek Precision Tools Inc. Philippines Production of cutting tools to supply for foreign markets

Annual Report of 2012 - page 68

The second quarter of 2011


HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012

2. BASIS OF FINANCIAL STATEMENT PREPARATION (CON’T) (A) During the fourth quarter of 2012, the Company has the resolution to dissolve the operation of Haltek Company Limited and the Company completed the process of dissolution and liquidation on 27 December 2012. (Notes 7 ) (B) During the third quarter of 2012, The Company acquired the business of FDM Technology Company Limited with the holding interest of 60%. Such company, as a result, change its status to the subsidiary. (Note 22) The consolidated and separate financial statements have been prepared under the historical cost, except for those stated otherwise in accounting policies. For the convenience of the user, an English translation of the financial statements has been prepared from the statutory financial statements that are issued in the Thai language. 3. ADOPTION OF NEW ACCOUNTING STANDARDS The following new accounting standards and amendments to accounting standards were announced by the Federation of Accounting Professions and are mandatory for the accounting periods beginning on or after 1 January 2013. The group has elected not to early adopt these standards. TAS 12 Income taxes TAS 20 (Revised 2009) Accounting for Government Grants and Disclosure of Government Assistance TAS 21 (Revised 2009) The Effects of Changes in Foreign Exchange Rates The management of the Company evaluated the effects from implementation of TAS 12 “Income taxes.” Assuming that TAS 12 were implemented, the implementation will not provide a significant effects to the Company's financial position as at 1 January 2013. Morever; the management of the Company has assessed the effect of those remaining standards and believes that TAS 20 (revised 2009) and TAS 21 (revised 2009) will not have any significant impact on the financial statements for the year in which it is initially applied. 4. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these financial statements are set out below; 4.1

Adjustment from the combination of entity under common controls The Company recognized the excess of the book value of acquired net assets over the cost of acquisition as “Adjustment from the combination of entity under common controls”.The adjustment is presented in the equity portion of financial statements and will be transferred to retained earnings, when the company disposes the investment.

Annual Report of 2012 - page 69


HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012

4. SIGNIFICANT ACCOUNTING POLICIES (CON’T) 4.2

Investments in subsidiaries Investments in subsidiaries, which are those entities in which the group has an interest of more than one half of the voting rights or otherwise has power to exercise control over the financial and operation policies are consolidated. Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the date that control ceases. All intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Where necessary, accounting policies for subsidiaries have been changed to ensure consistency with the policies adopted by the Group. Separate disclosure is made for minority interests in the consolidated financial statements and consolidated statement of income. The investments in subsidiaries presented in the separate financial statements are carried at cost, net of allowance for impairment (if any.)

4.3 Foreign currency translation Foreign currency transactions are accounted for at the exchange rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the financial position date are translated into Baht at the exchange rates ruling at that date. Gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of income. Statements of income and cash flows of foreign entities are translated into the Group’s reporting currency at the weighted average exchange rates for the year and financial statements are translated at the exchange rates ruling on the financial position date. Currency translation differences arising from the retranslation of the net investment in foreign entities are taken to shareholders’ equity. 4.4 Financial instruments Financial assets carried on the financial position include cash and cash equivalents, trade accounts receivable, other receivable and loan. Financial liabilities carried on the financial position include trade creditors, other payable, liabilities under hire-purchase agreements and borrowings. The particular recognition methods adopted are disclosed in the individual policy statements associated with each item. The Group did not adopt any derivative strategies to manage the fluctuation of foreign currency and interest rates. 4.5 Cash and cash equivalents Cash and cash equivalents consist of cash in hand, cash at banks, and all highly liquid investments with an original maturity of three months or less and not subject to withdrawal restrictions. 4.6 Trade accounts receivable Trade accounts receivable are carried at anticipated realisable value. An estimate is made for doubtful receivables based on a review of all outstanding amounts at the year end. Bad debts are written off during the year in which they are identified. The Group’s management estimates the allowance for doubtful accounts from the ending balance of accounts receivable. The estimate encompasses consideration of past collection experiences and other factors, such as changes in the composition and volume of the receivable, the relationship of the allowance for doubtful accounts to the receivable and the local economic conditions. Annual Report of 2012 - page 70


HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012

4. SIGNIFICANT ACCOUNTING POLICIES (CON’T) 4.7 Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined by the first in first out method. The cost of purchase comprises both the purchase price and costs directly attributable to the acquisition of the inventory, such as import duties and transportation charges, less all attributable discounts, allowances or rebates. The cost of finished goods and work in progress comprises raw materials, direct labor, other direct costs and related production overheads, the latter being allocated on the basis of normal operating activities. Net realizable value is the estimate of the selling price in the ordinary course of business, less the costs of completion and selling expenses. Allowance is made, where necessary, for obsolete, slow moving and defective inventories. 4.8 Property, plant and equipment Property, plant and equipment are shown at historical cost less accumulated depreciation. Depreciation is calculated on the straight line method to write off the cost of each asset, except for land which is considered to have an indefinite life, to its residual value over the estimated useful life as follows; Building and construction Building improvement Machineries and equipment Motor vehicles Furniture, fixtures and office equipment

20 Years 5 Years 5 - 10 Years 5 Years 3 and 5 Years

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Estimated recoverable amount is the higher of the anticipated discounted cash flows from the continuing use of the asset and the amount obtainable from the sale of the asset less any costs of disposal. Gains and losses on disposals are determined by comparing proceeds with the carrying amount and are included in operating profit. 4.9 Intangible assets Franchise rights Franchise rights represent the premiums paid to the franchisor in order to acquire its product name, trademark and in exchange for the franchisor to provide technical and marketing supports necessary for the introduction of new line of product in Thailand and Philippines. Such assets are amortized on the straight line method over their useful life of 3 years. Market shares and customer relationship Market shares and customer relationship acquired in business acquisition (Note 22) were stated at fair value at the acquisition date. The fair value was estimated by applying the income approach based on an assumed discount rate equal to the acquiree’s weighted average cost of capital of 34% and assumed future revenues growth ranged from 0% to 30% comparing to those of year 2011. Annual Report of 2012 - page 71


HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012

4. SIGNIFICANT ACCOUNTING POLICIES (CON’T) 4.9 Intangible assets Market shares and customers relationship acquired for two business segments were amortized under straight-line basis over the estimated useful lifes of each individual segments as follow; - Market share and customer relationship of PCD cutting tool segment - Market share and customer relationship of CARBIDE cutting tool segment

10 years 15 years

4.10 Accounting for long – term lease Leases of property, plant or equipment which substantially transfer all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalized at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Each lease payment is allocated to the principal and to the finance charges so as to achieve a constant rate on the finance balance outstanding. The outstanding rental obligations, net of finance charges, are included in other long-term payables. The interest element of the finance cost is charged to the statement of income over the lease period so as to achieve a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant or equipment acquired under finance leases is depreciated over the useful life of the asset. 4.11 Employee benefits The Group has employment benefits consisting of both defined benefit and defined contribution plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age of employee, years of service and compensation. The related accounting policies for employee benefits can be summarized as follows; 4.11.1 Defined Contribution Plan - Provident Fund The Group operates a provident fund that is a defined contribution plan. The assets are held in a separate fund which is managed by an external fund manager. The provident fund is funded by payments from employees and by the Group. Contributions to the provident fund are charged to the profit or loss in the year to which they relate.

