CONTENTS

02 Financial highlights

03 Management discussion and analysis

  1. Condensed consolidated statement of profit or loss
  2. Condensed consolidated statement of other comprehensive income
  3. Condensed consolidated statement of financial position
  1. Condensed consolidated statement of changes in equity
  2. Condensed consolidated statement of cash flows
  3. Notes to the condensed consolidated financial statements
  1. Other information
  1. Corporate profile
  1. Definitions

FINANCIAL HIGHLIGHTS

Six months ended 30 June

2020

2019

HK$'000

HK$'000

Change

(Unaudited)

(Unaudited)

Operating Results

50,051

Revenue

105,882

(52.7)%

Gross profit

21,585

62,520

(65.5)%

Finance costs

49

580

(91.6)%

(Loss)/profit for the period

attributable to owners

(21,673)

of the Company

16,206

(233.7)%

(Loss)/earnings per share

(HK1.4) cents

- Basic

HK1.1 cents

(227.3)%

30 June

31 December

2020

2019

HK$'000

HK$'000

(Unaudited)

(Audited)

Financial Position

310,461

Total assets

320,076

(3.0)%

Total liabilities

(110,026)

(83,818)

31.3%

Bank and cash balances

(excluding restricted

138,860

bank deposits)

121,644

14.2%

Equity attributable to

117,907

owners of the Company

141,823

(16.9)%

Financial Ratios

2.05

Current ratio

2.47

(17.0)%

Gearing ratio

-

-

N/A

02 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Business and financial review

The Group recorded total revenue of approximately HK$50,051,000 for the six months ended 30 June 2020, representing a decrease of approximately HK$55,831,000 or approximately 52.7% as compared to the total revenue of approximately HK$105,882,000 for the six months ended 30 June 2019. The loss attributable to the owners of the Company for the six months ended 30 June 2020 amounted to approximately HK$21,673,000 as compared to the profit attributable to the owners of the Company of approximately HK$16,206,000 for the corresponding period in 2019. Such loss was mainly due to the decrease in coal output as a result of the outbreak of the COVID-19 pandemic since early 2020, which caused a temporary suspension of our coal production for approximately two months in early of 2020. For the six months ended 30 June 2020, the Coal Mining Business is reported as the only business segment of Group as continuing operations.

The Coal Mining Business

Inner Mongolia Yuan Yuan Energy Group Jinyuanli Underground Mining Company Limited ("Inner Mongolia Jinyuanli"), an indirect non-wholly owned subsidiary of the Company, operates the Group's Inner Mongolia Coal Mine 958 ("Inner Mongolia Coal Mine 958") in the Inner Mongolia region with an allowed annual production capacity of 1.2 million tonnes.

During the six months ended 30 June 2020, approximately 343,000 tonnes of coals were produced (six months ended 30 June 2019: 674,000 tonnes) and approximately 340,000 tonnes of coals were sold (six months ended 30 June 2019: 656,000 tonnes). The segment loss of the Coal Mining Business for the six months ended 30 June 2020 was approximately HK$25,427,000 as compared to the segment profit of approximately HK$44,012,000 for the six months ended 30 June 2019. The segment loss for the six months ended 30 June 2020 was mainly due to: (i) the decrease in coal output and revenue as a result of the temporary suspension of our coal production operations; and (ii) the impairment losses of: (a) approximately HK$24,861,000 made on the property, plant and equipment; and (b) approximately HK$6,595,000 made on intangible asset of the Coal Mining Business respectively.

Based on the notice "Nei Mei Ju Zi (2016) No. 63" (the "Notice") issued by the Coal Industrial Bureau of Inner Mongolia, the number of annual working days of the coal mines in the region is limited to 276 days. In past few years, the Inner Mongolia Coal Mine 958 paused its coal production for certain period in every year, and commenced its coal production after the Chinese New Year holidays in order to comply with the Notice. In usual circumstance, Inner Mongolia Coal Mine 958 has around 4 months of coal production in the first half each year.

03

MANAGEMENT DISCUSSION AND ANALYSIS

Business and financial review (Continued)

The Coal Mining Business (Continued)

The outbreak of the COVID-19 in the first half of 2020 has halted mobility of people all over the PRC, which caused some labours of Inner Mongolia Jinyuanli failed to return to their working positions, accordingly, our coal production operations had been temporary suspended for approximately two months and resumed its operations in April 2020.

Furthermore, the management of Inner Mongolia Jinyuanli reported the expected decrease in the annual production capacity of the Group's Inner Mongolia Coal Mine 958 due to aggravating fatigue of the mining infrastructure and malfunction of certain major machineries since its development in 2009, including but not limited to the coal shearer, excavators, conveyor belts and shielding frames. Several of the Inner Mongolia Coal Mine 958's maintenance service providers for mining infrastructure and machineries were closed amid the outbreak of COVID-19, which negatively affected the machineries performances of the mining activities and the overall productivity. As such, the Inner Mongolia Coal Mine 958 is presently unable to operate at its optimal efficiency, thus the current annual coal production output is projected to be around 900,000 tonnes based on existing status.

In view of the increasing annual maintenance expenses of the mining infrastructure and machineries upon usage of around 10 years, the management of Inner Mongolia Jinyuanli is evaluating the required capital expenditures (the "Coal Mining CAPEX") and time to rebuild and/or replace these infrastructures and machineries to restore the annual production capacity to 1.2 million tonnes. Based on the latest assessments of the management of Inner Mongolia Jinyuanli, the Coal Mining CAPEX is expected to be not less than RMB20 million (approximately HK$21.9 million). Nevertheless, it is the decision of the Board and management of Inner Mongolia Jinyuanli to maintain better cash position at current business environment given the uncertainties brought by the COVID-19 pandemic and fluctuations in energy prices, the Group will decide whether it will invest in the Coal Mining CAPEX in due course when it's considered economically beneficial based on the then business environment.

04 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Business and financial review (Continued)

The development of environmental-friendly tyre recycling plants in the

PRC

On 8 November 2019, the Company's indirect wholly owned subsidiary, Glory Skytop International Limited ("Glory Skytop"), entered into a joint venture agreement with Ecostar (Qingdao) Holdings Corporation (伊克斯達（青島）控股有限公司) ("Ecostar") and Hope Star (Hong Kong) International Limited ("Hope Star"), to establish a joint venture company (the "Tyre Recycling JVC") with a registered capital of US$10 million (approximately HK$78.6 million) for the purpose of developing environmental-friendly tyre recycling plants in the PRC (the "Tyre Recycling Project"). On 27 November 2019, the Tyre Recycling JVC, namely Qingdao Xinghua Resources Holding Company Limited ( 青 島 星 華 資 源 控 股 有 限 公 司 ) ("Qingdao Xinghua"), was established in Qingdao, Shandong Province, the PRC, owned as to 51% of the total registered capital by Glory Skytop, 20% of the total registered capital by Ecostar and 29% of the total registered capital by Hope Star respectively. By the end of 2019, the Group had contributed US$5.1 million (approximately HK$40.2 million) by way of cash representing 51% of the total registered capital of Qingdao Xinghua.

Further in May 2020, Qingdao Xinghua formed a wholly-owned subsidiary in Qingdao, Shandong Province, the PRC, namely Qingdao Xinghua Recycle Economic Company Limited ( 青島星華循環經濟有限公司) ("QDXH Recycle", therefore an indirect non-wholly owned subsidiary owned as to 51% by the Group) with a registered capital of RMB10 million (approximately HK$10.9 million), and has started negotiations with local government authorities in connection with the feasibility of the development of an environmental-friendly tyre recycling plant in the China (Shandong) Pilot Free Trade Zone (中國（山東）自由貿易試驗區). Due to the outbreak of COVID-19 pandemic, the progress has been considerably slow and the management of Qingdao Xinghua is still in discussions with relevant government officials to formulating a concrete development plan as at the date of this report.

