7Road Holdings Limited — Proxy Solicitation & Information Statement 2019

Sep 25, 2019

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in 7Road Holdings Limited , you should at once hand this circular to the purchaser or the transferee or to the bank, stockbroker or other agent through whom the sale was effected for transmission to the purchaser or the transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.

This circular appears for information purpose only and does not constitute an invitation or offer to acquire, purchase or subscribe for the securities.

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7Road Holdings Limited 第七大道控股有限公司

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 797)

MAJOR TRANSACTION ACQUISITION OF TARGET BUSINESS ISSUE OF ADDITIONAL SHARES UNDER SPECIFIC MANDATE AND

NOTICE OF EXTRAORDINARY GENERAL MEETING

A notice convening the EGM of 7Road Holdings Limited to be held on October 17, 2019 at 10:00 a.m. at 4/F, Block 1-A, Ting Wei Industrial Park, 6 Liu Fang Road, Bao An District, Shenzhen, PRC is set out on pages VI-1 and VI-2 of this circular. Whether or not you are able to attend the EGM, you are requested to complete and return the enclosed proxy form in accordance with the instructions printed thereon to the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the EGM (i.e. no later than 10:00 a.m. on October 15, 2019). Completion and return of the proxy form will not preclude you from attending and voting at the EGM or any adjournment thereof should you so wish.

September 26, 2019

CONTENTS

	Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	1
LETTER FROM THE BOARD
INTRODUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	5
MAJOR TERMS OF THE SALE AND PURCHASE AGREEMENT.. . . . . . . . . . . . .	6
INFORMATION ABOUT THE TARGET BUSINESS. . . . . . . . . . . . . . . . . . . . . . . . .	19
INFORMATION ABOUT THE VENDORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
INFORMATION ABOUT THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	23
REASONS FOR AND BENEFITS OF THE TRANSACTION . . . . . . . . . . . . . . . . .	23
EFFECT OF THE TRANSACTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	24
LISTING RULES IMPLICATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	25
CLOSURE OF REGISTER OF MEMBERS FOR EGM . . . . . . . . . . . . . . . . . . . . . .	25
RECOMMENDATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	26
APPENDIX I — FINANCIAL INFORMATION OF THE GROUP . . . . . . . . . . . .	I-1
APPENDIX II — FINANCIAL INFORMATION OF THE TARGET BUSINESS . .	II-1
APPENDIX III — MANAGEMENT DISCUSSION AND ANALYSIS
ON THE TARGET BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . .	III-1
APPENDIX IV — UNAUDITED PRO FORMA FINANCIAL INFORMATION
OF THE ENLARGED GROUP . . . . . . . . . . . . . . . . . . . . . . . . . .	IV-1
APPENDIX V — GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . .	V-1
APPENDIX VI — NOTICE OF EGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .	VI-1

– i –

DEFINITIONS

In this circular, the following expressions have the meanings set out below unless the context otherwise requires.

• “Board” the board of directors of the Company “BVI” the British Virgin Islands “Chairman” the chairman of the Board “Company” 7Road Holdings Limited, a company incorporated under the laws of the Cayman Islands with limited liability, the shares of which are listed on the Stock Exchange (Stock Code: 797)

• “Completion” the completion of the Transaction in accordance with the terms of the Sale and Purchase Agreement, which shall occur no later than the Long Stop Date

• “Completion Date” the date on which the Transaction is completed “Contractual Arrangements” certain contractual arrangements entered into on April 13, 2018 by the Group

• “Director(s)” the director(s) of the Company “Down Payment” the refundable down payment payable by the Group equals to approximately RMB371.55 million pursuant to a letter of intent dated December 12, 2018 entered into between the Group and the then shareholder of Onshore Subsidiaries

• “EGM” the extraordinary general meeting of the Company to be held on October 17, 2019 at 10:00 a.m. at 4/F, Block 1-A, Ting Wei Industrial Park, 6 Liu Fang Road, Bao An District, Shenzhen, PRC for the purpose of considering and, if thought fit, approving the Sale and Purchase Agreement and the Transaction contemplated thereunder and the grant of Specific Mandate

– 1 –

DEFINITIONS

• “Enlarged Group”

• the Group as enlarged by the Transaction immediately upon Completion

• “Group”

• the Company and all its subsidiaries and companies whose financial results have been consolidated and accounted as the subsidiaries of the Company

• “HK$” Hong Kong dollars, the lawful currency for the time being of Hong Kong

• “Hong Kong”

• the Hong Kong Special Administrative Region of the PRC

• “Huoerguosi 7Road”

• Huoerguosi 7th Road Network Technology Co., Ltd. (霍爾 果斯第七大道網路科技有限公司), a company established under the laws of the PRC with limited liability on November 27, 2015 and by virtue of the Contractual Arrangements, accounted for as a subsidiary of the Company

• “Independent Third Party(ies)”

• any person or entity who is not considered as a connected person of the Company or an associate of such person within the meaning under the Listing Rules

• “Latest Practicable Date”

• September 20, 2019, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained herein

• “Listing Date”

• July 18, 2018, the date on which dealings in the Shares commenced on the Stock Exchange

• “Listing Rules”

• the Rules Governing the Listing of Securities on the Stock Exchange

• “Long Stop Date”

means the long stop date for satisfaction of the conditions precedent, being October 31, 2019 or such other date as may be agreed among the parties in writing

– 2 –

DEFINITIONS

• “Onshore Subsidiaries”

• “PRC”

• “Prospectus”

• “Qianhai Huanjing”

• “RMB”

• “Sale and Purchase Agreement”

• “SFO”

onshore subsidiaries of the Target Company, include Shanghai Xinla Networks Technology Co., Ltd. (上海辛辣網絡科技有限公 司), Shanghai Chao Zi Network Technology Co., Ltd (上海巢淄網 絡科技有限公司), Shanghai Nong You Network Technology Co., Ltd. (上海儂遊網絡科技有限公司), Hangzhou Sheng Feng Network Technology Co., Ltd. (杭州盛峰網絡科技有限公司), Shanghai Ying Ling Network Technology Co., Ltd. (上海螢鈴網 絡科技有限公司), Shanghai Sheng Pi Network Technology Co., Ltd. (上海聖辟網絡科技有限公司), Shanghai Qi Zhou Network Technology Co., Ltd. (上海奇驟網絡科技有限公司), Shanghai Tian Xun Network Technology Co., Ltd. (上海天勛網絡科技有限 公司), Shanghai Weng Feng Network Technology Co., Ltd. (上海 翕風網絡科技有限公司), Wuxi Zhong Yao Network Technology Co., Ltd. (無錫中堯網絡科技有限公司), Shanghai Ling Su Network Technology Co., Ltd. (上海淩素網絡科技有限公司) and Huoerguosi 39 Mutual Entertainment Network Technology Co., Ltd. (霍爾果斯三九互娛網路科技有限公司)

• the People’s Republic of China, for the purpose of this circular, excluding Hong Kong, Macau Special Administrative Region of the PRC and Taiwan

• the prospectus of the Company dated June 29, 2018

• Shenzhen Qianhai Huanjing Network Technology Co., Ltd. (深 圳市前海幻境網絡科技有限公司), a company established under the laws of the PRC with limited liability on July 12, 2015 and indirectly wholly-owned by the Company

Renminbi, the lawful currency of the PRC

• The sale and purchase agreement dated August 23, 2019, among the Company, the Vendors and the Target Company, in relation to the Transaction

• Securities and Future Ordinance (Chapter 571 of the Laws of Hong Kong)

– 3 –

DEFINITIONS

“Share(s)” ordinary share(s) of US$0.000005 each in the issued share capital of the Company

• “Shareholder(s)” holders of Shares

• “Shenzhen Qianqi” Shenzhen Qianqi Network Technology Co., Ltd. (深圳千奇 網絡科技有限公司), a company established under the laws of the PRC with limited liability on November 28, 2013 and by virtue of the Contractual Arrangements, accounted for as a subsidiary of the Company

• “Shenzhen 7Road” Shenzhen 7th Road Technology Co., Ltd. (深圳第七大道科 技有限公司), a company established under the laws of the PRC with limited liability on January 22, 2008 and by virtue of the Contractual Arrangements, accounted for as the subsidiary of the Company

• “Specific Mandate” the specific mandate to be granted to the Board by the Shareholders at the EGM for the allotment and issue of the Additional Shares

• “Stock Exchange” The Stock Exchange of Hong Kong Limited

• “Target Business” online game business owned by the Target Company

• “Target Company” Osmanthus Vale Holdings Limited, a company incorporated under the laws of the BVI with limited liability on June 27, 2019

• “Transaction” the acquisition of the Target Business

• “Vendors”

• Maple Vale Limited, a company incorporated in BVI with limited liability; and Ms. Huang Le (黃樂), a Hong Kong permanent resident

• “%” per cent

– 4 –

LETTER FROM THE BOARD

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7Road Holdings Limited 第七大道控股有限公司

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 797)

Executive Directors: Registered Office: Mr. Meng Shuqi (Chairman) Sertus Chambers, Governors Square Mr. Li Zhengquan (Chief financial officer) Suite #5-204, 23 Lime Tree Bay Avenue Mr. Yang Cheng (Vice president) P.O. Box 2547 Grand Cayman, KY1-1104 Non-executive Directors: Cayman Islands Mr. Li Shimeng Mr. Yan Kaidan Principal Place of Business in Hong Kong: 40th Floor, Sunlight Tower Independent Non-executive Directors: No. 248 Queen’s Road East Mr. Xue Jun Wanchai, Hong Kong Mr. Liu Yunli Ms. Wang Ying

September 26, 2019

To the Shareholders

Dear Sir or Madam,

MAJOR TRANSACTION ACQUISITION OF TARGET BUSINESS ISSUE OF ADDITIONAL SHARES UNDER SPECIFIC MANDATE AND NOTICE OF EXTRAORDINARY GENERAL MEETING

INTRODUCTION

Reference is made to the announcement of the Company dated August 23, 2019.

