H2O & AU HOLDING COMPANY LIMITED 富元控股有限公司

Transcription

1 The Stock Exchange of Hong Kong Limited and the Securities and Futures Commission take no responsibility for the contents of this Application Proof, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Application Proof. Application Proof of H2O & AU HOLDING COMPANY LIMITED 富元控股有限公司 (Incorporated in the Cayman Islands with limited liability) WARNING The publication of this Application Proof is required by The Stock Exchange of Hong Kong Limited (the Stock Exchange )/the Securities and Futures Commission (the Commission ) solely for the purpose of providing information to the public in Hong Kong. This Application Proof is in draft form. The information contained in it is incomplete and is subject to change which can be material. By viewing this document, you acknowledge, accept and agree with H2O & AU HOLDING COMPANY LIMITED (the Company ), its sponsor, advisers or member of the underwriting syndicate that: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) this document is only for the purpose of providing information about the Company to the public in Hong Kong and not for any other purposes. No investment decision should be based on the information contained in this document; the publication of this document or supplemental, revised or replacement pages on the Stock Exchange s website does not give rise to any obligation of the Company, its sponsor, advisers or members of the underwriting syndicate to proceed with an offering in Hong Kong or any other jurisdiction. There is no assurance that the Company will proceed with the offering; the contents of this document or supplemental, revised or replacement pages may or may not be replicated in full or in part in the actual final listing document; the Application Proof is not the final listing document and may be updated or revised by the Company from time to time in accordance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited; his document does not constitute a prospectus, offering circular, notice, circular, brochure or advertisement offering to sell any securities to the public in any jurisdiction, nor is it an invitation to the public to make offers to subscribe for or purchase any securities, nor is it calculated to invite offers by the public to subscribe for or purchase any securities; this document must not be regarded as an inducement to subscribe for or purchase any securities, and no such inducement is intended; neither the Company nor any of its affiliates, advisers or underwriters is offering, or is soliciting offers to buy, any securities in any jurisdiction through the publication of this document; no application for the securities mentioned in this document should be made by any person nor would such application be accepted; the Company has not and will not register the securities referred to in this document under the United States Securities Act of 1933, as amended, or any state securities laws of the United States; as there may be legal restrictions on the distribution of this document or dissemination of any information contained in this document, you agree to inform yourself about and observe any such restrictions applicable to you; and the application to which this document relates has not been approved for listing and the Stock Exchange and the Commission may accept, return or reject the application for the subject public offering and/or listing. If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors are reminded to make their investment decisions solely based on the Company s prospectus registered with the Registrar of Companies in Hong Kong, copies of which will be distributed to the public during the offer period.

2 IMPORTANT If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. H2O & AU HOLDING COMPANY LIMITED 富元控股有限公司 (Incorporated in the Cayman Islands with limited liability) [REDACTED] Number of [REDACTED] : [REDACTED] Shares Number of [REDACTED] : [REDACTED] Shares (subject to reallocation and [REDACTED] Number of [REDACTED] : [REDACTED] Shares (subject to reallocation and [REDACTED] Maximum [REDACTED] : [REDACTED] per [REDACTED] plus brokerage of 1%, SFC transaction levy of % and Stock Exchange trading fee of 0.005% (payable in full on application in Hong Kong dollar and subject to refund) Nominal Value : HK$0.01 per Share Stock Code : [ ] Sponsor [REDACTED] and [REDACTED] [REDACTED] Hong Kong Exchanges and Clearing Limited, the Stock Exchange and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this document, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this document. A copy of this document, having attached thereto the documents specified in the section headed Documents Delivered to the Registrar of Companies and Available for Inspection in Appendix V to this document, has been registered by the Registrar of Companies in Hong Kong as required by section 342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong). The Securities and Futures Commission and the Registrar of Companies in Hong Kong take no responsibility for the contents of this document or any other documents referred to above. The [REDACTED] is expected to be determined by agreement between our Company and the [REDACTED] (for itself and on behalf of the [REDACTED]) on the [REDACTED] Date or such later date as may be agreed by our Company and the [REDACTED] (for itself and on behalf of the [REDACTED]) but in any event no later than [REDACTED], [REDACTED]. The[REDACTED] will be not more than [REDACTED] per [REDACTED] andisexpectedtobenotless than [REDACTED] per [REDACTED], unless otherwise announced. Applicants for the [REDACTED] are required to pay, on application, the maximum [REDACTED] of [REDACTED] for each [REDACTED] together with brokerage of 1%, SFC transaction levy of % and Stock Exchange trading fee of 0.005%, subject to refund if the [REDACTED] is lower than [REDACTED] per [REDACTED]. The [REDACTED] (for itself and on behalf of the [REDACTED]) may, with the consent of our Company, may extend or reduce the indicative [REDACTED] range stated in this document and/or the number of [REDACTED] being offered at any time on or prior to the morning of the last day for lodging applications under the [REDACTED]. In such a case, a notice of the extension or reduction of the indicative [REDACTED] range and/or the number of [REDACTED] will be published in The Standard (in English) and Sing Tao Daily (in Chinese) not later than the morning of the last day for lodging applications under the [REDACTED]. Such notice will also be available at the website of the Stock Exchange at and our website at Further details are set out in the sections headed Structure and Conditions of the [REDACTED] and How to Apply for [REDACTED] in this document. If, for any reason, the [REDACTED] is not agreed between the [REDACTED] (for itself and on behalf of the [REDACTED]) and our Company on or before Tuesday, [REDACTED], the[redacted] will not become unconditional and will lapse immediately. Prior to making an investment decision, prospective investors should consider carefully all of the information set out in this document and the [REDACTED], including the risk factors set out in the section headed Risk Factors of this document. The obligations of the [REDACTED] under the [REDACTED] are subject to termination by the [REDACTED] (for itself and on behalf of the [REDACTED]) if certain grounds arise prior to 8:00 a.m. on the [REDACTED]. Such grounds are set out in the section headed [REDACTED] of this document. [REDACTED]

3 EXPECTED TIMETABLE (Note 1) [REDACTED] i

4 EXPECTED TIMETABLE (Note 1) [REDACTED] ii

5 EXPECTED TIMETABLE (Note 1) [REDACTED] iii

6 CONTENTS IMPORTANT NOTICE TO INVESTORS This document is issued by our Company solely in connection with the [REDACTED] and does not constitute an offer to sell or a solicitation of an offer to subscribe for or buy any security other than the [REDACTED] offered by this document pursuant to the [REDACTED]. This document may not be used for the purpose of, and does not constitute, an offer to sell or a solicitation of an offer in any other jurisdiction or in any other circumstances. No action has been taken to permit a [REDACTED] of the [REDACTED] or the distribution of this document in any jurisdiction other than Hong Kong. You should rely only on the information contained in this document and the [REDACTED] to make your investment decision. Our Company, the Sponsor, the [REDACTED], the [REDACTED] and the [REDACTED] have not authorised anyone to provide you with information that is different from what is contained in this document. Any information or representation not made in this document must not be relied on by you as having been authorised by our Company, the Sponsor, the [REDACTED], the[redacted], the [REDACTED], any of their respective directors, advisers, officers, employees, agents or representatives or any other person involved in the [REDACTED]. Page EXPECTED TIMETABLE... i CONTENTS... iv SUMMARY... 1 DEFINITIONS GLOSSARY OF TECHNICAL TERMS FORWARD-LOOKING STATEMENTS RISK FACTORS INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED] DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] CORPORATE INFORMATION iv

7 CONTENTS Page INDUSTRY OVERVIEW REGULATORY OVERVIEW HISTORY, DEVELOPMENT AND REORGANISATION BUSINESS RELATIONSHIP WITH CONTROLLING SHAREHOLDERS DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES SHARE CAPITAL SUBSTANTIAL SHAREHOLDERS FINANCIAL INFORMATION FUTURE PLANS AND USE OF PROCEEDS [REDACTED] STRUCTURE AND CONDITIONS OF THE [REDACTED] HOW TO APPLY FOR THE [REDACTED] APPENDIX I ACCOUNTANTS REPORT... I-1 APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION... II-1 APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW... III-1 APPENDIX IV STATUTORY AND GENERAL INFORMATION... IV-1 APPENDIX V DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES AND AVAILABLE FOR INSPECTION... V-1 v

8 SUMMARY This summary aims to give you an overview of the information contained in this document and should be read in conjunction with the full text of this document. As it is a summary, it does not contain all the information that may be important to you, and is qualified in its entirety, and should be read in conjunction with the full text of this document. Information contained in our website, located at does not form part of this document. You should read the whole document before you decide to invest in the [REDACTED]. There are risks associated with any investment. Some of the particular risks in investing in the [REDACTED] are set forth in the section headed Risk Factors of this document. You should read that section carefully before you decide to invest in the [REDACTED]. Various expressions used in this summary are defined in the sections headed Definitions and Glossary of Technical Terms in this document. OVERVIEW We are a well-established recycling and refurbishment company in Hong Kong with a primary focus on recyclable IT and electronic products including computer components, smart watches and mobile accessories. We perform a variety of steps, including inspection, procurement, sorting, testing, dismantling and refurbishing of the recyclable IT and electronic products before selling them to our customers as whole products or functional parts, or residual components containing metals and precious metals. Our business can be categorised into (i) selling of recycled and refurbished electronic products, (ii) selling of residual components containing precious metals such as gold, silver, copper and palladium and (iii) selling of residual components containing other metals such as iron and steel. We sell our recycled and refurbished IT and electronic products to our customers who will generally export the same to overseas countries, mainly the developing countries in Asia with a strong demand for recycled and refurbished IT and electronic products. For residual components that contain precious metals and other metals, we will sell them to our customers who are engaged in the business of smelting and/ or recycling of precious metals and other metals. Our operation base is located in Yuen Long, the New Territories with a gross floor area of approximately 960 sq. m. As at the Latest Practicable Date, we have a team of 16 staff members and we are able to process and recycle an average of approximately 125 tonnes of electronic products per month. 1

9 SUMMARY For the three years ended 31 July 2017, we generated approximately HK$394 million, HK$97.1 million and HK$112.6 million revenue respectively. Majority of our revenue was generated from the selling of recycled and refurbished IT and electronic products. The following table set out the breakdown of revenue generated from our Group s business: For the year ended 31 July HK$ 000 % HK$ 000 % HK$ 000 % Selling of recycled and refurbished IT and electronic products 380,018 97% 92,153 95% 109,413 97% Selling of residual components containing precious metals 12,861 3% 4,421 4% 2,876 3% Selling of residual components containing other metals 1, % 299 Total 394, % 97, % 112, % OUR CUSTOMERS For the three years ended 31 July 2017, our revenue amounted to approximately HK$394.0 million, HK$97.1 million and HK$112.6 million, respectively. For the three years ended 31 July 2017, the percentage of our Group s aggregate revenue attributable to our Group s largest customer was approximately 73%, 16% and 20% for the corresponding periods, respectively, while the percentage of our Group s total revenue attributable to our five largest customers in aggregate was approximately 89%, 57% and 60%, respectively. OUR SUPPLIERS As at the Latest Practicable Date, there are approximately 60 suppliers on our list of approved suppliers, which is reviewed and updated regularly. We select our suppliers on the basis of product quality and price, and the background, credibility, reputation, service, scale of production of the supplier and their ability to meet our delivery schedule and requests. We have maintained good relationships with our suppliers. During the Track Record Period, we have not encountered any material difficulties or delays in procuring recyclable electronic products as and when required. MARKET AND COMPETITION In accordance with the F & S Report, due to large quantities of recyclable IT and electronic products generated in Hong Kong, the market size in terms of revenue experienced a consecutive uptrend from HK$858.4 million in 2012 to HK$938.4 million in 2016, representing a CAGR of 2.3%; and it is projected that by 2021, the revenue generated from the market will increase to HK$1,041.5 million at a CAGR of 2.1% over the period from 2016 to With strong industry drivers consisting of faster replacement of IT and electronic products, growing demand in Southeast Asia and improved environment awareness in public, it is expected that the market will continue to thrive and our Group will be able to take advantage of the new commercial opportunities into fueling its growth in coming years. 2

10 SUMMARY As of June 2017, according to the HKSAR Environment Protection Department, there are over 250 companies registered under the Collector/Recycler Directory. As per the F & S Report, the recycling and refurbishment of IT and electronic products market is considered fairly concentrated since the top five main companies specialising in this segment already accounted for 45% of the market shares in terms of revenue in Nevertheless, our Group was one of the top three companies that managed to obtain a relatively high proportion of the market share at 10.3% in PRICING STRATEGY We determine the prices of our products on a cost-plus basis. We take into consideration the price of procuring recyclable electronic products, processing costs, labour costs and costs of transportation and delivery. We then mark those costs up by a profit margin that we believe is sufficient for us to earn a reasonable profit and also generate a sufficient buffer in case of any differences arise from our estimated costs. Our margin may vary for each product and is dependent on our capacity, estimated duration of works, competitive conditions of the market and other external factors. COMPETITIVE STRENGTHS Our Directors believe that the following competitive strengths of our Group have contributed to our success to date: We have a broad and diversified customer base and we have maintained stable relationship with our suppliers We have a strong, experienced and competent management team We strategically and wisely select the types of recycled and refurnished products we offer and maintained specialised and effective recycling and refurbishment process OUR BUSINESS STRATEGIES The key elements of our strategies for achieving sustainable growth in our business are as follows: Acquiring permanent operation base for our business expansion Purchase of recyclable items Acquisition of additional machinery Expanding our manpower by recruiting additional experienced and skilled operations staff and workers 3

11 SUMMARY NO MATERIAL ADVERSE CHANGE After performing all the due diligence work which our Directors consider appropriate, our Directors have confirmed that up to the date of this document, there has been no material adverse change in our Group s financial or trading positions or prospect of our Group or its subsidiaries since 31 July 2017 (being the date of which our Group s latest audited combined financial statements were made up as set out in the Accountants Report in Appendix I to this document) and there had been no event since 31 July 2017 which would materially affect the information shown in the Accountants Report in Appendix I to this document. RISK FACTORS We believe that there are certain risks and uncertainties involved in our operations, some of which are beyond our control. We believe the more significant risks relating to our business are as follows: Our operations may be adversely affected by the cost and availability of recyclable IT and electronic products Our business heavily relies upon certain major suppliers for supplying recyclable items Our business may be subject to certain registrations, licences and certifications Failure to comply with environmental regulations could harm our business We are exposed to credit risk of our customers We have not entered into long-term agreements with most of our customers and we cannot assure that our customers will continue to purchase our products LEGAL AND REGULATORY COMPLIANCE Our Directors have confirmed that, save as disclosed in the section headed Business Legal and regulatory compliance, we had no material non-compliance of applicable laws and regulations in Hong Kong that would affect our Group s operation and financial position during the Track Record Period and up to the Latest Practicable Date. OUR CONTROLLING SHAREHOLDERS Succeed Road, an investment holding company which is wholly controlled and owned by Mr. Chan, will directly hold approximately [REDACTED] of the issued share capital of our Company immediately following completion of the [REDACTED], assuming the [REDACTED] is not exercised and without taking into account any Shares to be issued pursuant to the exercise of any options which may be granted under the Share Option Scheme. 4

12 SUMMARY SUMMARY OF COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME Our historical financial information has been prepared in accordance with HKFRS. The following table presents the results of operations of our Group during the Track Record Period, which are derived from the combined statements of profit or loss and other comprehensive income as set out in the Accountant s Report in Appendix I to this document. Year ended 31 July Note HK$ 000 HK$ 000 HK$ 000 Revenue 5 394,047 97, ,588 Cost of sales (356,815) (64,451) (70,162) Gross profit 37,232 32,698 42,426 Other income 6 6,776 1,647 1,707 Selling and distribution expenses (1,480) (912) (834) Administrative expenses (5,958) (8,119) (12,754) Other operating expenses 7 (23,312) (92) (103) Finance costs 8 (82) (167) Share of loss of an associate 16 (429) (20) Profit before income tax 9 12,829 25,120 30,275 Income tax expense 10 (2,495) (4,185) (5,676) Profit and total comprehensive income for theyearattributabletoownersof the Company 10,334 20,935 24,599 Earnings per share attributable to owners of the Company Basic and diluted 13 N/A N/A N/A 5