Annual Report of 2012 - page 72


HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012

4. SIGNIFICANT ACCOUNTING POLICIES (CON’T) 4.11 Employee benefits (Con’t) 4.11.2 Defined Benefit Plan - Retirement Benefit The Group provides for post employment benefits, payable to employees under the Thai Labor Law. The present value of employee benefit liabilities recognised in the financial position is estimated on an actuarial basis using Projected Unit Credit Method. The calculation was made by utilizing various assumptions about future events. The Group is responsible for the selection of appropriate assumptions. The assumptions used in determining the net period cost for employee benefits include the discount rate, the rate of salary increment, and employee turnover. Any changes in these assumptions will impact the net periodic cost recorded for employee benefits. On an annual basis, the Group determines the appropriate discount rate, which represents the interest rate that should be used to determine the present value of future cash flows currently expected to be required to settle the employee benefits. In determining the appropriate discount rate, the Group considers the market yield at the financial position date based on Thai government bonds with currency and term similar to the estimated term of benefit obligation. The principal actuarial assumptions used were as follows; Consolidated and Separate financial statements 2011 2012 4.1 per annum

4.1 per annum

Future salary increases

Scale related to age and type of employment ranging from 3%-13%

Scale related to age and type of employment ranging from 3%-13%

Employee turnover

Scale related to age and type of employment ranging from 0%-30%

Scale related to age and type of employment ranging from 0%-30%

Mortality

According to Thailand TMO97 male and female tables

According to Thailand TMO97 male and female tables

Discount rate

4.11.3 Defined Contribution Plan - Employee Joint Investment Program (EJIP) During the year, the Company operates Employee Joint Investment Program for the employees to purchase the Company’s shares at each specific period through Employee Joint Investment Program, being a defined contribution plan, the assets for which are held in a separate agent. The Program is funded by payments deducted from participated employees' monthly payroll, together with the amount subsidized by the Company at the specific rate. The Company’s contributions to the Program are charged to the profit or loss in the period to which they relate.

Annual Report of 2012 - page 73


HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012

4. SIGNIFICANT ACCOUNTING POLICIES (CON’T) 4.11 Employee benefits (Con’t) 4.11.4 Defined Benefit Plan - Employee Stock-Ownership Program (ESOP) On 25 July 2012, the Company allocate the Company's stock warrants of 5,000,000 units without any consideration to the management and employees of the Company and its subsidiaries according to the Employee Stock-Ownership Program. The fair value of the warrants at the grant date was Baht 1.708 per unit. The fair value is calculated using Binomial Option Pricing Model. The financial input data comprises the underlying stock price at the grant date (25 July 2012) of Baht 4.08 per share, the warrant strike price of Baht 3.32 per share, the expected volatility which was calculated from the historical data of underlying share over the period of 1 year prior to the grant date of 43.77%, the warrant exercise period of 3 years and the risk-free interest rate of 3.78% per annum. The fair value of warrant granted under Employee Stock-Ownership Program was recognized as expense in the statement of income over the life of the program of 3 years. 4.12 Revenue recognition Sales and service revenues are recognised on the delivery of goods or on customer acceptance or on the performance of services. Sales are shown net of sales taxes and discounts, and after eliminating sales within the Group. Interest income is recognized on an accrual basis. 4.13 Related parties Enterprises and individuals that directly, or indirectly through one or more intermediaries, control, or are controlled by, or are under common control with, the company, including holding companies, subsidiaries and fellow subsidiaries are related parties of the company. Associates and individuals owning, directly or indirectly, an interest in the voting power of the company that gives them significant influence over the enterprise, key management personnel, including directors and officers of the company and close members of the family of these individuals and companies associated with these individuals also constitute related parties. In considering each possible related party relationship, attention is directed to the substance of the relationship, and not merely the legal form. 4.14 Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. Where the Group expects a provision to be reimbursed, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain. 4.15 Segment reporting Business segments provide products or services that are subject to risks and returns that are different from those of other business segments. Geographical segments provide products or services within a particular economic environment that is subject to risks and returns that are different from those of components operating in other economic environments. Annual Report of 2012 - page 74


HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012

5. TRADE ACCOUNTS RECEIVABLE In Baht Separate

Consolidated financial statements 2012 2011 Related companies Trade accounts receivable (Note 23) Other companies Trade accounts receivable Accrued income Posted date cheques received Total Less :Allowance for doubtful accounts Net Trade Account receivable

2012

statements

financial 2011

7,180,538

6,760,197

34,465,904

36,092,566

100,938,784 290,435 3,162,718 104,391,937 (1,428,693) 102,963,244 110,143,782

91,915,375 97,557 258,643 92,271,575 (1,554,580) 90,716,995 97,477,192

38,007,784 115,032 474,082 38,596,898 (1,119,479) 37,477,419 71,943,323

41,750,065 97,557 93,262 41,940,884 (1,227,281) 40,713,603 76,806,169

Outstanding trade accounts receivable can be analyzed as follows;

Related companies Not yet due Over due Less than 3 months 3 - 6 months 6 - 12 months Over 12 months Total Other companies Not yet due Over due Less than 3 months 3 - 6 months 6 - 12 months Over 12 months Total Less: Allowance for doubtful accounts Net

Consolidated financial statements 2012 2011

In Baht

Separate

statements

2012

financial 2011

3,540,072

6,760,197

4,600,330

12,539,471

3,640,466 7,180,538

6,760,197

4,299,154 7,794,315 13,482,888 4,289,217 34,465,904

8,726,005 1,011,838 13,815,252 36,092,566

77,382,315

77,673,331

23,591,877

34,204,320

25,139,693 436,785 11,770 1,421,374 104,391,937 (1,428,693) 102,963,244

12,243,065 590,424 442,121 1,322,634 92,271,575 (1,554,580) 90,716,995

13,637,131 249,845 1,118,045 38,596,898 (1,119,479) 37,477,419

5,994,015 350,009 330,518 1,062,022 41,940,884 (1,227,281) 40,713,603

Annual Report of 2012 - page 75


HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012

6. INVENTORIES Consolidated financial statements 2012 2011 Finished goods Work in process Raw materials Total Less Allowance for inventory obsolescence Net