05

MANAGEMENT DISCUSSION AND ANALYSIS

Business and financial review (Continued)

Impairment loss on property, plant and equipment and intangible asset of the Coal Mining Business segment

The management of the Company has performed an impairment assessment review on all the carrying amounts of the property, plant and equipment and intangible asset under the non-current assets of the Coal Mining Business cash generating unit (the "Coal CGU"). The recoverable amounts of the Coal CGU were estimated based on their values in use, determined by discounting the future cash flows to be generated from the continuing use of these assets. The key assumptions of the cash flow projections were made based on the current business and financial conditions of Inner Mongolia Jinyuanli. An independent professional valuer has been engaged by the Company to review the reasonableness and appropriateness of the assumptions applied in the cash flow projections.

The Group recorded total impairment losses of approximately HK$31,456,000 on the assets under the Coal CGU for the six months ended 30 June 2020, comprised:

  1. approximately HK$24,861,000 on the property, plant and equipment; and (ii) approximately HK$6,595,000 on the intangible asset, due to the decrease in the projected annual coal production output as compared to previous years based on the latest status of the Inner Mongolia Coal Mine 958. The key assumptions and parameters adopted in the cash flow projections of the Coal CGU as at 30 June 2019,
    31 December 2019 and 30 June 2020 are set out below:

30 June

31 December

30 June

Key assumptions

2019

2019

2020

Projected annual coal production output

for the period until the expiry date of

900,000 tonnes

the business license (note 1)

1,003,600 tonnes

1,003,600 tonnes

Average unit coal selling price per tonne

2019: RMB131

2020: RMB131

2020: RMB131

(including value-added tax) (note 2)

2020: RMB134

2021: RMB134

2021: RMB134

2021 onwards:

2022 onwards:

2022 onwards:

increase with

increase with

increase with

inflation rate

inflation rate

inflation rate

Inflation rate

2.5%

2.5%

2.5%

06 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Business and financial review (Continued)

Impairment loss on property, plant and equipment and intangible asset of the Coal Mining Business segment (Continued)

Notes:

  1. The forecasted annual coal production output of the Group's Inner Mongolia Coal Mine 958 was adjusted from 1,003,600 tonnes to 900,000 tonnes, representing a slight decrease of approximately 10.3% to reflect the existing status of the coal mine and business environment as well as potential negative impacts brought by the COVID-19. Given the current business environment, the management of the Company and Inner Mongolia Jinyuanli will evaluate whether it would be economically beneficial to restore its coal production capacity as and when appropriate.
  2. The estimated unit selling price of coal (average selling price) was determined by referencing to:
    1. the average unit selling price of coals sold during the six months ended 30 June 2020; (ii) the prevailing market selling price of coals in the Inner Mongolia Region; and (iii) the historical average unit selling price of coals produced by Inner Mongolia Jinyuanli over past few years. The average selling price of the coals produced by Inner Mongolia Coal Mine 958 remained stable during the six months ended 30 June 2020 as compared to the same corresponding period in 2019.

Unlike the price of coals of relatively high calorific value (5,000 KJ/Kg or above) with a transparent index that could be quoted on http://www.cqcoal.com, the price level of the coals produced by Inner Mongolia Jinyuanli with relative low calorific value was quoted from local reference for the Inner Mongolia region - http://www.imcec.cn. The management of Inner Mongolia Jinyuanli relied on such reference determining the selling price of its coal during the business negotiations with their buyers (with a +/-10% variance taking into account factors such as the means of transportation, size of purchase orders and payment terms etc), which we considered a relevant reference of coal price in the locality of Huolinguole City, Inner Mongolia, the PRC.

07

MANAGEMENT DISCUSSION AND ANALYSIS

Business and financial review (Continued)

Selling and distribution expenses

The selling and distribution expenses of the Group for the six months ended 30 June 2020 was 100% attributed to the Coal Mining Business of approximately HK$1,195,000, representing a decrease of approximately 48.2% as compared to the corresponding period in year 2019 of approximately HK$2,308,000. The decrease in selling and distribution expenses was generally in line with the decrease in the quantity of coals sold in the first half of year 2020.

Administrative expenses

The administrative expenses of the Group for the six months ended 30 June 2020 amounted to approximately HK$23,853,000, representing a slight decrease of approximately HK$818,000 as compared to approximately HK$24,671,000 for the corresponding period in 2019. During the period under review, administrative fines in the amount of RMB960,000 (approximately HK$1.1 million) were charged by the local government authority in relation to the waste gangue produced and sold in 2018. The management of the Company will continue to adopt cost saving measures in order to improve the financial performance of the Group.

Finance costs

The finance costs of the Group mainly represented the interest on lease liabilities in relation to the leasing of the Hong Kong office. The decrease in finance costs was due to the full repayment of loans from a former executive director in 2019.

(Loss)/profit for the period

The net loss attributable to the owners of the Company for the six months ended 30 June 2020 was approximately HK$21,673,000 as compared to the profit attributable to the owners of the Company of approximately HK$16,206,000 for the six months ended 30 June 2020.

08 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Business and financial review (Continued)

Use of proceeds from the placing

In July 2017, the Company raised gross and net proceeds from the placing of 1,000,000,000 new shares of the Company at a placing price of HK$0.110 per share of the Company (the "Placing") in the amount of approximately HK$110.0 million and HK$106.8 million respectively. The use of net proceeds from the Placing is as follows:

Balance up

Balance up

to 30 June

to 30 June

Remaining

Utilisation

Utilisation

Utilisation

2019 (before

2019 (after

Utilisation

Utilisation

balance

up to

up to

up to

change of

Change of

change of

up to

up to

up to

Planned use

31 December

31 December

30 June

use of

use of

use of

31 December

30 June

30 June

Intended use

of proceeds

2017

2018

2019

proceeds)

proceeds

proceeds)

2019

2020

2020

HK$ million

HK$ million

HK$ million

HK$ million

HK$ million

HK$ million

HK$ million

HK$ million

HK$ million

HK$ million

Repayment of the overdue

construction payables of

the Coal Mining Business and

Coal Upgrading Business

45.0

14.7

39.0

42.0

3.0

(3.0)

-

-

-

-

Development of

the Coal Upgrading Business

25.0

4.4

7.6

7.6

17.4

(17.4)

-

-

-

-

Repayment of the loan due to

a non-controlling shareholder

of Inner Mongolia Jinyuanli

8.0

-

8.0

8.0

-

-

-

-

-

-

General working capital

28.8

8.3

24.5

28.8

-

20.4

20.4

8.5

17.3

3.1

106.8

27.4

79.1

86.4

20.4

-

20.4

8.5

17.3

3.1

Following the disposal of the business of provision of low-rank coal upgrading services (the "Coal Upgrading Business") in 2018, the Group will not apply further proceeds on the Coal Upgrading Business. On the other hand, the relevant overdue construction payables of the Coal Mining Business, which were intended to be settled by the proceeds of the Placing, had been fully settled. The management of the Company will apply the remaining proceeds of the Placing as the general working capital of the Group for 2020. It is expected that such remaining proceeds will be utilised in the financial year ending 2020.

