Lapco Holdings Limited - Proxy Solicitation & Information Statement 2017

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

Lapco Holdings Limited 立高控股有限公司

(the “Company”)

(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 ”) and 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 the Company, its sponsor, advisers or member of the underwriting syndicate that:

(a) 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;
(b) the publication of this document or supplemental, revised or replacement pages on the Exchange’s website does not give rise to any obligation of the Company, its sole sponsor, advisors 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;
(c) 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;
(d) 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 Growth Enterprise Market of Stock Exchange;
(e) this 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;
(f) this document must not be regarded as an inducement to subscribe for or purchase any securities, and no such inducement is intended;
(g) neither the Company nor any of its affiliates, its sole sponsor, advisers or members of its underwriting syndicate is offering, or is soliciting offers to buy, any securities in any jurisdiction through the publication of this document;
(h) no application for the securities mentioned in this document should be made by any person nor would such application be accepted;
(i) 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;
(j) 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
(k) 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.

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

IMPORTANT

If you are in any doubt about any of the contents of this [ REDACTED ] , you should obtain independent professional advice.

Lapco Holdings Limited 立高控股有限公司

(Incorporated in the Cayman Islands with limited liability)

[ REDACTED ] ON THE GROWTH ENTERPRISE MARKET OF THE STOCK EXCHANGE OF HONG KONG LIMITED BY WAY OF [ REDACTED ]

Number of [ REDACTED ] : [ REDACTED ] Shares (subject to the [ REDACTED ] ) Number of [ REDACTED ] : [ REDACTED ] Shares (subject to reallocation and the [ REDACTED ] ), comprising [ REDACTED ] and [ REDACTED ] Number of [ REDACTED ] : [ REDACTED ] Shares (subject to reallocation) [ REDACTED ] : [ REDACTED ] per [ REDACTED ] (plus brokerage fee of 1%, SFC transaction levy of 0.0027% 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 [ REDACTED ] : [ REDACTED ]

Sole Sponsor

[ REDACTED ]

Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this [ REDACTED ] , 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 [ REDACTED ] .

A copy of this [ REDACTED ], having attached thereto the documents specified in the paragraphs headed “Documents delivered to the Registrar of Companies and available for inspection” in Appendix V to this [ REDACTED ], 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). Neither the Securities and Futures Commission nor the Registrar of Companies in Hong Kong takes any responsibility as to the contents of this [ REDACTED ] or any of the other documents referred to above.

Prospective investors should consider carefully all the information set out in this [ REDACTED ] and, in particular, should consider and evaluate the matters discussed under the section headed “Risk factors” in this [ REDACTED ] before making any investment decision in relation to our Company.

Prospective investors of the [ REDACTED ] should note that the [ REDACTED ] (for itself and on behalf of the Underwriters) has the right, in its sole and absolute discretion, to terminate the obligations of the [ REDACTED ] under the [ REDACTED ] upon the occurrence of any of the events set out under the paragraphs headed “[ REDACTED ]” in this [ REDACTED ], at any time at or before 8:00 a.m. (Hong Kong time) on the [ REDACTED ]. Should the [ REDACTED ] (for itself and on behalf of the Underwriters) terminate the obligations of the Underwriters under the Underwriting Agreements in accordance with their respective terms, the [ REDACTED ] will not become unconditional and will lapse immediately.

[ REDACTED ]

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

CHARACTERISTICS OF GEM

GEM has been positioned as a market designed to accommodate companies to which a higher investment risk may be attached than other companies listed on the Stock Exchange. Prospective investors should be aware of the potential risks of investing in such companies and should make the decision to invest only after due and careful consideration. The greater risk profile and other characteristics of GEM mean that it is a market more suited to professional and other sophisticated investors.

Given the emerging nature of companies listed on GEM, there is a risk that securities traded on GEM may be more susceptible to high market volatility than securities traded on the Main Board and no assurance is given that there will be a liquid market in the securities traded on GEM.

The principal means of information dissemination on GEM is publication on the internet website operated by the Stock Exchange. Listed companies are not generally required to issue paid announcements in gazette newspaper. Accordingly, prospective investors should note that they need to have access to the website of the Stock Exchange at www.hkexnews.hk in order to obtain up-to-date information on GEM-listed issuers.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

EXPECTED TIMETABLE

[ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

EXPECTED TIMETABLE

[ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

EXPECTED TIMETABLE

[ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

This [ REDACTED ] 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 buy any security other than the [ REDACTED ] offered by this [ REDACTED ] pursuant to the [ REDACTED ] . This [ REDACTED ] may not be used for the purpose of, and does not constitute, an offer or invitation in any other jurisdiction or in any other circumstances. No action has been taken to permit a public offering of the [ REDACTED ] in any jurisdiction other than Hong Kong and no action has been taken to permit the distribution of this [ REDACTED ] any jurisdiction other than Hong Kong. The distribution of this [ REDACTED ] and the offering and sale of the [ REDACTED ] in other jurisdictions are subject to restrictions, and may not be made except as permitted under the applicable securities laws of such jurisdictions pursuant to registration with or authorisation by the relevant securities regulatory authorities or an exemption therefrom.

You should rely only on the information contained in this [ REDACTED ] and the [ REDACTED ] to make your investment decision. Our Company, the [ REDACTED ] , the Sole Sponsor, the [ REDACTED ] and the [ REDACTED ] have not authorised any persons to provide you with information that is different from what is contained in this [ REDACTED ] . Any information or representation not made nor contained in this [ REDACTED ] must not be relied on by you as having been authorised by our Company, the [ REDACTED ] , the Sole Sponsor, the [ REDACTED ] , the [ REDACTED ] , any of their respective directors or affiliates of any of them, or any other persons or parties involved in the [ REDACTED ] .

		Page
Characteristics of GEM . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	i
Expected Timetable . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	ii
Contents . . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	v
Summary . . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
Definitions . . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	11
Glossary of technical terms	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	22
Forward-looking Statements	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
Risk Factors . . . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
Information About this [REDACTED] and the [REDACTED] . . . . . . . . . . . . . . . .		36
Directors and Parties Involved in the [REDACTED] . . . . . . . . . . . . . . . . . . . . . . .		40
Corporate Information . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	43

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			Page
Industry Overview . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . .	45
Regulatory Overview	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . .	56
History, Development	and Reorganisation . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . .	63
Business . . . . . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . .	74
Relationship with our	Controlling Shareholders . . . . . . . . . . . . . . .	. . . . . . . . . . .	149
Continuing Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . .		. . . . . . . . . . .	156
Financial Information	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . .	159
Future Plans and [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . .		. . . . . . . . . . .	201
Directors and Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . .		. . . . . . . . . . .	207
Share Capital . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . .	217
Substantial Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .		. . . . . . . . . . .	220
Underwriting . . . . . .	. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	. . . . . . . . . . .	221
Structure and Conditions of the [REDACTED] . . . . . . . . . . . . . . . .		. . . . . . . . . . .	229
How to Apply for [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . .		. . . . . . . . . . .	235
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

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

SUMMARY

This summary aims to give you an overview of the information contained in this [ REDACTED ] and therefore does not contain all the information which may be important to you. You should read this [ REDACTED ] in its entirety 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 out in the section headed “Risk factors” in this [ REDACTED ] . You should read that section carefully before you decide to invest in the [ REDACTED ] . Various expressions used in this section are defined in the sections headed “Definitions” and “Glossary of technical terms” in this [ REDACTED ] .

OVERVIEW

We are an established and one-stop environmental hygiene service provider based in Hong Kong. According to the F&S Report, we ranked the ninth in 2015 among environmental hygiene service providers in Hong Kong and had 3.2% of market share in terms of revenue generated. Further, according to the F&S Report, we ranked the second in 2015 in terms of the street cleaning service contract sum awarded by our largest customer, the market of which is shared only by five service providers.

Our environmental hygiene services cover four types, namely (a) cleaning services; (b) pest management services; (c) waste management and recycling services; and (d) landscaping services. We provide our environmental hygiene services to a wide range of venues. Our history dates back to 1990, when one of our operating subsidiaries, Shiny Glory, was incorporated, giving us a track record of over 25 years as an environmental hygiene service provider. We commenced our business operations as a waste management service provider. Seeing the demand for more diversified types of environmental hygiene services, we have expanded our business operations to provide cleaning services and pest management services since 1998 and 2000, respectively. We then further expanded our environmental hygiene services to provide landscaping services in March 2016.

Our major customers during the Track Record Period include various departments of the HK Government, property management companies and other corporations in the private sector. The following table sets forth a breakdown of our revenue during the Track Record Period by business segments:

d Period by business segments:
Cleaning services Pest management services Waste management and recycling services Landscaping services Total	For the year ended 31 December 2015 2016 HK$’000 % HK$’000 305,399 84.0 343,982 43,346 11.9 31,552 14,722 4.1 27,870 – – 720 363,467 100.0 404,124	% 85.1 7.8 6.9 0.2
		100.0

COMPETITIVE STRENGTHS

Our Directors believe that the following competitive strengths will continue to enhance our presence and increase our market share in the environmental hygiene service industry, (i) we have a well-established presence in the environmental hygiene service industry in Hong Kong; (ii) we have established business relationships with public sector customers; (iii) we have a proven track record in providing comprehensive and high quality environmental hygiene services to our customers; and (iv) we have an experienced management team and substantial operational resources. Further details on our competitive strengths are set forth in the paragraphs headed “Business — Competitive strengths” in this [ REDACTED ].

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

SUMMARY

BUSINESS STRATEGIES

We aim to achieve sustainable growth and further strengthen our overall competitiveness and business growth in the environmental hygiene service industry in Hong Kong. To achieve this, we plan to adopt the following strategies to capitalise on opportunities to leverage our competitive strengths: (i) expand our operational resources to strengthen our established presence in the environmental hygiene service industry in Hong Kong; (ii) enhance the information technology application system to enhance operational efficiency; and (iii) expand our presence in the private sector to diversify our customer base. Further details on our business strategies are set forth in the paragraphs headed “Business — Business strategies and future plans” in this [ REDACTED ].

OUR CUSTOMERS

During the Track Record Period, we derived our revenue mainly from the public sector. The following table sets forth a breakdown of our revenue during the Track Record Period by types of customers:

Public sector (Note 1) Private sector (Note 2) Total	For the year ended 31 December 2015 2016 HK$’000 % HK$’000 % 341,685 94.0 382,400 94.6 21,782 6.0 21,724 5.4 363,467 100.0 404,124 100.0	For the year ended 31 December 2015 2016 HK$’000 % HK$’000 % 341,685 94.0 382,400 94.6 21,782 6.0 21,724 5.4 363,467 100.0 404,124 100.0
		100.0

Notes:

Public sector mainly refers to the departments of the HK Government.
Private sector mainly refers to all companies and corporate bodies other than departments of the HK Government, such as statutory organisations, universities and companies receiving substantial funding of the HK Government.

Customer concentration

Despite the substantial revenue contribution from our largest customer during the Track Record Period, our Directors are of the view that our reliance on our largest customer is not an extreme case which would impact on our suitability for [ REDACTED ] since (i) it would not be difficult for us to find new customers; (ii) we demonstrated our effort in diversifying and expanding our customer base and our ability in establishing new business relationship with other customers during the Track Record Period given the decreasing percentage of revenue generated from our largest customer; (iii) it would be unlikely for us to break off reliance on our largest customer as far as street cleaning services are concerned given the highly consolidated market share of street cleaning

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

SUMMARY

services; (iv) our over 18 years of business relationship with our largest customer demonstrates our abilities in offering competitive tenders and maintaining satisfactory performance in connection with the service contracts awarded to us; and (v) in view of the governmental responsibilities of our largest customer to implement and co-ordinate environmental hygiene services, the demand of our services from our largest customer is less susceptible to changing economic conditions. Further details on customer concentration are set forth in the paragraphs headed “Business — Customers — Customer concentration” and “Risk factors — Our customer concentration is high, a loss of our largest customer may adversely affect our business operations and financial results” in this [ REDACTED ].

Basis of determination of our service fees

We take into account various factors when deriving our pricing policy such as (a) our budget prepared based on previous contracts with similar scope of services; (b) our cost analysis taking into account potential increase in wages, scope of services, resources allocated to the contract, the duration of the contract, material costs, locations of projects, size of projects and timetable provided by the customer; (c) the prevailing market rates; and (d) relationship, reputation or background of the customer.

Further details on our customers are set forth in the paragraphs headed “Business — Customers” in this [ REDACTED ].

OUR SUPPLIERS AND SUBCONTRACTORS

During the Track Record Period, our suppliers include (a) vehicles rental service providers; (b) material and equipment suppliers supplying materials and equipment such as garbage bags, toilet paper and other cleaning equipment in the provision of cleaning services and pest management services; (c) fuel suppliers supplying fuel for our vehicles; and (d) subcontractors providing additional equipment and staff. For the two years ended 31 December 2016, the percentage of total cost of services excluding direct labour costs attributable to our largest supplier amounted to approximately 15.6% and 5.9%, respectively, while the percentage of total cost of services excluding direct labour costs attributable to our five largest suppliers amounted to approximately 31.1% and 20.1%, respectively. Our Directors confirm that all of our suppliers are Independent Third Parties.

Cost of services

The table below sets forth a breakdown of our cost of services by type for the periods indicated:

Direct labour costs (Note) Vehicle expenses Consumables Direct overheads Total	For the year ended 31 December 2015 2016 HK$’000 % HK$’000 % 281,945 85.7 309,892 85.2 34,382 10.5 37,665 10.3 8,229 2.5 10,230 2.8 4,338 1.3 6,143 1.7 328,894 100.0 363,930 100.0	For the year ended 31 December 2015 2016 HK$’000 % HK$’000 % 281,945 85.7 309,892 85.2 34,382 10.5 37,665 10.3 8,229 2.5 10,230 2.8 4,338 1.3 6,143 1.7 328,894 100.0 363,930 100.0
		100.0

Note: Direct labour costs comprise the salaries and welfares of our frontline workers.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

SUMMARY

During the Track Record Period, the largest component of our cost of services was direct labour costs of our frontline workers, which mainly included salaries, contributions to retirement schemes and provisions for long service payment, representing approximately 85.7% and 85.2% of our total cost of services for the two years ended 31 December 2016, respectively.

Further details on our suppliers are set forth in the paragraphs headed “Business — Suppliers and subcontractors” in this [ REDACTED ].

EMPLOYEES

As at 31 December 2015, 31 December 2016 and 28 February 2017, we had a total of 2,631, 2,263 and 2,365 employees, respectively (including both full time and part time employees). Further details on our employees are set forth in the paragraphs headed “Business — Employees, staff training and development” in this [ REDACTED ].

RISK FACTORS

Our Group believes that there are certain risks and uncertainties involved in its operations, some of which are beyond our Group’s control. The following highlights some of the risks which are considered to be material by our Directors:

we derive our revenue mainly through contracts awarded through competitive tendering, we cannot guarantee that we can successfully renew our existing contracts upon their expiry or secure new contracts;
our customer concentration is high, a loss of our largest customer may adversely affect our business operations and financial results;
the payments charged by us are generally fixed contract sums without any adjustment mechanism. Our profitability may be adversely affected if costs overrun; and
increase in labour costs may adversely affect our profitability.

Further details on each of our risk factors are set forth in the section headed “Risk factors” in this [ REDACTED ].

SUMMARY OF HISTORICAL FINANCIAL PERFORMANCE

The table below sets forth a summary of the audited consolidated financial information of our Group for the two years ended 31 December 2016.

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SUMMARY

Combined statements of profit and loss and other comprehensive income

		For the year ended	For the year ended	For the year ended
		31 December
		2015		2016
		HK$’000		HK$’000
Revenue		363,467		404,124
Cost of services		(328,894)		(363,930)
Gross profit		34,573		40,194
Other income		369		645
Other gains and losses		(530)		(285)
Administration expenses		(12,737)		(17,667)
[REDACTED]		[REDACTED]	[REDACTED]
Finance costs		(3,531)		(3,555)
Profit before taxation		18,144		12,452
Income tax expense		(3,056)		(3,663)
Profit and total comprehensive income
for the year attributable to the
owners of the Company		15,088		8,789

Combined statements of financial position
				As at
	As at 31	December	31	January
	2015	2016		2017
			(unaudited)
	HK$’000	HK$’000		HK$’000
Total current assets	122,637	98,071		99,266
Total current liabilities	117,848	92,509		93,249
Net current assets	4,789	5,562		6,017

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

SUMMARY

Combined statements of cash flows

Operating cash flows before movements in working capital Net cash from operating activities Net cash (used in) from investing activities Net cash from (used in) financing activities Net decrease in cash and cash equivalents	For the year ended 31 December 2015 2016 HK$’000 HK$’000 30,870 28,966 21,851 1,604 (30,225) 1,305 3,356 (13,671) (5,018) (10,762)

During the Track Record Period, we utilised our banking facilities, internal financial resources and amount due to related parties to finance our business operations. We had net cash generated from operating activities of HK$21.9 million and HK$1.6 million for the two years ended 31 December 2016, respectively. We required cash primarily for general working capital needs and capital expenditure for purchasing the equipment and vehicles as disclosed in the section headed “Future plans and use of proceeds” in this [ REDACTED ]. As at 31 December 2015 and 31 December 2016, we had bank balances and cash of HK$15.4 million and HK$4.6 million, respectively. Substantially all of our Group’s bank balances and cash equivalents are held in Hong Kong dollars.

Further details on our historical financial performance are set forth in the section headed “Financial information” in this [ REDACTED ] and the Accountants’ Report in Appendix I to this [ REDACTED ].

Summary of key financial ratios

The following table sets forth certain financial ratios as at the dates indicated.

	Year ended 31 December	Year ended 31 December
	2015	2016
Gross profit margin1 (%)	9.5	9.9
Net profit margin2 (%)	4.2	3.9
Return on equity3 (%)	57.4	44.7
Return on total assets4 (%)	9.2	10.3
Interest coverage5	6.1	6.4
	As at 31 December
	2015	2016
Current ratio6	1.0	1.1
Gearing ratio7 (%)	74.4	66.8

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SUMMARY

Notes:

Gross profit margin is based on gross profit divided by total revenue for the respective year and multiplied by 100%.
Net profit margin is calculated based on net profit (excluding [ REDACTED ]) after tax for the respective year divided by total revenue for the respective year/period and multiplied by 100%.
Return on equity is calculated based on our net profit (excluding [ REDACTED ]) after tax for the respective year divided by the total equity of the same year/period, multiplied by 100%.
Return on total assets is calculated based on our net profit (excluding [ REDACTED ]) after tax for the respective year divided by the total assets of the same year, multiplied by 100%.
Interest coverage is calculated based on our net profit before interest and income taxes and one-off [ REDACTED ] for the respective year divided by our finance cost for the same year.
Current ratio is calculated based on our current assets at the end of the year divided by our total current liabilities at the end of the respective year.
Gearing ratio is calculated based on net debt at the end of the respective year divided by total equity plus net debt and, multiplied by 100%. Net debt comprises interest-bearing bank loans, obligations under finance leases, amount due to a Controlling Shareholder and related party, deferred tax liabilities and tax payable, less bank balances and cash and pledged bank deposits.

Further details on our key financial ratios analysis during the Track Record period are set forth in the paragraphs headed “Financial information — Key financial ratios” in this [ REDACTED ].

SHAREHOLDING INFORMATION

Upon completion of the [ REDACTED ] and the [ REDACTED ] (without taking into account any Shares which may be allotted and issued upon the exercise of the [ REDACTED ]), Gold Cavaliers, Max Super, Mr. Lam, Ms. Wong, Magic Pioneer, Mr. Xiong Jianrui, Mr. Choi Chung Yin, Mr. Tam Wai Tong, Mr. Tam Wai Ho, Croydon Capital Advisors Limited, Earnmill Holdings Limited, TTNB Profit Limited, and Kiteway Assets Limited, being our Controlling Shareholders, will together control 75.0% of the issued share capital of our Company. None of our Controlling Shareholders is interested in any business which is, whether directly or indirectly, in competition with our business in Hong Kong. Further details on the shareholding information are set forth in the section headed “Relationship with our Controlling Shareholders” in this [ REDACTED ].

Our Group has entered into certain transactions with parties who are connected persons of our Company, which will continue after the [ REDACTED ]. Further details on the continuing connected transactions are set forth in the section headed “Continuing connected transactions” in this [ REDACTED ].

PRE-IPO INVESTMENT

On 15 April 2016, Champion Success transferred 200 shares in Sharp Idea, representing 20% of the issued share capital of Sharp Idea to Magic Pioneer for the consideration of [ REDACTED ], which was determined with reference to the net asset value of Lapco Service, Shiny Glory and Shiny Hope and irrevocably settled and paid in full on 15 April 2016.

Subsequently, pursuant to the share swap agreement dated [●] 2017 and entered into amongst Champion Success, Magic Pioneer and our Company, Champion Success and Magic Pioneer transferred 800 and 200 shares in Sharp Idea, respectively held by them, representing the entire issued share capital of Sharp Idea, to our Company. In

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

SUMMARY

exchange therefor, our Company, at the direction of Champion Success and Magic Pioneer, credited the one nil paid Share held by Gold Cavaliers as fully paid and further issued 299 fully paid Shares to Gold Cavaliers. Upon completion of the [ REDACTED ] and the [ REDACTED ] (without taking into account any Shares which may be allotted and issued upon the exercise of the [ REDACTED ]), [ REDACTED ] Shares will be owned by Gold Cavaliers and accordingly, Magic Pioneer, through its approximately [ REDACTED ] interests in Gold Cavaliers, will be indirectly interested in approximately [ REDACTED ] of the entire issued share capital of our Company. Further details on the Pre-IPO Investment are set forth in the paragraphs headed “History, development and Reorganisation — Pre-IPO Investment” in this [ REDACTED ]. [ REDACTED ]

Profound Wellness is the [ REDACTED ] which will offer the [ REDACTED ] of [ REDACTED ] Shares at the [ REDACTED ] as part of the [ REDACTED ], representing [ REDACTED ] of the total issued share capital of our Company immediately upon completion of the [ REDACTED ] and the [ REDACTED ] (without taking into account any Shares which may be allotted and issued upon the exercise of the [ REDACTED ]). The [ REDACTED ] of [ REDACTED ] Shares shall be regarded as part of the public float for the purposes of the GEM [ REDACTED ] Rules. Further details on the [ REDACTED ] are set forth in the paragraphs headed “Other information — 16. Particulars of the [ REDACTED ]” in Appendix IV to this [ REDACTED ].

DIVIDEND AND DIVIDEND POLICY

During the year ended 31 December 2015, Lapco Service and Shiny Hope declared dividends of HK$8.8 million and HK$8.0 million, respectively to Mr. Lam and Shiny Glory declared HK$4.0 million to Ms. Wong.

Our distribution of dividends, in the future, if any, will depend on the results of our operations, cash flows, financial condition, statutory and regulatory restrictions and other factors that we may consider relevant, and is subject to the discretion of our Directors and shareholders’ approval. As at the Latest Practicable Date, we had no fixed dividend policy. Further details on our dividend policy are set forth in the paragraphs headed “Financial information — Dividend policy” in this [ REDACTED ].

NON-COMPLIANCE

During the Track Record Period and up to the Latest Practicable Date, we had the following material non-compliance incidents: (i) the allegedly doubtful information contained in Form-IR56B and Form-IR56F for the years ended 31 March 2014 and 2015; and (ii) the breach of restrictive land use clauses under the relevant tenancy agreements, the permitted usage under the relevant deed of mutual covenant and occupation permit of our existing office premises and (iii) delay in notification of chargeability of profits tax for the year of assessment 2014/15. Further details on our material non-compliance incidents are set forth in the paragraphs headed “Business — Regulatory non-compliance” in this [ REDACTED ].

LITIGATIONS AND CLAIMS

As at the Latest Practicable Date, there were 24 material ongoing cases against our Group of which 14 were employees’ compensation cases, 9 were personal injury cases and one was other litigation case. Our Directors confirm that, as at the Latest Practicable Date, there were 25 employees’ compensation cases which had been or would been settled by our Group’s employees’ compensation insurance but still possible for the subject persons to commence common law personal injury legal actions against our Group. During the Track Record and up to 22 February 2017, there were 120 reported cases on workplace injury during our usual and ordinary course of business but no further action has been commenced. Further details on the litigations are set forth in the paragraphs headed “Business — Litigations and claims” in this [ REDACTED ].

[ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

SUMMARY

[ REDACTED ]

The estimated [ REDACTED ], which are non-recurring in nature, are in aggregate approximately HK$[ REDACTED ], which will be borne by our Group (excluding the underwriting commission and [ REDACTED ] of the [ REDACTED ] of approximately HK$[ REDACTED ], which will be borne by the [ REDACTED ]), of which approximately HK$[ REDACTED ] is directly attributable to the issue of [ REDACTED ] in the [ REDACTED ] and to be accounted for as a deduction from equity. The remaining estimated [ REDACTED ] of approximately HK$[ REDACTED ] will be charged to the combined statements of profit or loss and other comprehensive income upon [ REDACTED ].

The [ REDACTED ] of approximately [ REDACTED ] were recognised during the year ended 31 December 2016. Our Directors would like to emphasise that such cost is a current estimate for reference only and the final amount to be recognised in the combined statements of comprehensive income of our Group for the year ending 31 December 2017 and onwards is subject to adjustment based on audit and the then changes in variables and assumptions.

Except for the estimated [ REDACTED ] for the year ending 31 December 2017, our Directors confirm that there has been no material adverse change in our financial or trading position or prospects since 31 December 2016, being the date of our last audited financial statements as set out in Appendix I to this [ REDACTED ], and up to the date of this [ REDACTED ].

REASONS FOR THE [ REDACTED ] AND USE OF PROCEEDS

Our Directors believe that the [ REDACTED ] is beneficial to our Group in the long run as (i) we will have a direct access to the equity capital markets to finance our expansion plan upon [ REDACTED ]; (ii) we will have access to additional equity financing subsequent to the [ REDACTED ] with minimum additional finance costs; and (iii) a public [ REDACTED ] status will enhance our corporate profile to enhance our competitiveness against our competitors.

Our Directors estimate that the net proceeds from the [ REDACTED ] (after deducting estimated expenses payable by our Group in connection with the [ REDACTED ], but assuming the [ REDACTED ] is not exercised) will be approximately [ REDACTED ]. The net proceeds of approximately [ REDACTED ] to be received by the

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

SUMMARY

[ REDACTED ] from the sale of the [ REDACTED ] will not be available to our Group. We intend that the net proceeds will be applied as follows:

	For the six months ending	For the six months ending	For the six months ending
31 December	30 June	31 December	30 June	31 December
2017	2018	2018	2019	2019	Total
HK$ million	HK$ million	HK$ million	HK$ million	HK$ million	HK$ million

Expand our operational resources to strengthen our established presence in the environmental hygiene service industry in Hong Kong – procure additional vehicles – procure additional equipment – hire additional staff Subtotal Enhance information technology application system to enhance operational efficiency Improve our liquidity position General working capital Total	[REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]	[REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]	[REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]	[REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]	[REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]	[REDACTED] [REDACTED] [REDACTED]
						[REDACTED]
						[REDACTED] [REDACTED] [REDACTED]
						[REDACTED]

Further details on our use of proceeds are set forth in the section headed “Future plans and use of proceeds” in this [ REDACTED ].

RECENT DEVELOPMENTS OF OUR GROUP SUBSEQUENT TO THE TRACK RECORD PERIOD

Subsequent to the Track Record Period and up to the Latest Practicable Date, we had been awarded with ten new contracts with aggregate contract sum amounted to HK$210.1 million, six of which were awarded by our public sector customers with contractual terms ranging from two to five years and four of which were awarded by our private sector customers for cleaning services with contractual terms ranging from one to two years. The aggregate contract sum for such newly awarded public sector contracts and private sector customers amounted to approximately HK$202.0 million and HK$8.1 million, respectively.

As at the Latest Practicable Date, we had 51 unexpired service contracts on hand and the approximate aggregate contract value to be recognised on or before 31 December 2017, on or before 31 December 2018 and after 1 January 2019 is HK$366.6 million, HK$163.0 million and HK$54.1 million, respectively.

As at Latest Practicable Date, we had successfully collected approximately HK$61.4 million, or 84.6% of the outstanding balance of our trade receivables as at 31 December 2016. As at Latest Practicable Date, approximately HK$2.9 million or 93.5% of our trade payables outstanding as of 31 December 2016 were paid.

NO MATERIAL ADVERSE CHANGE

Except for the [ REDACTED ] for the year ending 31 December 2017, our Directors confirm that there has been no material adverse change in our financial or trading position or prospects since 31 December 2016, being the date of our last audited financial statements as set forth in Appendix I to this [ REDACTED ], and up to the date of this [ REDACTED ].

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

DEFINITIONS

In this [ REDACTED ] , unless the context otherwise requires, the following expressions shall have the following meanings.

“ACI”
Accredited Certification International Limited, a company which provides third party management certification services in ISO 9001, ISO 14001, ISO 50001 and ISO 18001
“affiliate(s)”
any other person(s), directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified person

[ REDACTED ]

“Articles” or “Articles of Association”
the amended and restated articles of association of our Company conditionally adopted on [●] 2017 to take effect on the [ REDACTED ], as amended from time to time, a summary of which is set out in Appendix III to this [ REDACTED ]
“associate(s)”
has the meaning ascribed to it under the GEM Listing Rules
“Board”
the board of Directors
“business day”
a day (other than a Saturday, Sunday or public holiday) on which licensed banks in Hong Kong are generally open for normal banking business
“BVI”
the British Virgin Islands
“CAGR”
compounded annual growth rate
[ REDACTED ]
the issue of [ REDACTED ] Shares to be made upon capitalisation of the amount of [ REDACTED ] standing to the credit of the share premium account of our Company as referred to in the paragraphs headed “Further information about our Company — 3. Resolutions of our Shareholders” in Appendix IV to this [ REDACTED ]
“CCASS”
the Central Clearing and Settlement System established and operated by HKSCC

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

DEFINITIONS

“CCASS Clearing person(s) admitted to participate in CCASS as direct Participant(s)” clearing participant(s) or general clearing participant(s)
“CCASS Custodian Participant(s)”
person(s) admitted to participate in CCASS as custodian participant(s)
“CCASS Investor Participant(s)”
person(s) admitted to participate in CCASS as investor participant(s) who may be individual(s) or joint individuals or corporation(s)
“CCASS Participant(s)”
CCASS Clearing Participant(s), CCASS Custodian Participant(s) or CCASS Investor Participant(s)
“CCT Limited”
CCT Limited (事事達有限公司), formerly known as Champion Cleaning Transport Company Limited (卓士清潔服務有限公司), a company incorporated in Hong Kong with limited liability on 17 December 2010, wholly owned by Ms. Wong, and is a connected person of our Company
“Champion Success” Champion Success Development Limited (興天發展有限公司), a company incorporated in Hong Kong on 8 January 2016 with limited liability
“close associate(s)”
has the meaning ascribed to it under the GEM Listing Rules
“Companies Law”
the Companies Law Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands
“Companies Ordinance”
the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
“Companies (WUMP) Ordinance” or “Predecessor Companies Ordinance”
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
“Company”, “our Company”, “us” or “we”
Lapco Holdings Limited, an exempted company incorporated in the Cayman Islands under the Companies Law with limited liability on 12 August 2016
“connected person(s)”
has the meaning ascribed to it under the GEM Listing Rules

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

DEFINITIONS

“Controlling Shareholder(s)”
“core connected person(s)”
“Deed of Indemnity”
“Deed of Non-competition”
“Director(s)”
“Employees’ Compensation Ordinance”
have the meaning ascribed to it under the GEM Listing Rules and in the context of our Company, refers to Gold Cavaliers, Max Super, Mr. Lam, Ms. Wong, Magic Pioneer, Mr. Xiong Jianrui, Mr. Choi Chung Yin, Mr. Tam Wai Tong, Mr. Tam Wai Ho, Croydon Capital Advisors Limited, Earnmill Holdings Limited, TTNB Profit Limited, and Kiteway Assets Limited, or, where the context so requires, any one of them. The shareholding of each of our Controlling Shareholders in our Company immediately following completion of the Reorganisation, the [ REDACTED ] and the [ REDACTED ] (without taking into account any Shares which may be allotted and issued upon the exercise of the [ REDACTED ]) are set forth in the section headed “History, development and Reorganisation” in this [ REDACTED ]
has the meaning ascribed to it under the GEM Listing Rules
the deed of indemnity dated [●] 2017 executed by Indemnifiers in favour of our Company (for ourselves and as trustee for each of our subsidiaries from time to time) regarding certain indemnities as more particularly set out in the paragraphs headed “Other information — 1. Estate duty, tax and other indemnities” in Appendix IV to this [ REDACTED ]
the deed of non-competition dated [●] 2017 executed by our Controlling Shareholders in favour of our Company (for ourselves and as trustee for each of our subsidiaries from time to time), regarding the non-competition undertakings as more particularly set out in the paragraphs headed “Relationship with our Controlling Shareholders — Non-competition undertaking” in this [ REDACTED ]

director(s) of our Company

the Employees’ Compensation Ordinance (Chapter 282 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

DEFINITIONS

“Employment Ordinance”
the Employment Ordinance (Chapter 57 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
“F&S Report”
an independent market report commissioned by us and prepared by Frost & Sullivan on the environmental hygiene service industry in Hong Kong, an extract of which is set forth in the section headed “Industry overview” in this [ REDACTED ]
“EPD” the Environmental Protection Department of the HK Government
“Factories and Industrial Undertakings Ordinance”
the Factories and Industrial Undertakings Ordinance (Chapter 59 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
“FEHD”
the Food and Environmental Hygiene Department of the HK Government
“Frost & Sullivan”
Frost & Sullivan Limited, an independent market research institution
“GEM”
the Growth Enterprise Market of the Stock Exchange
“GEM Listing Rules”
the Rules Governing the Listing of Securities on GEM, as amended, supplemented or otherwise modified from time to time
“Gold Cavaliers”
Gold Cavaliers International Limited, a company incorporated in the BVI on 11 August 2016 with limited liability, being one of our Controlling Shareholders

[ REDACTED ]

“Group”, “we, “our Group” or “us”
our Company and our subsidiaries or, where the context so requires in respect of the period before our Company became the holding company of our existing subsidiaries, our existing subsidiaries
“HKD” or “HK$”
Hong Kong dollars, the lawful currency of Hong Kong

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

DEFINITIONS

[ REDACTED ]

“HK Government”
“HKSCC”
“HKSCC Nominees”
“Hong Kong”
“Hong Kong Legal Counsel”

the government of Hong Kong

Hong Kong Securities Clearing Company Limited
HKSCC Nominees Limited, a wholly-owned subsidiary of HKSCC
the Hong Kong Special Administrative Region of the PRC
Ms. Queenie W. S. Ng, barrister-at-law in Hong Kong

[ REDACTED ]

“Indemnifier(s)”
“Independent Third Party(ies)”
“Inland Revenue Ordinance”
“IRD”
“Lam Family Trust”
Gold Cavaliers, Max Super, Mr. Lam, Ms. Wong, Mr. Choi Chung Yin
individual(s) or company(ies) who is/are not connected person(s) of our Company
the Inland Revenue Ordinance (Chapter 112 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
the Inland Revenue Department of the HK Government
the discretionary family trust established on 8 August 2016 by Mr. Lam and Ms. Wong as settlors, with Max Super acting as the trustee and Mr. Lam and Ms. Wong as the beneficiaries

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

DEFINITIONS

“Lapco Service” Lapco Service Limited (立高服務有限公司), formerly known as Champion Cleaning Company Limited (卓士清潔有限公司), a company incorporated in Hong Kong with limited liability on 14 May 1999 and an indirect wholly-owned subsidiary of our Company
“Latest Practicable Date” 15 March 2017, being the latest practicable date prior to the printing of this [ REDACTED ] for the purpose of ascertaining certain information in this [ REDACTED ] prior to its publication
“LCSD” the Leisure and Cultural Services Department of the HK Government
[ REDACTED ] [ REDACTED ], being the [ REDACTED ] to the [ REDACTED ] and a corporation licensed under the SFO to carry on type [ REDACTED ] ([ REDACTED ]) regulated activity as defined in the SFO
“LES Limited” LES Limited (利是物業有限公司), formerly known as Lapco Environmental Service Limited (立高環保滅蟲有限公司), Lapco Environmental Service Limited (立高環保服務有限公司), a company incorporated in Hong Kong with limited liability on 5 December 2007, wholly owned by Mr. Lam and is a connected person of our Company
[ REDACTED ] the [ REDACTED ] of our Shares on GEM
[ REDACTED ]
the date, expected to be on or about [ REDACTED ], on which dealings in the Shares first commence on GEM
“Magic Pioneer”
Magic Pioneer Limited, a company incorporated in BVI on 31 January 2000 with limited liability, being one of the shareholders of Gold Cavaliers and one of our Controlling Shareholders
“Max Super”
Max Super Holdings Limited, a company incorporated in BVI on 6 July 2016 with limited liability, being the trustee of the Lam Family Trust and being one of our Controlling Shareholders
“Memorandum” the amended and restated memorandum of association of our Company adopted on [●] 2017, as amended from time to time, a summary of which is set out in Appendix III to this [ REDACTED ]
“Minimum Wage Ordinance”
the Minimum Wage Ordinance (Chapter 608 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

DEFINITIONS

“MPF Ordinance” the Mandatory Provident Fund Schemes Ordinance, (Chapter 485 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
“MPF Scheme” pursuant to the MPF Ordinance, an employer is required to participate in a mandatory provident fund scheme for employees employed under the Employees’ Compensation Ordinance
“Mr. Lam”
Mr. Lam Pak Ling (林柏齡先生), our founder, chairman, one of our executive Directors, chief executive officer and one of our Controlling Shareholders
“Ms. Wong”
Ms. Wong Siu Fan, Beatrice (黃小芬女士), a member of our senior management and one of our Controlling Shareholders
[ REDACTED ] the [ REDACTED ] Shares being initially offered by our Company for subscription under the [ REDACTED ] and the [ REDACTED ] Shares being initially offered by our Company for subscription under the [ REDACTED ]
“Occupational Safety and Health Ordinance”
the Occupational Safety and Health Ordinance (Chapter 509 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
[ REDACTED ]
the price of [ REDACTED ] per [ REDACTED ] (exclusive of brokerage of 1%, SFC transaction levy of 0.0027% and Stock Exchange trading fee of 0.005%) at which the [ REDACTED ] are to be subscribed for and issued pursuant to the [ REDACTED ]

[ REDACTED ]

the [ REDACTED ] expected to be granted by our Company to the [ REDACTED ] Underwriters exercisable by the [ REDACTED ] (for itself and on behalf of the [ REDACTED ]) pursuant to which our Company may be required to allot and issue up to [ REDACTED ] additional [ REDACTED ], representing 15% of the initial number of our [ REDACTED ], to, among other things, cover [ REDACTED ] in the [ REDACTED ], further information of which is set forth in the section headed “Structure and conditions of the [ REDACTED ]” in this [ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

DEFINITIONS

“Pesticides Ordinance”
the Pesticides Ordinance (Chapter 133 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
[ REDACTED ] the conditional [ REDACTED ] of the [ REDACTED ] by the [ REDACTED ] on behalf of our Company and the [ REDACTED ] for cash at the [ REDACTED ], as further described in the section headed “Structure and conditions of the [ REDACTED ]” in this [ REDACTED ]
[ REDACTED ]
the [ REDACTED ] Shares (comprising [ REDACTED ] and [ REDACTED ]) being initially offered by our Company for subscription under the [ REDACTED ], subject to reallocation and the [ REDACTED ] as described in the section headed “Structure and conditions of the [ REDACTED ]” in this [ REDACTED ]

[ REDACTED ]

“PRC”
the People’s Republic of China which, for the purpose of this [ REDACTED ] and for geographical reference only, excludes Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan
“Pre-IPO Investment”
the pre-IPO investment pursuant to the pre-IPO investment agreement dated 7 April 2016 and supplemental pre-IPO investment agreement dated 15 April 2016, pursuant to which Champion Success transferred 200 shares in Sharp Idea, representing 20% of the issued share capital of Sharp Idea to Magic Pioneer at the consideration of [ REDACTED ], details of which are set forth in the paragraphs headed “History, development and Reorganisation — Pre-IPO Investment” in this [ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

DEFINITIONS

“Prime Rich” Prime Rich (Asia) Limited (栢達（亞洲）有限公司), a company incorporated in Hong Kong on 20 March 2007 with limited liability “Profound Wellness” Profound Wellness Holdings Limited, a company incorporated in the BVI on 11 August 2016 and is owned as to approximately 66.7% and 33.3% by Mr. Lam and Ms. Wong, respectively

[ REDACTED ]

“Reorganisation” the corporate reorganisation of our Group in preparation for the [ REDACTED ], details of which are set forth in the paragraphs headed “History, development and Reorganisation — Reorganisation” in this [ REDACTED ] “RMB” Renminbi, the lawful currency of the PRC [ REDACTED ] the [ REDACTED ] Shares being initially offered by the [ REDACTED ] for purchase under the [ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

DEFINITIONS

[ REDACTED ] Profound Wellness, further details of which are set forth in the paragraphs headed “Other information — 16. Particulars of the [ REDACTED ]” in Appendix IV to this [ REDACTED ]
“SFC”
the Securities and Futures Commission of Hong Kong
“SFO”
the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time
“Share(s)”
ordinary share(s) with nominal value of HK$0.01 each in the share capital of our Company
[ REDACTED ] the [ REDACTED ] and the [ REDACTED ]
“Shareholder(s)”
holder(s) of the Share(s)
“Sharp Idea”
Sharp Idea Global Limited (鋒意環球有限公司), a company incorporated in BVI with limited liability on 1 April 2016 and a direct wholly-owned subsidiary of our Company
“Shiny Glory” Shiny Glory Services Limited (丞美服務有限公司), formerly known as Lux Cleaning Transport Company Limited (力士清潔服務有限公司), Luxury Cleaning Services Company Limited (力仕清潔服務有限公司), Champion Cleaning Transport Company Limited (卓士清潔服務有限公司), a company incorporated in Hong Kong with limited liability on 30 November 1990 and an indirect wholly-owned subsidiary of our Company
“Shiny Hope”
Shiny Hope Limited (亮豪有限公司), a company incorporated in Hong Kong with limited liability on 15 June 2006 and an indirect wholly-owned subsidiary of our Company
“Sole Sponsor”
Octal Capital Limited, being the sole sponsor to the [ REDACTED ] and a corporation licensed under the SFO to carry on Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activity as defined in the SFO

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

DEFINITIONS

“Source Mega” Source Mega Inc. Limited (丰源有限公司), a company incorporated in Hong Kong with limited liability on 8 May 2015, wholly owned by Ms. Wong and is a connected person of our Company
“sq.ft.” square feet
“Stock Exchange” The Stock Exchange of Hong Kong Limited
“subsidiary(ies)”
has the meaning ascribed to it under the GEM Listing Rules
“Substantial Shareholder(s)”
has the meaning ascribed to it under the GEM Listing Rules and, in the context of our Company, refers to the entities disclosed in the section headed “Substantial Shareholders” in this [ REDACTED ] or, where the context so requires, any one of them
“Takeovers Code” the Code on Takeovers and Mergers issued by the SFC, as amended, supplemented or otherwise modified from time to time
“Track Record Period”
the two financial years ended 31 December 2016
[ REDACTED ]
the [ REDACTED ] [ REDACTED ] and the [ REDACTED ]
[ REDACTED ] the [ REDACTED ] Agreement and the [ REDACTED ] Agreement
“U.S.”
the United States of America
“US$” or “USD”
United States dollars, the lawful currency of the U.S.
“Waste Disposal Ordinance”
the Waste Disposal Ordinance (Chapter 354 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time

[ REDACTED ]

“%”

per cent

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

GLOSSARY OF TECHNICAL TERMS

This glossary contains explanations of certain terms used in this [ REDACTED ] in connection with our Group and our business. Some of these terms may not correspond to standard industry definitions.

“Euro emissions standards”

the European exhaust emissions standard first introduced in 1970 and comprised Euro 1, Euro 2, Euro 3, Euro 4, Euro 5 and Euro 6, each of which has different emissions limits for petrol and diesel

“GPS”
global positioning system
“ISO”

an acronym for a series of quality management and quality assurance standards published by International Organisation for Standardisation, a non-government organisation based in Geneva, Switzerland, for assessing the quality systems of business organisations

“ISO 9001”

an internationally recognised standard for a quality management system. It aims at the effectiveness of the quality management system in meeting customer requirements. It prescribes requirements for ongoing improvement of quality assurance to reach objectives relating to quality or meeting customer needs

“ISO 14001”

an internationally recognised standard for an environmental management system. It aims at recognising the desirable behaviour of businesses concerning the environment. It prescribes controls for an encompassing range of corporate activities which include the use of natural resources, handling and treatment of waste and energy consumption

“OHSAS 18001”

an internationally recognised Occupation Health and Safety Assessment Series, a specification for occupational health and safety management system. It specifies requirements for an occupational health and safety management system to enable an organisation to develop and implement a policy and objectives which take into account legal requirements and information about occupational risks and to improve their occupational safety and health performance

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FORWARD-LOOKING STATEMENTS

This [ REDACTED ] contains forward-looking statements which are, by their nature, subject to significant risks and uncertainties. These forward-looking statements include, without limitation, statements relating to:

(a) our business strategies and plans of operation;
(b) our capital expenditure plans;
(c) the amount and nature of, and potential for, future development of our business;
(d) our operations and business prospects;
(e) our dividend policy;
(f) planned projects;
(g) the regulatory environment of our industry in general;
(h) future development in our industry;
(i) the global and domestic economy; and
(j) the environmental services market.

The words “anticipate”, “believe”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “seek”, “will”, “would” and similar expressions, as they relate to our Group, are intended to identify a number of these forward-looking statements. These forward-looking statements reflecting our current views with respect to future events are not a guarantee of future performance and are subject to certain risks, uncertainties and assumptions, including the risk factors described in this [ REDACTED ]. One or more of these risks or uncertainties may materialise, or underlying assumptions may prove incorrect.

Subject to the requirements of the GEM Listing Rules, we do not intend to publicly update or otherwise revise the forward-looking statements in this [ REDACTED ], 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 [ REDACTED ] 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 [ REDACTED ] are qualified by reference to this cautionary statement.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

RISK FACTORS

Prospective investors should consider carefully all the information set out in this [ REDACTED ] and, in particular, should consider and evaluate the following risks associated with an investment in our Company before making any investment decision in relation to our Company. Our business, financial condition and results of operations could be adversely affected by the materialisation of any of the following risks. Trading prices of the Shares could decline due to any of the following risks, and you may lose part or all of your investment.

RISKS RELATING TO OUR BUSINESS

We derive our revenue mainly through contracts awarded through competitive tendering, we cannot guarantee that we can successfully renew our existing contracts upon their expiry or secure new contracts.

We derive our revenue mainly through contracts awarded through competitive tendering. For the two years ended 31 December 2016, the percentage of revenue derived from contracts awarded through tendering were approximately 99.0% and 99.2%, respectively. In respect of our public sector customers, we had a tender/quotation success rate of 24.2% and 24.6% for the two years ended 31 December 2016, respectively. In respect of our private sector customers, we had a tender/quotation success rate of 19.2% and 17.5% for the two years ended 31 December 2016, respectively. We are not offered a right of first refusal upon expiry of our existing contracts and therefore we are required to submit new tenders upon expiry of the existing contracts and to bid for new contracts from time to time.

So far as our Directors are aware, most of our customers have maintained an evaluation system on their environmental hygiene service providers to ensure that they meet the required standards of legal compliance, quality of services and financial capability, etc. We may not be able to meet the requirements of our customers’ evaluation systems, in which case our customers may not invite us to submit tender again prior to expiry of our existing contracts. Further, even if we participate in tendering of existing and new customers from time to time, we cannot assure you that our tenders would be selected by customers and the terms and conditions of the new contracts would be comparable to the existing contracts. In view of the competitiveness of the tendering process, we may have to offer a more competitive price and/or more favourable terms to customers in order to be awarded the contract. If we are unable to reduce our costs accordingly, our financial results and profitability would be adversely affected.

Our customer concentration is high, a loss of our largest customer may adversely affect our business operations and financial results.

For the two years ended 31 December 2016, revenue generated from our five largest customers were approximately HK$349.6 million and HK$386.8 million, representing approximately 96.2% and 95.7% of our total revenue, respectively. In particular, we generated approximately HK$294.7 million and HK$315.7 million from our largest customer, representing approximately 81.1% and 78.1% of our total revenue, respectively.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

RISK FACTORS

Our customers may terminate their business relationships with us upon expiry of the existing service contracts and they are not obliged to make us aware of or invite us to participate in the tendering or quotation process. We cannot assure you that our five largest customers, in particular our largest customer, will maintain current business relationship with us upon the expiry of our existing service contracts. If they choose not to do so or if they significantly reduce the level of services required from us, we may not be able to find other customers to recoup the loss of revenue. As a result, our business operations, financial results and profitability may be adversely affected.

The payments charged by us are generally fixed contract sums without any adjustment mechanism. Our profitability may be adversely affected if costs overrun.

The payments charged by us are generally fixed contract sums without any adjustment mechanism. Once the service fee is agreed with customers, we could only adjust the service fee under limited circumstances such as addition or reduction of service scope. Accordingly, we bear the risk of cost fluctuations. The contractual term of our contracts generally ranges from one to five years. We cannot assure you that the costs estimated at the time of signing a contract will not overrun during the course of the contractual term, as a result of, such as, (a) inaccurate estimation of costs; (b) increase in direct labour costs and materials; (c) change in regulatory regime; (d) labour disputes; and (e) unforeseen circumstances. If we are unable to control costs as estimated, our business operations, financial results and profitability may be adversely affected.

Increase in labour costs may adversely affect our profitability.

We are regulated by, among others, the Minimum Wage Ordinance, which came into force on 1 May 2011 with the initial statutory minimum wage rate of HK$28 per hour. It was raised to HK$30 per hour with effect from 1 May 2013 and was raised to HK$32.5 per hour with effect from 1 May 2015. The statutory minimum wage will further be raised to HK$34.5 per hour with effect from 1 May 2017. As at 31 December 2015, 31 December 2016 and 28 February 2017, we had a total of 2,631, 2,263 and 2,365 employees (including both full-time and part-time), respectively, among whom, 2,604, 2,224 and 2,325 employees were frontline workers for provision of cleaning, pest management, waste management and recycling and landscaping services. For the two years ended 31 December 2016, our direct labour costs amounted to approximately HK$281.9 million and HK$309.9 million, representing approximately 85.7% and 85.2% of our cost of services, respectively. Our Directors expect our direct labour costs will continue to represent a significant percentage of our total cost of services.

We cannot assure you that the statutory minimum wage rate will not be further revised upward in the future. In particular, the Minimum Wage Ordinance provides that the statutory minimum wage in Hong Kong is reviewed at least once every two years. Any further increments in the statutory minimum wage will increase our labour costs and thereby reducing profit margins. According to the F&S Report, there was a general upward trend for the average monthly wages of workers, which grew from HK$6,506.3 in 2011 to HK$8,449.7 in 2016 at a CAGR of approximately 5.37%. Further details are set forth in the paragraphs headed “Industry overview — Overview of the environmental hygiene service industry in Hong Kong” in this [ REDACTED ]. Further details on sensitivity

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

RISK FACTORS

analysis on the impact of changes in our direct labour costs on our profit during the Track Record Period are set forth in the paragraphs headed “Financial information — Major factors affecting our financial condition and results of operations” in this [ REDACTED ]. If we are unable to adequately increase our service fees so as to pass all the increase in direct labour costs onto our customers, our business operations, financial results and profitability may be materially and adversely affected.

If we fail to meet the requirements of our contracts or quality standards of our customers, we may experience difficulty in collecting performance guarantee.

We are responsible for the quality of services provided by our staff. We are generally required to provide performance guarantee at a rate ranging from 2% to 5% of the total contract sum to our public sector customers and at a sum equivalent to one month’s service payment of the relevant contracts to our private sector customers as security for due performance of our contractual obligations. As at 31 December 2015 and 31 December 2016, the aggregate amount of performance guarantee maintained in favour of our customers were approximately HK$49.0 million and HK$50.7 million, respectively. If we fail to meet the requirements of our contracts or quality standards of our customers, we may be liable to compensate our customers for losses and damages caused by delay or non-performance. Furthermore, our customers may be entitled to retain performance guarantee maintained in their favour. Any delay or failure in collecting performance guarantee may have a material and adverse effect on our cash flow and financial position.

Any litigation claims to which our Group is a party may not be covered by insurance and may have a material and adverse impact on our financial condition.

Employees of our Group are susceptible to workplace accidents and injuries as they are required to undertake certain tasks including but not limited to (a) working at height or on slippery floor; (b) operation of site equipment; (c) lifting of heavy objects; (d) use of corrosive and inflammable chemicals; and (e) working in environments containing dust, dirt, viruses and bacteria. We cannot guarantee that our employees of our Group will fully comply with the safety measures during their execution of work. If they do not, incidents of personal injuries, property damage or fatal accidents may occur more frequently.

Employees of our Group who suffer bodily injury or death as a result of accidents or contract occupational diseases arising out of and in the course of their employment with our Group are entitled to claim damages under the Employees’ Compensation Ordinance as well as under the common law. Our Group may also become liable to third parties who suffer personal injuries in workplace where we provide our services.

As at the Latest Practicable Date, the coverage of our employees’ compensation insurance policy is HK$200 million per event and the coverage of our public liability insurance policy is HK$20.0 million to HK$30.0 million per incident. The employees’ compensation insurance policy currently effective generally covers the full amount of valid employees’ compensation claims. Pursuant to the public liability insurance policy currently effective, our Group is generally responsible for the first HK$50,000 (or 10% of such loss, whichever is greater in case of water damage to properties) for each claim while the insurer shall be liable to pay the excess amount after deduction of the said HK$50,000

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

RISK FACTORS

(or 10% of such loss, whichever is greater in case of water damage to properties) in respect of the compensation indemnifiable under the policy.

As at the Latest Practicable Date, there were 24 material ongoing cases against our Group of which 14 were employees’ compensation cases, 9 were personal injury cases and one was other litigation case. Out of these 24 cases, there were 17 cases with amounts claimed yet to be assessed. Among the rest of the seven cases, the aggregate amount claimed amounted to approximately HK$4.1 million plus interest. Our Directors expect that all of these ongoing cases will be fully covered by our insurance policy.

In relation to potential litigations, our Directors confirm that, as at the Latest Practicable Date, there were 25 employees’ compensation cases which had been or would be settled by our Group’s employees’ compensation insurance but still possible for the subject persons to commence common law personal injury legal actions against our Group. In addition, during the Track Record Period and up to 22 February 2017, there were 120 reported cases on workplace injury arising during usual and ordinary course of business of our Group but no further action has been commenced in respect of such cases after the reporting.

During the Track Record Period and up to the Latest Practicable Date, our Group had settled 14 litigation claims (including four employees’ compensation cases and 10 personal injuries actions) with an aggregate settlement amount of approximately HK$2.5 million, out of which approximately HK$0.4 million was borne by our Group pursuant to the aforesaid arrangement. Further details on our Group’s ongoing, potential and settled litigations and claims are set forth in the paragraphs headed “Business — Litigations and claims” in this [ REDACTED ].

We cannot assure you that our insurance policies will fully cover our Group against our liability under all litigations and claims and that we will not need to pay additional compensation out of our own resources for these litigations and claims. Our Group may also become involved in litigations relating to, among other things, labour disputes with our employees and contractual disputes with our customers. Furthermore, regardless of the merits of cases, our Group may need to spend resources and incur costs to handle these claims, and these claims may also affect our reputation in the environmental hygiene service industry, therefore adversely affect our business operations, financial results and profitability.

Our insurance costs accounted for a significant portion of our direct overheads and any reduction or limitation of insurance coverage by our insurers may materially and adversely affect our business operations and financial results.

We have maintained insurance policies as required by Hong Kong law or our customers to cover our Group’s liability arising from our business operations. For the two years ended 31 December 2016, the aggregate expenses of our employees’ compensation insurance and public liability insurance were approximately HK$2.4 million and HK$3.3 million, representing approximately 55.2% and 54.2% of our direct overheads, respectively. In addition, if there is any reduction or limitation of insurance coverage by our insurers upon the expiry of our current insurance policies, we are not in a position to

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

RISK FACTORS

control such reduction or limitation of insurance coverage due to our relatively low bargaining power. Any further increase in insurance costs (such as an increase in insurance premiums) or reduction or limitation in insurance coverage may materially and adversely affect our business operations and financial results.

Our insurance coverage may be insufficient to protect us against potential liabilities arising in the course of operations.

We have not maintained insurance policies against all risks associated with our business, such as insurance on our office and warehouse premises because our Directors have deemed it commercially unfeasible to do so. Our business, financial position and results of operations could be materially and adversely affected if an incident occurs in relation to which we have inadequate insurance coverage. In addition, we cannot assure that we will be able to renew the existing insurance policies including employees’ compensation insurance and public liability insurance on commercially reasonable terms.

Our top five suppliers accounted for a substantial portion of our purchases.

During the Track Record Period, our suppliers of goods and services include vehicles dealers, material and equipment suppliers, fuel suppliers and subcontractors.

Our top five suppliers accounted for approximately 31.1% and 20.1% of our total cost of services (excluding direct labour costs) for the two years ended 31 December 2016, respectively, among which, approximately 15.6% and 5.9% of our total cost of services (excluding direct labour costs) were attributable to our largest supplier, respectively. If any of our top suppliers substantially reduces the amount of goods or services provided to us or terminates the business relationship with us, and that we are unable to secure supply from alternate suppliers in replacement at all or on commercially comparable terms, our operation and financial performances may be adversely affected.

We may incur substantial indebtedness in the future, which may adversely affect our financial condition.

We may not be able to meet our operating cash outflow as they become due. As such, we may incur indebtedness from time to time in order to fund our working capital needs. As at 31 December 2015, 31 December 2016 and 31 January 2017, our bank borrowings amounted to approximately HK$70.3 million, HK$48.8 million and HK$43.1 million, respectively. Further details are set forth in the paragraphs headed “Financial information — Indebtedness” in this [ REDACTED ]. We may be required to set aside certain portion of our cash generated from operating activities to repay our indebtedness, thereby reducing our cash to finance our operations. Moreover, any substantial indebtedness may increase our difficulty and costs in borrowing additional funds in the future. This may hinder our ability to expand our business operations and growth, which will in turn have a material adverse effect on our financial condition and prospects.

We face liquidity risk in relation to working capital requirements associated with undertaking contract works.

When undertaking contract works, there are often time lags between making payments to our employees and receiving payments from our customers, resulting in cash

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

RISK FACTORS

flow mismatch. We pay salaries to our full-time employees within seven days after the end of each month and our part-time employees within seven days after the completion of their work. On the other hand, we generally grant a credit term ranging from 60 days to 90 days for our customers depending on their creditworthiness. For our contract works with HK Government as our customer, before it settles our invoices, we are required to substantiate that all our workers have been paid no less than the wages as specified in the tender contracts and in accordance with relevant laws and regulations. Moreover, payment will be only made by the HK Government upon certification by the inspecting officer that our services have been performed in accordance with the terms and conditions of the tender contract to its satisfaction.

However, we cannot assure you that our customers will settle our payment on time and in full. For the two years ended 31 December 2016, our trade receivables turnover days were approximately 81.3 days and 71.6 days, respectively, further details of which are set forth in the paragraphs headed “Financial information — Discussion on major items of the combined statements of financial position” in this [ REDACTED ]. Any delay in collecting our trade receivables could materially and adversely affect our cash flows and financial position.

Further, we are generally required to provide performance guarantee at a rate ranging from 2% to 5% of the total contract sum to our public sector customers and at a sum equivalent to one month’s service payment of the relevant contracts to our private sector customers as security for due performance of our contractual obligations. This would result in the lock-up of a portion of our capital for potentially a prolonged period of time and thereby affecting our liquidity position. Further details are set forth in the paragraphs headed “Business — Customers — General terms of contracts with our customers” in this [ REDACTED ].

If we fail to properly manage our liquidity position in view of the cash flow mismatch and working capital requirements associated with undertaking contract works, our cash flow and financial position could be materially and adversely affected.

We rely on our key management and our ability to attract and retain suitable staff for our business operations and business growth and we experienced a high staff turnover rate during the Track Record Period.

Our success is attributable to the leadership and contributions of our management team. In particular, Mr. Lam, our founder, chairman, executive Director, chief executive officer, and Ms. Wong, a member of our senior management, have over 25 and 24 years of experience, respectively, in the environmental hygiene service industry, as set forth in the section headed “Directors and senior management” in this [ REDACTED ]. Our continued success is therefore dependent to a large extent on our ability to retain the services of our management team. Any unanticipated departure of our management team members without appropriate replacements may have a material adverse impact on our business operations and profitability.

In addition, according to the F&S Report, high working hours and heavy workload could lead to high occupational mobility and hence labour shortage within the industry,

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

RISK FACTORS

which could be further intensified by the introduction of the statutory minimum wage policy. If we fail to maintain adequate labour force, or fail to control the quality of the work done by our employees, our business operations or reputation may be adversely affected.

Our Group and our employees may fail to renew or maintain the requisite certifications necessary for the provision of our environmental hygiene services, which will affect our ability to obtain new projects and our financial position.

As set forth in the paragraphs headed “Business — Employees, staff training and development” in this [ REDACTED ], as at the Latest Practicable Date, our Group and our employees held a number of certifications necessary for the provision of our environmental hygiene services. Some of these certifications have different valid periods. Our Directors believe that the renewal of these certifications are subject to continual compliance with various standards such as workplace safety and we cannot assure you that our Group and our employees will be able to comply with such standards from time to time. There are certain circumstances under which such certifications could be suspended by the issuing authorities or governing authorities such as Occupational Safety and Health Council and Construction Industry Council. If our Group and our employees are unable to renew or otherwise maintain their licences, permits or certifications, our ability to obtain new projects and our financial position could be materially and adversely affected.

We are subject to laws and regulations relating to health and safety protection of our employees and any breach of laws and regulations may adversely affect our reputation and results of operations.

As set forth in the section headed “Regulatory overview” in this [ REDACTED ], we are regulated by, among others, the Occupational Safety and Health Ordinance and the Factories and Industrial Undertakings Ordinance, which require employers to, among others, provide and maintain a safe system of work for their employees. We cannot assure you that we will be able to comply with the laws and regulations relating to health and safety protection of our employees in all our workplaces at all times. Any breach of laws and regulations may lead to prosecution by the HK Government and expose us to penalty, and our reputation and results of operations may be adversely affected.

Potential standard working hours legislation may increase our labour costs and affect our profitability.

There is no legislation regarding the maximum working hours in Hong Kong. On 26 November 2012, the Labour Department released the Report of the Policy Study on Standard Working Hours. In April 2013, the HK Government set up the Standard Working Hours Committee, which is responsible for conducting in-depth discussion on standard working hours and advising the HK Government on the working hours situation in Hong Kong including whether a statutory standard working hours regime or any other alternatives should be considered. It remains uncertain as to whether the HK Government will implement a statutory standard working hours regime. The implementation of a statutory standard working hours regime may increase our direct labour costs as we may

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

RISK FACTORS

incur additional costs to compensate for overtime work. It may also reduce labour supply and the resulting intensified competition for labour may exert upward pressure on the salaries of workers. We cannot assure you that we will be able to adequately increase our service fees so as to pass the increase in our direct labour costs onto our customers, thus our Group’s business operations, financial results and profitability may be materially and adversely affected.

Potential cancellation of the MPF Scheme contributions offsetting arrangement may increase our labour costs.

Under the MPF Ordinance, an employer is entitled to apply for an offset of the employee severance payments and long service payments, deductible from the accrued benefits derived from the employer’s MPF Scheme contributions. Further details are set forth in the paragraphs headed “Regulatory overview — Labour, health and safety — Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong)” in this [ REDACTED ]. We cannot assure you that the above offsetting arrangement will not be abolished or revised in the future, in which case we would incur additional costs in fulfilling the contributions required under the MPF Scheme. This may increase our labour costs, which may in turn materially and adversely affect our results of operations and financial condition.

Our business plans and strategies may not be successful or be achieved within the expected time frame or within the estimated budget.

We intend to further enhance our vehicles and equipment, strengthen our manpower, enhance our information technology applications and improve our liquidity position by repaying certain bank loans in order to achieve sustainable growth and further strengthen our overall competitiveness and business growth in the environmental hygiene service industry. However, our plans and strategies may be hindered by risks including but not limited to those mentioned in this section. Any failure in implementing our plans and strategies could hinder our business growth and could materially and adversely affect our business, financial condition and results of operations.

Our business operation is currently confined to the Hong Kong market. Any unforeseen negative conditions of Hong Kong, political, social or economic, may adversely affect our business prospects, financial condition and results of operations.

During the Track Record Period, all of our revenue was derived from our operation in Hong Kong. Our Directors confirm that we have no geographical expansion plan as at the Latest Practicable Date and expect that all of our revenue will continue to be derived from Hong Kong in the foreseeable future. As such, we cannot assure you that the economic, political and social conditions in Hong Kong will always be favourable to our business in Hong Kong. Any unfavourable economic, political and social conditions may adversely affect the spending budget of our target customers, and thus our results of operations, financial condition and sustainability.

Our Group is subject to significant risk relating to increase in interest rate.

Our finance costs amounted to approximately HK$3.5 million and HK$3.6 million for the two years ended 31 December 2016. The interest rate for debt financing, i.e. our

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

RISK FACTORS

finance costs, is expected to soar in the medium term as a result of the anticipated increases in the U.S. interest rates. It may not be possible for our Group to effectively hedge against changes in interest rates at all or on an economically reasonable basis. Any increase in interest rates could materially increase our finance costs and could have a material adverse effect on our results of operations and financial condition.

RISKS RELATING TO THE INDUSTRY IN WHICH WE OPERATE

We operate in a highly competitive market and we may face downward pricing pressure, in which case our profitability may be materially and adversely affected.

According to the F&S Report, competition within the environmental hygiene service industry is fierce. The industry is mature with relatively low entry barrier. The environmental hygiene service industry has in aggregate 1,140 service players in 2015, among which, approximately 59.2% of the market share is attributable to the top 10 industry players by revenue contribution. In view of the keen competition within the environmental hygiene service industry, we may face significant downward pricing pressure in the tendering/quotation process, which would reduce our profit margins. Alternatively, if we fail to offer a competitive price as compared to our competitors, we may not be awarded the contract, in which case our business operations and financial results may be materially and adversely affected.

RISK RELATING TO THE [ REDACTED ] AND THE SHARES

There has been no prior public market for our Shares and an active trading market for our Shares may not be developed or be sustained.