In Baht

Separate 2012

financial

statements

2011

71,048,451 9,739,486 51,773,965 132,561,902

27,382,995 7,738,387 40,517,530 75,638,912

35,086,608 9,152,003 40,181,407 84,420,018

13,255,187 6,838,372 31,157,813 51,251,372

(10,429,941) 122,131,961

(4,886,768) 70,752,144

(9,002,519) 75,417,499

(4,886,768) 46,364,604

7. INVESTMENTS IN SUBSIDIARIES The details of investments presented in the separate financial statements as at 31 December 2012 and 2011 are as follows; Issue and Paid up Capital Cost method (In Baht) % of Holding (In Baht) 2011 2012 2011 2012 2011 2012 Halcyon Metal Co.,Ltd. Haltek Co.,Ltd. FDM Technology Co.,Ltd Halcyon Technology (Philippines) Inc. Total

50,000,000 1,000,000

50,000,000 10,000,000 1,000,000

100.00 60.00

100.00 70.00 -

50,000,000 45,354,800

50,000,000 7,000,000 -

40,400,000

40,400,000

65.00

65.00

26,260,000 121,614,800

26,260,000 83,260,000

Halcyon Metal Co., Ltd, is manufacturer of fixture and metallic devices. Haltek Co., Ltd, is trader and exporter of carbide cutting tools. FDM Technology Co.Ltd is the sale agent of PCD and Carbide cutting tool. Halcyon Technology (Philippines) Inc, is manufacturer of cutting tools for Philippines markets.

The movement of investments in subsidiaries in the separate financial statements for the year ended December 2012 was as follow; In Baht Opening balance Purchase of investments during the year (Note 22) Disposal of investments in subsidiary Closing balance

31

83,260,000 45,354,800 (7,000,000) 121,614,800

During the year, the Company acquired 6,000 ordinary shares of FDM Technology Company Limited at the par value of 100 Baht per share, accounting for 60% of total share capital. The business acquisition of FDM Technology Company Limited was completed by 12 July 2012 (Note 22) At the extraordinary shareholder’s meeting of Haltek Company Limited, held on 30 September 2012, the meeting pass a resolution to dissolve the operation of Haltek Company Limited and register for the Company dissolution and liquidation with the Ministry of Commerce on 4 October 2012. Later on 27 December 2012, the Company has completed the process of liquidation and recognized gain distributed to owner from disposal of investments in subsidiary of Baht 430,769. Annual Report of 2012 - page 76


HALCYON TECHNOLOGY PUBLIC COMPANY LIMITED AND ITS SUBSIDIARIES NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012

8. PROPERTY, PLANT AND EQUIPMENT

Land As at 31 December 2011 Cost Less : Accumulated depreciation Net book value

Consolidated financial statements (In Baht) Building Machineries Motor Office fixture improvement and equipment vehicles and equipment

Building and construction

Construction in progress

Total

25,920,000 25,920,000

65,933,680 (28,783,535) 37,150,145

12,581,798 (4,558,365) 8,023,433

546,597,387 (212,042,506) 334,554,881

13,192,221 (8,314,376) 4,877,845

15,765,361 (10,259,981) 5,505,380

3,638,627 3,638,627

683,629,074 (263,958,763) 419,670,311

Opening net book value

25,920,000

37,150,145

8,023,433

334,554,881

4,877,845

5,505,380

3,638,627

419,670,311

Increase from business acquisition (Note 22) Additions Transfer in (out) Disposals

605,424 (605,424)

3,894,576 380,391 (3,894,576)

984,486 677,000 (148,046)

36,904,294 33,175,869 (2,809,420)

1,682,495 5,787,750 (1,541,664)

833,147 1,872,315 (135,333)

37,878,832 (33,852,869) -

7,015,642 83,808,068 (9,134,463)

Depreciation Closing net book value

25,920,000

(3,313,160) 34,217,376

(717,791) 8,819,082

(49,350,993) 352,474,631

(2,478,263) 8,328,163

(2,611,033) 5,464,476

7,664,590

(58,471,240) 442,888,318

As at 31 December 2012 Cost Less: Accumulated depreciation Net book value

25,920,000 25,920,000

66,314,071 (32,096,695) 34,217,376

14,074,725 (5,255,643) 8,819,082

607,422,650 (254,948,019) 352,474,631

14,852,890 (6,524,727) 8,328,163

18,051,496 (12,587,020) 5,464,476

7,664,590 7,664,590

754,300,422 (311,412,104) 442,888,318

Transactions during the year ended 31 December 2012

Annual Report of 2012 - page 77


Halcyon Technology Public Company Limited

8. PROPERTY, PLANT AND EQUIPMENT (CON'T) Separate financial statements (In Baht) Building Machineries Motor Office fixture Construction and Improvement and equipment vehicles equipment in progress As at 31 December 2011 Cost Less: Accumulated depreciation Net book value Transactions during the year ended 31 December 2012 Opening net book value Additions Transfer in (out) Disposals Depreciation Closing net book value As at 31 December 2012 Cost Less: Accumulated depreciation Net book value

4,823,345

342,189,329

5,261,956

Total

7,435,624

3,638,627 363,348,881

(377,787) (110,544,998) (3,054,899) (5,159,021) 4,445,558 231,644,331 2,207,057 2,276,603

- (119,136,705) 3,638,627 244,212,176

4,445,558 449,790 677,000 (281,657) 5,290,691

231,644,331 2,207,057 2,276,603 3,638,627 244,212,176 29,622,508 5,085,451 856,769 37,878,832 73,893,350 33,175,869 - (33,852,869) (2,027,290) (2) - (2,027,292) (36,515,831) (1,457,575) (1,066,247) - (39,321,310) 255,899,587 5,834,931 2,067,125 7,664,590 276,756,924

5,950,135

400,068,928

10,347,405

8,292,393

7,664,590 432,323,451

(659,444) (144,169,341) (4,512,474) (6,225,268) 5,290,691 255,899,587 5,834,931 2,067,125

- (155,566,527) 7,664,590 276,756,924

The Group use Property, plant and equipment amounting to Baht 57.80 million are mortgaged as collateral for credit facilities of short-term and long-term loans from financial institution (Note 10 and 16). As at 31 December 2012, there are equipment which have been fully depreciated according to their useful lives, but are still in use with the original cost before deducting accumulated depreciation amounting to Baht 102.40 million in the consolidated financial statements and amounting to Baht 42.50 million in the separate financial statements. (31 December 2011: Baht 90.12 million in the consolidated financial statements and Baht 32.27 million in the separate financial statements) The measurement base used for determining valuation of the Group’s land is the cost method; however, during the year 2010, the Group hired the independent appraiser to appraise the value of the land using market comparison approach. According the valuation report, the fair value of such land is Baht 64.8 million which is Baht 38.88 million higher than the value under the cost method.