09

MANAGEMENT DISCUSSION AND ANALYSIS

Business and financial review (Continued)

Liquidity and financial resources

As at 30 June 2020,

  1. the aggregate amount of the Group's: (i) restricted bank deposits; and (ii) bank and cash balances was approximately HK$143,247,000 (as at 31 December 2019: approximately HK$126,402,000);
  2. the Group had no borrowing (as at 31 December 2019: Nil);
  3. the Group's gearing ratio was zero (as at 31 December 2019: Nil). The gearing ratio was calculated as the Group's total borrowings divided by total equity; and
  4. the Group's current ratio was approximately 2.05 (as at 31 December 2019: approximately 2.47). The current ratio was calculated as total current assets divided by total current liabilities.

The Board will continue to closely monitor the financial position of the Group to maintain its financial capacity for future operations and business developments.

Pledge of assets

As at 30 June 2020, the Group did not have any pledge of assets (as at 31 December 2019: Nil).

Foreign currency risk

The Group's sales and purchases are mainly transacted in Renminbi and the books are recorded in Hong Kong dollars. The management of the Group noted the recent fluctuation in the exchange rate between Renminbi and Hong Kong dollar, and is of the opinion that it does not have any material adverse impact to the Group's financial position at present. The Group currently does not have a foreign currency hedging policy. The management will continue to monitor the foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise.

10 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

MANAGEMENT DISCUSSION AND ANALYSIS

Business and financial review (Continued)

Acquisition and disposal of material subsidiaries and associates

Qingdao Xinghua Recycle Economic Company Limited 青島星華循環經濟有限公司 was established in the PRC in May 2020 with a registered capital of RMB10 million (approximately HK$11.0 million). The equity interest of QDXH Recycle is wholly- owned by Qingdao Xinghua which is owned as to 51% of the total registered capital by the Group, as such, QDXH Recycle is an indirect 51% non-wholly owned subsidiary of the Group. Apart from the establishment of QDXH Recycle, the Group did not acquire nor dispose of any material subsidiaries and associates during the six months ended 30 June 2020.

Significant investment

The Group did not purchase, sell or hold any significant investment during the six months ended 30 June 2020.

Contingent liabilities

As at 30 June 2020, contingent liabilities in the amount of RMB2 million (approximately HK$2.2 million) was booked, which represented the maximum amount of penalty may arise as a result of over-production of the Coal Mining Business in 2016.

Capital commitment

As at 30 June 2020, the Group had no capital commitment (as at 31 December 2019: HK$ Nil).

Employees

The Group employed 454 full-time employees as at 30 June 2020 (as at 31 December 2019: 463) in Hong Kong and the PRC. Remuneration of the staff comprises monthly salaries, provident fund contributions, medical benefits, training programs, housing allowances, discretionary bonus and options based on their qualifications, job nature, performance and working experiences referencing to the prevailing market rate and contributions to the Group. Staff costs including Director's emoluments for the six months ended 30 June 2020 were HK$20,741,000 (for the six months ended 30 June 2019: HK$23,484,000).

11

MANAGEMENT DISCUSSION AND ANALYSIS

Prospects

The economic outlook and business environment of the PRC are anticipated to becoming more challenging in the second half of 2020 as a result of the outbreak of COVID-19 pandemic and rising global political uncertainties. It is expected the pace of the business development of the Group would be sluggish due to the COVID-19 pandemic. The Group will closely monitor the impacts of the COVID-19 pandemic to the Group's business portfolio.

It is the current objective of the management of the Group to sustain its current operations, and adopt a prudent manner in applying its capital in order to maintain a stable financial position of the Group. The Group will strive to implement adequate cost saving measures and to enhance the operation efficiency of the Coal Mining Business.

In the foreseeable future, it is still one of the major objectives of the Group to diversify its businesses into sectors offering higher growth momentum. In view of the uncertain business and economic environment at present, the Group will use its best endeavors to manage its business portfolio with an aim to enhance the shareholders' value.

12 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

Six months ended 30 June

2020

2019

HK$'000

Notes

(Unaudited)

(Unaudited)

Revenue

5

50,051

105,882

Cost of sales

(28,466)

(43,362)

Gross profit

21,585

62,520

Other income

3,453

349

Selling and distribution expenses

(1,195)

(2,308)

Administrative expenses

(23,853)

(24,671)

Impairment of property, plant and

(24,861)

equipment

-

Impairment of intangible asset

(6,595)

-

(Loss)/profit from operations

(31,466)

35,890

Finance costs

6

(49)

(580)

(Loss)/profit before tax

(31,515)

35,310

Income tax (expense)/credit

7

(707)

103

(Loss)/profit for the period

8

(32,222)

35,413

Attributable to:

(21,673)

Owners of the Company

16,206

Non-controlling interests

(10,549)

19,207

(Loss)/profit for the period

(32,222)

35,413

(Loss)/earnings per share

HK(1.4) cents

- basic

10

HK1.1 cents

- diluted

10

HK(1.4) cents

HK1.1 cents

13

CONDENSED CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME

Six months ended 30 June

2020

2019

HK$'000

(Unaudited)

(Unaudited)

(Loss)/profit for the period

(32,222)

35,413

Other comprehensive income after tax:

Item that may be reclassified to profit or loss:

Exchange difference on

(3,869)

translating foreign operations

(889)

Other comprehensive income and

total comprehensive income

for the period, net of tax

(36,091)

34,524

Attributable to:

(23,916)

Owners of the Company

15,705

Non-controlling interests

(12,175)

18,819

(36,091)

34,524

14 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at

As at

30 June

31 December

2020

2019

HK$'000

Notes

(Unaudited)

(Audited)

Non-current assets

72,121

Property, plant and equipment

11

105,577

Investment property

11

2,452

-

Intangible asset

11

19,051

26,528

Right-of-use assets

11

5,115

1,357

Due from non-controlling shareholders

13

15,467

15,748

Deposits for acquisition of

3,108

property, plant and equipment

-

Deferred tax assets

13,149

13,388

Total non-current assets

130,463

162,598

Current assets

4,845

Inventories

5,022

Trade and bills receivables

12

10,239

13,470

Deposits, prepayments and other

16,096

receivables

12,584

Due from non-controlling shareholders

13

5,571

-

Restricted bank deposits

4,387

4,758

Bank and cash balances

138,860

121,644

Total current assets

179,998

157,478

Current liabilities

50,020

Accrued charges and other payables

58,922

Contract liabilities

34,792

3,794

Lease liabilities

2,828

1,124

Total current liabilities

87,640

63,840

Net current assets

92,358

93,638

Total assets less current liabilities

222,821

256,236

15

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at

As at

30 June

31 December

2020

2019

HK$'000

Notes

(Unaudited)

(Audited)

Non-current liabilities

2,314

Lease liabilities

268

Provision for environmental and

4,781

restoration

4,868

Deferred tax liabilities

15,291

14,842

Total non-current liabilities

22,386

19,978

NET ASSETS

200,435

236,258

Capital and reserves

15,035

Share capital

14

15,035

Other reserves

434,061

429,497

Accumulated losses

(331,189)

(302,709)

Equity attributable to owners of the

117,907

Company

141,823

Non-controlling interests

82,528

94,435

TOTAL EQUITY

200,435

236,258

16 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Attributable to owners of the Company

Foreign

Future

currency

Share based

Non-

Share

Share

Capital

Distributable development

Safety

translation

payment

Accumulated

controlling

capital

premium

reserve

reserve

fund

fund

reserve

reserve

losses

Total

interests

Total equity

HK$'000

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

At 1 January 2020

15,035

96,935

(1,628)

135,282

37,438

102,921

15,073

43,476

(302,709)