– 5 –

LETTER FROM THE BOARD

On August 23, 2019 (after trading hours), the Company entered into the Sale and Purchase Agreement with the Vendors, pursuant to which the Company conditionally agreed to acquire, and the Vendors conditionally agreed to sell, the Target Business at the consideration of RMB1.0 billion.

The purpose of this circular is to provide the Shareholders with further information in relation to the Transaction.

MAJOR TERMS OF THE SALE AND PURCHASE AGREEMENT

Date

August 23, 2019

Parties

• (i) The purchaser: the Company

• (ii) The Vendors: Maple Vale Limited, a company incorporated under the laws of the BVI with limited liability and wholly-owned by Ms. Huang Le (黃樂); and Ms. Huang Le (黃 樂), a Hong Kong permanent resident

• (iii) The Target Company: Osmanthus Vale Holdings Limited, a company incorporated under the laws of the BVI with limited liability and wholly-owned by Maple Vale Limited, one of the Vendors

To the best of the Directors’ knowledge, information and belief, and having made all reasonable enquiries, the Vendors, namely Maple Vale Limited and Ms. Huang Le (黃樂), are Independent Third Parties.

Assets to be acquired

The Target Business, represented by the entire share capital of the Target Company.

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LETTER FROM THE BOARD

Consideration

The consideration payable by the Company to the Vendors is RMB1.0 billion and shall be payable in cash. The consideration shall be settled by the internal resources of the Company.

The consideration is determined after arm’s length negotiations between the Company and the Vendors on normal commercial terms after taking into account of, among others, (i) the prospects of the Target Business and the online game industry; (ii) the valuation report prepared by Allied Appraisal Co., Limited, an independent professional valuer (the “ Independent Valuer ”), on the Target Business (the “ Valuation Report ”); (iii) the audited consolidated net asset value of the Target Business of approximately RMB539.17 million as at March 31, 2019; (iv) Profit Compensation and Goodwill Impairment Compensation as set out below; (v) the relatively low liquidity of the share capital of the Target Company as it is not a listed company itself; and (vi) other reasons and benefits of the Transaction as stated under the section headed “Reasons for and Benefits of the Transaction” below.

Valuation Report

In preparation of the Valuation Report, after considering the characteristics of the Target Business and comparing different valuation methodologies, the Independent Valuer adopted the market approach for the valuation due to its simplicity and clarity. The market approach considers prices paid for similar assets, with adjustments made to market prices to reflect condition and utility of the appraised assets relative to the market comparative. It also introduces objectivity in application as publicly available inputs are used.

The principal assumptions used in the preparation of the Valuation Report, among others, are set out as below:

• (1) there will be no material change in the existing political, legal, technological, fiscal, taxation or economic conditions, which might adversely affect the operation of Target Business;

• (2) the management of the Target Business are competent in discharging their duties and responsibilities and will exercise due care when discharging their duties and responsibilities;

• (3) the facilities and resources are sufficient for future expansion in order to realize the growth potential of the Target Business and maintain a competitive edge; and

• (4) the reasonable development plans and strategies of the Target Business will be achieved.

– 7 –

LETTER FROM THE BOARD

In preparation of the Valuation Report, the Independent Valuer selected a list of comparable transactions. The selection criteria include the followings:

• (1) the target companies/businesses are principally engaged in online gaming, mobile gaming and/or related businesses in the PRC, which are similar to the Target Business;

• (2) the target companies/businesses have business models similar to the Target Business;

• (3) the nature of the comparable transactions are similar to the Transaction (i.e. (i) the comparable transactions are acquisitions of online game businesses or target companies engaged in online game businesses; and (ii) profit guaranteed or similar mechanisms are adopted in the comparable transactions); and

• (4) the acquired shareholding percentages (or the shareholding percentages of the acquirers in the targets upon the completion of the comparable transactions) in the comparable transactions are similar to the Transaction.

– 8 –

LETTER FROM THE BOARD

The list of comparable transactions selected by the Independent Valuer are as follows:

Comparable Transaction 1

Acquirer name	:	COL Digital Publishing Group Co., Ltd. (中文在綫數字出版集團股份有限	COL Digital Publishing Group Co., Ltd. (中文在綫數字出版集團股份有限	COL Digital Publishing Group Co., Ltd. (中文在綫數字出版集團股份有限	COL Digital Publishing Group Co., Ltd. (中文在綫數字出版集團股份有限
		公司), a company whose shares are listed on Shenzhen Stock Exchange
		(SZ: 300364)
Target name	:	Shanghai Chen Zhi Information Technology Co., Ltd. (上海晨之科信息技
		術有限公司)
Transaction date	:	March 5, 2018
Acquired interest	:	80.0% equity interest	of the target (upon the completion of the transaction,
		the target will be wholly-owned by the acquirer)
Consideration	:	RMB1,472.60 million
Nature of games	:	PC/web-based and mobile based
developed/
operated
Link for the	:	http://www.cninfo.com.cn/new/disclosure/detail?plate=
transaction		szse&stockCode=300364&announcementId=1204245429&
		announcementTime=2017-12-21%2007:45
Net profit of the	:	10	months ended	Year ended	Year ended
previous years			October 31,	December 31,	December 31,
		Year	2017	2016	2015
			(RMB’000)	(RMB’000)	(RMB’000)
		Net Profit/(Loss)	86,721.80	97,112.00	(17,626.80)
Terms of profit	:		Year ended	Year ended	Year ended
guarantee			December 31,	December 31,	December 31,
		Year	2017	2018	2019
			(RMB’000)	(RMB’000)	(RMB’000)
		Guaranteed
		Net Profit	150,000.00	220,000.00	264,000.00

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LETTER FROM THE BOARD

Comparable Transaction 2

Acquirer name	:	Hunan Tian Run Digital Cultural and Entertainment Co., Ltd. (湖南天潤數	Hunan Tian Run Digital Cultural and Entertainment Co., Ltd. (湖南天潤數	Hunan Tian Run Digital Cultural and Entertainment Co., Ltd. (湖南天潤數	Hunan Tian Run Digital Cultural and Entertainment Co., Ltd. (湖南天潤數
		字娛樂文化傳媒股份有限公司), a company whose shares			are listed on
		Shenzhen Stock Exchange (SZ: 002113)
Target name	:	Shenzhen Mu Zhi Wan Technology Co.,		Ltd. (深圳市拇指遊玩科技有限公
		司)
Transaction date	:	November 17, 2017
Acquired interest	:	100.0% equity interest of the target
Consideration	:	RMB1,090.00 million
Nature of games	:	PC/web-based and mobile based
developed/
operated
Link for the	:	http://www.cninfo.com.cn/new/disclosure/detail?plate=szse&
transaction		stockCode=002113&announcementId=1204128959&announcement
		Time=2017-11-10
Net profit of the	:		Five months	Year ended	Year ended
previous years			ended May 31,	December 31,	December 31,
		Year	2017	2016	2015
			(RMB’000)	(RMB’000)	(RMB’000)
		Net Profit/(Loss)	35,251.50	43,731.80	27,429.00
Terms of profit	:		Year ended	Year ended	Year ended
guarantee			December 31,	December 31,	December 31,
		Year	2017	2018	2019
			(RMB’000)	(RMB’000)	(RMB’000)
		Guaranteed
		Net Profit	85,000.00	110,500.00	138,125.00

– 10 –

LETTER FROM THE BOARD

Comparable Transaction 3

Acquirer name : Wuxi Boton Technology Co., Ltd. (無錫寶通科技股份有限公司), a company whose shares are listed on Shenzhen Stock Exchange (SZ: 300031) Target name : Guangzhou Yi Huan Network Technology Co., Ltd. (廣州易幻網絡科技有 限公司) Transaction date : February 28, 2017 Acquired interest : approximately 24.16% equity interest of the target (upon the completion of the transaction, the target will be owned as to 94.16% by the acquirer)

• Consideration : RMB500.00 million

• Nature of games : PC/web-based and mobile based developed/ operated

• Link for the : http://www.cninfo.com.cn/new/disclosure/detail?plate=szse&stock transaction Code=300031&announcementId=1202981331&announcementTime =2016-12-31

Net profit of the	:		Eight months
previous years			ended	Year ended	Year ended
			August 30,	December 31,	December 31,
		Year	2016	2015	2014
			(RMB’000)	(RMB’000)	(RMB’000)
		Net Profit/(Loss)	127,991.20	70,565.70	4,065.40
Terms of profit	:		Year ended	Year ended	Year ended
guarantee			December 31,	December 31,	December 31,
		Year	2017	2018	2019
			(RMB’000)	(RMB’000)	(RMB’000)
		Guaranteed
		Net Profit	155,000.00	201,500.00	261,950.00

– 11 –

LETTER FROM THE BOARD

According to Valuation Report, the valuation amount of the Target Business is approximately RMB1,078 million. The Board considers that the Valuation Report provides a general reference in assessing the fairness and reasonableness of the fair value of the Target Business.