Prior to the [ REDACTED ], no public market for our Shares existed. Following the completion of the [ REDACTED ], the Stock Exchange will be the only market on which our Shares are publicly traded. We cannot assure you that an active trading market for our Shares will be developed or sustained after the [ REDACTED ]. In addition, we cannot assure you that our Shares will be traded in the public market subsequent to the [ REDACTED ] at or above the [ REDACTED ]. The [ REDACTED ] may not be indicative of the market price of our Shares following the completion of the [ REDACTED ]. If an active trading market for our Shares does not develop or is not sustained after the [ REDACTED ], the market price and liquidity of our Shares could be materially and adversely affected.

The trading prices and volume of our Shares may be volatile, which could result in substantial losses to you.

The trading price of our Shares may be volatile and could fluctuate widely in response to factors beyond our control, including variations in the level of liquidity of our Shares; changes in securities analysts’ (if any) estimates of our financial performance; investors’ perceptions of our Group and the general investment environment; changes in laws, regulations and taxation systems which affect our operations; general market conditions of the securities markets in Hong Kong. In particular, the trading price performance of our competitors whose securities are listed on the Stock Exchange may affect the trading price of our Shares. These broad market and industry factors may significantly affect the market price and volatility of our Shares, regardless of our actual operating performance.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

RISK FACTORS

In addition to market and industry factors, the price and trading volume of our Shares may be highly volatile for specific business reasons. In particular, factors such as variations in our revenue, net income and cash flow, success or failure of our efforts in implementing business and growth strategies; involvement in material litigations as well as recruitment or departure of key personnel, could cause the market price of our Shares to change unexpectedly. Any of these factors may result in large and sudden changes in the volume and trading price of our Shares.

Substantial future sale of our Shares in the public market could adversely affect their trading price.

Sale of substantial amounts of our Shares in the public market after the completion of the [ REDACTED ], or the perception that such sale could occur, could adversely affect the market price of our Shares and could materially impair our future ability to raise capital through offerings of our Shares. There is no assurance that our major Shareholders would not dispose of their shareholdings. Any significant disposal of our Shares by any of our major Shareholders may materially affect the prevailing market price of our Shares. In addition, these disposals may induce more difficulties for us to issue new Shares in the future at a time and price we deem appropriate, thereby limiting our liability to raise further capital.

We cannot predict what effect, if any, a significant future sale will have on the market price of our Shares.

The interests of our Controlling Shareholders may differ from those of other Shareholders.

The interests of our Controlling Shareholders may differ from the interests of other Shareholders. If the interests of our Controlling Shareholders differ with the interests of other Shareholders, or if our Controlling Shareholders cause our business to pursue strategic objectives that conflict with the interests of other Shareholders, you could be disadvantaged by the actions that our Controlling Shareholders choose to cause us to pursue. Our Controlling Shareholders could have significant influence in determining the outcome of any corporate transaction or other matters submitted to our Shareholders for approval, such as mergers, acquisitions and disposal of all of our assets, election of directors, and other significant corporate actions. Our Controlling Shareholders have no obligation to consider the interests of our Company or the interests of other Shareholders.

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RISK FACTORS

We may issue additional Shares in the future in which case your Shares may be diluted.

We may consider issuing and offering additional Shares in the future to raise additional funds, finance acquisitions or for other purposes. If we issue additional Shares in the future, the percentage ownership of our existing Shareholders may be diluted. In addition, such new Shares may have preferred rights, options or preemptive rights that make them more valuable than the Shares.

The laws of the Cayman Islands relating to the protection of the interests of minority shareholders are different from those in Hong Kong. We are incorporated under Cayman Islands law and Cayman Islands law may provide different remedies to shareholders when compared with the laws of Hong Kong and other jurisdictions.

Our Company is governed by the Memorandum, the Articles, the Companies Law and the common law of the Cayman Islands. The laws of the Cayman Islands in relation to the protection of the interests of minority shareholders differ in some respects from those established under the laws of Hong Kong and other jurisdictions. As a result, the remedies available to Shareholders may be different from those they would otherwise have under the laws of Hong Kong or other jurisdictions. Further details on the Memorandum, the Articles and the related Cayman Islands law are set forth in Appendix III to this [ REDACTED ].

RISKS RELATING TO INFORMATION CONTAINED IN THIS [ REDACTED ]

The industry statistics and forward-looking information contained in this [ REDACTED ] may not be accurate, reliable or fair.

Statistics and other information relating to our industry particularly contained in the section headed “Industry overview” in this [ REDACTED ] have been compiled partly from various publicly available publications as well as the F&S Report we commissioned from Frost & Sullivan, an independent industry consultant. We believe that the sources of such information are appropriate sources 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 has been omitted that would render such information false or misleading. However, we cannot guarantee the quality of such source materials. Moreover, statistics derived from multiple sources may not be prepared on a comparable basis. None of our Company, the [ REDACTED ], the Sole Sponsor, the [ REDACTED ], the [ REDACTED ] or any other persons or their respective directors, advisers or affiliates involved in the [ REDACTED ] has independently verified such information, and makes no representation as to the accuracy of such facts and statistics, which may not be consistent with other information compiled within or outside Hong Kong. Such information may not be complete or latest. As the way of collecting the information may contain faults or may not be effective, or there exist variations and other problems between information published and market practices, the industry information and statistics contained herein may not be accurate and should not be unduly relied upon when making decision on your investment in our Company or otherwise.

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RISK FACTORS

This [ REDACTED ] contains certain forward-looking statements and information relating to us our Group that are based on the beliefs of our management as well as assumptions made by and information currently available to our management. Such statements reflect the current views of our Company’s 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 [ REDACTED ].

We strongly caution you not to place any reliance on any information contained in press articles or media regarding our Group or the [ REDACTED ] .

Prior to the publication of this [ REDACTED ], there may be press and media coverage regarding our Group and the [ REDACTED ], which may include certain financial information, financial projections and other information about our Group that do not appear in this [ REDACTED ]. We have not authorised the disclosure of any such information in the press or media. We do not accept any responsibility for any such press or media coverage or the accuracy or completeness or reliability of any such information. To the extent that any such information appearing in publications other than this [ REDACTED ] is inconsistent or conflicts with the information contained in this [ REDACTED ], we expressly disclaim it. Accordingly, prospective investors should not rely on any such information. In making your decision as to whether to purchase our Shares, you should rely only on the financial, operational and other information included in this [ REDACTED ].

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INFORMATION ABOUT THIS [ REDACTED ] AND THE [ REDACTED ]

[ REDACTED ]

– 36 –

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INFORMATION ABOUT THIS [ REDACTED ] AND THE [ REDACTED ]

[ REDACTED ]

– 37 –

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INFORMATION ABOUT THIS [ REDACTED ] AND THE [ REDACTED ]

[ REDACTED ]

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INFORMATION ABOUT THIS [ REDACTED ] AND THE [ REDACTED ]

[ REDACTED ]

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DIRECTORS AND PARTIES INVOLVED IN THE [ REDACTED ]

DIRECTORS

Name	Residential address	Nationality
Executive Directors
Mr. Lam Pak Ling	Luk Mei Village	British
(林柏齡先生)	49 Luk Cheung Road
	Sai Kung
	New Territories
	Hong Kong
Mr. Cai Weiming	Flat 01, 15/F	Chinese
(蔡偉明先生)	Hong Yam House
	On Yam Estate
	Kwai Chung
	New Territories
	Hong Kong
Mr. Wong Tsz Chun,	Flat 2115, 21/F	Chinese
Jacky	Choi Chun House
(王子進先生)	Choi Tak Estate
	Ngau Tau Kok
	Kowloon
	Hong Kong
Non-executive Director
Mr. Choi Chung Yin	Flat F, 28/F	Chinese
(蔡仲言先生)	Block 4, Pokfulam Gardens
	Pokfulam
	Hong Kong
_Independent non-executive _	Directors
Mr. Mak Kwok Kei	Flat 8, 1/F	Chinese
(麥國基先生)	Block E, Man Chung House
	66 Chung Hau Street
	Ho Man Tin
	Kowloon
	Hong Kong

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DIRECTORS AND PARTIES INVOLVED IN THE [ REDACTED ]

Name Residential address Nationality Mr. Ho Kin Wai Flat B, 10/F Chinese (何建偉先生) Tower 6, Lake Silver 599 Sai Sha Road Ma On Shan, New Territories Hong Kong Ms. Lam Kit Yan Flat B, 24/F Chinese (林潔恩女士) Block 3, Connaught Garden 155 Connaught Road West Hong Kong

Further details on the backgrounds of our Directors and senior management personnel are set forth in the section headed “Directors and senior management” in this [ REDACTED ].

PARTIES INVOLVED IN THE [ REDACTED ]

Sole Sponsor Octal Capital Limited A corporation licensed under the SFO to carry on Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activity as defined in the SFO 802-805, 8th Floor, Nan Fung Tower 88 Connaught Road Central Hong Kong [ REDACTED ] [ REDACTED ] [ REDACTED ] [ REDACTED ] Legal advisers to our Company As to Hong Kong law

Patrick Mak & Tse 16th Floor, Nan Fung Tower 173 Des Voeux Road Central Central Hong Kong

Ms. Queenie W.S. Ng Barrister-at-Law Rooms 2203 A&B Fairmont House 8 Cotton Tree Drive Central Hong Kong

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DIRECTORS AND PARTIES INVOLVED IN THE [ REDACTED ]

As to Cayman Islands law

Conyers Dill & Pearman Cricket Square Hutchins Drive P.O. Box 2681 Crand Cayman KY1-1111 Cayman Islands Legal advisers to the As to Hong Kong law Sole Sponsor and the [ REDACTED ] [ REDACTED ] Reporting accountants Deloitte Touche Tohmatsu Certified Public Accountants 35th Floor, One Pacific Place 88 Queensway Admiralty Hong Kong

Industry consultant Frost & Sullivan Limited Unit 08, 26/F No. 9 Queen’s Road Central Hong Kong

Compliance adviser Octal Capital Limited 802-805, 8th Floor, Nan Fung Tower 88 Connaught Road Central Hong Kong Receiving bank [●]

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CORPORATE INFORMATION

Registered office
Headquarters and
principal place of business
in Hong Kong
Website address
Company secretary
Compliance officer
Authorised representatives

Cricket Square
Hutchins Drive
P.O. Box 2681
Grand Cayman KY1-1111
Cayman Islands
Unit No. 301A, 3/F., Tower III
Enterprise Square
9 Sheung Yuet Road
Kowloon Bay
Kowloon
Hong Kong
www.lapco.com.hk
(information in this website does not form part of this
[REDACTED])
Mr. Tam Yiu Shing Billy (譚耀誠先生)
Certified Public Accountant
Room 8, 16/F, Block A
Luk Yeung Sun Chuen
Tsuen Wan
New Territories
Hong Kong
Mr. Lam Pak Ling (林柏齡先生)
Luk Mei Village
49 Luk Cheung Road
Sai Kung
New Territories
Hong Kong
Mr. Lam Pak Ling (林柏齡先生)
Luk Mei Village
49 Luk Cheung Road
Sai Kung
New Territories
Hong Kong
Mr. Tam Yiu Shing Billy (譚耀誠先生)
Certified Public Accountant
Room 8, 16/F, Block A
Luk Yeung Sun Chuen
Tsuen Wan
New Territories
Hong Kong

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CORPORATE INFORMATION

Principal bankers	Bank of China (Hong Kong) Limited
	Bank of China Tower
	1 Garden Road
	Hong Kong
	The Hongkong and Shanghai Banking Corporation
	1 Queen’s Road Central
	Hong Kong
Audit Committee	Ms. Lam Kit Yan (林潔恩女士) (Chairman)
	Mr. Ho Kin Wai (何建偉先生)
	Mr. Mak Kwok Kei (麥國基先生)
Remuneration Committee	Mr. Ho Kin Wai (何建偉先生) (Chairman)
	Mr. Lam Pak Ling (林柏齡先生)
	Mr. Mak Kwok Kei (麥國基先生)
Nomination Committee	Mr. Lam Pak Ling (林柏齡先生) (Chairman)
	Mr. Mak Kwok Kei (麥國基先生)
	Mr. Ho Kin Wai (何建偉先生)
Principal share [REDACTED]	[REDACTED]
and transfer office
Hong Kong branch share	[REDACTED]
[REDACTED] and transfer
office
Compliance adviser	Octal Capital Limited
	802-805, 8th Floor, Nan Fung Tower
	88 Connaught Road Central
	Hong Kong

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INDUSTRY OVERVIEW

The information which appears under this section has been prepared by Frost & Sullivan and reflects estimates of market conditions based on publicly available sources and trade opinion surveys, 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 value of any security or the advisability of investing in our Company. Our Directors believe that the sources of information contained in this section are appropriate sources for such information and have taken reasonable care in reproducing such information. Our Directors have no reason to believe that such information is false or misleading or that any material fact has been omitted which would render such information false or misleading. The information prepared by Frost & Sullivan and set out in this section has not been independently verified by our Company, the [ REDACTED ] , the Sole Sponsor, the [ REDACTED ] , the [ REDACTED ] , any of our/their respective directors, officers, employees, agents or representatives, or any other person or party involved in the [ REDACTED ] and neither they nor Frost & Sullivan give any representations as to its accuracy and the information should not be relied upon in making, or refraining from making, any investment decision.

SOURCES OF INFORMATION

We commissioned Frost & Sullivan, an independent industry consultant, to conduct a market analysis of the Hong Kong environmental hygiene service industry at a fee of HK$500,000. Our Directors consider that such fee reflects the market rate and the payment of such fee does not affect the fairness of the conclusions drawn in the F&S Report. Frost & Sullivan is a global consulting company founded in 1961 in New York and has over 45 global offices with more than 1,800 industry consultants providing customised consulting services that support a visionary understanding of their clients’ industry, developing opportunities and growth strategies.

In compiling the F&S Report, Frost & Sullivan has combined the following data and intelligence gathering methodologies which include: (a) primary research involving discussion with certain leading industry participants; and (b) secondary research involving review of our Group’s reports, independent research reports and data based on its own research database. Our Company has included certain information from the F&S Report in this [ REDACTED ] because our Directors believe that such information facilitates an understanding of the environmental hygiene service industry for potential investors.

Analysis and forecasts contained in the F&S Report are based on the assumption that the social, economic and political environment is likely to remain stable in the forecast period, which ensures the stable and healthy development of the Hong Kong environmental hygiene service industry.

After making reasonable enquiries, our Directors confirm that to their knowledge there is no adverse change in the market information since the date of the F&S Report which may qualify, contradict or have a material impact on the information in this section.

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INDUSTRY OVERVIEW

OVERVIEW OF THE ENVIRONMENTAL HYGIENE SERVICE INDUSTRY IN HONG KONG

Environmental hygiene services in Hong Kong cover the following significant service categories:

Key service categories Service areas include

General cleaning services • Cleaning services for public and private, residential, commercial and industrial buildings • Pest management services • Stone maintenance and exterior wall cleaning services Waste management • Collection of recyclable items services • Collection and disposal of liquid waste, industrial and solid waste • Composite waste management services • Water tanks rinsing services Other services • Landscaping services • Animal corpse disposal services • Room services • One-off post-construction cleaning services • Car park cleaning services • Cleaning equipment supply services

Development history

The environmental hygiene service industry in Hong Kong is currently at its maturity stage:

==> picture [412 x 227] intentionally omitted <==

----- Start of picture text -----

Early Stage Growth Stage Maturity Stage
• Many small-scale • Growing number of large-scale market players with an • Concentrated market dominated by large-scale service providers
market players increasing diversity of services provided • High customer requirement e.g. the need of risk assessment, safety
focusing on • Increasing use of machinery and equipment management and quality control etc.
domestic household • Growing customer requirements e.g. carpet steaming on • Increasing awareness of eco-friendliness, quality and safety focused
cleaning top of vacuum cleaning • Market players with sufficient resources intend to expand their service
• Low customer • Technological innovations in machinery and equipment coverage along the value chain horizontally and vertically.
requirement as well as cleaning products
• Low requirement • License required
for initial capital
and human Current
• Low-skilled resources Stage
cleaning services
with low technical
tools e.g. sweepers • High technical skills and tools; the use of machinery to reduce labour
and wiping cloths. • Increasing requirement for licenses, employee training, regulations and
• No license required industry standards
• The industry has evolved from low-skilled cleaning service industry
towards a property-management-like industry
Time Period
Growth
----- End of picture text -----

Source: Frost & Sullivan

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INDUSTRY OVERVIEW

Environmental hygiene service industry revenue from 2011 to 2020

Market size of the environmental hygiene service market in Hong Kong by revenue, 2011-2020E

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----- Start of picture text -----

Million (HKD) Total 2011-2015 2016-2020E
20,000 CAGR 10.3% 7.5% 18,096.5
16,900.9
18,000 15,759.3
16,000 13,564.1 14.658.8
14,000 11,395.8 12,485.4
12,000 9,590.5 10,296.0
10,000 8,423.1
8,000
6,000
4,000
2,000
0
2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E
Other cleaning 209.6 280.8 323.5 342.0 423.0 489.0 548.2 602.9 660.6 720.4
Waste collection 132.4 134.6 138.1 139.9 140.5 143.0 145.2 147.2 148.8 150.3
Landscape care and greenery 682.2 811.6 1,083.2 1,319.8 1,499.2 1,686.0 1,883.3 2,084.8 2,286.0 2,490.2
General cleaning 7,399.0 8,363.5 8,751.2 9,594.1 10,422.6 11,246.1 12,082.1 12,924.5 13,805.5 14,735.6
Total 8,423.1 9,590.5 10,296.0 11,395.8 12,485.4 13,564.1 14,658.8 15,759.3 16,900.9 18,096.5
----- End of picture text -----

Source: Frost & Sullivan

The market size of environmental hygiene service industry in Hong Kong grew from HK$8,423.1 million in 2011 to HK$12,485.4 million in 2015, representing a CAGR of approximately 10.3%. Driven by increasing concern of hygienic environment due to the outbreaks of past diseases and the rising number of both commercial and residential buildings, the market size of environmental hygiene service industry in Hong Kong is expected to further grow from HK$13,564.1 million to HK$18,096.5 million in 2020, representing a CAGR of 7.5% from 2016 to 2020.

Market size of the street cleaning service industry in Hong Kong by revenue, 2013-2015

==> picture [240 x 177] intentionally omitted <==

----- Start of picture text -----

Million HKD
1,000
922.6
800 869.9 891.5
600
400
200
0
2014 2015 2016
----- End of picture text -----

Source: Frost & Sullivan

The revenue of the street cleaning service industry grew from HK$869.9 million in 2014 to HK$891.5 million in 2015 and further to HK$ 922.6 million in 2016, according to the total contract sum awarded by the department of HK Government responsible for food and environmental hygiene.

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INDUSTRY OVERVIEW

Price trends of average wages from 2011 to 2015

Average wages of workers, Hong Kong, 2011–2016

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----- Start of picture text -----

2011-2015
CAGR 5.37%
HKD/
Month %
9000 8.0 9.0
8000 8.0
7000 6.2 7.0
5.4
6000 6.0
5000 3.8 5.0
3.5
4000 4.0
3000 6,506.3 7,025.3 7,290.8 7,685.8 8,162.3 3.0
8,449.7
2000 2.0
1000 1.0
0 0.0
2011 2012 2013 2014 2015 2016
Average wages of workers Growth Rate
----- End of picture text -----

Source: Census and Statistics Department, Frost & Sullivan

The average monthly wages of workers in Hong Kong grew from HK$6,506.3 in 2011 to HK$8,449.7 in 2016 at a CAGR of 5.37%.

Casualties in environmental hygiene service industry

Although the number of cleaning workers has been increasing in Hong Kong, casualties in the environmental hygiene service industry has decreased in the last few years. On average, 30 accidents happen every year in every 1,000 workers. It is expected that it will further decrease in the future because of the rising awareness of safety standard. For example, service players would recruit safety officers to monitor closely on the working practice, which can prevent some of the accidents from happening.

Number of occupational accidents in general cleaning, 2011–2015

Accident rates in general cleaning services, 2011–2015

==> picture [426 x 150] intentionally omitted <==

----- Start of picture text -----

Per 1,000 employees
3,000 14 15 16 35
14 30
2,500
11 11 12
10 25
2,000 10
20
1,500 8
15
1,000 2,300 2,355 2,157 2,234 2,154 6 30.5 30.3 27.3 28.2 26.6
10
4
500 2 5
0 0 0
2011 2012 2013 2014 2015 2011 2012 2013 2014 2015
Total Fatalities
----- End of picture text -----

Source: Labour Department, Census and Statistics Department, Frost & Sullivan

Notes:

Figures represent staff working in general cleaning excluding waste management.
The latest available data is as at 2015.

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INDUSTRY OVERVIEW

Key market drivers of the environmental hygiene service industry in Hong Kong

Increasing awareness on public hygiene due to large-scale disease outbreaks in the past

The outbreak of SARS in 2003, followed by swine flu (H1N1) in 2009, influenza H7N9 and Zika virus in 2016 has raised public awareness on environmental hygiene, thereby accelerating the demand for environmental hygiene services.

HK Government’s regulations on environmental hygiene standard

The past disease outbreaks have raised the HK Government’s concern on environmental hygiene and it placed more emphasis on public hygiene control to avoid future large-scale disease outbreaks. The HK Government has reinforced policies on waste and recycling management. For example, the HK Government targets to achieve recycling rate of 55% by 2022 and declared to invest HK$1 billion in waste management to launch a Restored Landfill Revitalisation Funding Scheme in its 2014 Policy Address.

Increasing number of various types of buildings and venues

The following table sets out the growth rate or estimated growth rate of various types of buildings or venues in Hong Kong, which are expected to stimulate the demand for environmental hygiene services:

	2011–2015	2016–2020E
Space of residential buildings	0.98%	1.01%
Space of private commercial buildings
(comprising retail premises and other
premises designed or adapted for
commercial use)	0.46%	1.14%
Space of office buildings	0.71%	2.35%
Number of shopping malls and centres	1.05%	1.19%
Number of parks, recreational venues, public
places and tertiary institutions	0.46%	0.33%

Major challenges and/or threats affecting environmental hygiene service industry in Hong Kong

Labour shortage

Despite the fact that the entry requirement for frontline workers of the environmental hygiene service industry is relatively low, long working hours and heavy workload could lead to high occupational mobility and hence labour shortage within the industry. The problem was intensified by the introduction of the statutory minimum wage policy by the HK Government as workers now have more choices and are more willing to take less intense but similar paying jobs like security guard rather than being a cleaner. As the industry demands for more labour to meet customer needs, labour shortage imposes great challenges and threats on environmental hygiene service providers.

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INDUSTRY OVERVIEW

Increasing operating labour costs and narrowing profit margin

The HK Government raised the statutory minimum wage from HK$28.0 per hour in 2011 to HK$30 per hour in 2013 and further to HK$32.5 in 2015. The statutory minimum wage will further be raised to HK$34.5 per hour with effect from 1 May 2017. Moreover, the HK Government is planning to implement a standard working hours policy in order to improve people’s work-life balance as well as occupational safety and health. The implementation of a statutory standard working hours regime may increase our labour costs as we may incur additional costs to compensate for overtime work. It may also reduce labour supply and the resulting intensified competition for labour may exert upward pressure on the salaries of workers. Further details are set forth in the paragraphs headed “Risk factors — Risks relating to our business — Potential standard working hours legislation may increase our labour costs and affect our profitability” in this [ REDACTED ].

Impact of law, policy and regulation on environmental hygiene

In February 2014, the Environment Bureau unveiled “A Food Waste & Yard Waste Plan for Hong Kong 2014–2022”, which maps out a comprehensive strategy for the management of food waste and yard waste in the coming years. It outlines the target of reducing food waste disposal to landfills by 40% in 2022 and four strategies to tackle food waste, namely reduction at source, reuse and donation, recyclable collection, and turning food waste into energy. In addition, the framework proposal for municipal solid waste developed by the EPD was presented to the Legislative Council in February 2015. The HK Government’s efforts at waste reduction could cause the overall waste volume to drop, resulting in a decline in the need for environmental hygiene services.

In addition, the Occupational Safety and Health Ordinance and the Factories and Industrial Undertakings Ordinance also add further costs for the service providers as they require service providers to provide safety equipment and training to their frontline workers.

COMPETITIVE LANDSCAPE

The environmental hygiene service industry in Hong Kong

The top 10 environmental hygiene service providers in Hong Kong together accounted for an aggregate market share of approximately 59.2% in terms of revenue in 2015. The market concentration is high. Our Group ranked ninth among the top 10 players, taking up approximately 3.2% of entire market share.

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INDUSTRY OVERVIEW

Top 10 environmental hygiene service providers in Hong Kong

Revenue

Ranking	Company			in 2015(Note 1)	Company descriptions
			_(HK$ _	million)
1	Company	A		1,379.9	Founded in Denmark and stared
					business in Hong Kong in 1995
2	Company	B		992.0	A company listed on the Stock
					Exchange providing cleaning, pest
					management, horticulture,
					landscaping and waste collection &
					recycling services
3	Company	C		939.2	A large-scale hygiene service provider
					in Hong Kong with main customers
					being the HK Government, large
					enterprises, academic institutions
					and non-governmental
					organisations
4	Company	D		738.0	With over 5,500 employees and
					serving the HK Government,
					retailers, transportation, estates, etc.
5	Company	E		536.7	A wholly-owned subsidiary of a
					property developer with over 4,000
					employees
6	Company	F		415.3	Specialises in environmental hygiene
					services and airline catering
					support service
7	Company	G		375.7	A flagship company of a property
					management service company with
					over 2,800 employees and serving
					240 sites
8	Company	H		362.3	A cleaning service provider with over
					2,700 employees staff serving
					mainly commercial buildings

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INDUSTRY OVERVIEW

Revenue in 2015 [[(Note]][1)] Company descriptions (HK$ million)

Ranking Company in 2015 [[(Note]] Company descriptions (HK$ million) 9 Our Company 348.8 [(Note][2)] N/A 10 Company I 340.6 Mainly covers general cleaning services for public area and transportation as well as waste disposal services and pest management services

Source: Census and Statistics Department, Frost & Sullivan

Notes:

The above estimated revenue is (i) on annual pro-rata basis and (ii) excludes waste collection services.
The revenue attributable to waste management and recycling services has been carved out.

Street cleaning service market in Hong Kong

The total contract sum of street cleaning service contract awarded by the department of the HK Government responsible for food and environmental hygiene reached HK$922.6 million in 2016. This market is shared by only five service providers, among which we ranked the second in terms of the contract sum of HK$132.2 million awarded to us. From 2011 to 2016, there was no other service providers which could win tenders for street cleaning apart from these five service providers.

The five street cleaning service providers in Hong Kong

==> picture [249 x 147] intentionally omitted <==

----- Start of picture text -----

Company J:
HKD 88.5 million
Company B:
HKD 243.5 million
Company I:
HKD 172.8 million
Our Company: Company C:
HKD 173.4 million HKD 213.2 million
----- End of picture text -----

Source: Frost & Sullivan

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INDUSTRY OVERVIEW

		Revenue
Ranking	Company	in 2015	Company descriptions
		(HK$ million)
1	Company B	243.5	A company listed on the Stock
			Exchange providing cleaning, pest
			management, horticulture &
			landscaping and waste collection &
			recycling services
2	Company C	213.2	A large-scale hygiene service provider
			in Hong Kong with main customers
			being the HK Government, large
			enterprises, academic institutions
			and non-governmental
			organisations
3	Our Company	173.4	N/A
4	Company I	172.8	Mainly covers general cleaning
			services for public area and
			transportation as well as waste
			disposal services and pest
			management
5	Company J	88.5	A general cleaning service provider
			having over 2,000 employees with
			main customers being the HK
			Government and property
			management companies

Source: Census and Statistics Department, Frost & Sullivan

Entry barriers of the environmental hygiene service industry in Hong Kong

The industry is mature with relatively low entry barrier; however, there are also entry barriers for new market entrants, including:

High initial capital and cost pressure

The environmental hygiene service industry is a labour intensive industry with generally over 70% of total operating cost comes from cost of labour. As mentioned above, the increase in statutory minimum wage over the last few years has created cost pressure on service providers. In addition, other cost of services such as raw materials/equipment procurement and insurance costs also account for a significant portion of total operating cost. For new entrants lacking financial resources, capital is a key obstacle which prevents them from entering the market.

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INDUSTRY OVERVIEW

Word of mouth, reputation, client portfolio and branding of the existing players

For the environmental hygiene service industry in Hong Kong, tendering is the major way to engage a service provider for both private and public sectors. Client portfolio, brand and reputation as well as word of mouth are the selection criteria of customers. Customers tend to stay with one approved service provider for a long period of time, usually for three to five years. This imposes increasing entry barriers for new entrants to compete with existing service providers which have established good reputation and long-term customer relationship, hence driving them out from the market.

High requirement for high-level management efficiency

Experienced management team is crucial in maintaining management on our labour force and quality of service, experienced management team is highly required. In general, large-scale service providers operate under a tier system: frontline workers (e.g. cleaners), foreman (e.g. site managers) who is responsible for supervising workers in safety issues and the top management who control the overall quality of services. This imposes structural and operational challenges on new entrants as start-up companies which usually lack the capital and human resources to establish their management team and satisfy large-scale clients. Therefore, even if small entrants have enough initial capital to start up, inefficient management could restrict their growth.

Our competitive advantages

According to the F&S Report, we have the following competitive advantages when compared to other environmental hygiene service providers:

Experienced management team

The management team of our Group possesses in-depth industry knowledge and extensive experiences in preparation of competitive tenders. Further details on the experience of our management team are set forth in the section headed “Directors and senior management” in this [ REDACTED ]. In addition, efficient multi-layer operational systems have been established including our frontline workers, foreman or supervisor and the top management. Tender, quotation, budgets and approval are strictly executed by the senior management level.

Employees with relevant certifications

Our Group arranges our employees to attend training courses on workplace safety and job specific skills. Further details on the training courses attended by our employees and the certificates held by them are set forth in the paragraphs headed “Business — Employees, staff training and development” in this [ REDACTED ].

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INDUSTRY OVERVIEW

High quality of services

Our Group has a track record of over 25 years as an environmental hygiene service provider. We ranked the ninth in 2015 among environmental hygiene service providers in Hong Kong and had 3.2% of market share in terms of revenue generated. We ranked the third in 2015 among the five service providers providing street cleaning services to our largest customer, being a department of the HK Government responsible for food and environmental hygiene. The established presence of our Group is a recognition of the quality of services that we provide.

Business network and customer base

Our strong presence in the public sector enables our Group to maintain a stable source of revenue. We also have a stable customer base which can enable us to develop new business opportunities through cross-selling of our comprehensive range of environmental hygiene services.

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REGULATORY OVERVIEW

This section sets out a summary of certain aspects of the laws and regulations of significance to our Group’s operations and businesses in Hong Kong.

BUSINESS OPERATIONS

Business Registration Ordinance (Chapter 310 of the Laws of Hong Kong)

The Business Registration Ordinance requires every entity that carries on a business in Hong Kong to apply for business registration within one month from the date of commencement of its business and display a valid business registration certificate at the place of business.

Inland Revenue Ordinance (Chapter 112 of the Laws of Hong Kong)

The Inland Revenue Ordinance is an ordinance for the purposes of imposing taxes on property, earnings and profits in Hong Kong. The Inland Revenue Ordinance provides, among others, that persons, which include corporations, partnerships, trustees and bodies of persons, carrying on any trade, profession or business in Hong Kong are chargeable to tax on all profits (excluding profits arising from the sale of capital assets) arising in or derived from Hong Kong from such trade, profession or business. As at the Latest Practicable Date, the standard profits tax rate for corporations is at 16.5%. The Inland Revenue Ordinance also contains provisions relating to, among others, permissible deductions for outgoings and expenses, set-offs for losses and allowances for depreciation.

LABOUR, HEALTH AND SAFETY

Occupational Safety and Health Ordinance (Chapter 509 of the Laws of Hong Kong)

The Occupational Safety and Health Ordinance provides for the safety and health protection to employees in industrial and non-industrial workplaces.

Employers must, as far as reasonably practicable, ensure their workplaces are safe and healthy for their workers by:

Providing and maintaining plant and work systems that do not endanger safety or health;
Making arrangement for ensuring safety and health in connection with the use, handling, storage or transport of plant or substances;
Providing all necessary information, instruction, 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 work environment.

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REGULATORY OVERVIEW

Factories and Industrial Undertakings Ordinance (Chapter 59 of the Laws of Hong Kong)

The Factories and Industrial Undertakings Ordinance provides for the safety and health protection to industrial workers and applies to industrial undertakings, i.e. factories, construction sites, catering establishments, cargo and container handling undertakings, repair workshops and other industrial workplaces. Under the Factories and Industrial Undertakings Ordinance, every proprietor and person employed at industrial undertakings has general duties to ensure safety and health at work. In particular, every proprietor shall take care of the safety and health at work of all persons employed by it at an industrial undertaking by:

Providing and maintaining plant and work systems that do not endanger safety or health;
Making arrangement for ensuring safety and health in connection with the use, handling, storage and transport of articles and substances;
Providing all necessary information, instruction, training, and supervision for ensuring safety and health;
Providing and maintaining safe access to and egress from the workplace; and
Providing and maintaining a safe and healthy work environment.

Under the same ordinance, a proprietor shall only hire such person with a valid certificate in relation to the relevant industrial undertaking such person is engaged in.

Factories and Industrial Undertakings (Suspended Working Platforms) Regulation (Chapter 59AC of the Laws of Hong Kong)

Under the Factories and Industrial Undertakings (Suspended Working Platforms) Regulation, the owner, lessee, hirer or any person in charge or having the control or management of contractor (collectively the “ Owners ”) of a scaffold suspended by means of lifting gear, ropes or chains or rigid members and not provided with means of raising or lowering by a lifting appliance or similar device (“ Suspended Working Platform ”) must ensure that the Suspended Working Platform is maintained and constructed in accordance with the requirement of the regulation. The Owner shall also ensure that any person who is authorised by him to be on the Suspended Working Platform shall be a licensed operator of the Suspended Working Platform and has taken all required safety precautions when doing so.

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REGULATORY OVERVIEW

Factories and Industrial Undertakings (Confined Spaces) Regulation (Chapter 59AE of the Laws of Hong Kong)

Under the Factories and Industrial Undertakings (Confined Spaces) Regulation, the proprietor shall appoint a competent person to assess the working conditions of the confined area in which its workers are required to work at regularly and to make recommendations on measures to be taken in relation to safety and health of workers while working in that space. The proprietor shall ensure that only competent workers who hold valid certificates for working in a confined space shall enter into the confined space and that they have taken all required safety precautions when doing so.

Construction Sites (Safety) Regulations (Chapter 59I of the Laws of Hong Kong)

Any person or firm engaged in carrying out construction work by way of trade or business is required to take statutory safety measures to ensure the safety at the construction sites.

Employment Ordinance (Chapter 57 of the Laws of Hong Kong)

Pursuant to section 43C of the Employment Ordinance, if any wages become due to the employee who is employed by a sub-contractor on any work involving, inter alia, external cleaning of any building, dock or pier which the sub-contractor has contracted to perform, and such wages are not paid within the period specified in the Employment Ordinance, such wages shall be payable by the principal contractor and/or every sub-contractor jointly and severally. However, such payment of wages is recoverable from the sub-contractor pursuant to section 43F of the Employment Ordinance.

Employees’ Compensation Ordinance (Chapter 282 of the Laws of Hong Kong)

The Employees’ Compensation Ordinance imposes a statutory obligation on all employers (including contractors and subcontractors) to insure against their liabilities for the injuries of their employees at work both under the Employees’ Compensation Ordinance and at common law in respect of all their employees (including full-time and part-time employees).

Further, pursuant to section 24 of the Employees’ Compensation Ordinance, a principal contractor shall be liable to pay compensation to a sub-contractor’s employees who are injured while performing the work which the sub-contractor has contracted to perform. Yet, the principal contractor is nonetheless entitled to be indemnified by the sub-contractor if the sub-contractor would have been liable to pay compensation to the injured employee.

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REGULATORY OVERVIEW

Mandatory Provident Fund Schemes Ordinance (Chapter 485 of the Laws of Hong Kong)

Under the MPF Ordinance, an employer is required to participate in the MPF Scheme for employees employed under the jurisdiction of the Hong Kong Employment Ordinance. The MPF Scheme is a defined contribution retirement plan administered by independent trustees. Under the MPF Scheme, the employer and its employees are each required to make contributions to the fund at 5% of the employees’ relevant income, subject to a cap of monthly relevant income of HK$30,000. Contributions to the plan vest immediately.

Minimum Wage Ordinance (Chapter 608 of the Laws of Hong Kong)

The Minimum Wage Ordinance provides for a prescribed minimum hourly wage rate during the wage period for every employee engaged under a contract of employment under the Employment Ordinance. Effective from 1 May 2015, the prescribed minimum hourly rate under the Minimum Wage Ordinance is HK$32.5 per hour. Any provision of the employment contract which purports to extinguish or reduce the right, benefit or protection conferred on the employee by the Minimum Wage Ordinance is void.

ENVIRONMENTAL PROTECTION, WASTE DISPOSAL AND RECYCLE

Waste Disposal Ordinance (Chapter 354 of the Laws of Hong Kong)

The Waste Disposal Ordinance provides for:

(a) the Collection Authority to provide services for the removal and disposal of household waste, street waste, trade waste, livestock waste and animal waste;
(b) the Collection Authority to issue licence to permit any person to provide services for the collection or removal of chemical waste or clinical waste and all or any of the matters referred in Section 9 of the Waste Disposal Ordinance;
(c) the prohibition to collect, remove and dispose of chemical waste, clinical waste, household waste, street waste, trade waste, livestock waste and animal waste by any person or entities unless such person or entity is licensed by the EPD or the FEHD. Further details are set forth in the paragraphs headed “Business — Environmental compliance — Compliance with the Waste Disposal Ordinance” of this [ REDACTED ]. However, it shall not be an offence for an occupier of any building, or any person responsible for the management of any building, to remove household waste from any building if:
(i) the Collection Authority or any person holding a waste collection licence neglects or fails for a period of 48 hours to remove household waste for any building in respect of which the Collection Authority or person provides that service under the Waste Disposal Ordinance; or
(ii) no such service for the removal of household waste is provided by the Collection Authority or a person holding a waste collection licence;

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REGULATORY OVERVIEW

(iii) the prohibition on the use, or permission to be used, any land or premises for the disposal of waste unless the person has a licence from the director of EPD to use the land or premises for that purpose. This section does not apply to:
- (I) the use of land or premises for the deposit of any substance (other than chemical waste or clinical waste) which is being used in the course of agricultural or horticultural operations;
- (II) 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; and
- (III) the disposal of such wastes or classes of wastes in such circumstances as may be prescribed;
(d) the limitation on the licensing authority that a waste disposal licence in respect of chemical waste or clinical waste (as the case may be) shall not be granted unless the licensing authority is satisfied that the land or premises in respect of which the licence is sought has waste disposal facility which has the capacity to dispose of such minimum quantity of chemical waste or clinical waste (as the case may be) and within such period or is capable of disposing of chemical waste or clinical waste (as the case may be) in such other manner as may be prescribed.

Waste Disposal (Refuse Transfer Station) Regulation (Chapter 354M of the Laws of Hong Kong)

The Waste Disposal (Refuse Transfer Station) Regulation provides for the account registration and prescribed fee payment requirements for persons who dispose of waste at the refuse transfer stations.

Waste Disposal (Charges for Disposal of Construction Waste) Regulation (Chapter 354N of the Laws of Hong Kong)

The Waste Disposal (Charges for Disposal of Construction Waste) Regulation provides for the requirement that any person who disposes of construction waste shall be a holder of a valid billing account and shall pay for the prescribed fee.

Further details on compliance with the Waste Disposal Ordinance are set forth in the paragraphs headed “Business — Environmental compliance — Compliance with the Waste Disposal Ordinance” in this [ REDACTED ].

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REGULATORY OVERVIEW

Country Parks Ordinance (Chapter 208 of the Laws of Hong Kong)

Section 26 of the Country Parks Ordinance provides that the Chief Executive in Council may make regulations to provide for prohibiting or restricting the entry into, or movement within, country parks and special areas of persons, vehicles, boats and animals.

Country Parks and Special Areas Regulations (Chapter 208A of the Laws of Hong Kong)

Regulation 4 of the Country Parks and Special Areas Regulations provide that except for those ordinarily resident within country parks or special areas, or public officers on official duties within country parks or special areas, no person shall, except with the consent of the Agriculture, Fisheries and Conservation Department (“AFCD”), bring into a country park or special area any vehicle or bicycle, or drive, use or be in possession of any vehicle or bicycle within a country park or special area. Further, the Guidelines on Permit to bring vehicles into Country Parks or Special Areas issued by AFCD provides that vehicles over 5.5 tonnes are not allowed to enter country parks.

Further details on compliance with the Country Parks Ordinance and Country Parks and Special Areas Regulations are set forth in the paragraphs headed “Business — Environmental compliance — Compliance with the Country Parks Ordinance and Country Parks and Special Areas Regulations” in this [ REDACTED ].

STORAGE AND USAGE OF CHEMICAL SUBSTANCE

Dangerous Goods Ordinance (Chapter 295 of the Laws of Hong Kong)

The Dangerous Goods Ordinance controls the usage, storage, manufacturing and conveyance of the dangerous goods and sets out the relevant licensing requirements in relation to these activities.

Dangerous Goods (General) Regulations (Chapter 295B of the Laws of Hong Kong)

Certain categories and quantity of dangerous goods are exempted from the requirement for a licence for their conveyancing, storage and usage under the Dangerous Goods (General) Regulations.

Pesticides Ordinance (Chapter 133 of the Laws of the Hong Kong)

Pesticides are divided into two categories under the Pesticides Ordinance, namely registered and unregistered. The importation, manufacturing, selling, offering or exposing for sale and so on of both registered and unregistered pesticides are required to be licensed. No licence is required for the usage of registered pesticides, so long as the user is not engaged in the trade or business.

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REGULATORY OVERVIEW

TRADE MARKS

Trade Marks Ordinance (Chapter 559 of the Laws of Hong Kong)

The Trade Marks Ordinance is to provide provisions for the registration of trademarks and connected matters. Hong Kong provides territorial protection for trademarks. Therefore, trademarks registered in other countries or regions are not automatically entitled to protection in Hong Kong. In order to enjoy protection by the laws of Hong Kong, trademarks must be registered with the Trade Marks Registry of the Intellectual Property Department under the Trade Marks Ordinance and the Trade Marks Rules (Chapter 559A of the Laws of Hong Kong).

According to section 10 of the Trade Marks Ordinance, a registered trademark is a property right acquired through due registration under this ordinance. The owner of a registered trademark is entitled to the rights provided by the ordinance.

By virtue of section 14 of the Trade Marks Ordinance, the owner of a registered trademark is conferred exclusive rights in the trademark. The rights of the owner in respect of the registered trademark come into existence from the date of the registration of the trademark. According to section 48 of the Trade Marks Ordinance, the registration date is the filing date of the application for registration.

Subject to the exceptions in section 19 to section 21 of the Trade Marks Ordinance, any use of the trademark by third parties without the consent of the owner is an infringement of the trademark. Conducts that amount to infringement of the registered trademark are further specified in section 18 of the same ordinance. The owner of the registered trademark is entitled to remedies under the Trade Marks Ordinance once any infringement by third parties occurs, such as infringement proceedings provided for in section 23 and section 25 of the Trade Marks Ordinance.

Trademarks which are not registered under the Trade Marks Ordinance and the Trade Marks Rules may still obtain protection by the common law action of passing off, which requires proof of the owner’s reputation in the unregistered trademark and that use of the trademark is an act of misrepresentation by third parties and will cause the owner damage.

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HISTORY, DEVELOPMENT AND REORGANISATION

OUR HISTORY

Our Company was incorporated in the Cayman Islands under the Companies Law as an exempted company with limited liability on 12 August 2016. Since its incorporation, our Company has been an investment holding company with no business operations. Pursuant to the Reorganisation, as more particularly described in the paragraphs headed “Reorganisation” in this section, our Company has become the holding company of our Group for the purpose of the [ REDACTED ].

OUR BUSINESS DEVELOPMENT

Introduction

Our founder, executive Director, chief executive officer and chairman, Mr. Lam, established our Group in 1990 with his personal fund as he believed that the prospects of the cleaning services industry would be promising in anticipation of the trend of tightening hygiene standard. Further details on the background and relevant industry experience of Mr. Lam are set forth in the paragraphs headed “Directors and senior management — Executive Directors” in this [ REDACTED ].

With our continuous growth in business, Lapco Service and Shiny Hope were incorporated in 1999 and 2006, respectively for primarily tendering for cleaning service contracts and maintaining our Group’s waste compaction vehicles and equipments.

Since our establishment, we have expanded and diversified our business over the years. Further details on our business are set forth in the section headed “Business” in this [ REDACTED ].

Business Milestones

The following table summarises our major business milestones of development and achievements over the years.

Year	Major developments and achievements
1990	Establishment of Shiny Glory
1991	Commenced our business operations as a waste management
	service provider
1997	Expanded our business operations to provide cleaning services
	Shiny Glory obtained our first tender contract from HK
	Government for provision of cleaning services
1999	Shiny Glory obtained ISO 9002:1994 quality certification for
	quality assurance system

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HISTORY, DEVELOPMENT AND REORGANISATION

Year

Major developments and achievements

Establishment of Lapco Service

Lapco Service became an approved cleansing service contractor of a statutory body responsible for Hong Kong’s public housing

2000 Expanded our business operations to provide pest management services

2002 Shiny Glory obtained IQ NET ISO 9001:2000 quality certification for quality management system

2005 Lapco Service obtained ISO 14001:2004 quality certification for environmental management system

2006 Establishment of Shiny Hope 2007 Lapco Service obtained OHSAS 18001:2007 quality certification for Occupational Health and Safety Management System

2016 Further expanded our business operations to provide landscaping services

OUR CORPORATE HISTORY

A summary of the corporate history of our subsidiaries is set out below:

Shiny Glory

On 30 November 1990, Shiny Glory was incorporated in Hong Kong with an initial authorised share capital of HK$100,000 comprising 1,000 shares of HK$100 each, principally engaging in waste collection and waste disposal. It commenced business in 1990.

Shiny Glory is formerly known as Lux Cleaning Transport Company Limited (力士清潔服務有限公司). Its name was changed to Luxury Cleaning Services Company Limited (力仕清潔服務有限公司) on 8 November 1994. On 21 March 1995, its name was changed to Champion Cleaning Transport Company Limited (卓士清潔服務有限公司) and was further changed to Shiny Glory Services Limited (丞美服務有限公司) on 13 September 2010.

As part of the family arrangement between Mr. Lam and Ms. Wong, who cohabits with Mr. Lam as spouse, on 25 November 2010, Mr. Lam and Champion Cleaning Environmental Company Limited (卓士清潔環保有限公司), a company wholly owned by Mr. Lam for investment holding purpose, transferred five and 49,995 shares, representing the entire issued share capital in Shiny Glory, respectively to Ms. Wong. Since these transfers, Shiny Glory was wholly owned by Ms. Wong.

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HISTORY, DEVELOPMENT AND REORGANISATION

Pursuant to the Reorganisation, Shiny Glory was acquired by Sharp Idea and became an indirect wholly owned subsidiary of our Company. Further details on the Reorganisation are set forth in the paragraphs headed “Reorganisation” in this section.

Lapco Service

On 14 May 1999, Lapco Service was incorporated in Hong Kong with an authorised share capital of HK$100,000 comprising 100,000 shares of HK$1.00 each, principally engaging in provision of street sweeping and street washing. It commenced business in 1999.

Lapco Service is formerly known as Champion Cleaning Company Limited (卓士清潔有限公司) and changed its name to Lapco Service Limited (立高服務有限公司) on 14 August 2006.

Lapco Service had, since incorporation, been wholly and beneficially owned by Mr. Lam until 12 May 2007. Since then Lapco Service became wholly owned by Prime Rich, which was in turn wholly owned by Regent Comsec Limited. Regent Comsec Limited held the entire interests in Prime Rich upon trust for the benefit of Mr. Lam and his successor in title, pursuant to a declaration of trust dated 18 April 2007.

Pursuant to the Reorganisation, Lapco Service was acquired by Sharp Idea and became an indirect wholly owned subsidiary of our Company. Further details on the Reorganisation are set forth in the paragraphs headed “Reorganisation” in this section.

Shiny Hope

On 15 June 2006, Shiny Hope was incorporated in Hong Kong with an authorised share capital of HK$10,000 comprising 10,000 shares of HK$1.00 each, which holds the waste compaction vehicles and equipments for our Group. Shiny Hope was wholly owned by Ms. Wong since 15 September 2006, until 17 September 2007, whereupon Ms. Wong transferred one share, representing the entire issued share capital in Shiny Hope to Mr. Lam, as part of their family arrangement. Since then, Shiny Hope was wholly owned by Mr. Lam.

Pursuant to the Reorganisation, Shiny Hope was acquired by Sharp Idea and became an indirect wholly owned subsidiary of our Company. Further details on the Reorganisation are set forth in the paragraphs headed “Reorganisation” in this section.

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HISTORY, DEVELOPMENT AND REORGANISATION

Sharp Idea

On 1 April 2006, Sharp Idea was incorporated in the BVI with an authorised share capital of US$50,000 comprising 50,000 shares of US$1.00 each. Upon its incorporation, it was wholly owned by Champion Success, a company owned as to approximately 67% by Mr. Lam and as to approximately 33% by Ms. Wong.

As part of our Reorganisation, Sharp Idea acquired the entire issued share capital of Shiny Hope, Lapco Service and Shiny Glory, respectively on 15 April 2016 and became an intermediate holding company of our Group. On the same day, Champion Success transferred 200 shares in Sharp Idea, representing 20% of the issued share capital of Sharp Idea to Magic Pioneer for the consideration of HK$[ REDACTED ] as [ REDACTED ]. Immediately after this transfer, Sharp Idea was owned as to 20% by Magic Pioneer and 80% by Champion Success. Further details on the Reorganisation are set forth in the paragraphs headed “Reorganisation” in this section.

REORGANISATION

In January 2016, we commenced the Reorganisation in preparation for the [ REDACTED ].

The following chart sets forth our Group’s corporate and shareholding structure immediately before the Reorganisation:

==> picture [352 x 165] intentionally omitted <==

----- Start of picture text -----

Regent Comsec [(Note)]
100%
Prime Rich
Mr. Lam Ms. Wong
(HK)
100% 100% 100%
Shiny Hope Lapco Service Shiny Glory
(HK) (HK) (HK)
----- End of picture text -----

Note: Regent Comsec Limited held the entire issued share capital in Prime Rich upon trust for the benefit of Mr. Lam and his successor in title pursuant to a declaration of trust dated 18 April 2007.

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HISTORY, DEVELOPMENT AND REORGANISATION

The Reorganisation involved the following steps:

On 8 January 2016, Champion Success was incorporated in Hong Kong by GRL16 Nominee Limited as the initial subscriber. On 7 April 2016, Mr. Lam acquired one share from GRL16 Nominee Limited at a consideration of HK$1 and on the same day, one additional share was allotted and issued to each of Mr. Lam and Ms. Wong, respectively. Immediately thereafter, Champion Success was owned as to approximately 67% by Mr. Lam and as to approximately 33% by Ms. Wong.
On 1 April 2016, Sharp Idea was incorporated in the BVI with an authorised share capital of US$50,000 divided into 50,000 shares of par value of US$1 each. On 8 April 2016, 1,000 shares with par value of US$1 were allotted and issued to Champion Success.
On 15 April 2016, Ms. Wong transferred 50,000 shares in Shiny Glory, representing the entire issued share capital in Shiny Glory, to Sharp Idea at the nominal consideration of HK$1. Immediately after this transfer, Shiny Glory was owned entirely by Sharp Idea.
On 15 April 2016, Prime Rich (which was wholly owned by Regent Comsec Limited, which in turn held the entire interests in Prime Rich upon trust for the benefit of Mr. Lam and his successor in title, pursuant to a declaration of trust dated 18 April 2007) transferred 5,200,000 shares in Lapco Service, representing the entire issued share capital in Lapco Service, to Sharp Idea at the nominal consideration of HK$1. Immediately after this transfer, Lapco Service was owned entirely by Sharp Idea.
On 15 April 2016, Mr. Lam transferred one share in Shiny Hope, representing the entire issued share capital in Shiny Hope, to Sharp Idea at the nominal consideration of HK$1. Immediately after this transfer, Shiny Hope was owned entirely by Sharp Idea.
On 15 April 2016, Champion Success transferred 200 shares in Sharp Idea, representing 20% of the issued share capital in Sharp Idea to Magic Pioneer for the consideration of [ REDACTED ]. Immediately after this transfer, Sharp Idea was owned as to 20% by Magic Pioneer and 80% by Champion Success. Further details on the [ REDACTED ] are set forth in the paragraphs headed “Pre-IPO Investment” in this section.
On 8 August 2016, the Lam Family Trust was established by Mr. Lam and Ms. Wong as settlors, with Max Super acting as the trustee. The Lam Family Trust is a discretionary trust, the beneficiaries of which are Mr. Lam and Ms. Wong.

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HISTORY, DEVELOPMENT AND REORGANISATION

On 11 August 2016, Gold Cavaliers was incorporated in the BVI with an authorised share capital of US$50,000 consisting of 50,000 ordinary shares with par value of US$1 each and on its incorporation 7,867 shares were allotted and issued to Champion Success at par and 2,133 shares were allotted and issued to Magic Pioneer at par.
On 11 August 2016, Profound Wellness was incorporated in the BVI with an authorised share capital of US$50,000 consisting of 50,000 ordinary shares with par value of US$1 and on its incorporation two shares were allotted and issued to Mr. Lam and one share was allotted and issued to Ms. Wong. Profound Wellness will serve as the [ REDACTED ] under the [ REDACTED ]. Further details on the [ REDACTED ] are set forth in the paragraphs headed “Other information — 16. Particulars of the [ REDACTED ]” in Appendix IV to this [ REDACTED ].
On 12 August 2016, our Company was incorporated in the Cayman Islands with an authorised capital of HK$[ REDACTED ] divided into [ REDACTED ] Shares of HK$[ REDACTED ] each and on its incorporation one nil paid Share was allotted and issued to the subscriber, an Independent Third Party, and subsequently transferred to Gold Cavaliers.
On [●] 2017, pursuant to the share swap agreement entered into amongst Champion Success, Magic Pioneer and our Company, Champion Success and Magic Pioneer transferred 800 and 200 shares in Sharp Idea, respectively held by them, together representing the entire issued share capital of Sharp Idea, to our Company. In exchange therefor, our Company, at the direction of Champion Success and Magic Pioneer, credited as fully paid the one nil paid Share in our Company held by Gold Cavaliers, issued 299 and 20 fully paid Shares, respectively to Gold Cavaliers and Profound Wellness. Immediately after this share swap, our Company was owned as to approximately 93.75% (300 Shares) by Gold Cavaliers and as to approximately 6.25% (20 Shares) by Profound Wellness.
On [●] 2017, Champion Success transferred all the issued shares held by it in Gold Cavaliers by way of gift to Max Super as the trustee of the Lam Family Trust.

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HISTORY, DEVELOPMENT AND REORGANISATION

On [●] 2017, we completed all steps of the Reorganisation. Our Directors confirm that no regulatory approval for the Reorganisation is required. The following chart sets forth our Group’s corporate and shareholding structure immediately after the Reorganisation, but before the completion of the [ REDACTED ] and the [ REDACTED ]:

==> picture [420 x 345] intentionally omitted <==

----- Start of picture text -----

Magic Pioneer
Lam Family Trust Mr. Lam Ms. Wong
(BVI)
78.67% 21.33% 66.7% 33.3%
Gold Cavaliers Profound Wellness
(BVI) (BVI)
93.75% 6.25%
Company
(Cayman Islands)
100%
Sharp Idea
(BVI)
100% 100% 100%
Shiny Glory Lapco Service Shiny Hope
(HK) (HK) (HK)
----- End of picture text -----

[ REDACTED ] AND [ REDACTED ]

Conditional upon the crediting of our Company’s share premium account as a result of the issue of the [ REDACTED ] pursuant to the [ REDACTED ], our Directors are authorised to capitalise an amount of HK$[ REDACTED ] standing to the credit of the share premium account of our Company by applying such sum towards paying up in full at par a total of [ REDACTED ] Shares for allotment and issue to Gold Cavaliers and Profound Wellness on a pro rata basis.

As part of the [ REDACTED ], the [ REDACTED ] (i.e. Profound Wellness) will offer [ REDACTED ] for sale. Further details on the sale of the [ REDACTED ] by the [ REDACTED ] are set forth in the paragraphs headed “Other information — 16. Particulars of the [ REDACTED ]” in Appendix IV to this [ REDACTED ].

Under the [ REDACTED ], our Company will offer [ REDACTED ], which, together with the [ REDACTED ] offered by the [ REDACTED ], represent the [ REDACTED ] and [ REDACTED ] of total issued share capital of our Company as enlarged by the Shares offered under the [ REDACTED ], for subscription by the professional, institutional and other investors.

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HISTORY, DEVELOPMENT AND REORGANISATION

Under the [ REDACTED ], our Company will offer [ REDACTED ], representing approximately [ REDACTED ] of the issue share capital of our Company as enlarged by the Shares offered under the [ REDACTED ], for subscription by members of the public in Hong Kong.

The following chart sets forth our Group’s corporate and shareholding structure upon completion of the [ REDACTED ] and the [ REDACTED ] (without taking into account any Shares which may be allotted and issued upon the exercise of the [ REDACTED ]):

==> picture [426 x 477] intentionally omitted <==

----- Start of picture text -----

Tam Wai Tong Tam Wai Ho
[ REDACTED ] [ REDACTED ]
TTNB Profit Kiteway Assets
Choi Chung Yin Limited Limited
(BVI) (BVI)
[ REDACTED ] [ REDACTED ]
[ REDACTED ]
Croydon Capital Earnmill Holdings
Xiong Jianrui Advisors Limited Limited
(BVI) (BVI)
[ REDACTED ] [ REDACTED ] [ REDACTED ]
Magic Pioneer
Lam Family Trust
(BVI)
[ REDACTED ] [ REDACTED ]
Gold Cavaliers
Public
(BVI)
[ REDACTED ] [ REDACTED ]
Company
(Cayman Islands)
100%
Sharp Idea
(BVI)
100% 100% 100%
Shiny Glory Lapco Service Shiny Hope
(HK) (HK) (HK)
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HISTORY, DEVELOPMENT AND REORGANISATION

The Lam Family Trust was established by Mr. Lam and Ms. Wong as settlors, with Max Super acting as the trustee. The Lam Family Trust is a discretionary trust with Mr. Lam and Ms. Wong as beneficiaries.

[ REDACTED ]

On 15 April 2016, Champion Success transferred 200 shares in Sharp Idea, representing [ REDACTED ] of the issued share capital of Sharp Idea to Magic Pioneer for the consideration of HK$[ REDACTED ], which was determined with reference to the net asset value of Shiny Glory, Lapco Service and Shiny Hope and irrevocably settled and paid in full on 15 April 2016.

Subsequently, pursuant to the share swap agreement dated [●] and entered into amongst Champion Success, Magic Pioneer and our Company, Champion Success and Magic Pioneer transferred 800 and 200 shares in Sharp Idea, respectively held by them, representing the entire issued share capital of Sharp Idea, to our Company. In exchange therefor, our Company, at the direction of Champion Success and Magic Pioneer, credited the one nil paid Share held by Gold Cavaliers as fully paid and further issued 299 fully paid Shares to Gold Cavaliers. Upon completion of the [ REDACTED ] and the [ REDACTED ] (without taking into account any Shares which may be allotted and issued upon the exercise of the [ REDACTED ]), [ REDACTED ] Shares will be owned by Gold Cavaliers and accordingly, Magic Pioneer, through its approximately 21.33% interests in Gold Cavaliers, will be indirectly interested in approximately [ REDACTED ] of the entire issued share capital of our Company.

The table below sets forth details of the [ REDACTED ] made by Magic Pioneer.

Consideration paid HK$[ REDACTED ] Basis of determining the Net asset value of Shiny Glory, Lapco Service consideration and Shiny Hope Payment date of consideration 15 April 2016 Number of shares in Sharp Idea 200 acquired from Champion Success Number of Shares held upon [ REDACTED ] Shares, through Gold Cavaliers [ REDACTED ] (Magic Pioneer is interested in 2,133 Shares in Gold Cavaliers, representing approximately 21.33% of the entire issued share capital in Gold Cavaliers)

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HISTORY, DEVELOPMENT AND REORGANISATION

Investment cost paid per Share On the basis that Magic Pioneer is, indirectly upon [ REDACTED ] though Gold Cavaliers, interested in [ REDACTED ] Shares (representing an effective interest of approximately [ REDACTED ] in our Company upon the completion of the [ REDACTED ]), the cost for each Share is approximately [ REDACTED ].

[ REDACTED ]

Appropriate percentage of Effective interest of approximately shareholding held in our [ REDACTED ] through Gold Cavaliers Company upon [ REDACTED ]

Use of proceeds

Personal use of Mr. Lam

Strategic benefit to our To our best, knowledge and belief, Magic Company Pioneer invests in companies with potentials, as such, we believe they could provide us with valuable advice on finance and investment in the future.

Special rights Not entitled to any special rights

Lock-up period Magic Pioneer and each of its ultimate beneficial owners, namely Mr. Xiong Jianrui, Mr. Choi Chung Yin, Mr. Tam Wai Tong and Mr. Tam Wai Ho, have undertaken to our Company for a period of 12 months from the [ REDACTED ] not to dispose of (save pursuant to a pledge or charge as security for a bona fide commercial loan) any Shares or shares in any company controlled by them, respectively, which owns any of our Shares.

Relationship with our Company Except for its approximately [ REDACTED ] interest in Gold Cavaliers and the interest in Magic Pioneer of Mr. Choi Chung Yin, our non-executive Director, as disclosed in the paragraphs headed “Brief description of Magic Pioneer” below, Magic Pioneer has no other relationship with our Company or any of the connected persons of our Company.

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HISTORY, DEVELOPMENT AND REORGANISATION

Public Float

The approximately [ REDACTED ] indirect interests in our Company held through Gold Cavaliers, by Magic Pioneer will not be counted towards the public float for the purpose of Rule 8.24 of the GEM Listing Rules since Gold Cavaliers is a core connected person of our Company.

Our Directors confirm that the [ REDACTED ] has been legally completed and settled; and no regulatory approval for the [ REDACTED ] is required.

Brief description of Magic Pioneer

Magic Pioneer Limited is an investment holding company incorporated in the BVI on 31 January 2000 with limited liability, which is owned as to [ REDACTED ] by Earnmill Holdings Limited, as to [ REDACTED ] by Croydon Capital Advisors Limited and as to [ REDACTED ] by Xiong Jianrui.

Croydon Capital Advisors Limited is [ REDACTED ] owned by Mr. Choi Chung Yin, our non-executive Director.

Earnmill Holdings Limited is [ REDACTED ] owned by TTNB Profit Limited, which is in turn [ REDACTED ] owned by Mr. Tam Wai Tong, and Kiteway Assets Limited, which is in turn [ REDACTED ] owned by Mr. Tam Wai Ho.

Confirmation from the Sole Sponsor

The Sole Sponsor confirms that the [ REDACTED ] is in compliance with the Interim Guidance on [ REDACTED ] issued on 13 October 2010 by the Stock Exchange, the Guidance Letter HKEx-GL-43-12 issued in October 2012 and updated in July 2013 and March 2017 by the Stock Exchange and the Guidance Letter HKEx-GL44-12 issued in October 2012 and updated in March 2017 by the Stock Exchange.

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BUSINESS

OVERVIEW

Our environmental hygiene services cover four types, namely (a) cleaning services; (b) pest management services; (c) waste management and recycling services; and (d) landscaping services. Our history dates back to 1990, when one of our operating subsidiaries, Shiny Glory, was incorporated, giving us a track record of over 25 years as an environmental hygiene service provider. We commenced our business operations as a waste management service provider. Seeing the demand for more diversified types of environmental hygiene services, we have expanded our business operations to provide cleaning services and pest management services since 1998 and 2000, respectively. We then further expanded our environmental hygiene services to provide landscaping services in March 2016.

We provide our environmental hygiene services to a wide range of venues including streets, cultural, leisure and recreational premises, residential premises, commercial buildings, markets, restaurants and academic institutions, etc. Our major customers during the Track Record Period include various departments of the HK Government, property management companies and other corporations in the private sector. During the two years ended 31 December 2016, we generated total revenue of approximately HK$363.5 million and HK$404.1 million, respectively, while our net profit amounted to approximately HK$15.1 million and HK$8.8 million, respectively.

According to Frost & Sullivan, the environmental hygiene service industry in Hong Kong has strong growth potentials. The market drivers include, mainly (a) increasing awareness on public hygiene due to large-scale disease outbreaks in the past; (b) HK Government’s regulations on environmental hygiene; and (c) increasing number of various types of buildings and venues. Further details are set forth in the section headed “Industry overview” in this [ REDACTED ]. With a proven track record of over 25 years as an environmental hygiene service provider, our Directors believe that we are well-positioned to capture the growing demand for environmental hygiene services in Hong Kong.

COMPETITIVE STRENGTHS

Our competitive strengths are key factors contributing to our success to date. Our Directors believe that the following competitive strengths will continue to enhance our presence and increase our market share in the environmental hygiene service industry:

Well-established presence in the environmental hygiene service industry in Hong Kong

We are an established and one-stop environmental hygiene service provider based in Hong Kong. According to Frost & Sullivan, we ranked the ninth in 2015 among

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BUSINESS

environmental hygiene service providers in Hong Kong and had 3.2% of market share in terms of revenue generated. According to the F&S Report, the total contract sum of street cleaning service contract awarded by our largest customer, being a department of the HK Government responsible for food and environmental hygiene, reached HK$922.6 million in 2016 and was shared by only five service providers, among which we ranked the second in terms of the contract sum of HK$132.2 million awarded to us. Driven by the increasing public awareness of environmental hygiene due to outbreaks of past diseases and the rising number of both commercial and residential buildings, the market size of the environmental hygiene service industry in Hong Kong is expected to further grow from HK$13,564.1 million in 2016 to HK$18,096.5 million in 2020, representing a CAGR of 7.5% from 2016 to 2020, according to Frost & Sullivan. With over 25 years of experience in the environmental hygiene service industry, our Directors believe that we have established a market reputation in offering high quality environmental hygiene services and are well-positioned to capture the growing demand for environmental hygiene services.

