1. Due Diligence & Disclosure

1a) Key areas requiring enhanced due diligence:

(i) Founder and Control Structure Analysis

The founder's divorce proceedings demand extensive investigation given their critical control position holding 60% shareholding. Due diligence must comprehensively examine all matrimonial court documents across relevant jurisdictions (both Hong Kong and PRC if applicable), with particular focus on any interim orders or injunctions that could affect share transfers or create encumbrances. The investigation should cover the current status of settlement negotiations and their potential impact on shareholding structure. Given the founder's role as CEO, the stability of management and potential succession issues require careful examination. Any historical involvement of the spouse in business operations or decision-making must be thoroughly documented.

The relationship and arrangements with venture capital firms holding the remaining 40% requires detailed review, particularly given their intention to exit during IPO. All shareholders' agreements, side letters, and special rights agreements must be examined to understand pre-emptive rights, board nomination rights, veto rights, and any special exit provisions. The impact of VC exit on public float calculations and any staged exit arrangements need thorough analysis.

(ii) Customer and Revenue Verification

The termination of a major customer contributing 15% of revenue represents a significant risk requiring enhanced due diligence. A comprehensive review must cover the complete contractual relationship, including the specific grounds for termination, notice periods, and any potential remedial actions. The investigation should analyze the historical revenue contribution over the track record period, including detailed profit margin analysis and impact on working capital. Given the customer's SOE status, potential political and relationship implications for other SOE clients require careful examination.

The broader customer base, particularly other SOE relationships, demands thorough investigation. This includes analyzing customer concentration risk, reviewing all major customer contracts for similar termination provisions, examining payment histories, and assessing the stability of relationships. The company's ability to maintain its track record period performance without this major customer requires detailed financial analysis and forecasting.

(iii) Technology and Intellectual Property Assessment

The patent infringement claim necessitates comprehensive technical and legal due diligence. This involves detailed analysis of the claim's merits through independent legal opinions, assessment of the potentially infringing technology's importance to the business model, and examination of possible technical workarounds. The investigation must cover potential settlement costs, litigation timelines, and impact on business operations.

Beyond the specific claim, the company's entire IP portfolio requires thorough review given its core business in software development. This includes verification of all IP registrations across jurisdictions, examination of R&D processes and documentation, review of employee invention agreements, and assessment of source code ownership and protection measures. Given the cross-border nature of operations, territorial IP protection and enforcement capabilities need careful examination.

(iv) VIE Structure Compliance

The use of VIE structures for China operations demands particularly rigorous due diligence given recent regulatory developments. The investigation must cover the complete legal framework of the VIE structure, including all control documents, economic interest flow mechanisms, and regulatory compliance aspects. Special attention must be paid to whether CSRC approval is required and the potential need for cybersecurity review given the technology focus.

The practical operation of the VIE structure requires verification through detailed examination of actual control exercise, fund flow evidence, and operational integration. This includes reviewing all inter-company agreements, banking arrangements, and tax implications. Given the company's presence in Singapore, the interaction between different jurisdictional requirements and corporate structure efficiency needs careful analysis.

(v) Financial and Operational Due Diligence

Comprehensive financial due diligence must focus on track record period performance, with particular attention to revenue recognition, profit margins, and customer concentration impact. The investigation should cover working capital adequacy, cash flow patterns, and financial projection reliability. Given the recent customer loss, adjusted financial scenarios need careful analysis to ensure meeting listing requirements.

Operational due diligence should examine the company's technical capabilities, development processes, quality control systems, and scalability of operations across jurisdictions. Internal control systems, particularly regarding technology development and data protection, require thorough review. The company's ability to maintain competitive advantage and market position needs detailed assessment.

1b) Prospectus disclosure approach:

The business section of the prospectus must strike a careful balance between transparency and market confidence. The company’s five‑year operating history should be set out with emphasis on its growth trajectory and technological capabilities, while recent challenges are addressed in a candid but measured manner.