13 SUMMARY SUMMARY OF COMBINED STATEMENTS OF FINANCIAL POSITION As at 31 July HK$ 000 HK$ 000 HK$ 000 ASSETS AND LIABILITIES Non-current assets 2,959 2,477 2,757 Current assets 44,598 59,563 54,534 Current liabilities 24,978 17,881 29,326 Net current assets 19,620 41,682 25,208 Total assets less current liabilities 22,579 44,159 27,965 Non-current liabilities 814 1, Net assets 21,765 42,700 27,299 EQUITY Share capital Reserves 21,765 42,700 27,299 Equity attributable to owners of the Company 21,765 42,700 27,299 SUMMARY OF COMBINED STATEMENTS OF CASH FLOWS The following sets forth our combined statements of cash flows for the Track Record Period: For the year ended 31 July HK$ 000 HK$ 000 HK$ 000 Net cash (used in)/generated from operating activities (2,959) 3,944 42,105 Net cash (used in)/generated from investing activities (1,471) (106) 84 Net cash generated from/(used in) financing activities 4,502 (2,122) (40,572) Net increase in cash and cash equivalents 72 1,716 1,617 Cash and cash equivalents at the beginning of the year ,076 Cash and cash equivalents as at the end of the year 360 2,076 3,693 6

14 SUMMARY KEY FINANCIAL RATIOS The followings sets forth our key financial ratios during the Track Record Period: For the year ended or as at 31 July Profitability ratios Gross profit margin (Note 1) 9% 34% 38% Net profit margin (Note 2) 3% 22% 22% Return on assets (Note 3) 22% 34% 43% Return on equity (Note 4) 47% 49% 90% Liquidity ratios Current ratio (Note 5) Quick ratio (Note 6) Capital adequacy ratios Gearing ratio (Note 7) 4% 7% 3% Interest coverage (Note 8) N/A Note: 1. Gross profit margin is calculated based on our gross profit for each reporting year divided by total revenue for each reporting year and multiplied by 100%. 2. Net profit margin is calculated based on our net profit for each reporting year divided by total revenue for each reporting year and multiplied by 100%. 3. Return on assets is calculated based on our net profit for each reporting year divided by total assets as of the end of each reporting year and multiplied by 100%. 4. Return on equity is calculated based on our net profit for each reporting year divided by equity attributable to our owners as of the end of each reporting year and multiplied by 100%. 5. Current ratio is calculated based on our total current assets divided by our total current liabilities as of the endofeachreportingyear. 6. Quick ratio is calculated based on our total current assets excluding inventories divided by our total current liabilities as of the end of reporting year. 7. Gearing ratio is calculated based on our banks loans and finance lease liabilities divided by equity attributable to our owners as of the end of each reporting year and multiplied by 100%. 8. Interest coverage is calculated based on our net profit before interest and income tax for each reporting year divided by the interest expenses for each reporting year. [REDACTED] Our estimated [REDACTED] primarily consist of legal and professional fees, including [REDACTED] commission, in relation to the [REDACTED]. Assuming the [REDACTED] is not exercised and assuming the [REDACTED] of HK$[REDACTED] per [REDACTED], being the mid-point of the indicative range of the [REDACTED] stated in this document, the [REDACTED] are estimated to be approximately HK$[REDACTED], of which approximately HK$[REDACTED] is directly attributable to the issue of new Shares and is to be accounted for as a deduction from equity in accordance with the relevant accounting standard. The remaining amount of approximately HK$[REDACTED] is chargeable to the combined statements of profit or loss and other comprehensive income for the Track Record Period and approximately HK$[REDACTED] is expected to be incurred for the year ending 31 July The estimated [REDACTED] are subject to adjustments based on the actual amount incurred or to be incurred. 7

15 SUMMARY RECENT DEVELOPMENTS As at the Latest Practicable Date, we had received five non-legally binding written confirmations from our customers, in relation to the supply of recycled and refurbished electronic products by our Group with a total notional purchase of approximately HK$108 million worth of recycled and refurbished electronic products per year from our Group. We are also under the negotiations with several existing customers and potential new customers, expressing intentions for inviting us to expand our existing supply scope or supply recycled and refurbished electronic products. There is no assurance that we will be able to successfully secure these new business opportunities upon the completion of our new operation base. Any failure in securing sufficient new orders could have adverse effect on our business, financial condition and results of operations. Our Directors observed and noted that the market in which our Group operates remained stable after 31 July 2017 as reflected by the confirmed stable operation of our Group during the period from 1 August 2017 to the Latest Practicable Date. Our Directors have confirmed that, subsequent to 31 July 2017 and up to the Latest Practicable Date, there had been no material adverse change in our pricing strategies or mark-up under our cost-plus business model. USE OF PROCEEDS We estimate that the aggregate net proceeds to our Group from the [REDACTED], after deducting [REDACTED] commissions and estimated expenses paid and payable by our Group in connection with the [REDACTED], to be approximately HK$[REDACTED], assuming the [REDACTED] is not exercised and the [REDACTED] of HK$[REDACTED] per Share, being the mid-point of the proposed [REDACTED] range of HK$[REDACTED] to HK$[REDACTED] per Share. We intend to apply such net proceeds in the following manner: (a). approximately HK$[REDACTED] million, representing approximately [REDACTED]% of the net proceeds will be used for the acquisition of land property of approximately 1,960 sq.m., which can be occupied for industrial uses; (b). (c). approximately [REDACTED], representing approximately [REDACTED]% of the net proceeds will be used for the capital expenditure in relation to the relocation and renovation of our new operation base premise at the target industrial land property. As aforementioned, it is our current intention to gradually relocate our operation base to the new industrial land property acquired prior to the expiry of our existing tenancy in July 2018; approximately HK$[REDACTED], representing approximately [REDACTED]% of the net proceeds will be used to purchase recyclable items for recycling and refurbishment, which, in the opinion of our Directors, can be used for our procurement of recyclable items for our estimated sales volume during 2017 and 2018; determined with reference to the five non-binding letters of intent with five of our existing customers up to the Latest Practicable Date with an aggregate sum of approximately HK$108.0 million; 8

16 SUMMARY (d). (e). (f). approximately HK$[REDACTED], representing approximately [REDACTED]% of the net proceeds will be used for the acquisition of additional machineries and equipment, of which approximately HK$[REDACTED] will be used for the purchase of one truck vehicle, approximately HK$[REDACTED] will be used for the purchase of two forklifts, and approximately HK$[REDACTED] will be used for the purchase of one air conditioning shell/plastic shredder, which, in the opinion of our Directors, can be fully used in our operation in order to enhance our production capability; approximately HK$[REDACTED], representing approximately [REDACTED]% of the net proceeds will be used for (i) expansion of our workforce at both worksite level and office level, including the hiring of one chief financial officer and three additional managers for our testing, dismantling and sales departments for the three years immediately following the [REDACTED] in order to cope with our expansion plan; and (ii) provision of trainings to our existing and new employees in order to enhance their knowledge and awareness in work safety and regulatory landscape; and approximately HK$[REDACTED], representing approximately [REDACTED]% of the net proceeds will be used for working capital and general corporate purposes. DIVIDEND POLICY Our Company does not have any predetermined dividend payout ratio. The payment and the amount of any future dividends will be at the discretion of our Directors and will depend on the future operations and earnings, capital requirements and surplus, general financial condition and other factors that our Directors deem relevant. Investors should note that historical dividend distributions are not indicative of our Company s future dividend distribution policy. For the years ended 31 July 2015, and 2016, we did not declare and pay any dividends to the members of the Group. For the year ended 31 July 2017, we declared HK$40 million to our shareholders, including HK$26 million to Mr. Chan, HK$6 million to Mr. Zhang and HK$8 million to Times Logistics. There is no expected or predetermined dividend payout ratio after the [REDACTED]. The payment and the amount of any future dividends will be at the discretion of our Directors and will depend upon our Group s future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors which our Directors deem relevant. Any final dividend for a financial year will be subject to shareholders approval. Holders of the Shares will be entitled to receive such dividends pro rata according to the amounts paid up on the Shares. Dividends may be paid only out of our Group s distributable profits as permitted under the relevant laws. There can be no assurance that our Group will be able to declare or distribute in the amount set out in any plan of our Board or at all. 9

17 SUMMARY [REDACTED] [REDACTED] 10

18 DEFINITIONS In this document, unless the context otherwise requires, the following terms and expressions have the following meanings. Accountants Report affiliate [REDACTED] Articles of Association or Articles associate(s) Board [REDACTED] or [REDACTED] Business Day BVI the accountants report on our Group for the Track Record Period set out in Appendix I to this document in relation to a body corporate, any subsidiary undertaking or parent undertaking of such body corporate, and any subsidiary undertaking of any such parent undertaking for the time being [REDACTED] the articles of association of our Company adopted on [REDACTED] which will become effective upon the [REDACTED], as amended from time to time, a summary of which is set out in the section headed Summary of the constitution of our Company and Cayman Islands Company Law in Appendix III to this document has the meaning ascribed to it under the Listing Rules the board of Directors [REDACTED] a day on which banks in Hong Kong are generally open for normal banking business to the public and which is not a Saturday, Sunday or public holiday in Hong Kong the British Virgin Islands Capitalisation Issue the issue of [REDACTED] Shares to be made upon capitalisation of certain sums standing to the credit of the share premium account of our Company referred to in the paragraph headed A. Further information about our Group 3. Written resolutions of the Shareholders in Appendix IV to this document 11

19 DEFINITIONS CCASS CCASS Clearing Participant CCASS Custodian Participant CCASS Investor Participant the Central Clearing and Settlement System established and operated by HKSCC a person admitted to participate in CCASS as a direct clearing participant or general clearing participant a person admitted to participate in CCASS as a custodian participant a person or persons admitted to participate in CCASS as an investor participant who may be an individual or joint individuals or a corporation CCASS Participant a CCASS Clearing Participant, a CCASS Custodian Participant or a CCASS Investor Participant Chairman Chief Executive Officer close associate(s) Companies (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice Companies Law Companies Ordinance Companies (Winding Up and Miscellaneous Provisions) Ordinance chairman of our board Chief Executive Officer of our Company has the meaning ascribed to it under the Listing Rules the Companies (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 32L of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time the Companies Law (as revised) of the Cayman Islands as amended, supplemented or otherwise modified from time to time the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time 12

20 DEFINITIONS Company or our Company connected person(s) Controlling Shareholder(s) core connected person(s) Deed of Indemnity Deed of Non-competition Director(s) or our Directors H2O & AU Holding Company Limited( 富元控股有限公司 ), an exempted company incorporated in the Cayman Islands with limited liability on 17 July 2017 and registered as a non-hong Kong company under Part 16 of the Companies Ordinance on 11 August 2017, except where the context otherwise requires, all of its subsidiaries, or where the context refers to the time before it became the holding company thereof, our Company s present subsidiaries has the meaning ascribed to it under the Listing Rules has the meaning ascribed to it under the Listing Rules, and in the context of this document refers to Succeed Road and Mr. Chan. Please see the section headed Relationship with Controlling Shareholders in this document for further details has the meaning ascribed to it under the Listing Rules a deed of indemnity dated 6 September 2017 entered into between the Controlling Shareholders and our Company (for itself and as trustee for and on behalf of its subsidiaries), under which the Controlling Shareholders have given certain indemnities in favour of our Company containing, among others, the indemnities referred to in the section headed Statutory and General Information D. Other information 2. Tax and other indemnities in Appendix IV to this document a deed of non-competition entered into on 6 September 2017 between our Company (for itself and as trustee for and on behalf of its subsidiaries) and each of the Controlling Shareholders, particulars of which are set out in the section headed Relationship with Controlling Shareholders Deed of non-competition of this document the director(s) of our Company 13

21 DEFINITIONS Employees Compensation Ordinance Employment Ordinance EPD the Employees Compensation Ordinance (Chapter 282 of the Laws of Hong Kong) as amended, supplemented or otherwise modified from time to time the Employment Ordinance (Chapter 57 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time the Environmental Protection Department of Hong Kong Esun International Esun International Pte Ltd.( 翊晟國際私人有限公司 ), a company incorporated in Singapore on 22 November 2007 as exempt private company limited by shares and is an Independent Third Party Esun Metal Frost & Sullivan Esun Metal (Hong Kong) Company Limited( 翊晟金屬 ( 香港 ) 有限公司 ), a company incorporated in Hong Kong on 24 April 2015 with limited liability, was disposed by H2O & AU of its 49% Shareholding on 28 July 2016 and is an Independent Third Party Frost & Sullivan Limited, an independent market research agency F &SReport the market research report commissioned by us and prepared by Frost & Sullivan Government Group, our Group, we, us, Group Company H2O & AU the Government of Hong Kong our Company and its subsidiaries or, where the context otherwise requires, in respect of the period before our Company became the holding company of its present subsidiaries, the present subsidiaries of our Company or some or any of them H2O & AU Environmental Recycling Company Limited ( 富元再生資源有限公司 )(formerly known as 淼鑫再生資源有限公司 ), a company incorporated in Hong Kong on 24 May 2013 with limited liability, which shall be an indirect wholly-owned subsidiary of our Company upon completion of the Reorganisation 14

22 DEFINITIONS HK$, HKD or Hong Kong Dollars HKFRS(s) HKSCC HKSCC Nominees Hong Kong or HK Hong Kong Branch Share Registrar IC Consultant Hong Kong dollars, the lawful currency of Hong Kong the Hong Kong Financial Reporting Standard(s), including Hong Kong Financial Reporting Standard, Hong Kong Accounting Standards and Interpretations issued by the Hong Kong Institute of Certified Public Accountants Hong Kong Securities Clearing Company Limited HKSCC Nominees Limited, a wholly-owned subsidiary of HKSCC the Hong Kong Special Administrative Region of the PRC [REDACTED], our branch share registrar and transfer office of our Company in Hong Kong RSM Consulting (Hong Kong) Limited, an independent internal control consultant Independent Third Party(ies) an individual(s) or a company(ies) which is(are) independent of any directors, Chief Executive Officer, substantial shareholders of our Company, its subsidiaries or any of their respective close associates, and not a connected person of our Company Labour Department Latest Practicable Date Legal Counsel [REDACTED] [REDACTED] [REDACTED] Labour Department of the Hong Kong Government 15 September 2017, being the latest practicable date for the inclusion of certain information in this document prior to its publication Mr. Yuen Siu Kei, a barrister-at-law in Hong Kong [REDACTED] [REDACTED] [REDACTED] 15

23 DEFINITIONS Listing Rules Memorandum of Association or Memorandum Miao Xin MPF Scheme Mr. Chan Mr. Lu Mr. Zhang [REDACTED] [REDACTED] [REDACTED] the Rules Governing the Listing of Securities on the Stock Exchange, as amended, supplemented or otherwise modified from time to time the memorandum of association of our Company as amended, supplemented or otherwise modified from time to time Miao Xin Regenerate Resources Investments Limited( 淼鑫再生資源投資有限公司 ), a company incorporated in BVI with limited liability on 4 July 2016, which is a direct wholly-owned subsidiary of our Company upon completion of the Reorganisation mandatory provident fund scheme Mr. Chan Hon Kiu( 陳漢僑 ), our Chairman, executive Director and a Controlling Shareholder Mr. Lu Yajing( 魯亞京 ), the sole shareholder and director of Times Logistics Mr. Zhang Jinhua( 張錦華 ), our Chief Executive Officer and executive Director [REDACTED] [REDACTED] [REDACTED] 16