141,823

94,435

236,258

Total comprehensive

-

-

-

-

-

-

(2,243)

-

(21,673)

(23,916)

(12,175)

(36,091)

income for the period

Capital injection into

-

-

-

-

-

-

-

-

-

-

268

268

a subsidiary

Net appropriations

-

-

-

-

2,017

4,790

-

-

(6,807)

-

-

-

Change in equity

-

-

-

-

2,017

4,790

(2,243)

-

(28,480)

(23,916)

(11,907)

(35,823)

for the period

At 30 June 2020

15,035

96,935

(1,628)

135,282

39,455

107,711

12,830

43,476

(331,189)

117,907

82,528

200,435

At 1 January 2019

15,035

96,935

(1,628)

135,282

30,178

88,047

16,189

45,383

(271,853)

153,568

49,771

203,339

Total comprehensive

income for the period

-

-

-

-

-

-

(501)

-

16,206

15,705

18,819

34,524

Share options lapsed

during the period

-

-

-

-

-

-

-

(1,816)

1,816

-

-

-

Net appropriations

-

-

-

-

6,690

9,706

-

-

(16,396)

-

-

-

Change in equity

for the period

-

-

-

-

6,690

9,706

(501)

(1,816)

1,626

15,705

18,819

34,524

At 30 June 2019

15,035

96,935

(1,628)

135,282

36,868

97,753

15,688

43,567

(270,227)

169,273

68,590

237,863

17

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

Six months ended 30 June

2020

2019

HK$'000

(Unaudited)

(Unaudited)

Net cash inflow/(outflow) from

22,764

operating activities

(44,191)

Net cash (outflow)/inflow from

(4,100)

investing activities

2,828

Net cash inflow/(outflow) before

18,664

financing activities

(41,363)

Net cash outflow from financing activities

(1,448)

(7,716)

Net increase/(decrease) in cash and

17,216

cash equivalents

(49,079)

Cash and cash equivalents at 1 January

121,644

155,635

Cash and cash equivalents at 30 June

138,860

106,556

Analysis of balances of cash and

cash equivalents:

138,860

Bank and cash balances

106,556

18 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. General Information

Grand Ocean Advanced Resources Company Limited was incorporated in the Cayman Islands on 7 April 2000 as an exempted company with limited liability under the Companies Law (2000 Revision) of the Cayman Islands. The address of its registered office is Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman KY1-1111, Cayman Islands. The address of its business office is Suite 3103, Sino Plaza, 255-257 Gloucester Road, Hong Kong. The Company's shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the "Stock Exchange").

The Company is an investment holding company. The principal activities of its subsidiaries during the financial period ended 30 June 2020 is the production and sale of coal (the "Coal Mining Business").

2. Basis of Preparation and Accounting Policies

These unaudited condensed consolidated financial statements for the six months ended 30 June 2020 have been prepared in accordance with the applicable disclosures required by Appendix 16 to the Rules Governing the Listing of Securities on the Stock Exchange (the "Listing Rules") and the Hong Kong Accounting Standard 34 "Interim Financial Reporting" issued by the Hong Kong Institute of Certified Public Accountants (the "HKICPA").

These condensed consolidated financial statements should be read in conjunction with the annual financial statements of the Group set out in the annual report of the Company for the year ended 31 December 2019 (the "2019 Annual Report").

The accounting policies and methods of computation used in the preparation of these condensed consolidated financial statements for the six months ended 30 June 2020 are consistent with those used in the Group's annual financial statements for the year ended 31 December 2019 except as stated in note 4 below.

19

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3. Significant Event

The World Health Organisation declared coronavirus and COVID-19 a global health emergency on 30 January 2020. Since then, the Group has experienced significant disruptions to its operations in the following respects:

  • Interruptions to coal mining schedule;
  • Interruptions to business plan of Tyre Recycling Plants;
  • Significant uncertainty concerning when government lockdowns will be lifted, social distancing requirements will be eased and the long-term effects of the pandemic on the demand for the Group's primary products.

The significant events and transactions occurred since 31 December 2019 relate to the effects of the global pandemic on the Group's condensed consolidated interim financial statements for the six months ended 30 June 2020 and are summarised as follows.

Decrease in revenue and cash flow, including impairment of property, plant and equipment and intangible asset

As disclosed in note 5, the revenue from the Coal Mining Business have experienced significant reductions since the pandemic's effects became widespread. The Group considered the reduced sales and reductions in budgeted revenue as indicators of impairment, and therefore determined the recoverable amount for its cash generating units. The recoverable amount is the higher of fair value less costs of disposal and value in use. Value in use was higher in all cases due to the nature of the assets included in the carrying amount of cash generating units.

The impairment assessment for the Coal CGU (defined below) are disclosed in note 11.

20 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

4. Adoption of New and Revised Hong Kong Financial Reporting Standards

The HKICPA has issued a number of new or amended Hong Kong Financial Reporting Standards ("HKFRSs") that are first effective for the current accounting period of the Group:

  • Amendments to HKFRS 3: Definition of a Business
  • Amendments to HKFRS 7, HKFRS 9 and HKAS 39: Interest Rate Benchmark Reform
  • Amendments to HKAS 1 and HKAS 8: Definition of Material
  • Conceptual Framework for Financial Reporting (Revised)

The impacts of the adoption of HKFRS 3, HKAS 1 and HKAS 8 have been summarised below. The other new or amended HKFRSs that are effective from 1 January 2020 did not have any significant impact on the Group's accounting policies.

Amendments to HKFRS 3: Definition of a Business

The amendments clarify that a business must include, as a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs, together with providing extensive guidance on what is meant by a "substantive process".

Additionally, the amendments remove the assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs, whilst narrowing the definitions of "outputs" and a "business" focus on returns from selling goods and services to customers, rather than on cost reductions.

An optional concentration test has also been added that permits a simplified assessment of whether an acquired set of activities and assets is not a business.

Amendments to HKAS 1 and HKAS 8: Definition of Material

The amendments clarify the definition and explanation of "material", aligning the definition across all HKFRSs and the Conceptual Framework, and incorporating supporting requirements in HKAS 1 into the definition.

21

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. Segment Information

The Group determines its operating segments based on the business from products/services perspective. The reportable segment of the Group is the Coal Mining Business.

Segment performance is evaluated based on operating profit/(loss) and is measured consistently with operating profit/(loss) in the condensed consolidated financial statements. However, group financing costs are managed on a group basis and are not allocated to the reportable segments.

Segment assets exclude deferred tax assets and these assets are managed on a group basis.

Segment liabilities exclude deferred tax liabilities as these liabilities are managed on a group basis.

The Group's reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different technology and marketing strategies.

Segment profits or losses do not include corporate income and expense and central administration costs. Segment assets do not include corporate assets and deferred tax assets. Segment liabilities do not include corporate liabilities and deferred tax liabilities.