The termination of a major customer accounting for 15% of revenue requires explicit disclosure. This should be explained in the context of the company’s overall business evolution, with sufficient historical background to provide investors with perspective, but without breaching confidentiality. The disclosure should also demonstrate the company’s response: diversification of its customer base, development of a robust pipeline of new opportunities, and clear strategies for expanding existing relationships. Where possible, adjusted financial metrics should be presented both with and without the contribution of this customer, alongside a well‑articulated mitigation plan.

The company’s intellectual property position and the pending patent infringement claim must also be addressed. The disclosure should provide a comprehensive overview of the IP portfolio, highlight R&D capabilities and the innovation track record, and set out the protection measures in place. The disputed technology should be explained in the context of the overall product offering, with the claim described in a way that informs investors without prejudicing the company’s legal defence. The prospectus should also highlight the availability of technical alternatives, potential workarounds, and independent technology streams unaffected by the dispute.

The founder’s divorce proceedings require careful treatment in the ownership and management section. The prospectus should present the current and post‑IPO shareholding structure clearly, explain the mechanisms that safeguard control and management stability, and outline succession planning measures. Any share encumbrances, interim court orders, or settlement terms affecting the founder’s 60% interest should be transparently disclosed, together with the steps taken to protect the company’s interests.

Similarly, the exit intentions of venture capital investors must be explained. The disclosure should set out the expected post‑IPO shareholding changes, lock‑up arrangements, and any staged exit strategies. The potential market overhang and its implications for share price stability should be discussed, as well as any anticipated impact on governance and board composition.

The financial information section should present a clear trend analysis of historical performance, while also addressing the financial impact of the customer loss and providing credible forward‑looking projections. Segment analysis should demonstrate revenue diversity, and commentary should address working capital sufficiency, cost structures, and margins. The company’s growth strategy, including capital allocation, expansion plans, and investment requirements, must be clearly articulated to reassure investors of the resilience of its business model.

1c) Risk Factor Disclosure

The risk factors section of the prospectus requires comprehensive yet balanced disclosure. It should identify material risks with enough detail to inform investors, while avoiding unnecessary alarm. The key categories of risk for TSL are set out below.

Business and Operational Risks
The company’s reliance on a limited number of major customers, one of whom has recently terminated its contract, gives rise to customer concentration risk. Future revenue streams depend on the company’s ability to diversify its client base, maintain existing relationships, and replace lost revenue. In addition, the business is highly dependent on continuous innovation and the successful development of new technologies. Competitive pressures, rapid technological change, and the risk of product obsolescence could materially affect the company’s market position. The scalability of operations across multiple jurisdictions, together with cross‑border execution challenges, also presents ongoing operational risks.

Legal and Regulatory Risks
The pending patent infringement claim poses a direct legal threat, both in terms of potential damages and operational disruption if the affected technology proves central to the business. Beyond this, the company’s use of variable interest entity (VIE) structures for its PRC operations introduces regulatory risk, particularly in light of evolving CSRC and cybersecurity requirements. Data protection and cybersecurity compliance represent additional areas of vulnerability given the company’s technology focus. More broadly, the business is exposed to foreign investment restrictions and complex cross‑border compliance requirements, which may affect its ability to operate seamlessly across jurisdictions.

Control and Management Risks
The founder’s divorce proceedings create uncertainty around the stability of the controlling 60% shareholding. Interim court orders, potential share transfers, or encumbrances could affect the company’s governance structure. Beyond this, the company faces key person dependencies and management continuity risks, particularly given the founder’s dual role as controlling shareholder and CEO. The intention of venture capital investors to exit at IPO raises the possibility of market overhang and governance transition challenges, which may affect both share price performance and board stability post‑listing.

