F-1/A: Creative Global Technology Holdings Eyes U.S. Market with Proposed IPO

Creative Global Technology Holdings Limited, a Cayman Islands holding company operating through its Hong Kong subsidiary, plans to list on the Cboe BZX Exchange via an initial public offering of 1,250,000 ordinary shares, while a selling shareholder offers an additional 3,000,000 shares.

Summary

• Creative Global Technology Holdings Limited, a Cayman Islands company, is planning an initial public offering (IPO) to list its ordinary shares on the Cboe BZX Exchange.
• The company is offering 1,250,000 ordinary shares, with an expected initial public offering price between US$4.00 and US$5.00 per share.
• A selling shareholder, CHSZ Holdings Limited, is offering an additional 3,000,000 ordinary shares through a resale prospectus.
• The company will not receive any proceeds from the sale of shares by the selling shareholder.
• Following the offerings, public shareholders will hold 20% of the ordinary shares, assuming the underwriters do not exercise their over-allotment option.
• The company's CEO, Mr. Shangzhao (Cizar) Hong, will continue to hold up to 80% of the ordinary shares and voting power after the offerings.
• The company expects to be a controlled company under Cboe BZX Exchange corporate governance standards.
• The company conducts substantially all of its operations in Hong Kong through its subsidiary, Creative Global Technology Limited (CGTHK).
• The company sources pre-owned consumer electronic devices from suppliers in the U.S., Japan, and other developed countries, and sells them to wholesalers in Southeast Asia and other areas.
• For the year ended September 30, 2023, the company generated revenue of approximately US$50.2 million and net income of approximately US$3.16 million.
• The company is an emerging growth company and will be subject to reduced public company reporting requirements.
• The company's auditor, Wei, Wei & Co., LLP, is based in the U.S. and is registered with the PCAOB.
• The closing of the offering is conditioned upon Cboe BZX Exchanges final approval of CGT Holdings listing application.

Sentiment

Score: 6

Explanation: The document presents a balanced view, highlighting both the opportunities and risks associated with the company and its industry. The company's growth and profitability are positive, but the risks related to operating in Hong Kong and the regulatory environment temper the overall sentiment.

Positives

• The company has a proven sourcing and supply network for pre-owned electronics.
• The company offers a one-stop wholesale solution, providing various makes, models, and conditions of devices.
• The company has a fast response time due to its streamlined process and supply chain management.
• The company has an established customer base.
• The company has a pricing algorithm and database.
• The company has a testing process and grading system.
• The company has an experienced and dedicated management team.
• The company benefits from its economy of scale.
• The company is strategically located in Hong Kong.

Negatives

• The company is subject to risks associated with operating in Hong Kong, including potential political and economic instability.
• The company is dependent on the government's policy on the Hong Kong mobile telecom industry.
• The company may be affected by the currency peg system in Hong Kong.
• It may be difficult to acquire jurisdiction and enforce liabilities against the company, its officers, directors, and assets based in Hong Kong.
• The company's ordinary shares may be delisted and prohibited from being traded under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect the company's auditors for two consecutive years.
• There has been no previous public market for the company's ordinary shares, and an active trading market may not develop.
• The market price for the company's ordinary shares may be volatile.
• The company is an emerging growth company and may take advantage of certain exemptions from disclosure requirements.