22 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. Segment Information (Continued)

Information about operating segment profit or loss, asset and liabilities:

Coal

Mining

Business

Total

HK$'000

(Unaudited)

(Unaudited)

Six months ended 30 June 2020

Revenue from external customers

50,051

50,051

Segment loss

(25,427)

(25,427)

Interest revenue

125

125

Income tax expense

(707)

(707)

Depreciation and amortisation

(7,135)

(7,135)

Gain on disposal of property, plant and

232

232

equipment

Impairment loss on property, plant and

(24,861)

(24,861)

equipment

Impairment loss on intangible asset

(6,595)

(6,595)

Impairment loss on inventories

(551)

(551)

Reversal of impairment loss on trade

1,831

1,831

receivables

Additions to segment non-current assets

(2,872)

(2,872)

As at 30 June 2020

(Unaudited)

(Unaudited)

Segment assets

230,879

230,879

Segment liabilities

(148,694)

(148,694)

23

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. Segment Information (Continued)

Coal

Mining

Business

Total

HK$'000

(Unaudited)

(Unaudited)

Six months ended 30 June 2019

Revenue from external customers

105,882

105,882

Segment profit

44,012

44,012

Interest revenue

156

156

Income tax credit

131

131

Depreciation and amortisation

(9,079)

(9,079)

Additions to segment non-current assets

(39)

(39)

As at 31 December 2019

(Audited)

(Audited)

Segment assets

231,522

231,522

Segment liabilities

(122,810)

(122,810)

24 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5. Segment Information (Continued)

Reconciliations of reportable segment revenue, profit or loss, assets and liabilities:

Six months ended 30 June

2020

2019

HK$'000

(Unaudited)

(Unaudited)

Revenue

50,051

105,882

Profit or loss

(25,427)

Total (loss)/profit of reportable segments

44,012

Unallocated corporate income

654

210

Unallocated corporate expenses

(7,449)

(8,809)

Consolidated (loss)/profit for the period

(32,222)

35,413

30 June

31 December

2020

2019

HK$'000

(Unaudited)

(Audited)

Assets

230,879

Total assets of reportable segments

231,522

Corporate assets

103,755

113,167

Deferred tax assets

13,149

13,388

Elimination of intersegment assets

(37,322)

(38,001)

Consolidated total assets

310,461

320,076

Liabilities

148,694

Total liabilities of reportable segments

122,810

Corporate liabilities

5,396

6,601

Deferred tax liabilities

15,291

14,842

Elimination of intersegment liabilities

(59,355)

(60,435)

Consolidated total liabilities

110,026

83,818

25

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

6. Finance Costs

Six months ended 30 June

2020

2019

HK$'000

(Unaudited)

(Unaudited)

Interest on other loans - wholly repayable

-

within five years

74

Interest on lease liabilities

49

81

Imputed interest expense

-

425

Total borrowing costs

49

580

7. Income Tax (Expense)/Credit

Six months ended 30 June

2020

2019

HK$'000

(Unaudited)

(Unaudited)

Deferred tax

(707)

103

No provision for Hong Kong Profits Tax has been made for the six months ended 30 June 2020 as the Group did not generate any assessable profits arising in Hong Kong during the period (six months ended 30 June 2019: Nil).

Under the law of the PRC on Enterprise Income Tax (the "EIT law") and Implementation Regulation of the EIT law, the tax rate applicable to the PRC subsidiaries is 25% (six months ended 30 June 2019: 25%). No provision for PRC Enterprise Income Tax has been made for the six months ended 30 June 2020 as the PRC subsidiaries did not have any assessable profits during the period.

26 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

8. (Loss)/profit for the Period

The Group's (loss)/profit for the period is stated after charging/(crediting) as below:

Six months ended 30 June

2020

2019

HK$'000

(Unaudited)

(Unaudited)

Interest income

(477)

(209)

Amortisation of mining right

446

(included in cost of sales)

975

Depreciation of property, plant and

6,671

equipment

8,140

Depreciation of investment property

50

-

Depreciation of right-of-use assets

1,391

1,256

Gain on disposal of property, plant and

(232)

equipment

-

Impairment loss on property, plant and

24,861

equipment

-

Impairment loss on intangible asset

6,595

-

Impairment of inventories

551

-

Reversal of impairment loss on trade

(1,831)

receivables

-

Cost of inventories sold

28,466

43,362

Directors' emoluments

1,444

1,398

Short-term lease expenses

33

35

9. Dividend

The Board does not recommend the payment of an interim dividend for the six months ended 30 June 2020 (six months ended 30 June 2019: Nil).

27

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

10. (Loss)/earnings per Share

Basic (loss)/earnings per share

The calculation of basic (loss)/earnings per share attributable to the owners of the Company is based on the loss attributable to the owners of the Company for the six months ended 30 June 2020 of approximately HK$21,673,000 (six months ended 30 June 2019: profit of HK$16,206,000) and the weighted average number of ordinary shares (the "Shares") of 1,503,477,166 (six months ended 30 June 2019: 1,503,477,166) of the Company in issue during the period.

Diluted (loss)/earnings per share

The computations of diluted (loss)/earnings per share for the six months ended 30 June 2020 and 30 June 2019 does not and did not assume the exercise of share options granted by the Company as the exercise prices of those options were higher than the average market price for shares.

11. Property, Plant and Equipment and Investment Property

  1. During the six months ended 30 June 2020, the Group had additions to property, plant and equipment and investment property of approximately HK$397,000 and HK$2,515,000 respectively.
    In addition, the Group has entered into lease agreement for Hong Kong office during the six months ended 30 June 2020. Right-of-use assets amounted to approximately HK$5,149,000 has been recognised for the current period.
  2. Impairment assessment
    During the six months ended 30 June 2020, the coal production output of the Coal Mining Business cash generating unit (the "Coal CGU") decreased due to the impact of the COVID-19 pandemic and the aggravating fatigue of the mining infrastructure and malfunction of certain major machineries. The Group performed an impairment assessment review on the non-current assets under the Coal CGU to assess the recoverable amounts of the property, plant and equipment and intangible asset. Accordingly, impairment losses of: (i) approximately HK$24,861,000 on property, plant and equipment; and (ii) approximately HK$6,595,000 on intangible asset respectively, were recognised in the Group's condensed consolidated statement of profit or loss for the six months ended 30 June 2020. The recoverable amounts of the Coal CGU were estimated based on their values in use, determined by discounting the future cash flows to be generated from the continuing use of these assets (the "Cash Flow Projections").

28 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11. Property, Plant and Equipment and Investment Property (Continued)

(b) Impairment assessment (Continued)

The management of the Group prepared the Cash Flow Projections based on past performance and its expectations of market development. Pre-tax discount rate of 16% is used and reflect specific risk relating to the operating segment. The management of the Group also prepared relevant scenarios and sensitivity in determining the recoverable amount of the Coal CGU.

Therefore, the Cash Flow Projections have been prepared after taking into account the risks to further temporary suspension coal production associated with the lockdown or other measures taken by the state government in relation to the COVID-19 pandemic.

(c) Valuation

An independent professional valuer has been engaged by the Company to review the reasonableness and appropriateness of the assumptions applied in the Cash Flow Projections.

12. Trade and Bills Receivables

30 June

31 December

2020

2019

HK$'000

(Unaudited)

(Audited)

Trade receivables

4,273

4,376

Impairment loss on trade receivables

(1,606)

(3,489)

2,667

887

Bills receivables

7,572

12,583

10,239

13,470

29

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

12. Trade and Bills Receivables (Continued)

As at 30 June 2020, the ageing analysis of trade receivables of approximately HK$2,667,000 (as at 31 December 2019: HK$887,000), based on the date of delivery and net of allowance, is as follows:

30 June

31 December

2020

2019

HK$'000

(Unaudited)

(Audited)

0 to 90 days

1,976

183

Over 365 days

691

704

2,667

887

Payments in advance are required by the Group but credit terms of 90 days are granted to certain key customers. The Group seeks to maintain strict control over its outstanding receivables. Overdue balances are reviewed regularly by the senior management.