We have established business relationships with public sector customers

Our business relationship with the public sector has thrived since our first successful tender with the HK Government in 1997. We have since 1998 become an approved supplier of among others, public cleaning and waste collection, cleaning of premises and hygienic services for toilet and other facilities under the list of supplier of goods and services maintained by the predecessor government department of FEHD and LCSD. Further, we have since 1999 and 2005, respectively, become an approved supplier/contractors of cleaning services under the lists of supplier/contractors approved by a department of the HK Government responsible for provision of suitable government accommodation to civil servants and a department of the HK Government responsible for combating crimes. Our Directors believe that the inclusion of our Group in these approved lists is a recognition of the quality of service we provide as we demonstrate our abilities in offering competitive tenders and maintaining satisfactory performance in connection with the service contracts awarded to us in order to continue staying on these approved lists. As at the Latest Practicable Date, we had over 18 years of business relationship with our largest customer during the Track Record Period.

For the two years ended 31 December 2016, revenue generated from public sector customers were approximately HK$341.7 million and HK$382.4 million, representing approximately 94.0% and 94.6% of our total revenue for the same period. We believe our established business relationships with the public sector customers render us less susceptible to changing economic conditions and reduce our exposure to credit risk. As such, we were able to generate a stable flow of revenue and cash from our solid customer base during the Track Record Period.

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BUSINESS

We have a proven track record in providing comprehensive and high quality environmental hygiene services to our customers

We recognise the importance of addressing the overall needs of our customers. As some of our customers often require more than one types of the environmental hygiene services provided by us, our Directors consider that our ability in offering a comprehensive range of environmental hygiene services could save our customers’ time and costs from engaging different service providers for different types of services they need. For instance, during the Track Record Period, we provided three out of our four types of our environmental hygiene services to our largest and second largest customers. Further details on our top customers are set forth in the paragraphs headed “Customers — Top customers” in this section. Our Directors believe that our ability in offering one-stop environmental hygiene services will also enable us to secure new customers more easily through our cross-selling efforts.

We devote substantial efforts to ensure the quality of our environmental hygiene services. We adopt ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007 as standards for our quality management, environmental management and occupational health and safety management systems, respectively. Further details are set forth in the paragraphs headed “Quality control” in this section.

We have an experienced management team and substantial operational resources

We are led by, among others, Mr. Lam, our founder, chairman, executive Director, chief executive officer, and Ms. Wong, a member of our senior management, who have over 25 and 24 years of experience in the environmental hygiene service industry, respectively. Further details on our Directors and senior management are set forth in the section headed “Directors and senior management” in this [ REDACTED ]. We believe that the extensive experience of our management team and their in-depth understanding of the industry enable us to understand the needs of our customers and ensure the quality of our service.

As at 28 February 2017, we employed 2,365 employees (including full-time and part-time). As at 31 December 2016, we owned a fleet of 161 vehicles to support our daily operation. A majority of our vehicles are equipped with GPS through which we can track the location of our vehicles and drivers instantly and allocate our operational resources more efficiently. A number of our employees hold certifications required in our operation. We also arrange our employees to attend training courses on job safety and job specific skills from time to time. Further details are set forth in the paragraphs headed “Employees, staff training and development” in this section. Our specialised vehicles and equipment include street washing vehicles, mechanical street sweeping vehicles, waste compaction vehicles, tipper lorries, hot water high pressure cleaners, cold water high pressure cleaners and wet and dry vacuum cleaners. Further details are set forth in the paragraphs headed “Major assets and equipment” in this section. Our substantial resources allow us to cater for our customers’ demand flexibly and efficiently.

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BUSINESS

BUSINESS STRATEGIES AND FUTURE PLANS

Expand our operational resources to strengthen our established presence in the environmental hygiene service industry in Hong Kong

The delivery of our environmental hygiene services requires substantial operational resources. In particular, we deploy different types of vehicles and equipment in performing our cleaning services and waste management and recycling services.

As at the Latest Practicable Date, we had 23 waste compaction vehicles, all of which are fully utilised for performing on our waste management and recycling service contracts on hand. In particular, we were awarded two five-year waste management and recycling service contracts in Mongkok and certain selected refuse collection points in different districts in Hong Kong by our largest customer in February 2017, with total contract sum of HK$53.0 million and HK$72.6 million, respectively. We have also submitted and intend to submit tenders for four other waste management and recycling service contracts in different districts of Hong Kong with contractual terms commencing from 2017 to 2022 or from 2018 to 2023. Ten of our existing waste management and recycling service contracts entered into with the HK Government with terms ranging from two years to five years and individual contract sum up to HK$390.8 million will expire in 2017 to 2019 and 2021 and 2022. We intend to submit tenders for renewal of these contracts upon their expiry. We have also received eight invitations for tender/quotation for provision of waste management and recycling services to shopping malls or residential premises. Taking into account the above, we plan to purchase four additional waste compaction vehicles to increase our service capacity and accommodate our business growth.

We also intend to purchase three additional grab lorries and three additional street washing vehicles complying with Euro 5 emission standards with lower emissions and higher fuel efficiency compared to our existing vehicles. As at the Latest Practicable Date, we had 14 grab lorries and 20 street washing vehicles. As disclosed in the paragraphs headed “Major assets and equipment” in this section, some of our grab lorries and street washing vehicles have long years of service and will need to be replaced.

As of the Latest Practicable Date, we had 16 mobile refuse compactors. We intend to purchase three additional mobile refuse compactors. We had received an invitation for tender/quotation for provision of waste management and recycling services to a commercial complex which requires additional mobile refuse compactors. Our Directors believe that the purchase of additional mobile refuse compactors would enable us to secure new contracts for provision of waste management and recycling services from private sector customers.

Furthermore, we plan to strengthen our manpower by hiring additional staff including an operation manager and an assistant marketing manager. As at 28 February 2017, we had two operation managers who are responsible for providing supervision to

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BUSINESS

our supervisors and foremen to improve the overall project management and quality control of our services in respect of our 51 contracts on hand as at the Latest Practicable Date. We intend to hire an additional operation manager with at least five to 10 years of relevant experience to ease the workload of our existing two operation managers and achieve better overall project management. As at the Latest Practicable Date, we have one senior marketing manager, being Mr. Wong Tsz Chun, Jacky, our executive Director, who is responsible for providing supervision to the marketing department, which had five members as at 28 February 2017, in respect of the preparation of tenders and quotations. During the two years ended 31 December 2016, we submitted 187 and 181 tenders/quotations, respectively. The submission of tenders and quotations to our customers requires a lot of preparation work including but not limited to analysis on cost of services and planning on resources allocation. Further details are set forth in the paragraphs headed “Operations — Tender and quotation preparation” in this section. The preparation of tenders and quotations is performed by our marketing department. At times, we may not be able to submit tenders or quotations even though we were aware of the business opportunities as we did not have enough manpower to do so. We intend to submit more tenders/quotations going forward as our Directors believe that this would enable us to secure more contracts and enhance our tender/quotation success rate. We plan to hire an assistant marketing manager with at least three to five years of relevant experience who will be responsible for assisting our senior marketing manager in preparing tenders and quotations and soliciting new customers from the private sector through promoting our services to our target customers.

We intend to utilise approximately HK$[ REDACTED ] or [ REDACTED ] of the net [ REDACTED ] from the [ REDACTED ] on acquiring vehicles, approximately HK$[ REDACTED ] or [ REDACTED ] of the net proceeds from the [ REDACTED ] on acquiring equipment and approximately HK$[ REDACTED ] or [ REDACTED ] of the net proceeds from the [ REDACTED ] on hiring additional manpower.

Enhance the information technology application system to enhance operational efficiency

With our continuous growth in our scale of operations, we plan to invest in the enterprise resource planning system, which would help us collectively analyse information and records of our human resources and finance system. The enterprise resource planning system would enhance our overall operational efficiency by replacing our existing manual record keeping procedures on our employee attendance record and personal information files, etc. Given our large number of employees, our Directors consider that the enterprise resource planning system, which could provide a consolidated record of our employee attendance record, would enable us to efficiently monitor the allocation of our human resources and streamline our salary calculation and payment procedures. We would also need to upgrade our network backbone and hardware to build a more robust and reliable information technology system. Our Directors believe that through the continuous upgrading and maintenance of the information technology system, our Group will be able to improve our operational efficiency, reduce our administrative costs and provide better support to environmental hygiene services in the long run.

We intend to utilise approximately HK$[ REDACTED ] or [ REDACTED ] of the net [ REDACTED ] from the [ REDACTED ] on enhancing information technology applications.

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BUSINESS

Expand our presence in the private sector to diversify our customer base

Our Directors believe that having a larger customer base is crucial to our long-term growth and is likely to alleviate our Group from the risks associated with customer concentration. Historically, we have put more focus on our public sector customers, which is evident from the higher tender success rate of the public sector compared to that of the private sector during the Track Record Period. Further details are set forth in the paragraphs headed “Operations — Tender and quotation preparation” in this section. Given that the market size of the environmental hygiene service industry in Hong Kong is expected to further grow from HK$13,564.1 million to HK$18,096.5 million in 2020, representing a CAGR of 7.5% from 2016 to 2020, our Directors intend to expand our marketing department to capture the growing demand for environmental hygiene services. As mentioned above, we intend to submit more tenders/quotations. In particular, we intend to expand our presence in the private sector. We plan to hire an assistant marketing manager who will be responsible for soliciting new customers from the private sector through promoting our services to our target customers. Through our communications with potential private sector customers, we will become aware of more tenders/quotation opportunities and our marketing team can prepare for such tenders/quotation accordingly. As mentioned above, we would also purchase additional equipment to accommodate the expected increase in number of customers or contracts from the private sector. Our Directors believe this is part of our strategy in reducing our level of reliance on our largest customer and diversifying our customer base.

We intend to utilise approximately HK$[ REDACTED ] or [ REDACTED ] of the net proceeds from the [ REDACTED ] on hiring additional manpower including an assistant marketing manager.

REASONS AND BENEFITS OF [ REDACTED ] ON GEM

Our Directors believe that the [ REDACTED ] is beneficial to our Group in the long run due to the following reasons:

Proceeds from [ REDACTED ] to finance our expansion plan

Our Directors firmly believe that it is necessary for our Group, after over two decades of business operations, to have our own equity financing platform for our further business development. The [ REDACTED ] represents the first step of this effort to have a direct access to the equity capital markets. For the [ REDACTED ] from the [ REDACTED ], as disclosed in the paragraphs headed “Business strategies and future plans” in this section and the section headed “Future plans and use of proceeds” in this [ REDACTED ], they will mainly be used for expanding our operational resources and financing our working capital up to 31 December 2019. The above expansion plan will be entirely financed by the net [ REDACTED ] from the [ REDACTED ].

Future access to capital raising platform

With the [ REDACTED ] status on the Stock Exchange, we will have the opportunity to access to additional equity financing with minimum additional finance costs. Our

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BUSINESS

Directors also expect that we would be able to negotiate with banks for better terms of financing to implement our future business plans following the [ REDACTED ] with financial and operational transparency as a listed company. Although the amount of the [ REDACTED ] represents a significant proportion of the net proceeds from the [ REDACTED ], these are non-recurring costs that our Group would not have to pay following completion of the [ REDACTED ]. The [ REDACTED ] will therefore be advantageous to our Group not only on the [ REDACTED ] that could be raised through the [ REDACTED ] upon [ REDACTED ], but also on the fund raising opportunities that may be available to our Group subsequent to the [ REDACTED ].

Equity fund raising without increasing our gearing ratio

During the Track Record Period, we utilised our banking facilities, internal financial resources and amount due to related parties to finance our business operations. Our cash and cash equivalent amounted to approximately HK$15.4 million and HK$4.6 million as at 31 December 2015 and 31 December 2016. Our net current assets amounted to approximately HK$4.8 million and HK$5.6 million as at 31 December 2015 and 31 December 2016.

We intend to continue to operate our business at gearing ratio comparable to our past gearing ratio during the Track Record Period. Although we may finance our expansion plan by banking facilities or internal financial resources alternative to the [ REDACTED ], our Directors believe that the above two funding options are not mutually exclusive. Our finance costs amounted to approximately HK$3.5 million and HK$3.6 million for the two years ended 31 December 2016. The interest rate for debt financing, i.e. the finance costs, is expected to soar in the medium term as a result of the anticipated increases in the U.S. interest rates. Our Directors are of the view that the [ REDACTED ] could enhance our healthy liquidity position without increasing our gearing ratio.

A public [ REDACTED ] status will enhance our corporate profile

The [ REDACTED ] will also enhance our corporate profile among our customers, suppliers and other business partners, as well as our ability to recruit, motivate and retain key management personnel. Our Directors are aware that over the past few years, some of the established environmental hygiene service providers have become listed companies on the Stock Exchange. Our Directors believe that the [ REDACTED ] will allow us to enhance our competitiveness against our competitors as our customers may prefer to engage a service provider which is a listed company with higher corporate profile and credibility, sound internal and corporate governance practice and regulatory supervision. We will therefore be in a better position to attract more potential customers and solicit more and large-scale businesses upon the [ REDACTED ].

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BUSINESS

OUR SERVICES

During the Track Record Period, majority of our revenue was derived from contracts with fixed contractual term. The following table sets forth a breakdown of our revenue and service contracts by business segments during the Track Record Period:

Cleaning services – Street cleaning services_(Note 1) – Cultural, leisure and recreational premises cleaning services – Residential premises cleaning services – Other cleaning services(Note 2)_ Subtotal Pest management services Waste management and recycling services Landscaping services Total	HK$’000 239,030 44,461 15,464 6,444 305,399 43,346 14,722 – 363,467	For the year ended 31 December 2015 2016 Number of contracts per- formed % HK$’000 Number of contracts per- formed 16 65.8 259,894 18 2 12.2 59,237 4 8 4.2 16,131 8 27 1.8 8,720 26 53 84.0 343,982 56 6 11.9 31,552 3 20 4.1 27,870 21 0 – 720 1 79 100.0 404,124 81	% 64.3 14.6 4.0 2.2
			85.1
			7.8 6.9 0.2
			100.0

Notes:

Street cleaning services include cleaning services for streets and markets.
Other cleaning services include commercial cleaning services for commercial buildings and academic institutions, etc.

Cleaning services

Our cleaning segment forms our core service. We provide cleaning services mainly in streets, cultural, leisure and recreational premises and residential premises. Most of our contracts for street cleaning services and cultural, leisure and recreational premises cleaning services are tender contracts entered into with the HK Government, whereas our contracts for residential premises (including public housing estates and private residential premises) cleaning services are entered into with both the HK Government and private sector customers such as property management companies. The duration of our cleaning service contracts generally ranges from one to five years.

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BUSINESS

A large portion of our revenue during the Track Record Period was generated from street cleaning service contracts with the HK Government that we obtained from open tenders. We are an established and one-stop environmental hygiene service provider based in Hong Kong. According to Frost & Sullivan, we ranked the ninth in 2015 among environmental hygiene service providers in Hong Kong and had 3.2% of market share in terms of revenue generated. According to the F&S Report, the total contract sum of street cleaning service contract awarded by our largest customer, being a department of the HK Government responsible for food and environmental hygiene, reached HK$922.6 million in 2016 and was shared by only five service providers, among which we ranked the second in terms of the contract sum of HK$132.2 million awarded to us. During the Track Record Period, we provided street cleaning services in different districts across Hong Kong Island, Kowloon and the New Territories. We pride ourselves in our ability to win tenders for street cleaning services from the HK Government.

The scope of our cleaning services includes street sweeping, street and market washing, emptying and cleaning/washing of litter container, cleaning and performing attendant duties to public toilets including replenishment of consumable items and minor maintenance and repair, cleaning for designated sites such as refuse collection points, polishing and waxing of floor and cleaning of curtain walls and windows. In accordance with our cleaning service contract, we are required to provide the specified type of cleaning services at a pre-defined time interval (e.g. daily, weekly, monthly, etc.) for designated areas (e.g. refuse collection sites, escalators, corridors, etc.) by employing the specified type and number of vehicles and cleaning equipment and the required number of workers during the work shift specified.

We deploy specialised vehicles and mechanical cleaning equipment when providing cleaning services including street washing vehicles, mechanical street sweeping vehicles, tipper lorries, grab lorries, hot water high pressure cleaners, cold water high pressure cleaners, walk behind scrubbers, wet and dry vacuum cleaners and electricity generators. Further details on the vehicles and equipment are set forth in the paragraphs headed “Major assets and equipment” in this section.

As at 28 February 2017, we had 2,019 employees (including full-time and part-time) in our operation team providing cleaning services to our customers.

Pest Management services

During the Track Record Period, all of our pest management service contracts were entered into with the HK Government. The duration of our pest management service contracts entered into with the HK Government ranges from 24 months to 30 months. During the Track Record Period, we provided pest management services primarily in different districts in Hong Kong such as Kwai Ching District, Sha Tin District, Tsuen Wan District and Wan Chai District.

Our pest management services aim to eradicate harmful pests while taking into account the basic principles of public health and environmental protection. The scope of our pest management services includes mosquito control, rodent control and other pest control through spraying or fogging pesticides, trapping of pests and installation of rat

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baits. We are also responsible for disposal of dead rodents and waste arising from performance of our pest management services. We are required to comply with the staff, vehicle and equipment requirements as stipulated in our pest management service contracts.

As at 28 February 2017, we had 193 employees (including full-time and part-time) in our operation team providing pest management services to our customers.

Waste management and recycling services

We provide waste management and recycling services to customers in both the public and private sector. The duration of our waste management and recycling service contracts ranges from 12 months to 60 months. We provide waste management and recycling services in different districts within Hong Kong such as outlying islands and Lap Sap Wan, special sites/area, residential premises and hotels, restaurants, wholesale markets and charitable organisations etc. The types of waste that we handle generally include street waste, household waste and industrial waste.

We provide one-stop waste management and recycling solutions to our customers which involve collection, transportation, disposal and in certain cases, the transportation of different types of recyclables including glass bottle, electrical and electronic equipment, paper, plastics and metals to various transfer facilities.

We deploy specialised vehicles and mechanical equipment when providing waste management and recycling services including waste compaction vehicles, tipper lorries and hook-lift trucks and grab lorries. Further details on the vehicles and equipment are set out in the paragraphs headed “Major assets and equipment” in this section.

The Waste Disposal Ordinance prohibits the collection, removal and disposal of waste by any person if the EPD or the FEHD has already provided such services at the location unless such person is licenced by the EPD or the FEHD. We collect waste from waste collection points at our customers’ location and transport them to government designated waste disposal facilities only if neither the FEHD nor the EPD provides the same service at the same location. Pursuant to a confirmation letter dated 20 September 2016, the FEHD has confirmed that they had not established any licensing mechanism system for the provision of waste collection and disposal services and as advised by our Hong Kong Legal Counsel, we are in compliance with the Waste Disposal Ordinance notwithstanding the fact that we provide waste management and disposal services without obtaining a licence. Further details are set forth in the paragraphs headed “Environmental compliance — Compliance with the Waste Disposal Ordinance” in this section.

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As at 28 February 2017, we had 110 employees (including full-time and part-time) in our operation team providing waste management and recycling services to our customers.

Landscaping services

We commenced our landscaping services in March 2016 by obtaining our first landscaping services contract from the HK Government with a duration of two years. The scope of our landscaping services cover undergrowth cutting services in six districts of Hong Kong. As at the Latest Practicable Date, we had only entered into one service contract for provision of landscaping services to a department of the HK Government.

As at 28 February 2017, we had three employees (including full-time and part-time) in our operation team providing landscaping services under our landscaping contract.

OPERATIONS

We either obtain contracts through tendering or enter into contracts directly with our customers after providing our quotations. A significant portion of our revenue during the Track Record Period is attributable to contracts obtained through tendering as most of our service contracts are entered into with the HK Government and hence obtained through tendering. Our service contracts entered into with private sector customers are obtained through both tendering and providing quotations. The following table sets forth the breakdown of revenue by contract types:

Tender contracts Quotations Total	For the year ended 31 December 2015 2016 HK$’000 % HK$’000 % 359,952 99.0 401,067 99.2 3,515 1.0 3,057 0.8 363,467 100.0 404,124 100.0	For the year ended 31 December 2015 2016 HK$’000 % HK$’000 % 359,952 99.0 401,067 99.2 3,515 1.0 3,057 0.8 363,467 100.0 404,124 100.0
		100.0

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The following flowchart illustrates our general tendering work flow:

==> picture [424 x 569] intentionally omitted <==

----- Start of picture text -----

Tender (a) Monitor tender notices from websites of the
and HK Government and our private sector customers
quotation (b) Receipt of tender or quotation invitations from
preparation our potential customers
Assessment of the requirement of
the tenders or quotations
Attend briefing session in cases of tenders
(approximately one day)
Preparation of tender or quotation documents
(approximately one to two months)
Assessment by customers and formal notification of
tender or quotation acceptance
(approximately one to two months)
Contract
performance
Provision of performance Procurement of
guarantee in favour of vehicles, equipment and
customer if required materials where necessary
(within 14 days) (approximately one month)
Delivery of services
Regular quality assurance
Customer feedback
----- End of picture text -----

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Tender and quotation preparation

We regularly monitor tender notices from websites of the HK Government and our private sector customers. We also regularly receive tender or quotation invitations from our potential customers. Our marketing department is responsible for assessment and preparation of tenders and quotations. When we receive a tender or quotation invitation, our marketing department will first make a preliminary assessment of the requirements of the tender or quotation and prepare a summary setting out details of the project including the name of the potential customer, service location, scope of services, staff and other resources requirement and other specific requirements of the potential customers. Based on this assessment, our management team would decide whether to bid for the tenders or provide quotations in response to potential customers’ requests.

In preparing for the terms of our tenders and quotations, we take into account a number of factors such as (a) our relationship with the customer; (b) the prevailing market rates; (c) our available resources and needs for procurement of additional resources including vehicles, equipment, materials and manpower; (d) our available banking facilities for provision of performance guarantee; (e) the cost and potential increase in costs within the contractual term (including the potential effect of the statutory minimum wage requirements in particular); (f) the need for taking out insurance policies; (g) the competition within the industry; and (h) the expected profit margin. Generally, the tenders to be submitted with the HK Government require more detailed documentation such as (a) detailed work plan; (b) management plan; (c) quality assurance plan; and (d) contingency plan. To maintain the quality of our services, we have an internal procedure for selecting suppliers as set out in the paragraphs headed “Suppliers and subcontractors — Criteria for selecting suppliers” in this section. Upon approval by our management team, we would proceed to submit our tenders or quotations to our potential customers for assessment.

If we are awarded the tenders or our customers agree on the quotation we provided, we will be granted a letter of acceptance and/or enter into a formal contract with our customers. Further details on the general terms of contracts with our customers are set out in the paragraphs headed “Customers — General terms of contracts with our customers” in this section.

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The following tables set forth the number of tenders/quotations submitted and the number of tenders/quotations awarded to us during the Track Record Period for each of the public and private sectors:

Public sector

Number of tenders/quotations submitted Number of tenders/quotations awarded to us (Note) – Number of new contracts awarded to us – Number of contracts successfully renewed Total Tender/quotation success rate	For the year ended 31 December 2015 2016 62 61 12 13 3 2 15 15 24.2% 24.6%	For the year ended 31 December 2015 2016 62 61 12 13 3 2 15 15 24.2% 24.6%

		24.6%

Note: The number of tenders/quotations awarded to us during the respective year is different from the number of contracts performed during the respective year because (a) certain tenders/quotations performed during the respective year were not awarded to us during the respective year; and (b) certain tenders/quotations awarded to us during the respective year were not performed during the respective year depending on the commencement date of the relevant tenders/quotations.

Success rate is calculated as to the number of tenders/quotations awarded during the year divided by the number of tenders/quotations submitted during the respective year.

The tender/quotation success rate for the public sector remained relatively stable during the Track Record Period.

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Private sector

Number of tenders/quotations submitted Number of tenders/quotations awarded to us (Note) – Number of new contracts awarded to us – Number of contracts successfully renewed Total Tender/quotation success rate	For the year ended 31 December 2015 2016 125 120 8 4 16 17 24 21 19.2% 17.5%	For the year ended 31 December 2015 2016 125 120 8 4 16 17 24 21 19.2% 17.5%

		17.5%

Note: The number of tenders/quotations awarded to us during the respective year is different from the number of contracts performed during the respective year because (a) certain tenders/quotations performed during the respective year were not awarded to us during the respective year; and (b) certain tenders/quotations awarded to us during the respective year were not performed during the respective year depending on the commencement date of the relevant tenders/quotations.

Success rate is calculated as to the number of tenders/quotations awarded during the year divided by the number of tenders/quotations submitted during the respective year.

The tender/quotation success rate decreased slightly from 19.2% for year ended 31 December 2015 to 17.5% for the year ended 31 December 2016 primarily due to the decrease of the number of new contracts awarded to us from eight to four. Our Directors believe that the decrease in number of new contracts awarded to us is because our prices are less competitive than those submitted by our competitors in the relevant tenders/quotations.

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Contract Performance

When a service contract is awarded, we will make arrangements in accordance with the contractual terms for providing our service. If required under the contract, we will provide performance guarantee in favour of our customers as security for due performance of our contractual obligations. Our operation department is responsible for arranging allocation of vehicles, equipment, materials and manpower and execution of our detailed work plan. Our operation department would liaise with our human resources department to ensure there is sufficient manpower for performing our contracts. Our procurement department is responsible for procurement of vehicles, equipment and materials from our suppliers.

The allocation arrangement of ground staff and management staff involved for each contract varies depending on the scale of each project. Our ground staff consists of a team of frontline cleaners or workers and drivers, led by a supervisor or foreman who is responsible for providing ground-level supervision on maintenance of service quality and handling of complaint and emergency matters. Our supervisor and foreman are supervised by our operation managers, who are responsible for providing overall project management throughout the service period including allocation of operational resources and attending regular meetings for communications with representatives of our customers.

For quality control purpose, our supervisors or foremen would conduct onsite inspection regularly, carry out surprise visits in our service locations and record occasions of sub-standard performance accordingly. Where the contract is a tender contract with the HK Government, government staff will regularly inspect the sites to ensure the quality of our service meets the tender requirements. When our onsite foreman or supervisor receives any unsatisfactory feedback or complaint from customers, we would consider whether it relates to the quality of our services, the progress of the work and materials or other issues such as environmental, health or safety concerns and we would perform rectification works accordingly. During the Track Record Period, our Directors confirm that we did not receive any material claims from our customers in respect of the quality of services provided.

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CUSTOMERS

During the Track Record Period, we derived our revenue mainly from the public sector. The following table sets forth a breakdown of our revenue during the Track Record Period by types of customers:

Public sector (Note 1) Private sector (Note 2) Total	For the 2015 HK$’000 341,685 21,782 363,467	year ended 31 December 2016 % HK$’000 % 94.0 382,400 94.6 6.0 21,724 5.4 100.0 404,124 100.0	year ended 31 December 2016 % HK$’000 % 94.0 382,400 94.6 6.0 21,724 5.4 100.0 404,124 100.0
			100.0

Notes:

Public sector mainly refers to the departments of the HK Government.
Private sector mainly refers to all companies and corporate bodies other than departments of the HK Government, such as statutory organisations, universities and companies receiving substantial funding of the HK Government.

Top customers

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The following tables set forth certain with information with respect to our five largest customers based on the ranking of their contribution to our total revenue during the Track Record Period:

For the year ended 31 December 2015:

Rank Customer Principal business activities Years of business relationship (years) Major services provided 1 Customer A A department of the HK Government responsible for food and environmental hygiene over 18 (Note) Cleaning/pest management/ waste management and recycling 2 Customer B A department of the HK Government responsible for leisure and cultural services over 18 (Note) Cleaning/ waste management and recycling 3 Customer C Transport operations; property rental and management; property development; advertising; telecommunication services and international consultancy services over 10 Cleaning 4 Customer D Property and facility management over 8 Cleaning 5 Customer E A statutory body responsible for Hong Kong’s public housing over 18 Cleaning Total	Revenue HK$’000 294,661 44,530 5,807 2,544 2,056 349,598	As % of total revenue % 81.1 12.3 1.6 0.7 0.5
		96.2

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For the year ended 31 December 2016:

Rank Customer Principal business activities Years of business relationship (years) Major services provided 1 Customer A A department of the HK Government responsible for food and environmental hygiene over 18 (Note) Cleaning/pest management/ waste management and recycling 2 Customer B A department of the HK Government responsible for leisure and cultural services over 18 (Note) Cleaning/ waste management and recycling/ landscaping 3 Customer F Property management over 1 Cleaning 4 Customer C Transport operations; property rental and management; property development; advertising; telecommunication services and international consultancy services over 10 Cleaning 5 Customer G A department of the HK Government responsible for port and waters over 1 Cleaning Total	Revenue HK$’000 315,681 59,400 4,324 3,692 3,685 386,782	As % of total revenue % 78.1 14.7 1.1 0.9 0.9
		95.7

Note: The calculation on number of years of business relationship includes the services provided to its predecessor HK Government department, which was responsible for municipal services.

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To the best knowledge of our Directors, none of our Directors, their associates, or any Shareholders who owned more than 5% of the share capital of our Company as at the Latest Practicable Date had any interest in any of our five largest customers during the Track Record Period.

Our Directors confirm that all of our customers are Independent Third Parties. To the best knowledge and belief of our Directors, none of our customers during the Track Record Period was also a supplier of our Group.

Customer concentration

For the two years ended 31 December 2016, revenue attributable to our largest customer amounted to approximately 81.1% and 78.1%, respectively, while revenue attributable to our five largest customers in aggregate amounted to approximately 96.2% and 95.7%, respectively. Further details on the risk of customer concentration are set out in the section headed “Risk factors — Risks relating to our business — Our customer concentration is high, a loss of our largest customer may adversely affect our business operations and financial results”. Our Directors are of the view that our reliance on our largest customer is not an extreme case which would impact on our suitability for [ REDACTED ] for the following reasons:

(a) Business model

We are an established and one-stop environmental hygiene service provider based in Hong Kong. Our Directors believe that a wide range of entities from both the public and private sectors, including but not limited to various departments of the HK Government, property management companies and other corporations in the private sector, are in need of our environmental hygiene services throughout the year. Taking into account the large pool of potential customers and our well-established position in the environmental hygiene service industry, our Directors are of the view that it would not be difficult for us to find new customers.

(b) Decreasing level of reliance

Our reliance on our largest customer decreased from approximately 81.1% for the year ended 31 December 2015 to approximately 78.1% for the year ended 31 December 2016, while our total revenue increased from approximately HK$363.5 million to HK$404.1 million during the same period. Our Directors believe that the decreasing percentage of revenue generated from our largest customer during the Track Record Period reflects our effort in diversifying and expanding our customer base.

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During the Track Record Period, we demonstrated our ability in establishing new business relationships with other customers. For instance, two of our customers who started business relationships with us in the years ended 31 December 2015 and 31 December 2016 became our third and fifth largest customers for the year ended 31 December 2016. Further details on our top customers are set out in the paragraphs headed “Customers” in this section. As demonstrated in the paragraphs headed “Operations — Tender and quotation preparation” in this section, the majority of the contracts awarded to us during the Track Record Period are entered into with new customers although we also successfully renewed some of the contracts with our existing customers.

We plan to further develop our customer base by expanding our presence in the private sector. We plan to hire an assistant marketing manager who will be responsible for soliciting new customers from the private sector through promoting our services to our target customers. Further details are set forth in the paragraphs headed “Business strategies and future plans” in this section.

(c) Industry landscape

Historically, cleaning services has been our largest business segment in terms of revenue among the four types of environmental hygiene services that we provide. For the two years ended 31 December 2016, the percentage of revenue derived from cleaning services amounted to approximately 84.0% and 85.1% of our total revenue. Within the cleaning services segment, street cleaning services has been the largest sub-segment in terms of revenue, accounting for approximately 65.8% and 64.3% of our total revenue.

We are an established and one-stop environmental hygiene service provider based in Hong Kong. According to Frost & Sullivan, we ranked the ninth in 2015 among environmental hygiene service providers in Hong Kong and had 3.2% of market share in terms of revenue generated. According to the F&S Report, the total contract sum of street cleaning service contract awarded by our largest customer, being a department of the HK Government responsible for food and environmental hygiene, reached HK$922.6 million in 2016 and was shared by only five service providers, among which we ranked the second in terms of the contract sum of HK$132.2 million awarded to us. According to the F&S Report, the highly concentrated market share of street cleaning services among a small number of market players is attributable to the fact that the scale of street cleaning service contracts awarded by our largest customer is larger than that of the contracts awarded by private sector customers, which requires more substantial operational resources and higher financial viability that only relatively sizable market players possess. Given that the market of street cleaning services is dominated by a few players, our Directors are of the view that as far as street cleaning services are concerned, it would be unlikely for us to break off reliance on our largest customer. Nevertheless, our Directors believe that having a larger customer base is crucial to our long-term growth and will continue to expand our customer base through securing more private sector customers as mentioned above.

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The environmental hygiene service industry in Hong Kong has strong growth potentials. Driven by the increasing public awareness of environmental hygiene due to outbreaks of past diseases and the rising number of both commercial and residential buildings, the market size is expected to further grow from HK$13,564.1 million to HK$18,096.5 million in 2020, representing a CAGR of 7.5% from 2016 to 2020, according to Frost & Sullivan. Further details are set forth in the section headed “Industry overview” in this [ REDACTED ].

With our over 25 years of track record in the environmental hygiene service industry, our Directors believe that we have established a market reputation in offering high quality environmental hygiene services and are well-positioned to capture the growing demand for environmental hygiene services. As such, our Directors are of the view that there are plenty of market opportunities available for our Group to further develop our customer base and reduce our reliance on our largest customer.

(d) Complementary business relationships

Our largest customer, being a department of the HK Government responsible for food and environmental hygiene, selects its environmental hygiene service providers through open tendering process. So far as our Directors are aware of, before the selection of any new service provider, it would conduct an evaluation system to ensure that the potential service providers could meet certain standards of management, industrial expertise, financial capability, reputation and regulatory compliance. Our contracts with our largest customer, which have service periods ranging from two to five years, are mostly awarded through tendering and we have no long-term commitment from our largest customer. Nevertheless, our Directors believe that our over 18 years of business relationship with our largest customer demonstrates our abilities in offering competitive tenders and maintaining satisfactory performance in connection with the service contracts awarded to us and thereby gives us a competitive advantage in securing service contracts from our largest customer during the competitive tendering process. Over years of cooperation, we are familiar with the quality standard requirements and other administrative procedures of our largest customer, which enables us to perform our services in a more efficient way. In view of the above, our Directors consider that we have maintained complementary business relationships with our largest customer. Despite our intention to reduce reliance on our largest customer going forward, we will strive to maintain our established business relationship with our largest customer.

(e) Ability to maintain our revenue in the future in light of the reliance

We have been providing cleaning services and waste management and recycling services to our largest customer since 1998 and 2001, respectively. One of the major responsibilities of our largest customer is to implement and co-ordinate environmental hygiene services. It provides public cleaning services, including street sweeping, household waste collection and other cleaning work, by both its in-house workforce and cleaning contractors. In order to achieve greater efficiency and cost-effectiveness, it has continued to contract out public cleaning services. As at April 2016, 75% of household waste collection service and 77% of manual street cleaning service of our largest customer were outsourced. According to a recent publication of our largest customer dated 14

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November 2016, it is noted that (a) in respect of public cleaning, all streets are manually swept at least once every day and in the main commercial and tourist areas, streets are swept for an average of four times a day, and up to eight times a day in the busiest pedestrian areas; and (b) in respect of waste collection, our largest customer and its contractors operate a total of 247 modern refuse collection vehicles and about 5,540 tonnes of household waste are collected, which are then taken to the refuse transfer stations or landfills managed by another department of the HK Government. This represents a huge demand on cleaning services and waste management and recycling services provided by environmental hygiene service providers like our Group. Unlike customers of the private sector, the demand of environmental hygiene services from our largest customer is less susceptible to changing economic conditions. In addition, the environmental hygiene service industry in Hong Kong, which has a growing market size, is showing a growing trend. Our Directors are of the view that we will be capable of maintaining our revenue in future despite our reliance on our largest customer.

General terms of contracts with our customers

We enter into fixed-term legally binding contracts with our customers. Generally, the material difference between the contracts with the HK Government as compared to private sector customers is that the HK Government may require additional supporting documents and administrative procedures before payment and thus the credit period is not always specified in the tender contracts.

(a) Term and termination

The service period of our contracts ranges from one to five years in general. Our customers are generally granted with a right of renewal or extension subject to our satisfactory performance.

Notable circumstances under which our public sector customers are entitled to terminate the contract immediately include situations where (i) we go into liquidation or a petition is being filed against us for bankruptcy or winding up of our business; (ii) we assign the tender contract to subcontractors without the prior written consent of our customers; (iii) we fail to perform the services satisfactorily as stipulated in the tender contract; (iv) we fail to secure and maintain all required insurance; (v) we are in material breach of and/or have committed repeatedly breaches of any obligations under the tender contract; (vi) we are convicted under the relevant ordinances stipulated under our tender contracts; and (vii) we have failed to fulfil the criteria as required under the demerit points system. Our private sector customers may terminate our contract by giving one month’s notice in writing to us. Our Directors confirm that we had not experienced any material cases where our tender contracts were terminated by our customers during the Track Record Period.

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(b) Service payments

The payments charged by us are generally a fixed contract sum. Once the service fee is agreed with customers, we could only adjust the service fee under limited circumstances such as addition or reduction of service scope. Before our customers settle our invoices, they normally require supporting documents for due payment of all wages such as certificates certified by certified public accountants and/or certification by the inspecting officer that our services have been performed to their satisfaction. In the event that we fail to comply with service standards required in our contracts (e.g. receipt of a certain number of default notices issued by our customers within a month and absence or lateness of staff), our customers are entitled to deduct our service fees accordingly. Our Directors confirm that we had not experienced any material cases that our service fees were deducted during the Track Record Period.

(c) Liability and indemnity

Generally, we are required to indemnify our customers against any claims in respect of (i) any injury to or death of any of our employees save and except where such injury or death is caused by the negligence of our customers or its employees; (ii) any loss or damage sustained by, or any injury to or death of any third party arising out of any act, omission, default or negligence caused by us; (iii) any loss arising out of our negligence, recklessness or wilful misconduct; (iv) breach of the terms and conditions of our contracts; (v) unauthorised act or omission committed by us; and (vi) non-compliance with any applicable laws and regulations by us. Our Directors confirm that we had not experienced any material claims arising from our breach of the tender contracts during the Track Record Period.

We may be liable for or may be required to indemnify our customers for any liability, loss, claim or proceedings in respect of any personal injury or death of any person or damage to any property arising out of the performance of our services. We are required to maintain adequate insurance cover in respect of such risks and any other liability in respect of our staff and other persons who may be employed on the works as well as other third party liabilities.

(d) Compliance with laws and regulations

Our business operation is governed by relevant laws and regulations in Hong Kong. We are required to use vehicles, equipment, materials and tools in the performance of our services as specified under our tender contracts in such manner as to comply with all relevant laws and regulations. Further details on our obligations under relevant laws and regulations are set forth in the section headed “Regulatory overview” in this [ REDACTED ].

(e) Performance guarantee

We are responsible for the quality of services provided by our staff. We are generally required to provide performance guarantee at a rate ranging from 2% to 5% of the total

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contract sum to our public sector customers and at a sum equivalent to one month’s service payment of the relevant contracts to our private sector customers as security for due performance of our contractual obligations.

In order for our banks to issue performance guarantee for our service contracts, we are required to deposit a fixed amount into our account maintained with our banks, which is accounted for as our restricted cash at such banks and such performance guarantee is to be released after the completion of the relevant service contracts. As at 31 December 2015 and 31 December 2016, the aggregate amount of performance guarantee maintained in favour of our customers were approximately HK$49.0 million and HK$50.7 million, respectively.

(f) Assignment and sub-contracting

Our tender contracts with our customers generally provide that we shall not, without the prior written consent from them, assign or otherwise dispose of or transfer our tender contract to other parties or enter into any sub-contract with any party for the performance of any part of our tender contracts.

Service contracts

The majority of our service contracts are fixed-term contracts. Upon expiry of our contracts, we have to submit tenders or quotations afresh in order to obtain a new contract. In particular, departments of the HK Government and large corporate customers would normally select their service providers through a tendering process. We may or may not submit a tender or quotation for the same service when our existing contracts expire subject to our assessment of the profitability of such tender or quotation. Further details on the factors we take into account when considering whether to bid for a tender or provide or quotation are set forth in the paragraphs headed “Operations — Tender and quotation preparation” in this section. In addition, we may not be successfully awarded the contract depending on a number of factors such as the competitiveness of our offer and the budget of our customers. Accordingly, there were service contracts which were not renewed upon expiry during the Track Record Period. A few of our service contracts with relatively small contract sums, such as provision of waste management and recycling services to restaurants, do not have fixed terms and could be terminated by our customers with or without notice period. Occasionally, we also provide one-off services upon requests from our customers.

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The following table sets forth the breakdown of service contracts by duration for the two years ended 31 December 2016:

One-off services Contracts without fixed term and that could be terminated by our customers without notice period Fixed-term contract Total	For the year ended 31 December 2015 2016 HK$’000 Number of contracts performed HK$’000 Number of contracts performed 233 N/A_(Note) 187 N/A(Note)_ 173 7 808 13 363,061 72 403,129 68 363,467 79 404,124 81	For the year ended 31 December 2015 2016 HK$’000 Number of contracts performed HK$’000 Number of contracts performed 233 N/A_(Note) 187 N/A(Note)_ 173 7 808 13 363,061 72 403,129 68 363,467 79 404,124 81
		81

Note: For one-off services, our customers normally place purchase orders with us and would not enter contracts with us.

Our revenue generated from the public sector amounts to 94.0% and 94.6% for the year ended 31 December 2015 and 2016, respectively. The following table sets forth the number of contracts completed and awarded to us and the aggregate contract sum for the public sector during the Track Record Period and as at the Latest Practicable Date:

	Number of
	contracts (Note)	Contract sum (Note)
		HK$’000
*As at 1 January 2015*
Existing contracts	24	783,846
*During the year ended 31 December 2015*
Contracts completed	8	138,840
New contracts commenced	7	125,624
*As at 1 January 2016*
Existing contracts	23	770,630
*During the year ended 31 December 2016*
Contracts completed	15	438,241
New contracts commenced	15	456,492
For the period between 1 January 2017
and up to the Latest Practicable Date
Contracts completed	–	–
New contracts commenced	2	122,812
As at the Latest Practicable Date
Existing contracts	25	911,693
New contracts awarded but not yet
commenced	6	201,965

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Note: Contracts without fixed contractual term and that could be terminated by our customers without notice period are excluded from the calculation of contract sum as the contract sum for such contracts cannot be ascertained.

The following tables set forth the breakdown of service contracts by business segments for the two years ended 31 December 2016, respectively:

Number of contracts performed(Note 1) Cleaning services – Street cleaning services_(Note 2) – Cultural, leisure and recreational premises cleaning services – Residential premises cleaning services – Other cleaning services(Note 3)_ Subtotal Pest management services Waste management and recycling services Landscaping services Total	For the year ended 31 December 2015 2016 16 18 2 4 8 8 27 26 53 56 6 3 20 21 0 1 79 81	For the year ended 31 December 2015 2016 16 18 2 4 8 8 27 26 53 56 6 3 20 21 0 1 79 81
		56
		3 21 1
		81

Notes:

Contracts which have been renewed during the year would be counted once only.
Street cleaning services include cleaning services for streets and markets.
Other cleaning services include commercial cleaning services for commercial buildings and academic institutions, etc.

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	For the year ended	For the year ended	For the year ended
	31 December
Range of contract period	2015		2016
(months)
Cleaning services
– Street cleaning services_(Note 1)_	24–60		12–60
– Cultural, leisure and recreational premises
cleaning services	12–36		12–36
– Residential premises cleaning services	1–24		1–48
– Other cleaning services_(Note 2)_	2–29		1–29
Pest management services	24–30		24–30
Waste management and recycling services	12–24		24–60
Landscaping services	N/A	24_(Note 3)_
	For the year ended
	31 December
Average monthly service fees	2015		2016
(HK$’000)
Cleaning services
– Street cleaning services_(Note 1)_	1,245		1,203
– Cultural, leisure and recreational premises
cleaning services	1,853		1,234
– Residential premises cleaning services	161		168
– Other cleaning services_(Note 2)_	20		28
Pest management services	602		876
Waste management and recycling services	61		111
Landscaping services	N/A	60	(Note 3)
Notes:

Street cleaning services include cleaning services for streets and markets.
Other cleaning services include commercial cleaning services for commercial buildings and academic institutions, etc.
As at the Latest Practicable Date, we had only entered into one service contract for provision of landscaping services to a department of the HK Government.

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The following table sets forth the breakdown of service contracts awarded to us by business segments to be recognised on or before 31 December 2017, on or before 31 December 2018 and after 1 January 2019, respectively:

Cleaning services – Street cleaning services (Note 2) – Cultural, leisure and recreational premises cleaning services – Residential premises cleaning services – Other cleaning services (Note 3) Subtotal Pest management services Waste management and recycling services Landscaping services Total	Number of contracts on hand and/ or awarded as at 28 February 2017 (Note 1) 8 5 13 10 36 4 10 1 51	Approximate aggregate contract value to be recognised for the year ending 31 December 2017 HK$ million 160,216 60,592 28,214 10,061 259,083 35,367 71,235 917 366,602	Approximate aggregate contract value to be recognised on or before 31 December 2018 HK$ million 16,081 24,403 16,916 6,158 63,558 21,153 78,090 165 162,966	Approximate aggregate contract value to be recognised after 1 January 2019 HK$ million – 9,063 3,937 167 13,167 4,711 36,208 – 54,086	Range of remaining contract period as at 28 February 2017 months 7–14 7–33 2–24 5–24
					2–33
					1–24 1–60 12
					1–60

Notes:

The contracts without fixed contractual term and that could be terminated by our customers without notice period are excluded as the contract value to be recognised cannot be ascertained.
Street cleaning services include cleaning services for streets and markets.
Other cleaning services include commercial cleaning services for commercial buildings and academic institutions, etc.

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Major service contracts during the Track Record Period

The following table summarises our five largest contracts in terms of revenue contribution during the Track Record Period:

		Percentage
	Revenue	of total
Name of area/premises	contributed	revenue	Services Provided
	(HK$’000)	(%)
For the year ended 31 December 2015
Mongkok District	46,858	12.9	Street cleaning
Yau Ma Tei, Tsim Sha Tsui,	44,337	12.2	Cultural, leisure
Mongkok Districts			and recreational
			premises cleaning
Portion of Mid-levels and Central	42,986	11.8	Street cleaning
Taipo District	40,910	11.3	Street cleaning
Sai Kung District	29,525	8.1	Street cleaning
For the year ended 31 December 2016
Yau Ma Tei, Tsim Sha Tsui,	44,860	11.1	Cultural, leisure
Mongkok Districts			and recreational
			premises cleaning
Portion of Mid-levels and Central	44,261	11.0	Street cleaning
Taipo District	34,188	8.5	Street cleaning
Mongkok District	31,328	7.8	Street cleaning
Southern District	29,226	7.2	Street cleaning

Basis of determination of our service fees

We take into account various factors when determining our service fees such as (a) our budget prepared based on previous contracts with similar scope of services; (b) our cost analysis taking into account potential increase in wages, scope of services, resources allocated to the contract, the duration of the contract, material costs, locations of projects, size of projects and timetable provided by the customer; (c) the prevailing market rates; and (d) relationship, reputation or background of the customer.

Cost control measures

The payments charged by us are generally a fixed contract sum. Once the service fee is agreed with customers, we could only adjust the service fee under limited circumstances such as addition or reduction of service scope. As such, we bear the risk of costs overrun as set forth in the section headed “Risk factors — Risks relating to our business — The payments charged by us are generally a fixed contract sum without any adjustment mechanism. Our profitability may be adversely affected if costs overrun.” in this [ REDACTED ]. As set out above, we take into account our budget and cost analysis when pricing our services, based on which we could have a more accurate assessment of our

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costs prior to submitting tenders or quotations to our customers. After the commencement of our contracts, we also rely on the following cost control measures to avoid or minimise costs overrun:

(a) Project monitoring

We formulate our budget on a project basis. All the expenses relating to the performance of contract are recorded in the budget for ongoing cost monitoring. Our management team reviews the budget monthly and if any material costs overrun is identified, our management team will investigate the causes and assess the costs overrun to see if any follow-up actions are required.

(b) Approval procedures for additional resources or expenses

Where additional resources or expenditures for the hiring of additional part-time staff or vehicles and procurement of materials, reports with sufficient justification and supporting documentation such as material requisition form would need to be prepared for management team’s approval.

Credit policy

We generally send monthly invoices to our customers and require them to settle our service fee monthly in arrears. Generally, the payment method is by remittance, by cheque or autopay and credit term granted to our customers range from 60 days to 90 days depending on our customers’ creditworthiness. In relation to customers from the public sector, they may need additional supporting documents and administrative procedures before settling our invoices. Therefore, credit period is generally not specified in these contracts. During the Track Record Period, we did not experience any material difficulty in collecting payment from our customers. All of the payment are settled in Hong Kong dollars.

The turnover days of our trade receivables were approximately 81.3 days and 71.6 days as at 31 December 2015 and 31 December 2016, respectively. Further details on the analysis of our trade receivables turnovers days are set forth in the paragraphs headed “Financial information — Discussion on major items of the combined statements of financial position — Trade receivables” in this [ REDACTED ]. We monitor long-overdue payments (i.e. generally trade receivables that remain outstanding for more than 180 days after the date of invoice) continuously and evaluate them on a case-by-case basis with respect to the appropriate follow-up actions to be taken, taking into consideration the trading history, accounts receivables report, reputation and any information relating to credit assessment of the customers. Appropriate provisions for bad and doubtful debts are made at the end of each month or financial year if necessary. During the Track Record Period, we issued payment reminders and communicated with customers actively as follow-up actions for recovering long-overdue payments.

Marketing activities

Throughout the years, we have successfully built up a solid customer base with a key focus on the public sector. With our proven track record of over 25 years and our

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reputation in the environmental hygiene service industry, we were able to obtain new contracts and renew existing contracts from time to time such that we did not rely heavily on marketing activities during the Track Record Period. Both our marketing and operation departments are responsible for liaising and maintaining relationships with our customers. In addition, we have designated staff to monitor tender notices from websites of the HK Government and our private sector customers. To keep ourselves up to date with the latest environmental, health and safety regulations and practices in the industry, we are a member of Green Cross Group of Occupational Safety and Health Council, the Environmental Contractors Management Association, the Federation of Environmental and Hygiene Services and Pest Control Personnel Association of Hong Kong. Further details are set out in the section headed “Future plans and use of proceeds” in this [ REDACTED ]. As set forth in the paragraphs headed “Business strategies and future plans” in this section, we intend to utilise part of the net proceeds from the [ REDACTED ] to expand our marketing department by hiring an assistant marketing manager who will be responsible for assisting our senior marketing manager in preparing tenders and quotations and soliciting new customers from the private sector through promoting our services to our target customers. Our Directors believe that this would help us secure more business opportunities.

Seasonality

Environmental hygiene services are needed throughout the year. However, the demand is at times affected by seasonal factors. For instance, the demand for waste management and recycling services during Christmas and the Lunar New Year holidays is higher, and the demand for pest management services during summer is higher, respectively. Our Directors confirm that we did not experience any material seasonal fluctuations given that most of revenue generated during the Track Record Period was derived from tender contracts with a contractual term of two to five years for customers in the public sector and one to two years for customers in the private sector. Our invoices are issued generally on a monthly basis for a relatively fixed amount.

SUPPLIERS AND SUBCONTRACTORS

During the Track Record Period, our suppliers include:

(a) vehicles rental service providers;
(b) material and equipment suppliers supplying materials and equipment such as garbage bags, toilet paper and other cleaning equipment in the provision of cleaning services and pest management services;
(c) fuel suppliers supplying fuel for our vehicles; and
(d) subcontractors providing additional equipment or staff.

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The table below sets forth a breakdown of our cost of services for the periods indicated:

Direct labour costs (Note) Vehicle expenses Consumables Direct overheads Total	For the year ended 31 December 2015 2016 HK$’000 % HK$’000 % 281,945 85.7 309,892 85.2 34,382 10.5 37,665 10.3 8,229 2.5 10,230 2.8 4,338 1.3 6,143 1.7 328,894 100.0 363,930 100.0	For the year ended 31 December 2015 2016 HK$’000 % HK$’000 % 281,945 85.7 309,892 85.2 34,382 10.5 37,665 10.3 8,229 2.5 10,230 2.8 4,338 1.3 6,143 1.7 328,894 100.0 363,930 100.0
		100.0

Note: Direct labour costs comprise the salaries and welfares of our frontline workers.

Further details on the fluctuation in purchases from suppliers during the Track Record Period as well as relevant sensitivity analysis are set forth in the paragraphs headed “Financial information — Major factors affecting our financial condition and results of operations” in this [ REDACTED ].

Top suppliers

For the two years ended 31 December 2016, the percentage of total cost of services excluding direct labour costs attributable to our largest supplier amounted to approximately 15.6% and 5.9%, respectively, while the percentage of total cost of services excluding direct labour costs attributable to our five largest suppliers amounted to approximately 31.1% and 20.1%, respectively. Accordingly, our Directors consider that during the Track Record Period, we were not dependent on any single supplier.

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The following tables set forth certain information with respect to our five largest suppliers based on the ranking of their contribution to our total cost of services (excluding direct labour costs) during the Track Record Period and their respective background information:

For the year ended 31 December 2015

Rank Supplier Principal business activities Years of business relationship (years) Products/services provided 1 Supplier A Service provider of, inter alia, cleaning service, pest management and vehicle rental 3 Vehicle rental 2 Supplier B Trading of oil and gas 9 Supply of fuel 3 Supplier C Manufacture and trading of toilet paper 7 Supply of toilet paper 4 Supplier D Manufacture and trading of plastic bags and toilet paper 10 Supply of plastic bags and toilet paper 5 Supplier E Trading of cleaning consumables and equipment 25 Supply of cleaning consumables and equipment Total	Cost of services HK$’000 7,316 2,328 1,739 1,709 1,498 14,590	As % of cost of services(Note) % 15.6 5.0 3.7 3.6 3.2 31.1

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For the year ended 31 December 2016

Rank Supplier Principal business activities Years of business relationship (years) Products/services provided 1 Supplier B Trading of oil and gas 9 Supply of fuel 2 Supplier D Manufacture and trading of plastic bags and tissue paper 10 Supply of plastic bags and toilet paper 3 Supplier E Trading of cleaning consumables and equipment 25 Supply of cleaning consumables and equipment 4 Supplier C Manufacture and trading of toilet paper 7 Supply of toilet paper 5 Supplier F Trading of chemicals 6 Supply of cleaning chemicals Total	Cost of services HK$’000 3,166 2,974 1,846 1,741 1,112 10,839	As % of cost of services(Note) % 5.9 5.5 3.4 3.2 2.1 20.1

Note: The direct labour costs are excluded in the total cost of services.

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None of our Directors, their associates, or any Shareholders who owned more than 5% of the share capital of our Company as at the Latest Practicable Date had any interest in any of the five largest suppliers of our Group during the Track Record Period.

Our Directors confirm that all of our suppliers are Independent Third Parties. To the best knowledge and belief of our Directors, none of our suppliers during the Track Record Period was also a customer of our Group.

As payments charged by us are generally a fixed contract sum without any adjustment mechanism, we would need to take into account the potential increase in the cost of materials when preparing our tender and quotations. We may suffer from cost overrun if we cannot pass on the increase in costs of purchase to our customers. However, as we have built up a good relationship and cooperation pattern with our suppliers, we believe the effect of fluctuations in the cost of products and services is controllable.

We generally maintain one to two suppliers for the same kind of services and/or products so that any quality or delivery issues with any individual supplier will not cause a significant adverse impact on our business. Apart from the purchase of consumables such as plastic bags, toilet paper and other cleaning equipment, most of our purchases were settled on a monthly basis and in arrears. We are generally granted with credit terms by our suppliers ranging from 30 to 60 days after delivery of goods or performance of services. Generally, the payment method is by cheque. During the Track Record Period, all purchases were settled in Hong Kong dollars.

During the Track Record Period and up to the Latest Practicable Date, we did not encounter significant shortage or delay in the supply of the products and services we needed. Our Directors confirm that during the Track Record Period, no issue regarding the legality of the source of supply had arisen and we did not experience any material difficulties in sourcing materials nor did we have any significant disputes with our suppliers.

During the Track Record Period, we had not entered into any legally binding long-term agreement with our suppliers and our purchase orders are placed on a case-by-case basis. The type and number of vehicles rented, the quantity of materials purchased and the prices are agreed upon the issuance of each purchase order. As such, there is no minimum purchase commitment imposed on us. Our procurement team is responsible for placing purchase orders with our suppliers and coordinating the delivery of the materials purchases to our work sites.

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Subcontractors

We engaged only two subcontractors during the Track Record Period for the provision of cleaning services and waste management and recycling services. Our Directors confirm that we engaged subcontractors during the Track Record Period to optimise our human resources allocation. We had not entered into any legally binding long-term agreement with our subcontractors and our engagement of our subcontractors during the Track Record Period was based on a case-by-case basis. Subsequent to the Track Record Period and as at the Latest Practicable Date, we had not engaged any subcontractor. Our Directors intend not to engage subcontractors going forward as we consider that it would be better off for our Group to employ own manpower rather than relying on subcontractors because (i) recruiting own manpower enables us to have better control on the quality of services provided; and (ii) our own manpower are more familiar with our quality standard requirements and other internal procedures.

For the two years ended 31 December 2016, our subcontracting fees amounted to approximately HK$1.8 million and HK$0.8 million, representing approximately 0.5% and 0.2% of our total cost of services, respectively. Our Directors confirm that we did not receive any material complaints or claims from our customers in respect of the services performed by our subcontractors during the Track Record Period.

Criteria for selecting suppliers

We maintained an internal list of approved suppliers. We review and update the list of approved suppliers regularly. We perform periodic evaluation on our existing suppliers by assessing the quality of products or services provided, competitiveness of price, timeliness of delivery or completion and credit period granted, based on which we would decide whether to continue our business relationship with our existing suppliers. When purchase from a new supplier is required, the procurement department has to fill in a new supplier selection form to record the checks performed on such supplier for further internal assessment.

Inventory

We place orders to our suppliers on a case-by-case basis depending on requirements of each project and all equipment and materials are delivered directly to the relevant work sites. Invoices issued by our suppliers would indicate the different tentative delivery dates that match with the project schedule.

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MAJOR ASSETS AND EQUIPMENT

Vehicles

The following table sets forth information of the major types of vehicles we owned and used in the course of our business operation as at 31 December 2016:

Approximate year(s) of Type of vehicle Function service Quantity (units) Hook-lift trucks Waste management and 0.4–1.4 3 recycling services Street washing vehicles Cleaning services 2.1–8.1 20 Grab lorries Cleaning services and 2.1–10.5 14 waste management and recycling services

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		Approximate
		year(s) of
Type of vehicle	Function	service	Quantity
			(units)
Van and private cars	Cleaning services and	0.4–27.2	65
	waste management and
	recycling services
Mechanical street sweeping	Cleaning services	2.9–3.6	8
vehicles
Auxiliary vehicles	Cleaning services	3.6	3

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Approximate year(s) of Type of vehicle Function service Quantity (units) Tipper lorries Cleaning services and 1.2–14.4 31 waste management and recycling services Waste compaction vehicles Waste management and 0.2–2.3 17 recycling services

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As at 31 December 2015 and 31 December 2016, the carrying amount of our vehicles amounted to approximately HK$30.0 million and HK$42.0 million, respectively. During the Track Record Period, we maintained commercial vehicle insurance policy for our vehicles covering third party legal liabilities. For the two years ended 31 December 2016, our vehicle insurance costs amounted to approximately HK$1.0 million and HK$1.1 million, respectively.

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Site equipment

The following table sets forth information of the major types of site equipment we owned and used in the course of our business operation (excluding idle machines) as at 31 December 2016:

		Approximate
		year(s) of
Type of equipment	Function	service	Quantity
			(units)
Hot water high pressure	Cleaning services	1.0–6.8	62
cleaners
Cold water high pressure	Cleaning services	0.9–6.0	9
cleaners
Wet and dry vacuum cleaners	Cleaning services	2.3–6.6	29

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		Approximate
		year(s) of
Type of equipment	Function	service	Quantity
			(units)
Grass trimmers	Landscaping services	1.1–2.3	4
Working platform	Cleaning services	7.9	1
Walk behind scrubbers	Cleaning services	0.7–6.6	23

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		Approximate
		year(s) of
Type of equipment	Function	service	Quantity
			(units)
Marble cleaning machines	Cleaning services	6.0–6.3	10
Vacuum cleaners	Cleaning services	6.0–6.9	32
Knapsack power sprayers	Pest management services	1.1–1.6	9
Stair and escalator cleaners	Cleaning services	2.1	2

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		Approximate
		year(s) of
Type of equipment	Function	service	Quantity
			(units)
Blower	Cleaning services	1.8–6.3	60
Water pump	Cleaning services	5.6	6
Electricity generator	Cleaning services	0.9–6.8	44

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Approximate year(s) of Type of equipment Function service Quantity (units) Mobile refuse compactors Waste management and 0.5 2 recycling services

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As at 31 December 2015 and 31 December 2016, the carrying amount of our site equipment amounted to approximately HK$2.2 million and HK$2.2 million, respectively.

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Maintenance of vehicles and equipment

The performance of our vehicle fleet and equipment is crucial to the quality of our services. Repair of equipment is performed by our suppliers or distributors in accordance with product warranty policy. Repair of vehicles is performed by motor vehicle service centres. Quotations on repair services would need to be approved by our management. For the two years ended 31 December 2016, our repairs and maintenance costs amounted to approximately HK$4.6 million and HK$7.2 million, respectively.

Further details on depreciation method of major assets and equipment are set forth in the paragraphs headed “Financial information — Significant accounting policies” in this [ REDACTED ].

QUALITY CONTROL

To provide consistent quality services to our customers, we have since 1999 established our quality assurance system. The following table sets forth the current certification we hold in respect of our quality assurance system.

		Original
		certification
Type of certification	Certified entity	date	Expiry date
ISO 9001: 2008	Lapco Service	29 August 2000	4 July 2018
quality management
system applicable to	Shiny Glory	23 November	4 July 2018
cleaning, pest		1999
control and waste
collection
ISO 14001:2004	Lapco Service	28 June 2005	4 July 2018
environmental
management system	Shiny Glory	28 June 2005	4 July 2018
standard applicable
to cleaning, pest
control and waste
collection

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		Original
		certification
Type of certification	Certified entity	date	Expiry date
OHSAS 18001:2007	Lapco Service	16 May 2007	4 July 2018
occupational health
and safety	Shiny Glory	16 May 2007	4 July 2018
management system
standard applicable
to cleaning, pest
control and waste
collection

The implementation of these systems is currently overseen by Mr. Lam, our chairman, executive Director and chief executive officer, who has over 10 years of experience in the implementation of ISO 9001, ISO 14001 and OHSAS 18001 and Ms. Wong, a member of our senior management, who has over 14 years of experience in the implementation of ISO 9000 and approximately 10 years of experience in the implementation of ISO 9001, ISO 14001 and OHSAS 18001. Further details on the experience and qualifications of Mr. Lam and Ms. Wong, respectively, are set forth in the section headed “Directors and senior management” in this [ REDACTED ].

Regular surveillance audits by ACI

Our Group is certified to be in compliance with the standards of ISO 9001:2008 (quality management system), ISO 14001:2004 (environmental management system) and OHSAS 18001:2007 (occupational health and safety management systems) by ACI. In its most recent audit in August 2016, ACI concluded that the assessment result of the visits were positive and the management systems were believed to be capable of meeting the applicable requirements and expected outcomes.

INSURANCE

During the Track Record Period, we had taken out insurance policies covering employees’ compensation and public liability for our Group. Our Directors consider that the existing insurance coverage is adequate and consistent with industry norm having regard to our Group’s operations and the current industry practice.

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Employees’ compensation insurance

During the Track Record Period, we took out employees’ compensation insurance in accordance with the Employees’ Compensation Ordinance which covers compensation and damage to employees in respect of bodily injury, death or disease contracted arising out of and in the course of their employment. The term of the insurance policy for employees’ compensation is one year. The limit of the indemnity covered by our employees’ compensation insurance was HK$200.0 million per event during the Track Record Period and up to the Latest Practicable Date. The insurance policy currently effective generally covers the full amount of valid employees’ compensation claims, provided that the amount of emergency transportation cost does not exceed HK$50,000 per event and in aggregate during the period of insurance.

Public liability insurance

We are required to take out public liability insurance with indemnity of a stipulated amount under some of our contracts. Such public liability insurance covers compensation and cost to any member of the public in respect of bodily injury, death, or damage to their properties. The term of the insurance policy for public liability insurance is one year. The limit of the indemnity covered by our public liability insurance ranged from HK$10.0 million to HK$20.0 million per incident during the Track Record Period while the limit as at the Latest Practicable Date ranged from HK$20.0 million to HK$30.0 million per incident. Pursuant to the insurance policies currently effective, our Group is generally responsible for the first HK$50,000 (or 10% of such loss, whichever is greater in case of water damage to properties) for each claim while the insurer shall be liable to pay the excess amount after deduction of the said HK$50,000 (or 10% of such loss, whichever is greater in case of water damage to properties) in respect of the compensations indemnifiable under the policy.

For the two years ended 31 December 2016, we incurred approximately HK$2.4 million and HK$3.3 million, respectively in relation to the insurance costs on employees’ compensation insurance and public liability insurance. During the Track Record Period, we have made claims in an aggregate amount of approximately HK$2.9 million in respect of our insurance policies for the accidents took place during the Track Record Period. High insurance costs and limited insurance coverage could adversely affect our profitability. Further details are set forth in the paragraphs headed “Risk factors — Risks relating to our business — Our insurance costs accounted for a significant portion of our direct overheads and any reduction or limitation of insurance coverage by our insurers may materially and adversely affect our business operations and financial results” in this [ REDACTED ]. Our Directors consider that the existing insurance coverage is adequate and consistent with industry norm having regard to our current operations and the prevailing industry practice.

EMPLOYEES, STAFF TRAINING AND DEVELOPMENT

Number of employees by function

As at 31 December 2015, 31 December 2016 and 28 February 2017, we had a total of 2,631, 2,263 and 2,365 employees, respectively (including both full time and part time employees).

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The following table sets forth a breakdown of the total number of employees by full-time and part-time employees as at 31 December 2015 and 31 December 2016 and 28 February 2017:

Full time Part time Total	As at 31 December 2015 2016 % % 2,402 91.3 2,135 94.3 229 8.7 128 5.7 2,631 100.0 2,263 100.0	As at 28 February 2017 % 2,213 93.6 152 6.4 2,365 100.0	As at 28 February 2017 % 2,213 93.6 152 6.4 2,365 100.0
			100.0

Note: Full time employees refer to employees whose remuneration are based on basic monthly salaries subject to adjustment in relation to overtime pay and no pay leave. Part time employees refer to employees whose remuneration are calculated on an hourly basis.