Annual Report of 2012 - page 78


Halcyon Technology Public Company Limited

9. INTANGIBLE ASSETS Consolidated financial statements (In Baht) Market share and customer relationship PCD cutting Carbide Cutting Franchise right tool segment tool segment For the year ended 31 December 2012 Opening net book value 2,871,182 Increase from the business 26,427,200 25,032,800 acquisition (Note 22) Amortization (1,222,018) (1,251,891) (786,419) Intangible asset written off (1,000,000) Closing net book value 649,164 25,175,309 24,246,381

For the year ended 31 December 2012 Opening net book value Increase from the business acquisition (Note 22) Amortization Closing net book value

Total 2,871,182 51,460,000 (3,260,328) (1,000,000) 50,070,854

Separate financial statements (In Baht) Market share and customer relationship in PCD cutting tool segment 26,427,200 (1,251,891) 25,175,309

10. BANK OVERDRAFT AND SHORT-TERM LOANS FROM FINANCIAL INSTITUTIONS

Bang overdraft Promissory notes Total

In Baht Consolidated financial Separate financial statements statements 2012 2011 2012 2011 895,921 895,921 62,272,174 66,048,381 35,000,000 29,500,000 63,168,095 66,048,381 35,895,921 29,500,000

As at 31 December 2012, the Group has short-term trade financing facilities from financial institutions according to the loan agreements in both Thai Baht and foreign currency comprising Thai Baht 109.85 million, USD 1.65 million and Philippines Peso 12 million in the consolidated financial statements and Baht 60.22 million in the separate financial statements.The trade financing facilities include bank overdrafts, promissory notes, letters of credit, trust receipts and banks’ letters of guarantee. The overdraft facilities charged interest at the rate of MOR per annum. The other facilities charged interest at the rates of MLR-1.5 per annum. Such short–term trade financing facilities are secured over a part of the land and building & structures of the subsidiary. (Note 8) Annual Report of 2012 - page 79


Halcyon Technology Public Company Limited

11. TRADE ACCOUNTS PAYABLE In Baht financial

Consolidated statements 2011 2012 Related companies (Note 23) Others Total

6,351,240 24,538,737 30,889,977

39,087 38,441,977 38,481,064

Separate financial statements 2012 2011 5,467,941 20,708,069 26,176,010

13,465,982 10,414,240 23,880,222

12. LIABILITIES UNDER HIRE PURCHASE AGREEMENTS In Baht financial Separate

Liabilities under hire purchase agreements Less : Current portion Net

Consolidated statements 2011 2012 2,457,563 (1,744,928) 712,635

896,842 (711,328) 185,514

2012

statements

2,133,423 (1,420,788) 712,635

financial 2011 564,741 (501,578) 63,163

13. DEFINED CONTRIBUTION PLAN- EMPLOYEE JOINT INVESTMENT PROGRAM (EJIP) During the year, the Company operates Employee Joint Investment Program for the employees to purchase the Company’s shares at each specific period through Employee Joint Investment Program, being a defined contribution plan, the assets for which are held in a separate agent. The Program is funded by payments deducted from participated employees' monthly payroll, together with the amount subsidized by the Company at the specific rate. The term and condition of the Employee Joint Investment Program can be summarised as follow; Qualification of participants

2012 The Company and subsidiary's management and employee with the position higher than supervisor level

Contribution by the employees

At the rate of 3% of monthly salary

Contribution by the company

At the specific rate based on the Company's total revenues

Frequency of stock investments Condition of stock selling

On a monthly basis Shares are enable for sale after holding period of 3 years

At the board of directors meeting held on 14 February 2013, the meeting passed the resolutions to call off Employee Joint Investment Program for the year 2012 because the Company's operating performance for the year ended 31 December 2012 did not meet the target. Annual Report of 2012 - page 80


Halcyon Technology Public Company Limited

14. DEFINED BENEFIT PLAN - EMPLOYEE STOCK-OWNERSHIP PROGRAM (ESOP) At the extraordinary shareholder’s meeting held on 22 June 2012, the shareholders passed the resolution to allocate the Company's stock warrants (ESOP Warrant-1) of 5,000,000 units without any consideration to the management and employees of the Company and its subsidiaries. The warrants are 3-year maturity commencing from date of issue and can be exercised at the first official day of March and October. The exercise price is Baht 3.32 per share under the exercise ratio of 1 warrant per 1 new share. The warrants have exercise conditions as follow; Year 1 2 3

Exercise conditions Warrant holders are entitled to exercise no more than 40% of their allocated warrants. Warrant holders are entitled to exercise no more than 70% of their allocated warrants. Warrant holders are entitled to exercise no more than 100% of their allocated warrants.

The warrants were allocated to the employees on 25 July 2012 with the first exercise date on 1 October 2012. As at 31 December 2012, total fair value of outstanding stock warrants allocated to the employees according to the program was Baht 7.33 million (accounted for 4.29 million units of allocated warrant with fair value of Baht 1.708 per unit.) The movement of allocated warrant for the year ended 31 December 2012 was as follow; Unit : 1 unit of warrant Outstanding warrant at the beginning of the year Warrants issued and allocated during the year 5,000,000 Warrants exercised during the year (709,000) Outstanding warrant at the end of the year 4,291,000 Employee benefit expenses under ESOP (In Baht)

1,241,188

Fair value of warrant exercised during the year (In Baht)

1,210,972

For the year ended 31 December 2012, 709,000 units of warrant have been exercised to purchase the Company 's stocks amounting of Baht 2.35 million, accounted for 709,000 units of shares at the price of Baht 3.32 per share. 15. RETIREMENT BENEFIT OBLIGATIONS The reconciliation of retirement benefit obligation for the year ended 31 December is as follow; In Baht Separate financial statements Consolidated financial statements 2011 2012 2011 2012 Obligation at the beginning of the years Recognized as expenses in statement of income ; - Current service cost - Interest cost Total Benefit paid during the years Obligation at the end of the years

7,482,598

6,381,710

4,233,086

3,492,150

890,004 230,716 1,120,720 8,603,318

839,236 261,652 1,100,888 7,482,598

631,720 134,796 766,516 4,999,602

597,756 143,180 740,936 4,233,086

Annual Report of 2012 - page 81


Halcyon Technology Public Company Limited

16. LONG-TERM LOANS FROM FINANCIAL INSTITUTIONS Consolidated financial statements 2012 2011 Loans from financial institutions Less : Current portion Net

37,133,834 (18,735,682) 18,398,152

In Baht

47,014,193 (15,671,399) 31,342,794

Separate financial statements 2012 2011 -

-

The movement of long-term loans from financial institutions for the year ended 31 December 2012 is as follow; In Baht Consolidated Separate financial statements financial statements The beginning balances Borrowing Principal repayment The ending balances