Payment terms

Subject to the adjusting mechanism set out in “Profit Compensation” and “Goodwill Impairment Compensation” below, the consideration shall be payable by the Company to the Vendors in the following manner:

• (i) The Down Payment shall be considered as partial payment of the Consideration and set off an amount of RMB371.55 million against the total Consideration upon the issuance of completion certificate by the Company pursuant to the Sale and Purchase Agreement to the Vendors.

• (ii) RMB128.45 million shall be paid within 90 days after the Completion.

• (iii) RMB200.0 million (“ Partial Payment of 2019 ”) shall be paid within 30 business days after the issuance of the standard unqualified audit report on the Target Business for the financial year of 2019 (after deducting the aggregate amount of the Profit Compensation and Goodwill Impairment Compensation for the financial year of 2019 (collectively, the “ Aggregate Compensation for 2019 ”)). In the event that the Aggregate Compensation for 2019 exceeds the Partial Payment of 2019 payable by the Company, the Company will not be required to pay the Partial Payment of 2019, and the Vendors shall pay the surplus of the Aggregate Compensation for 2019 over the Partial Payment of 2019 to the Company.

• (iv) RMB200.0 million (“ Partial Payment of 2020 ”) shall be paid to the Vendors within 30 business days after the issuance of the standard unqualified audit report on the Target Business for the financial year of 2020 (after deducting the aggregate amount of the Profit Compensation and the Goodwill Impairment Compensation for the financial year of 2020 (collectively, the “ Aggregate Compensation for 2020 ”)). In the event that the Aggregate Compensation for 2020 exceeds the Partial Payment of 2020 payable by the Company, the Company will not be required to pay the Partial Payment of 2020, and the Vendors shall pay the surplus of the Aggregate Compensation for 2020 over the Partial Payment of 2020 to the Company.

• (v) the remaining 100.0 million (“ Partial Payment of 2021 ”) shall be paid to the Vendors within 30 business days after the issuance of the standard unqualified audit report on the Target Business for the financial year of 2021 (after deducting the aggregate amount of

– 12 –

LETTER FROM THE BOARD

the Profit Compensation and Goodwill Impairment Compensation for the financial year of 2021 (collectively, the “ Aggregate Compensation for 2021 ”)). In the event that the Aggregate Compensation for 2021 exceeds the Partial Payment of 2021 payable by the Company, the Company will not be required to pay the Partial Payment of 2021, and the Vendors shall pay the surplus of the Aggregate Compensation for 2021 over the Partial Payment of 2021 to the Company.

Conditions Precedent

The Completion is conditional upon the satisfaction (or, as the case may be, waived by the Company) of the following:

• (i) the Company being satisfied with the results of the due diligence review on the Target Business;

• (ii) the issue and delivery of a PRC legal opinion to the Company from the Vendors in the form to the satisfaction of the Company in relation to, among the other things, the historical shareholding changes in relation to the Onshore Subsidiaries does not violate the relevant PRC laws and regulations, and does not fall in the approval requirements under the Rules on the Acquisition of Domestic Enterprises by Foreign Investors (關於 外國投資者併購境內企業的規定) promulgated by the Ministry of Commerce of the PRC;

• (iii) the Target Business having obtained the licenses to use the intellectual property rights of certain games or implemented such other measures as is satisfactory to the Company;

• (iv) the Software Enterprise Licence (軟件企業證書) held by the Target Business remains legal and valid as at the Completion Date. Pursuant to the Software Enterprise Licence, the Target Business is entitled to certain tax exemptions and preferential enterprise income tax rate;

• (v) each of the Target Company and its subsidiaries is duly incorporated and validly existing under the applicable laws, and there are no situations which the Target Company or its subsidiaries are required to be dissolved or deregistered;

• (vi) there being no action, proceedings, suit or public investigation of any government agencies, or judiciaries which restricts, stops, prohibits, invalidates or otherwise prevents or seeks to prevent the completion of the Transaction;

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LETTER FROM THE BOARD

• (vii) the approval of the Shareholders of the Company having been obtained at an extraordinary general meeting of the Company by way of a poll for the entering into of the Sale and Purchase Agreement and the performance of the Transaction contemplated under the Sale and Purchase Agreement being in accordance and in compliance with the Listing Rules;

• (viii) the approval having been obtained from the directors and shareholders of the Target Company for the entering into of the Sale and Purchase Agreement and the performance of the Transaction under the Sale and Purchase Agreement;

• (ix) no material adverse change of the Target Business having occurred between the date of the Share Purchase Agreement and the Completion Date;

• (x) the Vendors’ representations and warranties under the Sale and Purchase Agreement remaining true and accurate in all respects and not misleading in any respect as at the Completion Date; and

• (xi) each of the Vendors and the Company having complied with all the warranties and undertakings under the Sale and Purchase Agreement as at the Completion Date.

The Company has the discretion to waive all or any part of such conditions precedent as mentioned above by way of notice in writing to the Vendors at any time, except for items (vii) and (xi) above.

If the conditions precedent set out above are not satisfied or waived (except the conditions precedent which cannot be waived) upon the expiration of the Long Stop Date, the Company may, at its sole discretion, terminate the Sale and Purchase Agreement, or extend the Long Stop Date.

Completion

The Completion will take place on the Completion Date.

Profit Compensation

As a protection for the Company, in the event that the actual net profit of the Target Business (the “ Actual Net Profit ”, before or after the deduction of the non-recurring profit or loss, whichever is lower) for the three financial years ending December 31, 2019, 2020 and 2021 (the “ Profit Guaranteed Years ”) fall below a certain benchmarked level as set out below (the “ Net Profit Benchmark ”).

– 14 –

LETTER FROM THE BOARD

			For the year	For the year	For the year
			ending	ending	ending
			December 31,	December 31,	December 31,
			2019	2020	2021	Total
Net	Profit	Benchmark	RMB117.00	RMB134.00	RMB151.00	RMB402.00
			million	million	million	million

The Vendors shall then pay profit compensation (the “ Profit Compensation ”) to the Company determined in accordance with the formula below:

For the year ending December 31, 2019 (“financial year of 2019”)

Profit compensation for the financial year of 2019 =

Consideration x (Net Profit Benchmark for the financial year of 2019 −Actual Net Profit for the financial year of 2019)

Total Net Profit Benchmark

For the year ending December 31, 2020 (“financial year of 2020”)

Profit compensation for the financial year of 2020 =

Consideration x (Net Profit Benchmark for the financial year of 2020 −Actual Net Profit for the financial year of 2020)

Total Net Profit Benchmark

For the year ending December 31, 2021 (“financial year of 2021”)

Profit compensation for the financial year of 2021 =

Consideration x (Net Profit Benchmark for the financial year of 2021 −Actual Net Profit for the financial year of 2021)

Total Net Profit Benchmark

– 15 –

LETTER FROM THE BOARD

In the event that the Actual Net Profit for the financial year of 2019 exceeds the Total Net Profit Benchmark, the Vendors will not be required to pay the Profit Compensation for the Target Business’ failure in satisfying the Net Profit Benchmarks for the financial years of 2020 and 2021. In the event that aggregate amount of the Actual Net Profits for the financial years of 2019 and 2020 exceeds the Total Net Profit Benchmarks, and the Actual Net Profit for each of the financial years of 2019 and 2020 exceeds the Profit Benchmark for the corresponding financial years within the Profit Guaranteed Years, the Vendors will not be required to pay the Profit Compensation for the Target Business’ failure in satisfying the Net Profit Benchmark for the financial year of 2021.

Satisfaction of the Net Profit Benchmark does not exempt the Vendors’ obligation to pay the Goodwill Impairment Compensation in accordance with the requirements as specified in the “Goodwill Impairment Compensation” below.

The Net Profit Benchmark for the Profit Guaranteed Years and the formula to determinate the Profit Compensation were arrived at after arm’s length negotiations between the Company and the Vendors after taking into account of, among others, (i) the previous financial performance and operational results of the Target Business; (ii) the performance of the Target Business’ existing game portfolio in the Profit Guaranteed Years; (iii) The Target Business’ timetable for launching new games in the Profit Guaranteed Years and the performance of such new games; and (iv) the prospectus, future developments, trends and conditions of the online game industry.

Goodwill Impairment Compensation

When performing the annual audit for the Profit Guaranteed Years, the Company shall be entitled to conduct impairment test on the goodwill of the Target Business. In the event that the test result indicates any existence of impairment, the Vendors shall pay the goodwill impairment compensation (the “ Goodwill Impairment Compensation ”) to the Company in accordance with the formula below:

The financial year of 2019

Goodwill Impairment Compensation for the financial year of 2019 = impairment amount of goodwill for the financial year of 2019 −the Profit Compensation for 2019 financial year (if any)

The financial year of 2020

Goodwill Impairment Compensation for the financial year of 2020 = impairment amount of goodwill for the financial year of 2020 −Profit Compensation for the financial year of 2020 (if any)

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LETTER FROM THE BOARD

The financial year of 2021

Goodwill Impairment Compensation for the financial year of 2021 = impairment amount of goodwill for the financial year of 2021 −Profit Compensation for the financial year of 2021 (if any)

For the avoidance of doubt, in the event that the amounts of Goodwill Impairment Compensation for any of the Profit Guaranteed Years calculated in accordance with the formula above are less than zero, the Vendors will not be required to pay Goodwill Impairment Compensation to the Company during the relevant financial years.