The following table sets forth a breakdown of the number of employees by department as at 31 December 2015 and 31 December 2016 and 28 February 2017:

Office-based employees: Directors Accounting Human resources and administration Marketing Procurement Operation Subtotal Frontline workers: (Note) – Cleaning services – Pest management services – Waste management and recycling services – Landscaping services Subtotal Total	As at 31 December 2015 2016 2 2 6 8 13 17 4 5 1 1 1 6 27 39 2,309 1,916 246 189 49 116 0 3 2,604 2,224 2,631 2,263	As at 28 February 2017 2 10 16 6 1 5
		40
		2,019 193 110 3
		2,325 2,365

Note: Frontline workers include supervisors, foremen, workers and drivers.

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Relationship with our employees

Our Directors consider that we had maintained good relationship with our employees during the Track Record Period. Our Directors confirm that, to the best of their knowledge, save as disclosed under the paragraphs headed “Litigations and claims” in this section, we did not have any major dispute with our employees during the Track Record Period nor had we experienced any significant difficulties in the recruitment and/or retention of experienced staff or skilled personnel during the Track Record Period. During the Track Record Period and up to the Latest Practicable Date, there was no labour union established by our employees.

We operate in a labour intensive industry. For the two years ended 31 December 2016, our direct labour costs amounted to approximately HK$281.9 million and HK$309.9 million, representing approximately 85.7% and 85.2% of our total costs of services, respectively. We have to consider any potential increase in the labour costs before submitting tenders or quotations to our customers. Further details on the impact of potential increase in the labour costs on our operations are set forth in the paragraphs headed “Risk factors — Risks relating to our business — Increase in labour costs may adversely affect our profitability” in this [ REDACTED ].

Recruitment and training policies

We intend to use our best efforts to attract and retain appropriate and suitable personnel to serve our Group. We assess our available human resources on a continuous basis to determine whether additional personnel are required to cope with our business development. Any employee under a continuous contract for not less than two years is eligible for severance payment if he is dismissed by reason of redundancy or is laid-off. Further details are set forth in the paragraphs headed “Financial Information — Discussion on major items of the combined statements of financial position — Provisions” in this [ REDACTED ].

We also arrange our employees to attend training courses on workplace safety and job specific skills. Further details on the training courses attended by our employees and the certificates awarded are set forth in the paragraphs headed “Employees with relevant certificates” in this sub-section.

Employees with relevant certificates

Under current applicable laws, rules and regulations, we are required, among others, to (a) provide and maintain a safe and healthy working environment; and (b) ensure that only persons with appropriate certifications perform those works or use such equipment as specified under such laws, rules or regulations. Further details on applicable laws, rules and regulations are set forth in the paragraphs headed “Regulatory overview — Labour, health and safety” in this [ REDACTED ]. In order to comply with the laws and regulations, we would arrange our employees with appropriate certifications to handle the job (such as use of certain equipment and chemicals) as specified.

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The following table sets forth certain material certifications held by our employees as at 31 December 2016:

		Number of	Number of
		employees
		holding such
		certifications as at
		31 December
Certifications	Issuing Authority	2016	(Note 1)
Training certificate of safety for cleansing	Occupational Safety and Health		1
work (managers and supervisors)	Council
Training certificate of safety in environmental	Occupational Safety and Health		1
hygiene	Council
Construction Industry Safety Training	Hong Kong Human Resources	3_(Note 2)_
Certificate	Limited
Construction Workers Registration Card	Construction Industry Council	3_(Note 3)_
Certificate of Attainment for Pest Control	The Hong Kong Polytechnic		11
and Pesticide Safety Core Course	University
Statement of Achievement for Pest Control	The University of Hong Kong		2
and Pesticide Safety Core Course
Certificate for completion of Safety	Star Education Institution		8
Supervisory (Environmental Hygiene)	Limited and Environmental
	Services Contractors Alliance
Certificate for completion of Safety Supervisor	Lion Training Centre		3
(Environmental Hygiene) Certificate Course
Certificate for completion of Occupational	Lion Training Centre		1
Safety and Health for Environmental
Hygiene Industry (Management) Certificate
Course
Certificate of Award for completion of Safety in	Hong Kong Confederation of		3
Occupational Safety and Health and First Aid	Trade Unions Training Centre
Certificate in Supervisory Management	The Hong Kong Management		9
	Association
Certificate of Integrated Management System	BIM Consultants Company		10
Implementation Training Course

Notes:

The number of employees may overlap where he/she possesses more than one certificate.
The Construction Industry Safety Training Certificates will expire in February 2018, August 2018 and November 2018, respectively.
The Construction Workers Registration Cards will expire in August 2018, November 2020 and November 2020, respectively.

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Our Directors are of the view that there is no material difficulty in obtaining the aforesaid certifications or engaging services provided with the relevant certificate. Furthermore, our Directors confirm that, to the best of their knowledge, no employee had encountered any material difficulties with the renewal of the relevant certificates during the Track Record Period and up to the Latest Practicable Date.

As our Directors have not encountered and do not expect to encounter any material difficulty in identifying replacement workers with the requisite certifications in this industry, thus in the event that any employee has been rejected or denied renewal of the relevant certificate, we do not expect any material operational or financial impact to our Group.

Remuneration policy

Our remuneration package for our office-based employees includes basic salary and bonuses while our operation staff are remunerated by wages generally in accordance with tender requirements. We review the salary and promotion of our employees on a yearly basis based on the work performance, position and seniority of the employees.

WORKPLACE SAFETY

We have established a safety committee to promote workplace safety to our employees in order to minimise workplace injuries. Our safety committee comprises our operation manager, who is the chairman of the committee, a representative from our human resources department and a safety officer.

Meetings are held every three months and the main responsibilities of the safety committee include the following:

(a) carry out periodic review on work sites to ensure the proper implementation of safety measures at work;
(b) carry out post-accident investigation based on the incident report form filed by our injured employee and provide training to the injured employee;
(c) provide training courses and organise activities to promote workplace safety and occupational health to our employees;
(d) review safety review reports of our external consultant on safety management systems and recommend improvement measures to the management;
(e) edit internal workplace safety guidelines with reference to the guidelines issued by the Occupational Safety and Health Council and the advice from our external consultant on safety management systems; and
(f) communicate with occupational safety officer of the Labour Department and representatives of relevant occupational health and workplace safety organisatons.

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We have also engaged the external consultant on safety management systems to review our safety measures in our work sites since December 2013. The scope of service under our engagement with such external consultant mainly covers (i) recommendation of corrective actions and areas for continuous improvement; (ii) provision of safety training courses to our employees; and (iii) investigation of accidents occurred. Such external consultant is a local consultancy firm engaged in the provision of safety consultancy services with consultants possessing the relevant qualifications, such as registration as a safety officer under the Factories and Industrial Undertakings (Safety Officers and Safety Supervisors) Regulations (Chapter 59Z of the laws of Hong Kong) and more than 15 years of the relevant experience.

We have established internal guidelines on workplace safety, which are documented in our employee manual and all our employees are required to follow. Set out below are the major areas of workplace safety covered by our internal guidelines:

Work safety at height

It covers safety guidelines for the use of ladders, elevated working platforms and mobile scaffold, where relevant, when carrying out services at height.

Examples of work safety at heights include but not limited to:

the ladder must be rested on an even and solid ground and not on any unstable surface; the ladder must be checked before use to ensure it is structurally sound; fasten the ladder properly with ropes whenever necessary or have a fellow worker to stabilise the ladder with hands; and the top of the ladder should be at least one metre above the resting place to provide for the handrail; and
the installation of the elevated working platforms must be performed or under the supervision of a qualified person; proper training and adequate instruction must be given to workers before assigning them to use the elevated working platform; workers must wear safety helmet and safety belt; ensure the load to be carried does not exceed the maximum safe working load; and the use of elevated working platforms should be suspended in case of bad weather; and
mobile scaffold must be installed by qualified workers; such qualified worker must check and certify the safety of the mobile scaffold before use; and mobile scaffold must be installed on a flat surface and should not be moved while there are workers remaining on it.

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Work safety of use of It covers guidelines for usage and storage of chemicals chemicals used during cleaning such as detergent and disinfectant, as well as wearing protective equipment. Examples of work safety of use of chemicals include but not limited to:

before using the detergent or pesticides, workers must be aware of the nature of the such detergent or pesticides and applicable safety measures;
workers must put on personal protective equipment such as masks and goggles; adhere to the instructions of detergent or pesticides provided by manufacturers; and extensive cleaning must be performed after use;
ensure good ventilation and avoid smoking and eating in areas where detergent or pesticides are applied and that they are properly stored after use.

Work safety in outdoor It covers guidelines to workers that need to stay area outdoor for a long time, such as prevention of heat stroke and cautiousness about personal safety. Examples of work safety in outdoor area include but not limited to:

measures to be taken to prevent heat stroke such as taking rest in cool place as necessary and drinking enough water; and
avoid working alone and if applicable, notify co-worker for his/her routes and estimated time of completion; and always take a mobile phone.

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Biological hazards prevention

It covers guidelines on mosquito and rat prevention to minimise possibility of disease spreading.

Examples for biological hazards prevention include but not limited to:

measures to be taken to maintain environmental hygiene such as removing stagnant water and disposing of waste and to avoid rat or mosquito bites.
Handling of waste and It covers guidelines on prevention of injuries during lifting of heavy items handling of waste and heavy items during waste during waste disposal disposal.
Examples for injuries prevention include but not limited to:
use lifts and trolleys whenever possible; ensure proper posture in moving heavy items; wear gloves to avoid cuts by glassware; and waste should be properly tied and sealed in a manner that can prevent spillage of the contents during transportation.

Procedures for handling employee accidents and injuries at work

Given the labour intensive nature of our business operations, our employees are vulnerable to work-related accidents and injuries. We have established procedures in place for handling employee accidents and injuries at work, which are summarised as follows:

the injured employee should report the accident and injury to the responsible supervisor or foreman, who should then report the same to our safety committee without undue delay;
the injured employee should fill in an incident report form and leave application, and file the same together with the medical certificate to our human resources department;
the responsible foreman should conduct on-site investigation on the accident and injury, and complete a case analysis report;
our human resources department should report to the Labour Department within 14 days after the accident comes to our knowledge, and file the medical certificate, leave application and the relevant documents to the insurer;

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our human resources department should keep record of the incident report form, leave application and medical certificate received from the injured employee and computerise a case analysis report and case claim progress report;
our safety committee will provide training to the injured employee to prevent the recurrence of the accident;
our Group will pay the agreed compensation to the injured employee directly and the related cost and expenses in relation to work injury, which will be reimbursed by the insurer; and
in the event that a settlement could not be reached between our Group and the injured employee with the assistance of the Labour Department, the case shall be determined by the court.

During the Track Record Period, we had taken out insurance policies covering employees’ compensation and public liability for our Group. Further details on coverage of our insurance policies are set forth in the paragraphs headed “Insurance” in this section.

In an effort to provide a safe working environment to our employees, we require our relevant employees to have the appropriate certifications to perform the works assigned to them. We also arrange our employees to attend training course on work safety and job specific skills from time to time. Further details are set forth in the paragraphs headed “Employees, staff training and development” in this section.

Analysis of accident rates

The table below sets out a comparison of the accident rates per 1,000 employees between our Group and the general cleaning service industry during the Track Record Period:

	For the years ended
	31 December
	2015	2016
Accident rate of our Group (Note 1)	21.8	30.2
Accident rate in the general cleaning service
industry (Note 2)	26.6	N/A
Notes:

The accident rates of our Group are calculated as to the number of accidents reported by our Group under the Employees’ Compensation Ordinance during the year divided by the average number of our Group’s employees during the year, and then multiplied by 1,000.
Accident rates in the general cleaning service industry for the relevant year are provided by Frost & Sullivan and presented for the purpose of comparison.

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The increase in the accident rates of our Group was primarily attributable to the increase of number of accidents reported from 58 to 74 and the decrease of average number of employees for the year ended 31 December 2016. The accident rates of our Group are generally in line with the accident rates in the general cleaning service industry in Hong Kong. Further information on the accident rates in the general cleaning service industry in Hong Kong is set forth in the section headed “Industry overview — Overview of the environmental hygiene service industry in Hong Kong — Casualties in environmental hygiene service industry”. The average industry accident rates during the period from 2011 to 2015 is 28.6.

We have established work safety procedures in carrying out our environmental hygiene services. Further details are set forth in the paragraphs headed “Workplace safety” in this section. In the most recent audit of ACI in August 2016, ACI concluded that the assessment result of the visits were positive and had not identified any material deficiencies in relation to workplace safety. We also thereafter renewed our certificates of compliance with the standards of ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007, which will expire in 2018 and subject to further renewal.

CERTIFICATES AND RECOGNITIONS

The following table sets forth a summary of certificates and recognitions we received during the Track Record Period:

		Date of issue/
Certificates/		years of
Accreditations	Issuing Organisation	awarded	Expiry Date
ISO 9001: 2008 quality	ACI	Shiny Glory:	4 July 2018
management system		23 November
applicable to cleaning,		1999
pest control and waste		Lapco Service:
collection		29 August
		2000
ISO 14001:2004	ACI	28 June 2005	4 July 2018
environmental
management system
standard applicable to
cleaning, pest control
and waste collection
OHSAS 18001:2007	ACI	16 May 2007	4 July 2018
occupational health
safety management
system standard
applicable to cleaning,
pest control and waste
collection
Caring Company	The Hong Kong	2007–2016	28 February
	Council of		2017
	Social Service
Contractor Safety	Health, Safety and	June 2011–	Not applicable
Performance Award	Environmental Office	May 2016
	of The Hong Kong
	University of Science
	and Technology

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COMPETITION

According to the F&S Report, the environmental hygiene service industry is highly competitive with a large number of service providers. Our Directors believe that we have our own competitive strengths over our competitors. These strengths enable us to become one of the top 10 environmental hygiene service providers in Hong Kong in 2015 in terms of revenue. Further information on the competitive landscape of the environmental hygiene service industry in Hong Kong is set forth in section headed “Industry Overview — Competitive landscape” in this [ REDACTED ].

PROPERTIES

Leased premises

As at the Latest Practicable Date, we leased certain premises as set out below:

				Approximate
				gross floor
	Premises	Usage	Term	area (sq.ft.)
1.	Unit 17, 6/F, Block A,	Head office	1 May 2015–	1,368
	Proficient Industrial Centre,		30 April 2018
	6 Wang Kwun Road, Kowloon
	Bay, Kowloon, Hong Kong
	(“Premises 1”, together with
	Premises 2 and 3, collectively
	known as the “Existing
	Premises”) (Note 1)
2.	Unit 18, 6/F, Block A,	Head office	1 May 2015–	1,664
	Proficient Industrial Centre,		30 April 2018
	6 Wang Kwun Road, Kowloon
	Bay, Kowloon, Hong Kong
	(“Premises 2”, together with
	Premises 1 and 3, collectively
	known as the “Existing
	Premises”) (Note 1)
3.	Unit 19, 6/F, Block A,	Head office	1 November 2015–	1,396
	Proficient Industrial Centre,		31 October 2018
	6 Wang Kwun Road, Kowloon
	Bay, Kowloon, Hong Kong
	(“Premises 3”, together with
	Premises 1 and 2, collectively
	known as the “Existing
	Premises”) (Note 1)

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				Approximate
				gross floor
	Premises	Usage	Term	area (sq.ft.)
4.	Unit 301A, 3/F, Tower III,	Head office	17 June 2016–	1,110
	Enterprise Square, 9 Sheung		16 June 2018
	Yuet Road, Kowloon Bay,
	Hong Kong (the “New
	Premises”) (Note 2)
5.	Flat 13, 7/F, Block A, Proficient	Warehouse	1 April 2016–	492
	Industrial Centre, 6, Wang		31 March 2018
	Kwun Road, Kowloon Bay,
	Kowloon, Hong Kong

Notes:

The Existing Premises had been used by us as head office during the Track Record Period whereas the permitted use under the relevant tenancy agreements is for industrial purposes, the permitted usage under the relevant deed of mutual covenant is for industrial or godown purpose and the permitted usage under the relevant occupation permit is for workshops and ancillary accommodation for non-domestic use. Further details are set forth in the paragraphs headed “Regulatory non-compliance” in this section. Our Directors confirm that the Existing Premises is currently used as a warehouse after the relocation of our head office to the New Premises as described in note 2 below. The lease of the Existing Premises will continue after the [ REDACTED ] and will constitute continuing connected transactions of our Group. Further details are set forth in the section headed “Continuing connected transactions” in this [ REDACTED ].
On 23 June 2016, Lapco Service entered into a tenancy agreement with an Independent Third Party to lease the New Premises for office use. As at the Latest Practicable Date, our head office was relocated to the New Premises. Our Directors confirm that the cost of relocation has no material impact and the relocation has no material disruption to our business operations.

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Owned premises

As at the Latest Practicable Date, our Group did not own any premises.

INTELLECTUAL PROPERTY RIGHTS

Trademarks

As at the Latest Practicable Date, we had registered three trademarks in Hong Kong. Further details on such trademarks are set forth in the paragraphs headed “Further information about our business — 2. Intellectual property rights of our Group” in Appendix IV to this [ REDACTED ]. During the Track Record Period, we were not involved in any dispute or infringement of trademarks.

Domain names

As at the Latest Practicable Date, we had registered two domain names, namely www.lapco.com.hk and www.shinyglory.com.hk in Hong Kong. Further details on our domain names are set forth in the paragraphs headed “Further information about our business — 2. Intellectual property rights of our Group” in Appendix IV to this [ REDACTED ].

LICENCES AND PERMITS

Our Directors confirm that we had obtained all necessary licences, permits and certificates required during the Track Record Period for carrying on our business activities and up to the Latest Practicable Date. Further details of the certifications held by our employees and our compliance with the relevant licence requirement of our operations are set forth in the paragraphs headed “Employees, staff training and development — Employees with relevant certificates” in this section and details of the certifications held by the Group’s employees are set forth in the paragraphs headed “Environmental compliance” in this section.

Our operations are governed by various internal control policies and an integrated management system following international standards. Further details are set forth in the paragraphs headed “Certificates and Recognitions” in this section.

LITIGATIONS AND CLAIMS

During the Track Record Period and as at the Latest Practicable Date, our Group had been or was involved in a number of claims. Our Directors confirm that none of the claims (whether settled or ongoing) were results of the non-compliance of any regulations or laws during the Track Record Period.

Set out below are the details of:

(i) the material ongoing litigations against our Group as at the Latest Practicable Date;

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(ii) potential litigations in relation to employees’ compensation claims and common law personal injury claims against our Group arising from work-related incidents and injuries; and
(iii) the material litigations against our Group settled (whether by way of court judgment or settlement) during the Track Record Period and up to the Latest Practicable Date.

Save as disclosed below, during the Track Record Period and as at the Latest Practicable Date, no member of our Group was engaged in any litigation, claim or arbitration of material importance and no litigation, claim or arbitration of material importance is known to our Directors to be pending or threatened against any member of our Group.

1. Material ongoing litigations against our Group as at the Latest Practicable Date

Litigation case number/	Litigation case number/		Total amount
Name(s) of our			claimed
Group company(ies)		Particular of the claims	(approximately)	Status
Employees’ compensation claims
1.	DCEC 2762/2016	The applicant slipped on banana	To be assessed by	Ongoing and it is at
	Lapco Service	peels and fell on the ground while	the court	the pleadings stage
		she was cleaning the public toilet at
		work, causing residual lower back
		pain and stiffness.
2.	DCEC 1959/2016	The applicant’s right leg fell into a	To be assessed by	Ongoing and it is at
	Lapco Service	manhole carrying a heavy wooden	the court	the pleadings stage
		board during her course of
		employment. As a result, she
		sustained injury to her left leg.
3.	DCEC 1457/2016	While loading a glass onto a garbage	To be assessed by	Ongoing and it is at
	Lapco Service	truck, the applicant’s co-worker	the court	the pleadings stage
		failed to hold the glass and dropped
		it. As a result, his right hand was
		injured.
4.	DCEC 1434/2016	The deceased was hit by a public	To be assessed by	Ongoing and it is at
	Lapco Service	light bus while crossing the road,	the court	the pleadings stage
		and died during her course of
		employment.
5.	DCEC 1174/2016	While the applicant was moving	To be assessed by	Ongoing and it is at
	Lapco Service	rubbish bags at work, one bag split	the court	the pleadings stage
		open and glass within it fell on his
		left foot, causing injury to his left
		foot.

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Litigation case number/	Litigation case number/		Total amount
Name(s) of our			claimed
Group company(ies)		Particular of the claims	(approximately)	Status
6.	DCEC 2744/2015	The applicant was hit by a trolley	To be assessed by	Ongoing and it is at
	Lapco Service	while carrying concrete debris to a	the court	the pleadings stage
		refuse collection point. As a result,
		her back and right leg was hurt.
7.	DCEC 1795/2015	While returning to the office of	To be assessed by	Ongoing and it is at
	Lapco Service	Lapco Service, the applicant was	the court	the pleadings stage
		knocked by a taxi, causing multiple
		injuries including head, back, right
		shoulder and knee.
8.	DCEC 1678/2015	The applicant was knocked down by	To be assessed by	Ongoing and it is at
	Lapco Service	a trolley at work, causing chest wall	the court	the pleadings stage
		contusion injuries.
9.	DCEC 2028/2016	The applicant was performing	To be assessed by	Ongoing and it is at
	Shiny Glory	cleaning work on a ladder during his	the court	the pleadings stage
		course of employment. The ladder
		suddenly broke and the applicant
		fell off the ladder. As a result, the
		applicant suffered from backbone
		injury.
10.	DCEC 2325/2016	The applicant slipped and fell on the	To be assessed by	Ongoing and it is at
	Shiny Glory	ground while at work, and she	the court	the pleadings stage
		sustained fracture left wrist
11.	DCEC 1712 / 2016	The applicant sustained personal	To assessed by the	Ongoing and it is at
	Shiny Glory	injuries in two accidents at work. In	court	the pleadings stage
		the first incident, she was hit by a
		football shot to her head by a
		football player and fell on the
		ground, causing head, right shoulder
		and right elbow injuries. In the
		second incident, she sprained her
		right hand while collecting rubbish.
12.	DCEC 1113/2016	The applicant sprained her back	To be assessed by	Ongoing and it is at
	Shiny Glory	while carrying rubbish to a refuse	the court	the pleadings stage
		collection point.
13.	DCEC 2095/2015	The applicant stepped into an	To be assessed by	Ongoing and it is at
	Shiny Glory	uncovered drainage ditch at work,	the court	the pleadings stage
		causing left foot facture.
14.	DCEC 1590/2014	The applicant was assaulted by	To be assessed by	Ongoing and it is at
	Shiny Glory	another Shiny Glory’s employee,	the court	the discovery stage
		causing multiple injuries to face,
		chest and upper limbs and relapse of
		paranoid schizophrenia.

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Litigation case number/		Total amount
Name(s) of our		claimed
Group company(ies)	Particular of the claims	(approximately)	Status
Other personal injury claims
15. DCPI 107/2017	The plaintiff sprained her waist and	To be assessed by	Ongoing as it is at
Lapco Service	back while she was throwing a	the court	the pleadings stage
	bamboo basket containing fish scales
	into a large green rubbish bin at
	work.
16. DCPI 2136/2016	The plaintiff slipped from a lorry tail	HK$481,954.70 plus	Ongoing as it is at
Lapco Service	lift platform and sustained multiple	interest	the pleadings stage
	injuries resulting in pain in low
	back, shoulders, knees, left buttock
	and left thigh, and right knee
	abrasion and left thigh bruise.
17. DCPI 1541/2016	While the plaintiff was leaving the	HK$952,643 plus	Ongoing and it is at
Lapco Service	street market (working location)	interest	the pleadings stage
	through a gate, the applicant’s face
	bumped against the gate when she
	was passing through and suffered
	from left eye injury.
18. DCPI 358/2016	The plaintiff fell down when pulling	HK$246,051 plus	Ongoing and it is at
Lapco Service	a rubbish bin, and sustained	interest	the pleadings stage
	personal injuries to her lower limb,
	low back and right thumb.
19. DCPI 64/2016	The plaintiff neck was injured while	HK$256,330 plus	Ongoing and it is at
Lapco Service	driving his taxi and it was hit by a	interest	the pleadings stage
	vehicle driven by another employee
	of Lapco Service.
20. DCPI 1732/2015	The plaintiff fell on the floor while	HK$579,049 plus	Ongoing and it is at
Shiny Glory	she was walking on the slippery	interest	the pleadings stage
	floor at work, causing injuries left
	wrist, elbow and radius.
21. HCPI 892/2015	The plaintiff was assaulted by	HK$1,155,725 plus	Ongoing and it is at
Shiny Glory	another employee of Shiny Glory,	interest	the pleadings stage
	causing multiple injuries to face,
	chest and upper limbs and relapse of
	paranoid schizophrenia.
22. HCMP 76/2017	The plaintiff was a pedestrian hit by	To be assessed by	Ongoing as it is at
Shiny Hope	a medium goods vehicle, the	the court	the pleadings stage
	registered owner of which is Shiny
	Hope.

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Litigation case number/		Total amount
Name(s) of our		claimed
Group company(ies)	Particular of the claims	(approximately)	Status
23. DCPI 1928/2016	The plaintiff suffered headache and	HK$461,750 plus	Ongoing as it is at
Shiny Hope	neck pain while driving a private car	interest	the pleadings stage
	which was hit by a vehicle driven by
	an agent or servant of Shiny Hope.
Other litigation
24. ESS44975/2016	Shiny Glory failed to ensure the	The Hong Kong	Ongoing as it is at
Shiny Glory	safety and health at work of its	Legal Counsel	the trial stage
	employee(s) at Lei King Wan, Sai	advises that the
	Wan Ho.	maximum liability of
		Shiny Glory under
		the said case is a fine
		of HK$200,000.

Our Directors expect that all costs and expenses of the above claims will be covered by our insurance policies. Even if our insurance policies do not fully cover our Group against our liability under the above claims, our Directors are of the view that the above claims have no material impact on the operation or financial position or business of our Group.

2. Potential litigations in relation to employees’ compensation claims and common law personal injury claims against our Group arising from work-related incidents and injuries

For some of the potential claims, even if the relevant employee’s compensation had been settled under our Group’s employees’ compensation insurance, the injured employees may still pursue litigation claims through personal injury claims against our Group under the common law. The damages awarded under the common law claims are normally reduced by the value of the compensation paid or payable under the Employees’ Compensation Ordinance in any event.

Our Directors confirm that, as at the Latest Practicable Date, there were 25 employees’ compensation cases which had been or would be settled by our Group’s employees’ compensation insurance but as the limitation period for personal injury claims (which is generally three years from the date of the relevant incidents) has not lapsed, it is still possible for the subject persons to commence common law personal injury legal actions against our Group.

In addition, during the Track Record Period and up to 22 February 2017, there are 120 reported cases on workplace injury arising during usual and ordinary course of business of our Group but no further action has been commenced in respect of such cases after the reporting. As such claims have not commenced, we are not in a position to assess the likely quantum of such potential claims. In any event, we have insurance coverage for the liabilities of our Group of all these potential claims as at the Latest Practicable Date and our Directors confirm that notices of all the accidents had been given to the insurers to the extent required by law.

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3. Litigations against our Group settled (whether by way of court judgment or settlement) during the Track Record Period and up to the Latest Practicable Date

Litigation case number/	Litigation case number/		Amount of total		Amount borne
Name(s) of			settlement sum	Covered by	by our Group
our	Group company(ies)	Particular of the claims	(approximately)	Insurance	(approximately)
Employees’ compensation claims
1.	DCEC 1718/2015	The applicant slipped	HK$268,301	Yes	HK$268,301
	Lapco Service	from a lorry tail lift platform and
		sustained injuries to his left
		shoulder, left thigh, left knee and
		back.
2.	DCEC 916/2014	The applicant fell down while	HK$51,646	Yes	HK$51,646
	Lapco Service	pulling rubbish bins, and sustained
		right thumb and low back pain.
3.	DCEC 369/2013	The applicant lost balance and fell	HK$188,959	Yes	Nil
	Lapco Service	while climbing up the rubbish
		truck for disposal process during
		work and suffered for right ankle
		fracture.
4.	DCEC 490/2012	The applicant slipped over	HK$220,732	Yes	Nil
	Shiny Glory	the wet and slippery marble floor
		and fell forward onto the floor in
		the working place, causing
		multiple injuries to her low back,
		left shoulder and knee.
Other personal injury claims
5.	DCPI 675/2015	The plaintiff slipped and fell onto a	Nil	Yes	Nil
	Lapco Service	floor at a public toilet which Lapco
		Service was responsible for its
		cleanliness.
6.	DCPI 799/2014	The plaintiff ’s left thigh was	HK$260,000	Yes	Nil
	Lapco Service	struck by a tilted garbage container
		while lifting the garbage container
		up at work.

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Litigation case number/	Litigation case number/		Amount of total		Amount borne
Name(s) of			settlement sum	Covered by	by our Group
our	Group company(ies)	Particular of the claims	(approximately)	Insurance	(approximately)
7.	DCPI 1839/2013	The plaintiff lost balance and fell	HK$450,000	Yes	Nil
	Lapco Service	while climbing up the rubbish
		truck for disposal process during
		work and suffered for right ankle
		fracture.
8.	DCPI 2790/2012	The plaintiff ‘s finger was crushed	HK$200,000	Yes	Nil
	Lapco Service	by drain cover while washing it
		and sustained injuries.
9.	DCPI 1996/2012	The plaintiff slipped and fell off on	HK$60,000	Yes	HK$10,000
	Lapco Service	the staircase tainted by cleaning
		water or agent, resulting in injuries
		in her back and buttock.
10.	DCPI 1890/2014	The plaintiff slipped and fell onto	HK$219,000	Yes	Nil
	Shiny Glory	the ground and sustained left
		distal radius fracture.
11.	DCPI 1204/2014	The plaintiff slipped and	HK$100,000	Yes	HK$80,000
	Shiny Glory	fell onto a wet floor in
		male lavatory and sustained left
		face and left eyebow injuires.
12.	DCPI 2491/2013	The plaintiff slipped over the wet	HK$200,000	Yes	Nil
	Shiny Glory	and slippery marble floor and fell
		forward onto the floor in the
		working area, causing multiple
		injuries to her lower back, left
		shoulder and knee.
13.	DCPI 2449/2013	The plaintiff slipped over and fell	HK$138,000	Yes	HK$10,000
	Shiny Glory	onto the floor in a shopping mall.
14.	DCPI 976/2013	The plaintiff was tripped by a	HK$157,775	Yes	Nil
	Shiny Glory	water pipe placed on the ground
		and fell onto the ground at work,
		resulting in injury to her right
		ankle.

Given that the claims and potential claims for employees’ compensation or personal injuries claims against our Group are covered by insurance, our Directors are of the view that the above claims have no material impact on the operation or financial position or business of our Group.

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REGULATORY NON-COMPLIANCE

Our Directors confirm that save as disclosed below under this section, our Group had complied with all applicable laws and regulations in all material respects in Hong Kong during the Track Record Period and up to the Latest Practicable Date.

Set out below are details of our Group’s past material non-compliance during the Track Record Period and as at the Latest Practicable Date:

Particular of Reason for the Legal Consequence including potential non-compliance non-compliance Remedial Action maximum penalties Shiny Glory Shiny Glory & Lapco Service The IRD does not The preparation Our Group has Pursuant to section 80(2)(c) of the Inland accept the and submission of engaged a tax Revenue Ordinance, any person who without Form-IR56B Form-IR56B and representative to reasonable excuse gives any incorrect Employer’s Return Form-IR56F for correct the information in relation to any matter or thing of Remuneration 2,689 staff information affecting his own liability (or the liability of any and Pensions and employed by our immediately after other person) to tax commits an offence with a Form-IR56F Group as at 31 receiving the maximum penalty of HK$10,000 plus a further Notification By An October 2016 were enquires from the fine of treble the amount of tax which has been Employer Of An arranged by its IRD. undercharged, if any. Even though the directors Employee Who Is human resources of Shiny Glory were not liable under section About To Cease To department which 80(2)(c) of the Inland Revenue Ordinance, Be Employed for the had inadvertently section 80(4) of the Inland Revenue Ordinance years of provided incorrect provides that, any person who aids, abets or assessment information to the incites another person to commit an offence 2013/14 and IRD in the said under this section shall be deemed to have 2014/15 filed by forms due to lack committed the same offence and to be liable to Shiny Glory of professional the same penalty. because they were advice and said to have assistance at the Pursuant to section 82(1) and 82(1A) of the contained doubtful material time. Inland Revenue Ordinance, any person who information and wilfully with intent to evade or to assist any requested Shiny other person to evade tax is liable on Glory to supply indictment to a fine of HK$50,000, a further fine more information of treble the amount of tax which has been and proof. undercharged in consequence of the offence or

Pursuant to section 82(1) and 82(1A) of the Inland Revenue Ordinance, any person who wilfully with intent to evade or to assist any other person to evade tax is liable on indictment to a fine of HK$50,000, a further fine of treble the amount of tax which has been undercharged in consequence of the offence or which would have been undercharged if the offence has not been detected, and imprisonment for three years.

Lapco Service The IRD does not accept the Form-IR56B Employer’s Return of Remuneration and Pensions for the year of assessment 2014/2015 filed by Lapco Service because it was said to have contained doubtful information and requested Lapco Service to complete and return Form 1126A with proof.

Pursuant to section 82A(1) of the Inland Revenue Ordinance, if the IRD chooses not to prosecute under sections 80 and/or 82 of the Inland Revenue Ordinance as above, it can by virtue of section 82A(1) of the Inland Revenue Ordinance make assessment to a maximum additional tax of an amount not exceeding treble the amount of tax which has been undercharged in consequence of the incorrect information.

Measures to prevent any further breaches and ensure ongoing compliance

A tax representative has been engaged on 8 March 2016 to prepare Form-IR56B Employer’s Return of Remuneration and Pensions and Form-IR56F Notification by an Employer of an Employee Who Is About To Cease To Be Employed starting from the year of assessment 2015/16.

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Particular of non-compliance

Reason for the non-compliance

Remedial Action

Measures to prevent any further breaches Legal Consequence including potential and ensure ongoing maximum penalties compliance

Shiny Glory

The Hong Kong Legal Counsel advises that given that Shiny Glory attached all the relevant sheets of Form IR56B (There were over 1,000 staff and hence over 1,000 of individual forms filed with IRD in a year of assessment) and submitted the whole set of Form IR56B to IRD for assessment of tax, the submission of all the whole set of Form IR56B constitute one single act of Shiny Glory. The same applies to the submission of Form IR56F as well. Therefore, the IRD will lay one charge for Form IR56B and one charge for Form IR56F against Shiny Glory for each year of assessment. A letter sent from the IRD dated 25th January 2016 to Shiny Glory shows that there is no tax undercharged for the years of assessment 2013/14 and 2014/15. In this circumstance, if Shiny Glory is to be prosecuted under section 80(2)(c) of the Inland Revenue Ordinance for incorrect Forms IR56B and IR56F, the maximum potential liability for the possible charges against Shiny Glory will be HK$10,000 x 2 x 2 = HK$40,000.

The Hong Kong Legal Counsel advises that given that the directors of Shiny Glory were not the persons who prepared the previous incorrect Forms IR56B and IR56F and they had assigned the human resources department to fill in the Forms IR56B and IR56F, it cannot be said that they had given incorrect information in relation to any matter or thing affecting the liability of Shiny Glory. There is no evidence to suggest that the directors of Shiny Glory had in any way aided, abetted or incited Shiny Glory to have given incorrect information in the forms. Shiny Glory and/or its directors are unlikely wilful for them to entrust the tax representative and to handle all tax matters for them. The Hong Kong Legal Counsel opines that there is no basis for the directors of Shiny Glory being prosecuted by the IRD under section 80(4) of the Inland Revenue Ordinance, and the chance of Shiny Glory and/or its directors being prosecuted under section 82 of the Inland Revenue Ordinance is remote.

The IRD has not yet taken any action or levied any penalty up to the Latest Practicable Date. The Hong Kong Legal Counsel further opines that if the IRD chooses not to prosecute under sections 80 and/or 82 of the Inland Revenue Ordinance, it can by virtue of section 82A(1) of the Inland Revenue Ordinance make assessment to a maximum additional tax of an amount not exceeding treble the amount of tax which has been undercharged in consequence of the incorrect information against Shiny Glory. However, in the present case, since there has not been any tax undercharged, the IRD will not invoke an assessment under section 82A(1).

Lapco Service

The Hong Kong Legal Counsel opines that if Lapco Service is to be prosecuted under section 80(2)(c) of the Inland Revenue Ordinance for submission of incorrect Form IR56B, provided that Lapco Service has no tax undercharged for the year of assessment concerned, the maximum potential liability for the possible charges against Lapco Service will be HK$10,000.

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Lapco Service

Particular of Reason for the non-compliance non-compliance Remedial Action Unit 17, Unit 18 The breach was To avoid any and Unit 19 of 6/F, not wilful, which possible legal Block A, Proficient occurred due to consequences, on Industrial Centre, the absence of 23 June 2016, 6 Wang Kwung professional Lapco Service Road, Kowloon advice at the entered into a Bay, Kowloon, material time. tenancy agreement Hong Kong with an (collectively, the Independent Third “ Existing Party to lease the Premises ”) were premises at Unit used by us as head 301A, 3/F, Tower office (the “ Actual III, Enterprise Use ”) whereas the Square, 9 Sheung permitted use of Yuet Road, the Existing Kowloon Bay, Premises under Kowloon, Hong the relevant Kong (the “ New tenancy Premises ”). As at agreements are for the Latest industrial Practicable Date, purposes, the our head office permitted usage was relocated to under the relevant the New Premises. deed of mutual Further details are convenant is for set forth in the industrial or section headed godown purpose “Continuing and the permitted connected usage under the transactions” in relevant this [ REDACTED ]. occupation permit is for workshops and ancillary accommodation for non-domestic use.

Legal Consequence including potential maximum penalties

The Hong Kong Legal Counsel advises that if the restriction on the user of a property was not observed, the HK Government could resume, re-enter upon and re-take possession of the whole lot including the said property. In practice, it is open to the owner of the Existing Premises to apply to the relevant District Land Officer for a temporary waiver of the user restriction by payment of an administrative fee or for a modification of the terms of the government by payment of premium so that the Existing Premises could be used as an office. The District Land Officer may or may not approve such an application.

There is no liability on the part of a mere tenant vis-à-vis the HK Government. However, the landlord, i.e. the owner, may commence civil action against the tenant for causing the breach of the user restriction and demand for termination of the tenancy agreement and/or to claim for damage.

Given the said breaches of user restriction, the Hong Kong Legal Counsel advises that the landlords of the Existing Premises (all being companies controlled by Mr. Lam and/or Ms. Wong) are entitled to terminate the tenancies immediately either by way of forfeiture or by way of acceptance of repudiation, and Lapco Service is obliged to vacate and leave the Existing Premises immediately. The landlords are not entitled to claim future rents from Lapco Service under forfeiture or to claim mesne profit and/or damages for trespass from the deposit if Lapco Service does not overstay and reinstate the Existing Premises. However, the landlords are entitled to claim damages from the Lapco Service for the loss the landlords suffer as a result of Lapco Service’s breach of the user restriction covenant.

Measures to prevent any further breaches and ensure ongoing compliance

We will seek external legal adviser with relevant experience in the field of conveyancing to perform an assessment on the legality of the intended usage of the property before leasing or acquiring a property.

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				Measures to prevent
				any further breaches
Particular of	Reason for the		Legal Consequence including potential	and ensure ongoing
non-compliance	non-compliance	Remedial Action	maximum penalties	compliance
			The Hong Kong Legal Counsel further opines
			that if a landlord accepts a repudiation by a
			tenant, he is not entitled to sue for damages
			representing the loss of future rent, therefore
			the Hong Kong Legal Counsel is of the view
			that Lapco Service is not liable to pay the rent
			accrued after the date of acceptance. However,
			the landlords may claim for other loss suffered,
			i.e. the loss of rental income before the
			landlords are able to let the premises to new
			tenant. Given that the tenancy agreements of
			the Existing Premises require two months’
			notice period for termination, the Hong Kong
			Legal Counsel is of the view the maximum loss
			of rental income is likely to be rental income of
			two months. As such, Lapco Service might be
			liable to pay the landlords a total of HK$132,840
			(i.e. HK$20,520 + HK$24,960 + HK$20,940 x 2
			months) as damages. The Hong Kong Legal
			Counsel is not aware that the landlords may be
			entitled to claim other damages.
			If the HK Government re-enters the Existing
			Premises on the basis that the user contravenes
			the occupation permit, the landlords may be
			entitled to claim damages for the loss they
			suffer as a result of the HK Government’s
			re-entering. Our Directors confirm that they are
			not aware that the HK Government has
			initiated any lease enforcement action against
			the landlords up to the Latest Practicable Date.
			Further, the HK Government’s usual practice is
			to serve a warning notice to the landlords
			before exercising its right to re-enter. If Lapco
			Service ceases using the Existing Premises as its
			office immediately upon the receipt of the said
			notice, it is unlikely that the HK Government
			will re-enter the Existing Premises. As such, the
			Hong Kong Legal Counsel is of the view that
			the practical risk of Lapco Service being liable
			for the landlords’ loss as a result of HK
			Government’s re-entering is low.

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Shiny Hope

Particular of non-compliance

Reason for the non-compliance Remedial Action

Legal Consequence including potential maximum penalties

Shiny Hope did The nonOn 14 June 2016, Under section 80(2)(e) of the Inland Revenue not notify the IRD compliance was Shiny Hope, Ordinance, any person without reasonable that it was due to inadvertent through its tax excuse fails to comply with section 51(2) chargeable for omission of our representative, commits an offence and is liable on conviction profits tax for the relevant staff as notified the IRD in to a fine at level 3 ($10,000) and a further fine of year of assessment the business of writing and made treble the amount of tax which has been 2014/2015 as Shiny Hope did a voluntary undercharged. required by not give rise to request for a tax section 51(2) of the any assessable return for the year Alternatively, under section 82A(1) of the Inland Revenue profits and thus of assessment Inland Revenue Ordinance, if no prosecution Ordinance. There was under no 2014/2015. under section 80(2) has been instituted in was a delay of obligation to make respect of the same facts, additional tax of an approximately 14 the required amount not exceeding treble the amount of tax months in making notification in which has been undercharged in consequence the notification. respect of the of the failure to comply with section 51(2) may previous year of be imposed. assessment;

As the total tax undercharged for the year of It did not involve assessment 2014/15 was approximately any intentional HK$461,503, the maximum potential liability of misconduct, fraud, Shiny Hope for the non-compliance of section dishonesty or 80(2)(e) would be, in case of a prosecution, a corruption on the fine of HK$10,000 plus HK$1,384,509; or, in case part of our of no prosecution, an additional tax of Directors and HK$1,384,509. senior management of Our Hong Kong Legal Counsel opines that the our Group. chance of Shiny Hope being prosecuted is slim since: (i) the above represents the maximum penalty which would rarely be imposed for first offender; (ii) the omission was inadvertent as Shiny Hope was under no obligation to report in previous year of assessment; and (iii) upon discovery, Shiny Hope immediately through its tax representative made voluntary disclosure and the relevant profits tax return was filed within the time limit.

As for the additional tax levied under section 82A(1) of the Inland Revenue Ordinance, our Hong Kong Legal Counsel is of the view that according to the Section 82A Penalty Policy for Profits Tax Cases, for first offence, the additional tax is 10% of the amount undercharged. And, since such penalty policy is open to public, there is no reason for the IRD to depart from it, our Hong Kong Legal Counsel is therefore of the view that the likely amount of additional tax against Shiny Hope would be around HKD$46,150.30 (being 10% of HKD$461,503).

Measures to prevent any further breaches and ensure ongoing compliance

Our accounting department will be responsible for tax filing and will ensure the completeness of tax filing process of each of the entities in our Group. Our management team will ensure our accounting department is equipped with employees having sufficient experience and knowledge on tax issue and tax filing. Before the filing of any tax return, it will be reviewed and approved by our financial controller, Mr. Tam Yiu Shing, Billy. Further details regarding the experience and qualification of Mr. Tam are set forth in the section headed “Directors and Senior Management” in this [ REDACTED ]. Our Group has also engaged a tax representative to perform regular review on our overall compliance on tax filing. Our Group will also obtain its tax advice if we are in doubt of any tax issue.

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RISK MANAGEMENT AND INTERNAL CONTROL MEASURES

We are an environmental hygiene service provider based in Hong Kong and exposed to the risks generally encountered by other environmental hygiene service providers. Further details on the industry risks are set forth in the paragraphs headed “Risk factors — Risks relating to the industry in which we operate” in this [ REDACTED ].

On 26 April 2016, our Group engaged an independent internal control consultant to perform a review of our Group’s internal control system. Scope of review includes the areas of corporate controls, financial reporting and disclosure controls and other operational level controls.

Our internal control consultant has reviewed and provided recommendations to our internal control system for remedying and preventing the recurrence of the abovementioned non-compliance incidents. As a result, we have adopted or will adopt the following recommendations given by our internal control consultant:

We have engaged a tax representative to prepare the Form-IR56B Employer’s Return of Remuneration and Pensions and Form-IR56F Notification By An Employer Of An Employee Who Is About To Cease To Be Employed and review overall compliance on tax filing.
We will engage external professional advisers (including compliance adviser with effect from [ REDACTED ] and legal advisers as to Hong Kong laws) to provide professional advice and guidance to us to ensure compliance with the applicable laws and regulations.
We will establish policies and procedures to handle and monitor our Group’s compliance with the GEM Listing Rules in respect of directors’ dealing in securities of our Company, notifiable and connected transactions, corporate governance, distribution of interim and annual results, price-sensitive information and enquiries from regulatory authorities.
We will establish an ongoing monitoring mechanism on the effectiveness of our Group’s internal controls by engaging a qualified external service provider to carry out an annual assessment of the Group’s internal controls system.

Our internal control consultant performed a follow-up review during 18 July 2016 to 16 March 2017 in this connection. Our Group did not have significant deficiencies in our internal control system upon the closing review.

Based on the above, our Directors are of the view that our Company has taken reasonable steps to establish an internal control system and procedures to manage the risks exposed to us and enhance the control environment at both the working and management levels. Accordingly, our Directors and the Sole Sponsor are of the view that the enhanced internal control measures adopted by our Group are adequate and effective for our operations.

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Corporate governance

We strive to strengthen the role of our Board as a decision making body in relation to our fundamental policies and management issues, and supervising our operations. Our Board comprises three independent non-executive Directors to ensure transparency in management and fairness in business decisions and operations. The independent non-executive Directors contribute to the enhancement of corporate value by providing advice and oversight based on their extensive administrative experience and specialised knowledge. Further details on the qualification and experience of our Board members are set forth in the section headed “Directors and senior management” in this [ REDACTED ].

View of our Directors and the Sole Sponsor

Having considered the background leading to the specific incidents of material claims and the view of our internal control consultant on our internal control system, our Directors are of the view, and the Sole Sponsor concurs, that (a) the various internal control measures adopted by us are adequate and effective; (b) our non-compliance incidents and the incidents of material claims do not affect the suitability of our Directors to act as directors under Rules 5.01 and 5.02 of the GEM Listing Rules; and (c) the incidents identified do not affect the suitability for the [ REDACTED ] our Company’s under Rule 11.06 of the GEM Listing Rules.

Indemnity from the Indemnifiers in relation to the non-compliances

The Indemnifiers have entered into the Deed of Indemnity whereby the Indemnifiers have agreed to indemnify our Group, subject to the terms and conditions of the Deed of Indemnity, in respect of, inter alia, any liabilities which may arise as a result of any non-compliance of our Group on or before the date on which the [ REDACTED ] becomes unconditional. Further details on the Deed of Indemnity are set forth in the paragraphs headed “Other information — 1. Estate duty, tax and other indemnities” in Appendix IV to this [ REDACTED ].

ENVIRONMENTAL COMPLIANCE

Compliance with the Waste Disposal Ordinance

Services of our Group in relation to handling of waste

Our Group’s waste management services include, but not limited to, the emptying of garbage bins of the premises of our customers, where relevant, collection of garbage from refuse room of each floor and transfer the garbage collected to the refuse collection point of the building (namely “ Door-to-door Services ”), as well as the collection of waste with specialised vehicles, such as hook-lift trucks, grab lorries, tipper lorries and waste compaction vehicles, from refuse collection points of the buildings or street and transport the garbage collected to government designated waste disposal facilities (namely “ Waste Management Services ”). The types of waste that we handle generally include street waste, household waste and industrial waste.

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Relevant sections of the Waste Disposal Ordinance

Pursuant to the Waste Disposal Ordinance, the Collection Authority includes the FEHD and the EPD. The FEHD is generally responsible for the services in section 9 of the Waste Disposal Ordinance, including but not limited to the removal and disposal of household waste, street waste, trade waste, livestock waste and animal waste (the “ Services ”) and pursuant to the Waste Disposal (Charges for Disposal of Construction Waste) Regulation (Chapter 354N of the Laws of Hong Kong) and the Waste Disposal Ordinance, the EPD is generally responsible for construction waste, chemical waste and clinical waste.

Confirmation from the FEHD and the EPD

The FEHD confirmed by letters dated 20 September 2016 and 28 October 2016 (the “ FEHD Letter ”), that:

(i) the FEHD does not have a licensing mechanism under the Waste Disposal Ordinance;
(ii) the FEHD does not provide services for removal and disposal of trade waste/commercial waste;
(iii) the FEHD does not provide Door-to-door Services for household waste; and
(iv) the FEHD will arrange cessation of the Services at any locations upon receiving request from the management office of any locations.

The EPD confirmed by a letter dated 23 August 2016, that:

(i) the EPD has not issued any licence under section 10(1) of the Waste Disposal Ordinance to any person to provide any services referred in section 9 of the Waste Disposal Ordinance; and
(ii) the EPD has not provided any services for removal and disposal of household waste referred in section 9 of the Waste Disposal Ordinance.

Implication of the Waste Disposal Ordinance in our operation

Based on the confirmation from the FEHD and the EPD as stated above, the prohibition under section 11 of the Waste Disposal Ordinance should only apply to our Waste Management Services wherein it involves household waste given the fact that (i) the prohibition under section 11 of the Waste Disposal Ordinance does not apply to construction waste; and (ii) the FEHD does not provide services for removal and disposal of trade waste and hence, the prohibition under section 11 of the Waste Disposal Ordinance does not apply to our Group in respect of the removal and disposal of trade waste. As for household waste, the FEHD does not provide Door-to-door Services and there is no overlapping of our Waste Management Services with their Services.

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Our Group’s compliance with the Waste Disposal Ordinance

Our Directors also confirm that our Waste Management Services which involved household waste and street waste during the Track Record Period and up to the Latest Practicable Date do not overlap with the Services of the FEHD. As such, we have been advised by our Hong Kong Legal Counsel that our Waste Management Services falls within the exemption under section 12(1)(b) of the Waste Disposal Ordinance and it is lawful for our Group (being the party designated by or to represent management of a building to remove household waste) to provide the Waste Management Services without a licence at locations where the FEHD did not provide the same services at the same time.

In light of the above, our Group’s waste removal and disposal services had complied with the Waste Disposal Ordinance during the Track Record Period and up to the Latest Practicable Date.

Our Hong Kong Legal Counsel are of the view that the officers of the EPD and the FEHD who provided the interpretation of the Waste Disposal Ordinance are the appropriate source for seeking clarification on the Waste Disposal Ordinance, have the relevant authority and are authorised to give such advices regarding the Waste Disposal Ordinance. Our Hong Kong Legal Counsel are of the view that the interpretation by the EPD and the FEHD is unlikely to be challenged by a higher authority as both the EPD and the FEHD are the Collection Authority defined under the Waste Disposal Ordinance and the EPD is responsible for the enforcement of the Waste Disposal Ordinance.

We will also keep track of any update of the laws and regulations relating to waste collection. Once the relevant licence is available for applications, we will promptly apply for such licence. Based on the information available to our Directors, as at the Latest Practicable Date, our Directors were not aware of any major obstacles for our Group to apply for the relevant licence should such licence be available for application given our long track record in the industry.

Furthermore, the Waste Disposal (Charges for Disposal of Construction Waste) Regulation (Chapter 354N of the Laws of Hong Kong) provides that a valid billing account is required for the removal and disposal of construction waste and the application for a billing account should be made to the EPD. We maintain valid billing accounts with the EPD.

Compliance with the Country Parks Ordinance and Country Parks and Special Areas Regulations

Our business operations from time to time involve our vehicles entering into country parks as specified under the Country Parks Ordinance (Chapter 208 of the Laws of Hong Kong). Our Directors confirm that the permits issued by the Agriculture, Fisheries and Conservation Department required under the Country Parks and Special Areas Regulations (Chapter 208A of the Laws of Hong Kong) have been obtained for bringing into the country parks or special area our vehicles within the country parks.

Save as disclosed under the paragraphs headed “Regulatory non-compliance” and “Litigations and claims” in this section, given we have already taken the remedial actions

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BUSINESS

as advised by our Hong Kong Legal Counsel for each of the material non-compliance incidents, our Directors confirm that our Group has complied with the relevant rules and regulations in material respects and no member of our Group was engaged in any and had not been involved in any other litigation, arbitration or claims of material importance that is known to our Directors to be pending or threatened against any member of our Group during the Track Record Period and up to the Latest Practicable Date.

ENVIRONMENTAL PROTECTION

As an environmental hygiene service provider, we are committed to environmental protection and minimising environmental impact in our course of business. We have adopted environmental protection measures to ensure that our Group complies with the relevant environmental rules and regulations and suits the specific requirements of our customers. The following table sets forth a summary of environmental protection measures:

Adopt environmental friendly products and materials;
Save water and energy whenever possible;
Minimise the sound pollution in the course of provision of our service;
Identify potential environmental aspects associated with the operation through environmental aspect assessment;
Provide environmental training courses to our employees; and
Conduct audit on environmental aspects.

We have also obtained and maintained the ISO 14001:2004 for our environmental management system standard applicable to cleaning, pest control and waste collection since June 2005.

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RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS

OUR CONTROLLING SHAREHOLDERS

Immediately after completion of the [ REDACTED ] and the [ REDACTED ] (without taking into account any Shares which may be issued upon the exercise of the [ REDACTED ]), our Company will be owned as to [ REDACTED ] by Gold Cavaliers, which is owned as to 78.67% by the Lam Family Trust and [ REDACTED ] by Magic Pioneer. The Lam Family Trust was established by Mr. Lam and Ms. Wong as settlors, with Max Super acting as the trustee for the benefits of Mr. Lam and Ms. Wong. Magic Pioneer is owned as to [ REDACTED ] by Earnmill Holdings Limited, as to [ REDACTED ] by Croydon Capital Advisors Limited and as to [ REDACTED ] by Mr. Xiong Jianrui. Croydon Capital Advisors Limited is [ REDACTED ] owned by Mr. Choi Chung Yin, our non-executive Director. Earnmill Holdings Limited is [ REDACTED ] owned by TTNB Profit Limited, which is in turn [ REDACTED ] owned by Mr. Tam Wai Tong, and Kiteway Assets Limited, which is in turn [ REDACTED ] owned by Mr. Tam Wai Ho.

Accordingly, each of Gold Cavaliers, Max Super, Mr. Lam, Ms. Wong, Magic Pioneer, Mr. Xiong Jianrui, Mr. Choi Chung Yin, Mr. Tam Wai Tong, Mr. Tam Wai Ho, Croydon Capital Advisors Limited, Earnmill Holdings Limited, TTNB Profit Limited, and Kiteway Assets Limited will become our Controlling Shareholders under the GEM Listing Rules.

COMPETITION

Our Controlling Shareholders, our Directors and their respective close associates do not have any interest, apart from our Group’s business, which competes or may compete directly or indirectly with our Group’s business and which requires disclosure pursuant to Rule 11.04 of the GEM Listing Rules.

In addition, our Controlling Shareholders have given a non-competition undertaking in favour of our Group. Further details are set forth in the paragraphs headed “Non-competition undertaking” in this section below.

INDEPENDENCE FROM OUR CONTROLLING SHAREHOLDERS

Our Directors do not expect that there will be any significant transactions between our Group and our Controlling Shareholders upon or shortly after the [ REDACTED ].

Our Directors believe that our Group is capable of carrying on our business independent of, and does not place undue reliance on, our Controlling Shareholders or their close associates, taking into consideration the following factors:

Management independence

We have an independent management team comprising our executive Directors and senior management who have substantial experience in our business. Our management team is able to implement our Group’s policies and strategies and performs its roles in our Company independently.

We aim at establishing and maintaining a strong and independent Board to oversee our Group’s business. Our Board consists of seven Directors, comprising three executive

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RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS

Directors, one non-executive Director and three independent non-executive Directors. The three independent non-executive Directors have extensive experience in different areas or professions. The main functions of our Board include the approval of our overall business plans and strategies, monitoring the implementation of these plans and strategies and the management of our Group.

Our Company will have two common directors with Gold Cavaliers, namely Mr. Lam and Mr. Choi Chung Yin, and one common director with Croydon Capital Advisors Limited, namely Mr. Choi Chung Yin. Despite the common directorship, our Company believes that management independence between our Company and our Controlling Shareholders will be maintained as Gold Cavaliers and Croydon Capital Advisors Limited are only investment holding companies, the only significant business interest of which is our Group. Max Super acts merely as the trustee of the Lam Family Trust and does not have any business operation that requires material managerial participation and attention. Further, each of our Directors is aware of his or her fiduciary duties as a director which requires, among other things, that he or she acts for the benefit and in the best interests of our Company and Shareholders as a whole, and does not allow any conflict between his or her duties as a Director and his or her personal interest to exist. In the event that there is a potential conflict of interests arising out of any transaction to be entered into between our Group and our Directors or their respective close associates, the interested Director(s) shall abstain from voting at the relevant Board meetings in respect of such transactions and shall not be counted in the quorum.

Our Board and the senior management operate as a matter of fact independently of our Controlling Shareholders and they are in a position to fully discharge their duties to our Shareholders and our Company as a whole after the [ REDACTED ] without reference to our Controlling Shareholders.

Operational independence

Our operations are independent of and not connected with any of our Controlling Shareholders. Despite the fact that we will have certain exempt continuing connected transactions, particulars of which are set forth in the section headed “Continuing connected transactions” in this [ REDACTED ], having considered that (i) we have established our own organisational structure comprising individual departments, each with specific areas of responsibilities; (ii) our Group has not shared our operational resources, such as customers, marketing, sale and general administration resources with our Controlling Shareholders and/or their associates; and (iii) our Controlling Shareholders have no interest in any of our customers, suppliers or other business partners that are important to our operations. Our Directors consider that our Group can operate independently from our Controlling Shareholders from the operational perspective.

Financial independence

Our Group has our own accounting systems, accounting and finance department and independent treasury function for cash receipts and payments. We make financial decisions according to our own business needs. Our finance department will be responsible for financial reporting, liaising with our auditors, reviewing our cash position and negotiating and monitoring our bank loan facilities and drawdowns.

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RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS

On 25 April 2016, Mr. Lam entered into a loan agreement (the “ Loan Agreement ”) with Lapco Service pursuant to which Mr. Lam has agreed to advance a loan in the amount of HK$9.0 million with no interest to Lapco Service, for the sole purpose of satisfying the necessary outgoing, charges and expenses incurred by our Group in the [ REDACTED ]. Pursuant to the Loan Agreement, Lapco Service shall not be required to repay the loan and/or any interest thereon in the event of the [ REDACTED ] being approved by the Listing Committee of the Stock Exchange. Subsequently, Lapco Service agreed with Mr. Lam that the HK$9.0 million would be netted off by the amount due from Mr. Lam to Shiny Hope and Shiny Glory to the extent of HK$8.0 million. The outstanding amount of HK$1.0 million will be fully settled prior to [ REDACTED ]. As a result, the Loan Agreement was terminated on 1 May 2016.

All guarantees, indemnities and other securities provided by our Controlling Shareholders and/or companies controlled by our Controlling Shareholders for the benefit of our Group will be released upon the [ REDACTED ].

Notwithstanding the above, our Group has independent financial systems and independent treasury function for receiving cash and making payments and independent access to third party financing. Our Group makes financial decisions according to its own business needs.

In view of our Group’s internal resources and the estimated net proceeds from the [ REDACTED ], our Directors believe that our Group will have sufficient capital for its financial needs without dependence on our Controlling Shareholders. Our Directors further believe that, upon the [ REDACTED ], our Group is capable of obtaining financing from external sources independently without the support of our Controlling Shareholders.

Independence of major suppliers

During the Track Record Period, our Directors confirm that none of our Controlling Shareholders, our Directors and their respective close associate had any relationship with the five largest suppliers of our Group (other than the business contacts in the ordinary and usual course of business of our Group) for the Track Record Period and up to the Latest Practicable Date.

Independence of major customers

Our Directors confirm that none of our Controlling Shareholders, our Directors and their respective close associate had any relationship with the five largest customers of our Group (other than the business contacts in the ordinary and usual course of business of our Group) for the Track Record Period and up to the Latest Practicable Date.

NON-COMPETITION UNDERTAKING

Each of our Controlling Shareholders as covenantor (each a “ Covenantor ”, and collectively the “ Covenantors ”) entered into the Deed of Non-competition with our Company (for ourselves and as trustee for and on behalf of our subsidiaries) on [●] 2017.

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RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS

Non-competition

In accordance with the Deed of Non-competition, each of the Covenantors irrevocably and unconditionally, jointly and severally warrants and undertakes to our Company, on its own behalf and as trustee for each of our subsidiaries that during the period that the Deed of Non-competition remains effective, he or she or it shall not, and he or she or it shall use his or her or its best endeavours to procure that his or her or its associates (not including our Company or any of our subsidiaries) shall not, whether directly or indirectly (including through anybody corporate, partnership, joint venture or other contractual arrangement and whether for profit or otherwise) or as principal or agent, and whether on his or her or its own account or with each other or in conjunction with or on behalf of any person, firm or company or through any entities (except in or through our Company and any of our subsidiaries), do any of the following:

(a) carry on, engage, participate or hold any right or interest in or render any services to or otherwise be involved in any business which is in competition, directly or indirectly, with or is likely to be in competition, directly or indirectly, with any business presently carried on by our Company or any of our subsidiaries or any other business that may be carried on by our Company or any of our subsidiaries from time to time during the term of the Deed of Non-competition (the “ Restricted Business ”), whether as a shareholder, director, officer, partner, agent, lender, employee, consultant or otherwise and whether for profit, reward or otherwise; and
(b) take any action which interferes with or disrupts or may interfere with or disrupt any business presently carried on by our Company or any of our subsidiaries or any other business that may be carried on by our Company or any of our subsidiaries from time to time during the term of the Deed of Non-competition including, but not limited to, solicitation of any of the then current customers, suppliers or employees of our Company or any of our subsidiaries.

The Deed of Non-competition does not preclude the Covenantors from having any interest in any company engaging in any Restricted Business (the “ Subject Company ”) where: (i) the total number of shares held by the Covenantors does not exceed 5% of the issued shares of the Subject Company which is or whose holding company is listed on any recognised exchange (as defined under the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)); or (ii) any Restricted Business conducted or engaged in by the Subject Company (and assets relating thereto) accounts for not more than 5% of the Subject Company’s consolidated turnover or consolidated assets, as shown in the Subject Company’s latest audited accounts provided that (i) there is a holder (together where appropriate, with its associates) with a larger shareholding in the Subject Company than the aggregate shareholding held by the Covenantors and/or their respective associates at all times and (ii) the total number of the Covenantors’ representatives on the board of directors of the Subject Company is not significantly disproportionate in relation to their shareholding in the Subject Company.

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RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS

Each of the Covenantors further irrevocably and unconditionally, jointly and severally undertakes to our Company (for itself and as trustee for each of its subsidiaries) that:

(a) he or she or it shall not directly or indirectly appoint any executive director in the Subject Company;
(b) the principal terms by which he or she or it (or their respective associates) subsequently invests, participates, engages in or operates the Restricted Business are no more favourable than those offered to our Company or any of our subsidiaries; and
(c) if any business opportunity is identified by or made available to him, her or it or any of their associates, it shall and shall procure that their associates (excluding our Company or any of our subsidiaries) shall refer such business opportunity to our Company on a timely basis and in the following manner:
(i). he or she or it shall and shall procure that his or her or its associates (excluding our Company or any of our subsidiaries) shall give written notice to our Company of such business opportunity within seven days identifying the target company (if relevant) and the nature of the business opportunity, the investment or acquisition costs and all other details reasonably necessary for our Company to consider whether to pursue such business opportunity;
(ii). our Company shall seek approval from our Board or a board committee (in each case comprising, among others, independent non-executive Directors) who do not have a material interest in the business opportunity (the “ Independent Board ”) as to whether to pursue or decline the business opportunity (in which any Director who has an actual or potential material interest shall abstain from attending (unless their attendance is specifically requested by the remaining non-interested Directors) and voting at, and shall not count towards the quorum for, any meeting or part of a meeting convened to consider such business opportunity);
(iii). the Independent Board shall consider the financial impact of pursuing the business opportunity offered, whether the nature of the business opportunity is consistent with our Group’s strategies and development plans, the general market conditions in the Restricted Business’s industry in Hong Kong and any advice from independent financial advisers, should the appointment of which be deemed necessary by the Independent Board;
(iv). if appropriate, the Independent Board may appoint independent financial advisers to assist in the decision-making process in relation to such business opportunity;

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RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS

(v). the Independent Board shall, within 30 days of receipt of the written notice referred to in (i) above, inform the relevant Covenantor in writing on behalf of our Company its decision whether to pursue or decline the business opportunity;
(vi). the relevant Covenantor shall be entitled but not obliged to pursue such business opportunity only if he or she or it has received a notice from the Independent Board declining such business opportunity; and
(vii). if there is any material change in the nature, terms or conditions of such business opportunity pursued by the relevant Covenantor, he or she or it shall refer such business opportunity as so revised to our Company in the manner as outlined in the Deed of Non-competition as if it were a new business opportunity.

For this purpose, business opportunity means any new business investment or other business opportunity relating to the Restricted Business, other than in our Company.

Further, the independent non-executive Directors will review, on an annual basis, the compliance of each of the Covenantors with the Deed of Non-competition (in particular, the right of refusal relating to any business opportunity (as defined therein)) and our Company will disclose decisions on matters reviewed by the independent non-executive Directors relating to compliance with and enforcement of the Deed of Non-competition in our annual report or by way of announcement to the public.

The provisions contained in the Deed of Non-competition are conditional upon the [ REDACTED ]. If the [ REDACTED ] does not occur in accordance with the Deed of Non-competition, the Deed of Non-competition shall terminate and, except as otherwise provided therein and without affecting any rights which have accrued prior to termination (including with respect to a breach thereof), no party shall have any further obligation to the other parties thereunder.