24 DEFINITIONS [REDACTED] [REDACTED] [REDACTED] [REDACTED] PRC or China Predecessor Companies Ordinance [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] the People s Republic of China, except where the context requires otherwise, and for the purpose of this document only geographical references in this document to the PRC or China exclude Hong Kong, Macao Special Administrative Region of the PRC and Taiwan the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) prior to its repeal and replacement on 3 March 2014 by the Companies Ordinance and the Companies (Winding Up and Miscellaneous Provisions) Ordinance [REDACTED] [REDACTED] 17

25 DEFINITIONS [REDACTED] [REDACTED] [REDACTED] [REDACTED] Regulation S Reorganisation Repurchase Mandate [REDACTED] [REDACTED] [REDACTED] [REDACTED] the Regulation S under the U.S. Securities Act the reorganisation arrangement undergone by our Group in preparation for the [REDACTED] as described in the section headed History, Development and Reorganisation in this document the general unconditional mandate granted to our Directors by the Shareholders in relation to the repurchase of our Shares, further information on which is set forth in the section Statutory and General Information A. Further information about our Group in Appendix IV to this document 18

26 DEFINITIONS Richest Vast SFC SFO Share(s) [REDACTED] Share Option Scheme Share Swap Agreement Shareholder(s) Singapore Sponsor or Huabang Corporate Finance Stock Exchange Richest Vast International Group Limited( 鵬富國際集團有限公司 ), a company incorporated in the BVI on 26 May 2017 with limited liability and is wholly-owned by Mr. Zhang the Securities and Futures Commission of Hong Kong the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time ordinary share(s) of HK$0.01 each in the share capital of our Company [REDACTED] the share option scheme of our Company, conditionally approved and adopted by our Company, the principal terms ofwhicharesummarisedinthesectionheaded Statutory and General Information D. Other Information 1. Share Option Scheme in Appendix IV to this document the share swap agreement dated 3 August 2017 relating to the share swap with our Company and entered into by our Company, Miao Xin, Succeed Road, Times Logistics and Richest Vast holder(s)oftheshare(s) the Republic of Singapore Huabang Corporate Finance Limited, a licenced corporation for carrying on type 6 (advising on corporate finance) regulated activities under the SFO, acting as the sponsor of the [REDACTED] and is an Independent Third Party The Stock Exchange of Hong Kong Limited subsidiary(ies) has the meaning ascribed to it in section 15 of the Companies Ordinance 19

27 DEFINITIONS substantial shareholder(s) Succeed Road Takeovers Code has the meaning ascribed to it under the Listing Rules Succeed Road Limited, a company incorporated in the BVI on 26 May 2017 with limited liability and is wholly-owned by Mr. Chan, which is a Controlling Shareholder the Hong Kong Code on Takeovers and Mergers issued by the SFC, as amended, modified and supplemented from time to time Times Logistics Times Logistics Group Limited( 時代物流集團有限公司 ), a company incorporated in Hong Kong on 5 January 2015 with limited liability and is wholly-owned by Mr. Lu Track Record Period comprises the financial years ended 31 July 2015, 2016 and 2017 [REDACTED] [REDACTED] U.S. or United States or US U.S. Securities Act m m 2 or sq. m. RMB sq. ft Singapore dollars US$ or U.S. dollars WDO [REDACTED] [REDACTED] the United States of America the United States Securities Act of 1993 (as amended from time to time) metre square metre Renminbi, the lawful currency of the PRC square feet the lawful currency of Singapore United States dollars, the lawful currency of the United States the Waste Disposal Ordinance (Chapter 354 of the Laws of Hong Kong), as amended, supplemented or otherwise modified form time to time 20

28 DEFINITIONS [REDACTED] [REDACTED] [REDACTED] [REDACTED] Yixin Yixin Enterprises Limited ( 億鑫企業有限公司 ), a company incorporated in the BVI on 29 April 2016 with limited liability, and is owned by an Independent Third Party % per cent. In this document, where otherwise specified: All dates and times refer to Hong Kong dates and time. Amounts denominated in US$ have been translated, for the purpose of illustration only, into HK$, and vice versa, in this document at the rates of US$1.00 to HK$7.80. No representation is made that any amounts in HK$ or US$ can be or could have been at the relevant date converted at the above rates or any other rates or at all. The English translation and/or transliteration of the names of PRC nationals, entities, enterprises, Government authorities, departments, facilities, certificates, titles, laws and regulations included in this document is unofficial translations for identification purposes only. In the event of any inconsistency between the English translation and/or transliteration and the Chinese version, the Chinese version shall prevail. Certain amounts and percentage figures included in this document have been subject to rounding adjustments. Any discrepancies in any table between totals and sums of amounts listed therein are due to rounding. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures preceding them. 21

29 GLOSSARY OF TECHNICAL TERMS This glossary contains explanations of certain terms used in this document in connection with our Company and its business. These terminologies and their given meanings may not correspond to those standard meanings and usage adopted in the industry. CAGR CPU E-waste GB ISO ISO 9001:2015 ISO 14001:2015 compound annual growth rate central processing unit, the key component of a computer system, which contains the circuitry necessary to interpret and execute program instructions means any electrical equipment or electronic equipment that, judging by its appearance, is an item set out in column 2 of schedule 6 to the Product Eco-responsibility Ordinance (Chapter 603 of the Laws of Hong Kong) and has been abandoned the gigabyte is a unit of information equal to one thousand million bytes International Organisation for Standardisation standards for quality management which ensure an organisation s products conform to customer requirements and applicable statutory and regulatory standards and which set out requirements for what an organisation must do to manage processes influencing product quality a standard of the ISO 9000 series, which specifies the requirements for a quality management system of an organisation to consistently provide products that meet customer requirements and applicable statutory and regulatory standards a standard of the ISO series, which specifies the requirements for an environmental management system of an organisation IT information technology, the study or use of systems, especially computers and telecommunications for storing, retrieving, and sending information PCB(s) printed circuit board(s), a board base for physically supporting and wiring the surface-mounted and socketed components in most electronics RAM TB random access memory, a hardware device that allows information to be stored and retrieved in a computer the terabyte is a unit of information equal to one trillion bytes 22

30 FORWARD-LOOKING STATEMENTS This document contains certain forward-looking statements and information relating to our Company and our subsidiaries that are based on the beliefs of our management as well as assumptions made by and information currently available to our management. When used in this document, the words aim, anticipate, believe, could, continue, expect, estimate, going forward, intend, may, ought to, might, plan, potential, project, predict, seek, should, will, would and the negative of these words and other similar expressions, as they relate to our Group or our management, are intended to identify forward-looking statements. Such statements reflect the current views of our management with respect to future events, operations, liquidity and capital resources, some of which may not materialise or may change. These statements are subject to certain risks, uncertainties and assumptions, including the other risk factors as described in this document. You are strongly cautioned that reliance on any forward-looking statements involves known and unknown risks and uncertainties. The risks and uncertainties facing our Company which could affect the accuracy of forward-looking statements include, but are not limited to the following: our Group s business prospects; our Group s contracts on hand; future developments, trends and conditions in the industry and markets in which we operate; our Group s business strategies and plans to achieve these strategies; general economic, political and business conditions in the markets in which our Group operate; changes to the regulatory environment and general outlook in the industry and markets in which our Group operate; the effects of the global financial markets and economic crisis; our Group s financial position; our Group s ability to reduce costs; our Group s dividend policy; the amount and nature of, and potential for, future development of our Group s business; various business opportunities that our Group may pursue; capital market developments; 23

31 FORWARD-LOOKING STATEMENTS our Group s ability to source recyclable items; fluctuation in the prices of recyclable items and our Group s ability to pass-through any increases in price to customers; our Group s ability to protect our Group s intellectual property rights; our Group s ability to hire and retain talented employees; the actions and developments of our competitors and our Group s ability to compete under these actions and developments; change or volatility in interest rates, foreign exchange rates, equity prices, volumes, operations, margins, risk management and overall market trends; and other factors beyond our Group s control. Subject to the requirements of applicable laws, rules and regulations, we do not have any and undertake no obligation to update or otherwise revise the forward-looking statements in this document, whether as a result of new information, future events or otherwise. As a result of these and other risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this document might not occur in the way we expect or at all. Accordingly, you should not place undue reliance on any forward-looking information. All forward-looking statements in this document are qualified by reference to the cautionary statements in this section. In this document, statements of or references to our intentions or those of our Directors are made as of the date of this document. Any such information may change in light of future developments. 24

32 RISK FACTORS Prospective investors should consider carefully all the information set forth in this document and, in particular, should consider the following risks and special considerations in connection with an investment in our Company before making any investment decision in relation to the [REDACTED]. The occurrence of any of the following risks may have a material adverse effect on the business, results of operations, financial conditions and future prospects of our Group. Additional risks not currently known to us or that we now deem immaterial may also harm us and affect your investment. This document contains certain forward-looking statements regarding our plans, objectives, expectations and intentions which involve risks and uncertainties. Our Group s actual results could differ materially from those discussed in this document. Factors that could cause or contribute to such differences include those discussed below as well as those discussed elsewhere in this document. The trading price of the [REDACTED] could decline due to any of these risks, and you may lose all or part of your investment. RISKS RELATING TO OUR BUSINESS Our operations may be adversely affected by the cost and availability of recyclable IT and electronic products The price and availability of recyclable IT and electronic products can be volatile and price increase would lead to increases in operational costs, which may adversely affect our financial condition and results of operations. During the years ended 31 July 2015, 2016 and 2017, our cost of inventories consumed of recyclable IT and electronic products approximately was HK$354.7 million, HK$63.4 million, and HK$69.3 million, which accounted for 99%, 98% and 99% of our total cost of sales, respectively. The availability and price of recyclable IT and electronic products depend on various external factors that are beyond our control, including supply and demand conditions, general political and economic conditions, environmental and conservation regulations, import and export regulations and other unknown and unpredictable factors. If there is any shortage of recyclable IT and electronic products or material delay in delivery by our suppliers, we cannot guarantee that we would be able to identify suitable alternative sources of supply with acceptable quality and price in a timely manner. In the event that the purchase costs of recyclable IT and electronic products from our suppliers increase in the future and we are unable to pass these cost increases onto our customers, our operational performance may also be affected. 25

33 RISK FACTORS Our business heavily relies upon certain major suppliers for supplying recyclable items For the three years ended 31 July 2017, our five largest suppliers in aggregate accounted for approximately 90%, 79% and 90% of our total purchases of recyclable items and supplies respectively. We cannot assure that there will not be any disputes with our major suppliers, or that we will be able to maintain business relationships with our existing suppliers. Although we have entered into a long-term supply agreement with one of our major suppliers, Esun International, there is no assurance that the said status would not be revoked or terminated, or discontinued in thefuture.thereisnoassurancethatweareableto maintain business relationship with or major suppliers, or that there will not be any unfavourable changes in our current arrangements, such as a substantial increment to the price or a substantial reduction of quantities supplied to us. If we cannot locate alternative suppliers for replacement in a timely manner and/or on comparable commercial terms, our business operations may be hindered, which would adversely affect our profitability. The stability of operations and business strategy of our major suppliers, which are beyond our control, will also affect us. Any material disruption to their operations due to causes such as adverse weather, riots, natural disasters, fires or other technical or mechanical problems could adversely affect our procurement process, such as causing non-delivery or delays in delivery of stocks to us. If that occurs, our results of operations could be adversely affected. Similarly, if our major suppliers change their business strategies substantially, for instance, with regards to its product portfolio and distribution channel, they could reduce their volume of supply to us or cease business relationship with us, which could in turn materially affect our volume of business and performance. Our business may be subject to certain registrations, licences and certifications Our business can be categorised into (i) selling of recycled and refurbished electronic products; (ii) selling of residual components containing precious metals; and (iii) selling of residual components containing other metals. From 19 June 2017, in light of the new licencing requirement for E-waste under the WDO, we may be subject to additional approval or licence for carrying out the second and the third parts of our business in Hong Kong. We are currently applying for the E-waste disposal licence and the permit for export of wastes under the WDO in order to enable us to carry out the second and the third parts of our business under the new regulatory regime. For details of our licence and permit requirements, please refer to the sections headed Regulatory Overview and Business Licences and registration in this document. All registrations, licences and/or certifications are granted/renewed and maintained upon compliance with the applicable criteria set by the relevant government authorities or organisations to their satisfaction. These registrations, licences and/or certifications may only be valid for a limited period of time and may be subject to periodic review and renewal by the relevant issuers. Also, the standard of compliance required thereto may change from time to time without notice in advance. 26

34 RISK FACTORS We cannot guarantee that we can obtain or maintain these registrations, licences and/or certifications in a timely manner or at all. Any changes in the existing policies by the government authorities or relevant organisations may result in our failure to obtain or maintain such relevant registrations, licences and/or certifications. In such circumstances, our operations may be disrupted, therefore materially affecting our business, financial conditions and results of operations. Failure to comply with environmental regulations could harm our business We maybe subject to environmental laws and regulations in Hong Kong related to our operations, including regulations governing the use, storage, discharge and disposal of waste substances and waste emission levels as well as regulations governing our business operation from time to time. If we fail to comply with applicable environmental laws and regulations, we could be subject to penalties such as fines and suspensions of our operations, which our business, reputation and results of operations could be materially and adversely affected. Moreover, any amendments to these laws and regulations may impose more stringent pollution control measures that may require us to incur additional expenses to modify or improve our operations to limit actual or potential impact to the environment. In addition, new laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require us to incur extra expenditures, which may materially and adversely affect our business, results of operations and financial condition. We are exposed to credit risk of our customers Our trade receivables as at 31 July 2015, 2016 and 2017 amounted to approximately HK$6.8 million, HK$37.7 million and HK$34.3 million, accounted for approximately 14%, 61% and 60% of our Group s total assets respectively. As at 31 July 2015, 2016 and 2017, the trade receivables turnover days were approximately 6 days, 84 days and 117 days respectively. We have experienced an increase in average trade receivables turnover days during the Track Record Period. Since 2017, we have normally granted credit terms ranging from 0 days to 90 days to our customers. As such, we are subject to credit risks of our customers and our liquidity is dependent on our customers making prompt payments. If the credit worthiness of our customers deteriorate or a significant number of our customers fail to settle their trade receivables in full for any reason, we may incur impairment losses and our results of operations and financial position could be materially and adversely affected. In addition, there may be a risk of delay in payment by our Group s customers from their respective credit period, which in turn may also result in an impairment loss provision. There is no assurance that we will be able to fully recover our trade receivables from the customers or that they will settle our trade and bill receivables in a timely manner. In the event the settlements from the customers are not made on a timely manner, the financial position, profitability and cash flow of our Group may be adversely affected. 27

35 RISK FACTORS We have not entered into long-term agreements with most of our customers and we cannot assure that our customers will continue to purchase our products Our Group s ability to maintain good business relationships with our major customers is important to our ongoing growth and profitability. Although we have entered into letter of intent with some of our customers to secure sales of goods to them, our Group has not entered into any long-term agreements with most of our customers. For details of the agreement and letter of intent we sign with our customers, please refer to the paragraph headed Principal terms of our contracts with customers in the section headed Business. The demand for our Group s products by our customers may change due to a number of factors, some of which may be outside of our Group s control such as changes in their businesses, personnel and sourcing policies. In the event that a our major customers cease to purchase from our Group or reduce the volume of purchase orders placed with our Group, and our Group is unable to increase our sales to other existing customers and/or identify new customers, our Group s business and results of operations may be adversely affected. We may experience labour shortage or may incur high labour costs Some of our production processes, such as testing and dismantling of electronic products, rely on skilled and experienced human resources. The availability of our machinery and equipment used in the recycling and processing of electronic products cannot fully replace labour. Although we did not experience any material operational difficulty due to labour shortage during the Track Record Period, we cannot assure you that we will not face such problems in the future. Furthermore, new generation may not regard the recycling and refurbishment of IT and electronic product industry a preferred occupation to join. In addition, as a result of changes in the labour market conditions or industry practices or otherwise, we may be required to increase the wages for our workers, and hence affecting our financial performance. System disruptions to our Group s IT system could have an adverse effect on our Group s business operations Our Group has relied on the computer system in human resources management and other administrative matters, as well as in tracking our sales records and payment progress. However, our Group s IT system and operations could be vulnerable to interruption or malfunction due to events beyond our Group s control, and the Directors provide no assurance that our Group will not incur any damage or interruption caused by power outages, computer viruses, hardware and software failures, telecommunications failures, fires and other similar events in the future. Any interruption to our Group s IT system or operations could have an adverse effect on its business operations. 28