13. Due from Non-Controlling Shareholders

The analysis of the carrying amounts of the amounts due from non-controlling shareholders is as follows:

30 June

31 December

2020

2019

HK$'000

(Unaudited)

(Audited)

Non-current assets

15,467

Other receivable (note a)

15,748

Current assets

5,571

Other receivable (note b)

-

30 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

13. Due from Non-Controlling Shareholders (Continued)

Notes:

  1. The other receivable represents USD2 million unpaid capital commitment by Ecostar (Qingdao) Holdings Corporation (伊克斯達（青島）控股有限公司) for the formation of an indirect non-wholly owned subsidiary of the Company, namely Qingdao Xinghua Resources Holding Company Limited 青島星華資源控股有限公司 to be contributed on or before the expiry of a 3-year period from the establishment of Qingdao Xinghua on 27 November 2019.
  2. The other receivable represents the loan due from Inner Mongolia Yuan Yuan Energy Group Company Limited (內蒙古源源能源集團有限責任公司) with principal amount of RMB5 million. Such loan is unsecured, interest bearing at 3.6% per annum and repayable in December 2020.
  3. The carrying amounts of the amounts due from non-controlling shareholders were denominated in USD and RMB respectively.

14. Share capital

Authorised

No. of

shares of

HK$0.01 each

HK$'000

As at 31 December 2019, 1 January 2020

and 30 June 2020

100,000,000,000

1,000,000

Issued and fully paid

No. of

shares of

HK$0.01 each

HK$'000

As at 31 December 2019, 1 January 2020

and 30 June 2020

1,503,477,166

15,035

31

OTHER INFORMATION

Interim dividend

The Board does not recommend the payment of an interim dividend for the six months ended 30 June 2020 (six months ended 30 June 2019: Nil).

Directors and chief executive's interests and the short positions in the shares, underlying shares and debentures of the Company or any associated corporations

As at 30 June 2020, the interests and short positions of the Directors and the chief executive of the Company in the Shares, underlying Shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which they have taken or deemed to have taken under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code set out in Appendix 10 to the Listing Rules, to be notified to the Company and the Stock Exchange were as follows:

32 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

OTHER INFORMATION

Directors and chief executive's interests and the short positions in the shares, underlying shares and debentures of the Company or any associated corporations (Continued)

Approximate

percentage of

the total

Capacity and nature of

Capacity and nature of interest in

number of

interest in Shares

underlying Shares pursuant to share options

issued shares of

the Company

Personal

Corporate

Total

Personal

Family

Total

Aggregate

as at 30 June

Name

Interests

Interests

Interests

Interests

Interests

Interests

Interests

2020

Mr. Ng Ying Kit

-

-

-

17,250,000

-

17,250,000

17,250,000

1.15%

Mr. Ren Hang

-

-

-

15,000,000

-

15,000,000

15,000,000

1.00%

Mr. Kwok Chi Shing

-

-

-

225,000

-

225,000

225,000

0.01%

Note: Details of share options held by the Directors are set out under the heading "Share Option Scheme".

Saved as disclosed above, as at 30 June 2020, none of the Directors and the chief executive of the Company had any interests or short positions in the Shares, underlying Shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO), which would have to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they have taken or deemed to have taken under such provisions of the SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register referred to therein, or which were required, pursuant to the Model Code, to be notified to the Company and the Stock Exchange.

33

OTHER INFORMATION

Substantial shareholders

As at 30 June 2020, so far as is known to the Directors or chief executive of the Company based on the register maintained by the Company pursuant to Section 336 of the SFO, the following persons (other than the Directors or the chief executive of the Company) had, or were deemed to have, interests or short positions in the Shares or underlying Shares which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Division 2 and 3 of Part XV of the SFO, or which were recorded in the register of interests required to be kept by the Company pursuant to Section 336 of the SFO, or as otherwise notified to the Company and the Stock Exchange:

Approximate

percentage of the

Number of

total number of

Shares or

issued shares of

Capacity/

underlying

the Company as at

Name

Nature of interest

Shares

30 June 2020

Liu Chang Deng

Beneficial owner

156,154,315

10.39%

Save as disclosed above, as at 30 June 2020, the Directors and the chief executive of the Company were not aware of any other person (other than Directors and the chief executive of the Company) who had, or was deemed to have, interests or short positions in the Shares or underlying Shares of the Company which would fall to be disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or which were recorded in the register of interests required to be kept by the Company under Section 336 of the SFO, or as otherwise notified to the Company and the Stock Exchange.

34 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

OTHER INFORMATION

Share option scheme

The purpose of the 2009 Scheme is to enable the Company to grant options to any employee (whether full-time or part-time, including any executive Director but excluding any non-executive Director) of the Company or any of its subsidiaries or an entity in which the Group holds any equity interest (the "Invested Entity"); any non- executive Director (including independent non-executive Director) of the Company, any of its subsidiaries or any Invested Entity; any shareholder of any member of the Group or any Invested Entity or any holder of any securities issued or proposed to be issued by any member of the Group or any Invested Entity; and any other person (including any consultant, adviser, distributor, contractor, supplier, agent, customer, business partner, joint venture business partner, promoter or service provider of any member of the Group) whom the Board considers, in its sole discretion, has contributed or will contribute to the Group (the "Eligible Participants") as incentives or rewards for their contribution to the Group and/or to recruit and retain high caliber employees and attract human resources that are valuable to the Group and any Invested Entity.

The 2009 Scheme was adopted for a period of 10 years commencing on 20 August 2009 and remained in force until 19 August 2019, after which period no further options will be offered or granted but the provisions of the 2009 Scheme shall remain in full force and effect in all other respects with regard to the share options granted during the life of the 2009 Scheme. The subscription price for the Shares in respect of any share option granted shall be such price as determined by the Board in its absolute discretion at the time of the grant of the relevant share option but in any case, the subscription price for Shares shall be at least not lower than the highest of:

  1. the closing price of the Shares as stated in the Stock Exchange's daily quotation sheet on the date of grant, which must be a business day; (b) the average closing price of the Shares as stated in the Stock Exchange's daily quotations sheets for the five (5) trading days immediately preceding the date of grant; and (c) the nominal value of a Share.

A share option shall be deemed to have been granted and accepted (with retrospective effect from the offer date) when the duplicate letter comprising acceptance of the share option duly signed by the grantee with the number of Shares in respect of which offer is accepted clearly stated therein, together with a remittance in favour of the Company of HK$1.00 by way of consideration for the grant thereof is received by the Company within 7 days from the date of the offer.

The 2009 Scheme does not specify a minimum period for which a share option must be held nor a performance target which must be achieved before a share option can be exercised. However, the rules of the 2009 Scheme provide that the Board may impose, at its sole discretion, conditions on the grant of an option.

35

OTHER INFORMATION

Share option scheme (Continued)

No Eligible Participant shall be granted a share option if exercised in full, would result in the total number of Shares issued and to be issued upon exercise of the share options granted to such Eligible Participant (including both exercised and outstanding share options) in any 12-month period exceeding 1% of the total number of Shares in issue unless such grant is separately approved by the Shareholders in general meeting.

A share option may be exercised in whole or in part by the grantee (or his legal representative(s)) within the option period, which shall be determined and notified by the Board to the grantee during which the option may be exercised and in any event shall be not more than 10 years commencing on the date on which the offer in relation to such share option is deemed to have been accepted.

In case of any change in the terms of share options granted to a substantial Shareholder or an independent non-executive Director, or any of their respective associates; or where any grant of share options to a substantial Shareholder or an independent non-executive Director, or any of their respective associates, would result in the Shares issued and to be issued upon exercise of all share options already granted and to be granted (including share options exercised, cancelled and outstanding) to such person in the 12-month period up to and including the date of such grant: (a) representing in aggregate over 0.1% of the relevant class of Shares in issue; and (b) having an aggregate value, based on the closing price of the Shares at the date of each grant, in excess of HK$5,000,000, such further grant of share options must be approved by the Shareholders.