The respective obligations of each of the Covenantors under Deed of Non-competition shall terminate on the earliest of the date on which such Covenantor ceases to hold directly or indirectly in aggregate 30% or more of the entire issued share capital of our Company, or otherwise ceases to be a Controlling Shareholder or our Shares cease to be listed and traded on GEM (except for temporary suspension of trading of our Shares on the Stock Exchange due to any reason).

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RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS

CORPORATE GOVERNANCE MEASURES

Our Company will adopt the following measures to strengthen its corporate governance practice and to safeguard the interests of our Shareholders:

(1) our independent non-executive Directors will review, on an annual basis, the Deed of Non-competition to ensure compliance with the non-competition undertaking by our Controlling Shareholders;
(2) our Controlling Shareholders undertake to provide all information requested by our Company which is necessary for the annual review by our independent non-executive Directors and the enforcement of the Deed of Non-competition;
(3) our Company will disclose decision and its basis on matters reviewed by our independent non-executive Directors relating to compliance and enforcement of the Deed of Non-competition in the annual reports of our Company or by way of announcement to the public;
(4) our Controlling Shareholders have undertaken to provide an annual confirmation to our Company confirming that each of our Controlling Shareholders and his/her close associates have not breached the terms of the undertakings contained in the Deed of Non-competition; and
(5) our Controlling Shareholders will abstain from voting at any general meeting of our Company if there is any actual or potential conflict of interests in relation to the Restricted Business and the business opportunity.

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CONTINUING CONNECTED TRANSACTIONS

FULLY EXEMPT CONTINUING CONNECTED TRANSACTIONS

Pursuant to Chapter 20 of the GEM Listing Rules, our Directors, Substantial Shareholders and chief executive officer or those of our subsidiaries, any person who was our Director or a director of our subsidiaries within 12 months preceding the [ REDACTED ] and any of their associates will become a connected person of our Company upon the [ REDACTED ]. Upon the [ REDACTED ], our transactions with such connected persons will constitute connected transactions under Chapter 20 of the GEM Listing Rules.

Our Directors confirm that the following transactions, which will continue after the [ REDACTED ], will constitute continuing connected transactions for our Company under Chapter 20 of the GEM Listing Rules. These continuing connected transactions will be fully exempt from the reporting, annual review, announcement, circular and independent Shareholders’ approval requirements.

LEASE OF PREMISES

1. First Tenancy Agreement

On 1 May 2015, Lapco Service entered into a tenancy agreement (the “ First Tenancy Agreement ”) with LES Limited, pursuant to which LES Limited agreed to lease to Lapco Service the property situated at Unit 17, 6/F, Block A, Proficient Industrial Centre, 6 Wang Kwung Road, Kowloon Bay, Kowloon, Hong Kong with a total gross floor area of approximately 1,368 sq.ft. for industrial use. The First Tenancy Agreement has a term of three years commencing from 1 May 2015 at a monthly rent of HK$20,520 (exclusive of government rent, government rates and management fee). The aggregate amount (including building management fee, rent and rates) paid to LES Limited by Lapco Service for the year ended 31 December 2015 and the year ended 31 December 2016 was HK$199,000 and HK$288,000, respectively.

2. Second Tenancy Agreement

On 1 May 2015, Lapco Service entered into a tenancy agreement (the “ Second Tenancy Agreement ”) with CCT Limited, pursuant to which CCT Limited agreed to lease to Lapco Service the property situated at Unit 18, 6/F, Block A, Proficient Industrial Centre, 6 Wang Kwung Road, Kowloon Bay, Kowloon, Hong Kong with a total gross floor area of approximately 1,664 sq.ft. for industrial use. The Second Tenancy Agreement has a term of three years commencing from 1 May 2015 at a monthly rent of HK$24,960 (exclusive of government rent, government rates and management fee). The aggregate amount (including building management fee, rent and rates) paid to CCT Limited by Lapco Service for the year ended 31 December 2015 and the year ended 31 December 2016 was HK$235,000 and HK$343,000, respectively.

3. Third Tenancy Agreement

On 1 November 2015, Lapco Service entered into a tenancy agreement (the “ Third Tenancy Agreement ”) with Source Mega, pursuant to which Source Mega agreed to lease to Lapco Service the property situated at Unit 19, 6/F, Block A, Proficient Industrial

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CONTINUING CONNECTED TRANSACTIONS

Centre, 6 Wang Kwung Road, Kowloon Bay, Kowloon, Hong Kong with a total gross floor area of approximately 1,396 sq.ft. for industrial use. The Third Tenancy Agreement has a term of three years commencing from 1 November 2015 at a monthly rent of HK$20,940 (exclusive of government rent, government rates and management fee). The aggregate amount (including building management fee, rent and rates) paid to Source Mega by Lapco Service for the year ended 31 December 2015 and the year ended 31 December 2016 was HK$176,000 and HK$296,000, respectively.

Our Directors believe that entering into the First Tenancy Agreement, the Second Tenancy Agreement and the Third Tenancy Agreement would benefit our Group in the following ways:

(a) improvement on our document filing system as the properties will be used by our Group as files storage facilities; and
(b) centralised storage for items such as consumables.

Implications under the GEM Listing Rules

LES Limited is a company wholly owned by Mr. Lam, our Controlling Shareholder and executive Director. As such, LES Limited is an associate of Mr. Lam and a connected person of our Company for the purpose of the GEM Listing Rules. Accordingly, the transaction under the First Tenancy Agreement will constitute a continuing connected transaction for our Company under Chapter 20 of the GEM Listing Rules upon [ REDACTED ].

CCT Limited is a company wholly owned by Ms. Wong, our Controlling Shareholder and senior management. As such, CCT Limited is an associate of Ms. Wong and a connected person of our Company for the purpose of the GEM Listing Rules. Accordingly, the transaction under the Second Tenancy Agreement will constitute a continuing connected transaction for our Company under Chapter 20 of the GEM Listing Rules upon [ REDACTED ].

Source Mega is a company wholly owned by Ms. Wong, our Controlling Shareholder and senior management. As such, Source Mega is an associate of Ms. Wong and a connected person of our Company for the purpose of the GEM Listing Rules. Accordingly, the transaction under the Third Tenancy Agreement will constitute a continuing connected transaction for our Company under Chapter 20 of the GEM Listing Rules upon [ REDACTED ].

Aggregation of Transactions

The properties leased to Lapco Service pursuant to the First Tenancy Agreement, the Second Tenancy Agreement and the Third Tenancy Agreement were used by our Company as office and will be used as godown shortly after the [ REDACTED ]. Further details are set forth in the paragraphs headed “Business — Regulatory non-compliance”.

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CONTINUING CONNECTED TRANSACTIONS

Our Directors confirm that the above-mentioned monthly rentals under the First Tenancy Agreement, Second Tenancy Agreement and Third Tenancy Agreement were determined with reference to prevailing market rent of adjacent premises.

Under Rule 20.79 of the GEM Listing Rules, the transactions under the First Tenancy Agreement, the Second Tenancy Agreement and the Third Tenancy Agreement shall be aggregated for the purpose of calculating the applicable percentage ratios as they were all entered into with associates of Mr. Lam and within a 12-month period, and involve leasing of premises for the use of our Group.

As each of the applicable percentage ratios in respect of the aggregate rental payable under the First Tenancy Agreement, the Second Tenancy Agreement and the Third Tenancy Agreement is less than 5% while the annual aggregate rental payable by us thereunder is expected to be less than HK$3,000,000, the transaction contemplated thereunder is exempt from the reporting, annual review, announcement, circular and the independent Shareholders’ approval requirements under Chapter 20 of the GEM Listing Rules.

CONFIRMATION FROM THE DIRECTORS

Our Directors (including the independent non-executive Directors) consider that the above-mentioned continuing connected transactions (i) have been entered into in the ordinary and usual course of business of our Group; and (ii) are on normal commercial terms and are fair and reasonable and in the interests of our Company and our Shareholders as a whole.

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FINANCIAL INFORMATION

You should read the following discussion and analysis together with the audited combined financial statements of our Group and the notes thereto as at and for the two years ended 31 December 2016, included in the Accountants’ Report set forth in Appendix I to this [ REDACTED ] . The Accountants’ Report has been prepared in accordance with Hong Kong Financial Reporting Standards, which may differ in material respects from generally accepted accounting principles in other jurisdictions.

The following discussion and analysis contains certain forward-looking statements that involve risks and uncertainties. Our Group’s business and financial performance are subject to substantial risks and uncertainties and its future results could differ materially from those set forth in the forward-looking statements herein due to a variety of factors including those set forth in the “Risk factors” section.

Any discrepancies in any table or elsewhere in this [ REDACTED ] between totals and sums of amounts listed herein are due to rounding.

OVERVIEW

We are an established and one-stop environmental service provider based in Hong Kong. Our environmental hygiene services cover four types, namely (a) cleaning services; (b) pest management services; (c) waste management and recycling services; and (d) landscaping services. We provide our environmental hygiene services to a wide range of venues including streets, cultural, leisure and recreational premises, residential premises, commercial buildings, markets, restaurants and academic institutions etc. Our major customers during the Track Record Period include various departments of the HK Government, property management companies and other corporations in the private sector.

For the two years ended 31 December 2016, we generated total revenue of approximately HK$363.5 million and HK$404.1 million, respectively, while our net profit amounted to approximately HK$15.1 million and HK$8.8 million, respectively. The increase in revenue by approximately HK$40.6 million from the year ended 31 December 2015 to the year ended 31 December 2016 was primarily driven by the increase in revenue from the public sector. During the year ended 31 December 2016, the public sector recorded a revenue of approximately HK$382.4 million, representing an increase of approximately HK$40.7 million as compared to the year ended 31 December 2015.

Our cost of services mainly consists of direct labour costs, vehicle expenses, consumables and direct overheads. Our total cost of services amounted to approximately HK$328.9 million and HK$363.9 million for the two years ended 31 December 2016, respectively. During the Track Record Period, the direct labour costs amounted to approximately HK$281.9 million and HK$309.9 million, respectively, representing approximately 85.7% and 85.2% of the total cost of services.

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FINANCIAL INFORMATION

During the Track Record Period, our suppliers include (i) vehicles rental service providers (ii) material and equipment suppliers supplying materials and equipment such as garbage bags, toilet paper and other cleaning equipment, (iii) fuel suppliers supplying petrol for our vehicles, and (iv) subcontractors providing additional equipment or staff.

MAJOR FACTORS AFFECTING OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our Group’s results of operations and financial condition have been and will continue to be affected by a number of factors, including those set out below.

Tendering of contracts

Our service contracts generally range from a term of two to five years in the public sector and one to two years for customers in the private sector. Accordingly, our revenue and business growth will depend on our ability to expand our customer base, renew existing service contracts and obtain new service contracts with existing and new customers. Majority of our contracts were awarded to us through tendering process which highly depends on our ability to prepare and submit competitive tenders. We prepare our tenders based on our estimated cost of services including direct labour costs, material cost and equipment cost plus a margin which we consider could be acceptable to our customers. Therefore, there is no assurance that we can continue the expiring contracts and/or securing new contracts through tendering on a continual basis. For the two years ended 31 December 2016, revenue derived from tender contracts amounted to approximately HK$360.0 million and HK$401.1 million, representing approximately 99.0% and 99.2% of total revenue, respectively. In respect of our public sector customers, we had a tender/quotation success rate of 24.2% and 24.6% for the two years ended 31 December 2016. In respect of our private sector customers, we had a tender/quotation success rate of 19.2% and 17.5% for the two years ended 31 December 2016, respectively. Furthermore, there is no assurance that we will be able to submit the most competitive tender without affecting our profitability. We endeavoured to secure more new contracts and enhance our success rate of tendering while maintaining our profitability and we will study information, such as historical costs of similar contracts, prevailing market price of similar contracts, prevailing wages and material costs as well as relationship, reputation and background of the customers, to ensure competitive proposals are delivered for tendering purpose.

Direct labour costs

Our core businesses are labour intensive services and require a sizeable work force. During the Track Record Period, staff costs contributed a significant portion of our costs of services. For the two years ended 31 December 2016, the direct labour costs amounted to

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FINANCIAL INFORMATION

approximately HK$281.9 million and HK$309.9 million, respectively, representing approximately 85.7% and 85.2% of the total cost of services during the respective periods. We expect that direct labour costs will continue to account for a significant percentage of our total cost of services.

During the year ended 31 December 2016, the direct labour costs increased by approximately 9.9% compared to that for the year ended 31 December 2015. Besides the full year effect of the increase of statutory minimum wage implemented since May 2015, the increase was mainly attributable to the commencement of cleaning service contracts in Wanchai East, Wanchai West and Wong Tai Sin Districts during the year ended 31 December 2016 and the full year effect of the cleaning service contract in Southern District commenced in November 2015 but partially offset by the expiry of cleaning service contracts in Sai Kung, Mongkok and Taipo Districts during the year ended 31 December 2016.

The Minimum Wage Ordinance (Chapter 608 of the Laws of Hong Kong) provides that the statutory minimum wage in Hong Kong is reviewed at least once every two years. The statutory minimum wage will be raised to HK$34.5 per hour with effective from 1 May 2017. We will take into account the increase in statutory minimum wage when we prepare our budgets in tendering.

For the two years ended 31 December 2016, the profit before tax amounted to approximately HK$18.1 million and HK$12.5 million, respectively. The following illustrates the sensitivity of our profit before tax for the two years ended 31 December 2016 in relation to fluctuation in our direct labour costs of the respective periods:

	For	the year ended	31 December
	2015		2016
		Change		Change
Changes in	Profit	in profit	Profit	in profit
direct labour costs	before tax	before tax	before tax	before tax
	HK$’000	%	HK$’000	%
20%	(38,245)	(310.8)	(49,527)	(497.8)
10%	(10,051)	(155.4)	(18,538)	(248.9)
0%	18,144	–	12,452	–
–10%	46,339	155.4	43,441	248.9
–20%	74,533	310.8	74,430	497.8

There is no assurance that our Group may be able to adequately increase service fees so as to pass the increase in direct labour costs onto our customers, thus our Group’s business operations, financial results and profitability may thereby be materially and adversely affected.

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Time lags of cash flow

In respect of our Group’s business, there are often time lags between making payments to our Group’s employees and receiving payments from our customers. Our Group pays salaries to the full-time employees within seven days after the end of each month and our part-time employees within seven days after the completion of their work. On the other hand, we generally grant a credit term ranging from 60 days to 90 days for our customers depending on their creditworthiness. For our contracts with the HK Government, they may require additional supporting documents and administrative procedures before payment and thus the credit period is not always specified in the tender contracts. During the Track Record Period, we did not experience any material difficulty in collecting payment from our customers and payments from our customers are made on a regular basis. However, there is no assurance the customers will make payment on time and in full. During the Track Record Period, our Group’s trade receivables turnover days were approximately 81.3 days and 71.6 days, respectively, details of which are discussed in the paragraphs headed “Discussion on major items of the combined statements of financial position — Trade receivables” in this section. If our Group fails to properly manage our exposure from such cash flow mismatch or if our Group experiences any difficulty in collecting a substantial portion of our trade receivables, our Group’s cash flows and financial position could be materially and adversely affected.

Insurance expenses in relation to employee compensation and public liabilities and litigation claims

For the two years ended 31 December 2016, the insurance expenses in relation to employee compensation and public liabilities of our Group were approximately HK$2.4 million and HK$3.3 million, respectively. During the Track Record Period and up to the Latest Practicable Date, our Group had settled 14 litigation claims with an aggregate settlement amount of approximately HK$2.5 million out of which approximately HK$0.4 million was borne by our Group pursuant to the insurance policy. There is no assurance that the insurance policies will cover our Group against future events and if our Group has to pay additional compensation out of our own resources for any uninsured claims, financial results may be materially and adversely affected. Furthermore, regardless of the insurance coverage or the merits of cases, our Group may need to spend resources and incur costs to handle these claims, and these claims may also affect reputation of our Group in the environmental hygiene service industry, therefore adversely affect our Group’s business operations, financial results and profitability.

Industry competition

According to the F&S Report, there is a large number of competitors in the environmental hygiene service industry in Hong Kong. Due to the number of competitors, there is high level of competition between environmental hygiene service providers for customers. Based on the competition in the industry, there is no assurance that our customers will continue to engage us upon the expiration of our existing contracts. Furthermore, in order to compete effectively, our Group may have to offer lower prices and/or better terms than our competitors and if our Group is unable to reduce our costs accordingly, our Group’s financial results and profitability will be adversely affected.

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FINANCIAL INFORMATION

BASIS OF PRESENTATION

Our Company was incorporated and registered as an exempted company with limited liability in the Cayman Islands under the Companies Law on 12 August 2016. The address of our Company’s registered office and the principal place of business is disclosed in the section headed “Corporate information” in this [ REDACTED ].

The financial information has been prepared under the principles of merger accounting in accordance with Accounting Guideline 5 “Merger Accounting Under Common Control Combination” issued by Hong Kong Institute of Certified Public Accountants. The combined statements of profit or loss and other comprehensive income, combined statements of changes in equity and combined statements of cash flows of our Group for the Track Record Periods include the results, changes in equity and cash flows of the companies now comprising our Group as if our current group structure had been in existence throughout the Track Record Period, or since the respective date of incorporation, which is a shorter period.

The combined statements of financial position of our Group as at 31 December 2015 and 2016 have been prepared to present the assets and liabilities of the companies now comprising our Group as if our current group structure had been in existence at those dates taking into account the respective dates of incorporation, where applicable.

SIGNIFICANT ACCOUNTING POLICIES

We have identified certain accounting policies that are significant to the preparation of our financial statements. Our significant accounting policies, which are important for an understanding of our financial condition and results of operations, are set forth in note 3 in section “Significant accounting policies” to the Accountants’ Report included in Appendix I to this [ REDACTED ]. Some of our accounting policies involve subjective assumptions and estimates and complex judgments relating to accounting items. In each case, the determination of these items requires management judgments based on historical experience and other relevant factors that may change in future periods. Our Directors confirm that, we have not experienced any material deviation between our management’s estimates and actual results during the Track Record Period.

Our management does not expect any changes in our accounting policies. When reviewing our financial statements, you should consider (i) our selection of critical accounting policies; (ii) the judgments and other uncertainties affecting the application of such policies; and (iii) the sensitivity of reported results to changes in conditions and assumptions. We set forth below those accounting policies that we believe are of critical importance to us or involve the most significant estimates and judgments used in the preparation of our Group’s financial statements. Our significant accounting policies, estimates and judgments, which are important for an understanding of our financial condition and results of operations, are set forth in detail in notes “3. Significant accounting policies” and “4. Key sources of estimation uncertainty” to our combined financial statements included in Appendix I to this [ REDACTED ].

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FINANCIAL INFORMATION

Revenue recognition

Revenue is measured at fair value of the consideration received or receivable and represents amounts receivable for goods sold and services rendered in the normal course of business.

Service income is recognised when services are provided.

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

Plant and equipment

Plant and equipment are stated at cost less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any.

Depreciation is recognised so as to write off the cost of items of plant and equipment over their estimated useful lives, using the straight-line method. The estimated useful lives and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for a prospective basis.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives.

An item of plant and equipment is derecognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.

Impairment loss on assets other than financial assets

At the end of each reporting period, our Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, our Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

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FINANCIAL INFORMATION

Recoverable amount is the higher of fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or a cash-generating unit) in prior years. A reversal of an impairment loss is recognised in profit or loss immediately.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade receivables, other receivables, amount due from a Controlling Shareholder, pledged bank balances and bank balances and cash) are measured at amortised cost using the effective interest method, less any identified impairment losses.

Interest income is recognised by applying the effective interest rate except for short-term receivables where the recognition of interest would be insignificant.

Impairment of loans and receivables

Loans and receivables are assessed for indicators of impairment at the end of each reporting period. Loans and receivables are considered to be impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the loans and receivables, the estimated future cash flows of the loans and receivables have been affected.

Objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or
breach of contract, such as a default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial reorganisation.

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FINANCIAL INFORMATION

For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of trade receivables could include our Group’s past experience of collecting payments, an increase in the number of delayed payments, observable changes in national or local economic conditions that correlate with default on trade receivables.

The amount of the impairment loss recognised is the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the financial asset’s original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited to profit or loss.

If, in a subsequent period, the amount of impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

RESULTS OF OPERATIONS

The following table set forth our combined statements of profit or loss and other comprehensive income and other financial information for the periods indicated, as derived from the Accountants’ Report in Appendix I to this [ REDACTED ].

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FINANCIAL INFORMATION

COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Revenue Cost of services Gross profit Other income Other gains and losses Administrative expenses [REDACTED] Finance costs Profit before taxation Income tax expense Profit and total comprehensive income for the year attributable to the owners of the Company	For the year ended 31 December 2015 2016 HK$’000 HK$’000 363,467 404,124 (328,894) (363,930) 34,573 40,194 369 645 (530) (285) (12,737) (17,667) – [REDACTED] (3,531) (3,555) 18,144 12,452 (3,056) (3,663) 15,088 8,789

PRINCIPAL COMPONENTS OF COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Revenue

We derived our revenue during the Track Record Period from provision of the following services, namely, (a) cleaning services; (b) pest management services, (c) waste management and recycling services, and (d) landscaping services. Our total revenue amounted to approximately HK$363.5 million and HK$404.1 million for the two years ended 31 December 2016, respectively.

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FINANCIAL INFORMATION

The following table sets forth our revenue by business segments during the Track Record Period:

Cleaning services – Street cleaning services (Note 1) – Cultural, leisure and recreational premises cleaning services – Residential premises cleaning services – Other cleaning services_(Note 2)_ Subtotal Pest management services Waste management and recycling services Landscaping services Total	For the 2015 HK$’000 239,030 44,461 15,464 6,444 305,399 43,346 14,722 – 363,467	year ended 31 December 2016 % HK$’000 % 65.8 259,894 64.3 12.2 59,237 14.6 4.2 16,131 4.0 1.8 8,720 2.2 84.0 343,982 85.1 11.9 31,552 7.8 4.1 27,870 6.9 – 720 0.2 100.0 404,124 100.0	year ended 31 December 2016 % HK$’000 % 65.8 259,894 64.3 12.2 59,237 14.6 4.2 16,131 4.0 1.8 8,720 2.2 84.0 343,982 85.1 11.9 31,552 7.8 4.1 27,870 6.9 – 720 0.2 100.0 404,124 100.0
			85.1
			7.8 6.9 0.2
			100.0

Notes:

Street cleaning services include cleaning services for streets and markets.
Other cleaning services include commercial cleaning services for commercial buildings and academic institutions, etc.

During the Track Record Period, the largest component of our revenue was cleaning services, representing approximately 84.0% and 85.1% of our total revenue for the two years ended 31 December 2016, respectively.

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FINANCIAL INFORMATION

The following table sets forth our revenue by customer type during the Track Record Period:

Public sector1 Private sector2 Total	For the 2015 HK$’000 341,685 21,782 363,467	year ended 31 December 2016 % HK$’000 % 94.0 382,400 94.6 6.0 21,724 5.4 100.0 404,124 100.0	year ended 31 December 2016 % HK$’000 % 94.0 382,400 94.6 6.0 21,724 5.4 100.0 404,124 100.0
			100.0

Notes:

Public sector mainly refers to departments of the HK Government.
Private sector mainly refers to all companies and corporate bodies other than departments of the HK Government, such as statutory organisations, universities and companies receiving substantial funding from the HK Government.

We generated majority of our revenue from customers of the public sector during the Track Record Period. For the two years ended 31 December 2016, approximately 94.0% and 94.6% of our revenue were generated from our customers from the public sector, respectively.

For the two years ended 31 December 2016, approximately 99.0% and 99.2% of our revenue were generated through tendering, respectively. We may also receive requests for quotations from previous customers, existing customers and other third parties from different industries. Further details on the tendering are set forth in the section headed “Business” in this [ REDACTED ].

Our Directors confirm that during the Track Record Period, no contracts has been terminated by our customers before the contract end date.

Cost of services

Our cost of services mainly consists of direct labour costs, vehicle expenses, direct overheads and consumables. Our total cost of services amounted to approximately HK$328.9 million and HK$363.9 million for the two years ended 31 December 2016, respectively.

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FINANCIAL INFORMATION

The table below sets forth a breakdown of our cost of services by type for the periods indicated:

Direct labour costs (Note) Vehicle expenses Consumables Direct overheads Total	For the 2015 HK$’000 281,945 34,382 8,229 4,338 328,894	year ended 31 December 2016 % HK$’000 % 85.7 309,892 85.2 10.5 37,665 10.3 2.5 10,230 2.8 1.3 6,143 1.7 100.0 363,930 100.0	year ended 31 December 2016 % HK$’000 % 85.7 309,892 85.2 10.5 37,665 10.3 2.5 10,230 2.8 1.3 6,143 1.7 100.0 363,930 100.0
			100.0

Note: Direct labour costs comprise the salaries and welfares of our frontline workers.

During the Track Record Period, the largest component of our cost of services was direct labour costs, which mainly included salaries, contributions to retirement schemes and provisions for long service payment, representing approximately 85.7% and 85.2% of our total cost of services for the two years ended 31 December 2016, respectively.

Vehicle expenses primarily consist of fuel cost, depreciation of vehicles, vehicles insurance, vehicle licence and tunnel fee, vehicle rental costs and repair and maintenance cost, representing 10.5% and 10.3% of the total cost of services for the two years ended 31 December 2016.

Consumables primarily consist of, among others, garbage bags, detergents and chemicals, representing approximately 2.5% and 2.8% of our total cost of services for the two years ended 31 December 2016, respectively.

Direct overheads primarily consist of insurance expenses in relation to employee compensation and public liabilities, and other operating costs, representing approximately 1.3% and 1.7% of our total cost of services for the two years ended 31 December 2016, respectively.

The table below sets forth a breakdown of our cost of service by (i) direct service cost and (ii) subcontracting cost:

Direct service cost Subcontracting cost Total	For the 2015 HK’000 327,102 1,792 328,894	year ended 31 December 2016 % HK’000 % 99.5 363,125 99.8 0.5 805 0.2 100.0 363,930 100.0	year ended 31 December 2016 % HK’000 % 99.5 363,125 99.8 0.5 805 0.2 100.0 363,930 100.0
			100.0

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FINANCIAL INFORMATION

Direct service cost consists of cost of services excluding the subcontracting cost. It accounted for approximately 99.5% and 99.8% of our total cost of services for the two years ended 31 December 2016, respectively.

During the Track Record Period, there were two subcontractors which were engaged in the cleaning services and waste management and recycling services. For the two years ended 31 December 2016, the total subcontracting cost accounted for approximately 0.5% and 0.2% of our total cost of services, respectively.

Gross profit and gross profit margin

The following table sets forth the gross profit and gross profit margin, which is equivalent to segment results and segment results margin, by business segment and the percentage of total gross profit by business segment for the periods indicated:

Cleaning services Pest management services Waste management and recycling services Landscaping services Total	Gross profit HK$’000 28,294 1,526 4,753 –	For the year ended 31 December 2015 2016 % to total Gross margin % Gross profit HK$’000 % to total 81.8 9.3 31,555 78.5 4.4 3.5 3,365 8.4 13.8 32.3 5,256 13.0 – – 18 0.1 100.0 9.5 40,194 100.0	For the year ended 31 December 2015 2016 % to total Gross margin % Gross profit HK$’000 % to total 81.8 9.3 31,555 78.5 4.4 3.5 3,365 8.4 13.8 32.3 5,256 13.0 – – 18 0.1 100.0 9.5 40,194 100.0	For the year ended 31 December 2015 2016 % to total Gross margin % Gross profit HK$’000 % to total 81.8 9.3 31,555 78.5 4.4 3.5 3,365 8.4 13.8 32.3 5,256 13.0 – – 18 0.1 100.0 9.5 40,194 100.0	For the year ended 31 December 2015 2016 % to total Gross margin % Gross profit HK$’000 % to total 81.8 9.3 31,555 78.5 4.4 3.5 3,365 8.4 13.8 32.3 5,256 13.0 – – 18 0.1 100.0 9.5 40,194 100.0	Gross margin % 9.2 10.7 18.8 2.5
	34,573	100.0	9.5	40,194	100.0	9.9

Cleaning services

Our gross profit margins of cleaning services were approximately 9.3% and 9.2% during the two years ended 31 December 2016, respectively.

Pest management services

Our gross profit margins of pest management services were approximately 3.5% and 10.7% for the two years ended 31 December 2016, respectively.

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Waste management and recycling services

Our gross profit margins of waste management and recycling services were approximately 32.3% and 18.8% for the two years ended 31 December 2016, respectively.

Landscaping services

We have started to provide landscaping services since March 2016 and our gross profit margin was approximately 2.5% for the year ended 31 December 2016.

Other income

Bank interest income Interest income from deposits in life insurance policies Sundry income	For the year ended 31 December 2015 2016 HK$’000 HK$’000 180 210 176 248 13 187 369 645	For the year ended 31 December 2015 2016 HK$’000 HK$’000 180 210 176 248 13 187 369 645
		645

During the Track Record Period, other income mainly represents bank interest income and interest income from deposits in our life insurance policies which are the key persons insurances for Mr. Lam and Ms. Wong. For the two years ended 31 December 2016, other income were approximately HK$0.4 million and HK$0.7 million, respectively.

Other gains and losses

Gain on disposal/written off of plant and equipment, net Net foreign exchange loss	For the year ended 31 December 2015 2016 HK$’000 HK$’000 19 286 (549) (571) (530) (285)	For the year ended 31 December 2015 2016 HK$’000 HK$’000 19 286 (549) (571) (530) (285)
		(285)

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FINANCIAL INFORMATION

During the Track Record Period, other gains and losses mainly represents gains on disposal of plant and equipment and net foreign exchange losses.

Administrative expenses

The following table sets forth the breakdown of administrative expenses for the periods indicated:

Salaries and welfares (Note) Legal and professional fee Office expenses Rent and rate Depreciation Advertising and promotion Others Total	For the 2015 HK$’000 6,423 567 2,647 1,813 677 532 78 12,737	year ended 31 December 2016 % HK$’000 % 50.4 9,615 54.4 4.5 2,097 11.9 20.8 2,914 16.5 14.2 1,885 10.7 5.3 919 5.2 4.2 236 1.3 0.6 1 0.0 100.0 17,667 100.0	year ended 31 December 2016 % HK$’000 % 50.4 9,615 54.4 4.5 2,097 11.9 20.8 2,914 16.5 14.2 1,885 10.7 5.3 919 5.2 4.2 236 1.3 0.6 1 0.0 100.0 17,667 100.0
			100.0

Note: These payments relate to our office-based employees.

Our administrative expenses primarily include salaries and welfares for administrative personnel, legal and professional fees, office expenses and rent and rate. For the two years ended 31 December 2016, our administrative expenses were approximately HK$12.7 million and HK$17.7 million, equal to approximately 3.5% and 4.4% of our revenue for those periods, respectively.

Finance costs

The following table sets forth a breakdown of our finance costs for the periods indicated:

Interests on: Bank borrowings Obligations under finance leases Total	For the year ended 31 December 2015 2016 HK$’000 HK$’000 2,516 2,316 1,015 1,239 3,531 3,555	For the year ended 31 December 2015 2016 HK$’000 HK$’000 2,516 2,316 1,015 1,239 3,531 3,555
		3,555

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FINANCIAL INFORMATION

Our finance costs represent interests on bank borrowings and obligations under finance leases for vehicles. For the two years ended 31 December 2016, our finance costs were approximately HK$3.5 million and HK$3.6 million, representing approximately 1.0% and 0.9% of our revenue for those periods, respectively.

Income tax expenses

Our income tax expenses represent corporate income tax expenses and deferred tax expenses. During the two years ended 31 December 2016, our effective income tax rates were approximately 16.8% and 29.4%, respectively. Excluding the non-deductible [ REDACTED ], the effective tax rate for the year ended 31 December 2016 is 18.9%. Our Group’s profits were all derived from Hong Kong during the Track Record Period and our profits tax had been calculated at a 16.5% of the estimated assessable profit.

YEAR TO YEAR COMPARISON OF RESULTS OF OPERATIONS

Year ended 31 December 2016 compared to year ended 31 December 2015

Revenue

Our revenue was approximately HK$404.1 million for the year ended 31 December 2016, which represented an increase of approximately HK$40.7 million or 11.2% from HK$363.5 million for the year ended 31 December 2015. The increase was primarily attributable to an increase in the revenue from the public sector by approximately HK$40.7 million or 11.9%.

Revenue from cleaning services

Our revenue from cleaning services increased by approximately HK$38.6 million or 12.6% from approximately HK$305.4 million for the year ended 31 December 2015 to approximately HK$344.0 million for the year ended 31 December 2016. The increase was primarily attributable to the commencement of cleaning service contracts in Wanchai East, Wanchai West and Wong Tai Sin Districts during the year ended 31 December 2016 and the full year effect of the cleaning service contract in Southern District commenced in November 2015, which was partially offset by the expiry of cleaning service contracts in Sai Kung, Mongkok and Taipo Districts during the year ended 31 December 2016.

Revenue from pest management services

Our revenue from pest management services decreased by approximately HK$11.8 million or 27.2% from approximately HK$43.3 million for the year ended 31 December 2015 to approximately HK$31.6 million for the year ended 31 December 2016. The decrease was primarily attributable to the decrease in the number of pest management services contracts from six during the year ended 31 December 2015 to three during the year ended 31 December 2016.

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FINANCIAL INFORMATION

Revenue from waste management and recycling services

Our revenue from waste management and recycling services increased by approximately HK$13.1 million or 89.3% from approximately HK$14.7 million for the year ended 31 December 2015 to approximately HK$27.9 million for the year ended 31 December 2016. The increase was primarily attributable to the commencement of two new contracts in Sai Kung District and Northern Kwun Tong District during the year ended 31 December 2016.

Revenue from landscaping services

We started to provide landscaping services since March 2016. Our revenue derived from landscaping services amounted to approximately HK$0.7 million for the year ended 31 December 2016.

Cost of services

Our cost of services was approximately HK$363.9 million for the year ended 31 December 2016, which represented an increase of approximately HK$35.0 million or approximately 10.7%, from approximately HK$328.9 million for the year ended 31 December 2015. The increase in cost of services was mainly attributable to an increase in direct labour costs, which were in line with the change in renveue. The increase in labour cost was due to the commencement of three new cleaning service contracts during the year ended 31 December 2016 and the full year effect of the cleaning service contract commenced in November 2015, which was partially offset by the expiry of two cleaning service contracts during the year ended 31 December 2016.

Gross profit and gross profit margin

Our gross profit increased by approximately HK$5.6 million or 16.3% from approximately HK$34.6 million for the year ended 31 December 2015 to approximately HK$40.2 million for the year ended 31 December 2016.

Our gross profit margin remained stable at 9.5% and 9.9% for the years ended 31 December 2015 and 2016, respectively.

Other income

Other income increased by approximately HK$276,000 or 74.8% from approximately HK$369,000 for the year ended 31 December 2015 to approximately HK$645,000 for the year ended 31 December 2016, due to an increase in interest income from deposits in the life insurance policies by approximately HK$72,000 and an increase of sundry income by approximately HK$174,000.

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FINANCIAL INFORMATION

Other gains and losses

The Group recorded other losses of approximately HK$530,000 and HK$285,000 during the two years ended 31 December 2015 and 2016. The decrease of the other losses for the year ended 31 December 2016 was mainly attributed to the increase in net foreign exchange losses arisen from the pledged RMB short-term bank deposits which was partially offset by the gain on disposal of plant and equipment during the year ended 31 December 2016.

Administrative expenses

Our administrative expenses were approximately HK$17.7 million for the year ended 31 December 2016, which represented an increase of approximately HK$4.9 million or 38.7% from HK$12.7 million for the year ended 31 December 2015. The increase was primarily attributable to (i) the increase of salaries and welfares by approximately HK$3.2 million due to an increase in the headcount of our office-based employees from 27 to 39 as at 31 December 2015 and 31 December 2016 respectively; and (ii) the increase of legal and professional fee from approximately HK$0.6 million for the year ended 31 December 2015 to HK$2.1 million for the year ended 31 December 2016 mainly due to our engagement of a tax representative and a new auditor.

[ REDACTED ]

[ REDACTED ] in relation to the [ REDACTED ] of approximately [ REDACTED ] was charged to the combined statements of profit or loss and other comprehensive income for the year ended 31 December 2016.

Finance costs

Our finance costs were approximately HK$3.6 million for the year ended 31 December 2016, which represented an increase of approximately HK$24,000 or 0.7% from HK$3.5 million for the year ended 31 December 2015. The increase was primarily attributable to the increase in interest expenses of finance leases from approximately HK$1.0 million for the year ended 31 December 2015 to approximately HK$1.2 million for the year ended 31 December 2016 and partially offset by the reduction in interest expenses of bank borrowings by approximately HK$0.2 million.

Income tax expense

Our income tax was approximately HK$3.7 million for the year ended 31 December 2016, which represented an increase of approximately HK$0.6 million or 19.9% from HK$3.1 million for the year ended 31 December 2015. The increase was primarily due to the tax effect of [ REDACTED ] incurred for the year ended 31 December 2016 not deductible for tax purpose.

Profit and total comprehensive income

As a result of the foregoing, our profit and total comprehensive income for the period decreased by approximately HK$6.3 million or 41.7%, from approximately HK$15.1 million for the year ended 31 December 2015 to approximately HK$8.8 million for the year ended 31 December 2016.

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FINANCIAL INFORMATION

DISCUSSION ON MAJOR ITEMS OF THE COMBINED STATEMENTS OF FINANCIAL POSITION

Statement of financial position

Non-current assets Plant and equipment Deposits and prepayments Deposits for acquisition of plant and equipment Current assets Trade receivables Other receivables, deposits and prepayments Amount due from a controlling shareholder Pledged bank balances Bank balances and cash Current liabilities Trade payables Other payables and accrued charges Provisions Tax payable Amount due to a related party Bank borrowings Obligations under finance leases Net current assets Total assets less current liabilities	As at 31 December 2015 2016 HK$’000 HK$’000 33,038 44,843 5,382 8,901 2,317 – 40,737 53,744 85,997 72,545 3,356 9,461 8,618 2,361 9,280 9,080 15,386 4,624 122,637 98,071 3,871 3,148 25,635 24,027 4,725 3,456 2,833 1,826 80 11 70,334 48,783 10,370 11,258 117,848 92,509 4,789 5,562 45,526 59,306	As at 31 December 2015 2016 HK$’000 HK$’000 33,038 44,843 5,382 8,901 2,317 – 40,737 53,744 85,997 72,545 3,356 9,461 8,618 2,361 9,280 9,080 15,386 4,624 122,637 98,071 3,871 3,148 25,635 24,027 4,725 3,456 2,833 1,826 80 11 70,334 48,783 10,370 11,258 117,848 92,509 4,789 5,562 45,526 59,306
		53,744
		72,545 9,461 2,361 9,080 4,624
		98,071
		3,148 24,027 3,456 1,826 11 48,783 11,258
		92,509
		5,562
		59,306

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FINANCIAL INFORMATION

Non-current liabilities Provisions Deferred tax liabilities Obligations under finance leases Net assets Capital and reserves Issued share capital Reserves Equity attributable to owners of the Company	As at 31 December 2015 2016 HK$’000 HK$’000 1,768 1,748 2,861 3,590 14,623 18,905 19,252 24,243 26,274 35,063 10,200 8 16,074 35,055 26,274 35,063	As at 31 December 2015 2016 HK$’000 HK$’000 1,768 1,748 2,861 3,590 14,623 18,905 19,252 24,243 26,274 35,063 10,200 8 16,074 35,055 26,274 35,063
		24,243
		35,063

		8 35,055
		35,063

Plant and equipment

The following table sets out the respective carrying values of our plant and equipment as at the respective dates as indicated:

Leasehold improvements Office equipment Site equipment Motor Vehicles Total	As at 2015 HK$’000 358 499 2,221 29,960 33,038	31 December 2016 HK$’000 248 391 2,165 42,039
		44,843

As shown in the table above, our Group’s plant and equipment consist mainly of motor vehicles used in various projects. Motor vehicles include tipper lorries, street washing vehicles, grab lorries, mechanical street sweeping vehicles, van and privates cars.

The carrying amount of motor vehicles increased from approximately HK$30.0 million as at 31 December 2015 to approximately HK$42.0 million as at 31 December 2016 resulting from the purchase of 35 new motor vehicles with a total purchase cost of approximately HK$24.9 million during the year ended 31 December 2016. For further details of the motor vehicles for our Group’s operations, please refer to the paragraphs headed “Business — Major Assets and Equipment — Vehicles” in this [ REDACTED ].

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FINANCIAL INFORMATION

Trade receivables

Our trade receivables mainly represented the outstanding amounts receivable from our customers.

The following table sets forth our trade receivables as at the date indicated:

		As at 31 December	As at 31 December
		2015	2016
		HK$’000	HK$’000
Trade	receivables	85,997	72,545

As at 31 December 2016, the trade receivables was approximately HK$72.5 million, representing a decrease of approximately HK$13.5 million or 15.6%, from HK$86.0 million as at 31 December 2015. The decrease was primarily attributable to the completion of three cleaning service contracts from the public sector in the second half of 2016.

As at the Latest Practicable Date, approximately HK$61.4 million or 84.6% of our trade receivables as at 31 December 2016 was subsequently settled.

Ageing analysis of trade receivables

The following table sets forth an ageing analysis of our trade receivables based on the invoice date, which approximated the respective dates on which revenue was recognised.

0-30 days 31-60 days 61-90 days Over 90 days	As at 2015 HK$’000 31,143 29,832 20,247 4,775 85,997	31 December 2016 HK$’000 27,412 25,674 10,122 9,337
		72,545

We generally grant a credit term ranging from 60 days to 90 days for our customers depending on their creditworthiness. In relation to customers from the public sector, they require additional supporting documents and to go through administrative procedures before settling our invoices. Therefore, credit period is generally not specified in these contracts. As at 31 December 2015 and 31 December 2016, our trade receivables due from top two customers from public sector without specifying credit period in contracts amounted to approximately HK$80.1 million and HK$65.4 million, respectively. During the Track Record Period and up to the Latest Practicable Date, we did not experience any material difficulty in collecting payment from such customers.

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FINANCIAL INFORMATION

As at 31 December 2015 and 31 December 2016, no allowance for doubtful debts is granted. The trade receivables aged more than 90 days had been past due and our Group has not provided for impairment loss as there has not been a significant change in credit quality of these customers. No impairment loss on trade receivables was recognised during the Track Record Period.

The following table sets forth our trade receivables turnover days for the periods indicated.

	As at 31 December	As at 31 December
	2015	2016
Average trade receivables1 (HK$’000)	80,985	79,271
Trade receivables turnover days2	81.3	71.6

Note:

Average trade receivables are the trade receivables at the beginning of the year plus the trade receivables at the end of the year, divided by two.
Trade receivables turnover days for the two years ended 31 December 2016 were calculated by dividing the average of the opening and closing balances of trade receivables for the relevant periods by our revenue for the same year and multiplying the quotient by 365 days.

Trade receivables turnover days decreased from approximately 81.3 days for the year ended 31 December 2015 to approximately 71.6 days for the year ended 31 December 2016, primarily due to a comparatively lower revenue recorded during the fourth quarter of 2016, as compared to the fourth quarter of 2015.

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FINANCIAL INFORMATION

Other receivables, deposits and prepayments

Other receivables, deposits and prepayments primarily consisted of payments for life insurance policies and prepayments. Our other receivables, deposits and prepayments amounted to approximately HK$8.7 million and HK$18.4 million as at 31 December 2015 and 31 December 2016, respectively. The following table sets forth a breakdown of other receivables, deposits and prepayments as at the dates indicated:

Rental and utilities deposits Deposits paid to suppliers Payments for life insurance policies (Note) Other receivables Prepayments Deferred and prepaid [REDACTED] Total Presented as non-current assets Presented as current assets Total	As at 2015 HK$’000 473 560 4,395 277 3,033 [REDACTED] 8,738 5,382 3,356 8,738	31 December 2016 HK$’000 594 731 7,685 4,065 3,575 [REDACTED] 18,362 8,901 9,461 18,362

Note: Refer to key persons insurances for Mr. Lam and Ms. Wong.

The increase in other receivables, deposits and prepayments from approximately HK$8.7 million as at 31 December 2015 to approximately HK$18.4 million as at 31 December 2016 was primarily attributable to the increase in deferred and prepaid non-recurring [ REDACTED ], payments for life insurance policies and other receivables.

Pledged bank balances

The pledged bank balances amounted to approximately HK$9.3 million and HK$9.1 million as at 31 December 2015 and 31 December 2016, respectively as to secure the banking facilities (including the bank borrowings and performance guarantee) granted to the Group.

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FINANCIAL INFORMATION

Trade payables

Our trade payables primarily relate to payables due to our third party service providers and suppliers. The credit period is 30 to 60 days. The following table sets forth the balance of our trade payables for the periods indicated:

Trade payables	As at 2015 HK$’000 3,871	31 December 2016 HK$’000 3,148

Our trade payables decreased by approximately HK$0.7 million or 18.7%, from HK$3.9 million as at 31 December 2015 to approximately HK$3.1 million as at 31 December 2016, primarily due to the early settlement to some of our largest suppliers during the Track Record Period.

As at the Latest Practicable Date, approximately HK$2.9 million or 93.5% of our trade payables outstanding as at 31 December 2016 were paid.

Ageing analysis of trade payables

The following table sets forth an aging analysis of our trade payables as at the dates indicated:

0-30 days 31-60 days 61-90 days Over 90 days	As at 2015 HK$’000 1,491 1,263 583 534 3,871	31 December 2016 HK$’000 1,340 1,029 234 545
		3,148

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FINANCIAL INFORMATION

The following table sets forth our trade payables turnover days for the periods indicated.

Trade payables turnover days1	As at 2015 35.2	31 December 2016 23.7

Note:

Trade payables turnover days for the two years ended 31 December 2016 have been calculated by dividing the average of the opening and closing balances of trade payables for the relevant period by the cost of services (excluding direct labour costs) for the same year and multiplying by 365 days.

Trade payables turnover days decreased from approximately 35.2 days for the year ended 31 December 2015 to approximately 23.7 days for the year ended 31 December 2016. The decrease was mainly attributable to the early settlement with the suppliers during the year.

Other payables and accrued charges

The other payables and accrued charges mainly consist of salaries payables. Our other payables and accrued charges amounted to approximately HK$25.6 million and HK$24.0 million as at 31 December 2015 and 31 December 2016, respectively. The following table sets forth a breakdown of our other payables and accruals as at the dates indicated:

Salaries payables Other payables and accrued charges	As at 2015 HK$’000 23,953 1,682 25,635	31 December 2016 HK$’000 20,356 3,671
		24,027

As at 31 December 2016, our other payables and accrued charges was HK$24.0 million, representing a decrease of approximately HK$1.6 million or 6.3% from approximately HK$25.6 million as at 31 December 2015. The decrease was mainly attributable to the reduction in headcount from 2,631 as at 31 December 2015 to 2,263 as at 31 December 2016. The reduction in headcount led to lower salaries for December 2016 as compared to December 2015. The other payables and accrued charges was approximately HK$3.7 million as at 31 December 2016, representing an increase of approximately HK$2.0 million from 31 December 2015. The increase was due to an accrual of approximately HK$2.8 million of [ REDACTED ].

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FINANCIAL INFORMATION

Provisions

Our provisions refer to the provision of the probable future redundancy cost expected to be made to employees under the Employment Ordinance. Our provisions amounted to approximately HK$6.5 million and HK$5.2 million as at 31 December 2015 and 31 December 2016, respectively. The following table sets forth a breakdown of our provisions as at the dates indicated:

Presented as non-current liabilities Presented as current liabilities	As at 2015 HK$’000 1,768 4,725 6,493	31 December 2016 HK$’000 1,748 3,456
		5,204

The provision amounted to HK$5.2 million as at 31 December 2016, representing a decrease of approximately HK$1.3 million or 19.9% from HK$6.5 million as at 31 December 2015. The decrease was mainly attributable to the settlement of redundancy cost in relation to the expiry of three street cleaning service contracts during the year. Under the Employment Ordinance, any employee under a continuous contract for not less than two years is eligible for severance payment if he is dismissed by reason of redundancy or is laid-off.

Amount due from a Controlling Shareholder

As at 31 December 2015 and 31 December 2016, the amount due from a Controlling Shareholder, Mr. Lam, amounted to approximately HK$8.6 million and HK$2.4 million, respectively. The amount is non-trade nature, unsecured, interest-free and repayable on demand.

The amount due to Mr. Lam will be fully settled prior to the [ REDACTED ].

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FINANCIAL INFORMATION

LIQUIDITY AND CAPITAL RESOURCES

Cash flow

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

Net cash flows from operating activities Net cash flows (used in)/from investing activities Net cash flows from/(used in) financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year	Year ended 31 December 2015 2016 HK$’000 HK$’000 21,851 1,604 (30,225) 1,305 3,356 (13,671) (5,018) (10,762) 20,404 15,386 15,386 4,624

Operating activities

Year ended 31 December 2016

Net cash inflows from operating activities amounted to approximately HK$1.6 million for the year ended 31 December 2016, consisting primarily of approximately HK$29.0 million of cash generated from operation before change in working capital, the net decrease in working capital of approximately HK$23.4 million and the tax payment of approximately HK$3.9 million. The net decrease in working capital primarily consisted of the combined effect of (i) the decrease in trade receivables of approximately HK$13.5 million, mainly due to the increase of revenue during the year ended 31 December 2016; and (ii) the decrease of factoring trade receivables with recourse of approximately HK$23.8 million because of sufficient internal fund.

Year ended 31 December 2015

Net cash inflows from operating activities amounted to approximately HK$21.9 million for the year ended 31 December 2015, consisting primarily of approximately HK$30.9 million of cash generated from operation before change in working capital, the net decrease in working capital of approximately HK$8.3 million and the tax payment of approximately HK$0.7 million. The net decrease in working capital primarily consisted of the combined effect of (i) the increase in trade receivables of approximately HK$10.0

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FINANCIAL INFORMATION

million primarily attributable to the award of 14 new service contracts from the public sector during the year ended 31 December 2015; and (ii) the decrease of factoring trade receivables with recourse of approximately HK$1.8 million mainly because of our lesser reliance on the factoring loans.

The explanations of fluctuations of the aforesaid items from the consolidated statements of financial position are set out in the paragraphs headed “Discussion on major items of the combined statements of financial position” in this section.

Investing activities

Year ended 31 December 2016

For the year ended 31 December 2016, we recorded net cash inflows from investing activities of approximately HK$1.3 million, as a result of repayment from a Controlling Shareholder of approximately HK$10.8 million, which was partially offset by (i) purchases of plant and equipment of approximately HK$5.8 million; and (ii) an advance to a Controlling Shareholder of approximately HK$4.5 million.

Year ended 31 December 2015

For the year ended 31 December 2015, we had net cash used in investing activities of approximately HK$30.2 million. The net cash used in investing activities was mainly attributable to (i) deposits paid for acquisition of plant and equipment of approximately HK$2.3 million; and (ii) an advance to a Controlling Shareholder of approximately HK$27.4 million.

Financing activities

Year ended 31 December 2016

For the year ended 31 December 2016, our net cash used in financing activities was approximately HK$13.7 million. The net cash used in financing activities were mainly attributable to (i) repayment of obligations under finance leases of approximately HK$12.4 million; and (ii) repayment of bank borrowings of approximately HK$29.4 million, which were partially offset by new bank borrowings of approximately HK$31.6 million.

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FINANCIAL INFORMATION

Year ended 31 December 2015

For the year ended 31 December 2015, our net cash from financing activities was approximately HK$3.4 million. The net cash flows from financing activities were mainly attributable to (i) new bank borrowings raised of approximately HK$15.3 million; and (ii) proceed from issuance of shares of approximately HK$4.6 million, which were partially offset by (i) repayment of obligations under finance leases of approximately HK$9.7 million; (ii) repayment of bank borrowings of approximately HK$3.3 million; and (iii) interest paid of approximately HK$3.5 million.

NET CURRENT ASSETS AND NET CURRENT LIABILITIES

The following table sets out our current assets and liabilities as at the date indicated:

Current assets Trade receivables Other receivables, deposits and prepayments Amount due from a controlling shareholder Pledged bank balances Bank balances and cash Total current assets Current liabilities Trade payables Other payables and accrued charges Provisions Tax payable Amount due to a controlling shareholder Amount due to a related party Bank borrowings Obligations under finance leases Total current liabilities Net current assets	As at 31 2015 HK$’000 85,997 3,356 8,618 9,280 15,386 122,637 3,871 25,635 4,725 2,833 – 80 70,334 10,370 117,848 4,789	December 2016 HK$’000 72,545 9,461 2,361 9,080 4,624 98,071 3,148 24,027 3,456 1,826 – 11 48,783 11,258 92,509 5,562	As at 31 January 2017 HK$’000 (unaudited) 69,092 14,055 – 9,080 7,039
			99,266
			2,800 24,753 3,456 1,261 6,765 11 43,126 11,077
			93,249
			6,017

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

We had net current assets of approximately HK$4.8 million, HK$5.6 million and HK$6.0 million as at 31 December 2015, 31 December 2016 and 31 January 2017, respectively.

Our net current assets increased from approximately HK$4.8 million as at 31 December 2015 to approximately HK$5.6 million as at 31 December 2016. The increase was primarily attributable to the decrease in current liabilities by approximately HK$25.3 million and partially offset by the decrease in current assets by approximately HK$24.6 million. The explanations of fluctuation of the major items of current assets and current liabilities are set out in the paragraphs headed “Discussion on major items of the combined statements of financial position” in this section.

Amounts due to a Controlling Shareholder

As at 31 January 2017, we had amount due to a controlling shareholder of approximately HK$6.8 million was payable within one year. The amount due to a controlling shareholder will be fully settled prior to the [ REDACTED ].

INDEBTEDNESS

Borrowings

During the Track Record Period, our borrowings primarily consist of interest-bearing borrowings from commercial banks. The following table sets forth our interest-bearing bank borrowings as at the dates indicated:

Secured bank overdrafts
Secured bank borrowings:
Term loans
Loans from factoring of trade receivables
with full recourse
Carrying amounts repayable*:
Within one year
More than one year, but not exceeding
two years
More than two years, but not more than
five years
More than five years
Less: Amounts due within one year or
contain a repayment on demand
clause shown under current
liabilities
Amounts shown under non-current
liabilities

As at 31 December
As at 31
January
2015
2016
2017
HK$’000
HK$’000
HK$’000
(unaudited)
1,895
3,950
3,324
13,991
14,193
8,942
54,448
30,640
30,860
70,334
48,783
43,126
58,366
37,156
36,438
2,083
2,519
2,178
4,981
4,764
3,580
4,904
4,344
930
70,334
48,783
43,126
(70,334)
(48,783)
(43,126)
–
–
–

The amounts due are based on scheduled repayment dates set out in the loan agreements.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

As at 31 December 2015, 31 December 2016 and 31 January 2017, we had approximately HK$70.3 million, HK$48.8 million and HK$39.8 million of secured bank borrowings, respectively. Such loans were primarily used in financing the working capital requirement of our operations. During the Track Record Period, the decrease in loans from factoring of trade receivables with full recourse was mainly due to our lesser reliance in the factoring loans. The amount of term loans remained stable at approximately HK$14.0 million and HK$14.2 million as at 31 December 2015 and 31 December 2016, respectively.

We intend to apply [ REDACTED ] of our net proceeds to repay a bank borrowing with an annual interest rate of 2.25% which will be due in April 2020.

As at 31 January 2017, our Group had total banking facilities of approximately HK$167.7 million, of which approximately HK$82.0 million was unutilised.

The banking facilities were secured by:

(i) the pledged bank balances;
(ii) payments of life insurance policies;
(iii) two properties owned by Ms. Wong and CCE Limited, a company owned by Mr. Lam;
(iv) a property owned by CCE Limited since the year ended 31 December 2015;
(v) two properties owned by related companies, namely LES Limited and CCT Limited, which are wholly owned by Mr. Lam and Ms. Wong, respectively, both of whom are our Controlling Shareholders, since the year ended 31 December 2015;
(vi) unlimited corporate guarantee provided by certain subsidiaries of our Group;
(vii) unlimited personal guarantee provided by Mr. Lam and Ms. Wong, respectively, both of whom are Controlling Shareholders;
(viii) project proceeds from certain service contracts of our Group; and
(ix) the pledge of the Group’s trade receivables.

Our Directors consider that the pledge of properties by Ms. Wong and related companies and personal guarantee by the Controlling Shareholders will be released upon the [ REDACTED ].

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FINANCIAL INFORMATION

The following table sets forth the interest rates applicable to our bank borrowings for the periods indicated:

	As at 31 December	As at 31 December
	2015	2016
	HK$’000	HK$’000
Effective interest rate per annum:
Floating-rate borrowings	2.25%–6.25%	2.25%–5.25%

Obligations under finance leases

Certain vehicles of our Group were under finance leases. Our obligations under finance leases were secured by the lessor’s charge over the leased assets, corporate guarantee provided by a subsidiary of our Group and personal guarantee provided by Mr. Lam. Our obligations under finance leases increased during the Track Record Period, amounting to approximately HK$25.0 million and HK$30.2 million as at 31 December 2015 and 31 December 2016, respectively. The increase in our obligations under finance leases was mainly attributable to certain vehicles we acquired using finance leases during the Track Record Period. The lease terms ranged from three to five years for the Track Record Period. Interest rates underlying all obligations under finance leases are fixed at respective contract dates ranging from 1.35% to 3.0% per annum as at 31 December 2015 and 31 December 2016, respectively.

As at 31 January 2017, we had obligations under finance leases of approximately HK$29.1 million, of which approximately HK$11.1 million was payable within one year and approximately HK$18.0 million was payable between two to five years.

Contingent liabilities

As at 31 December 2015 and 31 December 2016, performance guarantee of approximately HK$49.0 million and HK$50.7 million, respectively were given by banks in favour of our customers as security for the due performance and observance of our obligations under the contracts entered into between our Group and our customers. If our Group fails to provide satisfactory performance to our customers to whom performance guarantees have been given, such customers may demand the banks to pay to them the sum or sum stipulated in such demand. Our Group will become liable to compensate such banks accordingly. The performance guarantees will be released upon completion of the service contracts. The performance guarantees were granted under the banking facilities with details as set out in note 22 of the Accountants’ Report in Appendix I to this [ REDACTED ].

At the end of each reporting period, our Directors do not consider that a claim will be made against our Group.

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FINANCIAL INFORMATION

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities and normal trade payables, we did not have outstanding debt securities, borrowings and indebtedness such as loan capital issued and outstanding or agreed to be issued, bank overdraft, loans or other similar indebtedness, finance lease or hire purchase commitments, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, guarantees or other material contingent liabilities at the close of business as at the Latest Practicable Date.

Our Directors confirm that there has been no material change in the contingent liabilities of our Group since 31 December 2016 and up to the Latest Practicable Date.

Material indebtedness change

Our Directors confirm that there had been no material adverse change in our Group’s indebtedness since 31 January 2017 and up to the Latest Practicable Date.

CAPITAL COMMITMENTS

Our Group did not have any capital commitment as at 31 December 2015 and 31 December 2016.

OPERATING LEASE COMMITMENTS

Our Group as lessee

As at 31 December 2015 and 31 December 2016, our Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive	As at 31 December 2015 2016 HK$’000 HK$’000 987 1,161 1,324 496 2,311 1,657	As at 31 December 2015 2016 HK$’000 HK$’000 987 1,161 1,324 496 2,311 1,657
		1,657

The above operating lease payments represent rental payable by our Group for office premises for the Track Record Period.

Leases and rentals are negotiated and fixed for a term of two to three years.

In addition, Golden Field Services Limited, a company owned by Mr. Lam, has signed lease agreements on our Group’s behalf for premises which are occupied by our Group. The operating lease commitments are not included in the above.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

PLANNED CAPITAL EXPENDITURE

Our planned expenditure in the coming year will include the procurement of equipment and vehicles to enhance our operational resources to strengthen our established presence in the environmental hygiene service industry in Hong Kong as disclosed in the section headed “Future plans and use of proceeds” in this [ REDACTED ]. Our Directors expect that the planned capital expenditure will be funded by [ REDACTED ] from the [ REDACTED ].

Our capital expenditure for the years ending 31 December 2017 and 2018 is expected to be amounted to approximately HK$46.3 million and HK$8.7 million, respectively.

Save as disclosed and including additional plant and equipment, such as leasehold improvements, office equipment, site equipment and motor vehicles necessary for our business operations which will be made by our Group from time to time, our Group had no material planned capital expenditure as at the Latest Practicable Date.

OFF-BALANCE SHEET TRANSACTIONS

Except as disclosed in this [ REDACTED ], we have not entered into any off-balance sheet guarantees or other commitments to guarantee the payment obligations of any third parties.

We do not have any interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing or hedging or research and development or other services with us.

MARKET RISKS

We are exposed to various types of market risks from its use of financial instruments, mainly including interest rate risk, foreign currency risk, credit risk and liquidity risk.

Interest rate risk

We are exposed to fair value interest rate risk in relation to obligations under finance leases.

We are also exposed to cash flow interest rate risk in relation to the payments for life insurance policies, pledged bank balances and bank balances as well as floating-rate bank borrowings as at 31 December 2015 and 31 December 2016.

We have not used any interest rate swaps to mitigate our exposure associated with interest rate risk. However, our management monitors interest rate exposure and will consider hedging significant interest rate exposure should the need arise.

Our cash flow interest rate risk is mainly concentrated on the fluctuation of Hong Kong Dollar Prime Rate arising from our bank borrowings or other market interest rate from pledged bank balances and payments for life insurance policies.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

Currency risk

We have limited currency exposure as both the revenue and direct costs were denominated in the functional currency of the Group. Accordingly, our management considers that our exposure to foreign currency risk is minimal.

As at 31 December 2015 and 31 December 2016, the pledged bank balances of approximately HK$9.3 million and HK$9.1 million, respectively, and bank balances of approximately HK$0.7 million and HK$0.5 million, respectively, are denominated at RMB. The payments for life insurance policies of approximately HK$4.4 million and HK$7.7 million as at 31 December 2015 and 31 December 2016, respectively, are denominated at USD. RMB and USD are the currencies other than the functional currencies of our Group.

Since the exchange rate of HK$ is pegged with USD, we do not expect any significant movements in the USD/HK$ exchange rates. Thus, there is no sensitivity analysis on USD denominated financial assets.

The sensitivity analysis includes only the outstanding foreign currency denominated monetary items and adjusts their translation at the end of the reporting period. Sensitivity analysis of strengthening 10% in functional currency of the entities comprising our Group (i.e. HK$) against RMB resulted a decrease in post-tax profit of approximately HK$0.8 million and HK$0.8 million during the two years ended 31 December 2016, respectively. For a 10% weakening of HK$ against RMB there would be an equal and opposite impact on the results.

Credit risk

Our credit risk is primarily attributable to trade receivables, payments for life insurance policies, amount due from a Controlling Shareholder, pledged bank balances and bank balances.

Our maximum exposure to credit risk which will cause a financial loss to our Group due to failure to discharge the obligations by counterparties is arising from the carrying amount of the respective recognised financial assets as stated in the combined statements of financial position at the end of the reporting period.

Our customers are mainly government departments/organisations and thus credit risk is considered to be low. Except for the customers of government departments/ organisations which our management considers are of good credit quality, our management has delegated a team responsible for monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, we review the recoverable amount of each individual receivable at the end of each reporting period to ensure that adequate impairment losses are made for irrecoverable amounts.

We have concentration of credit risks with exposure limited to certain customers. Top two customers amounting to approximately HK$80.1 million and HK$65.4 million, respectively, comprised approximately 93.2% and 90.2% of our Group’s trade receivables as at 31 December 2015 and 31 December 2016. Our Directors closely monitor the subsequent settlement of the customers. In this regard, our Directors consider that our credit risk is significantly reduced.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

As at 31 December 2015 and 31 December 2016, we have concentration of credit risk in respect of amount due from a Controlling Shareholder. In order to minimise the credit risk on amount due from a Controlling Shareholder, our management continuously monitors the settlement status of our Controlling Shareholder and the level of exposure to ensure that follow-up action is taken to recover overdue debts, if any. Under such circumstances, our management considers that our credit risk is not material.

The credit risk for payments for life insurance policies, pledged bank balances and bank balances is considered as not material as such amounts are placed in banks with good reputations.

Liquidity risk

In the management of the liquidity risk, we monitor and maintain a level of cash and cash equivalents deemed adequate by management to finance our operations and mitigate the effects of unexpected fluctuations in cash flows.

The following table details our remaining contractual maturity for our non-derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which we can be required to pay. Specifically, bank borrowings with a repayment on demand clause are included in the earliest time band regardless of the probability of the banks choosing to exercise their rights. The maturity dates for other non-derivative financial liabilities are based on the agreed repayment dates. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate at the end of each reporting period.

The table includes both interest and principal cash flows.

Weighted average effective interest rate % As at 31 December 2015 Non-derivative financial liabilities Trade payables N/A Other payables and accrued charges N/A Amount due to a related party N/A Bank borrowings 4.70 Obligations under finance leases 1.95	Repayable on demand HK$’000 – 243 – 70,334 – 70,577	Within 1 year HK$’000 3,871 1,439 80 – 10,975 16,365	Within 1–5 years HK$’000 – – – – 15,520 15,520	Total undiscounted cash flows HK$’000 3,871 1,682 80 70,334 26,495 102,462	Total carrying amount HK$’000 3,871 1,682 80 70,334 24,993
					100,960

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

Weighted average effective interest rate % As at 31 December 2016 Non-derivative financial liabilities Trade payables N/A Other payables and accrued charges N/A Amount due to a related party N/A Bank borrowings 4.38 Obligations under finance leases 1.92	Repayable on demand HK$’000 – – – 48,783 – 48,783	Within 1 year HK$’000 3,148 3,671 11 – 12,164 18,994	Within 1–5 years HK$’000 – – – – 19,819 19,819	Total undiscounted cash flows HK$’000 3,148 3,671 11 48,783 31,983 87,596	Total carrying amount HK$’000 3,148 3,671 11 48,783 30,163
					85,776

The amount included above for non-derivative financial liabilities bear variable interest instruments are subject to change if changes in variable interest rates differ to those estimates of interest rates determined at the end of the reporting period.

Bank borrowings with a repayment on demand clause are included in the “Repayable on demand” time band in the above maturity analysis. As at 31 December 2015 and 31 December 2016, the aggregate carrying amount of these bank borrowings of amounted to approximately HK$70.3 million and HK$48.8 million, respectively. Taking into account of our financial position, our management does not believe that it is probable that the banks will exercise their discretionary rights to demand immediate repayments. Our management believes that such bank borrowings will be repaid in accordance with the scheduled repayment dates set out in the loan agreements.