Additional Consideration

In the event that the aggregate amount of the Actual Net Profit for the Profit Guaranteed Years exceeds the Total Net Profit Benchmark, and the Actual Net Profit for each of the Profit Guaranteed Years exceeds the Net Profit Benchmark for the corresponding Profit Guaranteed Years, the Company shall pay an additional consideration (the “ Additional Consideration ”) to the Vendors in the mechanism set out as below:

• (i) in the event that the aggregate amount of the Actual Net Profit for the Profit Guaranteed Years exceeds RMB402.00 million but less than RMB510.00 million, the Additional Consideration shall be determined in accordance with formula below:

Additional Consideration =

(Aggregate amount of the Actual Net Profit for the Profit Guaranteed Years −RMB402.00 million) x 60%

• (ii) in the event that the aggregate amount of the Actual Net Profit for the Profit Guaranteed Years equals to RMB510.00 million, the Additional Consideration shall be RMB200.00 million;

– 17 –

LETTER FROM THE BOARD

• (iii) in the event that the aggregate amount of the Actual Net Profit for the Profit Guaranteed Years exceeds RMB510.00 million but less than (or equals to) RMB600.00 million, the Additional Consideration shall be RMB200.00 million plus additional Shares issued by the Company to the Vendors (the “ Additional Shares ”). The number of Additional Shares shall be determined in accordance with the formula below (but in any event, the Additional Shares shall not exceed 4.5% of the total issued share capital of the Company as at the date of the Sale and Purchase Agreement):

number of Additional Shares =

(Aggregate amount of the Actual Net Profit for the Profit Guaranteed Years −RMB510.00 million) x 2.35

issue price

the issue price shall be HK$2.10 per share, being the closing price of the Shares on the date of the Sale and Purchase Agreement.

• (iv) in the event that the aggregate amount of the Actual Net Profit for the Profit Guaranteed Years exceeds RMB600.00 million, the Additional Payment shall be RMB200.00 million plus the Additional Shares. The number of Additional Shares shall be 100,714,286 Shares, representing approximately 3.84% of the total issued share capital of the Company as at the date of the Sale and Purchase Agreement. Such number of Additional Shares is determined in accordance with the formula below:

number of Additional Shares =

(RMB600.00 million −RMB510.00 million) x 2.35

issue price

the issue price shall be HK$2.10 per share, being the closing price of the Shares as at the date of the Sale and Purchase Agreement.

The Additional Consideration (including the Additional Shares) shall be paid/issued to the Vendors within 90 business days after the issuance of the standard unqualified audit report for the financial year of 2021 on the Target Business. The issue and allotment of the Consideration Shares will not result in a change of control of the Company.

The Additional Shares will be allotted and issued pursuant to the Specific Mandate to be sought at the EGM. The Additional Shares, when allotted and issued, will rank pari passu in all respects among themselves and with the Shares in issue. An application will be made by the

– 18 –

LETTER FROM THE BOARD

Company to the Stock Exchange for the approved for the listing of, and the permission to deal in, the Additional Shares as soon as practicable after the number of Additional Shares has been determined pursuant to the formula set forth in the Sale and Purchase Agreement after the issuance of the standard unqualified audit report for the financial year of 2021 on the Target Business (and in any event, shall not later than 90 business days after the issuance of the standard unqualified audit report for the financial year of 2021 on the Target Business).

The mechanism to determine the Addition Consideration (including the Additional Shares) was arrived at arm’s length negotiations between the Company and the Vendors. In particular:

• (1) in the event that the aggregate amount of the Actual Net Profit for the Profit Guaranteed Years exceeds RMB402.00 million but less than RMB510.00 million, the Company agreed to pay 60% of the surplus of the aggregate amount of the Actual Net Profit for the Profit Guaranteed Years over RMB402.00 million. Such mechanism and percentage were resulting from arm’s length commercial negotiations between the Company and the Vendors, as effectively being a discount when comparing to the formula applicable for the scenarios that the Actual Net Profit for the Profit Guaranteed Years exceeds RMB510.00 million but less than RMB600.00 million as described below;

• (2) in the event that the aggregate amount of the Actual Net Profit for the Profit Guaranteed Years exceeds RMB510.00 million but less than RMB600.00 million, the Company agreed to issue Additional Shares equals to 2.35 times of the surplus of the Actual Net Profit for the Profit Guaranteed Years over RMB510.00 million, plus RMB200.00 million cash awards. The ratio 2.35 was resulting from arm’s length commercial negotiations between the Company and the Vendors with reference to the “compensation ratio” for determination of the amount of Profit Compensation for each of the Profit Guaranteed Years, being the quotient of the consideration of the Transaction (RMB1.00 billion) and the Total Net Profit Benchmarks (RMB402.00 million); and

• (3) in the event that the aggregate amount of the Actual Net Profit for the Profit Guaranteed Years exceeds RMB600.00 million, the Company and Vendors agreed that no further amount will be paid by the Company for the surplus of the aggregate amount of the Actual Net Profit for the Profit Guaranteed Years over RMB600.00 million.

INFORMATION ABOUT THE TARGET BUSINESS

The Target Business is owned by and operated through the Target Company and its subsidiaries. Its principal business activities include the research and development of online games. The Target Business has a track record in producing several premium online games, including The Legendary Prosperity Series 《傳奇盛世》系列( ), The Dragon Slayer 《屠龍戰記》( ), The Dragon Slaughter 《屠龍殺》( ), The Legendary Prosperity: Little Dragon Slayer 《傳奇盛世之( 小小屠龍》) and The God of War in Sandcastle 《沙城戰神》( ), and also has several different types of game reserves in its development pipeline.

– 19 –

LETTER FROM THE BOARD

Shareholding structure prior to Completion

Set out below is the shareholding structure of the Target Company and its subsidiaries immediately prior to the Completion:

==> picture [388 x 438] intentionally omitted <==

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

Ms. Huang Le
100%
Maple Vale Limited
(BVI)
100%
Osmanthus Vale Holdings Limited
(the Target Company)
(BVI)
100%
Malus Vale Holdings Limited
(BVI)
100%
Poplar Vale Holdings Limited [(1)] 51% Hawthorn Vale Holdings
(Hong Kong) Limited
(BVI)
(Hong Kong)
offshore
100% onshore
Onshore Subsidiaries
(PRC)
----- End of picture text -----

Note:

• (1) 49% of the equity interests of Poplar Vale Holdings Limited is owned by Sensate Tech Inc, an Independent Third Party.

– 20 –

LETTER FROM THE BOARD

Shareholding structure upon Completion

Set out below is the shareholding structure of the Target Company and its subsidiaries upon the Completion:

==> picture [381 x 349] intentionally omitted <==

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

7Road Holdings Limited
(The Company)
(Cayman Islands)
100%
Osmanthus Vale Holdings Limited
(the Target Company)
(BVI)
100%
Malus Vale Holdings Limited
(BVI)
100%
51% Hawthorn Vale Holdings
Poplar Vale Holdings Limited [(1)]
(Hong Kong) Limited
(BVI)
(Hong Kong)
offshore
100% onshore
Onshore Subsidiaries
(PRC)
----- End of picture text -----

Note:

• (1) 49% of the equity interests of Poplar Vale Holdings Limited is owned by Sensate Tech Inc, an Independent Third Party.

– 21 –

LETTER FROM THE BOARD

Financial Information of the Target Business

Based on the information provided by the Target Company, the following table sets out the summary of the audited combined financial information of the Target Business for the period from January 6, 2016 (date of incorporation) to December 31, 2016, each of years ended December 31, 2017 and 2018 and three months ended March 31, 2019:

	Period from
	January 6,				For the
	2016 (date of				three
	incorporation)				months
	to December		For the years ended		ended
	31,		December 31,		March 31,
	2016		2017	2018	2019
	(RMB’000)		(RMB’000)	(RMB’000)	(RMB’000)
Revenue	235		60,419	240,923	82,622
Gross profit	40		40,036	137,940	56,285
(Loss)/profit before income tax	(1,743)		20,245	101,375	37,484
(Loss)/profit and total
comprehensive (loss)/income for
the period/year attributable to
owners of the Target Business	(1,307)		15,955	99,383	34,749
					As at
	**As at **	December 31,			March 31,
	2016		2017	2018	2019
	(RMB’000)	(RMB’000)		(RMB’000)	(RMB’000)
Total assets	2,005		677,481	605,060	645,832
Total liabilities	2,312		171,333	98,479	106,662
Net assets	(307)		506,148	506,581	539,170

– 22 –

LETTER FROM THE BOARD

INFORMATION ABOUT THE VENDORS

Maple Vale Limited, being one of the Vendors, is a limited company incorporated under the laws of the BVI and is principally engaged in investment holding and wholly-owned by Ms. Huang Le. Ms. Huang Le, being another Vendor, is a Hong Kong permanent resident, who holds the entire interests in Maple Vale Limited. To the best knowledge, information and belief of the Directors, and having made all reasonable enquiries, the Vendors are Independent Third Parties.