36 RISK FACTORS Our Group s IT system may also be vulnerable to unauthorised access, computer hackers, computer viruses and other security problems. A user who circumvents security measures could misappropriate proprietary information or cause interruptions or malfunctions in operations. Any leakage or misappropriation of information from our Group s IT system could have a material and adverse effect on our Group s reputation and business operations. As a result, our Group may be required to expend significant resources to guard against the threat of these security breaches or to alleviate problems caused by these breaches. Our operations are heavily dependent on our key management Our success and growth has been, and will continue to depend heavily on our Directors and senior management with extensive industry expertise. In particular, we rely on the leadership and management of Mr. Chan, our Chairman, executive Director and Controlling Shareholder, and Mr. Zhang, our executive Director. Mr. Chan has over 20 years of experience in recycling and selling of electronic products and as at the Latest Practicable Date, he is the director of Hong Kong Recycling Chamber of Commerce, and the advisor of Thai Young Chinese Chamber of Commerce. Mr. Zhang has over 8 years of experience in sourcing and trading of electronic products. In addition, Ms. Chan Yuen Lin Evelyn, our finance & accounting manager, has over 32 years of accounting experience. Details of expertise of our Directors and members of senior management are set out in the section headed Directors, Senior Management and Employees in this document. Our Group believes that our Directors and senior management will continue to play a vital role in the future growth and success of our business. If any of these personnel is unable or unwilling to continue to serve in his or her current position, and our Group is unable to find a suitable replacement promptly, the loss of their services may disrupt our business and our financial condition and results of operations may be materially and adversely affected. Our business plans and strategies may not be successful or implemented within the expected time frame or within the estimated budget We intend to acquire new recycling and processing base and facilities and recruit more operational staff to cope with our expansion in the operating capacity. Details of our Group s future plans are set out in the sections headed Business Our business strategies and Future Plans and Use of Proceeds in this document. However, our plans and strategies may be hindered by factors and there is no assurance that our business plans and strategies will be successfully implemented within the expected time frame and within the estimated budget. In addition, there is no assurance that we will be able to maintain or increase our market share or grow our business successfully after investing our management and financial resources. Any failure in maintaining our current market position or implementing our business plans and strategies may materially and adversely affect our business, financial conditions and results of operations. 29

37 RISK FACTORS Our cash flows may deteriorate due to potential mismatch in time between receipt of payment from our customers, and payments to our suppliers We rely on cash inflow from our customers to meet our payment obligations to our suppliers. Our cash inflow is dependent on prompt settlement from our customers upon the delivery of goods. Nonetheless, even if our customers settle such payments in a timely manner and in full, there is no assurance that we would not experience any significant cash flow mismatch. The cash flow mismatch could result in net cash used in operating activities and can be serious. For the year ended 31 July 2015, our Group recorded net cash used in operating activities amounted to approximately HK$3.0 million. For the years ended 31 July 2016 and 2017, our Group recorded net cash generated from operating activities of HK$3.9 million and HK$42.1 million, respectively. Further, there can be no assurance that our cash flow management measures could function properly or at all. If there were any significant and substantial cash flow mismatch, we might have to resort to internal sources and/or banking facilities in order to meet our payment obligations in full and on time. A material disruption of our operations could adversely affect our business, financial condition and results of operations Our operations are susceptible to uncertainties beyond our control, including, but not limited to fires, natural disasters and other catastrophes, equipment failures and other operational problems, labour difficulties and disruption of public infrastructures. Any such uncertainty could limit or delay our operations, prevent us from meeting our customer orders, increase our costs of productions or required us to incur additional costs, which could in turn materially and adversely affect our business, financial condition and results of operations. We may be subject to liability in connection with industrial accidents at our operation base Our operations involve the operation of machinery that could result in industrial accidents which cause injuries or death. There is no assurance that any preventive measures we have taken or may take will be sufficient to prevent any industrial accidents, whether due to malfunctions of machinery or other reasons, from occurring in the future at our operating facilities. In such an event, we may be liable for loss of life and property, medical expenses, medical leave payments, fines and penalties for violation of applicable laws and regulations. In addition, we may experience interruptions in our operations and may be required to change the manner in which we operate as a result of governmental investigations or the implementation of safety measures due to accidents. Any of the aforementioned could adversely affect our business, financial condition and results of operations. 30

38 RISK FACTORS Our business is subject to risks related to transportation systems We receive recyclable electronic products from suppliers therefore our business is substantially dependent on reliable and efficient transportation systems. Transportation services are subject to disruption from a variety of causes, including shortages of supplies, equipment or operating problems, labor disputes or strikes, storms and adverse weather, energy shortages, natural disasters and other causes. Disruption in the transportation systems we use for these or any other reasons could adversely affect our ability to receive recyclable electronic products and deliver goods for sale to our customers on a timely basis. A prolonged disruption in these transportation services, or a significant increase in transportation costs, may materially and adversely affect our business, financial condition and results of operations. We may not have adequate insurance coverage for our potential losses and liabilities Our Group maintains insurance coverage against, among others (i) employees compensation; (ii) damage to the properties owned by our Group; (iii) liability for third party bodily injury occurred in our office premises; and (iv) third party liability in relation to the use of our vehicles. However, our Group does not maintain insurance policies against all risks associated with our operations, either because our Directors believe that it is commercially unfeasible to do so, or the risk is minimal, or because certain types of risks are uninsurable. Should an uninsured liability or a liability in excess of its insured limit occur, we may suffer losses which could adversely affect our business, financial condition and results of operations. Moreover, there is no assurance that our Group will be able to renew the existing insurance policies on the existing terms and/or commercially reasonable terms. We are subject to foreign exchange exposure Our costs are denominated in RMB, U.S. dollars, Singapore dollars, Euros and Hong Kong dollars, while our sales are mainly denominated in RMB and Hong Kong dollars. However, we do not have a formal hedging policy to manage our foreign currency exchange risk on an ongoing basis. As a result, any fluctuation in foreign exchange rates may materially affect our operations and adversely affect our business and financial results. 31

39 RISK FACTORS RISKS RELATING TO THE [REDACTED] There has been no prior public market for the Share and the liquidity, market price and trading volume of the Share may be volatile Prior to the [REDACTED], there is no public market for the Shares. The [REDACTED] of, and the permission to deal with, the Shares on the Stock Exchange do not guarantee the development of an active public market or the sustainability thereof following completion of the [REDACTED]. Factors such as variations in our Group s turnovers, earnings and cash flows, strategic alliances or acquisitions made by our Group or its competitors, industrial or environmental accidents happened to our Group, loss of key personnel, litigation, fluctuations in the market prices for the products or the recyclable items of our Group, the liquidity of the market for the Shares, the general market sentiment regarding the recycling and refurbishment of IT and electronic products industry could cause the market price and trading volume of the Shares to change substantially. In addition, both the market price and liquidity of the Shares could be adversely affected by factors beyond our Group s control and unrelated to the performance of our Group s business, especially if the financial market in Hong Kong experiences a significant price and volume fluctuation. In such cases, investors may not be able to sell their Shares at or above the [REDACTED]. Investors of the Shares will experience immediate dilution as the [REDACTED] is higher than the net tangible book value per Share The [REDACTED] of the Shares is higher than the net tangible book value per Share of our Shares immediately prior to the [REDACTED]. Therefore, investors of our Shares in the [REDACTED] will experience an immediate dilution in pro forma adjusted combined net tangible asset value and existing Shareholders will receive an increase in the pro forma adjusted combined net tangible asset value per Share of their Shares. If we issue additional Shares in the future, purchasers of our Shares may experience further dilution. Investors may experience dilution if our Group issues additional Shares in the future Our Group may issue additional Shares upon exercise of options to be granted under the Share Option Scheme in the future. The increase in the number of Shares outstanding after the issue would result in the reduction in the percentage ownership of the Shareholders and may result in a dilution in the earnings per Share and net asset value per Share. In addition, our Group may need to raise additional funds in the future to finance business expansion, new development and acquisitions. If additional funds are raised through the issuance of new equity or equity-linked securities of our Company other than on a pro-rata basis to the existing Shareholders, the shareholding of such Shareholders in our Company may be reduced or such new securities may confer rights and privileges that take priority over those conferred by the [REDACTED]. 32

40 RISK FACTORS Any disposal by our Controlling Shareholders of a substantial number of Shares in the public market could materially and adversely affect the market price of the Shares There is no guarantee that our Controlling Shareholders will not dispose of their Shares following the expiration of their respective lock-up periods after the [REDACTED]. Our Group cannot predict the effect, if any, of any future sales of the Shares by any of our Controlling Shareholders, may have on the market price of the Shares. Sales of a substantial number of Shares by any of our Controlling Shareholders or the market perception that such sales may occur could materially and adversely affect the prevailing market price of the Shares. Historical dividends are not indicative of our Group s future dividends. A member of our Group declared dividends of HK$40.0 million to the shareholders during the year ended 31 July The value of dividends declared and paid in previous years should not be relied on by potential investors as a guide to the future dividend policy of our Group or as a reference or basis to determine the amount of dividends payable in the future. There is no assurance that dividends will be declared or paid in the future, at a similar level or at all. The amount of any dividends to be declared in the future will be subject to, among other factors, our Directors discretion, having taken into account the substantial capital requirements of our Group in the foreseeable future, the availability of distributable profits, our Group s earnings, working capital, financial position, capital and funding requirements, the applicable laws and other relevant factors. In any event, there is no assurance that our Company will receive sufficient distribution from our subsidiaries to support any future profit distribution to the Shareholders, or that the amounts of any dividends declared by our Company in the future, if any, will be of a level comparable to dividends declared and paid by us in the past, or by other listed companies in the same industry as our Group. RISK RELATING TO STATEMENTS IN THIS DOCUMENT Certain facts and statistics included in this document may not be relied upon Certain information and statistics contained in the section headed Industry Overview of this document are derived from the F & S Report compiled by Frost & Sullivan and other publicly available sources. While reasonable care has been exercised in the reproduction of such information, it has not been independently verified by us, the Sponsor, the [REDACTED], the [REDACTED], the[redacted] or any of their respective affiliates or advisers and may not be accurate, complete or up-to-date. Our Directors make no representation as to the correctness or accuracy of such information and, accordingly, such information should not be unduly relied upon. 33

41 RISK FACTORS In addition, certain information and data contained in this document are derived from market data provided by Frost & Sullivan. We believe that the sources of these information are appropriate sources for such information and have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information is false or misleading or that any fact that would render such information false or misleading has been omitted. However, the information has not been independently verified by us, the Sponsor, the [REDACTED], the[redacted], the[redacted] or their respective directors, affiliates or advisers or any other party involved in the [REDACTED] and no representation is given as to its accuracy. The current market condition may not be reflected in the statistical information included in this document The historical information set out in this document relating to market conditions and valuation may not reflect the current market situation due to rapid changes in the global economy. In order to provide context to the industries in which we operate, and greater understanding of our market presence and performance, various statistics and facts have been provided throughout this document. However, this information may not reflect current market condition as the recent economic upturn may not be fully factored into these statistics, and the availability of the latest data may lag behind of this document. As such, any information relating to market shares, sizes and growth, or performance in these markets and other similar industry data should be viewed as historical figures that may have little value in determining future trends and results. Investors should note that one or more of these risks or uncertainties may materialise, or one or more of the underlying assumptions may prove incorrect. Forward-looking statements contained in this Document are subject to risks and uncertainties This document contains certain forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by and information currently available to our management. When used in this document, the words aim, anticipate, believe, can, continue, could, estimate, expect, going forward, intend, ought to, may, might, plan, potential, predict, project, seek, should, will, would and similar expressions, as they relate to our Company or our management, are intended to identify forward-looking statements. Such statements reflect the current views of our management with respect to future events, operations, liquidity and capital resources, some of which may not materialise or may change. These statements are subject to certain risks, uncertainties and assumptions, including the other risk factors as described in this document. Subject to the requirements of the Listing Rules, we do not intend publicly to update or otherwise revise the forward-looking statements in this document, whether as a result of new information, future events or otherwise. Investors should not place undue reliance on such forward-looking statements and information. 34

42 RISK FACTORS Investors should not rely on any information contained in any press articles or other media regarding us and the [REDACTED] Prior to the publication of this document, there might have been press articles and media coverage regarding us and the [REDACTED] which might include certain financial information, financial projections, and other information about us which do not appear in this document. Such information might not be sourced from or authorised by us, hence, we do not accept any responsibility for the accuracy or completeness of such information. We cannot guarantee and make no representation as to the appropriateness, accuracy, completeness or reliability of such information. Potential investors are therefore cautioned to make their investment decisions based solely on the information contained in this document. 35

43 INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED] [REDACTED] 36

44 INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED] [REDACTED] 37

45 INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED] [REDACTED] 38

46 INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED] [REDACTED] 39

47 INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED] [REDACTED] 40

48 DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] DIRECTORS Name Residential address Nationality Executive Directors Mr. Chan Hon Kiu ( 陳漢僑先生 ) Mr. Zhang Jinhua ( 張錦華先生 ) Non-executive Director Mr. Lin Hongtong ( 林宏通先生 ) Flat D, 11th Floor Block 3, Kai Tak Garden, Phase Choi Hung Road Kowloon Hong Kong Room 165 Wing Ning Tsuen Long Yeuk Tau, Fanling New Territories Hong Kong Flat D, 17th Floor Block 2, Fairview Garden Overseas Chinese Town Nanshan District Shenzhen PRC Chinese Chinese Chinese Independent non-executive Directors Mr. Wong Tik Tung ( 汪滌東先生 ) Mr. Ma Xingjin ( 馬興進先生 ) Flat D, 22nd Floor, Block 6 Peak One 63 Mei Tin Road Shatin New Territories Hong Kong Room 809 Shuipan Ziyun Pavilion Gangbian Village Futian District Shenzhen PRC Chinese Chinese 41

49 DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] Mr. Huang Jian ( 黃健先生 ) Room 29A, Block D Wanxiang Xinyuan 67 Nanguang Road Nanshan District Shenzhen PRC Chinese Please refer to the section headed Directors, Senior Management and Employees of this document for further details. PARTIES INVOLVED IN THE [REDACTED] Sponsor Huabang Corporate Finance Limited Room 2006, 20th Floor Enterprise Square Two 3 Sheung Yuet Road Kowloon Bay, Kowloon Hong Kong (A licensed corporation for carrying on type 6 regulated activity under the SFO) [REDACTED] and [REDACTED] [REDACTED] [REDACTED] [ ] 42

50 DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] Legal advisers to our Company As to Hong Kong law: Louis K.Y. Pau & Company, Solicitors 4th Floor The Chinese Club Building Connaught Road Central Hong Kong (Solicitors of Hong Kong) As to Cayman Islands law: Appleby Jardine House 1 Connaught Place Central Hong Kong (Cayman Islands attorneys-at-law) Legal advisers to the Sponsor and the [REDACTED] As to Hong Kong law: CFN Lawyers in association with Broad & Bright Room 4124, 41st Floor SunHungKaiCentre 30 Harbour Road Wan Chai Hong Kong (Solicitors of Hong Kong) Reporting accountants and auditors Grant Thornton Hong Kong Limited Level 12, 28 Hennessy Road Wan Chai Hong Kong (Certified Public Accountants) Market research consultant Frost & Sullivan Limited Suite 1706 One Exchange Square 8 Connaught Place Hong Kong [REDACTED] [ ] 43