Market and Industry Risks
The technology sector is characterised by rapid change, intense competition, and pricing pressures. TSL must continually innovate to maintain relevance and protect margins. Customer relationships, particularly with state‑owned enterprises, could be affected by political or commercial changes beyond the company’s control. Broader industry risks, including regulatory shifts, market volatility, and competitive dynamics, may also have an impact on performance and valuation.

2. Legal Documentation

2a) Material contracts requiring special review:
The due diligence exercise must place particular emphasis on reviewing contracts that are material to the company’s business and control structure. Foremost among these are the major customer agreements, especially those containing termination provisions, as they directly affect revenue stability and disclosure obligations. The founder’s employment and shareholding agreements also require close examination, given his controlling stake and the ongoing divorce proceedings which may impact ownership and governance. Intellectual property licences and technology agreements must be reviewed to ensure that the company has unencumbered rights to use and commercialise its core technology, and to assess exposure to the pending infringement claim. In addition, the full suite of documents underpinning the variable interest entity (VIE) structure must be carefully scrutinised for enforceability, compliance with PRC law, and alignment with regulatory expectations. Finally, the venture capital investment agreements must be reviewed to confirm exit rights, lock‑up restrictions, and any special protections that may affect the IPO process or post‑listing governance.

2b) Additional regulatory comfort needed:
The Hong Kong Stock Exchange and the Securities and Futures Commission are likely to require enhanced comfort on several fronts, given the company’s structure and risk profile. Legal opinions will be needed to confirm the validity and enforceability of the VIE arrangements and to address PRC regulatory compliance more generally. Regulators may also expect confirmation that the company has adequate internal control systems in place, particularly in light of the customer termination and the founder’s personal circumstances. Special auditor comfort letters may be required to verify financial information and working capital sufficiency. Where technical issues such as the patent claim are material, independent expert reports may also be necessary to provide assurance on the merits of the claim and the robustness of the company’s intellectual property position.

2c) Underwriting Agreement

The underwriting agreement will need to include enhanced protections for the underwriters given the risks identified. This may take the form of expanded warranties and representations by the company, covering not only the accuracy of financial statements but also the stability of shareholding, the enforceability of VIE structures, and the status of any material litigation such as the patent dispute. Specific indemnities may be negotiated to protect the underwriters against losses arising from the founder’s divorce, customer contract disputes, or the outcome of the patent claim. In addition, the agreement may include disclosure undertakings requiring the company to keep the underwriters promptly informed of any material developments between signing and listing, together with termination rights if unforeseen issues arise. These provisions ensure that underwriters are adequately protected and that investors can rely on the integrity of the offering documents.

3. Timing Considerations

3a) Impact analysis on listing timeline:
The listing schedule is likely to be extended given the unresolved issues. The founder’s divorce may delay the IPO until ownership of the controlling 60% stake is clarified or ring‑fenced, as regulators will not proceed without certainty on control. The pending patent claim also needs to be assessed and addressed with a clear legal and technical strategy before the application can advance, which could take several months. In addition, the loss of a 15% revenue customer requires the company to demonstrate credible diversification and adjusted financials, which may necessitate further updates to the track record period. Finally, regulatory review of the VIE structure, including PRC approvals or cybersecurity considerations, is a critical path item that could also extend the process. Taken together, these factors mean the IPO could take longer than the usual 9–12 month timetable, potentially stretching to 12–18 months depending on resolution speed.

3b) Critical path priorities:
Immediate actions required regarding the below:

• Divorce proceedings resolution strategy

  • This is the most pressing issue as it affects 60% of shareholding control. The divorce proceedings must be sufficiently resolved or have clear parameters before IPO filing can proceed. The immediate focus should be on obtaining comprehensive legal assessment of the proceedings status across both Hong Kong and PRC jurisdictions, and developing a workable settlement framework with definitive timelines.

  • A contingency plan for share transfer restrictions and possible escrow arrangements needs development, particularly if full resolution before listing proves challenging. The prospectus disclosure implications need careful consideration, balancing transparency with commercial sensitivity.