47,014,193 4,056,190 (13,936,549) 37,133,834

-

There was a loan from financial institution in the consolidated financial statements with the initial loan principal of USD 2.23 million. As at 31 December 2012, the outstanding balance was USD 1.19 million (Equivalent to Baht 37.13 million) (31 December 2011: USD 1.48 million). The payments of principal are made on quarterly installment of USD 132,898 each, starting on March 2012. The loan charged interests at the rate range 3.87% - 4.10% per annum. The long-term loans facility is secured over a part of the land and buildings & structures of the subsidiary (Note 8), together with the guarantee by directors. The loan agreement contains normal covenants pertaining to matters such as the maintenance of a certain debt-toequity ratio and restriction in dividend payment. 17. SHARE CAPITAL At the extraordinary shareholder’s meeting held on 22 June 2012, the meeting passed the resolutions to approve the increase of authorized share capital from Baht 240 million to Baht 300 million (divided into 300 million ordinary shares of Baht 1 each) by issuing 60 million new ordinary shares with par value of Baht 1 each. The Company registered such increase of authorized capital with the Ministry of Commerce on 16 July 2012. The appropriation of the offering and/or reserve of new ordinary shares were identified as follows; The First Portion of shares The appropriation of the increasing ordinary shares of 15.50 million shares with the par value of Baht 1 per share, offering price of Baht 3.32 per shares and fair value of Baht 51.46 million was offered to the former director and shareholder of FDM Technology Company Limited in respect to the acquisition agreement mentioned in Note 22. The Company registered such portion of shares as listed securities in the Market for Alternative Investment (MAI) on 19 July 2012.

Annual Report of 2012 - page 82


Halcyon Technology Public Company Limited

17. SHARE CAPITAL (CON'T) The Second Portion of shares The appropriation of the increasing ordinary shares of 39.50 million shares at the par value of Baht 1 per share was offered to new shareholders through the private placement. The offering price would not be lower than 90% of the market price of the Company ‘s shares. The Company is currently in the process of determining the term and condition of share offering. The Third Portion of shares The appropriation of the increasing ordinary shares of 5.00 million shares was reserved for right exercised in accordance with the Company’s ESOP warrants (Note 14) offering to the management and employees of the Company and its subsidiaries. For the year ended 31 December 2012, total 709,000 units of warrant have been exercised according to Employee Stock-Ownership Program in order to purchase 709,000 units of the Company 's stocks at the price of Baht 3.32 per share with total amount of Baht 2.35 million. The Company registered such portion of shares as listed securities in the Market for Alternative Investment (MAI) on 16 October 2012. 18. LEGAL RESERVE The legal reserve of the Company was established in accordance with the provisions of the Thai Public Company Limited Act B.E. 2535, which requires the appropriation as legal reserve of at least 5% of net income for the year until the reserve reaches 10% of the authorized share capital. This reserve is not available for dividend distribution. 19. DIVIDENDS PAID At the Board of Directors’ meeting held on 7 August 2012, the board passed the resolutions to approve the payment of interim dividend from the operational performance for the six-month period ended 30 June 2012 to the shareholders who hold 255.50 million units of ordinary share of Baht 0.12 per share with total amount of Baht 30.66 million. The dividends were paid on 3 September 2012. At the shareholders’ meeting held on 3 April 2012, the meeting passed the resolutions to approve the payment of 2011 annual dividends amounting of Baht 38.40 million to the shareholders who hold 240 million units of ordinary shares of Baht 0.16 per share. The first portion was paid as interim dividends on 9 September 2011 to the shareholder who hold 240 million units of ordinary shares of Baht 0.09 per share with total amount of Baht 21.6 million. The remaining portion of dividend of Baht 16.8 million was paid on 2 May 2012 to the shareholders who hold 240 million units of ordinary shares according to the share registration books as at 18 April 2012 at the rate of Baht 0.07 per share. At the ordinary shareholders’ meeting held on 1 April 2011, the meeting passed the resolutions to approve the payment of dividends amounting of Baht 12 million from the operating result of 2010 under promotional privileges to the shareholders who hold 240 million units of ordinary shares of Baht 0.05 per share. The dividends were paid to the shareholders whose names were in the share registration books as at 19 April 2011. The dividends were paid on 29 April 2011.

Annual Report of 2012 - page 83


Halcyon Technology Public Company Limited

20. EARNINGS PER SHARE Basic earnings per share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year. The details of basic earnings per share for the year ended 31 December 2012 and 2011 were as follow; Consolidated financial statements 2011 2012 Net Profit attributable to shareholders Weighted average number of ordinary shares Basic earnings per share (Baht per share)

In Baht

Separate financial statements 2012 2011

88,558,904

86,853,483

67,748,898

67,871,400

247,208,273

240,000,000

247,208,273

240,000,000

0.3582

0.3619

0.2741

0.2828

The diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. The Company has a dilutive potential ordinary shares which is stock warrant provided to the Company 's employee and management under ESOP (Note 14.) A calculation is made to determine the number of shares that could have been acquired at fair value (determined as the average annual market price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding stock warrant. The number of shares calculated as above is compared with the number of shares that would have been issued assuming the exercise of the stock warrant. The difference is added to the denominator as an issue of ordinary shares for no consideration. No adjustment is made to earnings. The details of diluted earnings per share for the year ended 31 December 2012 and 2011 were as follow; Consolidated financial statements 2011 2012 Net Profit attributable to shareholders Weighted average number of ordinary shares Adjustments for stock warrant Weighted average number of ordinary share for diluted earnings per share Diluted earnings per share (Baht per share)