INFORMATION ABOUT THE COMPANY

The Company is a limited company incorporated under the laws of the Cayman Islands and listed on the Stock Exchange on July 18, 2018. The headquarters of the Group is located in Shenzhen, the PRC. The Company, through its subsidiaries, principally engaged in online game development, publishing and operation in the PRC and overseas markets.

REASONS FOR AND BENEFITS OF THE TRANSACTION

In recent years, the online game industry has maintained a stable growth. The market scale of the online game industry and the number of players has continuously increased. In addition, over the past few years, the PRC government had issued a series of policies to support the development of the online game and cultural and entertainment industries. The Directors believe that, in the foreseeable future, companies with strong research and development capacities in the online game industry is more competent in seizing business opportunities and secure further market shares.

The Target Business is owned by and operated through the Target Company and its subsidiaries. Its principal business activities include the research and development of online games. The Target Business has a track record in producing a number of premium online games. The Directors believe that the Transaction is in line with the principal business activities of the Group and the Company’s strategy to selectively acquire and invest in game developers and studios with strong research and development capabilities so as to expand the Company’s game portfolio and strengthen the Company’s game research and development capacities. After the Completion, the Target Company will be wholly-owned by the Company and the Target Business’ financial results will be consolidated into the financial statements of the Group.

As the consideration of the Transaction was determined after arm’s length negotiations on normal commercial terms after taking into account of a number of factors, the Directors believe that the terms (including the consideration) of the Transaction have been made on normal commercial terms and are fair, reasonable and in the interests of the Company and the Shareholders as a whole.

– 23 –

LETTER FROM THE BOARD

EFFECT OF THE TRANSACTION

Upon Completion, the Target Company will become a wholly-owned subsidiary of the Company and financial results of the Target Business will be consolidated into the consolidated financial statements of the Group. The unaudited pro forma financial information of the Enlarged Group was prepared to illustrate the financial effect of the Transaction as if it had been completed on June 30, 2019 is set out in Appendix IV to this circular.

Effect on assets and liabilities

Based on the interim report for the six months ended June 30, 2019, the total assets and liabilities of the Group were RMB1,333.9 million and RMB186.2 million respectively. Based on the unaudited pro forma financial information in Appendix IV to this circular, the total assets of the Enlarged Group would increase to RMB2,033.8 million; and its total liabilities would increase to RMB892.8 million, as a result of the Transaction.

Effect on earnings

According to the historical financial information of Target Business, for the period from January 6, 2016 (date of incorporation) to December 31, 2016, each of the financial years ended December 31, 2017 and 2018 and each of the three months ended March 31, 2018 and 2019, the Target Business recorded revenue of approximately revenue of approximately RMB0.24 million, RMB60.42 million, RMB240.92 million, RMB35.50 million and RMB82.62 million respectively; and (loss)/profit after taxation of approximately RMB(1.31) million, RMB15.96 million, RMB99.17 million, RMB4.12 million and RMB32.59 million, respectively.

Upon Completion, the Target Business will be wholly-owned by the Company and the financial results, including but not limited to the revenue, costs and profit attributable to the owners of the Target Business will be consolidated into the consolidated financial statements of the Company.

After taking into account the growth potential of the Target Business and the synergy to be created between the Target Business and the Group’s existing business, it is expected that the Transaction will have positive impacts on the future earnings of the Group in the long run.

– 24 –

LETTER FROM THE BOARD

LISTING RULES IMPLICATIONS

As one or more of the applicable percentage ratios (as defined under the Listing Rules) in respect of the Transaction exceed 25%, but are all less than 100%, the Transaction constitutes a major transaction of the Company and is therefore subject to the reporting, announcement, circular and shareholders’ approval requirements under Chapter 14 of the Listing Rules.

NOTICE OF EGM

Notice of EGM is set out on pages VI-1 to VI-2 of this circular. A form of proxy for use at the EGM is also enclosed. Whether or not you are able to attend the EGM, you are requested to complete and return the enclosed proxy form in accordance with the instructions printed thereon to the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for holding the EGM (i.e. no later than 10:00 a.m. on October 15, 2019). Completion and return of the proxy form will not preclude you from attending and voting at the EGM or any adjournment thereof should you so wish.

To the best of the Directors’ knowledge, information and belief, having made all reasonable enquiries, no Shareholder or any of its close associates has any material interest in the Sale and Purchase Agreement and the Transaction contemplated thereunder, and no Shareholder is required to abstain from voting on the resolution(s) in respect of the Sale and Purchase Agreement at the EGM.

CLOSURE OF REGISTER OF MEMBERS FOR EGM

The EGM is scheduled to be held on October 17, 2019. For determining the entitlement to attend and vote at the EGM, the transfer books and register of members of the Company will be closed from October 14, 2019 to October 17, 2019, both days inclusive, during which period no transfer of Shares will be effected.

In order to be eligible to attend and vote at the EGM, all transfers accompanied by the relevant share certificates must be lodged with the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong for registration not later than 4:30 p.m. on October 11, 2019.

– 25 –

LETTER FROM THE BOARD

RECOMMENDATION

The Board considers that the Transaction, the terms of the Sale and Purchase Agreement and the grant of the Special Mandate are fair and reasonable and in the interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favor of the resolution to be proposed at the EGM.

GENERAL INFORMATION

Your attention is drawn to the information set out in the appendices to this circular.

Yours faithfully, For and on behalf of 7Road Holdings Limited Meng Shuqi

Chairman

– 26 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. SUMMARY OF THE FINANCIAL INFORMATION OF THE GROUP

The financial information of the Group for the three years ended December 31, 2018 are disclosed in the Company’s annual report for the year ended December 31, 2018, as well as the Prospectus, which are incorporated by reference into this circular. The said annual report and prospectus of the Company are available on the Company’s website at www.7road.com and the website of the Stock Exchange at www.hkexnews.hk. Web links to the Company’s annual report for the year ended December 31, 2018, and the Prospectus of the Company are set out below:

Annual report of the Company for the year ended December 31, 2018:

http://www3.hkexnews.hk/listedco/listconews/SEHK/2019/0415/LTN20190415394.pdf

Prospectus:

http://www3.hkexnews.hk/listedco/listconews/SEHK/2018/0629/LTN20180629045.pdf

2. STATEMENT OF INDEBTEDNESS

As at July 31, 2019, being the latest practicable date for the purpose of this statement of indebtedness, the Enlarged Group had secured bank borrowings of approximately RMB44.0 million, unsecured loan from a third party of approximately RMB1.9 million and unsecured lease liabilities of approximately RMB13.7 million. The bank borrowings were secured by certain property, plant and equipment and land use rights under the right-of-use assets of approximately RMB12.0 million and RMB71.0 million, respectively.

Save as aforesaid or as otherwise disclosed herein, and apart from intra-group liabilities, the Enlarged Group did not have any other outstanding bank borrowings, debt securities issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar indebtedness, liabilities under acceptance or acceptance credits, debentures, mortgages, charges, hire purchase or finance lease commitments, guarantees or contingent liabilities.

3. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or operating position of the Group since December 31, 2018 (being the date to which the latest published audited financial statements of the Group were made up) up to and including the Latest Practicable Date.

– I-1 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

For the sake of prudence, please note that pursuant to the Company’s profit warning dated August 16, 2019 (the “ Profit Warning ”) and the interim results announcement dated August 29, 2019 (the “ Interim Results Announcement ”), the Company recorded a loss attributable to the Shareholders of approximately RMB25.59 million. Nevertheless, the Board considers that, after taking into consideration that:

• (1) the influences of market uncertainties as stated in the Profit Warning and Interim Results Announcements are short term;

• (2) the online game market in the PRC is expected to maintain a sustainable growth in 2019; and

• (3) the sufficiency of the Group’s capital.

The Board is therefore of the view that the loss of the Group for the six months ended June 30, 2019 is temporary and there is no material adverse change to the Company.

4. SUFFICIENCY OF WORKING CAPITAL

The Directors, after due and careful enquiries, and after taking into account the completion of the transaction, the Enlarged Group’s internal resources, cash flow from operations, facilities available to the Enlarged Group, are of the opinion that the Enlarged Group has sufficient working capital to satisfy its requirements for at least the next 12 months following the date of this circular, in the absence of unforeseeable circumstances.

5. FINANCIAL AND OPERATING PROSPECTS OF THE GROUP

The Group is currently engaging in online game development, publishing and operation in mainland China and overseas markets. Since its inception in 2008, the Group has engaged in the research and development, operation and licensing of a number of popular online games.

The Target Business is owned by and operated through the Target Company and its subsidiaries. It mainly includes the research and development of online games. The Target Business has a record in providing a number of premium online games, the Directors believe that the Transaction is in line with the principal business activities of the Group and the Company’s strategic objective to selectively acquire and invest in qualified game developers and studios in order to expand the Company’s game portfolio and strengthen the Company’s game research, development and operating capacities.

– I-2 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

The Group will integrate the Target Business with its existing business and identify value-creating areas. Cost savings are expected to be achieved from synergies in game development and operation functions, as well as the sharing of online game publishing and advertising resources. Although the Transaction-related costs and integration costs may have a negative impact on the short-term profitability of the Enlarged Group, the Directors are confident about the future profitability, and the financial and operating prospects of the Enlarged Group.