51 CORPORATE INFORMATION Registered office in the Cayman Islands PO Box 1350 Clifton House 75 Fort Street Grand Cayman KY Cayman Islands Headquarter and principal place of business in Hong Kong as registered under Part 16 of the Companies Ordinance Room 2307 Great Eagle Centre 23 Harbour Road, Wanchai Hong Kong Company s website (information on this website does not form part of this document) Company secretary Ms. Ngan Wai Kam Sharon( 顏慧金女士 ) 4th Floor, The Chinese Club Building Connaught Road Central Hong Kong Authorised representatives (for the purpose of the Listing Rules) Mr. Chan Hon Kiu( 陳漢僑先生 ) Room 2307 Great Eagle Centre 23 Harbour Road, Wanchai Hong Kong Ms. Ngan Wai Kam Sharon( 顏慧金女士 ) 4th Floor, The Chinese Club Building Connaught Road Central Hong Kong Audit committee Mr. Huang Jian( 黃健先生 )(Chairman) Mr. Ma Xingjin( 馬興進先生 ) Mr. Wong Tik Tung( 汪滌東先生 ) Remuneration committee Mr. Wong Tik Tung( 汪滌東先生 )(Chairman) Mr. Ma Xingjin( 馬興進先生 ) Mr. Huang Jian( 黃健先生 ) 44

52 CORPORATE INFORMATION Nomination committee Mr. Ma Xingjin( 馬興進先生 )(Chairman) Mr. Wong Tik Tung( 汪滌東先生 ) Mr. Huang Jian( 黃健先生 ) Compliance advisor Huabang Corporate Finance Limited Room 2006, 20th Floor Enterprise Square Two 3 Sheung Yuet Road Kowloon Bay, Kowloon Hong Kong (A licensed corporation for carrying on type 6 regulated activity under the SFO) Principal share registrar and transfer office in the Cayman Islands [REDACTED] Hong Kong branch share registrar and transfer office [REDACTED] Principal banks Bank of Communications Co., Ltd. Hong Kong Branch Ground Floor Nos Johnston Road Wan Chai Hong Kong Standard Chartered Bank (Hong Kong) Limited 26/F, Standard Chartered Tower 388 Kwun Tong Road Kwun Tong, Kowloon Hong Kong 45

53 INDUSTRY OVERVIEW The information set forth in this section has been derived from the F & S Report. We believe that the sources of the information are appropriate sources for such information, and we have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information is materially false or misleading, and no fact has been omitted that would render such information materially false or misleading. However, the information has not been independently verified by us, the Sponsor, the [REDACTED], the [REDACTED], the [REDACTED], any of the respective directors, officers, employees, advisers, agents or representatives or any other party involved in the [REDACTED] and no representation is given as to its accuracy. Except as otherwise stated, all the data and forecast in this section are derived from the F & S Report. The information extracted from the F & S Report reflects estimates of market conditions based on sampling, and is prepared primarily as a market research tool. References to Frost & Sullivan should not be considered as the opinion of Frost & Sullivan as to the potential investment of the Shares or in our Group. Our Directors believe that the sources of information extracted from the F & S Report are appropriate sources for such information. We have no reason to believe that such information is false or misleading or that any material fact has been omitted that would render such information false or misleading. Our Directors confirm that after taking reasonable care, there is no adverse change in the market information since the date of the F & S Report. SOURCE OF INFORMATION We have commissioned Frost & Sullivan to conduct an independent market research and an analysis of recycling and refurbishment of IT and electronic products market in Hong Kong and have agreed to pay a fee of approximately HK$480,000 for the F & S Report. Established in 1961 in New York, Frost & Sullivan is an independent global consulting firm which offers industry research and market strategies and provides growth consulting and corporate training, covering a wide variety of industries from automotive and transportation, commercial aviation to technology, media and telecom. The objective of the research is to provide an independent assessment of the recycling and refurbishment of IT and electronic products market in Hong Kong and to attain an objective and comprehensive overview of the markets. 46

54 INDUSTRY OVERVIEW RESEARCH METHODOLOGY In compiling and preparing the F & S Report, Frost & Sullivan used the following methodologies which integrate several forecasting techniques with the Market Engineering Measurement-based System incorporated with critical market elements including: (i) expertopinion forecasting methodology; (ii) integration of market drivers and restraints; (iii) integration with the market challenges; (iv) integration of the Market Engineering Measurement trends; and (v) integration of econometric variables to conduct detailed primary research which involved discussing the status of the industry with certain leading industry participants as well as secondary research which involved reviewing company reports, independent research reports and data based on its own research database. Frost & Sullivan has also obtained the figures for the estimated total market size from historical data analysis plotted against macroeconomic data as well as considered the industry key drivers in preparation of the final report. FORECASTING BASES AND ASSUMPTIONS The key assumptions adopted by Frost & Sullivan for the preparation of the F & S Report are as follows, (i) social, economic and political environment is likely to remain stable in Hong Kong in the forecast period; and (ii) related industry key drivers are likely to drive the market in the forecast period. The research results may be affected by the accuracy of these assumptions and the choice of these parameters. The market research was completed in September 2017 and all statistics in the F & S Report are based on information available at the time of reporting. Frost & Sullivan s forecast data comes from analysis of historic development of the market, the economic environment and underlying market drivers, and is cross-checked against established industry data and trade interviews with industry experts. OVERVIEW OF MACRO ECONOMY Hong Kong GDP and growth rate Hong Kong demonstrated a robust growth in nominal GDP over the period from 2012 to 2016, growing from US$262.6 billion in 2012 to US$320.7 billion in 2016 at a CAGR of 5.1%. The year-over-year growth rate decreased to 3.6% in 2016, influenced by the economic decline in the tourism. In the next five years, the nominal GDP in Hong Kong is expected to grow and reach US$383.9 billion by 2021, representing a CAGR of 3.7% from 2016 to 2021, as supported by strong domestic consumption with low expected unemployment rate. 47

55 INDUSTRY OVERVIEW Disposable income per capita in Hong Kong Impacted by a slowdown in retail and tourism industry, the year-over-year growth rate declined from 5.0% in 2014 to 1.9% in Nevertheless, the disposable income per capita in Hong Kong had achieved a moderate growth at a CAGR of 3.7% from 2012 to 2016, reaching US$39,564.5 in Over the forecast period from 2017 to 2021, the disposable income per capita is estimated to rise steadily at a CAGR of 2.5%, reaching US$44,762.6 by the end of 2021, which implies a rise in the purchasing power of consumers and in the living standards of Hong Kong residents, which likely lead to more consumption and higher expenditure on goods and services. Hong Kong s total export and import value of electronic products Driven by the growing demand for electronic products globally, export (including re-export) of electronic products including first-hand and second-hand ones from Hong Kong witnessed continuous growth in terms of total export value, increasing from US$230.4 billion in 2012 to US$280.6 billion in 2016 at a CAGR of 5.1%. The increase in export value of electronic products in Hong Kong has been mainly driven by the strong demand in the global range, promoting the internal provision of electronic components and products. Companies who collect and process second-hand IT and electronic products are also part of the supply chain of electronic products and contribute to the supply of electronic products in Hong Kong. Thus, the increasing export value would bring impetus to the business of companies in the market of recycling and refurbishment of IT and electronic products market. Total import value of electronic products including first-hand and second-hand ones in Hong Kong increased from US$243.1 billion in 2012 to US$292.5 billion in 2016 at a CAGR of 4.7%. IT products are featured by rapid replacement which may lead to large quantities of second-hand electronic products. The increase in import of electronic products indicates growing amount in the supply of second-hand electronic products, implying large market potential for recycling and refurbishment of information technology and electronic products in Hong Kong. 48

56 INDUSTRY OVERVIEW Total export and import value of electronic products in Hong Kong Billion US$ Import Value Export Value Source: HKSAR Census and Statistics Department, Frost & Sullivan Note: Exchange rate between USD and HKD used is 7.762, retrieved from Oanda. RECYCLING AND REFURBISHMENT OF IT AND ELECTRONIC PRODUCTS MARKET IN HONG KONG Industry overview Lifecycle The life cycle of recycling and refurbishment of IT and electronic products market involves four developing periods, namely (i) introduction; (ii) growth; (iii) maturity; and (iv) decline. As of 2016, the recycling and refurbishment of IT and electronic products market in Hong Kong was at the growth stage in terms of industry life cycle. There were a large number of competitors and many new entrants which were capable of capturing certain proportion of market share. For example, by the end of 2016, there were over 200 recycling companies in Hong Kong, leading to a fierce market competition. The recycling and refurbishment of IT and electronic products market has experienced rapid growth over the past few years. One of the key reasons was the quick replacement of IT and electronic products which is mainly caused by the technological advancements and the increasing income level of Hong Kong citizens. 49

57 INDUSTRY OVERVIEW OVERVIEW OF RECYCLING AND REFURBISHMENT OF IT AND ELECTRONIC PRODUCTS MARKET IN HONG KONG Market size Depending on the nature of IT and electronic products, different disposal methods including resale as whole products or components in the secondary market to companies or individuals conducting a business of disassembling for recyclable materials, will be adopted in the recycling and refurbishment process. Intact and reusable electronic products are resold in the secondary market to both businesses and individuals. Damaged products will be repaired and resold, or disassembled to extract metal and functional parts that become inputs for manufacturing operations of electronics and other industrial purposes. As one of the largest demand markets for IT and electronic products, Hong Kong generates and imports large quantities of recyclable IT and electronic products, which provide solid foundations for recycling and refurbishment of IT and electronic products market. The market size in terms of revenue experienced a consecutive uptrend from HK$858.4 million in 2012 to HK$938.4 million in 2016, representing a CAGR of 2.3% and it is estimated that by 2021, the revenue generated from the market will increase to HK$1,041.5 million at a CAGR of 2.1% over the period from 2016 to Market size of IT and electronic products recycling and refurbishment industry in Hong Kong by revenue, Million HK$ 1, , , CAGR 2.3% CAGR 2.1% , , E 2018E 2019E 2020E 2021E Source: Frost & Sullivan Average monthly salary for employees engaging in the recycling and refurbishment of IT and electronic products market in Hong Kong The average monthly salary of employees in recycling and refurbishment of IT and electronic products market in Hong Kong rose from HK$13,067.8 in 2012 to HK$14,658.7 in 2016, representing a CAGR of 2.9%. Briefly, the IT and electronic products recycling and refurbishment market has been experiencing a shortage of skilled workers. Therefore, the salary level of the recycling workers in Hong Kong is likely to maintain a growing trend in the following years, reaching HK$16,469.6 in 2021 with a CAGR of 2.4% during the period from 2016 to

58 INDUSTRY OVERVIEW Average rent for private flatted factories in Hong Kong The average rent for private flatted factories in Hong Kong increased from HK$118.0 sq.m. per month in 2012 to HK$161.0 sq.m. per month in 2016, representing a CAGR of approximately 8.1%. Moreover, the average rental price is likely to continue its rise in the foreseeable future owing to the consistent demand for space from new companies setting up business in the city. The average rent per month of private flatter factories is projected to rise to HK$220.0 sq. m by the end of Market restraints Heavy labour cost For the period from 2012 to 2016, the average monthly salary of employees in recycling and refurbishment of IT and electronic products market in Hong Kong increased from HK$13,067.8 in 2012 to HK$14,658.7 in 2016, representing a CAGR of 2.9%, and is projected to continue its growth in the next five years. Moreover, the cost of labour is not only associated with salary, but also with the labour insurance which puts a heavy burden on the recycling companies. It appears that many insurance companies are not willing to provide insurance for workers in industries involving high risk and consistent danger since they concern that workers may get cut and sprained easily or even fall from height during the work. Even though some insurance companies are willing to provide the service to these companies, they tend to charge a much higher premium than for other industries. Limited land sources with soaring rents Coupled with the high labour cost, the limited land is also one of the great challenges faced by the IT and electronic products recycling and refurbishment market in Hong Kong. The rent period of suitable short term tenancy sites exclusively for recycling use approved by the government is 3 to 5 years but it usually costs companies 1 to 2 years to establish the recycling facilities at the beginning. Besides, before the lease expires, the government will re-launch an open tender for the land so the company would face higher rental expenses and rebid again to make sure they could continue using the land and operating their business. Moreover, the recycling sites are usually located in the distant areas, which puts heavy transportation cost pressure on these companies. 51

59 INDUSTRY OVERVIEW Market drivers Faster replacement of IT and electronic products The consistent advent of new designs, smart functions and technology during the last 10 years is causing the rapid obsolescence of many electronic items. In addition to this factor, the lifespan of many IT and electronic products especially smartphones has been substantially shortened due to attractive marketing campaigns, along with the increasing income level of Hong Kong citizens. Moreover, in view of the fact that the upgrade of the smartphones embraces rapid frequency driven by people s increasing demand for smartphones with new functions, related accessories such as phone chargers, lens and other inner parts of the smart phones experienced frequent replacement as well, hence causing a considerable quantity of overall IT and electronic products for recycling and refurbishment. Huge demand in Southeast Asia One of the main export destinations of Hong Kong recyclable IT and electronic products is Southeast Asia. As the Southeast Asia is becoming a central manufacturing hub and a key regional import and export platform with substantial and growing lower-middle-income consumer base, the demand for electronic components and products is increasing dramatically. The imported recyclable IT and electronic products of Southeast Asia could be resold as whole electronic products or used in manufacturing processes. It is likely that the demand for recyclable IT and electronic products in Southeast Asia will continue to grow in the future, giving strong support to the further development of the recycling and refurbishment of IT and electronic products market in Hong Kong. Increasing environmental awareness of the public The awareness towards environmental protection has greatly improved among the public in Hong Kong over the past two decades thanks to the efforts from various parties in the society. Related government departments, district councils, local communities, property management organisations, environmental and community service groups, schools, and private organisations have jointly set up recycling collection points to form a comprehensive community recycling network. As the recycling network becomes mature, the IT and electronic products recycling and refurbishment companies can now enjoy stable supply channels of used electronic products, which would further stimulate the further growth of the industry. Moreover, as the emerging economies, countries in Southeast Asia have made great effort to develop manufacturing industries, which results in the increasing demand for recyclable items as well as recycled resources at cheaper price, such as electronic components and metal materials for further production and processing. As a result, the shift of electronic components processing and assembly centre to Southeast Asian countries is likely to be another trend in the future. 52

60 INDUSTRY OVERVIEW COMPETITIVE LANDSCAPE OF THE RECYCLING AND REFURBISHMENT OF IT AND ELECTRONIC PRODUCTS MARKET IN HONG KONG According to the EPD, as of June 2017, over 250 companies have registered onto the EPD s Hong Kong Collector/Recycler Directory, indicating that they collect used recyclable IT and electronic products from the public. Despite this, not many of the 250 companies conduct recycling and refurbishment of IT and electronic products. Thus, the recycling and refurbishment of IT and electronic products market in Hong Kong was relatively concentrated in Apart from recycling used electronics locally, other used recyclable IT and electronic products are also imported into Hong Kong for processing and reselling to distributors. In spite of the large number of players in the market, many recyclers in Hong Kong that collect recyclable IT and electronic products do not have necessary possessing equipment to extract the useful parts from the IT and electronic products. Moreover, some recyclers are found to be contaminating the environment using illegal methods to extract the metals which they need from the recyclable electronics. Therefore, such harmful practices have driven the government to act upon to regulate the companies within the industry. The government passed the Promotion of Recycling and Proper Disposal (Electrical Equipment and Electronic Equipment) (Amendment) Ordinance 2016 in March Recycling companies are required to register for the disposal license to handle the used electrical and electronic equipment and also to separately obtain a permit for the import and export of the regulated recyclable electronic products. However, the prerequisites to obtain the license are very strict and one of the requirements is to establish the facility on an industrial land. However, most of the companies in the industry have set up their facilities on Brownfield sites, generally referring to the deserted agricultural or rural land in the New Territories, which were later turned into uses for open storage, container yards, depots, rural industries, recycling yards, etc.; and the lack of industrial land makes it hard to fulfill such requirement. At the moment, the industry is actively engaging with the government representatives to reach a solution where the industry players could meet the standards required by the scheme. Moreover, the government also funded a waste electrical and electronic equipment treatment and recycling facility at the EcoPark in Tuen Mun, New Territories that commenced its construction in January The facility will be put into operation in the later half of 2017 and it is estimated to be capable of handling 30,000 tonnes of waste electrical and electronic equipment per year and to be operated by a joint venture company by ALBA from Germany and IWS from Hong Kong until