• Patent claim assessment and response

  • The patent infringement claim requires immediate technical and legal analysis to determine its merit and potential impact on business operations. Given this could affect core business viability, the company needs both a legal defense strategy and technical contingency plan. This includes assessing potential damages, exploring settlement options, and developing technical workarounds if necessary.

  • The timeline for resolution or clear path forward must align with the IPO schedule. This workstream needs to demonstrate to investors that the company has a robust plan to address the claim without material impact on future operations.

• Customer diversification plan

  • The loss of a 15% revenue contributor demands immediate implementation of a customer diversification strategy. The company needs to demonstrate it can bridge this revenue gap through a combination of new customer acquisition and expansion of existing relationships. The plan should show clear pipeline acceleration and concrete steps for revenue replacement.

  • Financial impact analysis must cover revised profit forecasts, working capital implications, and cost management initiatives. Banking relationships may need review to ensure adequate facilities during the transition period.

• Board restructuring initiation

  • Board restructuring needs to commence immediately to address both the VC exit implications and HKEX governance requirements. This includes identifying suitable independent directors, planning committee structures, and developing a comprehensive governance framework that meets listing requirements.

  • The timing needs to allow for proper integration of new directors before listing and ensure all regulatory approvals can be obtained. Documentation preparation and director training programs should be initiated early in the process.

• VIE structure regulatory consultation

  • The VIE structure requires immediate regulatory consultation given recent changes in the regulatory environment. This includes obtaining updated legal opinions, verifying control mechanisms, and ensuring compliance with current CSRC and cybersecurity requirements.

  • The consultation process needs to address data security considerations, economic interest flow, and foreign exchange implications. Clear timeline for regulatory approvals must be established and integrated into the overall IPO schedule.

3c) Contingency planning:
The key backup strategies are as follow:

• Alternative ownership structures

  • The primary focus should be developing alternative structures to address the founder's divorce complications. This could include creating a holding company structure to ring-fence disputed shares, or establishing a trust mechanism to maintain stable control during proceedings. Pre-IPO restructuring options should be explored to potentially separate contested assets from core business operations.

  • The backup plan should also address VC exit scenarios, potentially including staged exit arrangements or extended lock-up periods to maintain market confidence. Alternative board compositions and control mechanisms need development as fallback options.

• IP litigation/settlement options

  • Multiple parallel strategies need development for the patent infringement situation. This includes preparing a technical workaround solution that could be rapidly implemented if required. A comprehensive settlement framework should be developed with various scenarios including cross-licensing arrangements, royalty structures, or technology purchase options.

  • The contingency plan should include potential business model modifications if core technology access becomes restricted. This requires identification of alternative technologies or development pathways that could maintain business viability.

• Customer acquisition acceleration

  • The backup plan for customer loss should include multiple revenue recovery scenarios. This involves accelerated sales pipeline development with both existing and new customers, potentially including pricing incentives or enhanced service offerings to secure commitments quickly.

  • Alternative business lines or market segments should be identified for rapid expansion if needed. The plan should include potential strategic partnerships or M&A opportunities that could quickly fill revenue gaps.

• Modified VIE arrangements

  • Alternative legal structures need development in case current VIE arrangements face regulatory challenges. This includes exploring different control mechanisms, modified economic interest flows, or potential corporate restructuring options that achieve similar business objectives while meeting evolving regulatory requirements.

  • The backup plan should consider geographical reorganization options, including potential relocation of certain operations or legal entities to more favorable jurisdictions if required.

• Timeline adjustment scenarios

  • Multiple timeline scenarios need development considering various delay combinations. This includes identifying critical path dependencies and potential acceleration opportunities in other workstreams to compensate for delays in problematic areas.

  • The plan should include trigger points for activating different timeline scenarios and associated cost implications. Market window analysis should inform the optimal timing ranges for each scenario.