On 30 April 2015 (the "First Date of Grant"), the Company granted certain share options comprising 14,400,000 underlying Shares, which represented approximately 3.14% of the total number of issued shares of the Company as at that date, to certain Directors, employees and other Eligible Participants. Such share options were vested immediately and exercisable for a ten-year period from 30 April 2015 to 29 April 2025 (both days inclusive). The exercise price of the share options granted was HK$0.710 per Share, which was higher than (i) closing price per Share of HK$0.700 on the First Date of Grant; (ii) the average closing price of HK$0.708 per Share as stated in the daily quotation sheets issued by the Stock Exchange for the five business days immediately preceding the First Date of Grant; and (iii) the nominal value of HK$0.500 per Share as at the First Date of Grant.

36 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

OTHER INFORMATION

Share option scheme (Continued)

On 28 July 2015 (the "Second Date of Grant"), the Company granted certain share options comprising 11,250,000 underlying Shares, which represented approximately 2.23% of the total number of issued shares of the Company as at that date, to certain Directors and employees. Such share options were vested immediately and exercisable for a ten-year period from 28 July 2015 to 27 July 2025 (both days inclusive). The exercise price of the share options granted HK$0.530 per Share, which was the highest of (i) the closing price per Share of HK$0.465 on the Second Date of Grant; (ii) the average closing price of HK$0.530 per Share as stated in the daily quotation sheets issued by the Stock Exchange for the five business days immediately preceding the Second Date of Grant; and (iii) the nominal value of HK$0.500 per Share at the Second Date of Grant.

On 27 July 2018 (the "Third Date of Grant"), the Company granted certain share options comprising 150,000,000 underlying Shares, which represented approximately 9.98% of the total number of issued shares of the Company as at that date, to certain Directors and employees and other eligible participants. Such share options were vested immediately and exercisable for a ten-year period from 27 July 2018 to 26 July 2028 (both days inclusive). The exercise price of the share options granted HK$0.510 per Share, which was the highest of (i) the closing price per Share of HK$0.510 on the Third Date of Grant; (ii) the average closing price of HK$0.500 per Share as stated in the daily quotation sheets issued by the Stock Exchange for the five business days immediately preceding the Third Date of Grant; and (iii) the nominal value of HK$0.01 per Share at the Third Date of Grant.

37

OTHER INFORMATION

Share option scheme (Continued)

Particulars of the share options under the 2009 Scheme outstanding as at 30 June

2020 were as follows:

(a) Movement of share options granted to the Directors was as follows:

Number of underlying Shares comprised in share options

Balance

Cancelled/

Balance

Exercisable

as at

Granted

Exercised

Lapsed

as at

Exercise

1 January

during

during

during

30 June

Price Per

Name of Directors

Date of Grant

Period

2020

the period

the period

the period

2020

Share

(HK$)

Executive Directors

Mr. Ng Ying Kit

30 April 2015

30 April 2015 to

29 April 2025

2,250,000

-

-

-

2,250,000

0.710

27 July 2018

27 July 2018 to

26 July 2028

15,000,000

-

-

-

15,000,000

0.510

17,250,000

-

-

-

17,250,000

Mr. Ren Hang

27 July 2018

27 July 2018 to

26 July 2028

15,000,000

-

-

-

15,000,000

0.510

Subtotal

32,250,000

-

-

-

32,250,000

Independent Non-

Executive Directors

Mr. Kwok Chi Shing

30 April 2015

30 April 2015 to

29 April 2025

225,000

-

-

-

225,000

0.710

Subtotal

225,000

-

-

-

225,000

Total

32,475,000

-

-

-

32,475,000

38 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

OTHER INFORMATION

Share option scheme (Continued)

  1. Movement of share options granted to the employees and other Eligible Participants under the 2009 Scheme was as follows:

Number of underlying Shares comprised in share options

Balance

Cancelled/

Balance

Exercise

as at

Granted

Exercised

Lapsed

as at

Exercisable

1 January

during

during

during

30 June

Price Per

Date of Grant

Period

2020

the period

the period

the period

2020

Share

(HK$)

Employees

30 April 2015

30 April 2015 to

29 April 2025

450,000

-

-

-

450,000

0.710

27 July 2018

27 July 2018 to

26 July 2028

45,000,000

-

-

-

45,000,000

0.510

Subtotal

45,450,000

-

-

-

45,450,000

Other Eligible

27 July 2018

27 July 2018 to

Participants

26 July 2028

75,000,000

-

-

-

75,000,000

0.510

Subtotal

75,000,000

-

-

-

75,000,000

Total

120,450,000

-

-

-

120,450,000

The maximum number of Shares to be issued upon exercise of all share options to be granted under the 2009 Scheme was refreshed to 150,347,716 shares (the "Scheme Mandate") on 29 June 2018, being 10% of the total number of issued shares of the Company as at the passing of an ordinary resolution by the shareholders of the Company to approve the refreshment of the Scheme Mandate. As at 30 June 2020, as the 2009 Scheme expired on 19 August 2019, no share options can be further granted under the 2009 Scheme.

39

OTHER INFORMATION

Share option scheme (Continued)

The fair value of the share options comprising 14,400,000 underlying Shares granted on the First Date of Grant of approximately HK$5,438,000 was valued by using the Binominal pricing model. Values are estimated based on the risk-free rate 1.52% per annum by reference to the yield rate of the Hong Kong government bills and bonds with similar duration, a ten-year period historical volatility 78.26%, assuming a dividend yield of 1.12% and an expected option life of 10 years.

The fair value of the share options comprising 11,250,000 underlying Shares granted on the Second Date of Grant of approximately HK$3,071,000 was valued by using the Binominal pricing model. Values are estimated based on the risk-free rate 1.72% per annum by reference to the yield rate of the Hong Kong government bills and bonds with similar duration, a ten-year period historical volatility 81.34%, assuming a dividend yield of 0.76% and an expected option life of 10 years.

The fair value of the share options comprising 150,000,000 underlying Shares granted on the Third Date of Grant of approximately HK$42,309,000 was valued by using the Binominal pricing model. Values are estimated based on the risk-free rate 2.18% per annum by reference to the yield rate of the Hong Kong government bills and bonds with similar duration, a ten-year period historical volatility 65.00%, assuming a dividend yield of Nil and an expected opinion life of 10 years.

The Binomial pricing model required input of subjective assumptions such as the expected stock price volatility. Change in the subjective input may materially affect the fair value estimates.

Purchase, sale or redemption of the Company's listed securities

During the six months ended 30 June 2020, neither the Company nor any of its subsidiaries purchased, sold or redeemed any of the Company's listed securities.

Competing interest

None of the Directors or the controlling shareholders (as defined under the Listing Rules) of the Company had an interest in a business which competed or might compete with the business of the Group during the six months ended 30 June 2020.

40 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

OTHER INFORMATION

Audit Committee

The Audit Committee comprises three INEDs, namely Mr. Kwok Chi Shing, Mr. Chang Xuejun and Mr. Ho Man. The primary duties of the Audit Committee are to review the financial information of the Group, to oversee the financial reporting system, risk management and internal control systems to ensure the integrity of the financial statements of the Group and the effectiveness of internal control and risk management systems of the Group. The Audit Committee has reviewed the unaudited interim financial statements and the interim report of the Company for the six months ended 30 June 2020.