61 INDUSTRY OVERVIEW There exist a number of companies conducting business related to recycling and refurbishment in Hong Kong with few of them focusing on recycling and refurbishment of IT and electronic products, which leads to the fact the recycling and refurbishment of IT and electronic products market in Hong Kong was relatively concentrated in Additionally, despite that many companies have claimed to conduct recycling for electronics, most of them lack the necessary equipment to process and to refurbish the useful parts for reselling. Moreover, the lack of land to set up facility as such in Hong Kong was also another factor that contributed to the concentrated market. The following table sets out the top five operators in the recycling and refurbishment of IT and electronic products industry in Hong Kong in 2016: Ranking Company Name Recycling Items Estimated Market Share Estimated Total Revenue in Hong Kong in 2016 (Million HK$) 1 Company A Used electronics and computer equipment 2 Company B Ferrous and non-ferrous metal; used electronics and computer equipment 3 H2O&AU Usedelectronicsandcomputer equipment 4 Company C Used electronics and computer equipment 5 Company D Used electronics and computer equipment 11.8% % % % % 49.2 Top five total 45.0% Note: 1. The revenue of each company listed in the table above was merely generated from the segment of the recycling and refurbishment of IT and electronic products. Other recycling and refurbishment business, such as solid wastes, was not taken into consideration. 2. The ranking is based on the combination of Frost & Sullivan s in-house database, interviews with industry experts, and analyze all the collected research data using our unique model. Source: Frost & Sullivan 54

62 INDUSTRY OVERVIEW Entry barriers Tightened government law and regulation The government did not put much emphasis to regulate players in the recycling and refurbishment of IT and electronic products market in the past. However, recent regulations specifically targeting recycling and managing recyclable IT and electronic products in Hong Kong made it much more challenging to allow new players to enter the industry as the requirements to obtain related licenses and permits are now more difficult to fulfill. High capital investment A relatively high capital investment is needed to enter the recycling and refurbishment of IT and electronic products market. The capital is needed for land rental, setup of facility, purchase of equipment and hiring skilled labors. New entrants also have to make heavy capital investment to acquire recyclable IT and electronic products from other markets as well. Lack of industrial land The lack of industrial land in Hong Kong will continue to hinder new entrants from entering industry. With the new policy issued by the government, the recycling facility must be established on an industrial land in Hong Kong. The demand for industrial land is high especially from the recycling industry whereas the supply of such land remains limited, which therefore makes it more difficult for new entrants to enter into the market. Relationship with suppliers and clients This industry is particularly dependent on the upstream suppliers and downstream clients. New entrants in the market relied heavily on developing good relationship with its upstream suppliers to purchase the recyclable IT and electronic products and its downstream clients to sell the functional parts that have been extracted. Without the demand from the downstream clients, new players in the market will find it very difficult to grab a market share without any relationship building. 55

63 REGULATORY OVERVIEW This section sets out a summary of certain aspects of the Hong Kong laws and regulations which are relevant to our Group s operations and business in Hong Kong. Information contained in this section should not be construed as a comprehensive summary of the laws and regulations applicable to our Group. Our business can be categorised into (i) selling of recycled and refurbished electronic products; (ii) selling of residual components containing precious metals; and (iii) selling of residual components containing other metals. From 19 June 2017 onwards, the selling of residual components containing precious metals and other metals of our business may be subject to particular approval or licence in Hong Kong as set out below. LAWS AND REGULATIONS IN RELATION TO OUR BUSINESS OPERATIONS Waste Disposal Ordinance (Chapter 354 of the Laws of Hong Kong) The objective of the WDO is to provide for the control and regulation of the production, storage, collection and disposal including the treatment, reprocessing and recycling of waste of any class or description, the licensing and registration of places and persons connected with any such activity, the protection and safety of the public in relation to any such activity and to provide for matters incidental thereto. Section 16 of the WDO states that a person shall not use, or permit to be used, any land or premises for the disposal of waste unless he has a licence from the Director of EPD to use the land or premises for that purpose, unless: (a) (b) (c) (d) (e) (f) the disposal of household waste from a private dwelling if the disposal takes place within the curtilage of that dwelling; the disposal of waste if the land is used for tipping by the Civil Engineering and Development Department or such use is authorised by the Director of EPD; the deposit of any inert matter used as landfill (other than any matter to which the Dangerous Goods Ordinance (Cap. 295) applies or that is toxic); the deposit of any substance (other than chemical waste or clinical waste) which is being used in the course of agricultural or horticultural operations; the disposal of chemical waste or clinical waste by a person who is authorised, pursuant to any regulation made under section 33(1)(da), to use the land or premises for that purpose; or the disposal of such wastes or classes of wastes in such circumstances as may be prescribed. 56

64 REGULATORY OVERVIEW Any person who commits an offence under section 16 is liable to a fine of HK$200,000 and to imprisonment for 6 months for the first offence, and HK$500,000 and to imprisonment for 6 months for a second or subsequent offence. In addition, if the offence is a continuing offence to a fine of $10,000 for each day during which it is proved to the satisfaction of the court that the offence has continued. Waste Disposal Licence for E-waste In March 2016, the Legislative Council of Hong Kong passed the Promotion of Recycling and Proper Disposal (Electrical Equipment and Electronic Equipment) (Amendment) Ordinance 2016 which provides a statutory regulatory framework for a Mandatory Producer Responsibility Scheme on Waste Electrical and Electronic Equipment. Except under certain circumstances, any person who is engaged in the storage, treatment, reprocessing or recycling of E-waste must first obtain a waste disposal licence under the WDO. Moreover, any person who imports or exports E- waste must first obtain a permit. E-waste is defined in WDO to include any electrical and electronic equipment, such as air conditioners, refrigerators, washing machines, television sets, computers, printers, scanners and monitors, that has been abandoned. The provisions relating to the waste disposal license for E-waste come into operations on 19 June The purpose of the waste disposal licence for E-waste is to ensure environmental requirements are met throughout the E-waste treatment and dismantling process, and the discharge generated does not pollute the environment or cause nuisance to the neighbouring area. The licence applicant shall ensure that the areas of the facility are paved; the mechanical plant for the E-waste treatment operation is fully enclosed in a structure with four walls and a roof; and the facility is operated in compliance with various requirements relating to environmental protection, land use planning, building and fire safety, etc. The applicant is required to submit an operation plan (together with the application) for consideration by the EPD. This should be able to present the details of the site set-up, treatment procedures, designed recycling rate (of no less than 80%), outlets of recovered materials, environmental management for the site etc. The EPD began to accept application for the waste disposal licence for E-waste from 19 June 2017 and it normally takes around 4 to 6 months for the EPD to process the application. Prior to 19 June 2017, our business operation was not subject to any requirement to obtain any particular approval or licence under the WDO. In light of the new licencing requirement for E-waste under the WDO which may regulate the selling of residual components containing precious metals and the selling of residual components containing other metals of our business, we made the application for the waste disposal licence and the export of waste permit on 24 July 2017 to ensure our business operations comply with the WDO. 57

65 REGULATORY OVERVIEW Permit Control on Waste Import and Export under the WDO The WDO provides for control on import and export of waste in Hong Kong. Under the WDO, a permit issued by the EPD is required for import or export of any waste, unless the waste is uncontaminated (a) of a kind specified in the Sixth Schedule and is intended for the purpose of reprocessing, recycling or recovery operation or reuse of the waste, (b) of a kind specified in the Seventh Schedule, or not specified in the Sixth Schedule. Moreover, the controlled waste shipments shall fully comply with the terms and conditions of the permit issued. Conducting these import and export activities without a permit issued by the EPD is an offence. The maximum penalty for violating the requirement is a fine of HK$200,000 and 6 months imprisonment for the first offence, and a fine of HK$500,000 and two years imprisonment for a second or subsequent offence. The illegally imported wastes are required to be returned to the place of origin and the cost will be paid by the offender. As confirmed by our Legal Counsel, our Directors are of the view that our Group was not required in the course of our recycling and refurbishment of IT and electronic products business to hold any registration or licenses with relevant authorities during the Track Record Period. Product Eco-Responsibility Ordinance (Chapter 603 of the Laws of Hong Kong) The Product Eco-Responsibility Ordinance aims to introduce measures to minimise the environmental impact of certain types of products and to provide for related matters. On 5 July 2017, the Legislative Council of Hong Kong has approved the Product Ecoresponsibility (Regulated Electrical Equipment) Regulation (Chapter 603B) under the Product Eco-responsibility Ordinance which will include regulations in respect of all or any of the following matters: (a) an application for registration under section 33 and the determination of the application; (b) the cancellation of registration under section 34; (c) (d) (e) (f) (g) the provision of recycling labels for each class of regulated electrical equipment by registered suppliers and sellers; the recycling levy for each class of regulated electrical equipment; the payment of recycling levies by registered suppliers; the submission of returns by registered suppliers; the information to be contained in the returns; 58

66 REGULATORY OVERVIEW (h) (i) (j) (k) the records and documents to be kept by registered suppliers; the submission of audit reports by registered suppliers; the prescribed wording for the purposes of section 35(2)(b); the requirements of the removal service plan; and (l) the removal service required by section 42. Import and Export Ordinance (Chapter 60 of the Laws of Hong Kong) The objective of the Import and Export Ordinance is to provide for the regulation and control of the import of articles into Hong Kong, the export of articles from Hong Kong, the handling and carriage of articles within Hong Kong which have been imported into Hong Kong or which may be exported from Hong Kong, and any matter incidental to or connected with the foregoing. According to section 6A(2) of the Import and Export Ordinance, a person who imports or exports strategic commodities as defined under Schedule 1 of the Import and Export (Strategic Commodities) Regulations (the Regulations ), except under and in accordance with an import or export licence, commits an offence and is liable: (a) (b) on summary conviction to a fine and imprisonment; and on conviction on indictment to a fine and imprisonment. To ascertain whether items are strategic commodities as defined under the Regulations, one may lodge an import/export licence or pre-classification application enclosing all technical information and specifications of the goods with the Trade and Industry Department to determine if a licence is necessary. During the Track Record Period and up to the Latest Practicable Date, our business operations do not involve the import or export of any strategic commodities as defined under the Regulations. Air Pollution Control Ordinance (Chapter 311 of the Laws of Hong Kong) The objective of the Air Pollution Control Ordinance and its subsidiary regulations is to make provision for abating, prohibiting and controlling pollution of the atmosphere and for matters connected therewith. 59

67 REGULATORY OVERVIEW The persons responsible for the site shall use methods of working and carrying out the works in such a manner so as to minimise negative impacts on the environment, and for preventing the discharge of such emissions into the atmosphere, and to ensure that emissions, if any, are harmless. Air Pollution Control (Non-Road Mobile Machinery) (Emission) Regulation (Chapter 311Z of the Laws of Hong Kong) The Air Pollution Control (Non-Road Mobile Machinery) (Emission) Regulation ( NRMM Regulation ) came into effect on 1 June 2015 to introduce regulatory control on the emissions of non-road mobile machinery ( NRMM ), including non-road vehicles and regulated machines that are subject to the NRMM Regulation (the Regulated Machines ). Unless exempted, NRMMs which are regulated under this provision are required to comply with the emission standards prescribed under this regulation. Under section 5 of the NRMM Regulation, starting from 1 December 2015, only approved or exempted NRMMs with a proper label are allowed to be used in specified activities and locations including construction sites. However,existingNRMMswhicharealreadyinHongKongonorbefore30November2015will be exempted from complying with the emission requirements pursuant to section 11 of the NRMM Regulation. Under section 5 of the NRMM Regulation, any person who uses or causes to be used a Regulated Machine in specified activities or locations without (i) exemption of the EPD s approval is liable to a fine of up to HK$200,000 and imprisonment for up to six months, and (ii) a proper label is liable to a fine of up to HK$50,000 and imprisonment for up to three months. Water Pollution Control Ordinance (Chapter 358 of the Laws of Hong Kong) The Water Pollution Control Ordinance controls the effluent discharged from all types of industrial, manufacturing, commercial, institutional and construction activities into public sewers, rainwater drains, river courses or water bodies. For any industry/trade generating wastewater discharge (except domestic sewage that is discharged into communal foul sewers or unpolluted water to storm drains), they are subject to licensing control by the Director of EPD. According to the Water Pollution Control Ordinance, unless being licensed under the Water Pollution Control Ordinance, a person who discharges any waste or polluting matter into the waters of Hong Kong in a water control zone or discharges any matter, other than domestic sewage and unpolluted water, into a communal sewer or communal drain in a water control zone commits an offence and is liable to imprisonment for six months and (a) for a first offence, a fine of HK$200,000; and (b) for a second or subsequent offence, a fine of HK$400,000, and in addition, if the offence is a continuing offence, to a fine of HK$10,000 for each day during which it is proved to the satisfaction of the court that the offence has continued. 60

68 REGULATORY OVERVIEW Competition Ordinance (Chapter 619 of the Laws of Hong Kong) The Competition Ordinance is designed to promote competition and prohibit anticompetitive practices. It prohibits three types of anti-competitive conduct described under the First Conduct Rule, the Second Conduct Rule and the Merge Rule which are collectively known as the competition rules. Examples of conduct which may contravene the Competition Ordinance include agreeing with competitors to fix prices, share markets, rig bids or restrict output. Penalties include fines of up to 10% of the guilty party s Hong Kong based turnover for up to three years of the period during which the guilty party committed such behavior. Other penalties may include the disgorgement of unlawful profits, positive or negative injunctive relief, invalidation of anticompetitive agreements and the disqualification of the directors involved in anti-competitive conduct. The First Conduct Rule prohibits anti-competitive agreements while the Second Conduct Rule prohibits abuse of market power. The First Conduct Rule prohibits businesses from making or giving effect to an agreement, engaging in a concerted practice, or making or giving effect to a decision of an association, if the object or effect is to harm competition in Hong Kong. Generally speaking, the First Conduct Rule disallows any arrangement between businesses in the market (whether they are competitors or not), which prevent, restrict or distort competition in Hong Kong. Whether the object of an agreement is anti-competition is to be determined by objective assessment. Agreement to fix prices, to share markets, to restrict output or to rig bids generally speaking are harmful to competition. Public Health and Municipal Services Ordinance (Chapter 132 of the Laws of Hong Kong) According to section 127 of the Public Health and Municipal Services Ordinance, where a nuisance notice is served on the person by reason of whose act, default or sufferance the nuisance arose or continues, or of that person cannot be found on the occupier or owner of the premises or vessel on which the nuisance exists, then if either the nuisance to which the notice relates arose by reason of the wilful act or default of that person; or that person fails to comply with any of the requirements of the notice within the period specified therein, that person shall be guilty of an offence. A person guilty of such offence is subject to a maximum penalty is a fine at level 3, which is currently fixed at HK$10,000, upon conviction with a daily fine of HK$200. Discharge of muddy water etc. is prohibited under the Public Health and Municipal Services Ordinance and is subject to a maximum fine is HK$5,000 upon conviction. Any accumulation of refuse which is a nuisance or injurious to health is prohibited under the Public Health and Municipal Services Ordinance and is subject to a maximum penalty is a fine at level 3, which is currently fixed at HK$10,000 upon conviction and a daily fine of HK$200. Any premises in such a state as to a nuisance or injurious to health is prohibited under the Public Health and Municipal Services Ordinance and is subject to a maximum penalty is a fine at level 2, which is currently fixed at HK$10,000 upon conviction and a daily fine of HK$