Risks

• The company's industry is rapidly evolving, and its business model may not continue to be successful.
• The company may fail to attract and engage consumers, find suitable suppliers, or involve other participants in the pre-owned consumer electronic devices value chain.
• The company may be unable to maintain its existing customer base and attract new customers.
• The company may be unable to manage its growth or execute its strategies effectively.
• The growth and profitability of the company's business depend on the level of consumer demand and discretionary spending.
• The company may not be able to effectively and accurately inspect, grade, and price pre-owned goods.
• The price margin between the company's collection and resale of pre-owned consumer electronic devices may fluctuate or decline.
• The company may incur liability for stolen products sold by it or counterfeit, infringing, illegal, or unauthorized products sold by it.
• The company's business currently focuses on the devices of a certain brand, and any disruption in the production or quality control may materially and adversely affect the company's business and results of operations.
• The company's expansion into new product categories may expose it to new challenges and more risks.
• The company is unable to guarantee that its investments in launching these new product categories will be able to pay for itself.
• If the company fails to adopt new technologies or adapt its websites to changing user or customer requirements or emerging industry standards, or if its efforts to invest in the development of new technologies are unsuccessful or ineffective, its business may be materially and adversely affected.
• The company may not be able to sustain its historical growth rates in the future.
• If the company fails to manage its inventory effectively, its results of operations, financial condition, and liquidity may be materially and adversely affected.
• Failure to comply with cybersecurity, data privacy, data protection, or any other laws and regulations related to data may materially and adversely affect the company's business, financial condition, and results of operations.
• Any harm to the company's brands or reputation may materially and adversely affect its business and results of operations.
• If the company fails to compete effectively, it may not be able to maintain or may lose market share, and its business and results of operations would be materially and adversely affected.
• Failure to effectively deal with any misappropriation of the company's business opportunities, fictitious transactions, or other fraudulent conduct would materially and adversely affect its business, financial condition, and results of operations.
• The company relies on third-party payment service providers to conduct payment processing in the retail transactions it conducts.
• The company is subject to certain risks relating to third-party logistics services and its storage space.
• The company's product delivery, return, exchange, and warranty policies may materially and adversely affect its results of operations.
• The company may be subject to product liability claims.
• The company's business, results of operations, and reputation could be negatively affected by services provided by third-party cloud service providers.
• The company's results of operations may be subject to seasonal fluctuations.
• If the company expands its operations outside Hong Kong, it will be subject to a variety of costs and legal, regulatory, political, and economic risks.
• The company's international operations require it to comply with trade restrictions, such as economic sanctions and export controls.
• If the company is unable to conduct its marketing activities cost-effectively, its results of operations and financial condition in retail business may be materially and adversely affected.
• The company's success depends on the continuing and collaborative efforts of its management team, and its business may be severely disrupted if it loses their services.
• If the company is unable to recruit, train, and retain qualified personnel or sufficient workforce while controlling its labor costs, its business may be materially and adversely affected.
• Failure to obtain certain filings, approvals, licenses, permits, and certificates required for the company's business operations may materially and adversely affect its business, financial condition, and results of operations.
• The company's leased property interest may be defective, and such defects may negatively affect CGTHK's right to such leases.
• Any breaches to the company's security measures, including unauthorized access, computer viruses, and hacking may adversely affect its database and reduce use of its services and damage its reputation and brand names.
• The proper functioning of the company's technology platform is essential to its business.
• The company may not be able to prevent others from unauthorized use of its intellectual property, which could harm its business and competitive position.
• The company may be subject to intellectual property infringement claims, which may be expensive to defend and may disrupt its business and operations.
• If the company fails to develop and maintain an effective system of internal control over financial reporting, it may be unable to accurately report its financial results or prevent fraud.
• The company has limited insurance coverage, which could expose it to significant costs and business disruption.
• The company may, from time to time, be subject to legal proceedings or administrative penalties during the course of its business operations.
• The company may need additional capital, and financing may not be available on terms acceptable to it, or at all.
• The global coronavirus COVID-19 outbreak has caused significant disruptions to the company's business, which it expects will continue to materially and adversely affect its results of operations and financial condition.
• The growth of the company's business depends on its ability to accurately predict consumer trends and demand and successfully introduce new products and product line extensions and improve existing products.
• The relative lack of public company experience of the company's management team may put it at a competitive disadvantage.
• If the company fails to implement and maintain an effective system of internal controls, it may be unable to accurately report its results of operations, meet its reporting obligations or prevent fraud, and investor confidence and the market price of CGT Holdings Ordinary Shares may be materially and adversely affected.
• The company may be held liable for information or content displayed on or linked to its website, which may materially and adversely affect its reputation, business and results of operations.
• The company may not be able to successfully halt the operations of websites that aggregate its data as well as data from other companies, or copycat websites that misappropriate its data.
• The company's operations may be subject to the effects of a rising rate of inflation which may adversely impact its financial condition and results of operations.
• Negative economic conditions, including as a result of commodity price inflation or supply chain constraints, the COVID-19 pandemic and the war in Ukraine, may adversely impact the company's results of operations.