For the purpose of managing liquidity risk, our management reviews the expected cash flow information of our bank borrowings based on the scheduled repayment dates set out in the bank borrowings agreements as set out in the table below:

Weighted average effective interest rate % As at 31 December 2015 4.70 As at 31 December 2016 4.38	Within 1 year HK$’000 57,499 33,894	Within 1–5 years HK$’000 7,848 7,982	Over 5 years HK$’000 5,440 4,818	Total undiscounted cash flows HK$’000 70,787 46,694	Total carrying amount HK$’000 68,439

					44,833

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

DIVIDEND POLICY

We may distribute dividends by way of cash or by other means that our Directors consider appropriate. A decision to declare and pay any dividend would require the approval of our Directors and will be at their discretion. In addition, any final dividend for a financial year will be subject to shareholders’ approval.

During the year ended 31 December 2015, Lapco Service and Shiny Hope declared dividends of approximately HK$8.8 million and approximately HK$8.0 million, respectively to Mr. Lam and Shiny Glory declared approximately HK$4.0 million to Ms. Wong.

Our distribution of dividends, in the future, if any, will depend on the results of our operations, cash flows, financial condition, statutory and regulatory restrictions as aforementioned and other factors that we may consider relevant, and is subject to our discretion. As at the Latest Practicable Date, we had no fixed dividend policy.

KEY FINANCIAL RATIOS

The following table sets forth certain financial ratios as at the dates indicated.

	Year ended
	31 December
	2015	2016
Gross profit margin1 (%)	9.5	9.9
Net profit margin2 (%)	4.2	3.9
Return on equity3 (%)	57.4	44.7
Return on total assets4 (%)	9.2	10.3
Interest coverage5	6.1	6.4
	As at 31 December
	2015	2016
Current ratio6	1.0	1.1
Gearing ratio7 (%)	74.4	66.8

Notes:

Gross profit margin is based on gross profit divided by total revenue for the respective year multiplied by 100%
Net profit margin is calculated based on net profit (excluding the [ REDACTED ]) after tax for the respective year divided by total revenue for the respective year and multiplied by 100%.
Return on equity is calculated based on our net profit (excluding the [ REDACTED ]) after tax for the respective year divided by the total equity of the same year, multiplied by 100%.
Return on total assets is calculated based on our net profit (excluding the [ REDACTED ]) after tax for the respective year divided by the total assets of the same year, multiplied by 100%.
Interest coverage is calculated based on our net profit before interest, income taxes and one-off [ REDACTED ] for the respective year divided by our finance cost for the same year.
Current ratio is calculated based on our current assets at the end of the year divided by our total current liabilities at the end of the respective year.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

Gearing ratio is calculated based on net debt at the end of the respective year divided by total equity plus net debt and, multiplied by 100%. Net debt comprises interest-bearing bank loans, obligations under finance leases, amount due to a related party, deferred tax liabilities, tax payable, less bank balances and cash and pledged bank deposits.
Our net profit would be approximately HK$15.7 million for the year ended 31 December 2016 by excluding the non-recurring [ REDACTED ] of approximately HK$6.9 million attributable to that period.

Gross profit margin

Our gross profit margin increased from approximately 9.5% to 9.9% from the year ended 31 December 2015 to 31 December 2016. The increase was mainly attributable to the increase in our gross profit margin of pest management services; and partially offset by the decrease in gross profit margin of waste management and recycling services.

Net profit margin

Our net profit margin decrease slightly from approximately 4.2% to 3.9% from the year ended 31 December 2015 to the year ended 31 December 2016.

Return on equity

Our return on equity was approximately 57.4% and 44.7% for the two years ended 31 December 2016, respectively. The decrease in our return on equity from the year ended 31 December 2015 to the year ended 31 December 2016 was primarily due to the increase in shareholder’s equity as well as the decrease in the net profit.

Return on total assets

Our return on total assets was approximately 9.2% and 10.3% for the years ended 31 December 2015 and 2016, respectively. The increase in our return on assets was primarily due to the decrease in total assets outpaced the decrease in net profit.

Interest coverage ratio

Our interest coverage ratio was approximately 6.1 times and 6.4 times for the years ended 31 December 2015 and 2016, respectively. The increase was mainly due to the increase in net profit before interest, income taxes and the one-off [ REDACTED ] while the finance costs for these two years remained stable.

Current ratio

Our current ratio remained stable at 1.0 and 1.1 as at 31 December 2015 and 31 December 2016, respectively.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

Gearing ratio

Our gearing ratio was approximately 74.4% and 66.8% as at 31 December 2015 and 31 December 2016, respectively. The decrease was primarily attributable to the significant increase in total equity by approximately 33.5% and the decrease in the net debt by 7.5%.

[ REDACTED ]

The estimated [ REDACTED ], which are non-recurring in nature, are in aggregate of approximately [ REDACTED ], which will be borne by our Group (excluding the [ REDACTED ] and [ REDACTED ] of the [ REDACTED ] of approximately [ REDACTED ], which will be borne by the [ REDACTED ]), of which approximately [ REDACTED ] is directly attributable to the issue of [ REDACTED ] in the [ REDACTED ] and to be accounted for as a deduction from equity. The remaining estimated [ REDACTED ] of approximately HK$[ REDACTED ] will be charged to the combined statements of profit and loss and other comprehensive income upon [ REDACTED ].

The [ REDACTED ] of approximately HK$[ REDACTED ] were recognised during the year ended 31 December 2016. Our Directors would like to emphasise that such cost is a current estimate for reference only and the final amount to be recognised in the combined statements of comprehensive income of our Group for the year ending 31 December 2017 and onwards is subject to adjustment based on audit and the then changes in variables and assumptions.

[ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

[ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FINANCIAL INFORMATION

DISCLOSURE UNDER CHAPTER 17 OF THE GEM LISTING RULES

Our Directors confirm that as at the Latest Practicable Date, they were not aware of any circumstances which would give rise to any disclosure requirement under Rules 17.15 to 17.21 of the GEM Listing Rules.

WORKING CAPITAL

Taking into account the financial resources available to our Group, including the internally generated funds, available banking facilities and the estimated net proceeds of the [ REDACTED ], and in the absence of unforeseen circumstances, our Directors are of the opinion that our Group has sufficient working capital for its present requirements, that is, for at least the next 12 months from the Latest Practicable Date.

During the Track Record Period and up to the Latest Practicable Date, our Directors confirm that our Group (i) has not encountered any difficulty in obtaining external borrowings; (ii) has not been recalled or requested for early repayment of borrowings; (iii) has not had any delay or default in repayment of trade and non-trade payables and bank borrowings, and/or breaches of other covenants under its borrowings; and (iv) has not breached of any finance covenants.

NO MATERIAL ADVERSE CHANGE

RELATED PARTY TRANSACTIONS

With respect to the related party transactions set forth in the Accountants’ Report in Appendix I to this [ REDACTED ], our Directors confirm that these transactions were conducted on normal commercial terms and/or on terms not less favourable than terms available from Independent Third Parties, which are considered fair, reasonable and in the interest of our shareholders as a whole. Further details on the related party transactions are set forth in the paragraph headed “Discussion on major items of the combined statements of financial position — Amount due from a Controlling Shareholder”, “Discussion on major items of the combined statements of financial position — Amount due to a Controlling Shareholder” in this section, the paragraphs headed “Relationship with our Controlling Shareholders — Independence from our Controlling Shareholders — Financial independence” and the paragraphs headed “Continuing Connected Transactions — Lease of premises” in this [ REDACTED ].

DISTRIBUTABLE RESERVES

Our Company did not have any reserves available for distribution to our Shareholders as at 31 December 2016.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FUTURE PLANS AND [ REDACTED ]

FUTURE PLANS

Further details on our business strategies and future plans are set forth in the paragraphs headed “Business — Business strategies and future plans” in this [ REDACTED ].

REASONS FOR THE [ REDACTED ] AND [ REDACTED ]

The [ REDACTED ] of the [ REDACTED ] will strengthen our capital base and will provide funding for achieving our business strategies and carrying out our future plans as set out in this section.

Given that the [ REDACTED ] is determined at [ REDACTED ], the table below sets forth the amount of net proceeds of the [ REDACTED ] (after deducting the underwriting commission and estimated [ REDACTED ] borne by our Group and excluding the net proceeds of the [ REDACTED ]) with and without exercising the [ REDACTED ]:

Assuming the Assuming the [ REDACTED ] [ REDACTED ] is not exercised is exercised in full Amount of net [ REDACTED ] of the [ REDACTED ] [ REDACTED ] [ REDACTED ]

Our Directors currently intend to apply such net proceeds in the following manner:

Expand our operational resources to strengthen our established presence in the environmental hygiene service industry in Hong Kong – procure additional vehicles – procure additional equipment – hire additional staff Subtotal Enhance information technology application system to enhance operational efficiency Improve our liquidity position General working capital Total	31 December 2017 HK$ million [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]	For the six months ending 30 June 2018 31 December 2018 30 June 2019 HK$ million HK$ million HK$ million [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]	31 December 2019 HK$ million [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]	Total HK$ million [REDACTED] [REDACTED] [REDACTED]
				[REDACTED]

				[REDACTED] [REDACTED] [REDACTED]
				[REDACTED]

If the [ REDACTED ] is exercised in full, the additional net proceeds received from [ REDACTED ] of the additional Shares allotted and issued will be allocated in accordance with the allocations as disclosed in this section on a pro-rata basis.

To the extent that the net proceeds of the [ REDACTED ] are not immediately required for the above purposes, our Directors currently intend that such proceeds be placed on short-term deposits with licensed banks and/or financial institutions.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FUTURE PLANS AND [ REDACTED ]

Among the [ REDACTED ] of [ REDACTED ] Shares, there are [ REDACTED ] offered by the [ REDACTED ] at the [ REDACTED ]. The net proceeds to be received by the [ REDACTED ] from the sale of the [ REDACTED ] will amount to approximately [ REDACTED ]. Our Company will not receive any of the proceeds from the sale of the [ REDACTED ] by the [ REDACTED ] under the [ REDACTED ].

IMPLEMENTATION PLAN

In light of the business objectives of our Group, we will seek to attain the milestones contained in this paragraph from the Latest Practicable Date to 31 December 2019. [ REDACTED ] should note that the milestones and their scheduled times for attainment are formulated on the bases and assumptions referred to in the paragraphs headed “Bases and assumptions” in this section. These bases and assumptions are inherently subject to many uncertainties, variables and unpredictable factors, in particular the risk factors set forth in the section headed “Risk factors” in this [ REDACTED ]. Our Group’s actual course of business may vary from the business objectives set out in this [ REDACTED ]. There can be no assurance that the plans of our Group will materialise in accordance with the expected time frame or that the objectives of our Group will be accomplished at all. Based on the current state of the environmental services industry, our Directors intend to carry out the following implementation plans:

For the six months ending 31 December 2017

Business strategy

Expand our operational resources to strengthen our established presence in the environmental hygiene service industry in Hong Kong
Use of
Implementation plan proceeds HK$ million
• To acquire additional vehicles including a [ REDACTED ] waste compaction vehicle and a street washing vehicle
• To acquire additional equipment [ REDACTED ] including a mobile refuse compactor
• To hire additional staff including an [ REDACTED ] operation manager and an assistant marketing manager

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FUTURE PLANS AND [ REDACTED ]

			Use of
Business strategy	Implementation plan		proceeds
			HK$ million
Enhance information	•	To invest in enterprise resource planning	[REDACTED]
technology application		system
system to enhance
operational efficiency	•	To upgrade our network backbone and
		hardware to build a more robust and
		reliable information technology system
Improve our liquidity position	•	To repay certain bank loans	[REDACTED]
General working capital	•	To use working capital for business	[REDACTED]
		growth and operation needs

For the six months ending to 30 June 2018

			Use of
Business strategy	Implementation plan		proceeds
			HK$ million
Expand our operational	•	To acquire additional vehicles including a	[REDACTED]
resources to strengthen our		waste compaction vehicle, a street
established presence in the		washing vehicle and a grab lorry
environmental hygiene
service industry in Hong	•	To acquire additional equipment	[REDACTED]
Kong		including a mobile refuse compactor
	•	To hire additional staff including an	[REDACTED]
		operation manager and an assistant
		marketing manager
Enhance information	•	To invest in enterprise resource planning	[REDACTED]
technology application		system
system to enhance
operational efficiency	•	To upgrade our network backbone and
		hardware to build a more robust and
		reliable information technology system
Improve our liquidity position	•	To repay certain bank loans	[REDACTED]
General working capital	•	To use working capital for business	[REDACTED]
		growth and operation needs

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FUTURE PLANS AND [ REDACTED ]

For the six months ending 31 December 2018

			Use of
Business strategy	Implementation plan		proceeds
			HK$ million
Expand our operational	•	To acquire additional vehicles including a	[REDACTED]
resources to strengthen our		waste compaction vehicle and a grab lorry
established presence in the
environmental hygiene	•	To acquire additional equipment	[REDACTED]
service industry in Hong		including a mobile refuse compactor
Kong
	•	To hire additional staff including an	[REDACTED]
		operation manager and an assistant
		marketing manager
Enhance IT application system	•	To invest in enterprise resource planning	[REDACTED]
to enhance operational		system
efficiency
	•	To upgrade our network backbone and
		hardware to build a more robust and
		reliable information technology system
Improve our liquidity position	•	To repay certain bank loans	[REDACTED]
General working capital	•	To use working capital for business	[REDACTED]
		growth and operation needs
For the six months ending 30	June 2019
			Use of
Business strategy	Implementation plan		proceeds
			HK$ million
Expand our operational	•	To acquire additional vehicles including a	[REDACTED]
resources to strengthen our		waste compaction vehicle, a street
established presence in the		washing vehicle and a grab lorry
environmental hygiene
service industry in Hong	•	To acquire additional equipment	[REDACTED]
Kong
	•	To hire additional staff including an	[REDACTED]
		operation manager and an assistant
		marketing manager

– 204 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FUTURE PLANS AND [ REDACTED ]

			Use of
Business strategy	Implementation plan		proceeds
			HK$ million
Enhance information	•	To invest in enterprise resource planning	[REDACTED]
technology application		system
system to enhance
operational efficiency	•	To upgrade our network backbone and
		hardware to build a more robust and
		reliable information technology system
Improve our liquidity position	•	To repay certain bank loans	[REDACTED]
General working capital	•	To use working capital for business	[REDACTED]
		growth and operation needs

For the six months ending 31 December 2019

			Use of
Business strategy	Implementation plan		proceeds
			HK$ million
Expand our operational	•	To acquire additional vehicles	[REDACTED]
resources to strengthen our
established presence in the	•	To acquire additional equipment	[REDACTED]
environmental hygiene
service industry in Hong	•	To hire additional staff including an	[REDACTED]
Kong		operation manager and an assistant
		marketing manager
Enhance information	•	To invest in enterprise resource planning	[REDACTED]
technology application		system
system to enhance
operational efficiency	•	To upgrade our network backbone and
		hardware to build a more robust and
		reliable information technology system
Improve our liquidity position	•	To repay certain bank loans	[REDACTED]
General working capital	•	To use working capital for business	[REDACTED]
		growth and operation needs

Further details on the bank loans to be repaid by the net proceeds of the [ REDACTED ], including the interest rate, maturity and the use of the bank loans, are set forth in the paragraphs headed “Financial information — Indebtedness — Borrowings” in the [ REDACTED ].

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

FUTURE PLANS AND [ REDACTED ]

BASES AND ASSUMPTIONS

The business objectives set out by our Directors are based on the following bases and assumptions:

(a) we will have sufficient financial resources to meet the planned capital expenditure and business development requirements during the period to which the business objectives relate;
(b) there will be no material changes in existing laws, rules and regulations, or other governmental policies relating to our Group, or in the political, economic or market conditions in which our Group operates;
(c) there will be no change in the funding requirement for each of the near term business objectives described in this [ REDACTED ] from the amount as estimated by our Directors;
(d) there will be no material changes in the bases or rates of taxation applicable to the activities of our Group;
(e) there will be no disasters, natural, political or otherwise, which would materially disrupt the business or operations of our Group; and
(f) we will not be materially affected by the risk factors as set forth in the section headed “Risk factors” in this [ REDACTED ].

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

DIRECTORS AND SENIOR MANAGEMENT

OVERVIEW

Our Board currently consists of seven Directors, comprising three executive Directors, one non-executive Director and three independent non-executive Directors. Our Directors are supported by our senior management in the day-to-day management of our business. The following table sets out the information in respect of our Directors and senior management:

Directors

						Relationship with
			Date of	Date of		other Director(s)
			joining our	appointment	Roles/	and/or senior
Name	Age	Position	Group	as Director	Responsibilities	management
Executive Directors
Mr. LAM Pak Ling (林柏齡)	57	Executive Director, chief executive	30 November 1990	12 August 2016	Responsible for the overall	Mr. Lam cohabits with Ms. Wong as spouse
		officer, chairman			management,
		and compliance			strategic planning
		officer			and business
					development,
					chairman of the
					nomination
					committee and
					member of the
					remuneration and
					nomination
					committees
Mr. CAI Weiming (蔡偉明)	51	Executive Director	1 November 2006	31 October 2016	Responsible for the supervision of the	Not applicable
					cleaning workers
					and operation team
					of our Group
Mr. WONG Tsz	26	Executive Director	30 May 2012	12 August	Responsible for the	Not applicable
Chun, Jacky		and senior		2016	supervision of the
(王子進)		marketing manager			marketing
					department,
					preparation of
					tender and
					quotation contracts
					of our Group
Non-executive Director
Mr. CHOI Chung Yin (蔡仲言)	30	Non-executive Director	12 August 2016	12 August 2016	Responsible for advising on	Not applicable
					opportunities for
					business
					development and
					strategic planning
					of our Group,
					relating to
					corporate, business
					and operational
					strategies
Independent non-executive	Directors
Mr. MAK Kwok Kei	31	Independent	[●] 2017	[●] 2017	Member of the audit,	Not applicable
(麥國基)		non-executive			remuneration and
		Director			nomination
					committees

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DIRECTORS AND SENIOR MANAGEMENT

Relationship with Date of Date of other Director(s) joining our appointment Roles/ and/or senior Name Age Position Group as Director Responsibilities management Ms. LAM Kit Yan 42 Independent [●] 2017 [●] 2017 Chairman and Not applicable (林潔恩) non-executive member of the Director audit committee Mr. HO Kin Wai 41 Independent [●] 2017 [●] 2017 Chairman of the Not applicable (何建偉) non-executive remuneration Director committee and member of the audit, remuneration and nomination committees

Senior Management

					Relationship with
					other Director(s)
			Date of joining	Roles/	and/or senior
Name	Age	Position	our Group	Responsibilities	management
Ms. WONG Siu Fan,	50	Director of Shiny	30 December 1991	Responsible for	Ms. Wong cohabits
Beatrice (黃小芬)		Glory and Sharp		overall	with Mr. Lam
		Idea		supervision of the	as spouse
				financial and
				operation teams
				of our Group
Mr. TAM Yiu Shing,	36	Financial Controller	3 May 2016	Responsible for	Not applicable
Billy (譚耀誠)		and Company		overall financial
		Secretary		administration

Executive Directors

Mr. LAM Pak Ling (林柏齡) , aged 57, is our executive Director, our chairman, our chief executive officer and our compliance officer.

Mr. Lam is the founder of our Group and one of our Controlling Shareholders and was appointed as our Director on 12 August 2016 and was re-designated as our executive Director on 7 November 2016. He is also the director of Sharp Idea, Lapco Service, Shiny Glory and Shiny Hope. Founding Shiny Glory in 1990 and Lapco Service in 1999, Mr. Lam has over 25 years of experience in the environmental hygiene service industry and is primarily responsible for the overall management, strategic planning and business development of our Group. In addition to his experience in the field, Mr. Lam completed a certificate course on Pest Control Technology and Management conducted by Hong Kong Productivity Council in May 1995. He was further awarded certificate in Operations and Workflow Management issued by The Hong Kong Management Association in December 2000. Further, Mr. Lam completed the ISO 14001:1996 EMS Internal Auditor Training Course in February 2004, Integrated Management System Internal Auditor Training Course (ISO 9001:2000, ISO 14001:2004, OHSAS 18001:1999) in May 2006 and Integrated Management System Implementation Training Course (ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007) in June 2016.

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Mr. Lam was a director of the following companies, which were incorporated in Hong Kong and deregistered with details as follows:

	Nature of business
	immediately prior	Date of
Name of Company	to deregistration	deregistration
Pacific Link Technology Limited	Investment holding	22 April 2005
(田一科技有限公司)
Power Creation International Limited	Investment holding	22 April 2005
(力展國際有限公司)
Hong Kong Friends Group Limited	Investment holding	15 October 2015
(香港好友集團有限公司)
Magic’s Glory Enterprise Limited	Investment holding	8 January 2016
(喜凡企業有限公司)

Note: Under section 291AA of the Predecessor Companies Ordinance, an application for deregistration can only be made if (a) all the members of such company agree to such deregistration; (b) such company has never commenced business or operation, or has ceased to carry on business or ceased operation for more than three months immediately before the application; and (c) such company has no outstanding liabilities.

Mr. CAI Weiming (蔡偉明) , aged 51, is our executive Director.

Mr. Cai was appointed as our Director on 31 October 2016 and was re-designated as executive Director on 7 November 2016. He joined our Group on 1 November 2006 as the operation manager of Lapco Service and was promoted to senior operation manager in May 2014. Mr. Cai is responsible for the supervision of our cleaning workers in our service locations, in charge of the operation based on our service contracts, planning and directing the operations of our cleaning contracts and allocating resources and frontline staff.

Mr. Cai completed a certificate course in Safety Supervisor (Environmental Hygiene) held by Lion Training Centre in December 2014 and was awarded a certificate in Supervisory Management by The Hong Kong Management Association in January 2015.

Mr. WONG Tsz Chun, Jacky (王子進) , aged 26, is our executive Director. He was appointed as our Director on 12 August 2016 and was re-designated as our executive Director on 7 November 2016.

Mr. Wong joined our Group on 30 May 2012 as marketing executive of Shiny Glory and his current position is the senior marketing manager of our Group. He is responsible for the supervision of the marketing department, preparation of tender and quotation contracts of our Group.

During his services with Shiny Glory, Mr. Wong has brought in new ideas about business strategy and operation functions and maintained good business relationship with our clients. He was involved in a range of business and operational responsibilities in strengthening customer relationships and ensuring the successful continuance of business operations, which include handling invitation to tender and quotations from

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potential customers, developing pricing strategies with management for tender for services and setting up customer acceptance criteria, general customer assessment and credit provision guideline for Shiny Glory. He also supervised a marketing team in Shiny Glory, which is responsible for developing and implementing marketing strategies, such as advertisement and promotional leaflet.

Mr. Wong completed course under Yi Jin Programme organised by the Federation for Continuing Education in Tertiary Institution, of which the City University of Hong Kong is a member institution, in August 2009.

Non-executive Director

Mr. CHOI Chung Yin (蔡仲言) , aged 30, is our non-executive Director.

Mr. Choi was appointed as our Director on 12 August 2016 and was re-designated as our non-executive Director on 7 November 2016. He is responsible for advising on opportunities for business development and strategic planning of our Group, relating to corporate, business and operational strategies.

Mr. Choi has over six years of experience in the capital markets. Mr. Choi began his career as a currency trader from May 2010 to June 2011. He then worked in the corporate finance department at Beijing Capital Land Limited (stock code: 02868), whose shares are listed on the Stock Exchange, from September 2011 to January 2014. He was primarily responsible for acquisitions, bonds issuance, private equity structuring and investor relations maintenance. He then served as a group strategist in Wang On Management Limited, a subsidiary of Wang On Group Limited (stock code: 01222), whose shares are listed on the Stock Exchange, from January 2014 to October 2015. He was responsible for deal origination and execution, acquisitions and disposals, corporate finance activities and operational management. Mr. Choi is currently a director of Croydon Capital Advisors Limited, which owns 33% of the share capital in Magic Pioneer.

Mr. Choi graduated from University of Warwick with a bachelor degree in economics in 2008 and further obtained a master degree in philosophy from University of Cambridge in October 2009.

Independent non-executive Directors

Mr. MAK Kwok Kei (麥國基) , aged 31, was appointed as our independent non-executive Director on [●] 2017.

Mr. Mak has over seven years of experience in securities sales and trading and capital markets advisory at various international investment banks, specialising in initial public offerings and capital fund raising for companies in Hong Kong and China. He worked in Credit Agricole Corporate and Investment Bank (Hong Kong Branch), where he was mainly engaged in transacting various high grade corporate and government bonds with central banks in Asia, from September 2009 to November 2010. He also worked at Nomura International (Hong Kong) Limited, a financial services company, where he is mainly engaged in both primary and secondary equity fund raising activities for listed

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companies and high-net-worth individuals in Asia, from November 2010 to August 2015. Since October 2015, he has served as a managing director and head of equity capital markets in Zhongtai International Capital Limited, a corporate finance advisory company. He is primarily responsible for providing capital markets advisory services to clients and operating and managing the equity capital markets franchise.

Mr. Mak has been the founder and director of Speechless Financial Technology Company Limited, which is mainly engaged in applying voice-into-text technology into financial services industry, since October 2015. He has also been a limited partner in WI Harper Fund VIII LP, which is mainly engaged in venture capital investments in healthcare and technology sectors, since May 2016.

Mr. Mak obtained a bachelor degree with first class honour in applied business management from Imperial College London, United Kingdom in August 2008 and subsequently obtained a master degree in philosophy from University of Cambridge, United Kingdom in October 2009.

Ms. LAM Kit Yan (林潔恩) , aged 42, was appointed as our independent non-executive Director on [●] 2017.

Ms. Lam has more than 16 years of experience in accountancy and auditing. She started working in Paul Chan & Partners, the certified public accountants in September 1997 and was promoted to accountant I before she left in August 2001. She joined in the audit department of PKF in September 2001 and was promoted to senior supervisor in September 2004 and further promoted to audit manager II in June 2006 until she left PKF in September 2007. During her employment with PKF, she was involved in a wide variety of works including auditing, taxation, accounting, system effectiveness and efficiency review, financial due diligence, works associated with initial public offerings, merger and acquisition as well as other assignments. Ms. Lam had been employed as a manager in KPMG from September 2007 to January 2010. From June 2010 to October 2011, Ms. Lam worked as a senior manager in Crowe Horwath (HK) CPA Limited.

Ms. Lam had been the company secretary, chief financial officer and the authorised representative of Beijing Enterprises Clean Energy Group Limited (formerly known as Jin Cai Holdings Company Limited) (stock code: 01250), whose shares are listed on the Stock Exchange, from June 2013 to May 2015. From January 2016 to February 2016, Ms. Lam served as an executive director and company secretary of Aurum Pacific (China) Group Limited (Stock code: 08148) whose shares are listed on the GEM of the Stock Exchange. In November 2016, Ms. Lam was appointed as the company secretary and the authorised representative of Epicurean and Company, Limited (stock code: 08213) whose shares are listed on the GEM of the Stock Exchange.

Ms. Lam obtained a degree of bachelor of business administration from The Chinese University of Hong Kong in December 1997. Ms. Lam has been registered as a certified tax adviser since 2010 and was admitted as a fellow of The Taxation Institute of Hong Kong in July 2012. She has also been a member of the Hong Kong Institute of Certified Public Accountants since February 2001.

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DIRECTORS AND SENIOR MANAGEMENT

Mr. HO Kin Wai (何建偉) , aged 41, was appointed as our independent non-executive Director on [●] 2017.

From December 2000 to December 2001, Mr. Ho was a programmer of The Chase Manhattan Bank, the principal business of which is providing banking service. From July 2003 to January 2009, he served as sales merchandiser of Betastar Trading Limited, the principal business of which is trading of footwear, responsible for sourcing footwear manufacturers, developing footwear, and handling and monitoring order process. Mr. Ho has served as the chairman and executive director of Ever Smart International Holdings Limited (Stock code: 08187), whose shares are listed on the GEM of the Stock Exchange, since May 2016 and he is mainly responsible for its overall business development, sales, strategic planning and major decision-making.

Mr. Ho obtained a bachelor of science in management in August 1999 from Royal Holloway and Bedford New College, University of London in the UK (currently known as Royal Holloway, University of London) and a master of science in interactive multimedia in June 2001 from Middlesex University in the UK.

Disclosure required under Rule 17.50(2) of the GEM Listing Rules

Save as disclosed above, each of our Directors confirm with respect to himself/herself that: (i) he/she has not held directorships in the last three years in other public companies the securities of which are listed on any securities market in Hong Kong or overseas; (ii) he/she does not hold any other position in our Company or any of its subsidiaries; (iii) save as disclosed in the section “Further information about Directors, management, staff and experts — 1. Disclosure of interests” in Appendix IV to this [ REDACTED ], he/she does not have any interests in the Shares within the meaning of Part XV of the SFO; (iv) had no other relationship with any Directors, Substantial Shareholders, Controlling Shareholders, or senior management of our Company as at the Latest Practicable Date; (v) there is no other information that needs to be disclosed pursuant to Rule 17.50(2) of the GEM Listing Rules; and (vi) to the best of the knowledge, information and belief of our Directors having made all reasonable enquiries, there are no other matters with respect to the appointment of our Directors that need to be brought to the attention of our Shareholders.

Each of our Directors confirms that he/she does not have any interest in a business apart from ours which competes or is likely to compete, directly or indirectly, with us.

SENIOR MANAGEMENT

Ms. WONG Siu Fan, Beatrice (黃小芬) , aged 50, is a director of Shiny Glory and Sharp Idea.

Ms. Wong is also one of our Controlling Shareholders and she cohabits with Mr. Lam as spouse. Ms. Wong joined our Group on 30 December 1991 as a director of Shiny Glory and resigned as a director of Shiny Glory on 7 July 1999. She was later re-appointed as a director of Shiny Glory on 15 July 2010. Ms. Wong has over 24 years of experience in the environmental hygiene service industry and is primarily responsible for overseeing and

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DIRECTORS AND SENIOR MANAGEMENT

supervision of the financial and operation teams of our Group, in charge of implementation of policies and internal controls, provision of advice on financial planning and budgeting, and liaison between our Board and the audit committee on critical financial matters. Ms. Wong is also in charge of staff development and continuous improvement.

Ms. Wong was awarded a graduate diploma in sociology by Hong Kong Shue Yan College in July 1989. She completed the Certificate Course on B.V.I. Companies — Practical Application conducted by Sino Academic Research Centre in March 1999. Ms. Wong also completed ISO 9000:2000 Internal Quality Auditor Training Course in July 2002 and the Integrated Management System Internal Auditor Training Course (ISO 9001:2000, ISO 14001:2004, OHSAS 18001:1999) in May 2006 as well as attended the Awareness and Practical Training for ISO 9000:2000 and ISO 14001:1996 and Awareness Training for OHSAS 18001:1999 Standard, respectively, in March and May 2007.

Mr. TAM Yiu Shing, Billy (譚耀誠) , aged 36, is the financial controller and company secretary of our Group.

Mr. Tam joined our Group on 3 May 2016 as an assistant financial controller and is responsible for the overall financial administration. Prior to joining our Group, he served Eddingpharm (Hong Kong) Company Limited, a pharmaceutical company, as a finance and administrative manager from June 2012 to February 2016 and he was primarily responsible for the management of accounting and financial operations. From March 2007 to May 2012, he served PricewaterhouseCoopers Ltd., an international auditing firm, as a manager and was primarily responsible for auditing, accounting, financial due diligence, works associated with initial public offerings and mergers and acquisitions.

Mr. Tam graduated from the Hong Kong Polytechnic University with a bachelor degree in Accountancy in November 2004 and was admitted as a member of Hong Kong Institute of Certified Public Accountants in May 2010.

COMPANY SECRETARY

Mr. TAM Yiu Shing, Billy (譚耀誠) , our financial controller is also our company secretary. Further details on the company secretary are set forth in the paragraphs headed “Senior management” in this section.

COMPLIANCE OFFICER

Mr. Lam, our executive Director, chief executive officer and chairman, was appointed as our compliance officer on [●] 2017. Further details on the compliance officer are set forth in the paragraphs headed “Executive Directors” in this section.

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REMUNERATION POLICY

Our executive Directors, non-executive Director, independent non-executive Directors and senior management receive compensation in the form of director fees, salaries, benefits in kind and/or discretionary bonuses with reference to those paid by comparable companies, time commitment and the performance of our Group. Our Group also reimburses our Directors and senior management for expenses which are necessarily and reasonably incurred for the provision of services to our Group or executing their functions in relation to the operations of our Group. Our Group regularly reviews and determines the remuneration and compensation packages of our Directors and senior management by reference to, among other things, market level of remuneration and compensation paid by comparable companies, the respective responsibilities of our Directors and the performance of our Group.

After the [ REDACTED ], the remuneration committee will review and determine the remuneration and compensation packages of our Directors with reference to their responsibilities, workload, the time devoted to our Group and the performance of our Group.

REMUNERATIONS OF DIRECTORS AND SENIOR MANAGEMENT

Our Directors receive compensation in the form of Directors fees, salaries, allowances, discretionary bonuses and other benefits as well as contributions to retirement benefit schemes. The total compensation accrued to our Directors for the two years ended 31 December 2016 were HK$1.5 million and HK$1.9 million, respectively.

The aggregate compensation (including salaries and other benefits, bonus and retirement benefit schemes contributions) paid to our five highest paid individuals during the two years ended 31 December 2016 were HK$1.9 million and HK$2.4 million, respectively.

Under the arrangement currently in force, we estimate the total compensation (including salaries and other benefits, bonus, to retirement benefit schemes contributions) to be paid or accrued to our Directors for the year ending 31 December 2017 to be HK$2.7 million.

During the Track Record Period, no remuneration was paid by us to, or received by, our Directors or the five highest paid individuals as an inducement to join or upon joining us or as compensation for loss of office. There was no arrangement under which a director waived or agreed to waive any remuneration during the Track Record Period.

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BOARD COMMITTEES

Audit committee

Our Company established the audit committee on [●] 2017 with written terms of reference in compliance with the GEM Listing Rules. The audit committee comprises the three independent non-executive Directors, namely Mr. Mak Kwok Kei, Ms. Lam Kit Yan and Mr. Ho Kin Wai. Ms. Lam Kit Yan currently serves as the chairman of the audit committee. Written terms of reference in compliance with paragraph C3.3 of the Corporate Governance Code as set out in Appendix 15 to GEM Listing Rules have been adopted. The duties of the audit committee include reviewing, in draft form, the annual report and accounts, half-year report and quarterly reports and providing advice and comments to the Board. In this regard, members of the audit committee will liaise with the Board, the senior management, the reporting accountants and auditors. The audit committee will also consider any significant or usual items that are, or may need to be, reflected in such reports and accounts and give consideration to any matters that have been raised by the accounting staff, compliance officers or auditors. Members of the audit committee are also responsible for reviewing our Group’s financial reporting process and internal control system.

Remuneration committee

Our Company established the remuneration committee on [●] 2017 which comprises one executive Director and two independent non-executive Directors, namely Mr. Lam Pak Ling, Mr. Mak Kwok Kei and Mr. Ho Kin Wai. Mr. Ho Kin Wai currently serves as the chairman of the remuneration committee. Written terms of reference in compliance with paragraph B1.2 of the Corporate Governance Code as set out in Appendix 15 to GEM Listing Rules have been adopted. The remuneration committee is mainly responsible for making recommendations to the Board on appointment of Directors and succession planning for our Directors.

Nomination committee

Our Company established the nomination committee on [●] 2017 which comprises one executive Director and two independent non-executive Directors, namely Mr. Lam Pak Ling, Mr. Mak Kwok Kei and Mr. Ho Kin Wai. Mr. Lam Pak Ling currently serves as the chairman of the nomination committee. Written terms of reference in compliance with paragraph A.5.2 of the Corporate Governance Code as set out in Appendix 15 to GEM Listing Rules have been adopted. The nomination committee is mainly responsible for making recommendations to our Board on appointment of our Directors and succession planning for our Directors.

CORPORATE GOVERNANCE

Our Company will comply with the Corporate Governance Code in Appendix 15 to the GEM Listing Rules, except for the deviation from the code provision A.2.1 of the Corporate Governance Code as set out in Appendix 15 to the GEM Listing Rules. Mr. Lam is our chairman and our chief executive officer and he has been managing our Group’s

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business and supervising the overall operations and management of our Group since 1990. Our Directors consider that vesting the roles of the chairman of our Board and the chief executive of our Company in Mr. Lam is beneficial to the management and business development of our Group and will provide a strong and consistent leadership to our Group. Our Board will continue to review and consider splitting the roles of the chairman of our Board and our chief executive officer at a time when it is appropriate and suitable by taking into account the circumstances of our Group as a whole. Our Directors will review our corporate governance policies and compliance with the Corporate Governance Code each financial year and comply with the “comply or explain” principle in our corporate governance report which will be included in our annual reports upon the [ REDACTED ].

COMPLIANCE ADVISER

In accordance with Rule 6A.19 of the GEM Listing Rules, our Company has appointed Octal Capital Limited as its compliance adviser, who will have access to all relevant records and information relating to our Group that it may reasonably require to properly perform its duties. Pursuant to Rule 6A.23 of the GEM Listing Rules, our Company will consult with and, if necessary, seek advice from the compliance adviser on a timely basis in the following circumstances:

(a) before the publication of any regulatory announcement, circular or financial report;
(b) where a transaction, which might be a notifiable or connected transaction, is contemplated including share issues and share repurchases;
(c) where our Company proposes to use the proceeds of the [ REDACTED ] in a manner different from that detailed in this [ REDACTED ] or where the business activities, developments or results of our Company deviate from any forecast, estimate, or other information in this [ REDACTED ]; and
(d) where the Stock Exchange makes an inquiry of the listed issuer under Rule 17.11 of the GEM Listing Rules.

The term of appointment of the compliance adviser of our Company shall commence on the [ REDACTED ] and end on the date on which our Company complies with Rule 18.03 of the GEM Listing Rules in respect of the financial results for the second full financial year commencing after the [ REDACTED ], or until the agreement is terminated, whichever is earlier, and such appointment shall be subject to extension by mutual agreement.

The compliance adviser of our Company shall provide us with services, including guidance and advice as to compliance with the requirements under the GEM Listing Rules and applicable laws, rules, codes and guidelines, and to act as one of our principal channels of communication with the Stock Exchange.

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SHARE CAPITAL

SHARE CAPITAL

The share capital of our Company immediately following the [ REDACTED ] and the [ REDACTED ] will be as follows:

Authorised:

HK$

[ REDACTED ] Shares of HK$0.01 each [ REDACTED ] or to be issued, fully paid or credited as fully paid: [ REDACTED ] Shares in issue as at the date of this [ REDACTED ] [ REDACTED ] [ REDACTED ] Shares to be issued pursuant to the [ REDACTED ] [ REDACTED ] (including the [ REDACTED ]) [ REDACTED ] Shares to be issued pursuant to the [ REDACTED ] [ REDACTED ] (excluding the [ REDACTED ])

Issued or to be issued, fully paid or credited as fully paid:

[ REDACTED ] Shares in total [ REDACTED ]

ASSUMPTION

The above table assumes that the [ REDACTED ] becomes unconditional. The above table takes no account of any Shares which may be allotted and issued or repurchased by our Company pursuant to the general mandate given to our Directors to allot and issue or repurchase Shares as described below and any Shares which may be allotted and issued pursuant to the exercise of the [ REDACTED ].

MINIMUM PUBLIC FLOAT

Pursuant to Rule 11.23(7) of the GEM Listing Rules, at the time of the [ REDACTED ] and at all times thereafter, our Company must maintain the minimum prescribed percentage of 25% of the total number of issued Shares of our Company in the hands of the public (as defined in the GEM Listing Rules).

RANKING

The [ REDACTED ] will rank pari passu with all Shares now in issue or to be allotted and issued and will qualify for all dividends or other distributions declared, made or paid after the date of this [ REDACTED ] save for the entitlements under the [ REDACTED ].

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SHARE CAPITAL

GENERAL MANDATE TO ISSUE SHARES

Our Directors have been granted a general unconditional mandate to allot, issue and deal with Shares with not exceeding the sum of (a) 20% of the number of issued shares of our Company in issue as enlarged by the [ REDACTED ] and the [ REDACTED ]; and (b) the number of issued shares of our Company which may be repurchased by our Company pursuant to the general mandate to repurchase Shares granted to our Directors referred to below.

Our Directors may, in addition to the Shares which they are authorised to issue under the mandate, allot, issue and deal in Shares pursuant to a rights issue, an issue of Shares pursuant to the exercise of subscription rights attaching to any warrants of our Company, scrip dividends or similar arrangements providing for the allotment of Shares in lieu of the whole or in part of any cash dividends or options to be granted under any option scheme or similar arrangement for the time being adopted. The Shares which our Directors are authorised to allot and issue under the issuing mandate will not be reduced by the allotment and issue of such Shares. This issuing mandate will expire: (i) at the conclusion of our Company’s next annual general meeting; or (ii) upon the expiry of the period within which our Company is required by any applicable law or the Articles to hold its next annual general meeting; or (iii) when varied, revoked or renewed by an ordinary resolution of our Shareholders in general meeting, whichever occurs first. Further details on this general mandate are set forth in the paragraphs headed “Further information about our Company — 3. Resolutions of our Shareholders” in Appendix IV to this [ REDACTED ].

GENERAL MANDATE TO REPURCHASE SHARES

Our Directors have been granted a general unconditional mandate to exercise all of the powers of our Company to repurchase Shares not more than 10% of the number of issued shares of our Company in issue, as enlarged by the [ REDACTED ] and the [ REDACTED ]. This repurchase mandate relates only to repurchases made on the Stock Exchange or on any other stock exchange on which the Shares are listed (and which is recognised by the SFC and the Stock Exchange for this purpose), and which are made in accordance with all applicable laws and the requirements of the GEM Listing Rules. Further details on further information required by the Stock Exchange to be included in this [ REDACTED ] regarding the repurchase of Shares are set forth in the paragraphs headed “Further information about our Company — 6. Securities repurchase mandate” in Appendix IV to this [ REDACTED ].

This repurchase mandate will expire: (i) at the conclusion of our Company’s next annual general meeting; or (ii) upon the expiry of the period within which our Company is required by any applicable law or the Articles to hold its next annual general meeting; or (iii) when varied, revoked or renewed by an ordinary resolution of our Shareholders in general meeting, whichever occurs first. Further details on this repurchase mandate are set forth in the paragraphs headed “Further information about our Company — 3. Resolutions of our Shareholders” in Appendix IV to this [ REDACTED ].

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SHARE CAPITAL

CIRCUMSTANCES UNDER WHICH GENERAL MEETING IS REQUIRED

An annual general meeting of our Company must be held in each year, other than the year of adoption of the Articles within a period of not more than 15 months after the holding of the last preceding annual general meeting or a period of not more than 18 months from the date of adoption of the Articles unless a longer period would not infringe the rules of the Stock Exchange at such time and place as may be determined by the board.

An annual general meeting must be called by notice of not less than 21 clear days and not less than 20 clear business days. All other general meetings (including an extraordinary general meeting) must be called by notice of at least 14 clear days and not less than 10 clear business days. The notice must specify the time and place of the meeting and, in the case of special business, the general nature of that business. In addition, notice of every general meeting shall be given to all members of our Company other than to such members as, under the provisions of the Articles or the terms of issue of the shares they hold, are not entitled to receive such notices from our Company, and also to the auditors for the time being of our Company.

Further details are set forth in Appendix III to this [ REDACTED ].

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SUBSTANTIAL SHAREHOLDERS

SUBSTANTIAL SHAREHOLDERS

So far as our Directors are aware, immediately following the completion of the [ REDACTED ] and the [ REDACTED ] (without taking into account any Shares which may be allotted or issued upon the exercise of the [ REDACTED ]), the following persons are expected to have an interest and/or short positions in the Shares or underlying shares of our Company which would fall to be disclosed to us pursuant to the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who are, directly or indirectly, interested in 10% or more of the nominal value of any class of our share capital carrying rights to vote in all circumstances at general meetings of our Company:

			Approximate
Name of			percentage of
Substantial	Capacity/Nature of	Number of Shares	interest in
Shareholder	Interest	(long position)	our Company
Mr. Lam	Founder and beneficiary of a	[REDACTED]	[REDACTED]
	discretionary trust
Ms. Wong	Founder and beneficiary of a	[REDACTED]	[REDACTED]
	discretionary trust
Max Super	Interest in a controlled	[REDACTED]	[REDACTED]
	corporation and trustee of a
	discretionary trust
Gold Cavaliers	Registered owner	[REDACTED]	[REDACTED]
	(Please refer to Note 1)
Magic Pioneer	Please refer to Note 2	[REDACTED]	[REDACTED]

Notes:

Gold Cavaliers is held as to approximately [ REDACTED ] by Max Super acting as the trustee of the Lam Family Trust. The Lam Family Trust was established by Mr. Lam and Ms. Wong as the settlors on 8 August 2016 as a discretionary trust for the benefit of themselves.
Magic Pioneer is indirectly interested in our Company through its direct interest of approximately [ REDACTED ] in Gold Cavaliers, and is thus considered to be effectively interested in our Company as to approximately [ REDACTED ]. Magic Pioneer is owned as to [ REDACTED ] by Earnmill Holdings Limited, as to [ REDACTED ] by Croydon Capital Advisors Limited and as to [ REDACTED ] by Xiong Jianrui.

Except as disclosed above, our Directors are not aware of any other person who will, immediately following the completion of the [ REDACTED ] and the [ REDACTED ], have any interest and/or short positions in the Shares or underlying shares of our Company which would fall to be disclosed to us pursuant to the provisions of Divisions 2 and 3 of Part XV of the SFO, or, who are, directly or indirectly, interested in 10% or more of the nominal value of any class of our share capital carrying rights to vote in all circumstances at general meetings of our Company. Our Directors are not aware of any arrangement which may at a subsequent date result in a change of control of our Company.

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UNDERWRITING

[ REDACTED ]

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UNDERWRITING

[ REDACTED ]

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UNDERWRITING

[ REDACTED ]

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UNDERWRITING

[ REDACTED ]

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UNDERWRITING

[ REDACTED ]

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UNDERWRITING

[ REDACTED ]

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UNDERWRITING

[ REDACTED ]

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UNDERWRITING

[ REDACTED ]

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STRUCTURE AND CONDITIONS OF THE [ REDACTED ]

[ REDACTED ]

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STRUCTURE AND CONDITIONS OF THE [ REDACTED ]

[ REDACTED ]

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STRUCTURE AND CONDITIONS OF THE [ REDACTED ]

[ REDACTED ]

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STRUCTURE AND CONDITIONS OF THE [ REDACTED ]

[ REDACTED ]

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STRUCTURE AND CONDITIONS OF THE [ REDACTED ]

[ REDACTED ]

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STRUCTURE AND CONDITIONS OF THE [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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HOW TO APPLY FOR [ REDACTED ]

[ REDACTED ]

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APPENDIX I

ACCOUNTANTS’ REPORT

The following is the text of a report, prepared for inclusion in this [ REDACTED ] , received from the independent reporting accountants, Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong.

ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF LAPCO HOLDINGS LIMITED AND OCTAL CAPITAL LIMITED

Introduction

We report on the historical financial information of Lapco Holdings Limited (the “ Company ”) and its subsidiaries (together, the “ Group ”) set out on pages I-4 to I-43, which comprises the combined statements of financial position as at 31 December 2015 and 2016, the statement of financial position of the Company as at 31 December 2016, and the combined statements of profit or loss and other comprehensive income, the combined statements of changes in equity and the combined statements of cash flows for each of the periods then ended (the “ Track Record Period ”) and a summary of significant accounting policies and other explanatory information (together, the “ Historical Financial Information ”). The Historical Financial Information set out on pages I-4 to I-43 forms an integral part of this report, which has been prepared for inclusion in the [ REDACTED ] of the Company dated [●] (the “[ REDACTED ]”) in connection with the initial [ REDACTED ] of shares of the Company on the Growth Enterprise Market (“ GEM ”) of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”).

Directors’ responsibility for the Historical Financial Information

The directors of the Company are responsible for the preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in note 1 to the Historical Financial Information, and for such internal control as the directors of the Company determine is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error.

Reporting accountants’ responsibility

Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200 “Accountants’ Reports on Historical Financial Information in Investment Circulars” issued by the Hong Kong Institute of Certified Public Accountants (“ HKICPA ”). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement.

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of risks of material

– I-1 –

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APPENDIX I

ACCOUNTANTS’ REPORT

misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in note 1 to the Historical Financial Information in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors of the Company, as well as evaluating the overall presentation of the Historical Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion the Historical Financial Information gives, for the purposes of the accountants’ report, a true and fair view of the Company’s financial position as at 31 December 2016 and the Group’s financial position as at 31 December 2015 and 2016 and of the Group’s financial performance and cash flows for the Track Record Period in accordance with the basis of preparation and presentation set out in note 1 to the Historical Financial Information.

Report on matters under the Rules Governing the Listing of Securities on the GEM of the Stock Exchange and the Companies (Winding Up and Miscellaneous Provisions) Ordinance

Adjustments

The Historical Financial Information is stated after making such adjustments to the Underlying Financial Statements as defined on page I-3 as were considered necessary.

Dividends

We refer to note 12 to the Historical Financial Information which states that no dividends have been paid by the Company in respect of the Track Record Period.

No historical financial statements for the Company

No financial statements have been prepared for the Company since its date of incorporation.

[Deloitte Touche Tohmatsu]

Certified Public Accountants Hong Kong

[Date1]

– I-2 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX I ACCOUNTANTS’ REPORT

ACCOUNTANTS’ REPORT

HISTORICAL FINANCIAL INFORMATION OF THE GROUP

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this accountants’ report.

The Historical Financial Information in this report was prepared based on consolidated financial statements of Sharp Idea Global Limited (“Sharp Idea”) and its subsidiaries (“Sharp Idea Group”) for the Track Record Period and management accounts of the Company for the period from its date of incorporation to 31 December 2016 (collectively known as “Underlying Financial Statements”). The consolidated financial statements of Sharp Idea and its subsidiaries have been prepared in accordance with the accounting policies which conform with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the HKICPA and were audited by Deloitte Touche Tohmatsu in accordance with Hong Kong Standards on Auditing issued by the HKICPA.

The Historical Financial Information is presented in Hong Kong dollar (“HK$"), which is also the functional currency of the Company and all values are rounded to the nearest thousand (HK$’000) except when otherwise indicated.

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APPENDIX I

ACCOUNTANTS’ REPORT

COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

NOTES Revenue 5 Cost of services Gross profit Other income 6 Other gains and losses 7 Administrative expenses [REDACTED] Finance costs 8 Profit before taxation 10 Income tax expense 11 Profit and total comprehensive income for the year attributable to the owners of the Company	Year ended 31 December 2015 2016 HK$’000 HK$’000 363,467 404,124 (328,894) (363,930) 34,573 40,194 369 645 (530) (285) (12,737) (17,667) [REDACTED] [REDACTED] (3,531) (3,555) 18,144 12,452 (3,056) (3,663) 15,088 8,789

– I-4 –

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APPENDIX I

ACCOUNTANTS’ REPORT

STATEMENTS OF FINANCIAL POSITION

NOTES Non-current assets Plant and equipment 14 Deposits and prepayments 16 Deposits for acquisition of plant and equipment Current assets Trade receivables 15 Other receivables, deposits and prepayments 16 Amount due from a controlling shareholder 17 Pledged bank balances 18 Bank balances and cash 18	The Group As at 31 December 2015 2016 HK$’000 HK$’000 33,038 44,843 5,382 8,901 2,317 – 40,737 53,744 85,997 72,545 3,356 9,461 8,618 2,361 9,280 9,080 15,386 4,624 122,637 98,071	The Company As at 31 December 2016 HK$’000 – – –
		–
		– 1,712 419 – –
		2,131

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APPENDIX I

ACCOUNTANTS’ REPORT

NOTES Current liabilities Trade payables 19 Other payables and accrued charges 20 Provisions 21 Tax payable Amount due to a related party 17 Bank borrowings 22 Obligations under finance leases 24 Net current assets (liabilities) Total assets less current liabilities Non-current liabilities Provisions 21 Deferred tax liabilities 23 Obligations under finance leases 24 Net assets Capital and reserves Issued share capital 25 Reserves Equity attributable to owners of the Company	The Group As at 31 December 2015 2016 HK$’000 HK$’000 3,871 3,148 25,635 24,027 4,725 3,456 2,833 1,826 80 11 70,334 48,783 10,370 11,258 117,848 92,509 4,789 5,562 45,526 59,306 1,768 1,748 2,861 3,590 14,623 18,905 19,252 24,243 26,274 35,063 10,200 8 16,074 35,055 26,274 35,063	The Company As at 31 December 2016 HK$’000 – 2,804 – – 6,570 – – 9,374 (7,243) (7,243) – – – – (7,243) – (7,243) (7,243)

– I-6 –

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APPENDIX I

ACCOUNTANTS’ REPORT

COMBINED STATEMENTS OF CHANGES IN EQUITY

At 1 January 2015 Profit and total comprehensive income for the year Dividend paid (note 12) Issue of shares of Lapco Service Limited (“Lapco”) At 31 December 2015 Profit and total comprehensive income for the year Effect of reorganisation At 31 December 2016	Issued share capital HK$’000 5,610 – – 4,590 10,200 – (10,192) 8	Other reserve Accumulated profits HK$’000 HK$’000 (note) – 21,786 – 15,088 – (20,800) – – – 16,074 – 8,789 10,192 – 10,192 24,863	Total HK$’000 27,396 15,088 (20,800) 4,590 26,274 8,789 – 35,063

Note: Other reserve represented the difference between the share capital of Lapco, Shiny Glory Services Limited (“Shiny Glory”) and Shiny Hope Limited (“Shiny Hope”) and that of Sharp Idea issued pursuant to a group reorganisation as stated in note 1.

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APPENDIX I

ACCOUNTANTS’ REPORT

COMBINED STATEMENTS OF CASH FLOWS

OPERATING ACTIVITIES
Profit before taxation
Adjustments for:
Depreciation of plant and equipment
Interest income
Gain on disposal/written off of plant
and equipment, net
Finance costs
Operating cash flows before movements
in working capital
(Increase) decrease in trade receivables
Increase in other receivables, deposits and
prepayments
Decrease in trade payables
Increase (decrease) in other payables and accrued
charges
Decrease in amount due to a related party
Increase (decrease) in provisions
Decrease in factoring trade receivables
with recourse
Cash generated from operations
Income tax paid
NET CASH FROM OPERATING ACTIVITIES
INVESTING ACTIVITIES
Interest received
Deposits paid for acquisition of plant and equipment
Purchases of plant and equipment
Proceeds from disposal of plant and equipment
Withdrawal of pledged bank balances
Repayment from a controlling shareholder
Advance to a controlling shareholder
NET CASH (USED IN) FROM INVESTING
ACTIVITIES

Year ended 31 December
2015
2016
HK$’000
HK$’000
18,144
12,452
9,570
13,703
(356)
(458)
(19)
(286)
3,531
3,555
30,870
28,966
(10,024)
13,452
(1,073)
(9,376)
(1,318)
(723)
3,296
(1,608)
(54)
(69)
2,613
(1,289)
(1,754)
(23,808)
22,556
5,545
(705)
(3,941)
21,851
1,604
180
210
(2,317)
–
(793)
(5,782)
79
420
18
200
–
10,799
(27,392)
(4,542)
(30,225)
1,305

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APPENDIX I

ACCOUNTANTS’ REPORT

FINANCING ACTIVITIES
Interest paid
Repayment of obligations under finance leases
New bank borrowings raised
Repayment of bank borrowings
Advance from a controlling shareholder
Repayment to a controlling shareholder
Proceeds from issuance of shares
NET CASH FROM (USED IN) FINANCING
ACTIVITIES
NET DECREASE IN CASH AND CASH
EQUIVALENTS
CASH AND CASH EQUIVALENTS AT BEGINNING
OF THE YEAR
CASH AND CASH EQUIVALENTS AT END OF THE
YEAR, represented by bank balances and cash

Year ended 31 December
2015
2016
HK$’000
HK$’000
(3,531)
(3,555)
(9,714)
(12,373)
15,311
31,627
(3,300)
(29,370)
–
11,325
–
(11,325)
4,590
–
3,356
(13,671)
(5,018)
(10,762)
20,404
15,386
15,386
4,624

– I-9 –

ACCOUNTANTS’ REPORT

NOTES TO HISTORICAL FINANCIAL INFORMATION

1. GROUP REORGANISATION AND BASIS OF PRESENTATION OF HISTORICAL FINANCIAL INFORMATION

The Company was incorporated and registered as an exempted company with limited liability in the Cayman Islands under the Companies Law Chapter 22 of the Cayman Islands on 12 August 2016. The address of the Company’s registered office and the principal place of business is disclosed in the paragraph headed “Corporate Information” to the [ REDACTED ].

Before the completion of the Reorganisation, Lapco was owned by Prime Rich (Asia) Limited (“ Prime Rich ”) which held the shares on trust for the benefit of Mr. Lam Pak Ling (“ Mr. Lam ”), a founder of the Group’s business (the “ Lam’s Family Business ”), pursuant to a declaration of trust existed prior to the Track Record Period. Shiny Hope is wholly owned by Mr. Lam and Shiny Glory is wholly owned by Ms. Wong Siu Fan, Beatrice (“ Ms. Wong ”), common law spouse of Mr. Lam. Prior to 1 January 2014, Mr. Lam and Ms. Wong (collectively referred to as the “ Controlling Shareholders ”), owned the Lam’s Family Business through their interests held in the companies comprising the Group. The Controlling Shareholders exercise their control collectively over the companies now comprising the Group.

For the purpose of the [ REDACTED ] of the Company’s shares on the Growth Enterprise Market of the Stock Exchange (the “[ REDACTED ]”), the companies comprising the Group underwent the reorganisation as described below.

(1) On 8 January 2016, Champion Success Development Limited (“ Champion Success ”) was incorporated in Hong Kong and 1 share was allotted and issued to the subscriber at a subscription price of HK$1 per share. On 7 April 2016, Mr. Lam acquired one share from the subscriber at a consideration of HK$1 and on the same day, one additional share was allotted and issued to each of Mr. Lam and Ms. Wong, respectively. Immediately thereafter, Champion Success was owned as to approximately 67% by Mr. Lam and as to approximately 33% by Ms. Wong.
(2) On 1 April 2016, Sharp Idea was incorporated in the British Virgin Islands (the “ BVI ”) with an authorised share capital of United Stated Dollar (“ USD ”) 50,000 divided into 50,000 shares of par value of USD1 each. On 8 April 2016, 1,000 shares with par value of USD1 each were allotted and issued to Champion Success.
(3) On 15 April 2016, Prime Rich, Ms. Wong and Mr. Lam transferred their entire shareholding interests in Lapco, Shiny Glory and Shiny Hope, respectively to Sharp Idea, for an aggregate cash consideration of HK$3. Upon the completion of the transfer, Lapco, Shiny Glory and Shiny Hope became the wholly-owned subsidiaries of Sharp Idea.
(4) On 15 April 2016, Champion Success transferred 200 shares in Sharp Idea, representing 20% of the issued share capital of Sharp Idea to Magic Pioneer Limited (“ Pre-IPO Investor ”), an independent third party and a limited company incorporated in the BVI, for the consideration of [ REDACTED ]. Immediately after this transfer, Sharp Idea was held as to [ REDACTED ] by Pre-IPO Investor and [ REDACTED ] by Champion Success. The Controlling Shareholders and the Pre-IPO Investor are collectively referred to as the “Ultimate Owners”.
(5) On 8 August 2016, a family trust (the “ Lam Family Trust ”) was established by the Controlling Shareholders with Max Super Holdings Limited acting as the trustee (the “ Trustee ”). The Lam Family Trust is a discretionary trust with the Controlling Shareholders as beneficiaries.
(6) On 11 August 2016, Gold Cavaliers International Limited (“ Gold Cavaliers ”) was incorporated in the BVI with an authorised share capital of USD50,000 consisting of 50,000 ordinary shares with par value of USD1 each. Upon its incorporation, 7,867 shares and 2,133 shares of USD1.00 each were allotted and issued to Champion Success and Pre-IPO Investor, respectively.
(7) On 11 August 2016, Profound Wellness Holdings Limited (“ Profound Wellness ”) was incorporated in the BVI with an authorised share capital of USD50,000 consisting of 50,000 ordinary shares with par value of USD1 each. Upon its incorporation, 2 shares and 1 share of USD1.00 each were allotted and issued to Mr. Lam and Ms. Wong, respectively.

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ACCOUNTANTS’ REPORT

(8) On 12 August 2016, the Company was incorporated in the Cayman Islands with an authorised capital of [ REDACTED ] divided into [ REDACTED ] shares of [ REDACTED ] each. Upon its incorporation, 1 nil paid new share of [ REDACTED ] was allotted and issued to the subscriber and was transferred to Gold Cavaliers at nominal value on the same day.
(9) On [●], 7,867 shares in Gold Cavaliers were transferred to the Trustee of the Lam Family Trust from Champion Success.
(10) On [●], pursuant to the share swap agreement entered into amongst Champion Success, Pre-IPO Investor and the Company, Champion Success and Pre-IPO Investor transferred their entire equity interests in Sharp Idea to the Company. In exchange the Company will issue 299 and 20 shares to Gold Cavaliers and Profound Wellness, respectively at the direction of Champion Success and Pre-IPO Investor. Upon completion of such share swap, Sharp Idea became a wholly-owned subsidiary of the Company.

Pursuant to steps 1 to 3 detailed above, Sharp Idea has become the intermediate holding company of Lapco, Shiny Glory and Shiny Hope and they are controlled by Controlling Shareholders before and after Reorganisation and the consolidated financial statements of Sharp Idea Group has been prepared under the principles of merger accounting in accordance with Accounting Guideline 5 “Merger Accounting Under Common Control Combination” issued by HKICPA.

Pursuant to steps 4 to 10 detailed above, the Company became the holding company of the companies now comprising the Group by interspersing the Company and other investment holding companies between Sharp Idea and the Ultimate Owners.

The combined statements of profit or loss and other comprehensive income, combined statements of changes in equity and combined statements of cash flows of the Group for the Track Record Period include the results, changes in equity and cash flows of the companies now comprising the Group as if the current group structure had been in existence throughout the Track Record Period, or since the respective date of incorporation, which is a shorter period.

The combined statements of financial position of the Group as at 31 December 2015 and 2016 have been prepared to present the assets and liabilities of the companies now comprising the Group as if the current group structure had been in existence at those dates taking into account the respective dates of incorporation, where applicable.

The Historical Financial Information is presented in HK$, which is also the functional currency of companies now comprising the Group.

2. APPLICATION OF NEW AND AMENDMENTS TO HKFRSs

For the purpose of preparing and presenting the Historical Financial Information for the Track Record Period, the Group has consistently adopted the HKFRSs issued by the HKICPA that are effective for the Group’s financial year beginning on 1 January 2016 throughout the Track Record Period.

At the date of this report, HKICPA has issued the following new and revised HKFRSs which are not yet effective.

HKFRS 9	Financial instruments2
HKFRS 15	Revenue from contracts with customers2
HKFRS 16	Leases3
Amendments to HKAS 7	Disclosure initiative1
Amendments to HKAS 12	Recognition of deferred tax assets for unrealised losses1
Amendments to HKFRS 2	Classification and measurement of share-based payment
	transactions2
Amendments to HKFRS 4	Applying HKFRS 9 Financial instruments with HKFRS 4
	Insurance contracts2

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ACCOUNTANTS’ REPORT

Amendments to HKFRS 15 Clarifications to HKFRS 15 Revenue from contracts with customers[2] Amendments to HKFRS 10 and Sale or contribution of assets between an investor and its associate HKAS 28 or joint venture[4]

1 Effective for annual periods beginning on or after 1 January 2017.

2 Effective for annual periods beginning on or after 1 January 2018.

3 Effective for annual periods beginning on or after 1 January 2019.

4 Effective for annual periods beginning on or after a date to be determined.

HKFRS 9 “Financial instruments”

HKFRS 9 issued in 2009 introduced new requirements for the classification and measurement of financial assets. HKFRS 9 was subsequently amended in 2010 to include the requirements for the classification and measurement of financial liabilities and for derecognition, and in 2013 to include the new requirements for general hedge accounting. Another revised version of HKFRS 9 was issued in September 2014 mainly to include (a) impairment requirements for financial assets and (b) limited amendments to the classification and measurement requirements by introducing a “fair value through other comprehensive income” measurement category for certain simple debt instruments. Key requirement of HKFRS 9 which is relevant to the Group is as follow:

In relation to the impairment of financial assets, HKFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under HKAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

The directors of the Company have reviewed the Group’s financial assets as at 31 December 2016 and anticipate that the application of HKFRS 9 in the future may result in early recognition of credit losses based on expected loss model in relation to the Group’s financial assets measured at amortised cost and is not likely to have other material impact on the results and financial position of the Group based on an analysis of the Group’s existing business model.

HKFRS 15 “Revenue from contracts with customers”

HKFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. HKFRS 15 will supersede the current revenue recognition guidance including Hong Kong Accounting Standards (“ HKAS ”) 18 “Revenue”, HKAS 11 “Construction contracts” and the related Interpretations when it becomes effective.

The core principle of HKFRS 15 is that an entity should recognise revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition:

Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognise revenue when (or as) the entity satisfies a performance obligation

Under HKFRS 15, an entity recognises revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer. Far more prescriptive guidance has been added in HKFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by HKFRS 15.

In 2016, the HKICPA issued clarifications to HKFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance.

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ACCOUNTANTS’ REPORT

The directors of the Company anticipate that the application of HKFRS 15 in the future will not have impact on the amounts reported but may result in more disclosures made to the financial statements based on the existing business model of the Group as at 31 December 2016.

HKFRS 16 “Leases”

HKFRS 16 introduces a comprehensive model for the identification of lease arrangements and accounting treatments for both lessors and lessees. HKFRS 16 will supersede HKAS 17 “Leases” and the related interpretations when it becomes effective.

HKFRS 16 distinguishes lease and service contracts on the basis of whether an identified asset is controlled by a customer. Distinctions of operating leases and finance leases are removed for lessee accounting, and is replaced by a model where a right-of-use asset and a corresponding liability have to be recognised for all leases by lessees, except for short-term leases and leases of low value assets.

The right-of-use asset is initially measured at cost and subsequently measured at cost (subject to certain exceptions) less accumulated depreciation and impairment losses, adjusted for any remeasurement of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at that date. Subsequently, the lease liability is adjusted for interest and lease payments, as well as the impact of lease modifications, amongst others. For the classification of cash flows, the Group currently presents operating lease payments as operating cash flows. Under the HKFRS 16, lease payments in relation to lease liability will be allocated into a principal and an interest portion which will be presented as financing cash flows.