69 REGULATORY OVERVIEW LAWS AND REGULATIONS IN RELATION TO LABOUR, HEALTH AND SAFETY Employment Ordinance (Chapter 57 of the Laws of Hong Kong) The Employment Ordinance is a main piece of legislation governing conditions of employment in Hong Kong. All employees under contracts of employment are covered by the Employment Ordinance and as employers are obliged to adhere to the Employment Ordinance. Employees who have been employed continuously by the same employer for a period of four weeks or more with at least 18 hours worked in each week are further entitled to benefits such as compulsory rest days, paid annual leave, maternity leave, sickness allowance, severance and long service payments and MPF contributions. Factories and Industrial Undertakings Ordinance (Chapter 59 of the Laws of Hong Kong) The Factories and Industrial Undertakings Ordinance focuses on the health and safety of workers in factories and industrial undertakings. According to the Factories and Industrial Undertakings Ordinance, it is the duty of a proprietor of an industrial undertaking to ensure, so far as is reasonably practicable, the health and safety at work of all persons employed by him at the industrial undertaking. In addition, the duties of a proprietor also include: providing and maintaining plant and work systems that do not endanger safety or health; making arrangements for ensuring safety and health in connection with the use, handling, storage and transport of articles and substances; providing all necessary information, instructions, training and supervision for ensuring safety and health; providing and maintaining safe access to and egress from the workplaces; and providing and maintaining a safe and healthy working environment. A proprietor who contravenes any of these duties commits an offence and is liable to a fine of HK$500,000. A proprietor who contravenes any of these requirements wilfully and without reasonable excuse commits an offence and is liable to a fine of HK$500,000 and to imprisonment for 6 months. 62

70 REGULATORY OVERVIEW Employees Compensation Ordinance (Chapter 282 of the Laws of Hong Kong) The Employees Compensation Ordinance aims to provide for the payment of compensation to employees who are injured in the course of their employment. If an employee sustains an injury or dies as a result of an accident arising out of and in the course of his employment, his employer is in general liable to pay compensation under this Ordinance even if the employee might have committed acts of faults or negligence when the accident occurred. An employee suffering incapacity arising from an occupational disease is entitled to receive the same compensation as that payable to an employee injured in an accident arising out of and in the course of employment, if the disease is one due to the nature of any occupation in which he was employed at any time within the prescribed period immediately preceding the incapacity caused. According to section 15 of the Ordinance, an employer must notify the Commissioner for Labour of any accident or prescribed occupational disease within a specified time and using a specified form, irrespective of whether the accident or the occupational disease gives rise to any liability to pay compensation. Any employer who, without reasonable excuse, fails to give notice of an accident or makes or furnishes any false or misleading statement to the Commissioner for Labour commits an offence and is liable to a maximum fine of HK$50,000. According to section 40 of the Ordinance, no employer shall employ any employee in any employment unless there is in force a policy of insurance to cover their liabilities both under the Ordinance and at common law for injuries at work in respect of all their employees, irrespective of the length of employment contract or working hours, full-time or part-time employment. An employer who fails to comply with the Ordinance to secure an insurance cover commits an offence and is liable on conviction to a maximum fine of HK$100,000 and imprisonment for two years. Occupiers Liability Ordinance (Chapter 314 of the Laws of Hong Kong) The Occupiers Liability Ordinance regulates the obligations of a person occupying or having control of premises on injury resulting to persons or damage caused to goods or other property lawfully on the land. 63

71 REGULATORY OVERVIEW The Occupiers Liability Ordinance imposes a common duty of care on an occupier of premises to take such care as in all the circumstances of the case is reasonable to see that the visitor will be reasonably safe in using the premises for the purposes for which he is invited or permitted by the occupier to be there. According to section 3 of the Occupiers Liability Ordinance, the occupier of premises has discharged the common duty of care to a visitor if, for example: (a) (b) where damage is caused to a visitor by a danger of which he had been warned by the occupier, the warning is not to be treated without more as absolving the occupier from liability, unless in all the circumstances it was enough to enable the visitor to be reasonably safe; and where damage is caused to a visitor by a danger due to the faulty execution of any work of construction, maintenance or repair by an independent contractor employed by the occupier, the occupier is not to be treated without more as answerable for the danger if in all the circumstances he had acted reasonably in entrusting the work to an independent contractor and had taken such steps (if any) as he reasonably ought in order to satisfy himself that the contractor was competent and that the work had been properly done. Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong) Employers are required to enroll their regular employees (except for certain exempt persons) aged between at least 18 but under 65 years of age and employed for 60 days or more in a MPF Scheme within the first 60 days of employment. For both employees and employers, it is mandatory to make regular contributions into a MPF scheme. For an employee, subject to the maximum and minimum levels of income (HK$25,000 and HK$7,100 per month, respectively before 1 June 2014 or HK$30,000 and HK$7,100 per month, respectively on or after 1 June 2014), an employer will deduct 5% of the relevant income on behalf of an employee as mandatory contributions to a registered MPF scheme with a ceiling of HK$1,250 before 1 June 2014 or HK$1,500 on or after 1 June Employer will also be required to contribute an amount equivalent to 5% of an employee s relevant income to the MPF scheme, subject only to the maximum level of income (HK$25,000 per month before 1 June 2014 or HK$30,000 on or after 1 June 2014). 64

72 REGULATORY OVERVIEW Occupational Safety and Health Ordinance (Chapter 509 of the Laws of Hong Kong) The purposes of the Occupational Safety and Health Ordinance are as follows: (a) (b) (c) (d) to ensure the safety and health of employees when they are at work; to prescribe measures that will contribute to making the workplaces of employees safer and healthier for them; to improve the safety and health standards applicable to certain hazardous processes, plant and substances used or kept in workplaces; and generally to improve the safety and health aspects of working environments of employees. According to the provisions under the Occupational Safety and Health Ordinance, every employer must, so far as reasonably practicable, ensure the safety and health at work of all the employer s employees. Failure to comply with any of the provisions below constitutes an offence and the employer is liable on conviction to a fine of HK$200,000. An employer who fails to do so intentionally, knowingly or recklessly commits an offence and is liable on conviction to a fine of HK$200,000 and to imprisonment for 6 months, including but not limited to: (a) (b) (c) (d) a failure to provide or maintain plant and systems of work that are, so far as reasonably practicable, safe and without risks to health; a failure to make arrangements for ensuring, so far as reasonably practicable, safety and absence of risks to health in connection with the use, handling, storage or transport of plant or substances; a failure to provide such information, instruction, training and supervision as may be necessary to ensure, so far as reasonably practicable, the safety and health at work of the employer s employees; as regards any workplace under the employer s control- (i) (ii) a failure to maintain the workplace in a condition that is, so far as reasonably practicable, safe and without risks to health; or a failure to provide or maintain means of access to and egress from the workplace that are, so far as reasonably practicable, safe and without any such risks; 65

73 REGULATORY OVERVIEW (e) a failure to provide or maintain a working environment for the employer s employees that is, so far as reasonably practicable, safe and without risks to health. The Commissioner of Labour may serve an improvement notice on an employer, or an occupier of premises where a workplace is located, if of the opinion that the employer or occupier: (a) (b) is contravening this Ordinance or the Factories and Industrial Undertakings Ordinance (Chapter 59 of the Laws of Hong Kong); or has contravened either of those Ordinances in circumstances that make it likely that the contravention will be continued or repeated. An employer or occupier who, without reasonable excuse, fails to comply with a requirement of an improvement notice commits an offence and is liable on conviction to a fine of HK$200,000 and to imprisonment for 12 months. Minimum Wage Ordinance (Chapter 608 of the Laws of Hong Kong) The Minimum Wage Ordinance sets out a prescribed minimum hourly wage rate of HK$34.5 per hour during the wage period for every employee engaged under a contract of employment under the Employment Ordinance (Chapter 57 of the Laws of Hong Kong). The minimum wage for an employee for a wage period is the amount derived by multiplying the total number of hours (including any part of an hour) worked by the employee in the wage period by the minimum hourly wage rate for the employee. 66

74 HISTORY, DEVELOPMENT AND REORGANISATION THE CORPORATE HISTORY Our history can be traced backed to 2013 when H2O & AU was incorporated in Hong Kong to carry out recycling and refurbishment of IT and electronic products. Our Group was founded by Mr. Chan and Mr. Zhang. Mr. Chan, our chairman and an executive Director, has over 20 years experience of sourcing of electrical and electronic appliances and selling of the same in Hong Kong. Mr. Zhang, an executive Director, has been engaged in the trading of electronic and electrical components and products since In about 2012, Mr. Chan and Mr. Zhang became business acquaintances in the sourcing and trading of electronic and electrical products. With the success of their business relationship, Mr. Chan and Mr. Zhang co-founded H2O & AU on 24 May 2013 to carry out the business of recycling and refurbishment of IT and electronic products, and have over the years established our reputation, clienteles and strong relationships with many suppliers across the world. In July 2017, our Company was incorporated in the Cayman Islands as the ultimate holding company of H2O & AU in the furtherance of the business of H2O & AU in recycling and refurbishment of IT and electronic products. KEY BUSINESS MILESTONES The key events of the business development of our Group since our establishment are summarised as below: Year Event May 2013 Our founders, Mr. Chan and Mr. Zhang, incorporated H2O & AU to commence our Group s business in recycling and refurbishment of IT and electronic products. June 2013 H2O & AU entered into a supply agreement with Esun International which is effective from 1 June 2013 to 31 May 2020 for establishing trading cooperation and mutually beneficial strategic business relationship in the recycling business. By the said agreement, Esun International agrees to supply not less than 2,000 tonnes per year with the transaction price to be determined in according to the specific products ordered by H2O & AU and the transaction amount to be determined by the actual demand of H2O & AU. August 2014 Leased a piece of land of approximately 960m 2 in Ping Shan, Yuen Long, New Territories for the purpose of establishing our current factory to cope with our business expansion and cater to the increasing labour force. 67

75 HISTORY, DEVELOPMENT AND REORGANISATION Year Event April 2015 On 15 April 2015, Times Logistics joined the Group as a strategic shareholder by acquiring 2,000 ordinary shares of H2O & AU from Mr. Zhang. Mr. Zhang also transferred 1,000 ordinary shares to Mr. Chan. After the transfers, H2O & AU was held as to 65% by Mr. Chan, 15% by Mr. Zhang and 20% by Times Logistics respectively. Esun Metal was incorporated on 24 April 2015 and its shares were issued to Esun International and H2O & AU in the proportion of 51% and 49% respectively. July 2016 H2O & AU sold its shares in Esun Metal to Yixin, an Independent Third Party on 28 July The disposition of Esun Metal was mainly due to ongoing operating loss in its business operation. Miao Xin was incorporated on 4 July 2016 and issued ordinary shares to Mr. Chan, Times Logistics and Mr. Zhang in the proportion of 65%, 20% and 15% respectively. As consideration of the said issue, Mr. Chan, Times Logistics and Mr. Zhang transferred 65%, 20% and 15% ordinary shares in H2O & AU to Miao Xin respectively by way of share swap. August 2016 Chinese name of H2O & AU was changed from 淼鑫再生資源有限公司 to 富元再生資源有限公司. Its English name remained unchanged. May 2017 H2O & AU obtained the ISO 9001:2015 quality management system standard and the ISO 14001:2015 environmental management system standard, both issued by the Compliance Certification Corporation Limited. 68

76 HISTORY, DEVELOPMENT AND REORGANISATION OUR GROUP Our Company Our Company was incorporated in the Cayman Islands under the Companies Law as an exempted company with limited liability on 17 July 2017 with an authorised share capital of HK$380,000 divided into 38,000,000 ordinary Shares of par value HK$0.01 each. On 30 August 2017, our Shareholders resolved to increase the authorised share capital of our Company from HK$380,000 to HK$20,000,000 divided into 2,000,000,000 Shares. Our Company is an investment holding company. Our intermediate holding company Miao Xin On 4 July 2016, Miao Xin was incorporated as a limited liability company in the BVI. On 6 July 2016, Miao Xin issued 650 (65%), 200 (20%) and 150 (15%) ordinary shares to Mr. Chan, Times Logistics and Mr. Zhang respectively. On 28 July 2016, as consideration of the said issue, Mr. Chan, Times Logistics and Mr. Zhang transferred 6,500 (65%), 2,000 (20%) and 1,500 (15%) ordinary shares in H2O & AU to Miao Xin respectively by way of share swap. After the share swap, Miao Xin becomes the immediate holding company of H2O & AU. Our operating subsidiary H2O & AU On 24 May 2013, H2O & AU was incorporated as a limited liability company in Hong Kong with an issued share capital of HK$10, which was fully paid up with 4,500 ordinary shares (45%) being subscribed by Mr. Zhang and 5,500 ordinary shares (55%) being subscribed by Mr. Chan. We conduct our operations principally through H2O & AU, our indirect wholly-owned subsidiary in Hong Kong. H2O & AU is principally engaged in the business of recycling and refurbishment of IT and electronic products. In 2015, through business connection of Mr. Zhang and Mr. Chan, Times Logistics approached us and expressed its interest in investing in H2O & AU without participating in its management and business. At the same time, Mr. Zhang wished to realise part of his investment in H2O & AU whilst Mr. Chan expressed his interests in increasing his stake in H2O & AU. 69

77 HISTORY, DEVELOPMENT AND REORGANISATION As a result, on 15 April 2015, Mr. Zhang transferred 1,000 ordinary shares to Mr. Chan and 2,000 ordinary shares to Times Logistics for a total consideration of HK$12,750,000 which was determined with reference to the fair value of H2O & AU. After the transfers, H2O & AU was held as to 6,500 ordinary shares (65%) by Mr. Chan, 1,500 ordinary shares (15%) by Mr. Zhang and 2,000 ordinary shares (20%) by Times Logistics respectively. On 24 August 2016, the Chinese name of H2O & AU was changed from 淼鑫再生資源有限公司 to 富元再生資源有限公司. Its English name remained unchanged. Disposal of Esun Metal Whilst Esun International had a long term contract to supply scrap metal and H2O & AU had a network of suppliers which could supply scrap metal, Esun International and H2O & AU established Esun Metal to carry out the trading of scrap metals. On 24 April 2015, Esun Metal was established as a limited liability company in Hong Kong with an issued share capital of HK$4,000,000.00, of which 2,040,000 (51%) and 1,960,000 (49%) ordinary shares were issued to Esun International and H2O & AU respectively as fully paid up. Its principal business is trading of scrap metals. On 28 July 2016, H2O & AU as vendor entered into a share sale and purchase agreement with Yixin, an Independent Third Party, as purchaser to sell all its 1,960,000 (49%) issued ordinary shares in Esun Metal for a total consideration of HK$1,419, which is determined with reference to the net asset value of Esun Metal as at 30 June The disposition of Esun Metal was mainly due to ongoing operating loss in the business operation of Esun Metal and the transaction was completed on 28 July

78 HISTORY, DEVELOPMENT AND REORGANISATION REORGANISATION On 26 May 2017, we commenced the Reorganisation in preparation for the [REDACTED]. The following chart sets out our Group s corporate and shareholding structure immediately before the Reorganisation. Mr. Lu 100% Mr. Chan Times Logistics (HK) Mr. Zhang 65% 20% 15% Miao Xin (BVI) 100% H2O & AU (HK) Incorporation of Succeed Road and Acquisition of 65% of Issued Share Capital of Miao Xin by Succeed Road On 26 May 2017, Succeed Road was incorporated in the BVI with limited liability with an authorised share capital US$50, divided into 50,000 ordinary shares of US$1.00 each. On 12 July 2017, 100 fully paid ordinary shares of Succeed Road were allotted and issued to Mr. Chan as consideration for Mr. Chan transferring 650 issued ordinary shares (65%) in Miao Xin to Succeed Road. Upon completion of the aforesaid share swap, Succeed Road became the majority shareholder holding 65% of Miao Xin and Mr. Chan became the sole shareholder of Succeed Road. 71