6. LIQUIDITY AND FINANCIAL RESOURCES OF THE GROUP

As at December 31, 2018, the Group had net cash of approximately RMB289.90 million. Cash at bank and on hand of approximately RMB286.02 million; and restricted cash of approximately RMB3.89 million. The Group monitors capital on the basis of the gearing ratio, which is calculated as debt divided by total equity. As at December 31, 2018, out Group’s gearing ratio was 11.9%, as compared with 39.4% as at December 31, 2017.

As at December 31, 2018, the Group had secured bank borrowings of approximately RMB47.57 million, which representing the outstanding amount of a loan received from a bank amounted to RMB61,600,000 in September 2016 at an interest rate of Shanghai Interbank Offered Rate plus 1.09% per annum. Such loan was secured by property, plant, equipment and land use rights of the Group.

7. THE CAPITAL STRUCTURE OF THE GROUP

The Group continued to maintain a healthy and sound financial position by regularly reviewing its capital structure and makes adjustments in light of changes in economic conditions. As at December 31, 2018, the total assets of the Group was approximately RMB1,335.59 million; while the total liabilities was RMB158.46 million. The liabilities-to asset ratio was 11.86% as at December 31, 2018, as compared with 39.41% as at December 31, 2017.

8. SEGMENT INFORMATION

The Group’s business activities, for which discrete financial statements are available, are regularly reviewed and evaluated by the Directors and management of the Group. As a result of this evaluation, the Directors consider that the Group’s operations are operated and managed as a single segment and no segment information is presented.

– I-3 –

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

9. HUMAN RESOURCES

As at December 31, 2018, the Group employed a total of 264 employees. Staff costs for the year ended December 31, 2018 was approximately RMB141.0 million (including salary, bonus, share-based compensation, pension scheme contribution, other social security fund and other employee benefits). The remuneration of the Group’s employees is determined based on their performance, experience, competence and market comparables. Their remuneration package includes salaries, bonus related to our performance, restricted share units, allowances and state-managed retirement benefit schemes for employees in the PRC. The Company also provides customized training to its staff to enhance their technical and product knowledge.

10. FOREIGN CURRENCIES

The Group operates internationally through overseas publishers and is exposed to foreign exchange risks arising from various currency exposures, primarily with respect to the US$. Foreign exchange risk primarily arose from recognized assets and liabilities when receiving or to receive foreign currencies from overseas counterparties. The Group did not hedge against any fluctuation in foreign currency during the year ended December 31, 2018. However, the Director and management of the Group closely monitor foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise.

– I-4 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

The following is the text of a report set out on pages II-1 to II-3, received from the Company’s reporting accountant, PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

==> picture [70 x 47] intentionally omitted <==

ACCOUNTANT’S REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF 7ROAD HOLDINGS LIMITED

Introduction

We report on the historical financial information of the online game business (the “ Target Business ”) owned by Osmanthus Vale Holdings Limited (the “ Target Company ”) and its subsidiaries (together, the “ Target Group ”) set out on pages II-4 to II-98, which comprises the combined balance sheets as at December 31, 2016, 2017 and 2018 and March 31, 2019, the combined statements of comprehensive (loss)/income, the combined statements of changes in equity and the combined statements of cash flows for the period from January 6, 2016 (date of incorporation) to December 31, 2016, each of years ended December 31, 2017 and 2018 and three months ended March 31, 2019 (the “ Track Record Period ”) and a summary of significant accounting policies and other explanatory information (together, the “ Historical Financial Information ”). The Historical Financial Information set out on pages II-4 to II-98 forms an integral part of this report, which has been prepared for inclusion in the circular of 7Road Holdings Limited (the “ Company ”) dated September 26, 2019 (the “ Circular ”) in connection with the proposed acquisition of Target Business by the Company.

Directors’ responsibility for the Historical Financial Information

The directors of the Company are responsible for the preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of presentation and preparation set out in Notes 1.3 and 2.1 to the Historical Financial Information.

– II-1 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

The financial statements of the Target Business for the Track Record Period (“ Underlying Financial Statements ”), on which the Historical Financial Information is based, were prepared by the directors of the Company based on the previously issued financial statements of the Target Business for the Track Record Period. The directors of the Target Company are responsible for the preparation and fair presentation of the previously issued financial statements of the Target Business in accordance with International Financial Reporting Standards (“ IFRSs ”) issued by the International Accounting Standards Board, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Reporting accountant’s responsibility

Our responsibility is to express an opinion on the Historical Financial Information and to report our opinion to you. We conducted our work in accordance with Hong Kong Standard on Investment Circular Reporting Engagements 200, Accountants’ Reports on Historical Financial Information in Investment Circulars issued by the Hong Kong Institute of Certified Public Accountants (“ HKICPA ”). This standard requires that we comply with ethical standards and plan and perform our work to obtain reasonable assurance about whether the Historical Financial Information is free from material misstatement.

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountant’s judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountant considers internal control relevant to the entity’s preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of presentation and preparation set out in Notes 1.3 and 2.1 to the Historical Financial Information in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the Historical Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion the Historical Financial Information gives, for the purposes of the accountant’s report, a true and fair view of the combined financial position of the Target Business as at December 31, 2016, 2017 and 2018 and March 31, 2019 and of its combined financial performance and its combined cash flows for the Track Record Period in accordance with the basis of presentation and preparation set out in Notes 1.3 and 2.1 to the Historical Financial Information.

– II-2 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Review of stub period comparative financial information

We have reviewed the stub period comparative financial information of the Target Business which comprises the combined statement of comprehensive income, the combined statement of changes in equity and combined statement of cash flows for the three months ended March 31, 2018 and other explanatory information (the “ Stub Period Comparative Financial Information ”). The directors of the Company are responsible for the preparation and presentation of the Stub Period Comparative Financial Information in accordance with the basis of presentation and preparation set out in Notes 1.3 and 2.1 to the Historical Financial Information. Our responsibility is to express a conclusion on the Stub Period Comparative Financial Information based on our review. We conducted our review in accordance with International Standard on Review Engagements 2410, “ Review of Interim Financial Information Performed by the Independent Auditor of the Entity ” issued by the International Auditing and Assurance Standards Board (“ IAASB ”). A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Based on our review, nothing has come to our attention that causes us to believe that the Stub Period Comparative Financial Information, for the purposes of the accountant’s report, is not prepared, in all material respects, in accordance with the basis of presentation and preparation set out in Notes 1.3 and 2.1 to the Historical Financial Information.

Report on matters under the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

Adjustments

In preparing the Historical Financial Information no adjustments to the Underlying Financial Statements have been made.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong September 26, 2019

– II-3 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

I HISTORICAL FINANCIAL INFORMATION OF THE TARGET BUSINESS

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this accountant’s report.

The Underlying Financial Statements, on which the Historical Financial Information is based, were audited by PricewaterhouseCoopers in accordance with International Standards on Auditing issued by the IAASB.

The Historical Financial Information is presented in Renminbi and all values are rounded to the nearest thousand (RMB’000) except when otherwise indicated.

– II-4 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Combined Statements of Comprehensive (Loss)/Income

Note Revenue 5 Cost of revenue 7 Gross profit Research and development expenses 7 Selling and marketing expenses 7 Administrative expenses 7 Net impairment losses on financial assets Other income 6 Other gains, net Operating (loss)/profit Finance income 9 Finance costs 9 Finance (costs)/income, net (Loss)/profit before income tax Income tax expense 10 (Loss)/profit and total comprehensive (loss)/income for the period/year (Loss)/profit and total comprehensive (loss)/income for the period/year attributable to: Owners of the Target Business Non-controlling interest	Period from January 6, 2016 (date of incorporation) to December 31, 2016 RMB’000 235 (195) 40 (1,222) (533) (28) — — — (1,743) — — — (1,743) 436 (1,307) (1,307) — (1,307)	Year ended December 31, 2017 2018 RMB’000 RMB’000 60,419 240,923 (20,383) (102,983) 40,036 137,940 (17,622) (22,149) (1,415) (678) (2,697) (5,784) (1,070) (9,095) 3,034 1,137 14 (5) 20,280 101,366 83 87 (118) (78) (35) 9 20,245 101,375 (4,290) (2,202) 15,955 99,173 15,955 99,383 — (210) 15,955 99,173	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 35,500 82,622 (20,417) (26,337) 15,083 56,285 (5,431) (9,154) — — (487) (3,857) (4,954) (5,827) 943 34 — (7) 5,154 37,474 19 16 (28) (6) (9) 10 5,145 37,484 (1,021) (4,895) 4,124 32,589 4,124 34,749 — (2,160) 4,124 32,589	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 35,500 82,622 (20,417) (26,337) 15,083 56,285 (5,431) (9,154) — — (487) (3,857) (4,954) (5,827) 943 34 — (7) 5,154 37,474 19 16 (28) (6) (9) 10 5,145 37,484 (1,021) (4,895) 4,124 32,589 4,124 34,749 — (2,160) 4,124 32,589
				56,285 (9,154) — (3,857) (5,827) 34 (7)
				37,474
				16 (6)
				10
				37,484 (4,895)
				32,589
				34,749 (2,160)
				32,589

– II-5 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Combined Balance Sheets