Corporate Governance

The Company's corporate governance practices are based on the principles and code provisions as set out in the CG Code contained in Appendix 14 to the Listing Rules on the Stock Exchange.

The Company has complied with the applicable code provisions as set out in the CG Code contained in Appendix 14 to the Listing Rules during the six months ended 30 June 2020 except for the following deviations:

  1. Under the code provision A.2.1 of the CG Code, the roles of chairman and chief executive should separate and should not be performed by the same individual. Following the passing away of the former chairman and executive Director of the Company, and resignation of the chief executive officer of the Company, the Board does not have any chairman and chief executive officer at present. The duties and responsibilities of the Company's business are handled by the existing executive Directors and senior management of the Company so as to achieve the overall commercial objectives of the Company. The Company is looking for suitable person to fill the vacancy of the chairman and chief executive officer.
  2. Following the resignation of Mr. Huang Shao Ru as an INED with effect from 31 October 2019, the Board comprised two INEDs, hence failed to meet the requirements of having the Nomination Committee comprising a majority of INEDs and chaired by the chairman of the Board or an INED under code provision A.5.1 of the CG Code. Following the appointment of Mr. Ho Man as an INED with effect from 22 January 2020, the Company is in compliance with the requirements under code provision A.5.1 of the CG Code, which stipulates that the Nomination Committee shall comprise a majority of INEDs and chaired by the chairman of the Board or an INED.

41

OTHER INFORMATION

Non-compliance with Rules 3.10(1), 3.21 and 3.25 of the Listing Rules

Following the resignation of Mr. Huang Shao Ru as an INED with effect from 31 October 2019, the Company had only two INEDs, hence failed to meet the requirements of: (i) at least three INEDs in the Board under Rule 3.10(1) of the Listing Rules; (ii) the Audit Committee comprising only non-executive Directors with a minimum of three members under Rule 3.21 of the Listing Rules; and (iii) the Remuneration Committee comprising a majority of INEDs and chaired by an INED under Rule 3.25 of the Listing Rules.

Following the appointment of Mr. Ho Man as an INED with effect from 22 January 2020, the Company is in compliance with the requirements under: (i) Rule 3.10(1) of the Listing Rules stipulating that the Board must have at least three INEDs; (ii) Rule 3.21 of the Listing Rules stipulating that the Audit Committee must comprise a minimum of three members; and (iii) Rule 3.25 of the Listing Rules, which stipulates that the Remuneration Committee shall comprise a majority of INEDs and chaired by an INED.

Model Code For Securities Transactions by Directors

The Company has adopted the Model Code set out in Appendix 10 to the Listing Rules as the required standard governing securities transactions by the Directors. The Company has made specific enquires to all the Directors and all the Directors have confirmed that they had complied with the required standards set out in the Model Code during the six months ended 30 June 2020.

Update on Directors' Information

Subsequent to the 2019 annual report of the Company dated 20 March 2020 and up to the date of this interim report, no information is required to be disclosed pursuant to Rule 13.51B(1) of the Listing Rules.

42 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

CORPORATE PROFILE

Board of Directors

Executive Directors

Mr. NG Ying Kit

Mr. REN Hang

Independent Non-Executive Directors

Mr. KWOK Chi Shing

Mr. CHANG Xuejun

Mr. HO Man (appointed on 22 January 2020)

Company Secretary

Ms. WAN Shui Wah

Authorised Representatives

Mr. NG Ying Kit

Ms. WAN Shui Wah

Audit Committee

Mr. KWOK Chi Shing (Chairman) Mr. CHANG Xuejun

Mr. HO Man (appointed on 22 January 2020)

Remuneration Committee

Mr. CHANG Xuejun (Chairman) (re-designated on 22 January 2020)

Mr. NG Ying Kit

Mr. HO Man (appointed on 22 January 2020)

Nomination Committee

Mr. CHANG Xuejun (Chairman) (re-designated on 22 January 2020)

Mr. NG Ying Kit

Mr. HO Man (appointed on 22 January 2020)

Registered Office

Conyers Trust Company (Cayman) Limited

Cricket Square

Hutchins Drive

P.O. Box 2681

Grand Cayman KY1-1111

Cayman Islands

Corporate Website

www.grandocean65.com

Head Office and Principal Place of Business in Hong Kong

Suite 3103, Sino Plaza

255-257 Gloucester Road

Hong Kong

Principal Share Registrar and Transfer Office

SMP Partners (Cayman) Limited Royal Bank House - 3rd Floor

24 Shedden Road, P.O. Box 1586 Grand Cayman KY1-1110 Cayman Islands

43

CORPORATE PROFILE

Hong Kong Branch Share Registrar and Transfer Office

Tricor Abacus Limited

Level 54, Hopewell Centre

183 Queen's Road East

Hong Kong

Legal Advisers

As to Hong Kong Law: Michael Li & Co.

As to Cayman Islands Law: Conyers Dill & Pearman

Principal Banker

Stock Code

Hang Seng Bank Limited

65

Standard Chartered Bank (Hong Kong)

Limited

Independent Auditor

BDO Limited

Certified Public Accountants

44 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

DEFINITIONS

In this interim report, unless the context otherwise requires, the following expressions shall have the following meaning:

"2009 Scheme"

the share option scheme adopted at an extraordinary

general meeting of the Company held on 20 August

2009;

"2019 AGM"

the annual general meeting held by the Company on

15 June 2020;

"Amended and Restated

the memorandum and the articles of association of

Memorandum and Articles"

the Company adopted in the extraordinary general

meeting held on 14 December 2016, and "Article"

shall mean an article of the Articles of Association;

"Audit Committee"

the audit committee of the Company;

"Board"

the board of Directors of the Company;

"CG Code"

the Corporate Governance Code set out in Appendix

14 to the Listing Rules;

"Coal Mining Business"

production and sale of coal;

"Company"

Grand Ocean Advanced Resources Company Limited,

a company incorporated in the Cayman Islands with

limited liability and the issued Shares of which are listed

and traded on the Main Board of the Stock Exchange

(Stock Code: 65);

"Director(s)"

the director(s) of the Company from time to time;

"Group"

the Company and all of its subsidiaries from time to

time;

"HK$"

Hong Kong dollars, the lawful currency of Hong Kong;

45

DEFINITIONS

"Hong Kong"

the Hong Kong Special Administrative Region of the

PRC;

"INED(s)"

an independent non-executive Director(s) of the

Company;

"Listing Rules"

the Rules Governing the Listing of Securities on the

Stock Exchange, as amended or supplemented from

time to time;

"Model Code"

the Model Code for Securities Transactions by

Directors of Listed Issuers set out in Appendix 10 to

the Listing Rules;

"New Companies Ordinance"

the Companies Ordinance (Chapter 622 of the Laws

of Hong Kong), as amended or supplemented from

time to time;

"Nomination Committee"

the nomination committee of the Company;

"PRC" or "China"

the People's Republic of China;

"Remuneration Committee"

the remuneration committee of the Company;

"RMB"

Renminbi, the lawful currency of the PRC;

"SFO"

the Securities and Futures Ordinance (Chapter 571 of

the Laws of Hong Kong), as amended or supplemented

from time to time;

"Share(s)"

ordinary share(s) with par value of HK$0.01 each in

the share capital of the Company;

"Shareholder(s)"

holder(s) of issued Share(s) from time to time;

"Stock Exchange"

The Stock Exchange of Hong Kong Limited; and

"%"

percent.

46 GRAND OCEAN Advanced Resources Company Limited Interim Report 2020

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Grand Ocean Advanced Resources Co. Ltd. published this content on 10 September 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 10 September 2020 08:39:09 UTC