In Baht

Separate financial statements 2012 2011

88,558,904

86,853,483

67,748,898

67,871,400

247,208,273 824,267

240,000,000 -

247,208,273 824,267

240,000,000 -

248,032,540

240,000,000

248,032,540

240,000,000

0.3570

0.3619

0.2731

0.2828

Annual Report of 2012 - page 84


Halcyon Technology Public Company Limited

21. EXPENSES BY NATURE Some transactions included in calculated operating income for the year ended 31 December can classify by nature as follows; In Baht Consolidated Separate financial statements financial statements 2012 2011 2012 2011 Changes in finished goods and work in progress (45,666,555) (9,718,427) (24,145,052) (1,018,938) Purchase of finished goods 95,519,931 36,843,238 5,762,820 9,154,099 Raw materials and consumable used 114,304,745 127,972,804 83,118,376 79,604,413 Outsourcing production cost 13,322,833 15,975,124 10,286,776 8,756,704 Depreciation and amortization 61,731,568 55,887,265 40,573,201 36,075,643 Intangible asset written off 1,000,000 Doubtful accounts (Reversal) (125,887) 267,310 (107,802) 189,930 Staff costs 106,108,490 88,627,897 50,240,983 40,911,206 Unrealised loss from inventory Obsolescence 5,543,173 1,341,783 4,115,751 1,341,783 22. BUSINESS ACQUISITION At the Board of Directors’ meeting held on 10 May 2012, the meeting as a trade agent of passed the resolution to acquire the business of FDM Technology Company Limited which operates PCD and Carbide cutting tools to support the manufacturing of electronic and automotive parts industries. The Company purchased 6,000 ordinary shares of FDM Technology Company Limited at the par value of Baht 100 per shares accounting for the proportion of 60% of total share capital of such company. In addition, the Company entered into Memorandum of Understanding with FDM Technology Company Limited on 2 May 2012 requiring such company to transfer all of its trading business and customer database of PCD cutting tools segment to operate under the Company. The Company agreed to pay for a purchase consideration by issue the new ordinary shares of 15,500,000 shares at the par value of Baht 1 per shares with the offering price of Baht 3.32 per shares with total investment value of approximately Baht 51.46 million and by the cash payment of Baht 20.32 million. The business acquisition was completed and the Company obtained a total control of FDM Technology Company Limited on 12 July 2012. Taking control of FDM Technology Company Limited will enable the Company to increase its share in the cutting tool market through access to the acquiree’s customer base. The Company also expects to sale some products with a higher margin as the agent sale is bypassed and the sale is made directly to the end users. Moreover, the acquisition will provide the Company with qualified personnel with marketing ability.

Annual Report of 2012 - page 85


Halcyon Technology Public Company Limited

22. BUSINESS ACQUISITION (CON’T) The following summarizes the major classes of consideration transferred, and the recognized amount of assets acquired and liabilities assumed at the acquisition date; Consideration transferred (comprise of;) Fair value (Baht) 20,322,000 Cash 51,460,000 Equity instruments issued * (15.5 million ordinary shares) 71,782,000 Total * The fair value of the ordinary shares issued was calculated by the weighted average closing price of the Company’s share 15 consecutive trading days prior to the date on which the board of director approve the issue of share capital.(Calculated based on the closing price between 17 April 2012 to 9 May 2012 equivalent to Baht 3.68 per shares) and then deducted by the discount rate of 9.78%.) Consideration transferred (in order to acquire:) Fair value (Baht) Investments in FDM Techology Co.,Ltd with holding interest of 60% 45,354,800 26,427,200 Market share and customer relationship in PCD cutting tool segment 71,782,000 Total The fair value of identifiable assets acquired and liabilities assumed as at 31 May 2012 Cash and cash equivalent Trade accounts receivable Inventories Property, plant and equipment Intangible asset * : - Market share and customer relationship of PCD cutting tool segment - Market share and customer relationship of Carbide cutting tool segment Other assets Trade accounts payable Liabilities under hire-purchase agreements Accrued expenses and other current liabilities

Baht 16,047,125 50,235,947 32,108,736 7,015,642 26,427,200 25,032,800 392,055 (63,539,639) (951,631) (7,435,943) 85,332,292

Total identifiable net assets

* The fair values of intangible assets which are market share and customer relationship were estimated by applied the method as mentioned in Note 4.9

Annual Report of 2012 - page 86


Halcyon Technology Public Company Limited

22. BUSINESS ACQUISITION (CON'T) Gain from a bargain purchase

Fair value (Baht) 71,782,000

Total consideration transferred (85,332,292) Less : Identifiable net assets 13,548,917 (71,783,375) : Non-controlling interests of acquire* (1,375) Gain from bargain purchase *The value of the non-controlling interest in FDM Technology Company Limited, an unlisted company, was recognized at the non-controlling interest's proportionate share of the acquiree's identifiable net assets. 23. TRANSACTIONS WITH RELATED PARTIES A) Relationship and pricing policy The relationship among the Companies, subsidiaries and related companies is as follows; 2012 Subsidiaries Halcyon Metal Company Limited Haltek Company Limited* FDM Technology Company Limited** Halcyon Technology (Philippines) Inc Atek Precision Tools Inc

Relationship

100% shareholding 60% shareholding and directorship 65% shareholding and directorship 65% indirect shareholding and directorship

2011

100% shareholding 70% shareholding and directorship 65% shareholding and directorship 65% indirect shareholding and directorship

Related Companies Shareholder of subsidiary Shareholder of subsidiary Atek Precision Tools PTE LTD FDM Asia Pacific PTE LTD Shareholder of subsidiary Shareholder of subsidiary * As mentioned in Note 7, during the fourth quarter of 2012, the Company has the resolution to dissolve the operation of Haltek Company Limited and the Company completed the process of dissolution and liquidation on 27 December 2012. **As mentioned in Note 22, during the third quarter of 2012, the Company acquired the business of FDM Technology Company Limited with the holding interest of 60% ; therefore, FDM Technology Company Limited has changed its status from other company to related company since 12 July 2012. The pricing policies among the Company, subsidiaries and related companies are as follows; • The goods and services sold to the subsidiaries and related companies were carried out on commercial terms and conditions. • The sell of property, plant and equipment among the Group were quoted at the price which approximate to the market value of assets at the transaction date. • The interest rate charged among the Group approximates to the lender’s cost of finance. The loan is non-collateral and will be repaid on demand. Annual Report of 2012 - page 87


Halcyon Technology Public Company Limited

23. TRANSACTIONS WITH RELATED PARTIES (CON'T) B) Balance of transactions with related parties Consolidated financial statements 2012 2011 Trade accounts receivable Halcyon Metal Company Limited Haltek Company Limited Halcyon Technology (Philippines) Inc FDM Technology Company Limited Atek Precision Tools PTE LTD Total

In Baht Separate 2012

statements

financial 2011

7,180,538 7,180,538

6,760,197 6,760,197

232,977 26,877,068 442,631 6,913,228 34,465,904

360,081 2,663,112 26,710,342 6,359,031 36,092,566

Trade accounts payable Halcyon Metal Company Limited Haltek Company Limited FDM Technology Company Limited Atek Precision Tools PTE LTD Total

39,087 39,087

6,351,240 6,351,240

5,131,816 297,038 39,087 5,467,941

5,042,658 8,423,324 13,465,982

Payable from fixed asset acquisition Halcyon Metal Company Limited

-

-

588,500

-

Accrued expenses Halcyon Metal Company Limited

-

-

638,700

944,370

The ending balances and the movement of short-term loans to and interest receivable from subsidiary in the separate financial statements for the year ended 31 December 2012 can be analyzed as follows;

Beginning balance Halcyon Metal Company Limited Principal Interest receivable Total

15,000,000 639,949 15,639,949

Lending/ Interest receivable 103,544 103,544

Annual Report of 2012 - page 88

In Baht Repayment of principal / interest (15,000,000) (743,493) (15,743,493)

Ending balance -


Halcyon Technology Public Company Limited

23. TRANSACTIONS WITH RELATED PARTIES (CON'T) C)

Related party transactions The related-party transactions for the year ended 31 December are as follows;