• The market price for CGT Holdings Ordinary Shares could be adversely affected by increased tensions between the United States and China.
• Our business, financial condition and results of operations, and/or the value of CGT Holdings Ordinary Shares or our ability to offer or continue to offer securities to investors may be materially and adversely affected to the extent the laws and regulations of the PRC become applicable to a company such as us.
• There are substantial uncertainties regarding the interpretation and application of PRC laws and regulations.
• The future development of national security laws and regulations in Hong Kong could materially impact our business by possibly triggering sanctions and other measures which can cause economic harm to our business.
• Our Hong Kong subsidiary may be subject to restrictions on paying dividends or making other payments to us, which may restrict its ability to satisfy liquidity requirements, conduct business and pay dividends to holders of CGT Holdings Ordinary Shares.
• Dividends payable to our foreign investors and gains on the sale of CGT Holdings Ordinary Shares of Ordinary Shares by our foreign investors may become subject to tax by the PRC.
• We are not currently required to obtain permission from the PRC government for the trading of CGT Holdings Ordinary Shares on Cboe BZX Exchange, however there is no guarantee that this will continue to be the case in the future, or even when such permission is obtained, it will not be subsequently denied or rescinded.
• If we become directly subject to the recent scrutiny, criticism and negative publicity involving U.S.-listed Chinese companies, we may have to expend significant resources to investigate and resolve the matter which could harm our business operations and our reputation and could result in a loss of your investment in CGT Holdings Ordinary Shares, especially if such matter cannot be addressed and resolved favorably.
• Although we do not believe we are required to file with the China Securities Regulatory Commission for this offering under the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises promulgated in February 2023, if we are required to do so, we cannot assure you that we will be able to timely make such filing, in which case we may face sanctions by the CSRC or other PRC regulatory agencies for failure to timely filing for this offering.
• Although we do not believe we are subject to the review by the CAC or other PRC cybersecurity authorities because we have no operations in the mainland of China nor do we possess or process personal information from more than one million users, in light of recent events indicating greater oversight by the CAC over data security, we may be subject to a variety of PRC laws and other obligations regarding cybersecurity and data protection, and any failure to comply with applicable laws and obligations could have a material adverse effect on our business, our listing on the Cboe BZX Exchange, financial condition, results of operations, and this offering.
• Failure to comply with Hong Kong Competition Law may result in material and adverse effect on our business, financial condition and results of operations.
• CGT Holdings Ordinary Shares may be delisted and prohibited from being traded under the Holding Foreign Companies Accountable Act if the PCAOB is unable to inspect our auditors for two consecutive years. The delisting and the cessation of trading of CGT Holdings Ordinary Shares, or the threat of their being delisted and prohibited from being traded, may materially and adversely affect the value of your investment.
• There has been no previous public market for CGT Holdings Ordinary Shares prior to this offering, and if an active trading market does not develop you may not be able to resell CGT Holdings Ordinary Shares at or above the price you paid, or at all.
• The market price for CGT Holdings Ordinary Shares may be volatile.
• If securities or industry analysts do not publish research or reports about our business, or if they publish a negative report regarding CGT Holdings Ordinary Shares, the price of CGT Holdings Ordinary Shares and trading volume could decline.
• Certain recent initial public offerings of companies with public floats comparable to CGT Holdings anticipated public float have experienced extreme volatility that was seemingly unrelated to the underlying performance of the respective company. CGT Holdings may experience similar volatility, which may make it difficult for prospective investors to assess the value of its Ordinary Shares.
• The estimates of market opportunity, forecasts of market growth included in this prospectus may prove to be inaccurate, and any real or perceived inaccuracies may harm our reputation and negatively affect our business. Even if the market in which we compete achieves the forecasted growth, our business could fail to grow at similar rates, if at all.
• You may face difficulties in protecting your interests as a shareholder, as Cayman Islands law provides substantially less protection when compared to the laws of the United States and it may be difficult for a shareholder of CGT Holdings to effect service of process or to enforce judgements obtained in the United States courts.
• You may be unable to present proposals before general meetings or extraordinary general meetings not called by shareholders.
• CGT Holdings Ordinary Shares may be thinly traded and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.
• We have broad discretion in the use of the net proceeds from this offering and may not use them effectively.
• In order to raise sufficient funds to enhance operations, CGT Holdings may have to issue additional securities at prices which may result in substantial dilution to CGT Holdings shareholders.
• CGT Holdings is not likely to pay cash dividends in the foreseeable future.
• CGT Holdings is a foreign private issuer within the meaning of the rules under the Exchange Act, and as such it is exempt from certain provisions applicable to United States domestic public companies.
• We are an emerging growth company within the meaning of the Securities Act, and if we take advantage of certain exemptions from disclosure requirements available to emerging growth companies, this could make it more difficult to compare our performance with other public companies.
• We will incur increased costs as a result of being a public company, particularly after we cease to qualify as an emerging growth company.
• CGT Holdings will be a controlled company under the Cboe BZX Exchange Rules, and CGT Holdings, as a result, can rely on exemptions from certain corporate governance requirements that could adversely affect CGT Holdings public shareholders.
• If a limited number of participants in this offering purchase a significant percentage of the offering, the effective public float may be smaller than anticipated and the price of CGT Holdings Ordinary Shares may be volatile, which could subject us to securities litigation and make it more difficult for you to sell CGT Holdings Ordinary Shares.
• If we are unable to comply with certain conditions, CGT Holdings ordinary shares may not trade on the Cboe BZX Market.
• Cayman Islands economic substance requirements may have an effect on our business and operations.
• Because our business is conducted in Hong Kong dollars and the price of CGT Holdings shares are quoted in United States Dollars, changes in currency conversion rates may affect the value of your investments.