Note ASSETS Non-current assets Property, plant and equipment 11 Right-of-use assets 12 Intangible assets 13 Financial assets at fair value through profit or loss 15 Prepayment and other receivables 17 Deferred income tax assets 21 Current assets Trade receivables 18 Prepayment and other receivables 17 Contract fulfilment costs 5 Cash and cash equivalents 19 Income tax recoverable Total assets LIABILITIES Non-current liabilities Lease liabilities 12 Deferred income tax liabilities 21 Current liabilities Trade and other payables 22	As 2016 RMB’000 — — — — — 436 436 — 1,000 — 569 — 1,569 2,005 — — — 630	at December 31, 2017 2018 RMB’000 RMB’000 1,048 757 2,274 708 492,391 462,846 — 1,440 269 — 163 2,807 496,145 468,558 33,445 113,841 88,417 2,506 — 7,243 59,474 12,912 — — 181,336 136,502 677,481 605,060 725 — 25,460 21,734 26,185 21,734 99,999 48,975	As at March 31, 2019 RMB’000 690 361 456,228 1,440 16,300 5,726
			480,745
			126,385 5,600 7,408 25,384 310
			165,087
			645,832
			— 20,802
			20,802
			48,108

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Note Current income tax liabilities Contract liabilities 5 Financial liabilities at fair value through profit or loss 16 Lease liabilities 12 Total liabilities Net assets EQUITY Combined capital 20 Statutory reserve (Accumulated losses)/retained earnings Capital and reserves attributable to owners of the Target Business Non-controlling interests Total equity	As 2016 RMB’000 — 1,682 — — 2,312 2,312 (307) 1,000 — (1,307) (307) — (307)	at December 31, 2017 2018 RMB’000 RMB’000 4,945 6,526 38,394 20,519 — — 1,810 725 145,148 76,745 171,333 98,479 506,148 506,581 501,000 501,000 577 15,223 4,571 (9,792) 506,148 506,431 — 150 506,148 506,581	As at March 31, 2019 RMB’000 14,661 20,788 2,000 303 85,860 106,662 539,170 501,000 15,223 24,957 541,180 (2,010) 539,170

– II-7 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Combined Statements of Changes in Equity

Note Balance at January 6, 2016 (date of incorporation) Comprehensive loss Loss for the period Total comprehensive loss Transactions with owners in their capacity as owners Capital injection from the owners Total transactions with owners in their capacity as owners Balance at December 31, 2016	Attributable to owners of the Target Business Share capital Statutory reserve Accumulated losses Total equity RMB’000 RMB’000 RMB’000 RMB’000 — — — — — — (1,307) (1,307) — — (1,307) (1,307) 1,000 — — 1,000 1,000 — — 1,000 1,000 — (1,307) (307)	Attributable to owners of the Target Business Share capital Statutory reserve Accumulated losses Total equity RMB’000 RMB’000 RMB’000 RMB’000 — — — — — — (1,307) (1,307) — — (1,307) (1,307) 1,000 — — 1,000 1,000 — — 1,000 1,000 — (1,307) (307)
	Share capital RMB’000 — — — 1,000 1,000 1,000	Statutory reserve Accumulated losses RMB’000 RMB’000 — — — (1,307) — (1,307) — — — — — (1,307)

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Note Balance at January 1, 2017 Comprehensive income Profit for the year Total comprehensive income Transactions with owners in their capacity as owners Dividends Capital injection from the owners Appropriation to statutory reserve Total transactions with owners in their capacity as owners Balance at December 31, 2017	Attributable to owners of the Target Business Share capital Statutory reserve (Accumulated losses)/ retained earnings Total RMB’000 RMB’000 RMB’000 RMB’000 1,000 — (1,307) (307) — — 15,955 15,955 — — 15,955 15,955 — — (9,500) (9,500) 500,000 — — 500,000 — 577 (577) — 500,000 577 (10,077) 490,500 501,000 577 4,571 506,148	Attributable to owners of the Target Business Share capital Statutory reserve (Accumulated losses)/ retained earnings Total RMB’000 RMB’000 RMB’000 RMB’000 1,000 — (1,307) (307) — — 15,955 15,955 — — 15,955 15,955 — — (9,500) (9,500) 500,000 — — 500,000 — 577 (577) — 500,000 577 (10,077) 490,500 501,000 577 4,571 506,148
	Share capital RMB’000 1,000 — — — 500,000 — 500,000 501,000	Statutory reserve (Accumulated losses)/ retained earnings RMB’000 RMB’000 — (1,307) — 15,955 — 15,955 — (9,500) — — 577 (577) 577 (10,077) 577 4,571

– II-9 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Attributable to owners of the Target Business

Note Balance at January 1, 2018 Comprehensive income/(loss) Profit/(loss) for the year Total comprehensive income/(loss) Transactions with owners in their capacity as owners Appropriation to statutory reserve Dividends Non-controlling interests arising from incorporation of a subsidiary Total transactions with owners in their capacity as owners Balance at December 31, 2018	Share capital RMB’000 501,000 — — — — — — 501,000	Statutory reserve RMB’000 577 — — 14,646 — — 14,646 15,223	Retained earnings/ (accumulated losses) RMB’000 4,571 99,383 99,383 (14,646) (99,100) — (113,746) (9,792)	Total RMB’000 506,148 99,383 99,383 — (99,100) — (99,100) 506,431	Non- controlling interests RMB’000 — (210) (210) — — 360 360 150	Total equity RMB’000 506,148
						99,173
						99,173
						— (99,100) 360
						(98,740)
						506,581

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(Unaudited) Note Balance at January 1, 2018 Comprehensive income Profit for the period Total comprehensive income Transactions with owners in their capacity as owners Dividends Total transactions with owners in their capacity as owners Balance at March 31, 2018	**Attributable to owners **	**Attributable to owners **	of the Target Business Retained earnings Total RMB’000 RMB’000 4,571 506,148 4,124 4,124 4,124 4,124 (1,600) (1,600) (1,600) (1,600) 7,095 508,672
	Share capital RMB’000 501,000 — — — — 501,000	Statutory reserve RMB’000 577 — — — — 577	Retained earnings RMB’000 4,571 4,124 4,124 (1,600) (1,600) 7,095

– II-11 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Attributable to owners of the Target Business

Note Balance at January 1, 2019 Comprehensive income/(loss) Profit/(loss) for the period Total comprehensive income/(loss) Transactions with owners in their capacity as owners Total transactions with owners in their capacity as owners Balance at March 31, 2019	Share capital RMB’000 501,000 — — — 501,000	Statutory reserve RMB’000 15,223 — — — 15,223	Retained earnings/ (accumulated losses) RMB’000 (9,792) 34,749 34,749 — 24,957	Total RMB’000 506,431 34,749 34,749 — 541,180	Non- controlling interests RMB’000 150 (2,160) (2,160) — (2,010)	Total equity RMB’000 506,581
						32,589
						32,589
						—
						539,170

– II-12 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Combined Statements of Cash Flows

Note Cash flows from operating activities Cash generated from operations 23 Interest received Income tax paid Net cash generated from operating activities Cash flows from investing activities Prepayment for an investment 17 Payments for purchase of financial assets at fair value through profit or loss Acquisition of subsidiaries, net of cash acquired 24 Payments for purchases of property, plant and equipment Payments for purchases of intangible assets Loans granted to third parties Repayments of loans granted to third parties Loans granted to related parties Repayments of loans granted to related parties Repayments of loans granted to the previous owners of the acquired subsidiary Net cash (used in)/generated from investing activities	Period from January 6, 2016 (date of incorporation) to December 31, 2016 RMB’000 569 — — 569 — — — — — — — — — — —	Year ended December 31, 2017 2018 RMB’000 RMB’000 97,373 46,904 83 87 (2,369) (6,990) 95,087 40,001 — — — (1,250) (499,240) (73,752) (392) (196) — (377) (57,848) (32,476) 5,348 87,976 (64,500) (71,001) 30,000 105,501 60,000 — (526,632) 14,425	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) (1,716) 26,598 19 16 (4,089) (921) (5,786) 25,693 — (16,300) — (190) — — (76) (62) (377) (966) (25,000) (2,872) — — (36,000) — 21,500 — — — (39,953) (20,390)	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) (1,716) 26,598 19 16 (4,089) (921) (5,786) 25,693 — (16,300) — (190) — — (76) (62) (377) (966) (25,000) (2,872) — — (36,000) — 21,500 — — — (39,953) (20,390)
				25,693
				(16,300) (190) — (62) (966) (2,872) — — — —
				(20,390)

– II-13 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Period from

January 6,

2016 (date of

incorporation)

Note Cash flows from financing activities Proceeds from owners’ capital injection Advance from non-controlling shareholder Dividends paid to the owners Loan from the owners Repayments of loan from owners Loan from third parties Repayments of loan from third parties Proceeds from a financial liability at fair value through profit or loss 16 Payment of principal element of lease liabilities Interest paid Net cash generated from/(used in) financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the period/year 19 Cash and cash equivalents at end of the period/year 19	to December 31, 2016 RMB’000 — — — — — — — — — — — 569 — 569	Year ended December 31, 2017 2018 RMB’000 RMB’000 501,000 — — — (9,500) (99,100) 1,000 3,000 (1,000) (3,000) 350 — (350) — — — (932) (1,810) (118) (78) 490,450 (100,988) 58,905 (46,562) 569 59,474 59,474 12,912	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) — — — 1,500 (1,600) — — 2,000 — (1,500) — 3,597 — — — 2,000 (221) (422) (28) (6) (1,849) 7,169 (47,588) 12,472 59,474 12,912 11,886 25,384	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) — — — 1,500 (1,600) — — 2,000 — (1,500) — 3,597 — — — 2,000 (221) (422) (28) (6) (1,849) 7,169 (47,588) 12,472 59,474 12,912 11,886 25,384
				7,169
				12,472 12,912
				25,384

– II-14 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

• II NOTES TO THE HISTORICAL FINANCIAL INFORMATION OF THE TARGET BUSINESS

• 1 General information, history and reorganization of the Target Business and basis of presentation

1.1 General information

Osmanthus Vale Holdings Limited (the “ Target Company ”) is incorporated in British Virgin Islands (“ BVI ”) on June 27, 2019 with limited liability. The registered address of the Target Company is Craigmuir Chambers, Road Town, Tortola, VG 1110, British Virgin Islands. The ultimate holding company of the Target Company is Maple Vale Limited, and the ultimate registered shareholder of the Target Company is Ms. Huang Le (黃樂).

