Company Background: Digital Kingdom is a diversified investment holding company with operations and investments in Hong Kong, the United States, Canada, mainland China and other countries, covering media and entertainment, digital visual effects (VFX), cooperative film production, property investment and development, and trade business. The issue of convertible notes is being resolved. Digital Kingdom announced that CITIC Shares [0267.HK], SBCVC Digital Fund, L.P. (SoftBank, an exempt limited liability partnership registered in the Cayman Islands and managed by SoftBank China Capital) and Zheng Hao have acquired convertible stock certificates of HK$84 million, HK$84 million and HK$22.51 million respectively from Harmony Energy, the holder of convertible notes with a principal amount of HK$190 million. Strategic investors: Digital Kingdom has also signed agreements with China's CITIC and SoftBank to subscribe for new shares. According to the subscription agreement, Digital Kingdom has conditionally agreed to allocate and issue a total of 363,636,364 shares to the subscribers and/or their respective nominees at a subscription price of HK$0.55 per subscribed share. The subscribed shares are equivalent to approximately 2.97% of the company's issued share capital after the subscription was extended. The subscription price was discounted by approximately 9.84% compared to (i) the closing price of HK$0.61 per share on September 30, 2016; and (ii) the average closing price of the shares of HK$0.574 per share for five consecutive trading days immediately before the date of the subscription agreement. The subscription matters can only be realized if (a) all guarantees made by Digital Kingdom under the subscription agreement are true and correct in all material aspects and are not misleading in any material aspect on the completion date; (b) the listing and trading of its subscription shares is approved by the Listing Committee; (c) Digital Kingdom has raised no less than HK$300,000 in equity capital on or before the completion date; and (d) the subscription agreement is also completed at the same time. The total amount of proceeds from the subscription process and the net proceeds will be approximately HK$200,000,000 and HK$199,850,000 respectively. It is intended to be used for the Media and Entertainment division of Digital Kingdom and for general working capital. The business is developing smoothly. In July 2016, Digital Kingdom signed a three-year cooperation agreement with Youku. The company has received the initial payment from Youku and has begun supplying it with content (such as “Road to Rio”, which includes visits with Chinese Olympic champions and other sports-related interviews). Digital Kingdom also produces premium content (sports, MVs, concerts, TV series, and movies), which will be sold to Youku at a premium over the agreed price. The company's revenue from providing VR content to Youku will be reflected in the results for the second half of 2016. It is estimated that from 2016 to 2018, the digital kingdom's VFX business will contribute 90 million to 100 million US dollars in annual revenue, higher than the previous 65 million to 70 million to 90 million US dollars. DD China (Digital Kingdom's post-production business company in China) has successfully been appointed by a leading global post-production service company as one of the two designated agents in China (the other is a Chinese film group), which also proves the strength of DDChina. Digital Kingdom management is optimistic about the future as VFX technology is becoming more and more common in the Chinese film industry. In addition to content production, we expect the Digital Kingdom to continue growing its hardware business. In addition to ZEUS (360 degree lens), we expect Digital Kingdom to launch a quasi-professional 360 degree lens in the future. We expect the company to continue improving its technology, hardware quality, and 360-degree live streaming services to maintain its leading position in the industry. Our opinion: In the past, the market has always taken a more cautious view of the Digital Kingdom due to matters relating to Digital Kingdom convertible note holders drawing market attention. And as the issue of convertible notes is resolved, the shares are likely to be substantially revalued. Recently, the company's stock price performance has been strong (up 19.4% since the end of August, and the Hang Seng Index rose 1.4% during the same period). We think this is due to: (1) Shenzhen-Hong Kong Stock Connect, because Digital Kingdom is a VR-related company, and according to our calculations, Digital Kingdom is eligible to trade with the Shenzhen-Hong Kong Stock Connect; (2) the scope of VR applications has expanded (even the recent 2016 US presidential election debate was broadcast on the VR channel); (3) The market's view on the industry is positive (nextVR raised $80 million from a group of investors led by CITIC and NetEase; Will be at (SonyVR was officially launched in October 2016). As Sony launches VR products, we believe VR related stocks will once again become a hot topic in the market. Since there aren't many VR shares listed in Hong Kong, Digital Kingdom will once again attract market attention, which is expected to support its stock price performance. If the market atmosphere weakens and stock prices fall, it will bring opportunities for renewed attention. Catalysts: Successful search for business partners; launch of its 360-degree lens; implementation of mergers and acquisitions.