79 HISTORY, DEVELOPMENT AND REORGANISATION Incorporation of Richest Vast and Acquisition of 15% of Issued Share Capital of Miao Xin by Richest Vast On 26 May 2017, Richest Vast was incorporated in the BVI with limited liability with an authorised share capital of US$50, divided into 50,000 ordinary shares of US$1.00 each. On 12 July 2017, 100 fully paid ordinary shares of Richest Vast were allotted and issued to Mr. Zhang as consideration for Mr. Zhang transferring 150 issued ordinary shares (15%) in Miao Xin to Richest Vast. Upon completion of the aforesaid share swap, Richest Vast became a shareholder holding 15% of Miao Xin and Mr. Zhang became the sole shareholder of Richest Vast. Incorporation of our Company On 17 July 2017, our Company was incorporated in the Cayman Islands as an exempted company with limited liability. The initial authorised share capital of our Company was HK$380,000 divided into 38,000,000 ordinary shares with par value of HK$0.01 each. Upon incorporation, one Share, representing the entire issued share capital of our Company, was allotted and issued as fully paid share to the initial subscriber, an Independent Third Party, at par which was later transferred to Succeed Road at par as fully paid on the same day. Acquisition of Miao Xin by our Company On 3 August 2017, our Company, Miao Xin, Succeed Road, Times Logistics and Richest Vast entered into the Share Swap Agreement, pursuant to which our Company allotted and issued 6,499, 2,000 and 1,500 Shares to each of Succeed Road, Times Logistics and Richest Vast credited as fully paid, in consideration of which Succeed Road, Times Logistics and Richest Vast transferred 650 (65%), 200 (20%) and 150 (15%) ordinary shares of Miao Xin respectively to our Company. Upon completion of the aforesaid share swap, H2O & AU became a direct whollyowned subsidiary of Miao Xin, which is in turn directly wholly-owned by our Company. Immediately upon completion of the Reorganisation, our Company is held as 65%, 20% and 15% by Succeed Road, Times Logistics and Richest Vast respectively. 72

80 HISTORY, DEVELOPMENT AND REORGANISATION The following chart sets out our Group s corporate and shareholding structure immediately after the Reorganisation, but before the completion of the [REDACTED] and Capitalisation Issue: Mr. Chan Mr. Lu Mr. Zhang 100% 100% 100% Succeed Road (BVI) Times Logistics (HK) Richest Vast (BVI) 65% 20% 15% Our Company (Cayman Islands) 100% Miao Xin (BVI) 100% H2O & AU (HK) INCREASE OF AUTHORISED SHARE CAPITAL OF OUR COMPANY On 30 August 2017, our Company increased its authorised share capital from HK$380,000 divided into 38,000,000 Shares to HK$20,000,000 divided into 2,000,000,000 Shares through the creation of 1,962,000,000 additional Shares. CAPITALISATION ISSUE Pursuant to the resolutions in writing of our then Shareholders, namely Succeed Road, Times Logistics and Richest Vast, passed on [REDACTED], our Directors are authorised to capitalise an amount of HK$[REDACTED] standing to the credit of the share premium account of our Company (without taking into account any Shares which may issued upon exercise of the [REDACTED] or pursuant to the exercise of any options which may be granted under the Share Option Scheme) by applying such sum towards the paying up in full a total of [REDACTED] Shares for the allotment and issue of [REDACTED] Shares, [REDACTED] Shares and [REDACTED] Shares to Succeed Road, Times Logistics and Richest Vast respectively. 73

81 HISTORY, DEVELOPMENT AND REORGANISATION Our Company will offer [REDACTED] [REDACTED] under the [REDACTED] for subscription by the public of Hong Kong and [REDACTED] [REDACTED] under the [REDACTED], representing a total of [REDACTED] of the enlarged issued share capital of our Company upon [REDACTED]. The following chart sets out our Group s corporate and shareholding structure upon completion of the Capitalisation Issue and the [REDACTED] (without taking into account any Shares which may be issued upon exercise of the [REDACTED] or pursuant to the exercise of any options which may be granted under the Share Option Scheme). Mr. Chan Mr. Lu Mr. Zhang 100% 100% 100% Succeed Road (BVI) Times Logistics (HK) Richest Vast (BVI) Public [REDACTED] [REDACTED] [REDACTED] [REDACTED] Our Company (Cayman Islands) 100% Miao Xin (BVI) 100% H2O & AU (HK) 74

82 BUSINESS OVERVIEW We are a well-established recycling and refurbishment company in Hong Kong with a primary focus on recyclable IT and electronic products including computer components, smart watches and mobile accessories. We perform a variety of steps, including inspection, procurement, sorting, testing, dismantling and refurbishing of the recyclable IT and electronic products before selling them to our customers as whole products or functional parts, or residual components containing metals and precious metals. Our business can be categorised into (i) selling of recycled and refurbished electronic products, (ii) selling of residual components containing precious metals such as gold, silver, copper and palladium and (iii) selling of residual components containing other metals such as iron and steel. We sell our recycled and refurbished IT and electronic products to our customers who will generally export the same to overseas countries, mainly the developing countries in Asia with a strong demand for recycled and refurbished IT and electronic products. For residual components that contain precious metals and other metals, we will sell them to our customers who are engaged in the business of smelting and/ or recycling of precious metals and other metals. Founded in 2013 by Mr. Chan, our Chairman and executive Director and Mr. Zhang, our Chief Executive Officer and executive Director, our strong, well-connected and experienced management team has led and developed our Group into a scaled recycling and refurbishment company in Hong Kong. Both Mr. Chan and Mr. Zhang have solid industry experience and for detailed description of their background and industry experience, please refer to the section headed Directors, Senior Management and Employees. Our operation base is located in Yuen Long, the New Territories with a gross floor area of approximately 960 sq. m. As at the Latest Practicable Date, we have a team of 16 staff members and we are able to process and recycle an average of approximately 125 tonnes of electronic products per month. During the Track Record Period, we generated revenue of approximately HK$394.0 million, HK$97.1 million and HK$112.6 million respectively. Approximately HK$380 million, HK$92.2 million and HK$109.4 million, representing 97%, 95% and 97% of our total revenue were generated from selling of recycled and refurbished electronic products. Approximately HK$12.9 million, HK$4.4 million and HK$2.9 million, representing 3%, 4% and 3% of our total revenue were generated from selling residual components containing precious metals and approximately HK$1.2 million, HK$0.6 million and HK$0.3 million, representing 1% or less of our total revenue were generated from selling residual components containing other metals such. 75

83 BUSINESS OUR COMPETITIVE STRENGTHS Our Directors believe that the following competitive strengths of our Group have contributed to our success to date: We have a broad and diversified customer base and we have maintained stable relationship with our suppliers We provide recycling and refurbishment services and sell reusable goods to customers with a primary focus on recycling and refurbishment of IT and electronic products including computer components, smart watches and mobile accessories. Our Directors are of the view that a broad customer base and a stable relationship with our suppliers is important to our Group s continual development. Despite our short history of operation, we are able to develop a broad and diversified customer base by leveraging the experience and business connection of Mr. Chan, our Chairman and executive Director and Mr. Zhang, our Chief Executive Officer and executive Director. During the Track Record Period and as at the Latest Practicable Date, we have developed a customer base of over 297 customers, and our customers include retailers and wholesalers of electronic goods and accessories and metal hardware, as well as factories that engage in recycling treatment and refinery operations of electronic goods from Hong Kong, China and Singapore. We have maintained good relationship with them, and we have not experienced any material disputes with our customers. In addition, we have a well-established source of procurement and have maintained stable relationship with our suppliers. We procure our recyclable items namely recyclable IT and electronic products, from both local and overseas suppliers and have developed a strong international procurement network which covers Europe, North America, Oceania and Asia. During the Track Record Period, our top five suppliers have accounted for approximately 90.1%, 79.4% and 89.4%, respectively of our total purchases of recyclable items and supplies during the Track Record Period. We have enjoyed business relationship with such suppliers for periods of between five months to four years. During the Track Record Period and as at the Latest Practicable Date, we did not experienced any material disputes with our suppliers. For details of our customers and suppliers, please refer to the paragraphs Customers, Sales and Marketing and Suppliers in this section respectively. 76

84 BUSINESS We have a strong, experienced and competent management team We have an experienced and dedicated management team with extensive operational expertise and experience and in-depth understanding of IT and electronic product recycling and refurbishment industry in Hong Kong. Our senior management team comprises a group of highly capable and experienced individuals. Our Group is founded by Mr. Chan, our Chairman and executive Director and Mr. Zhang, our Chief Executive Officer and executive Director. Mr. Chan has accumulated 20 years of experience in sourcing and trading of IT and electronic products. In addition, he is the director of Hong Kong Recycling Chamber of Commence and the advisor of Thai Young Chinese Chamber of Commence. Mr. Zhang has accumulated over 8 years of experience in sourcing and trading of electronic products. Our finance and accounting manager, Ms. Chan Yuen Lin Evelyn, has over 32 years of accounting experience. Our Directors and members of senior management are all welltrained, well-connected and experienced in the respective areas of competence and we believe that a strong, experienced and competent management team is the key to our success. Please refer to the section headed Directors, Senior Management and Employees for detailed background and experience of Mr. Chan, Mr. Zhang, Ms. Chan Yuen Lin Evelyn and other members of our senior management team. We strategically and wisely select the types of recycled and refurnished products we offer and maintained specialised and effective recycling and refurbishment process Different types of electronic products have different profit margin and the complexity and costs involved in recycling and refurbishing different types of electronic products are different. As each of Mr. Chan, our Chairman and executive Director, and Mr. Zhang, our Chief Executive Officer and executive Director has ample experience in the recycling and refurbishment industry, they have good business insight on the development of our Group. In order to maintain our competitive advantage, our Group decided not to recycle and refurbish a wide range of products, but to focus on recyclable IT and electronic products that do not require much time to process and are usually characterised by frequent replacement and mass popularity and that our Directors consider to have better value instead. During the Track Record Period, we mainly specialise in selling (i) recycled and refurbished IT and electronic products; (ii) residual components containing precious metals and (iii) residual components containing other metals. As we have identified the area and products that we would like to specialise, it becomes easier for our Group to develop a specialised and cost-effective recycling and refurbishment process, and hence maintaining a competitive advantage over our competitors. 77

85 BUSINESS OUR BUSINESS STRATEGIES The key elements of our strategies for achieving sustainable growth in our business are as follows: Acquiring permanent operation base for our business expansion Currently our operation base in Yuen Long, New Territories is leased for use with remaining tenancy until 31 July Our Directors consider that it would be in our best interest to acquire a parcel of land in a similar location to cope with our business expansion and cater to the increasing labour force, which has utilised almost all of the space in our existing operation base. Our Directors consider that acquiring a land could mitigate the risk of increasing rental expenses, long-term capital investment and potential suspension of our production caused by the termination of lease agreements. We expected to pay in full for the acquisition of the land. The land we plan to acquire is ideally located in Yuen Long as our existing operation base is also located in Yuen Long. The target size of the land would be around 1,690 sq.m., depending on the overall suitability and actual purchase cost. As at the Latest Practicable Date, we had not yet identified any target land but our Directors confirm that we will not purchase property from any connected persons of our Company. Our budget for the total purchase price, including the associated transaction costs such as commission, stamp duty and legal costs, as well as renovation costs, is estimated to be approximately HK$45.0 million and we expect this amount to be financed by the funds raised form the [REDACTED]. Please refer to the section headed Future Plans and Use of Proceeds in this document for further details. Purchase of recyclable items As the market demand for recyclable IT products and electronic products continues to grow, our Directors are of the view that a stable supply of recyclable items in a more timely and efficient manner will in turn enables us to grow our business. In view of the letters of intent we have entered with our customers, of which the duration of initial term is one year, we anticipate an increase in demand for our products which will in turn increase the demand of recyclable items that we procure. Please refer to the section headed Future Plans and Use of Proceeds in this document for further details. 78

86 BUSINESS Acquisition of additional machinery According to the growth forecast of the recycling and refurbishment of IT and electronic products industry in Hong Kong as stated in the F & S Report, the market size of recycling and refurbishment of IT and electronic products industry in terms of revenue in Hong Kong is forecasted to increase from approximately HK$971.1 million in 2018 to approximately HK$1,041.5 million in As such, our Directors believe that we can undertake additional purchase orders on top of our present scale of operation if we are able to improve the effectiveness and efficiency of our production execution and enhance our operational capacity. For instance, we intend to increase our transportation capacity by acquiring new truck vehicles to pick up/deliver goods from/to places designated by our suppliers or customers and hence place less reliance on independent service providers for transportations of goods as well as saving costs. Please refer to the section headed Future Plans and Use Of Proceeds for further details. Expanding our manpower by recruiting additional experienced and skilled operations staff and workers We believe that the ultimate success of our Group stems from our ability to deliver our value to our customers, which is largely attributed to the talents and skills which our employees possess. We intend to recruit additional experienced and skilled operations staff and workers (including one chief financial officer and three additional managers for our testing, dismantling and sales department to meet the growing needs of our operations. We will also continue to provide our employees with regular and continuous trainings relating to our operations with an aim to improve their skills and efficiency as well as to enhance their knowledge and awareness in work safety and regulatory landscape which will translate into the success of our Group. In addition, our Directors believe that our Share Option Scheme, which our Company will adopt conditionally, will supplement our existing compensation plans and bonuses, which will attract and help retain suitable personnel for our Group. Please refer to the section headed Future Plans and Use Of Proceeds for further details. 79

87 BUSINESS OUR BUSINESS MODEL We generate revenue from our recycling business by procuring and processing recyclable IT and electronic products and selling refurbished IT and electronic products as whole or functional parts, and residual components containing precious metals and other metals to our customers. Procure electronic products suitable for recycling Recycling and processing Recycled and refurbished electronic products for sale Residual components containing precious metals for sale Residual components containing other metals for sale OUR PRODUCTS The products we sell include: (i) recycled and refurbished IT and electronic products; (ii) residual components containing precious metals; and (iii) residual components containing other metals. Recycled and refurbished IT and electronic products 80

88 BUSINESS IT and electronic products such as hard-disks, RAM, desktop computers, laptop computers, servers and printers can be recycled and refurbished for reuse. We source and process a wide range of IT and electronic products to extract the reusable goods in whole or functional parts. For example, in the recycling process of a hard-disk, we identify defects on the hard-disks by using hard drive diagnostic machines. Our Company sets out in our acceptance procedure the acceptable range of minor defects contained in the hard-disk. Hard-disks that comply with the acceptance procedure will be repackaged for sale. Residual components containing precious metals IT and electronic products often contain precious metals such as gold, silver, copper and palladium. Subsequent to the separation of recyclable internal components that are of resale value from recyclable IT and electronic products by utilising equipment and manual labour, the residual components are categorised into residual components with precious metals and that with other metals. Residual components containing precious metals such as PCBs extracted from various computing equipment will be sold to our overseas customers who are principally engaged in the business of smelting and recycling of precious metals. The main IT and electronic products processed to extract residual components containing precious metals comprise servers, CPU, RAM and PCBs etc. 81

89 BUSINESS Residual components containing other metals Following to the dismantling phase and identification of the reusable goods and residual components containing precious metals, residual components containing other metals such as iron, steel and aluminium are then identified. We sell these residual components with other metals to customers for their further recycling and processing. For the three years ended 31 July 2017, we generated approximately HK$394.0 million, HK$97.1 million and HK$112.6 million revenue respectively. Majority of our revenue was generated from the selling of recycled and refurbished IT and electronic products. The following table set out the breakdown of revenue generated from our Group s business: For the year ended 31 July HK$ 000 % HK$ 000 % HK$ 000 % Selling of recycled and refurbished IT and electronic products 380,018 97% 92,153 95% 109,413 97% Selling of residual components containing precious metals 12,861 3% 4,421 4% 2,876 3% Selling of residual components containing other metals 1, % 299 Total 394, % 97, % 112, % 82