Consolidated financial statements 2012 2011 Sales of products Halcyon Metal Company Limited Haltek Company Limited Halcyon Technology (Philippines) Inc Atek Precision Tools PTE LTD FDM Asia Pacific PTE LTD FDM Technology Company Limited Total

24,482,668 24,482,668

Other income and Interest received Halcyon Metal Company Limited Halcyon Technology (Philippines) Inc FDM Technology Company Limited Total

In Baht Separate

financial statements

2012

2011 1,308,033 5,963,373 31,837,978

11,507,788 5,468,474 16,976,262

951,185 3,993,993 15,737,546 24,482,668 11,789,461 56,954,853

-

-

103,544 1,451,050 126,530 1,681,124

949,709 1,820,189 2,769,898

-

-

14,000,000 6,450,392 20,450,392

-

-

-

-

2,839,516

-

10,791,238 5,172,533 55,073,155

Dividends income Halcyon Metal Company Limited Halcyon Technology (Philippines) Inc Total Gain on disposal of assets Halcyon Technology (Philippines) Inc

Annual Report of 2012 - page 89


Halcyon Technology Public Company Limited

23. TRANSACTIONS WITH RELATED PARTIES (CON’T) C)

Related party transactions (Con’t) The related-party transactions for the year ended 31 December are as follows; Consolidated financial statements 2012 2011

Purchase of goods and service Halcyon Metal Company Limited Haltek Company Limited Halcyon Technology (Philippines) Inc Atek Precision Tools PTE LTD FDM Technology Company Limited Total Purchase of fixed assets Halcyon Metal Company Limited Haltek Company Limited Total Rental and other expenses Halcyon Metal Company Limited

In Baht Separate 2012

statements

financial 2011

145,615 145,615

9,526,396 9,526,396

19,123,652 5,733,066 363,003 145,615 605,685 25,971,021

16,112,157 13,979,054 30,091,211

-

-

830,376 805,542 1,635,918

250,000 250,000

-

-

11,823,872

11,364,507

24. FINANCIAL INFORMATION BY SEGMENT A) Financial information by business segments The Group operates in three business segments as follows; • Produce and sell of specific designed PCD and Carbide cutting tools for the manufacturer of electronic components. [Halcyon Technology Public Company Limited ,Halcyon Technology (Philippines) Inc and Atek Precision Tools Inc] • Import and sell of standard PCD and Carbide cutting tools for the manufacturer of automotive parts industries. [Haltek Company Limited and FDM Technology Company Limited] • Produce and sell of jig & fixtures and metal fabrication. [Halcyon Metal Company Limited]

Annual Report of 2012 - page 90


Halcyon Technology Public Company Limited

24. FINANCIAL INFORMATION BY SEGMENT (CON’T) A) Financial information by business segments (Con’t) Segment information by business segments for the year ended 31 December 2012 is as follows: In Baht Specific designed Standard Metal fabrication Elimination Cutting tools Cutting tools Sale and service revenue 370,722,150 113,139,560 102,417,218 (57,697,433) 56,494,433 (210,564,582) (84,188,706) (75,309,744) Cost of sales and services Gross profit 160,157,568 28,950,854 27,107,474 (1,203,000) Selling and administrative expenses (73,625,161) (14,685,853) (13,868,763) 430,732 2,029,343 779,667 1,050,207 668,724 Other income Profit before financial cost and tax 88,561,750 15,044,668 14,288,918 (103,544) Financial cost (4,873,815) (236,687) (1,376,980) 103,544 (3,232,149) (765,360) (907,445) Income tax 82,780,490 11,575,832 12,146,578 Net profit As at 31 December 2012 Property, plant and equipment Other assets Total assets

357,751,502 331,652,572 689,404,074

1,517,416 57,165,414 58,682,830

83,619,400 44,351,077 127,970,477

(82,153,439) (82,153,439)

Total 528,581,495 (313,568,599) 215,012,896 (101,749,045) 4,527,941 117,791,792 (6,383,938) (4,904,954) 106,502,900 442,888,318 351,015,624 793,903,942

Segment information by business segments for the year ended 31 December 2011 was as follows: In Baht Specific designed Standard Metal Cutting tools fabrication Elimination Total Cutting tools Sale and service revenue 322,773,867 31,705,384 110,861,985 (52,870,546) 412,470,690 51,608,146 (233,497,857) (186,856,870) (23,548,786) (74,700,347) Cost of sales and services Gross profit 135,916,997 8,156,598 36,161,638 (1,262,400) 178,972,833 Selling and administrative (5,426,888) (15,043,569) 3,082,589 (83,730,011) expenses (66,342,143) 48,744 1,825,333 (2,769,898) 8,033,422 8,929,243 Other income Profit before financial cost and tax Financial cost Income tax Net profit

78,504,097 (7,131,819) (1,543,262) 69,829,016

2,778,454 (186,130) (891,278) 1,701,046

22,943,402 (2,239,371) (3,730,647) 16,973,384

(949,709) 949,709 -

103,276,244 (8,607,611) (6,165,187) 88,503,446

As at 31 December 2011 Property, plant and equipment Other assets Total assets

328,274,317 268,140,333 596,414,650

955,146 21,850,474 22,805,620

90,440,848 57,356,964 147,797,812

(92,018,749) (92,018,749)

419,670,311 255,329,022 674,999,333

Annual Report of 2012 - page 91


Halcyon Technology Public Company Limited

24. FINANCIAL INFORMATION BY SEGMENT (CON’T) B) Financial information by geographical segments The Group operates in 2 main geographical areas as follows; A. Domestic: This is the home country of the parent company which is also the main operating company. The business segments include in this geographical area is to produce and sell of specific designed and standard PCD and Carbide cutting tools, jig & fixtures and metal fabrication. B. Foreign (Republic of Philippines) : The business segments include in this geographical area is to produce and sell of specific designed Carbide cutting tools. Segment information by geographical segments for the year ended 31 December 2012 is as follows: In Baht Republic of Philippines Elimination Total Thailand Sale and service revenue Cost of sales and services Gross profit Selling and administrative expenses Other income Profit before financial cost and tax Financial cost Income tax Net profit As at 31 December 2012 Property, plant and equipment Other assets Total assets

416,787,457 (265,925,590) 150,861,867 (75,554,433) 3,473,317 78,780,751 (3,801,424) (4,904,954) 70,074,373

129,865,694 (65,714,665) 64,151,029 (26,503,824) 1,363,836 39,011,041 (2,582,514) 36,428,527

(18,071,656) 18,071,656 309,212 (309,212) -

528,581,495 (313,568,599) 215,012,896 (101,749,045) 4,527,941 117,791,792 (6,383,938) (4,904,954) 106,502,900

361,893,740 331,433,481 693,327,221

80,994,578 78,034,812 159,029,390

(58,452,669) (58,452,669)