Future Outlook

The company plans to expand its wholesale business, develop a wholesale auction market, expand its retail business, expand into strategic overseas markets, and build a repair and refurbishment factory.

Industry Context

The pre-owned consumer electronic devices industry is developing quickly with not many well-established wholesalers or retailers and no established industry standards.

Comparison to Industry Standards

• The recycled consumer electronic devices wholesale industry in Hong Kong is competitive and relatively fragmented, with approximately 1,000 wholesalers engaged in sourcing, grading, refurbishing and resale of pre-owned consumer electronic devices.
• Major market participants in Consumer Electronic wholesale in Hong Kong include Guang Yi Co. Ltd., Brightway Trading Co., and CommNet Telecom Limited.
• Guang Yi Co. Ltd., founded in 2020, is primarily engaged in the international wholesaling and trading of cellphones and other consumer electronic devices in various grades, including brand new, nearly new, and average grading.
• Brightway Trading Co., established in 2013, is focusing on the submarket of cell phones returned by customers and sources cellphones of all conditions from Europe, the U.K., and the U.S.
• CommNet Telecom Limited, a Hong Kong based consumer electronic devices recycling firm that started its business in 2004, specializes in the import and export of brand new and used cell phones, with the majority of its suppliers located in the U.S. and the U.K.

Related Party Transactions

• The company had short-term loans due to Mr. Shangzhao (Cizar) Hong to provide the company's working capital needs, and they are interest-free, unsecured and repayable on demand.
• As of September 30, 2023, there is no outstanding balance due to Mr. Hong.

Stakeholder Impact

• Shareholders: Potential for capital appreciation and dividends (though dividends are not anticipated in the near future).
• Employees: Potential for job growth and career advancement as the company expands.
• Customers: Access to a wider range of pre-owned electronic devices and potentially lower prices.
• Suppliers: Opportunity to expand their business with a growing company.
• Creditors: Increased financial stability and ability to repay debts.

Next Steps

• The company needs to obtain final approval for listing on the Cboe BZX Exchange.
• The underwriters will market and sell the ordinary shares to investors.
• The company will use the proceeds from the offering for its stated business plans.

Key Dates

Keywords

IPO, initial public offering, pre-owned electronics, Hong Kong, Cboe BZX Exchange, CGTL, recycling, emerging growth company, PCAOB, China, ordinary shares, investment