In contrast to lessee accounting, HKFRS 16 substantially carries forward the lessor accounting requirements in HKAS 17, and continues to require a lessor to classify a lease either as an operating lease or a finance lease.

Furthermore, extensive disclosures are required by HKFRS 16.

As set out in note 26, total operating lease commitment of the Group in respect of leased premises as at 31 December 2016 is amounted to HK$1,657,000. Upon the adoption of HKFRS 16, the directors of the Company expect that the commitments in the future in respect of leased premises with terms more than 12 months will be required to be recognised in the financial statements of the Group in future as right-of-use assets and lease liabilities and the directors of the Company do not expect the adoption of HKFRS 16 as compared with the current accounting policy would result in significant impact on the Group’s results.

Except for the above, the directors of the Company anticipate that the application of other new and amendments to HKFRSs in issue but not yet effective will have no material impact on the financial statements of the Group in the future.

3. SIGNIFICANT ACCOUNTING POLICIES

The Historical Financial Information has been prepared on the historical cost basis and in accordance with the following accounting policies which conform with HKFRSs issued by the HKICPA. In addition, the Historical Financial Information includes the applicable disclosures required by the Rules Governing the Listing of Securities on the Growth Enterprise Market of the Stock Exchange and by the Hong Kong Companies Ordinance.

Historical cost is generally based on the fair value of the consideration given in exchange for goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in this Historical Financial Information is determined on such a basis, except for share-based payment transactions that are within

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APPENDIX I

ACCOUNTANTS’ REPORT

the scope of HKFRS 2 “Share-based payment”, leasing transactions that are within the scope of HKAS 17 “Leases”, and measurements that have some similarities to fair value but are not fair value, such as net realisable value in HKAS 2 “Inventories” or value in use in HKAS 36 “Impairment of assets”.

In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and
Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies adopted are set out below.

Basis of combination

The Historical Financial Information incorporates the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company:

has power over the investee;
is exposed, or has rights, to variable returns from its involvement with the investee; and
has the ability to use its power to affect its returns.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the five elements of control listed above.

Combination of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the combined statements of profit or loss and other comprehensive income from the date the Group gains control until the date when the Group ceases to control the subsidiary.

Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.

All intra-group assets, liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on combination.

Merger accounting for business combination involving entities under common control

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

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

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

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APPENDIX I

ACCOUNTANTS’ REPORT

Revenue recognition

Revenue is measured at fair value of the consideration received or receivable and represents amounts receivable for services rendered in the normal course of business.

Revenue is recognised when the amount of revenue can be reliably measured; when it is probable that future economic benefits will flow to the Group and when specific criteria have been met for each of the Group’s activities, as described below.

Service income is recognised when services are provided.

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

Plant and equipment

Plant and equipment are stated at cost less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any.

Impairment loss on assets other than financial assets

At the end of each reporting period, the Group reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss, if any. When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or a cash-generating unit) is reduced to its recoverable amount. In allocating the impairment loss, the impairment loss is allocated to the assets on a pro-rata basis based on the carrying amount of each asset in the unit. The carrying amount of an asset is not reduced below the highest of its fair value less costs of disposal (if measurable), its value in use (if determinable) and zero. The amount of the impairment loss that would otherwise have been allocated to the asset is allocated pro rata to the other assets of the unit. An impairment loss is recognised immediately in profit or loss.

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APPENDIX I

ACCOUNTANTS’ REPORT

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

The Group as lessee

Assets held under finance leases are recognised as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the combined statements of financial position as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognised immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the Group’s general policy on borrowing costs (see the accounting policy below).

Operating lease payments are recognised as an expense on a straight-line basis over the lease term.

Financial instruments

Financial assets and financial liabilities are recognised on the combined statements of financial position when a group entity becomes a party to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

The Group’s financial assets are loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees or points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period to the net carrying amount on initial recognition.

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including trade receivables, other receivables, amount due from a controlling shareholder, pledged bank balances and bank balances and cash) are measured at amortised cost using the effective interest method, less any identified impairment losses (see accounting policy on impairment of loans and receivables below).

Interest income is recognised by applying the effective interest rate except for short-term receivables where the recognition of interest would be insignificant.

Impairment of loans and receivables

Objective evidence of impairment could include:

significant financial difficulty of the issuer or counterparty; or

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APPENDIX I

ACCOUNTANTS’ REPORT

breach of contract, such as a default or delinquency in interest or principal payments; or
it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For certain categories of financial assets, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of trade receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments, observable changes in national or local economic conditions that correlate with default on trade receivables.

Financial liabilities and equity instruments

Classification as debt or equity

Debt and equity instruments issued by a group entity are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of a group entity after deducting all of its liabilities. Equity instruments issued by the group entities are recognised at the proceeds received, net of direct issue costs.

Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Interest expense is recognised on an effective interest basis for debt instruments.

Financial liabilities at amortised cost

The Group’s financial liabilities including trade payables, other payables and accrued charges, amount due to a controlling shareholder, amount due to a related party and bank borrowings are subsequently measured at amortised cost, using the effective interest method.

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APPENDIX I

ACCOUNTANTS’ REPORT

Derecognition

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire.

On derecognition of a financial asset, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.

The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Retirement benefits costs

Payments to the Mandatory Provident Fund Scheme (“ MPF Scheme ”) as defined contribution plan are recognised as an expense when employees have rendered service entitling them to the contributions.

Short-term and other long-term employee benefits

Short-term employee benefits are recognised at the undiscounted amount of the benefits expected to be paid as and when employees rendered the services. All short-term employee benefits are recognised as an expense unless another HKFRS requires or permits the inclusion of the benefit in the cost of an asset.

A liability is recognised for benefits accruing to employees (such as wages and salaries, annual leave and sick leave) after deducting any amount already paid.

Liabilities recognised in respect of other long-term employee benefits are measured at the present value of the estimated future cash outflows expected to be made by the Group in respect of services provided by employees up to the reporting date. Any changes in the liabilities’ carrying amounts resulting from service cost, interest and remeasurements are recognised in profit or loss except to the extent that another HKFRS requires or permits their inclusion in the cost of an asset.

Taxation

Taxation represents the sum of the income tax expense currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘profit before taxation’ as reported in the combined statements of profit or loss and other comprehensive income because of income or expense that are taxable or deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of each reporting period.

Deferred tax

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the Historical Financial Information and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are generally recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised, based on tax rate (and tax laws) that have been enacted or substantively enacted by the end of each reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the end of each reporting period, to recover or settle the carrying amount of its assets and liabilities.

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ACCOUNTANTS’ REPORT

Current and deferred tax for the year

Current and deferred tax are recognised in profit or loss.

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale are added to the cost of those assets until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

Provisions

Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligations, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of each reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material).

Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the functional currency of that entity (foreign currencies) are recognised at the rates of exchanges prevailing on the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are recognised in profit or loss in the period in which they arise.

4. KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, which are described in note 3, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and underlying assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

The following is the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of each reporting period that have a significant risk of causing a material adjustment to the carrying amounts of assets within the next twelve months.

Estimated impairment of trade receivables

When there is objective evidence of impairment loss, the Group takes into consideration the estimated future cash flows. The amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective interest rate computed at initial recognition). Where the actual future cash flows are less than expected, a material impairment loss may arise. As at 31 December 2015 and 2016, the carrying amount of trade receivables is approximately HK$85,997,000 and HK$72,545,000, respectively. No impairment loss on trade receivables was recognised during the Track Record Period.

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ACCOUNTANTS’ REPORT

5. REVENUE AND SEGMENTAL INFORMATION

Revenue represents the fair value of amounts received and receivable by the Group to external customers. The Group’s operations is solely derived from services provided in Hong Kong during the Track Record Period.

Information reported to the Controlling Shareholders, being the chief operating decision maker (collectively referred to as “ CODM ”), for the purposes of resource allocation and assessment of segment performance focuses on types of services provided. The Group’s operating and reportable segments are therefore as follows:

Cleaning services
Pest management services
Waste management and recycling services
Landscaping services

Segment revenue and results

The following is an analysis of the Group’s revenue and results by operating and reportable segments.

For the year ended 31 December 2015 Segment revenue – external customers Segment results Other income Other gains and losses Administrative expenses Finance costs Profit before taxation	Cleaning services HK$’000 305,399 28,294	Pest management services HK$’000 43,346 1,526	Waste management and recycling services HK$’000 14,722 4,753	Landscaping services HK$’000 – –	Total HK$’000 363,467

					34,573 369 (530) (12,737) (3,531)
					18,144

For the year ended 31 December 2016 Segment revenue – external customers Segment results Other income Other gains and losses Administrative expenses [REDACTED] Finance costs Profit before taxation	Cleaning services HK$’000 343,982 31,555	Pest management services HK$’000 31,552 3,365	Waste management and recycling services HK$’000 27,870 5,256	Landscaping services Total HK$’000 HK$’000 720 404,124 18 40,194 645 (285) (17,667) [REDACTED] (3,555) 12,452	Total HK$’000 404,124

					12,452

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APPENDIX I

ACCOUNTANTS’ REPORT

There were no inter-segment revenue for the Track Record Period.

The accounting policies of the operating and reportable segments are the same as the Group’s accounting policies. Segment results represents the results from each segment without allocation of administrative expenses, other income, gains and losses, finance costs, [ REDACTED ] and income tax expense. This is the measure reported to the CODM for the purposes of resource allocation and assessment of segment performance.

Segment assets and liabilities

The segment assets and liabilities at the end of each reporting period by operating and reportable segments are as follows:

Cleaning services Pest management services Waste management and recycling services Landscaping services HK$’000 HK$’000 HK$’000 HK$’000 As at 31 December 2015 Segment assets 99,298 14,093 4,787 – Certain plant and equipment Other receivables, deposits and prepayments Deposits for acquisition of plant and equipment Amount due from a controlling shareholder Pledged bank balances Bank balances and cash Total assets Segment liabilities 28,967 4,237 1,193 – Certain other payables and accrued charges Tax payable Bank borrowings Obligations under finance leases Deferred tax liabilities Total liabilities	Total HK$’000 118,178 857 8,738 2,317 8,618 9,280 15,386
	163,374

	34,397 1,682 2,833 70,334 24,993 2,861
	137,100

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APPENDIX I

ACCOUNTANTS’ REPORT

Cleaning services Pest management services Waste management and recycling services Landscaping services HK$’000 HK$’000 HK$’000 HK$’000 As at 31 December 2016 Segment assets 85,525 9,115 21,901 208 Certain plant and equipment Other receivables, deposits and prepayments Amount due from a controlling shareholder Pledged bank balances Bank balances and cash Total assets Segment liabilities 23,937 3,190 1,554 38 Certain other payables and accrued charges Tax payable Bank borrowings Obligations under finance leases Deferred tax liabilities Total liabilities	Total HK$’000 116,749 639 18,362 2,361 9,080 4,624
	151,815

	28,719 3,671 1,826 48,783 30,163 3,590
	116,752

For the purposes of monitoring segment performance and allocating resources between segments:

all assets are allocated to operating and reportable segments other than certain plant and equipment, deposits for acquisition of plant and equipment, other receivables, deposits and prepayments, amount due from a controlling shareholder, pledged bank balances and bank balances and cash.
all liabilities are allocated to operating and reportable segments other than certain other payables and accrued charges, tax payable, bank borrowings, obligations under finance leases and deferred tax liabilities.

Other segment information

			Waste
			management
		Pest	and
	Cleaning	management	recycling	Landscaping	Segment
	services	services	services	services	total	Unallocated	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
For the year ended 31 December 2015
Additions to plant and equipment	10,426	1,480	503	–	12,409	937	13,346
Depreciation of plant and
equipment	7,892	1,120	380	–	9,392	178	9,570
Gain (loss) on disposal of plant
and equipment	66	10	3	–	79	(60)	19

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APPENDIX I

ACCOUNTANTS’ REPORT

			Waste
			management
		Pest	and
	Cleaning	management	recycling	Landscaping	Segment
	services	services	services	services	total	Unallocated	Total
	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000	HK$’000
For the year ended 31 December 2016
Additions to plant and equipment	7,055	1,995	16,461	46	25,557	85	25,642
Depreciation of plant and
equipment	10,556	1,046	1,774	24	13,400	303	13,703
Gain on disposal of plant and
equipment	243	22	20	1	286	–	286

Geographical information

No geographical segment information is presented as the Group’s revenue are all derived from Hong Kong based on the location of services delivered and the Group’s plant and equipment amounting to HK$33,038,000 and HK$44,843,000 as at 31 December 2015 and 2016, respectively, are all located in Hong Kong by physical location of assets.

Information about major customers

Revenue attributed from customers that accounted for 10% or more of the Group’s total revenue during the Track Record Period is as follows:

Customer A Customer B 6. OTHER INCOME Bank interest income Interest income from deposits in life insurance policies Sundry income	Year ended 31 December 2015 2016 HK$’000 HK$’000 294,661 315,681 44,530 59,400 Year ended 31 December 2015 2016 HK$’000 HK$’000 180 210 176 248 13 187 369 645	Year ended 31 December 2015 2016 HK$’000 HK$’000 294,661 315,681 44,530 59,400 Year ended 31 December 2015 2016 HK$’000 HK$’000 180 210 176 248 13 187 369 645
		645

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APPENDIX I

ACCOUNTANTS’ REPORT

7. OTHER GAINS AND LOSSES

Gain on disposal/written off of plant and equipment, net Net foreign exchange losses	Year ended 31 December 2015 2016 HK$’000 HK$’000 19 286 (549) (571) (530) (285)	Year ended 31 December 2015 2016 HK$’000 HK$’000 19 286 (549) (571) (530) (285)
		(285)

8. FINANCE COSTS

Interests on: Bank borrowings Obligations under finance leases	Year ended 31 December 2015 2016 HK$’000 HK$’000 2,516 2,316 1,015 1,239 3,531 3,555	Year ended 31 December 2015 2016 HK$’000 HK$’000 2,516 2,316 1,015 1,239 3,531 3,555
		3,555

9. DIRECTORS’ AND EMPLOYEES’ EMOLUMENTS

(a) Directors’ and chief executive’s emoluments

Mr. Lam, Mr. Choi Chung Yin (“ Mr. Choi ”) and Mr. Wong Tsz Chun, Jacky (“ Mr. Wong ”) were appointed as directors of the Company on 12 August 2016, and Mr. Cai Weiming (“ Mr. Cai ”) was appointed as director of the Company on 31 October 2016. The emoluments paid or payable to the directors and chief-executive of the Company (including emoluments for services as employee/directors of the group entities prior to becoming the directors of the Company) by the entities comprising the Group during the Track Record Period as follows:

Year ended 31 December 2015 Salaries and other benefits Retirement benefit scheme contributions Total emoluments	Mr. Lam HK$’000 (Note i) 1,062 18 1,080	Mr. Wong HK$’000 206 10 216	Mr. Cai HK$’000 202 10 212	Total HK$’000 1,470 38
				1,508

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APPENDIX I

ACCOUNTANTS’ REPORT

Year ended 31 December 2016 Salaries and other benefits Bonus (Note ii) Retirement benefit scheme contributions Total emoluments	Mr. Lam HK$’000 (Note i) 1,006 200 18 1,224	Mr. Choi HK$’000 – – – –	Mr. Wong HK$’000 259 – 13 272	Mr. Cai HK$’000 401 – 14 415	Total HK$’000 1,666 200 45
					1,911

Notes:

(i) Mr. Lam acts as chief executive of the Group.
(ii) The discretionary bonus is determined by reference to the duties and responsibilities of the relevant individual within the Group and the Group’s performance.

The emoluments stated above were for their services in connection with the management of the affairs of the companies comprising the Group.

During the Track Record Period, no remuneration was paid by the Group to the directors of the Company as an inducement to join or upon joining the Group or as compensation for loss of office. None of the directors of the Company have waived any remuneration during the Track Record Period.

(b) Employees’ emoluments

The five highest paid individuals included Mr. Lam for year ended 31 December 2015 and Mr. Lam and Mr. Cai for the year ended 31 December 2016 whose emoluments are included in the disclosures in (a). The emoluments of the remaining four and three individuals for the year ended 31 December 2015 and 2016, respectively were as follows:

Salaries and other benefits Bonus Retirement benefit scheme contributions Their emoluments were within the following bands: Nil to HK$1,000,000 HK$1,000,001 to HK$1,500,000	Year ended 31 December 2015 2016 HK$’000 HK$’000 1,850 1,714 – 200 62 44 1,912 1,958 Year ended 31 December 2015 2016 Number of employees Number of employees 3 2 1 1

During the Track Record Period, no emoluments were paid by the Group to the five highest paid individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

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APPENDIX I

ACCOUNTANTS’ REPORT

10. PROFIT BEFORE TAXATION

Profit before taxation has been arrived at after charging:
Auditor’s remuneration
Depreciation of plant and equipment
Directors’ remuneration (note 9)
Other staff costs
Salaries, bonuses and other benefits
Retirement benefits scheme contributions
Total staff costs
Lease payments under operating leases in respect of land and
buildings entered into:
by the Group for minimum lease payments
by a related party on behalf of the Group for minimum
lease payments

Year ended 31 December
2015
2016
HK$’000
HK$’000
245
584
9,570
13,703
1,508
1,911
278,250
309,559
8,609
8,037
288,367
319,507
612
1,126
1,160
720

11. INCOME TAX EXPENSE

Hong Kong Profits Tax: – Current tax Deferred tax (note 23)	Year ended 31 December 2015 2016 HK$’000 HK$’000 2,456 2,934 600 729 3,056 3,663

Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for the Track Record Period.

The tax charge for the Track Record Period can be reconciled to the profit before taxation as follows:

Profit before taxation Tax at Hong Kong Profits Tax rate of 16.5% Tax effect of income not taxable for tax purpose Tax effect of expenses not deductible for tax purpose Tax effect of tax losses not recognised Others Tax charge for the year	Year ended 31 December 2015 2016 HK$’000 HK$’000 18,144 12,452 2,994 2,055 (90) (75) 122 1,343 – 330 30 10 3,056 3,663

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APPENDIX I

ACCOUNTANTS’ REPORT

12. DIVIDEND

During the year ended 31 December 2015, Lapco and Shiny Hope declared dividends of HK$8,800,000 and HK$8,000,000, respectively to Mr. Lam and Shiny Glory declared HK$4,000,000 to Ms. Wong.

The rate of dividend and the number of shares ranking for the above dividends are not presented as such information is not considered meaningful having regard to the purpose of this report.

No dividend was paid or declared by the Company since its incorporation.

13. EARNINGS PER SHARE

No earnings per share information is presented for the purpose of this report as its inclusion is not considered meaningful having regard to the Reorganisation of the Group and the result of the Group for the Track Record Period that is prepared on a combined basis as set out in note 1.

14. PLANT AND EQUIPMENT

Leasehold Improvements HK$’000 COST At 1 January 2015 240 Additions 443 Disposals (199) At 31 December 2015 484 Additions 85 Disposals/written-off – At 31 December 2016 569 DEPRECIATION At 1 January 2015 99 Provided for the year 166 Eliminated on disposals (139) At 31 December 2015 126 Provided for the year 195 Eliminated on disposals/written-off – At 31 December 2016 321 CARRYING AMOUNTS At 31 December 2015 358 At 31 December 2016 248	Office equipment HK$’000 46 494 – 540 – – 540 29 12 – 41 108 – 149 499 391	Site equipment HK$’000 9,069 652 – 9,721 669 – 10,390 6,741 759 – 7,500 725 – 8,225 2,221 2,165	Motor vehicles HK$’000 52,634 11,757 (42) 64,349 24,888 (951) 88,286 25,798 8,633 (42) 34,389 12,675 (817) 46,247 29,960 42,039	Total HK$’000 61,989 13,346 (241)
				75,094 25,642 (951)
				99,785
				32,667 9,570 (181)
				42,056 13,703 (817)
				54,942
				33,038

				44,843

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APPENDIX I ACCOUNTANTS’ REPORT

The above items of plant and equipment are depreciated on a straight-line basis at the following rates per annum:

Leasehold improvements Over the lease terms Office equipment 20% Site equipment 20% Motor vehicles 20%–30%

At 31 December 2015 and 2016, the carrying values of motor vehicles included an amount of approximately HK$28,557,000 and HK$35,789,000, respectively in respect of the assets held under finance leases.

15. TRADE RECEIVABLES

The Group grants credit terms of 60 - 90 days to its customers. An ageing analysis of the trade receivables presented based on the invoice date which approximated the respective dates on which revenue was recognised at the end of each reporting period.

0 – 30 days 31 – 60 days 61 – 90 days 91 – 180 days Over 180 days	As at 31 December 2015 2016 HK$’000 HK$’000 31,143 27,412 29,832 25,674 20,247 10,122 4,726 8,400 49 937 85,997 72,545	As at 31 December 2015 2016 HK$’000 HK$’000 31,143 27,412 29,832 25,674 20,247 10,122 4,726 8,400 49 937 85,997 72,545
		72,545

Before accepting any new customer, the Group assesses the potential customer’s credit quality. Approximately 94% and 87% of trade receivables as at 31 December 2015 and 2016, respectively, that are neither past due nor impaired have good credit quality. These customers have no default of payment in the past and have good credit quality.

The Group has a policy for allowance of bad and doubtful debts which is based on the evaluation of collectibility and ageing analysis of accounts and on management’s judgement including the creditworthiness and the past collection history of each customer.

Included in the Group’s trade receivables are debtors with aggregate carrying amount of approximately HK$4,775,000 and HK$9,337,000 which are past due at 31 December 2015 and 2016, respectively, for which the Group has not provided for impairment loss as there has not been a significant change in credit quality of the trade receivable and the amounts are still considered recoverable. The Group does not hold any collateral over these balances. The average age of these receivables is 136 days and 143 days as at 31 December 2015 and 2016, respectively.

Ageing analysis of trade receivables which are past due but not impaired:

91 – 180 days Over 180 days	As at 31 December 2015 2016 HK$’000 HK$’000 4,726 8,400 49 937 4,775 9,337	As at 31 December 2015 2016 HK$’000 HK$’000 4,726 8,400 49 937 4,775 9,337
		9,337

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APPENDIX I

ACCOUNTANTS’ REPORT

In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the end of each reporting period. The trade receivables past due but not provided for as at the end of each reporting period were either subsequently settled or no historical default of payments was noted by the respective customers and the management of the Group believe that no impairment is required.

Transfer of financial assets

The followings were the Group’s trade receivables as at 31 December 2015 and 2016 that were transferred to banks by factoring trade receivables on a full recourse basis. As the Group had not transferred the significant risks and rewards relating to these receivables, it continued to recognise the full carrying amount of the receivables and has recognised the cash received on the transfer as a secured bank borrowings (see note 22). These financial assets were carried at amortised cost in the Group’s combined statements of financial position.

Carrying amount of transferred assets Carrying amount of associated liabilities Net position	As at 31 December 2015 2016 HK$’000 HK$’000 80,138 65,400 (54,448) (30,640) 25,690 34,760	As at 31 December 2015 2016 HK$’000 HK$’000 80,138 65,400 (54,448) (30,640) 25,690 34,760
		34,760

16. OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS

Rental and utilities deposits Deposits paid to suppliers Payments for life insurance policies_(Note)_ Other receivables Prepayments Deferred and prepaid [REDACTED] Total Presented as non-current assets Presented as current assets Total	The Group As at 31 December 2015 2016 HK$’000 HK$’000 473 594 560 731 4,395 7,685 277 4,065 3,033 3,575 [REDACTED] [REDACTED] 8,738 18,362 5,382 8,901 3,356 9,461 8,738 18,362	The Company
		As at 31 December 2016 HK$’000 – – – – – [REDACTED]
		1,712

		– 1,712
		1,712

Note: In previous years, the Group has entered into two life insurance policies to insure each of Mr. Lam and Ms. Wong and paid single premium of USD546,448 (equivalent to approximately HK$4,262,000), in aggregate, to a bank at inception. During the year ended 31 December 2016, the Group entered into the third life insurance policy to insure Ms. Wong and paid single premium of USD428,672 (equivalent to approximately HK$3,344,000) to a bank at inception. Under these policies, the Group is the beneficiary and policy holder and the aggregate insured sum is USD3,500,000. The Group can, at any time, withdraw cash based on the account value of these policies (“ Account Value ”) at the date of withdrawal, which is determined by the gross premium paid plus accumulated interest earned and minus any charges made in accordance with the terms and conditions of these policies. If withdrawal is made during the surrender period stated in these policies (i.e. between 1st and 15th to 18th policy year), there is a specified amount of surrender charge deducted from Account Value. The insurance companies will pay the Group a guaranteed interest rate from 3.6% to 4.8% per annum for the first to three years and a variable return per annum afterwards (with guaranteed minimum interest rate of from 2% to 3% per annum) during the effective period of the policies.

At the inception date, the gross premium paid by the Group included a fixed policy premium charge and a deposit. Monthly policy expense and insurance charges will be incurred over the

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APPENDIX I

ACCOUNTANTS’ REPORT

insurance period with reference to the terms set out in the life insurance policies. The policy premium, expense and insurance charges are recognised in profit or loss over the expected life of the policy and the deposit placed is carried at amortised cost using the effective interest method.

The directors of the Company consider that the Group will not terminate the policies nor withdraw cash prior to the end of the surrender period and the expected life of the policies remained unchanged since their initial recognition. The balance of the deposits of life insurance policies is denominated in USD, being a currency other than the functional currency of the relevant group entity.

17. AMOUNT DUE FROM/TO A CONTROLLING SHAREHOLDER/A RELATED PARTY

The Group

Amount due from a controlling shareholder

Details of amount due from a controlling shareholder, which are non-trade nature, unsecured, interest-free and repayable on demands, are as follows:

				Maximum amount
				outstanding
	As at			During the year
Name	1 January	As at 31	December	ended 31 December
	2015	2015	2016	2015 2016
	HK$’000	HK$’000	HK$’000	HK$’000 HK$’000
Mr. Lam	2,026	8,618	2,361	16,557 19,040

Amount due to a related party

Details of amount due to a related party, which are trade nature, are as follow:

	As at 31	December
Name	2015	2016
	HK$’000	HK$’000
Kwok Tai Cleaning Service Company Limited
(“Kwok Tai”) (note)	80	11

Note: Kwok Tai is 100% owned by brother of Mr. Lam. The credit period for purchase of goods is 60 days. The following is an ageing analysis of trading balances with the related party presented based on the invoice date at the end of each reporting period:

0 – 30 days 31 – 60 days	As at 31 December 2015 2016 HK$’000 HK$’000 40 11 40 – 80 11	As at 31 December 2015 2016 HK$’000 HK$’000 40 11 40 – 80 11
		11

The Company

Amount due from a controlling shareholder

As at 31 December 2016, the Company has an amount due from a controlling shareholder of HK$419,000 which is non-trade nature, unsecured, interest-free and repayable on demand.

Amount due to a related party

As at 31 December 2016, the Company has an amount due to Lapco of HK$6,570,000 which is non-trade nature, unsecured, interest-free and repayable on demand.

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ACCOUNTANTS’ REPORT

18. PLEDGED BANK BALANCES/BANK BALANCES AND CASH

Pledged bank balances represents balances pledged to banks to secure the banking facilities (including the bank borrowings and performance guarantee) granted to the Group, and carried with prevailing market interest rate ranging from 0.01% to 2.50% per annum.

Bank balances and cash comprise cash held and short term bank deposits with an original maturity of three months or less and carrying interest at prevailing market rate from 0.01% to 2.50% per annum.

19. TRADE PAYABLES

The credit period is 30 to 60 days. The following is an ageing analysis of trade payables presented based on the invoice date at the end of each reporting period:

Trade payables: 0 – 30 days 31 – 60 days 61 – 90 days Over 90 days	As at 31 December 2015 2016 HK$’000 HK$’000 1,491 1,340 1,263 1,029 583 234 534 545 3,871 3,148	As at 31 December 2015 2016 HK$’000 HK$’000 1,491 1,340 1,263 1,029 583 234 534 545 3,871 3,148
		3,148

20. OTHER PAYABLES AND ACCRUED CHARGES

Salaries payables Other payables and accrued charges	The Group As at 31 December 2015 2016 HK$’000 HK$’000 23,953 20,356 1,682 3,671 25,635 24,027	The Company
		As at 31 December 2016 HK$’000 – 2,804
		2,804

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APPENDIX I

ACCOUNTANTS’ REPORT

21. PROVISIONS

At 1 January 2015 Payment during the year Provided for the year At 31 December 2015 Payment during the year Provided for the year Reversal during the year At 31 December 2016 Presented as non-current liabilities Presented as current liabilities	Redundancy cost and annual leave HK$’000 3,880 (1,725) 4,338 6,493 (6,963) 6,092 (418) 5,204 As at 31 December 2015 2016 HK$’000 HK$’000 1,768 1,748 4,725 3,456 6,493 5,204	Redundancy cost and annual leave HK$’000 3,880 (1,725) 4,338
		6,493 (6,963) 6,092 (418)
		5,204

		5,204

The Group provides for the probable future redundancy cost expected to be made to employees under the Hong Kong Employment Ordinance. The provision represents management’s best estimate of probable future payments which have been earned by the employees from the dismissal of redundancy up to the end of each reporting period.

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APPENDIX I

ACCOUNTANTS’ REPORT

22. BANK BORROWINGS

Secured bank overdrafts Secured bank borrowings: Term loans Loans from factoring of trade receivables with full recourse Carrying amounts repayable*: Within one year More than one year, but not exceeding two years More than two years, but not more than five years More than five years Less: Amounts due within one year or contain a repayment on demand clause shown under current liabilities Amounts shown under non-current liabilities	As at 31 December 2015 2016 HK$’000 HK$’000 1,895 3,950 13,991 14,193 54,448 30,640 70,334 48,783 58,366 37,156 2,083 2,519 4,981 4,764 4,904 4,344 70,334 48,783 (70,334) (48,783) – –	As at 31 December 2015 2016 HK$’000 HK$’000 1,895 3,950 13,991 14,193 54,448 30,640 70,334 48,783 58,366 37,156 2,083 2,519 4,981 4,764 4,904 4,344 70,334 48,783 (70,334) (48,783) – –
		48,783

		37,156 2,519 4,764 4,344
		48,783 (48,783)
		–

The amounts due are based on scheduled repayment dates set out in the loan agreements.

The banking facilities were secured by:

(i) the pledged bank balances of HK$9,280,000 and HK$9,080,000 as at 31 December 2015 and 2016, respectively;
(ii) payments for life insurance policies as disclosed in note 16;
(iii) two properties owned by Ms. Wong and CCE Limited, a company owned by Mr. Lam;
(iv) a property owned by CCE Limited;
(v) two properties owned by related companies, namely LES Limited and CCT Limited, which are wholly owned by the Controlling Shareholders;
(vi) unlimited corporate guarantee provided by certain entities comprising of the Group;
(vii) unlimited personal guarantee provided by the Controlling Shareholders;
(viii) project proceeds from certain service contracts of the Group; and
(ix) the pledge of the Group’s trade receivables with aggregate values of approximately HK$80,138,000 and HK$65,400,000 as at 31 December 2015 and 2016, respectively.

The directors of the Company consider that the pledge of properties by Ms. Wong and related companies and personal guarantee by the Controlling Shareholders will be released upon the [●].

The bank borrowings are at floating rate which carry interest in Hong Kong Dollar Prime Rate plus a spread.

The ranges of effective interest rates (which are also equal to contractual interest rates) on the Group’s bank borrowings are as follows:

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APPENDIX I

ACCOUNTANTS’ REPORT

	As at 31	December
	2015	2016
	HK$’000	HK$’000
Effective interest rate per annum:
Floating-rate borrowings	2.25%–6.25%	2.25%–5.25%

23. DEFERRED TAX LIABILITIES

The following is the major deferred tax liability recognised and movements thereon during the Track Record Period:

At 1 January 2015 Charge to profit or loss (note 11) At 31 December 2015 Charge to profit or loss (note 11) At 31 December 2016	Accelerated tax depreciation HK$’000 2,261 600
	2,861 729
	3,590

At 31 December 2016, the Group has unused tax loss of HK$2,001,000 available for offset against future profits which are subject to the confirmation from Hong Kong Inland Revenue Department. No deferred tax asset has been recognised due to unpredictability of future profit streams. Unused tax losses may be carried forward indefinitely.

24. OBLIGATIONS UNDER FINANCE LEASES

Analysed for reporting purposes as: Current liabilities Non-current liabilities	As at 31 December 2015 2016 HK$’000 HK$’000 10,370 11,258 14,623 18,905 24,993 30,163	As at 31 December 2015 2016 HK$’000 HK$’000 10,370 11,258 14,623 18,905 24,993 30,163
		30,163

The Group has leased certain of its motor vehicles under finance leases. The lease terms were ranged from three to five years for the Track Record Period. Interest rates underlying all obligations under finance leases are fixed at respective contract dates ranging from 1.35% to 3.00% per annum and 1.35% – 3.00% per annum as at 31 December 2015 and 2016, respectively.

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APPENDIX I

ACCOUNTANTS’ REPORT

Obligations under finance leases payable: Within one year Within a period of more than one year but not more than two years Within a period of more than two years but not more than five years Less: future finance charges Present value of lease obligations Less: Amount due for settlement with 12 months (shown under current liabilities) Amount due for settlement after 12 months	Minimum lease payments As at 31 December 2015 2016 HK$’000 HK$’000 10,975 12,164 7,678 10,366 7,842 9,453 26,495 31,983 (1,502) (1,820) 24,993 30,163	Present value of minimum lease payments As at 31 December 2015 2016 HK$’000 HK$’000 10,370 11,258 7,255 9,837 7,368 9,068 24,993 30,163 – – 24,993 30,163 (10,370) (11,258) 14,623 18,905	Present value of minimum lease payments As at 31 December 2015 2016 HK$’000 HK$’000 10,370 11,258 7,255 9,837 7,368 9,068 24,993 30,163 – – 24,993 30,163 (10,370) (11,258) 14,623 18,905
			30,163 –
			30,163 (11,258)
			18,905

The Group’s obligations under finance leases were secured by the lessor’s charge over the leased assets, corporate guarantee provided by a subsidiary of the Group and personal guarantee provided by Mr. Lam.

The directors of the Company consider that the personal guarantee provided by Mr. Lam will be released upon the [ REDACTED ].

25. ISSUED SHARE CAPITAL

The Group

The issued share capital as at 1 January 2015 and 31 December 2015 represented the combined share capital of Lapco, Shiny Glory and Shiny Hope.

The issued share capital as at 31 December 2016 represented the combined share capital of the Company and Sharp Idea.

The Company

On 12 August 2016, the Company was incorporated in the Cayman Islands with an authorised capital of [ REDACTED ] divided into [ REDACTED ] shares of HK$0.01 each. Upon its incorporation, 1 new share of HK$0.01 was allotted and issued to the subscriber and was transferred to Gold Cavaliers at nominal value on the same day.

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APPENDIX I

ACCOUNTANTS’ REPORT

Details of the share capital of the Company are disclosed as follows:

Ordinary shares of HK$0.01 each Authorised: At 12 August 2016 (date of incorporation) and 31 December 2016 Issued and fully paid: At 12 August 2016 (date of incorporation) and 31 December 2016	Number of shares [REDACTED] 1	Amount HK$’000 [REDACTED]

		–

26. OPERATING LEASE COMMITMENTS

The Group as lessee

At the end of each reporting period, the Group had commitments for future minimum lease payments under non-cancellable operating leases which fall due as follows:

Within one year In the second to fifth year inclusive	As at 31 December 2015 2016 HK$’000 HK$’000 987 1,161 1,324 496 2,311 1,657	As at 31 December 2015 2016 HK$’000 HK$’000 987 1,161 1,324 496 2,311 1,657
		1,657

The above operating lease payments represent rental payable by the Group for office premises for the Track Record Period.

Leases and rentals are negotiated and fixed for a term of two to three years.

In addition, Golden Field Services Limited (“ Golden Field ”), a company owned by Mr. Lam, has signed lease agreements on the Group’s behalf for premises which are occupied by the Group. The operating lease commitments are not included in the above.

27. CAPITAL RISK MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to owners through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged throughout the Track Record Period.

The capital structure of the Group consists of debt, which includes bank borrowings as disclosed in note 22, and equity of the Group, comprising issued share capital, other reserve and accumulated profits.

Management of the Group reviews the capital structure regularly taking into account the cost of capital and the risk associated with the capital. The Group will balance its overall capital structure through issuance of new shares and the raise of borrowings or the repayment of the existing borrowings.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX I

ACCOUNTANTS’ REPORT

28. FINANCIAL INSTRUMENTS

Categories of financial instruments

Financial assets Loans and receivables (including cash and cash equivalents) Financial liabilities Amortised cost Obligations under finance leases	The Group As at 31 December 2015 2016 HK$’000 HK$’000 123,953 100,360 75,967 55,613 24,993 30,163	The Company
		As at 31 December 2016 HK$’000 419

		9,374 –

Financial risk management objectives and policies

The Group’s financial instruments include trade receivables, other receivables, amount due from a controlling shareholder, pledged bank balances, bank balances and cash, trade payables, other payables and accrued charges, amount due to a related party, bank borrowings and obligations under finance leases. The Company’s financial instruments include amount due from a controlling shareholder, other payables and accrued charges and amount due to a related party. Details of these financial instruments are disclosed in respective notes. The risks associated with these financial instruments and the policies on how to mitigate these risks are set out below. The management manages and monitors these exposures to ensure appropriate measures are implemented on a timely and effective manner.

Currency risk

The Group has limited currency exposure as both the sales and direct costs were denominated in the functional currency of the respective group entities. Accordingly, the management considers that the Group’s exposure to foreign currency risk is minimal.

As at 31 December 2015 and 2016, the pledged bank balances of HK$9,280,000 and HK$9,080,000, respectively, and bank balances of HK$672,000 and HK$511,000, respectively, are denominated at Renminbi (“ RMB ”) and payments for life insurance policies of HK$4,395,000 and HK$7,685,000, respectively, are denominated at USD. RMB and USD are the currencies other than the functional currencies of the respective group entities.

Since the exchange rate of HK$ is pegged with USD, the management of Group does not expect any significant movements in the USD/HK$ exchange rates. Thus, there is no sensitivity analysis on USD denominated financial assets.

The sensitivity analysis includes only the outstanding foreign currency denominated monetary items and adjusts their translation at the end of each reporting period. Sensitivity analysis of strengthening 10% in functional currency of the entities comprising the Group (i.e. HK$) against RMB resulted a decrease in post-tax profit of HK$831,000 and HK$801,000 during the year ended 31 December 2015 and 2016, respectively. For a 10% weakening of HK$ against RMB there would be an equal and opposite impact on the results.

In management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk as the year end exposure does not reflect the exposure during the year.

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APPENDIX I

ACCOUNTANTS’ REPORT

Interest rate risk

The Group is exposed to fair value interest rate risk in relation to obligations under finance leases (note 24).

The Group is also exposed to cash flow interest rate risk in relation to the payments for life insurance policies (note 16), pledged bank balances and bank balances (note 18) as well as floating-rate bank borrowings (note 22) as at 31 December 2015 and 2016.

The Group has not used any interest rate swaps to mitigate its exposure associated with interest rate risk. However, management of the Group monitors interest rate exposure and will consider hedging significant interest rate exposure should the need arise.

The Group’s cash flow interest rate risk is mainly concentrated on the fluctuation of Hong Kong Dollar Prime Rate arising from the Group’s bank borrowings or other market interest rate from pledged bank balances and payments for life insurance policies.

Sensitivity analysis

In the opinion of management of the Group, the expected change in interest rate will not have significant impact on the interest income or expenses on payments for life insurance policies, pledged bank balances, bank balances and bank borrowings, hence sensitivity analysis is not presented.

Credit risk

The Group’s credit risk is primarily attributable to trade receivables, payments for life insurance policies, amount due from a controlling shareholder, pledged bank balances and bank balances.

The Group’s maximum exposure to credit risk which will cause a financial loss to the Group due to failure to discharge the obligations by counterparties is arising from the carrying amount of the respective recognised financial assets as stated in the combined statements of financial position at the end of each reporting period.

The Group’s customers are mainly government departments/organisations and thus credit risk is considered to be low. Except for the customers of government departments/organisations which the management of the Group considers are of good credit quality, management of the Group has delegated a team responsible for monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, the Group reviews the recoverable amount of each individual receivable at the end of each reporting period to ensure that adequate impairment losses are made for irrecoverable amounts.

The Group has concentration of credit risks with exposure limited to certain customers. Top two customers amounting to HK$80,138,000 and HK$65,400,000, respectively, comprised approximately 93% and 90% of the Group’s trade receivables as at 31 December 2015 and 2016. The management of the Group closely monitors the subsequent settlement of the customers. In this regard, the management of the Group considers that the Group’s credit risk is significantly reduced.

As at 31 December 2015 and 2016, the Group has concentration of credit risk in respect of amount due from a controlling shareholder. In order to minimise the credit risk on amount due from a controlling shareholder, the Group’s management continuously monitors the settlement status of the controlling shareholder and the level of exposure to ensure that follow-up action is taken to recover overdue debts, if any. Under such circumstances, the Group’s management considers that the Group’s credit risk is not material.

The credit risk for payments for life insurance policies, pledged bank balances and bank balances is considered as not significant as such amounts are placed in banks with good reputations.

Liquidity risk

In the management of the liquidity risk, the Group monitors and maintains a level of cash and cash equivalents deemed adequate by management to finance the Group’s operations and mitigate the effects of unexpected fluctuations in cash flows.

The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to pay. Specifically, bank borrowings with a repayment on demand clause are included in the earliest time band regardless of the probability of the

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APPENDIX I

ACCOUNTANTS’ REPORT

banks choosing to exercise their rights. The maturity dates for other non-derivative financial liabilities are based on the agreed repayment dates. To the extent that interest flows are floating rate, the undiscounted amount is derived from interest rate at the end of each reporting period.

The table includes both interest and principal cash flows.

Weighted average effective interest rate % The Group As at 31 December 2015 Non-derivative financial liabilities Trade payables N/A Other payables and accrued charges N/A Amount due to a related party N/A Bank borrowings 4.70 Obligations under finance leases 1.95 As at 31 December 2016 Non-derivative financial liabilities Trade payables N/A Other payables and accrued charges N/A Amount due to a related party N/A Bank borrowings 4.38 Obligations under finance leases 1.92 The Company As at 31 December 2016 Other payables and accrued charges N/A Amount due to a related party N/A	Repayable on demand HK$’000 – 243 – 70,334 – 70,577 – – – 48,783 – 48,783 – 6,570 6,570	Within 1 year HK$’000 3,871 1,439 80 – 10,975 16,365 3,148 3,671 11 – 12,164 18,994 2,804 – 2,804	Within 1 – 5 years Total undiscounted cash flows HK$’000 HK$’000 – 3,871 – 1,682 – 80 – 70,334 15,520 26,495 15,520 102,462 – 3,148 – 3,671 – 11 – 48,783 19,819 31,983 19,819 87,596 – 2,804 – 6,570 – 9,374	Total carrying amount HK$’000 3,871 1,682 80 70,334 24,993
				100,960

				3,148 3,671 11 48,783 30,163
				85,776

				2,804 6,570
				9,374

Bank borrowings with a repayment on demand clause are included in the “Repayable on demand” time band in the above maturity analysis. As at 31 December 2015 and 2016, the aggregate carrying amount of these bank borrowings of amounted to HK$68,439,000 and HK$44,833,000 respectively. Taking into account of the Group’s financial position, management of the Group does not believe that it is probable that the banks will exercise their discretionary rights to demand immediate repayments. Management of the Group believes that such bank borrowings of the Group will be repaid in accordance with the scheduled repayment dates set out in the loan agreements.

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APPENDIX I

ACCOUNTANTS’ REPORT

For the purpose of managing liquidity risk, management of the Group reviews the expected cash flow information of the Group’s bank borrowings based on the scheduled repayment dates set out in the bank borrowings agreements as set out in the table below:

Weighted average effective interest rate % Bank borrowings: As at 31 December 2015 4.70 As at 31 December 2016 4.38	Within 1 year HK$’000 57,499 33,894	Within 1 – 5 years HK$’000 7,848 7,982	Over 5 years Total undiscounted cash flows HK$’000 HK$’000 5,440 70,787 4,818 46,694	Total carrying amount HK$’000 68,439

				44,833

Fair value of financial instruments

Fair value

Management of the Group considers that the carrying amounts of financial assets and financial liabilities recorded at amortised cost in the Historical Financial Information approximate their fair values.

29. RESERVE OF THE COMPANY

At 12 August 2016 (date of incorporation) Loss and total comprehensive expense for the period At 31 December 2016	Accumulated losses HK$’000 – (7,243)
	(7,243)

30. MAJOR NON-CASH TRANSACTIONS

During the year ended 31 December 2015, the Group settled dividend to controlling shareholders of approximately HK$20,800,000 through the Group’s current account with the controlling shareholder.

Additions to plant and equipment of approximately HK$11,757,000 and HK$17,543,000 for the years ended 31 December 2015 and 2016, respectively, were made under the finance leases.

– I-40 –

ACCOUNTANTS’ REPORT

31. RELATED PARTY TRANSACTIONS

Save as disclosed elsewhere in the Historical Financial Information, the Group had the following transactions with its related parties during the Track Record Period:

Total building management fee, rent and rates paid or payable to: CCT Limited (note i) Source Mega Inc. Limited (“Source Mega”) (note ii) LES Limited (note iii) Subcontracting fee paid or payable to Kwok Tai	Year ended 31 December 2015 2016 HK$’000 HK$’000 235 343 176 296 199 288 656 463	Year ended 31 December 2015 2016 HK$’000 HK$’000 235 343 176 296 199 288 656 463

		463

Notes:

(i) CCT Limited is 100% owned by Ms. Wong.
(ii) Source Mega is 100% owned by Ms. Wong. (iii) LES Limited is 100% owned by Mr. Lam.

During the years ended 31 December 2015 and 2016, Golden Field has entered into tenancy agreements for the premises occupied by the Group. The total rental expenses paid and payable to the landlords under the tenancy agreements entered into by Golden Field are as follows:

		Year ended 31 December	Year ended 31 December
		2015	2016
		HK$’000	HK$’000
Golden	Field	1,160	720

The Group has operating lease commitments with related parties as follows:

Within one year In the second to fifth year inclusive	As at 31 December 2015 2016 HK$’000 HK$’000 797 797 1,188 391 1,985 1,188	As at 31 December 2015 2016 HK$’000 HK$’000 797 797 1,188 391 1,985 1,188
		1,188

Details of the balances with a controlling shareholder at the end of each reporting period are disclosed in the combined statements of financial position and note 17.

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ACCOUNTANTS’ REPORT

Compensation of key management personnel

The remuneration of directors and other members of key management during the years ended 31 December 2015 and 2016 were as follows:

Short-term benefits Post-employment benefits	Year ended 31 December 2015 2016 HK$’000 HK$’000 2,476 3,453 58 72 2,534 3,525	Year ended 31 December 2015 2016 HK$’000 HK$’000 2,476 3,453 58 72 2,534 3,525
		3,525

32. RETIREMENT BENEFITS SCHEMES

The MPF Scheme is registered with the Mandatory Provident Fund Schemes Authority under the Mandatory Provident Fund Schemes Ordinance. The assets of the MPF Scheme are held separately from those of the Group in funds under the control of an independent trustee. Under the MPF Scheme, the employer and its employees are each required to make contributions to the MPF Scheme at rates specified in the rules. The only obligation of the Group with respect to the MPF Scheme is to make the required contributions. Except for voluntary contribution, no forfeited contribution under the MPF Scheme is available to reduce the contribution payable in future years.

The retirement benefits schemes contributions arising from the MPF Scheme charged to the combined statements of profit or loss and other comprehensive income represent contributions paid or payable to the funds by the Group at rates specified in the rules of the scheme.

The contributions paid and payable to the scheme by the Group are disclosed in notes 9 and 10.

33. CONTINGENT LIABILITIES

As at 31 December 2015 and 2016, performance guarantee of approximately HK$48,997,000 and HK$50,730,000, respectively, were given by banks in favour of the Group’s customers as security for the due performance and observance of the Group’s obligations under the contracts entered into between the Group and their customers. If the Group fails to provide satisfactory performance to its customers to whom performance guarantee have been given, such customers may demand the banks to pay to them the sum or sum stipulated in such demand. The Group will become liable to compensate such banks accordingly. The performance guarantee will be released upon completion of the service contracts. The performance guarantee were granted under the banking facilities with details as set out in note 22.

At the end of each reporting period, the management of the Group does not consider it is probable that a claim will be made against the Group.

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APPENDIX I

ACCOUNTANTS’ REPORT

34. PARTICULARS OF SUBSIDIARIES

Particulars of the Company’s subsidiaries at the date of this report are as follows:

				Attributable equity	Attributable equity	Attributable equity
	Place and		Issued and	interest of the Group as at
	date of	Place of	fully paid	31 December		date of	Principal
Name of subsidiary	incorporation	operation	share capital	2015	2016	this report	activities	Notes
Sharp Idea	The BVI	Hong Kong	USD1,000	N/A	100%	100%	Investment holding	(a)
	1 April 2016
Lapco	Hong Kong	Hong Kong	31 December 2015:	100%	100%	100%	Provision of cleaning	(b)
	14 May 1999		HK$5,200,000				services in
			31 December 2016:				Hong Kong
			HK$5,800,000
Shiny Glory	Hong Kong	Hong Kong	HK$5,000,000	100%	100%	100%	Provision of cleaning	(b)
	30 November 1990						services in
							Hong Kong
Shiny Hope	Hong Kong	Hong Kong	HK$1	100%	100%	100%	Provision of	(b)
	15 June 2006						transportation
							services in
							Hong Kong

All the companies comprising the Group have adopted 31 December as their financial year end date.

Notes:

(a) No statutory audited financial statements have been prepared for Sharp Idea since its date of incorporation as it was incorporated in a jurisdiction where there is no statutory audit requirements.
(b) The statutory financial statements of Lapco, Shiny Glory and Shiny Hope for the years ended 31 December 2015, which are prepared in accordance with the Hong Kong Financial Reporting Standard for Private Entities issued by HKICPA, were audited by Michael M.C. Chan & Co. Certified Public Accountants, a firm of certified public accountants registered in Hong Kong.
[The statutory financial statements of Lapco, Shiny Glory and Shiny Hope for the year ended 31 December 2016, were prepared in accordance with HKFRSs issued by HKICPA and were audited by us.]

35. SUBSEQUENT EVENTS

Save as disclosed elsewhere in the Historical Financial Information, subsequent events of the Group are detailed as below.

On [●], written resolutions of the shareholders of the Company was passed to approve the matters set out in the paragraph headed “Resolutions of our Shareholders” in Appendix IV of the [ REDACTED ]. It was resolved, among other things, conditional upon the share premium account of the Company being credited as a result of the [ REDACTED ] of the Company’s shares, the directors of the Company were authorised to capitalise the amount of [ REDACTED ] from the amount standing to the credit of the share premium account of the Company and to apply such amount to pay up in full at par [ REDACTED ] shares for allotment and issue to the persons whose name appeared on the register of members of the Company at the close of business on [●].

36. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements of the Company, any of its subsidiaries or the Group have been prepared in respect of any period subsequent to 31 December 2016.

– I-43 –

The information set out in this Appendix does not form part of the accountants’ report on the historical financial information of the Group for each of the two years ended 31 December 2015 and 2016 prepared by Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong, our Company’s Reporting Accountants (the “Accountants’ Report”), as set out in Appendix I to this [ REDACTED ] , and is included herein for information only. The unaudited pro forma financial information should be read in conjunction with the section headed “Financial Information” in this [ REDACTED ] and the Accountants’ Report set out in Appendix I to this [ REDACTED ] .

[ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

[ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

[ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

[ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

[ REDACTED ]

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX III

SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW

Set out below is a summary of certain provisions of the Memorandum and Articles of Association of the Company and of certain aspects of Cayman company law.

The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 12 August 2016 under the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands (the “ Companies Law ”). The Company’s constitutional documents consist of its memorandum of association (the “ Memorandum ”) and its articles of association (the “ Articles ”).

1. MEMORANDUM OF ASSOCIATION

(a) The Memorandum states, inter alia, that the liability of members of the Company is limited to the amount, if any, for the time being unpaid on the shares, respectively held by them and that the objects for which the Company is established are unrestricted (including acting as an investment company), and that the Company shall have and be capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit, as provided in section 27(2) of the Companies Law and in view of the fact that the Company is an exempted company that the Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands.
(b) The Company may by special resolution alter its Memorandum with respect to any objects, powers or other matters specified therein.

2. ARTICLES OF ASSOCIATION

The Articles were conditionally adopted on [●] 2017 with effect from the [ REDACTED ]. The following is a summary of certain provisions of the Articles:

(a) Shares

(i) Classes of shares

The share capital of the Company consists of ordinary shares.

(ii) Variation of rights of existing shares or classes of shares

Subject to the Companies Law, if at any time the share capital of the Company is divided into different classes of shares, all or any of the special rights attached to the shares or any class of shares may (unless otherwise provided for by the terms of issue of that class) be varied, modified or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. To every such separate general meeting the

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APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW

provisions of the Articles relating to general meetings will mutatis mutandis apply, but so that the necessary quorum (other than at an adjourned meeting) shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class and at any adjourned meeting two holders present in person or by proxy (whatever the number of shares held by them) shall be a quorum. Every holder of shares of the class shall be entitled to one vote for every such share held by him.

Any special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

(iii) Alteration of capital

The Company may by ordinary resolution of its members:

(i) increase its share capital by the creation of new shares;
(ii) consolidate all or any of its capital into shares of larger amount than its existing shares;
(iii) divide its shares into several classes and attach to such shares any preferential, deferred, qualified or special rights, privileges, conditions or restrictions as the Company in general meeting or as the directors may determine;
(iv) sub divide its shares or any of them into shares of smaller amount than is fixed by the Memorandum; or
(v) cancel any shares which, at the date of passing of the resolution, have not been taken and diminish the amount of its capital by the amount of the shares so cancelled.

The Company may reduce its share capital or any capital redemption reserve or other undistributable reserve in any way by special resolution.

(iv) Transfer of shares

All transfers of shares may be effected by an instrument of transfer in the usual or common form or in a form prescribed by The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”) or in such other form as the board may approve and which may be under hand or, if the transferor or transferee is a clearing house or its nominee(s), by hand or by machine imprinted signature or by such other manner of execution as the board may approve from time to time.

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APPENDIX III

SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW

The instrument of transfer shall be executed by or on behalf of the transferor and the transferee provided that the board may dispense with the execution of the instrument of transfer by the transferee. The transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the register of members in respect of that share.

The board may, in its absolute discretion, at any time transfer any share upon the principal register to any branch register or any share on any branch register to the principal register or any other branch register.

The board may decline to recognise any instrument of transfer unless a fee (not exceeding the maximum sum as the Stock Exchange may determine to be payable) determined by the Directors is paid to the Company, the instrument of transfer is properly stamped (if applicable), it is in respect of only one class of share and is lodged at the relevant registration office or registered office or such other place at which the principal register is kept accompanied by the relevant share certificate(s) and such other evidence as the board may reasonably require to show the right of the transferor to make the transfer (and if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do).

The registration of transfers may be suspended and the register closed on giving notice by advertisement in any newspaper or by any other means in accordance with the requirements of the Stock Exchange, at such times and for such periods as the board may determine. The register of members must not be closed for periods exceeding in the whole thirty (30) days in any year.

Subject to the above, fully paid shares are free from any restriction on transfer and free of all liens in favour of the Company.

(v) Power of the Company to purchase its own shares

The Company is empowered by the Companies Law and the Articles to purchase its own shares subject to certain restrictions and the board may only exercise this power on behalf of the Company subject to any applicable requirements imposed from time to time by the Stock Exchange.

Where the Company purchases for redemption a redeemable share, purchases not made through the market or by tender must be limited to a maximum price determined by the Company in general meeting. If purchases are by tender, tenders must be made available to all members alike.

(vi) Power of any subsidiary of the Company to own shares in the Company

There are no provisions in the Articles relating to ownership of shares in the Company by a subsidiary.

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SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW

(vii) Calls on shares and forfeiture of shares

The board may from time to time make such calls upon the members in respect of any monies unpaid on the shares held by them, respectively (whether on account of the nominal value of the shares or by way of premium). A call may be made payable either in one lump sum or by installments. If the sum payable in respect of any call or instalment is not paid on or before the day appointed for payment thereof, the person or persons from whom the sum is due shall pay interest on the same at such rate not exceeding twenty per cent. (20%) per annum as the board may agree to accept from the day appointed for the payment thereof to the time of actual payment, but the board may waive payment of such interest wholly or in part. The board may, if it thinks fit, receive from any member willing to advance the same, either in money or money’s worth, all or any part of the monies uncalled and unpaid or installments payable upon any shares held by him, and upon all or any of the monies so advanced the Company may pay interest at such rate (if any) as the board may decide.

If a member fails to pay any call on the day appointed for payment thereof, the board may serve not less than fourteen (14) clear days’ notice on him requiring payment of so much of the call as is unpaid, together with any interest which may have accrued and which may still accrue up to the date of actual payment and stating that, in the event of non-payment at or before the time appointed, the shares in respect of which the call was made will be liable to be forfeited.

If the requirements of any such notice are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the board to that effect. Such forfeiture will include all dividends and bonuses declared in respect of the forfeited share and not actually paid before the forfeiture.

A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall, notwithstanding, remain liable to pay to the Company all monies which, at the date of forfeiture, were payable by him to the Company in respect of the shares, together with (if the board shall in its discretion so require) interest thereon from the date of forfeiture until the date of actual payment at such rate not exceeding twenty per cent. (20%) per annum as the board determines.

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APPENDIX III

SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW

(b) Directors

(i) Appointment, retirement and removal

At each annual general meeting, one third of the Directors for the time being (or if their number is not a multiple of three, then the number nearest to but not less than one third) shall retire from office by rotation provided that every Director shall be subject to retirement at an annual general meeting at least once every three years. The Directors to retire by rotation shall include any Director who wishes to retire and not offer himself for re-election. Any further Directors so to retire shall be those who have been longest in office since their last re-election or appointment but as between persons who became or were last re-elected Directors on the same day those to retire will (unless they otherwise agree among themselves) be determined by lot.

Neither a Director nor an alternate Director is required to hold any shares in the Company by way of qualification. Further, there are no provisions in the Articles relating to retirement of Directors upon reaching any age limit.

The Directors have the power to appoint any person as a Director either to fill a casual vacancy on the board or as an addition to the existing board. Any Director appointed to fill a casual vacancy shall hold office until the first general meeting of members after his appointment and be subject to re-election at such meeting and any Director appointed as an addition to the existing board shall hold office only until the next following annual general meeting of the Company and shall then be eligible for re-election.

A Director may be removed by an ordinary resolution of the Company before the expiration of his period of office (but without prejudice to any claim which such Director may have for damages for any breach of any contract between him and the Company) and members of the Company may by ordinary resolution appoint another in his place. Unless otherwise determined by the Company in general meeting, the number of Directors shall not be less than two. There is no maximum number of Directors.

The office of director shall be vacated if:

(aa) he resigns by notice in writing delivered to the Company;
(bb) he becomes of unsound mind or dies;
(cc) without special leave, he is absent from meetings of the board for six (6) consecutive months, and the board resolves that his office is vacated;

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SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW

(dd) he becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors;
(ee) he is prohibited from being a director by law; or
(ff) he ceases to be a director by virtue of any provision of law or is removed from office pursuant to the Articles.

The board may appoint one or more of its body to be managing director, joint managing director, or deputy managing director or to hold any other employment or executive office with the Company for such period and upon such terms as the board may determine and the board may revoke or terminate any of such appointments. The board may delegate any of its powers, authorities and discretions to committees consisting of such Director or Directors and other persons as the board thinks fit, and it may from time to time revoke such delegation or revoke the appointment of and discharge any such committees either wholly or in part, and either as to persons or purposes, but every committee so formed must, in the exercise of the powers, authorities and discretions so delegated, conform to any regulations that may from time to time be imposed upon it by the board.

(ii) Power to allot and issue shares and warrants

Subject to the provisions of the Companies Law and the Memorandum and Articles and to any special rights conferred on the holders of any shares or class of shares, any share may be issued (a) with or have attached thereto such rights, or such restrictions, whether with regard to dividend, voting, return of capital, or otherwise, as the Company may by ordinary resolution determine (or, in the absence of any such determination or so far as the same may not make specific provision, as the board may determine), or (b) on terms that, at the option of the Company or the holder thereof, it is liable to be redeemed.

The board may issue warrants conferring the right upon the holders thereof to subscribe for any class of shares or securities in the capital of the Company on such terms as it may determine.

Subject to the provisions of the Companies Law and the Articles and, where applicable, the rules of the Stock Exchange and without prejudice to any special rights or restrictions for the time being attached to any shares or any class of shares, all unissued shares in the Company are at the disposal of the board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times, for such consideration and on such terms and conditions as it in its absolute discretion thinks fit, but so that no shares shall be issued at a discount.

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Neither the Company nor the board is obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available, any such allotment, offer, option or shares to members or others with registered addresses in any particular territory or territories being a territory or territories where, in the absence of a registration statement or other special formalities, this would or might, in the opinion of the board, be unlawful or impracticable. Members affected as a result of the foregoing sentence shall not be, or be deemed to be, a separate class of members for any purpose whatsoever.

(iii) Power to dispose of the assets of the Company or any of its subsidiaries

There are no specific provisions in the Articles relating to the disposal of the assets of the Company or any of its subsidiaries. The Directors may, however, exercise all powers and do all acts and things which may be exercised or done or approved by the Company and which are not required by the Articles or the Companies Law to be exercised or done by the Company in general meeting.

(iv) Borrowing powers

The board may exercise all the powers of the Company to raise or borrow money, to mortgage or charge all or any part of the undertaking, property and assets and uncalled capital of the Company and, subject to the Companies Law, to issue debentures, bonds and other securities of the Company, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

(v) Remuneration

The ordinary remuneration of the Directors is to be determined by the Company in general meeting, such sum (unless otherwise directed by the resolution by which it is voted) to be divided amongst the Directors in such proportions and in such manner as the board may agree or, failing agreement, equally, except that any Director holding office for part only of the period in respect of which the remuneration is payable shall only rank in such division in proportion to the time during such period for which he held office. The Directors are also entitled to be prepaid or repaid all travelling, hotel and incidental expenses reasonably expected to be incurred or incurred by them in attending any board meetings, committee meetings or general meetings or separate meetings of any class of shares or of debentures of the Company or otherwise in connection with the discharge of their duties as Directors.

Any Director who, by request, goes or resides abroad for any purpose of the Company or who performs services which in the opinion of the board go beyond the ordinary duties of a Director may be paid such extra remuneration as the board may determine and such extra remuneration shall be in addition

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APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW

to or in substitution for any ordinary remuneration as a Director. An executive Director appointed to be a managing director, joint managing director, deputy managing director or other executive officer shall receive such remuneration and such other benefits and allowances as the board may from time to time decide. Such remuneration may be either in addition to or in lieu of his remuneration as a Director.

The board may establish or concur or join with other companies (being subsidiary companies of the Company or companies with which it is associated in business) in establishing and making contributions out of the Company’s monies to any schemes or funds for providing pensions, sickness or compassionate allowances, life assurance or other benefits for employees (which expression as used in this and the following paragraph shall include any Director or ex-Director who may hold or have held any executive office or any office of profit with the Company or any of its subsidiaries) and ex-employees of the Company and their dependents or any class or classes of such persons.

The board may pay, enter into agreements to pay or make grants of revocable or irrevocable, and either subject or not subject to any terms or conditions, pensions or other benefits to employees and ex-employees and their dependents, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or ex-employees or their dependents are or may become entitled under any such scheme or fund as is mentioned in the previous paragraph. Any such pension or benefit may, as the board considers desirable, be granted to an employee either before and in anticipation of, or upon or at any time after, his actual retirement.

(vi) Compensation or payments for loss of office

Pursuant to the Articles, payments to any Director or past Director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office (not being a payment to which the Director is contractually entitled) must be approved by the Company in general meeting.

(vii) Loans and provision of security for loans to Directors

The Company must not make any loan, directly or indirectly, to a Director or his close associate(s) if and to the extent it would be prohibited by the Companies Ordinance (Chapter 622 of the laws of Hong Kong) as if the Company were a company incorporated in Hong Kong.

(viii) Disclosure of interests in contracts with the Company or any of its subsidiaries

A Director may hold any other office or place of profit with the Company (except that of the auditor of the Company) in conjunction with his

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office of Director for such period and upon such terms as the board may determine, and may be paid such extra remuneration therefor in addition to any remuneration provided for by or pursuant to the Articles. A Director may be or become a director or other officer of, or otherwise interested in, any company promoted by the Company or any other company in which the Company may be interested, and shall not be liable to account to the Company or the members for any remuneration, profits or other benefits received by him as a director, officer or member of, or from his interest in, such other company. The board may also cause the voting power conferred by the shares in any other company held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise thereof in favour of any resolution appointing the Directors or any of them to be directors or officers of such other company, or voting or providing for the payment of remuneration to the directors or officers of such other company.

No Director or proposed or intended Director shall be disqualified by his office from contracting with the Company, either with regard to his tenure of any office or place of profit or as vendor, purchaser or in any other manner whatsoever, nor shall any such contract or any other contract or arrangement in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company or the members for any remuneration, profit or other benefits realised by any such contract or arrangement by reason of such Director holding that office or the fiduciary relationship thereby established. A Director who to his knowledge is in any way, whether directly or indirectly, interested in a contract or arrangement or proposed contract or arrangement with the Company must declare the nature of his interest at the meeting of the board at which the question of entering into the contract or arrangement is first taken into consideration, if he knows his interest then exists, or in any other case, at the first meeting of the board after he knows that he is or has become so interested.

A Director shall not vote (nor be counted in the quorum) on any resolution of the board approving any contract or arrangement or other proposal in which he or any of his close associates is materially interested, but this prohibition does not apply to any of the following matters, namely:

(aa) any contract or arrangement for giving to such Director or his close associate(s) any security or indemnity in respect of money lent by him or any of his close associates or obligations incurred or undertaken by him or any of his close associates at the request of or for the benefit of the Company or any of its subsidiaries;
(bb) any contract or arrangement for the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or his close associate(s) has himself/themselves assumed responsibility in whole or in part whether alone or jointly under a guarantee or indemnity or by the giving of security;

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SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW

(cc) any contract or arrangement concerning an offer of shares or debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase, where the Director or his close associate(s) is/are or is/are to be interested as a participant in the underwriting or sub-underwriting of the offer;
(dd) any contract or arrangement in which the Director or his close associate(s) is/are interested in the same manner as other holders of shares or debentures or other securities of the Company by virtue only of his/their interest in shares or debentures or other securities of the Company; or
(ee) any proposal or arrangement concerning the adoption, modification or operation of a share option scheme, a pension fund or retirement, death, or disability benefits scheme or other arrangement which relates both to Directors, his close associates and employees of the Company or of any of its subsidiaries and does not provide in respect of any Director, or his close associate(s), as such any privilege or advantage not accorded generally to the class of persons to which such scheme or fund relates.