442,888,318 351,015,624 793,903,942

Segment information by geographical segments for the year ended 31 December 2011 was as follows: In Baht Republic of Philippines Elimination Total Thailand Sale and service revenue Cost of sales and services Gross profit Selling and administrative expenses Other income Profit before financial cost and tax Financial cost Income tax Net profit As at 31 December 2011 Property, plant and equipment Other assets Total assets

362,903,122 (214,901,890) 148,001,232 (60,206,959) 7,445,206 95,239,479 (3,826,985) (6,165,187) 85,247,307

83,115,975 (52,144,374) 30,971,601 (25,343,241) 2,408,405 8,036,765 (4,780,626) 3,256,139

(33,548,407) 33,548,407 1,820,189 (1,820,189) -

412,470,690 (233,497,857) 178,972,833 (83,730,011) 8,033,422 103,276,244 (8,607,611) (6,165,187) 88,503,446

335,608,170 246,564,499 582,172,669

84,062,141 64,679,961 148,742,102

(55,915,438) (55,915,438)

419,670,311 255,329,022 674,999,333

Annual Report of 2012 - page 92


Halcyon Technology Public Company Limited

25. PROMOTIONAL PRIVILEGES The Company was granted certain promotional privilege under the Investment Promotion Act. B.E 2520 in accordance with certificate No. 1784(2)/2551 dated on 5th August 2008 on its business segment of cutting tool. The privileges are for instance to reduce import duty rate of raw material and supplies required for production for a period of one year and exempt from corporate income tax for a period of eight years starting from the date of operation. The commencing date of promoting operation according to the promotional privilege is as follow; Commencing date Certificate No. 1784(2)/2551 5 August 2008 As promoted companies, the Company must comply with certain conditions and restrictions provided for in the promotional certificates. Based on the Announcement of the Board of the Investment No. Por 14/2541 dated 30 December 1998, regarding revenues reporting of a promoted industry, the Company is required to report the revenues from domestic sales and export sales separately and to report separately between the promoted and nonpromoted sectors. For the year ended 31 December 2012, the required information was as follows:

Revenues Income from domestic sales Income from export sales Total income from sales Other income Total revenue

Promoted sector 179,167,582 64,938,690 244,106,272 23,111,476 267,217,748

In Baht Non-promoted sector 9,432,100 3,418,633 12,850,733 1,300,814 14,151,547

total 188,599,682 68,357,323 256,957,005 24,412,290 281,369,295

26. FINANCIAL INSTRUMENTS A) Financial risk management and policies The principal financial risks faced by the Group are interest rate risk, foreign currency risk and credit risk. The Group did not adopt any derivative strategies to manage such exposures. The Group did not intend to engage in trading derivative instruments for speculative purposes. B) Foreign currency risk A portion of the Company’s sale and purchase are made in foreign currency. The proceeds from export sale are made in US dollar ,Singapore dollar and Euro while the payment for importing of goods and machineries are made in US dollar ,Singapore dollar, Yen, Euro, British Pound and Swiss Franc. These structures of transactions provide, to some degree, a natural hedge against foreign currency risk. For the year ended 31 December 2012, the proportions of sale transactions which were dominated in foreign currency, were accounted for 26.33% of total sale, while those of foreign-currency purchase transactions were accounted for 19.80% of total cost of sale. Moreover, the subsidiary has short-term and long-term loans dominated in US dollar. The Group did not adopt any other derivative strategies to manage such foreign currency risks. Annual Report of 2012 - page 93


Halcyon Technology Public Company Limited

26. FINANCIAL INSTRUMENTS (CON'T) B) Foreign currency risk (Con't) As at 31 December 2012, foreign currency-dominated assets and liabilities, which were unhedged, were as follows; Separate Consolidated financial statements financial statements Foreign currency-dominated assets US Dollar 1,269,206 1,218,654 49,105 Singapore Dollar 59,890 Foreign currency-dominated liabilities Euro US Dollar Singapore Dollar Japanese Yen Swiss Franc Pounds Sterling

12,611 258,759 61,382 172,160 177,136 2,216

12,611 254,429 59,630 177,136 2,216

C) Interest rate risk The interest rate risk is the risk that future movements in market interest rates will affect the results of the Group operations and its cash flows. The Group exposure to interest rate risk relates primarily to its deposits with financial institutions and short-term and long-term loans. The long-term loans carry interest at rate close of market rates, and the Group believed that the future fluctuation on market interest rate would not provided significant effect to its operation and cash flow; therefore, no financial derivative was adopted to manage interest rate risk. D) Credit risk The Group were exposed to credit risk. However, due to the fact that its major customers are large firms with strong financial position. The Group do not anticipate material losses from its debt collection. The Group estimated the allowance for doubtful accounts from the ending balance of accounts receivable. The estimate was made by considering the customer’s past collection experiences. E) Fair value The financial assets and liabilities include cash and cash equivalents, trade accounts receivable and payable, other receivable and payable and loan to and loans from counterparties. Their carried values approximate to their fair values.

Annual Report of 2012 - page 94


Halcyon Technology Public Company Limited

27. COMMITMENTS A) Bank guarantee issued by banks As at 31 December 2012, the Group had letters of guarantee issued by banks for the payment of electricity and utility fee amounting to Baht 1.67 million. B) Letter of credit issued by banks As at 31 December 2012, the Group had letters of credit issued by banks for acquisition of imported machineries amounting of Baht 2.96 million. C) Guarantee to subsidiary As at 31 December 2012, Halcyon Technology Public Company Limited provided guarantees amounting to USD 3.23 million against the liabilities of its subsidiary, Halcyon Technology (Philippines) Inc. D) Investment commitments As at 31 December 2012, the Company had the commitment related to the payment for the unpaid share capital of investments in Halcyon Technology (Philippines) Inc and FDM Technology Company Limited amounting to Baht 38.74 million and Baht 5.40 million respectively. E) Commitment according to the partnership agreement As at 31 December, the subsidiary has outstanding franchise fee commitment to be paid to joint partner according to the partnership agreement as follow ; 2012 Payable within 1 year 2 years 3 years Total

In million Baht

-

2011 1.00 1.00 0.50 2.50

During the year, the subsidiary dissolved its operation and there was agreement between the subsidiary and joint partner that the outstanding franchise fee will be canceled. Therefore, as at 31 December 2012, the Group no longer has commitment under the partnership agreements. 28. CAPITAL MANAGEMENT The primary objective of the Company’s capital management is to ensure that it has an appropriate financial structure and preserves the ability to continue its business as a going concern. As at 31 December 2012 the consolidate financial statements debt-to-equity ratios was 0.33:1 (the separate financial statements: 0.20:1) 29. APPROVAL OF THE FINANCIAL STATEMENTS These financial statements were authorized for issue by the Company’s Board of directors on 14 February 2013. Annual Report of 2012 - page 95

Htech 12  

HTECH_2012 HALCYON TECHNOLOGY PCL Annual Report 2012