(c) Proceedings of the Board

The board may meet for the despatch of business, adjourn and otherwise regulate its meetings as it considers appropriate. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have an additional or casting vote.

(d) Alterations to constitutional documents and the Company’s name

The Articles may be rescinded, altered or amended by the Company in general meeting by special resolution. The Articles state that a special resolution shall be required to alter the provisions of the Memorandum, to amend the Articles or to change the name of the Company.

(e) Meetings of members

(i) Special and ordinary resolutions

A special resolution of the Company must be passed by a majority of not less than three-fourths of the votes cast by such members as, being entitled so to do, vote in person or, in the case of such members as are corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which notice has been duly given in accordance with the Articles.

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

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SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW

Under the Companies Law, a copy of any special resolution must be forwarded to the Registrar of Companies in the Cayman Islands within fifteen (15) days of being passed.

An ordinary resolution is defined in the Articles to mean a resolution passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of corporations, by their duly authorised representatives or, where proxies are allowed, by proxy at a general meeting of which notice has been duly given held in accordance with the Articles.

(ii) Voting rights and right to demand a poll

Subject to any special rights or restrictions as to voting for the time being attached to any shares, at any general meeting on a poll every member present in person or by proxy or, in the case of a member being a corporation, by its duly authorised representative shall have one vote for every fully paid share of which he is the holder but so that no amount paid up or credited as paid up on a share in advance of calls or installments is treated for the foregoing purposes as paid up on the share. A member entitled to more than one vote need not use all his votes or cast all the votes he uses in the same way.

At any general meeting a resolution put to the vote of the meeting is to be decided by way of a poll save that the chairman of the meeting may in good faith, allow a resolution which relates purely to a procedural or administrative matter to be voted on by a show of hands in which case every member present in person (or being a corporation, is present by a duly authorised representative), or by proxy(ies) shall have one vote provided that where more than one proxy is appointed by a member which is a clearing house (or its nominee(s)), each such proxy shall have one vote on a show of hands.

If a recognised clearing house (or its nominee(s)) is a member of the Company it may authorise such person or persons as it thinks fit to act as its representative(s) at any meeting of the Company or at any meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person authorised pursuant to this provision shall be deemed to have been duly authorised without further evidence of the facts and be entitled to exercise the same powers on behalf of the recognised clearing house (or its nominee(s)) as if such person was the registered holder of the shares of the Company held by that clearing house (or its nominee(s)) including, where a show of hands is allowed, the right to vote individually on a show of hands.

Where the Company has any knowledge that any shareholder is, under the rules of the Stock Exchange, required to abstain from voting on any

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APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW

particular resolution of the Company or restricted to voting only for or only against any particular resolution of the Company, any votes cast by or on behalf of such shareholder in contravention of such requirement or restriction shall not be counted.

(iii) Annual general meetings

The Company must hold an annual general meeting of the Company every year within a period of not more than fifteen (15) months after the holding of the last preceding annual general meeting or a period of not more than eighteen (18) months from the date of adoption of the Articles, unless a longer period would not infringe the rules of the Stock Exchange.

(iv) Notices of meetings and business to be conducted

An annual general meeting must be called by notice of not less than twenty-one (21) clear days and not less than twenty (20) clear business days. All other general meetings must be called by notice of at least fourteen (14) clear days and not less than ten (10) clear business days. The notice is exclusive of the day on which it is served or deemed to be served and of the day for which it is given, and must specify the time and place of the meeting and, in the case of special business, the general nature of that business.

In addition, notice of every general meeting must be given to all members of the Company other than to such members as, under the provisions of the Articles or the terms of issue of the shares they hold, are not entitled to receive such notices from the Company, and also to the auditors for the time being of the Company.

Any notice to be given to or by any person pursuant to the Articles may be served on or delivered to any member of the Company personally, by post to such member’s registered address or by advertisement in newspapers published daily and circulating generally in Hong Kong and in accordance with the requirements of the Stock Exchange. Subject to compliance with Cayman Islands law and the rules of the Stock Exchange, notice may also be served or delivered by the Company to any member by electronic means.

All business that is transacted at an extraordinary general meeting and at an annual general meeting is deemed special, save that in the case of an annual general meeting, each of the following business is deemed an ordinary business:

(aa) the declaration and sanctioning of dividends;
(bb) the consideration and adoption of the accounts and balance sheet and the reports of the directors and the auditors;
(cc) the election of directors in place of those retiring;

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SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW

(dd) the appointment of auditors and other officers;
(ee) the fixing of the remuneration of the directors and of the auditors;
(ff) the granting of any mandate or authority to the directors to offer, allot, grant options over or otherwise dispose of the unissued shares of the Company representing not more than twenty per cent (20%) in nominal value of its existing issued share capital; and
(gg) the granting of any mandate or authority to the directors to repurchase securities of the Company.
(v) Quorum for meetings and separate class meetings

No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, but the absence of a quorum shall not preclude the appointment of a chairman.

The quorum for a general meeting shall be two members present in person (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy and entitled to vote. In respect of a separate class meeting (other than an adjourned meeting) convened to sanction the modification of class rights the necessary quorum shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class.

(vi) Proxies

Any member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of the Company and is entitled to exercise the same powers on behalf of a member who is an individual and for whom he acts as proxy as such member could exercise. In addition, a proxy is entitled to exercise the same powers on behalf of a member which is a corporation and for which he acts as proxy as such member could exercise if it were an individual member. Votes may be given either personally (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy.

(f) Accounts and audit

The board shall cause true accounts to be kept of the sums of money received and expended by the Company, and the matters in respect of which such receipt and expenditure take place, and of the property, assets, credits and liabilities of the

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SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW

Company and of all other matters required by the Companies Law or necessary to give a true and fair view of the Company’s affairs and to explain its transactions.

The accounting records must be kept at the registered office or at such other place or places as the board decides and shall always be open to inspection by any Director. No member (other than a Director) shall have any right to inspect any accounting record or book or document of the Company except as conferred by law or authorised by the board or the Company in general meeting. However, an exempted company must make available at its registered office in electronic form or any other medium, copies of its books of account or parts thereof as may be required of it upon service of an order or notice by the Tax Information Authority pursuant to the Tax Information Authority Law of the Cayman Islands.

A copy of every balance sheet and profit and loss account (including every document required by law to be annexed thereto) which is to be laid before the Company at its general meeting, together with a printed copy of the Directors’ report and a copy of the auditors’ report, shall not less than twenty-one (21) days before the date of the meeting and at the same time as the notice of annual general meeting be sent to every person entitled to receive notices of general meetings of the Company under the provisions of the Articles; however, subject to compliance with all applicable laws, including the rules of the Stock Exchange, the Company may send to such persons summarised financial statements derived from the Company’s annual accounts and the directors’ report instead provided that any such person may by notice in writing served on the Company, demand that the Company sends to him, in addition to summarised financial statements, a complete printed copy of the Company’s annual financial statement and the directors’ report thereon.

At the annual general meeting or at a subsequent extraordinary general meeting in each year, the members shall appoint an auditor to audit the accounts of the Company and such auditor shall hold office until the next annual general meeting. The remuneration of the auditors shall be fixed by the Company in general meeting or in such manner as the members may determine.

The financial statements of the Company shall be audited by the auditor in accordance with generally accepted auditing standards which may be those of a country or jurisdiction other than the Cayman Islands. The auditor shall make a written report thereon in accordance with generally accepted auditing standards and the report of the auditor must be submitted to the members in general meeting.

(g) Dividends and other methods of distribution

The Company in general meeting may declare dividends in any currency to be paid to the members but no dividend shall be declared in excess of the amount recommended by the board.

The Articles provide dividends may be declared and paid out of the profits of the Company, realised or unrealised, or from any reserve set aside from profits

– III-14 –

which the directors determine is no longer needed. With the sanction of an ordinary resolution dividends may also be declared and paid out of share premium account or any other fund or account which can be authorised for this purpose in accordance with the Companies Law.

Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise provide, (i) all dividends shall be declared and paid according to the amounts paid up on the shares in respect whereof the dividend is paid but no amount paid up on a share in advance of calls shall for this purpose be treated as paid up on the share and (ii) all dividends shall be apportioned and paid pro rata according to the amount paid up on the shares during any portion or portions of the period in respect of which the dividend is paid. The Directors may deduct from any dividend or other monies payable to any member or in respect of any shares all sums of money (if any) presently payable by him to the Company on account of calls or otherwise.

Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared on the share capital of the Company, the board may further resolve either (a) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the shareholders entitled thereto will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment, or (b) that shareholders entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the board may think fit.

The Company may also upon the recommendation of the board by an ordinary resolution resolve in respect of any one particular dividend of the Company that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to shareholders to elect to receive such dividend in cash in lieu of such allotment.

Any dividend, interest or other sum payable in cash to the holder of shares may be paid by cheque or warrant sent through the post addressed to the holder at his registered address, or in the case of joint holders, addressed to the holder whose name stands first in the register of the Company in respect of the shares at his address as appearing in the register or addressed to such person and at such addresses as the holder or joint holders may in writing direct. Every such cheque or warrant shall, unless the holder or joint holders otherwise direct, be made payable to the order of the holder or, in the case of joint holders, to the order of the holder whose name stands first on the register in respect of such shares, and shall be sent at his or their risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends or other moneys payable or property distributable in respect of the shares held by such joint holders.

Whenever the board or the Company in general meeting has resolved that a dividend be paid or declared the board may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind.

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All dividends or bonuses unclaimed for one year after having been declared may be invested or otherwise made use of by the board for the benefit of the Company until claimed and the Company shall not be constituted a trustee in respect thereof. All dividends or bonuses unclaimed for six years after having been declared may be forfeited by the board and shall revert to the Company.

No dividend or other monies payable by the Company on or in respect of any share shall bear interest against the Company.

(h) Inspection of corporate records

Pursuant to the Articles, the register and branch register of members shall be open to inspection for at least two (2) hours during business hours by members without charge, or by any other person upon a maximum payment of HK$2.50 or such lesser sum specified by the board, at the registered office or such other place at which the register is kept in accordance with the Companies Law or, upon a maximum payment of HK$1.00 or such lesser sum specified by the board, at the office where the branch register of members is kept, unless the register is closed in accordance with the Articles.

(i) Rights of minorities in relation to fraud or oppression

There are no provisions in the Articles relating to rights of minority shareholders in relation to fraud or oppression. However, certain remedies are available to shareholders of the Company under Cayman Islands law, as summarised in paragraph 3(f) of this Appendix.

(j) Procedures on liquidation

A resolution that the Company be wound up by the court or be wound up voluntarily shall be a special resolution.

Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation for the time being attached to any class or classes of shares:

(i) if the Company is wound up and the assets available for distribution amongst the members of the Company shall be more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, the excess shall be distributed pari passu amongst such members in proportion to the amount paid up on the shares held by them, respectively; and
(ii) if the Company is wound up and the assets available for distribution amongst the members as such shall be insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the

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SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW

capital paid up, or which ought to have been paid up, at the commencement of the winding up on the shares held by them, respectively.

If the Company is wound up (whether the liquidation is voluntary or by the court) the liquidator may, with the authority of a special resolution and any other sanction required by the Companies Law divide among the members in specie or kind the whole or any part of the assets of the Company whether the assets shall consist of property of one kind or shall consist of properties of different kinds and the liquidator may, for such purpose, set such value as he deems fair upon any one or more class or classes of property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members. The liquidator may, with the like authority, vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator, with the like authority, shall think fit, but so that no contributory shall be compelled to accept any shares or other property in respect of which there is a liability.

(k) Subscription rights reserve

The Articles provide that to the extent that it is not prohibited by and is in compliance with the Companies Law, if warrants to subscribe for shares have been issued by the Company and the Company does any act or engages in any transaction which would result in the subscription price of such warrants being reduced below the par value of a share, a subscription rights reserve shall be established and applied in paying up the difference between the subscription price and the par value of a share on any exercise of the warrants.

3. CAYMAN ISLANDS COMPANY LAW

The Company is incorporated in the Cayman Islands subject to the Companies Law and, therefore, operates subject to Cayman Islands law. Set out below is a summary of certain provisions of Cayman company law, although this does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of Cayman company law and taxation, which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar:

(a) Company operations

As an exempted company, the Company’s operations must be conducted mainly outside the Cayman Islands. The Company is required to file an annual return each year with the Registrar of Companies of the Cayman Islands and pay a fee which is based on the amount of its authorised share capital.

(b) Share capital

The Companies Law provides that where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount of the

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value of the premiums on those shares shall be transferred to an account, to be called the “share premium account”. At the option of a company, these provisions may not apply to premiums on shares of that company allotted pursuant to any arrangement in consideration of the acquisition or cancellation of shares in any other company and issued at a premium.

The Companies Law provides that the share premium account may be applied by the company subject to the provisions, if any, of its memorandum and articles of association in (a) paying distributions or dividends to members; (b) paying up unissued shares of the company to be issued to members as fully paid bonus shares; (c) the redemption and repurchase of shares (subject to the provisions of section 37 of the Companies Law); (d) writing-off the preliminary expenses of the company; and (e) writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company.

No distribution or dividend may be paid to members out of the share premium account unless immediately following the date on which the distribution or dividend is proposed to be paid, the company will be able to pay its debts as they fall due in the ordinary course of business.

The Companies Law provides that, subject to confirmation by the Grand Court of the Cayman Islands (the “ Court ”), a company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, by special resolution reduce its share capital in any way.

(c) Financial assistance to purchase shares of a company or its holding company

There is no statutory restriction in the Cayman Islands on the provision of financial assistance by a company to another person for the purchase of, or subscription for, its own or its holding company’s shares. Accordingly, a company may provide financial assistance if the directors of the company consider, in discharging their duties of care and acting in good faith, for a proper purpose and in the interests of the company, that such assistance can properly be given. Such assistance should be on an arm’s-length basis.

(d) Purchase of shares and warrants by a company and its subsidiaries

A company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, issue shares which are to be redeemed or are liable to be redeemed at the option of the company or a shareholder and the Companies Law expressly provides that it shall be lawful for the rights attaching to any shares to be varied, subject to the provisions of the company’s articles of association, so as to provide that such shares are to be or are liable to be so redeemed. In addition, such a company may, if authorised to do so by its articles of association, purchase its own shares, including any redeemable shares. However, if the articles of association do not authorise the manner and terms of

– III-18 –

purchase, a company cannot purchase any of its own shares unless the manner and terms of purchase have first been authorised by an ordinary resolution of the company. At no time may a company redeem or purchase its shares unless they are fully paid. A company may not redeem or purchase any of its shares if, as a result of the redemption or purchase, there would no longer be any issued shares of the company other than shares held as treasury shares. A payment out of capital by a company for the redemption or purchase of its own shares is not lawful unless immediately following the date on which the payment is proposed to be made, the company shall be able to pay its debts as they fall due in the ordinary course of business.

Shares purchased by a company is to be treated as cancelled unless, subject to the memorandum and articles of association of the company, the directors of the company resolve to hold such shares in the name of the company as treasury shares prior to the purchase. Where shares of a company are held as treasury shares, the company shall be entered in the register of members as holding those shares, however, notwithstanding the foregoing, the company is not be treated as a member for any purpose and must not exercise any right in respect of the treasury shares, and any purported exercise of such a right shall be void, and a treasury share must not be voted, directly or indirectly, at any meeting of the company and must not be counted in determining the total number of issued shares at any given time, whether for the purposes of the company’s articles of association or the Companies Law.

A company is not prohibited from purchasing and may purchase its own warrants subject to and in accordance with the terms and conditions of the relevant warrant instrument or certificate. There is no requirement under Cayman Islands law that a company’s memorandum or articles of association contain a specific provision enabling such purchases and the directors of a company may rely upon the general power contained in its memorandum of association to buy and sell and deal in personal property of all kinds.

Under Cayman Islands law, a subsidiary may hold shares in its holding company and, in certain circumstances, may acquire such shares.

(e) Dividends and distributions

The Companies Law permits, subject to a solvency test and the provisions, if any, of the company’s memorandum and articles of association, the payment of dividends and distributions out of the share premium account. With the exception of the foregoing, there are no statutory provisions relating to the payment of dividends. Based upon English case law, which is regarded as persuasive in the Cayman Islands, dividends may be paid only out of profits.

No dividend may be declared or paid, and no other distribution (whether in cash or otherwise) of the company’s assets (including any distribution of assets to members on a winding up) may be made to the company, in respect of a treasury share.

– III-19 –

SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW

(f) Protection of minorities and shareholders’ suits

The Courts ordinarily would be expected to follow English case law precedents which permit a minority shareholder to commence a representative action against or derivative actions in the name of the company to challenge (a) an act which is ultra vires the company or illegal, (b) an act which constitutes a fraud against the minority and the wrongdoers are themselves in control of the company, and (c) an irregularity in the passing of a resolution which requires a qualified (or special) majority.

In the case of a company (not being a bank) having a share capital divided into shares, the Court may, on the application of members holding not less than one fifth of the shares of the company in issue, appoint an inspector to examine into the affairs of the company and to report thereon in such manner as the Court shall direct.

Any shareholder of a company may petition the Court which may make a winding up order if the Court is of the opinion that it is just and equitable that the company should be wound up or, as an alternative to a winding up order, (a) an order regulating the conduct of the company’s affairs in the future, (b) an order requiring the company to refrain from doing or continuing an act complained of by the shareholder petitioner or to do an act which the shareholder petitioner has complained it has omitted to do, (c) an order authorising civil proceedings to be brought in the name and on behalf of the company by the shareholder petitioner on such terms as the Court may direct, or (d) an order providing for the purchase of the shares of any shareholders of the company by other shareholders or by the company itself and, in the case of a purchase by the company itself, a reduction of the company’s capital accordingly.

Generally claims against a company by its shareholders must be based on the general laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as established by the company’s memorandum and articles of association.

(g) Disposal of assets

The Companies Law contains no specific restrictions on the power of directors to dispose of assets of a company. However, as a matter of general law, every officer of a company, which includes a director, managing director and secretary, in exercising his powers and discharging his duties must do so honestly and in good faith with a view to the best interests of the company and exercise the care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

– III-20 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX III

SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW

(h) Accounting and auditing requirements

A company must cause proper books of account to be kept with respect to (i) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place; (ii) all sales and purchases of goods by the company; and (iii) the assets and liabilities of the company.

Proper books of account shall not be deemed to be kept if there are not kept such books as are necessary to give a true and fair view of the state of the company’s affairs and to explain its transactions.

An exempted company must make available at its registered office in electronic form or any other medium, copies of its books of account or parts thereof as may be required of it upon service of an order or notice by the Tax Information Authority pursuant to the Tax Information Authority Law of the Cayman Islands.

(i) Exchange control

There are no exchange control regulations or currency restrictions in the Cayman Islands.

(j) Taxation

Pursuant to section 6 of the Tax Concessions Law (2011 Revision) of the Cayman Islands, the Company has obtained an undertaking from the Governor-in-Cabinet:

(1) that no law which is enacted in the Cayman Islands imposing any tax to be levied on profits, income, gains or appreciation shall apply to the Company or its operations; and
(2) that the aforesaid tax or any tax in the nature of estate duty or inheritance tax shall not be payable on or in respect of the shares, debentures or other obligations of the Company.

The undertaking for the Company is for a period of twenty years from 30 August 2016.

The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands save for certain stamp duties which may be applicable, from time to time, on certain instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman Islands are a party to a double tax treaty entered into with the United Kingdom in 2010 but otherwise is not party to any double tax treaties.

– III-21 –

(k) Stamp duty on transfers

No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies except those which hold interests in land in the Cayman Islands.

(l) Loans to directors

There is no express provision in the Companies Law prohibiting the making of loans by a company to any of its directors.

(m) Inspection of corporate records

Members of the Company have no general right under the Companies Law to inspect or obtain copies of the register of members or corporate records of the Company. They will, however, have such rights as may be set out in the Company’s Articles.

(n) Register of members

An exempted company may maintain its principal register of members and any branch registers at such locations, whether within or without the Cayman Islands, as the directors may, from time to time, think fit. A branch register must be kept in the same manner in which a principal register is by the Companies Law required or permitted to be kept. The company shall cause to be kept at the place where the company’s principal register is kept a duplicate of any branch register duly entered up from time to time.

There is no requirement under the Companies Law for an exempted company to make any returns of members to the Registrar of Companies of the Cayman Islands. The names and addresses of the members are, accordingly, not a matter of public record and are not available for public inspection. However, an exempted company shall make available at its registered office, in electronic form or any other medium, such register of members, including any branch register of members, as may be required of it upon service of an order or notice by the Tax Information Authority pursuant to the Tax Information Authority Law of the Cayman Islands.

(o) Register of Directors and Officers

The Company is required to maintain at its registered office a register of directors and officers which is not available for inspection by the public. A copy of such register must be filed with the Registrar of Companies in the Cayman Islands and any change must be notified to the Registrar within sixty (60) days of any change in such directors or officers.

– III-22 –

SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW

(p) Winding up

A company may be wound up (a) compulsorily by order of the Court, (b) voluntarily, or (c) under the supervision of the Court.

The Court has authority to order winding up in a number of specified circumstances including where the members of the company have passed a special resolution requiring the company to be wound up by the Court, or where the company is unable to pay its debts, or where it is, in the opinion of the Court, just and equitable to do so. Where a petition is presented by members of the company as contributories on the ground that it is just and equitable that the company should be wound up, the Court has the jurisdiction to make certain other orders as an alternative to a winding-up order, such as making an order regulating the conduct of the company’s affairs in the future, making an order authorising civil proceedings to be brought in the name and on behalf of the company by the petitioner on such terms as the Court may direct, or making an order providing for the purchase of the shares of any of the members of the company by other members or by the company itself.

A company (save with respect to a limited duration company) may be wound up voluntarily when the company so resolves by special resolution or when the company in general meeting resolves by ordinary resolution that it be wound up voluntarily because it is unable to pay its debts as they fall due. In the case of a voluntary winding up, such company is obliged to cease to carry on its business (except so far as it may be beneficial for its winding up) from the time of passing the resolution for voluntary winding up or upon the expiry of the period or the occurrence of the event referred to above.

For the purpose of conducting the proceedings in winding up a company and assisting the Court therein, there may be appointed an official liquidator or official liquidators; and the court may appoint to such office such person, either provisionally or otherwise, as it thinks fit, and if more persons than one are appointed to such office, the Court must declare whether any act required or authorised to be done by the official liquidator is to be done by all or any one or more of such persons. The Court may also determine whether any and what security is to be given by an official liquidator on his appointment; if no official liquidator is appointed, or during any vacancy in such office, all the property of the company shall be in the custody of the Court.

As soon as the affairs of the company are fully wound up, the liquidator must make a report and an account of the winding up, showing how the winding up has been conducted and how the property of the company has been disposed of, and thereupon call a general meeting of the company for the purposes of laying before it the account and giving an explanation thereof. This final general meeting must be called by at least 21 days’ notice to each contributory in any manner authorised by the company’s articles of association and published in the Gazette.

– III-23 –

SUMMARY OF THE CONSTITUTION OF OUR COMPANY AND CAYMAN ISLANDS COMPANY LAW

(q) Reconstructions

There are statutory provisions which facilitate reconstructions and amalgamations approved by a majority in number representing seventy-five per cent. (75%) in value of shareholders or class of shareholders or creditors, as the case may be, as are present at a meeting called for such purpose and thereafter sanctioned by the Court. Whilst a dissenting shareholder would have the right to express to the Court his view that the transaction for which approval is sought would not provide the shareholders with a fair value for their shares, the Court is unlikely to disapprove the transaction on that ground alone in the absence of evidence of fraud or bad faith on behalf of management.

(r) Take-overs

Where an offer is made by a company for the shares of another company and, within four (4) months of the offer, the holders of not less than ninety per cent. (90%) of the shares which are the subject of the offer accept, the offeror may at any time within two (2) months after the expiration of the said four (4) months, by notice in the prescribed manner require the dissenting shareholders to transfer their shares on the terms of the offer. A dissenting shareholder may apply to the Court within one (1) month of the notice objecting to the transfer. The burden is on the dissenting shareholder to show that the Court should exercise its discretion, which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority shareholders.

(s) Indemnification

Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Court to be contrary to public policy (e.g. for purporting to provide indemnification against the consequences of committing a crime).

4. GENERAL

Conyers Dill & Pearman, the Company’s special legal counsel on Cayman Islands law, have sent to the Company a letter of advice summarising certain aspects of Cayman Islands company law. This letter, together with a copy of the Companies Law, is available for inspection as referred to in the paragraphs headed “Documents available for inspection” in Appendix V to this [ REDACTED ]. Any person wishing to have a detailed summary of Cayman Islands company law or advice on the differences between it and the laws of any jurisdiction with which he is more familiar is recommended to seek independent legal advice.

– III-24 –

FURTHER INFORMATION ABOUT OUR COMPANY

1. Incorporation of our Company

Our Company was incorporated in the Cayman Islands under the Companies Law as an exempted company with limited liability on 12 August 2016. Our Company has established its principal place of business in Unit No. 301A, 3/F, Tower III, Enterprise Square, 9 Sheung Yuet Road, Kowloon Bay, Kowloon, Hong Kong and was registered with the Registrar of Companies in Hong Kong as a non-Hong Kong company under Part 16 of the Companies Ordinance on 7 September 2016. Mr. TAM Yiu Shing, Billy (譚耀誠) has been appointed as the authorised representative of our Company for acceptance of service of process in Hong Kong.

As our Company was incorporated in the Cayman Islands, its operations are subject to the Companies Law and our constitutional documents comprising the Memorandum and Articles. A summary of certain parts of our constitutional documents and relevant aspects of the Companies Law is set out in Appendix III to this [ REDACTED ].

2. Changes in share capital of our Company

The authorised share capital of our Company as at the date of incorporation was HK$100,000,000 divided into 10,000,000,000 shares of par value of HK$0.01 each.

(a) On 12 August 2016, one share of a par value of HK$0.01 was allotted and issued nil paid to the subscriber, an independent Third Party, which was transferred to Gold Cavaliers for nil consideration on the same date.
(b) our Company entered into a share swap agreement with Champion Success and Magic Pioneer whereby:
(i) our Company acquired from Champion Success 800 ordinary shares in Sharp Idea representing 80% of the issued share capital of Sharp Idea;
(ii) our Company acquired from Magic Pioneer 200 ordinary shares in Sharp Idea, representing 20% of the issued share capital of Sharp Idea;
(iii) In exchange for the 1,000 ordinary shares in Sharp Idea, our Company at the direction of Champion Success and Magic Pioneer credited as fully paid the one nil paid Share in our Company held by Gold Cavaliers, issued 299 and 20 fully paid Shares, respectively to Gold Cavaliers and Profound Wellness. Immediately after this share swap, our Company was owned as to approximately 93.75% (300 Shares) by Gold Cavaliers and as to approximately 6.25% (20 Shares) by Profound Wellness.
(iv) On [●] 2017, Champion Success transferred all the issued shares held by it in Gold Cavaliers by way of gift to Max Super as trustee of the Lam Family Trust.
(c) After the aforesaid transactions under the share swap agreement each of the subsidiaries became indirect wholly-owned subsidiaries of our Company.

– IV-1 –

STATUTORY AND GENERAL INFORMATION

(d) Under the [ REDACTED ], [ REDACTED ] Shares representing approximately 20% of the enlarged issued share capital of our Company will be issued to the professional, institutional and other investors.
(e) Assuming [ REDACTED ] and the [ REDACTED ] have become unconditional and the issue of Shares has been made pursuant thereto, a sum of [ REDACTED ] standing to the credit of the share premium account will be applied in paying up in full [ REDACTED ] Shares for allotment and issue to Gold Cavaliers and Profound Wellness, pro rata , to enable Gold Cavaliers to maintain its shareholding in our Company at approximately [ REDACTED ] of the enlarged issued share capital of our Company and to enable the sales of Shares by Profound Wellness as described in (f) below (the “ [ REDACTED ]”).
(f) Under the [ REDACTED ], [ REDACTED ] Shares representing approximately [ REDACTED ] of the enlarged issued share capital of our Company will be sold to the professional, institutional and other investors.
(g) Immediately following the [ REDACTED ] and the [ REDACTED ], the authorised share capital of our Company will be [ REDACTED ] divided into [ REDACTED ] Shares and the issued share capital of our Company will be [ REDACTED ] divided into [ REDACTED ] Shares fully paid or credited as fully paid.

Save as disclosed in this [ REDACTED ], our Directors do not have any present intention to issue any part of the authorised but unissued share capital of our Company and, without prior approval of our Shareholders at a general meeting of our Company, no issue of Shares will be made which would effectively alter the control of our Company.

3. Resolutions of our Shareholders

Pursuant to the written resolutions of the then Shareholders of our Company passed on [●] 2017, the following resolutions were passed by the Shareholders, pursuant to which, among other things:

(a) our Company approved and adopted the Memorandum with immediate effect and the Articles with effect from the [ REDACTED ] the terms of which are summarised in Appendix III to this [ REDACTED ];
(b) conditional on the Listing Division granting [ REDACTED ] of, and permission to deal in, the Shares in issue and Shares to be issued as mentioned in this [ REDACTED ] including any Shares which may be issued pursuant to the exercise of the [ REDACTED ], and on the obligations of the [ REDACTED ] under the [ REDACTED ] becoming unconditional and not being terminated in accordance with the terms of the [ REDACTED ] or otherwise, in each case on or before the date falling 30 days after the date of the issue of this

– IV-2 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IV STATUTORY AND GENERAL INFORMATION

[ REDACTED ] (or if such date is not a business day, the immediate preceding business day):

(i) the [ REDACTED ] was approved and our Directors were authorised to allot and issue the [ REDACTED ] pursuant to the [ REDACTED ] to rank pari passu with the existing Shares in all respects;
(ii) conditional further on the share premium account of our Company being credited as a result of the [ REDACTED ], our Directors were authorised to capitalise an amount of [ REDACTED ] standing to the credit of the share premium account of our Company and to appropriate such amount as to capital to pay up in full at par [ REDACTED ] Shares for allotment and issue to the persons whose names appear on the register of members of our Company at the close of business on the date of these resolutions (or as they may direct) in proportion (as nearly as possible without involving fractions) to their then existing shareholdings in our Company, each ranking pari passu in all respects with the then existing issued Shares, and our Directors were authorised to give effect to such capitalisation and distributions and the [ REDACTED ] was approved;
(c) a general unconditional mandate was given to our Directors to exercise all powers of our Company to allot, issue and deal with, otherwise than by way of rights issue or an issue of Shares pursuant to the exercise of the [ REDACTED ] or any other share option scheme of our Company or any Share allotted and issued in lieu of the whole or part of a dividend on the Shares or similar arrangement in accordance with the Articles or pursuant to a specific authority granted by our Shareholders in general meeting or pursuant to the [ REDACTED ], Shares or securities convertible into Shares or options, warrants or similar rights to subscribe for Shares or such securities convertible into Shares, and to make or grant offers, agreements and options which might require the exercise of such power, with a number not exceeding 20% of the total number of Shares of our Company in issue immediately following completion of the [ REDACTED ] and the [ REDACTED ] but excluding any Shares which may be issued pursuant to the exercise of the [ REDACTED ], and such mandate to remain in effect until the earliest of:
(i) the conclusion of the next annual general meeting of our Company;
(ii) the expiration of the period within which the next annual general meeting of our Company is required by the Articles or the Companies Law or any other applicable laws of the Cayman Islands to be held; or
(iii) the time when such mandate is revoked or varied by an ordinary resolution of our Shareholders in general meeting;

– IV-3 –

STATUTORY AND GENERAL INFORMATION

(d) a general unconditional mandate was given to our Directors authorising them to exercise all powers of our Company to repurchase on the Stock Exchange or on any other stock exchange on which the securities of our Company may be listed and which is recognised by the SFC and the Stock Exchange for this purpose, such number of Shares as will represent up to 10% of the total number of Shares of our Company in issue immediately following completion of the [ REDACTED ] and the [ REDACTED ] but excluding any Shares which may be issued pursuant to the exercise of the [ REDACTED ], and such mandate to remain in effect until the earliest of:
(i) the conclusion of the next annual general meeting of our Company;
(ii) the expiration of the period within which the next annual general meeting of our Company is required by the Articles or the Companies Law or any other applicable laws of the Cayman Islands to be held; or
(iii) the time when such mandate is revoked or varied by an ordinary resolution of our Shareholders in general meeting; and
(e) the general unconditional mandate mentioned in sub-paragraph (c) above was extended by the addition to the number of Shares of our Company which may be allotted or agreed to be allotted by our Directors pursuant to such general mandate of an amount representing the number of Shares of our Company repurchased by our Company pursuant to the mandate to repurchase Shares referred to in sub-paragraph (d) above, provided that such extended amount shall not exceed 10% of the total number of Shares of our Company in issue immediately following completion of the [ REDACTED ] and the [ REDACTED ] but excluding any Shares which may be issued pursuant to the exercise of the [ REDACTED ].

4. Corporate reorganisation

The companies comprising our Group underwent the Reorganisation in preparation for the [ REDACTED ]. Further details on the Reorganisation are set forth in the paragraphs headed “History, development and Reorganisation — Reorganisation” in this [ REDACTED ].

5. Changes in share capital of subsidiaries

The subsidiaries of our Company are listed in the Accountants’ Report set out in Appendix I of this [ REDACTED ].

Other than the alterations described in the paragraphs headed “History, development and Reorganisation — Reorganisation” in this [ REDACTED ], there has been no change in the share capital of our Company’s subsidiaries within the two years immediately preceding the date of this [ REDACTED ].

– IV-4 –

6. Securities repurchase mandate

A general unconditional mandate was granted to our Directors by our Shareholders pursuant to a written resolution passed on [●] 2017 authorising them to exercise all powers of our Company to purchase Shares with a number not exceeding 10% of the total number of Shares of our Company in issue immediately following the completion of the [ REDACTED ] and the [ REDACTED ], but excluding any Shares which may be issued pursuant to the exercise of the [ REDACTED ], until the conclusion of the next annual general meeting of our Company, or the expiration of the period within which the next general meeting of our Company was required by the Articles or the Companies Law or any applicable laws of the Cayman Islands to be held, or the passing of an ordinary resolution by our Shareholders in general meeting varying, renewing or revoking such mandate, whichever is the earliest (the “ Repurchase Mandate ”).

There are certain restrictions under the GEM Listing Rules on the repurchase by our Company of its own securities, as follows:

(a) Shareholders’ approval

All repurchases of securities must be approved in advance by an ordinary resolution of our Company whether by way of general mandate or by specific approval of particular transactions.

(b) Source of funds

In repurchasing securities, our Company may only apply funds legally available for such purpose in accordance with our Memorandum and Articles, the GEM Listing Rules, the Companies Law and the applicable laws of the Cayman Islands. Subject to the foregoing, any repurchases by our Company may be made out of profits of our Company or out of proceeds of an issue of [ REDACTED ] made for the purpose of the repurchase, or out of our Company’s share premium account or out of capital.

(c) Reasons for repurchases

Our Directors believe that it is in the best interests of our Company and our Shareholders for our Directors to have a general authority from our Shareholders to enable our Company to repurchase Shares in the market. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net asset value of our Company and/or its earnings per Share and will only be made if our Directors believe that such repurchases will benefit our Company and our Shareholders.

– IV-5 –

(d) Funding of repurchases

In repurchasing securities, our Company may only apply funds legally available for such purpose in accordance with its Memorandum and Articles, the GEM Listing Rules, the Companies Law and the applicable laws of the Cayman Islands.

In any event, our Directors do not intend to exercise the Repurchase Mandate to such an extent as would, in the circumstances, have a material adverse effect on the working capital requirements of our Company or the gearing levels which in the opinion of our Directors are from time to time appropriate for our Company.

The exercise in full of the Repurchase Mandate, on the basis of [ REDACTED ] Shares in issue immediately after the [ REDACTED ], would result in up to [ REDACTED ] Shares (i.e. up to 10% of the total number of Shares of our Company in issue immediately following the completion of the [ REDACTED ] and the [ REDACTED ]) being repurchased by our Company during the period in which the Repurchase Mandate remains in force.

(e) Shares to be repurchased

Under the GEM Listing Rules, shares proposed to be repurchased by a company must be fully paid-up. Under Cayman Islands law, any shares repurchased may be treated as cancelled on repurchase or held as treasury shares.

(f) General

A company may not issue or announce an issue of new securities for a period of 30 days immediately following a repurchase of securities whether on GEM or otherwise, other than an issue of securities pursuant to an exercise of warrants, share options or similar instruments requiring the company to issue securities which were outstanding prior to such repurchase, without the prior approval of the Stock Exchange. In addition, a company shall not purchase its shares on GEM if the purchase price is higher by 5% or more than the average closing market price for the five preceding trading days on which its shares were traded on GEM. The GEM Listing Rules also prohibit a company from repurchasing its securities on GEM if the repurchase would result in the number of listed securities which are in the hands of the public falling below the relevant prescribed minimum percentage of that company as required by the Stock Exchange.

None of our Directors nor, to the best of their knowledge having made all reasonable enquiries, any of their close associates has any present intention, in the event that the Repurchase Mandate is exercised, to [ REDACTED ] to our Company or our subsidiaries.

– IV-6 –

Our Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the Repurchase Mandate in accordance with the GEM Listing Rules, the Companies Law and the applicable laws of the Cayman Islands.

If, as a result of a repurchase of securities, a Shareholder’s proportionate interest in the voting rights of our Company increases, such increase will be treated as an acquisition for the purpose of the Takeovers Code. As a result, a Shareholder or group of Shareholders acting in concert (within the meaning of the Takeovers Code), depending on the level of increase of Shareholders’ interest, could obtain or consolidate control of our Company and become obliged to make a mandatory offer in accordance with Rule 26 of the Takeovers Code. Our Directors are not presently aware of any circumstances which would arise under the Takeovers Code as a consequence of any repurchases pursuant to the Repurchase Mandate immediately after the [ REDACTED ].

The GEM Listing Rules prohibit our Company from knowingly repurchasing securities of our Company from a “core connected person”, that is, a Director, chief executive or Substantial Shareholder of our Company or any of our subsidiaries or any of their respective close associates (as defined in the GEM Listing Rules). A core connected person shall not knowingly sell his Shares to our Company on the Stock Exchange.

No core connected person (as defined in the GEM Listing Rules) of our Company has notified our Company that he has a present intention to [ REDACTED ] to our Company, or has undertaken not to do so if the Repurchase Mandate is exercised.

The GEM Listing Rules further prohibit a company from purchasing its own securities on GEM for a consideration other than cash or for settlement otherwise than in accordance with the trading rules of the Stock Exchange from time to time.

A company shall procure that any broker appointed by it to effect the repurchase of securities shall disclose to the Stock Exchange such information with respect to the repurchases made on behalf of the company as the Stock Exchange may request.

– IV-7 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IV STATUTORY AND GENERAL INFORMATION

FURTHER INFORMATION ABOUT OUR BUSINESS

1. Summary of material contracts

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of our Group within the two years preceding the date of this [ REDACTED ] and are or may be material:

(a) the Deed of Non-competition;
(b) the [ REDACTED ];
(c) the Deed of Indemnity;
(d) share swap agreement dated [●] 2017 entered into amongst Champion Success, Magic Pioneer and our Company, pursuant to which Champion Success and Magic Pioneer transferred 800 and 200 shares in Sharp Idea, respectively held by them, together representing the entire issued share capital of Sharp Idea, to our Company. In exchange therefor, our Company, at the direction of Champion Success and Magic Pioneer, credited as fully paid the one nil paid Share in our Company held by Gold Cavaliers, issued 299 and 20 fully paid Shares, respectively to Gold Cavaliers and Profound Wellness. Immediately after this share swap, our Company was owned as to approximately 93.75% (300 shares) by Gold Cavaliers and as to approximately 6.25% (20 shares) by Profound Wellness; and
(e) the [ REDACTED ] agreement dated 7 April 2016 and supplemental [ REDACTED ] agreement dated 15 April 2016, pursuant to which Champion Success transferred 200 shares in Sharp Idea, representing 20% of the issued share capital of Sharp Idea to Magic Pioneer at the consideration of HK$[ REDACTED ].

2. Intellectual property rights of our Group

(a) Trade marks

Our Group has registered the following Trademarks with the Trade Marks Registry of Hong Kong:

		Name of	Application	Duration of
Trademark	Class number	applicant	number	Validity
	31, 37, 39, 41,	Lapco Service	303784113	23 May 2016 to
	44			22 May 2026

– IV-8 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IV

STATUTORY AND GENERAL INFORMATION

Trademark

==> picture [65 x 64] intentionally omitted <==

Name of Application Duration of Class number applicant number Validity 31, 37, 39, 41, Shiny Glory 303784122 23 May 2016 to 44 22 May 2026

==> picture [78 x 44] intentionally omitted <==

31, 37, 39, 41, Lapco Service 303906630 20 September 44 2016 to 19 September 2026

(b) Domain names

As at the Latest Practicable Date, the following member of our Group had registered the following domain names:

		Registration	Expiry
Registrant	Domain Name	Date	Date
Lapco Service	www.lapco.com.hk	9 April 2008	10 April 2022
Shiny Glory	www.shinyglory.com.hk	20 October	20 October
		2010	2021

FURTHER INFORMATION ABOUT DIRECTORS, MANAGEMENT, STAFF AND EXPERTS

1. Disclosure of interests

(a) Disclosure of interests of our Directors

Save as disclosed in this [ REDACTED ], none of our Directors or their close associates were engaged in any dealings with our Group during the two years preceding the date of this [ REDACTED ].

(b) Particulars of service contracts

Each of Mr. Lam Pak Ling, Mr. Cai Weiming and Mr. Wong Tsz Chun, Jacky being all the executive Directors, has entered into a service agreement with our Company on [●] 2017 for an initial term of three years commencing from the [ REDACTED ] and continuing thereafter until terminated by either party by giving

– IV-9 –

not less than one month’s notice in writing to the other. Each of these executive Directors is entitled to their respective director’s fee. In addition, each of the executive Directors is also entitled to a discretionary bonus determined by the Board.

The basic annual remuneration payable to each executive Director will be as follows:

	Annual
Name	Remuneration
	(HK$’000)
Mr. Lam Pak Ling	[1,620]
Mr. Cai Weiming	[415]
Mr. Wong Tsz Chun, Jacky	[272]

Mr. Choi Chung Yin, the non-executive Director, has entered into a service agreement with our Company on [●] 2017, which is for a term of three years commencing from the [ REDACTED ], provided that either our Company or Mr. Choi may terminate such appointment at any time by giving at least one month’s notice in writing to the other. Mr. Choi is entitled to a annual director’s fee of HK$[240,000].

Each of Mr. Mak Kwok Kei, Ms. Lam Kit Yan and Mr. Ho Kin Wai, the independent non-executive Directors, has entered into a service agreement with our Company on [●] 2017. Each service agreement is for a term of three years commencing from the [ REDACTED ], provided that either our Company or our independent non-executive Directors may terminate such appointment at any time by giving at least one month’s notice in writing to the other. The basic annual remuneration payable to each of our independent non-executive Directors will be as follows:

		Annual
		Remuneration
		(HK$)
Mr.	Mak Kwok Kei	[120,000]
Ms.	Lam Kit Yan	[120,000]
Mr.	Ho Kin Wai	[120,000]

Save as aforesaid, none of our Directors has or is proposed to have a service contract with our Company or any of its subsidiaries (other than contracts expiring or determinable by our Group within one year without the payment of compensation (other than statutory compensation)).

– IV-10 –

STATUTORY AND GENERAL INFORMATION

(c) Directors’ remuneration

During each of the two years ended 31 December 2016, the aggregate remuneration paid and benefits in kind granted by our Group to our Directors were approximately HK$1.5 million and HK$1.9 million, respectively. Under the arrangement presently in force, the aggregate amount of directors’ remunerations (excluding discretionary bonus, if any) for the year ending 31 December 2017 is estimated to be approximately HK$2.7 million.

Our Company’s policies concerning remuneration of the executive Directors are:

(i) the amount of remuneration payable to the executive Directors will be determined on a case by case basis depending on their experience, responsibilities, workload and the time devoted to the Group, market level of remuneration and compensation paid by comparable companies, and the performance of our Group; and
(ii) non-cash benefits may be provided to the Directors under their remuneration package.

None of our Directors or any past directors of any member of our Group has been paid any sum of money for the two financial years ended 31 December 2016, respectively for (a) the loss of office as director of any member of our Group or of any other office in connection with the management affairs of any member of our Group (b) as an inducement to join or upon joining any member of our Group.

There has been no arrangement under which a Director has waived or agreed to waive any emoluments in the two financial years ended 31 December 2015 and 2016, respectively.

(d) Interests of Directors and chief executive in our share capital

Interests and short positions of our Directors and the chief executive in the shares, underlying shares or debentures of our Company and its associated corporations immediately following completion of the [ REDACTED ] and the [ REDACTED ], the interests and short positions of our Directors and the chief executive in the shares, underlying shares or debentures of our Company and its associated corporations (within the meaning of the SFO) which will have to be notified to our Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions in which they are taken or deemed to have under such provisions of the SFO) or which will be required pursuant to section 352 of the SFO to be entered in the register referred therein, or

– IV-11 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IV STATUTORY AND GENERAL INFORMATION

which will be required to notify to our Company and the Stock Exchange pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules, once our Shares are listed, will be as follows:

Long position in our Shares:

	Capacity/nature	Number of	Percent of
Name of Director	of interest	Shares	shareholding
Mr. Lam	Settlor and beneficiary	[REDACTED]	[REDACTED]
	of a discretionary
	trust (Note)

Note: All the [ REDACTED ] Shares are beneficially owned by Gold Cavaliers. Gold Cavaliers is held as to approximately [ REDACTED ] by Max Super acting as the trustee of the Lam Family Trust. The Lam Family Trust was established by Mr. Lam and Ms. Wong as the settlors on 8 August 2016 as a discretionary trust for the benefit of themselves. Mr. Lam is our Controlling Shareholder and an executive Director of our Company. By virtue of the SFO, Mr. Lam is thus deemed to be interested in the Shares in which Gold Cavaliers is interested.

(e) Agency fees or commissions received

Further details on the agency fees or commissions received by the [ REDACTED ] are set forth in the paragraphs headed “Underwriting — Underwriting arrangements and expenses — Commission and expenses” in this [ REDACTED ].

(f) Related party transactions

During the two years ended 31 December 2016, our Group was engaged in related party transactions as described in:

(i) note 29 of the Accountants’ Report set out in Appendix I to this [ REDACTED ]; and
(ii) the section headed “Continuing connected transactions” in this [ REDACTED ].

– IV-12 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IV

STATUTORY AND GENERAL INFORMATION

(g) Disclaimers

Save as disclosed in this [ REDACTED ]

(i) taking no account of any Shares which may be taken up or acquired under the [ REDACTED ], our Directors are not aware of any person who immediately following the completion of the [ REDACTED ] and the [ REDACTED ] will have an interest or short position in the Shares and underlying shares which would fall to be disclosed to our Company under the provisions of Divisions 2 and 3 of Part XV of the SFO or who is, either directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other member of our Group;
(ii) none of our Directors and chief executive has for the purpose of Part XV (including without limitation to Divisions 7 and 8 thereof) of the SFO or the GEM Listing Rules, nor is any of them taken to or deemed to have under Part XV (including without limitation to Divisions 7 and 8 thereof) of the SFO, any interests and short positions in the Shares, underlying shares and debentures of our Company or any associated corporations (within the meaning of the SFO) or any interests which will have to be entered in the register to be kept by our Company pursuant to section 352 of the SFO or which will be required to be notified to our Company and the Stock Exchange pursuant to Rules 5.46 to 5.67 of the GEM Listing Rules once the Shares are listed on the Stock Exchange;
(iii) none of our Directors or the experts named in the paragraphs headed “Other information — 10. Qualifications of experts” in this appendix has been interested in the promotion of, or has any direct or indirect interest in any assets acquired or disposed of by or leased to, any member of our Group within the two years immediately preceding the date of this [ REDACTED ], or which are proposed to be acquired or disposed of by or leased to any member of our Group nor will any Director apply for the [ REDACTED ] either in his own name or in the name of a nominee;
(iv) no Director was materially interested in any contract or arrangement subsisting at the Latest Practicable Date which is significant in relation to the business of our Group taken as a whole; and
(v) none of the experts named in the paragraphs headed “Other information — 10. Qualifications of experts” in this appendix has any shareholding in any company in our Group or the right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any company in our Group.

– IV-13 –

STATUTORY AND GENERAL INFORMATION

2. Interest discloseable under the SFO and Substantial Shareholders

So far as is known to our Directors, immediately following completion of the Share Offer and the [ REDACTED ], the following persons will have an interest or a short position in the Shares or the underlying shares which would fall to be disclosed to our Company under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, will be, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of any other members of our Group:

Long position in our Shares:

			Approximate
			percentage of
		Number of	interest in our
		Shares	Company
		immediately after	immediately after
		completion of the	completion of the
		[REDACTED]	[REDACTED]
Name of		and the	and the
Shareholder	Nature of interest	[REDACTED]	[REDACTED]
Mr. Lam	Founder and beneficiary	[REDACTED]	[REDACTED]
	of a discretionary trust
Ms. Wong	Founder and beneficiary	[REDACTED]	[REDACTED]
	of a discretionary trust
Max Super	Interest in a controlled	[REDACTED]	[REDACTED]
	corporation and
	trustee of a
	discretionary trust
Gold Cavaliers	Registered owner	[REDACTED]	[REDACTED]
	(Please refer to Note 1)
Magic Pioneer	Please refer to Note 2	[REDACTED]	[REDACTED]

Notes:

Gold Cavaliers is held as to approximately [ REDACTED ] by Max Super acting as the trustee of the Lam Family Trust. The Lam Family Trust was established by Mr. Lam and Ms. Wong as the settlors on 8 August 2016 as a discretionary trust for the benefit of themselves.
Magic Pioneer is indirectly interested in our Company through its direct interest of approximately [ REDACTED ] in Gold Cavaliers, and is thus considered to be effectively interested in our Company as to approximately [ REDACTED ] . Magic Pioneer is owned as to [ REDACTED ] by Earnmill Holdings Limited, as to [ REDACTED ] by Croydon Capital Advisors Limited and as to [ REDACTED ] by Xiong Jianrui.

– IV-14 –

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

APPENDIX IV

STATUTORY AND GENERAL INFORMATION

OTHER INFORMATION

1. Estate duty, tax and other indemnities

Estate Duty

Pursuant to the Revenue (Abolition of Estate Duty) Ordinance 2005 which came into effect on 11 February 2006 in Hong Kong, estate duty ceased to be chargeable in Hong Kong in respect of the estates of persons dying on or after that date. No Hong Kong estate duty is payable and no estate duty clearance papers are needed for an application for a grant of representation in respect of holders of Shares whose death occur on or after 11 February 2006.

Our Directors have been advised that no material liability for estate duty is likely to fall on our Company or any of our subsidiaries in the Cayman Islands or the BVI or Hong Kong in which the companies comprising our Group are incorporated. There are currently no taxes in the form of estate duties under Cayman Islands law, and no estate tax is currently payable by persons who are not resident in the BVI with respect of any shares, debt obligations or other securities of a BVI company.

Stamp Duty

Dealings in the Shares will be subject to Hong Kong stamp duty. The current ad valorem rate of Hong Kong stamp duty is 0.1% on the higher of the consideration for or the market value of the Shares and it is charged on the purchaser on every purchase and on the seller on every sale of the Shares. A total stamp duty of 0.2% is currently payable on a typical sale and purchase transaction involving the Shares.

Deed of Indemnity

Indemnifiers have entered into the Deed of Indemnity with and in favour of our Company (for ourselves and as trustee for each of our subsidiaries) to provide the following indemnities:

Under the Deed of Indemnity, the Indemnifiers shall jointly and severally indemnify and keep indemnified each of our Company and our subsidiaries against, among other things, (i) any depletion in or diminution in value of its assets as a direct or indirect consequence of, and in respect of any amount which any of our Company and our subsidiaries may hereafter become liable to pay, resulting from any taxation under sections 35, 42 and 43 of the Estate Duty Ordinance (Chapter 111 of the Laws of Hong Kong); or (ii) taxation falling on any of our Company and our subsidiaries resulting from or by reference to any income, profits or gains earned, accrued or received (or deemed to be so earned, accrued or received) prior to the Deed of Indemnity becomes unconditional or any event occurring or deemed to occur on or before such date whether alone or in conjunction with any other event whenever occurring and whether or not such taxation is chargeable against or attributable to any other person, firm or company including any and all taxation resulting from the receipt by our Company and our subsidiaries of any amount paid

– IV-15 –

by the Indemnifiers under the Deed of Indemnity; or (iii) all the property claims (as defined therein) suffered or incurred by any of our Company or our subsidiaries including but not limited to all losses or damages suffered or incurred by any of our Company or our subsidiaries arising from, or in connection with, the affected properties (as defined therein); (iv) any actions, claims, losses, damages, costs, charges or expenses which may be made, suffered or incurred by any of them in respect of or arising directly or indirectly from any taxation or taxation claim or property loss or property claim or litigation liabilities, non-compliance liabilities (as defined therein) or any other claims which are the subject of the indemnities therein; (v) all the costs (including legal costs, which shall be indemnified at the time incurred), expenses, losses and/or other liabilities incurred by our Company and our subsidiaries in relation with those outstanding or unsettled legal and arbitration proceedings, investigations and/or claims, the cause of action of or the event or incident leading to, which occurs prior to the Deed of Indemnity becoming unconditional; and (vi) all claims, proceedings, judgments, losses, liabilities, fines, penalties, payments, damages and any associated costs suffered by or incurred by the any of our Company or our subsidiaries as a result of, directly or indirectly in connection with non-compliance liabilities (as defined therein).

The Indemnifiers will, however, not be liable under the Deed of Indemnity for taxation where, among others, (i) provision has been made for such taxation in the audited accounts of our Company and our subsidiaries for the two years ended 31 December 2016; (ii) the taxation falling on our Company and our subsidiaries in respect of any accounting period commencing on or after 1 January 2017 unless liability for such taxation would not have arisen but for some event entered into by the Indemnifiers, our Company, our subsidiaries or any of them otherwise than in the course of normal day to day trading operations on or before the [ REDACTED ]; and (iii) the taxation arises or is incurred as a consequence of any change in law or the interpretation thereof or practice by the relevant tax authority having retrospective effect coming into force after the Deed of Indemnity becomes unconditional or to the extent that the taxation arises or is increased by an increase in rates of taxation after the Deed of Indemnity becomes unconditional with retrospective effect.

2. Litigations

Save as disclosed in the paragraphs headed “Business — Litigations and claims” in this [ REDACTED ], as at the Latest Practicable Date, no member of our Group was engaged in any litigation or arbitration of material importance and no litigation or claim of material importance was known to our Directors to be pending or threatened against any member of our Group, that would have a material adverse effect on our business, results of operations or financial condition.

3. Sole Sponsor

Octal Capital Limited has made an application on behalf of our Company to the Stock Exchange for [ REDACTED ] of, and permission to deal in, the Shares in issue and the Shares to be issued as described in this [ REDACTED ].

– IV-16 –

The Sole Sponsor satisfies the independence criteria applicable to sponsor as set out in Rule 6A.07 of the GEM Listing Rules.

The sponsor’s fee in relation to the [ REDACTED ] approximately [ REDACTED ].

4. Promoter

Our Company has no promoter for the purposes of the GEM Listing Rules.

5. Agency fees or commissions received

Save as disclosed in this [ REDACTED ], within the two years immediately preceding the date of this [ REDACTED ] no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any capital of our Company or any of its subsidiaries.

6. Preliminary expenses

The preliminary expenses payable by our Company are estimated to be about [ REDACTED ].

7. Compliance adviser

In accordance with the requirements of the GEM Listing Rules, our Company has appointed Octal Capital Limited as its compliance adviser to provide advisory services to our Company to ensure compliance with the GEM Listing Rules for a period commencing on the [ REDACTED ] and ending on the date on which our Company complies with Rule 18.03 of the GEM Listing Rules in respect of its financial results for the second full financial year commencing after the [ REDACTED ].

8. Registration procedures

The register of members of our Company will be maintained in Cayman Islands by [ REDACTED ] and a Hong Kong branch register of members of our Company will be maintained in Hong Kong by [ REDACTED ]. Save where our Directors otherwise agree, all transfers and other documents of title to Shares must be lodged for registration with, and registered by, our Company’s Hong Kong Share Registrar and may not be lodged in the Cayman Islands.

9. Taxation of holders of Shares

Dealings in Shares will be subject to Hong Kong stamp duty. The sale, purchase and transfer of Shares are subject to Hong Kong stamp duty, the current rate of which is 0.2% of the consideration or, if higher, the value of the Shares being sold or transferred. Profits from dealings in the Shares arising in or derived from Hong Kong may also be subject to Hong Kong profits tax.

– IV-17 –

Potential holders of Shares are recommended to consult their professional advisers if they are in any doubt as to the taxation implications of subscribing for, purchasing, holding or disposing of or dealing in Shares.

10. Qualifications of experts

The following are the respective qualifications of the experts who have given opinion or advice which are included in this [ REDACTED ]:

Name Qualification Octal Capital Limited a licensed corporation under the SFO and permitted to carry out Type 1 (dealing in securities) and Type 6 (advising on corporate finance) of the regulated activity as defined under the SFO Conyers Dill & Pearman Legal adviser to our Company as to the Cayman Islands law Deloitte Touche Tohmatsu Certified Public Accountants Frost & Sullivan Limited Industry Consultant Ms. Queenie W.S. Ng Barrister-at-Law in Hong Kong

11. Consents of experts

Each of the experts named in the paragraphs headed “10. Qualifications of experts” under this section of this Appendix IV has given and has not withdrawn its written consent to the issue of this [ REDACTED ] with the inclusion of its report and/or letter and/or certificates and/or opinions and/or references to its name (as the case may be) included in the form and context in which they are, respectively included.

12. Binding effect

This [ REDACTED ] shall have the effect, if an application is made in pursuance of it, of rendering all persons concerned bound by all of the provisions (other than the penal provisions) of sections 44A and 44B of the Companies (WUMP) Ordinance so far as applicable.

13. Bilingual [ REDACTED ]

The English language and Chinese language versions of this [ REDACTED ] are being published separately in reliance upon the exemption provided by section 4 of the Companies Ordinance (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 32L of the Laws of Hong Kong) and Rule 14.25 of the GEM Listing Rules. In case of any discrepancies between the English language version and the Chinese language version, the English language version shall prevail.

– IV-18 –

14. No material adverse change

Save for the estimated non-recurring [ REDACTED ], our Directors confirm that, up to the Latest Practicable Date, there has been no material adverse change in financial or trading position or prospects of our Group since 31 December 2016, being the date on which the latest financial information of our Group was reported in the Accountants’ Report included in Appendix I to this [ REDACTED ].

15. Miscellaneous

(a) Save as disclosed in this [ REDACTED ], within the two years immediately preceding the date of this [ REDACTED ]:
(i) no share or loan capital of our Company or any of our subsidiaries has been issued or agreed to be issued fully or partly paid either for cash or for a consideration other than cash;
(ii) no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any capital of our Company or any of our subsidiaries;
(iii) no founders, management or deferred shares of our Company or any of our subsidiaries have been issued or agreed to be issued;
(iv) no share or loan capital of our Company or any of our subsidiaries is under option or is agreed conditionally or unconditionally to be put under option;
(v) no interruptions in the business of our Group which had a material adverse effect on the financial position of our Group; and
(vi) no commission has been paid or payable (excluding commission payable to sub-underwriters) for subscription, agreeing to subscribe, procuring subscription or agreeing to procure subscription of any shares or debenture in our Company.
(b) None of the persons whose names are listed in the paragraphs headed “10. Qualifications of experts” under this section of this appendix:
(i) is interested beneficially or non-beneficially in any shares in any member of our Group; or
(ii) has any right or option (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for any securities in any member of our Group.

– IV-19 –

STATUTORY AND GENERAL INFORMATION

(c) No company within our Group is presently listed on any stock exchange or traded on any trading system.
(d) There has not been any interruption in the business of our Group which may have or have had a significant effect on the financial position of our Group within 12 months preceding the date of this [ REDACTED ].
(e) There are no arrangements in existence under which future dividends are to be or agreed to be waived.
(f) All necessary arrangements have been made to enable the Shares to be admitted into [ REDACTED ] for clearing and settlement.
(g) Our Group had not issued any debentures nor did it have any outstanding debentures nor any convertible debt securities as at the Latest Practicable Date.

16. Particulars of the [ REDACTED ]

The particulars of the [ REDACTED ] are set out below:

Name:

Profound Wellness Holdings Limited (which is beneficially owned as to approximately 66.7% by Mr. Lam and as to approximately 33.3% by Ms. Wong, respectively)

Place of incorporation: British Virgin Islands

Date of incorporation: 11 August 2016

Registered office: Commerce House, Wickhams Cay 1, P.O. Box 3140, Road Town, Tortola, British Virgin Islands VG1110

Number of the [ REDACTED ] to be [ REDACTED ] Shares sold:

– IV-20 –

DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES AND AVAILABLE FOR INSPECTION

DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES

The documents attached to the copy of this [ REDACTED ] delivered to the Registrar of Companies in Hong Kong for registration were (a) copies of the [ REDACTED ]; (b) the written consents referred to in “Other Information — 11. Consents of experts” in Appendix IV to this [ REDACTED ]; and (c) copies of the material contracts referred to in “Further Information about our business — 1. Summary of material contracts” in Appendix IV to this [ REDACTED ].

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the offices of Patrick Mak & Tse at 16th Floor, Nan Fung Tower, 173 Des Voeux Road Central, Hong Kong, during normal business hours up to and including the date which is 14 days from the date of this [ REDACTED ]:

the Memorandum of Association and the Articles of Association;
the Accountants’ Report of our Group for the two years ended 31 December 2016 from Deloitte Touche Tohmatsu, the text of which is set out in Appendix I to this [ REDACTED ];
the audited consolidated financial statements of Sharp Idea and its subsidiaries for the two years ended 31 December 2016;
the report from Deloitte Touche Tohmatsu relating to our unaudited pro forma financial information, the text of which is set out in Appendix II to this [ REDACTED ];
the statement of adjustments made by Deloitte Touche Tohmatsu in arriving at the figures set forth in Appendix I to this [ REDACTED ];
a copy of the letter of advice prepared by Conyers Dill & Pearman summarising certain aspects of Cayman Islands company law referred to in Appendix III to this [ REDACTED ];
the report issued by Frost & Sullivan, the text of which is summarised in the section headed “Industry overview” in this [ REDACTED ];
the Hong Kong legal opinions issued by our Hong Kong Legal Counsel in respect of our general matters;
the material contracts referred to in “Further Information about our business — 1. Summary of material contracts” in Appendix IV to this [ REDACTED ];
the service agreements and the letters of appointment referred to in “Further information about Directors, management, staff and experts — 1. Disclosure of interests — (b) Particulars of service contracts” in Appendix IV to this [ REDACTED ];
the written consents referred to in “Other information — 11. Consents of experts” in Appendix IV to this [ REDACTED ]; and
the Companies Law.

– V-1 –

AI assistant

Lapco Holdings Limited — Proxy Solicitation & Information Statement 2017

51461_rns_2017-03-21_1c908d22-a3bb-4a23-9a90-a40c42f971e3.pdf

APPLICATION PROOF OF

Lapco Holdings Limited 立高控股有限公司

(the “Company”)

WARNING

Lapco Holdings Limited 立高控股有限公司

Sole Sponsor

[ REDACTED ]

EXPECTED TIMETABLE

EXPECTED TIMETABLE

[ REDACTED ]

EXPECTED TIMETABLE

CONTENTS

CONTENTS

OVERVIEW

COMPETITIVE STRENGTHS

BUSINESS STRATEGIES

OUR CUSTOMERS

Customer concentration

SUMMARY

Basis of determination of our service fees

OUR SUPPLIERS AND SUBCONTRACTORS

Cost of services

SUMMARY

EMPLOYEES

RISK FACTORS

SUMMARY OF HISTORICAL FINANCIAL PERFORMANCE

Combined statements of profit and loss and other comprehensive income

SUMMARY

Combined statements of cash flows

Summary of key financial ratios

SUMMARY

SHAREHOLDING INFORMATION

PRE-IPO INVESTMENT

DIVIDEND AND DIVIDEND POLICY

NON-COMPLIANCE

LITIGATIONS AND CLAIMS

[ REDACTED ]

[ REDACTED ]

REASONS FOR THE [ REDACTED ] AND USE OF PROCEEDS

SUMMARY

RECENT DEVELOPMENTS OF OUR GROUP SUBSEQUENT TO THE TRACK RECORD PERIOD

NO MATERIAL ADVERSE CHANGE

[ REDACTED ]

DEFINITIONS

DEFINITIONS

[ REDACTED ]

[ REDACTED ]

[ REDACTED ]

DEFINITIONS

DEFINITIONS

[ REDACTED ]

[ REDACTED ]

DEFINITIONS

[ REDACTED ]

DEFINITIONS

[ REDACTED ]

DEFINITIONS

DEFINITIONS

[ REDACTED ]

RISKS RELATING TO OUR BUSINESS

RISK FACTORS

The payments charged by us are generally fixed contract sums without any adjustment mechanism. Our profitability may be adversely affected if costs overrun.

Increase in labour costs may adversely affect our profitability.

RISK FACTORS

If we fail to meet the requirements of our contracts or quality standards of our customers, we may experience difficulty in collecting performance guarantee.

Any litigation claims to which our Group is a party may not be covered by insurance and may have a material and adverse impact on our financial condition.

Our insurance coverage may be insufficient to protect us against potential liabilities arising in the course of operations.

Our top five suppliers accounted for a substantial portion of our purchases.

We may incur substantial indebtedness in the future, which may adversely affect our financial condition.

We face liquidity risk in relation to working capital requirements associated with undertaking contract works.

RISK FACTORS

RISK FACTORS

Our Group and our employees may fail to renew or maintain the requisite certifications necessary for the provision of our environmental hygiene services, which will affect our ability to obtain new projects and our financial position.

We are subject to laws and regulations relating to health and safety protection of our employees and any breach of laws and regulations may adversely affect our reputation and results of operations.

Potential standard working hours legislation may increase our labour costs and affect our profitability.

RISK FACTORS

Potential cancellation of the MPF Scheme contributions offsetting arrangement may increase our labour costs.

Lapco Holdings Limited Proxy Solicitation & Information Statement 2017