The Target Company is an investment holding company. The Target Company and its subsidiaries (together, the “ Target Group ”) are principally engaged in the research and development of online games business in the PRC (the “ Target Business ”).

On August 23, 2019, 7Road Holdings Limited (the “ Company ”) entered into a Sale and Purchase Agreement with Ms. Huang Le pursuant to which the Company conditionally agreed to acquire the Target Business through acquiring entire equity interest in the Target Company (the “ Transaction ”).

1.2 History and reorganization of the Target Business

Prior to the incorporation of the Target Company and the completion of the reorganization (the “ Reorganization ”) as described below, the Target Business was mainly carried out by Shanghai Xinla Networks Technology Co., Ltd. (上海辛辣網絡科技有限公司) (“ Shanghai Xinla ”) and its subsidiaries (collectively, the “ Onshore Subsidiaries ”), throughout the Track Record Period.

Shanghai Xinla was established as a limited company in the PRC on January 6, 2016 and it became a wholly-owned subsidiary of Ningbo Jingxuan Investment Center (limited partnership) (寧波鏡瑄投資管理中心(有限合夥) (“ Ningbo Jingxuan ”), the ultimate controlling party of the Target Business and also a concerting party to Ms. Huang Le, on April 1, 2017.

In preparing for the Transaction, the Target Business underwent the Reorganisation which involved the followings:

• (i) On June 27, 2019, the Target Company was incorporated in the BVI as a limited liability company wholly owned by Maple Vale Holdings Limited and ultimately controlled by Ningbo Jingxuan.

– II-15 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

• (ii) On June 28, 2019, Ningbo Jingxuan transferred the entire equity interest in Shanghai Xinla to Hawthorn Vale Holdings (Hong Kong) Limited (“ Hawthorn ”), a wholly owned subsidiary of Malus Vale Holdings Limited (“ Malus ”) which is ultimately controlled by Ningbo Jingxuan. On July 31, 2019, the entire equity interest of Malus was transferred to the Target Company.

• (iii) On July 4, 2019, Polar Vale Holdings Limited was incorporated in Hong Kong as a limited liability company owned as to 51% by Hawthorn and 49% by Sensate Tech Inc, an independent third party.

Upon the completion of the Reorganization, the Target Company became the holding company of the Target Business.

During the Track Record Period and as at the date of this report, the Target Business was comprised of the following entities:

	Place and
	date of	Particulars of		**Equity interest **	**held as **	at
	incorporation/	issued and	December 31,			March 31,	At date of	Principal
Name of subsidiaries	establishment	paid-in capital	2016	2017	2018	2019	this report	activities	Note
Directly held by the Target
Company
Malus Vale Limited	Hong Kong/	USD 79,000,000	N/A	N/A	100%	100%	100%	Investment	(e)
	December 21,							holdings
	2018
Indirectly held by the Target
Company
Shanghai Xinla	PRC/	RMB501,000,000	100%	100%	100%	100%	100%	Online game	(b)
	January 6,							development,
	2016							promotion and
								management
Hangzhou Shengfeng Network	PRC/	RMB4,000,000	N/A	100%	100%	100%	100%	Online game	(c)
Technology Co., Ltd.	August 6,							development,
(杭州盛鋒網絡科技有限公司)	2015							promotion and
(“Hangzhou Shengfeng”)								management
Huoerguosi 39 Mutual	PRC/	RMB10,000,000	N/A	100%	100%	100%	100%	Online game	(e)
Entertainment Network	November 1,							development,
Technology Co., Ltd.	2016							promotion and
(霍爾果斯三九互娛網路科技有								management
限公司) (“Huoerguosi 39”)
Shanghai Yingling Network	PRC/	RMB1,000,000	N/A	64%	64%	64%	53%	Publication of	(e)
Technology Co., Ltd.	June 5, 2017							online games
(上海螢鈴網絡科技有限公司)
(“Shanghai Yingling”)

– II-16 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

	Place and			**Equity interest **	**held as **	at
	date of incorporation/	Particulars of issued and	December 31,			March 31,	At date of	Principal
Name of subsidiaries	establishment	paid-in capital	2016	2017	2018	2019	this report	activities	Note
Shanghai Chaozi Network	PRC/	RMB10,000,000	N/A	80%	80%	80%	80%	Online game	(d)
Technology Co., Ltd.	December 4,							development,
(上海巢淄網絡科技有限公司)	2017							promotion and
								management
Wuxi Zhongyao Network	PRC/	RMB	N/A	N/A	100%	100%	100%	Online game	(e)
Technology Co., Ltd.	January 26,	1,000,000						development,
(無錫中堯網絡科技有限公司)	2018							promotion and
								management
Shanghai Lingsu Network	PRC/	RMB	N/A	N/A	100%	100%	100%	Publication of	(e)
Technology Co., Ltd.	July 16, 2018	1,000,000						online games
(上海淩素網絡科技有限公司)
Shanghai Nong You Network	PRC	RMB	N/A	N/A	100%	100%	100%	Online game	(e)
Technology Co., Ltd.	August 8,	1,000,000						development,
(上海儂遊網絡科技有限公司)	2018							promotion and
								management
Shanghai Xifeng Network	PRC/	RMB	N/A	N/A	100%	100%	100%	Online game	(e)
Technology Co., Ltd.	October 22,	1,000,000						development,
(上海翕風網絡科技有限公司)	2018							promotion and
								management
Shanghai Tianxun Network	PRC/	RMB	N/A	N/A	100%	100%	100%	Online game	(e)
Technology Co., Ltd.	November 7,	1,000,000						development,
(上海天勛網絡科技有限公司)	2018							promotion and
								management
Shanghai Qizhou Network	PRC/	RMB	N/A	N/A	100%	100%	100%	Online game	(e)
Technology Co., Ltd.	December 10,	1,000,000						development,
(上海奇驟網絡科技有限公司)	2018							promotion and
								management
Shanghai Sheng Pi Network	PRC/	RMB	N/A	N/A	N/A	100%	100%	Online game	(e)
Technology Co., Ltd.	January 17,	1,000,000						development,
(上海聖辟網絡科技有限公司)	2019							promotion and
								management
Hawthorn Value Holdings	Hong Kong/	HKD 100,000	N/A	N/A	N/A	100%	100%	Investment	(e)
(Hong Kong) Limited	January 18,							holdings
	2019
Poplar Vale Holdings Limited	BVI/	USD 1,000,000	N/A	N/A	N/A	N/A	51%	Publication of	(a)
	July 4, 2019							online games

Notes:

• (a) No audited financial statements were issued for these subsidiaries now comprising the Target Business as there is no statutory requirement in its place of incorporation.

• (b) No audited financial statements for the year ended December 31, 2016 was prepared since it is newly incorporated in 2016. The statutory auditor of this subsidiary for the year ended December 31, 2017 and 2018 was Shanghai Ruitong CPAs (General Partnership).

– II-17 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

• (c) The statutory auditor of this subsidiary for year ended December 31, 2016, 2017 and 2018 was Zhejiang Zhijiang CPAs Co., Ltd.

• (d) No audited financial statements for the year ended December 31, 2016 and 2017 was prepared since it is newly incorporated in 2017. The statutory auditor of this subsidiary for the year ended December 31, 2018 was Shanghai Ruitong CPAs (General Partnership).

• (e) No audited financial statements have been prepared for these subsidiaries since incorporation.

The English names of the subsidiaries referred in the above represent management’s best effort in translating the Chinese names of these subsidiaries as they do not have official English names.

All companies comprising the Target Business have adopted December 31 as their financial year-end date.

The Target Business’s major subsidiaries are based in the PRC and all of their transactions are denominated in RMB. As at December 31, 2016, 2017 and 2018, and March 31, 2019, there is no significant restriction on the Target Business’s ability to access or use the assets and settle the liabilities of the Target Business.

1.3 Basis of presentation

Immediately prior to and after the Reorganization, the Target Business was carried out by the Onshore Subsidiaries. Pursuant to the Reorganization, the Target Business is ultimately controlled by the Target Company, through direct equity holding. The Target Company and those companies newly set up during the Reorganization have not been involved in any other business prior to the Reorganization and their operations do not meet the definition of a business. The Reorganization is merely a reorganization of the Target Business and does not result in any changes in business substance, nor in any management of the Target Business. Accordingly, the Historical Financial Information of the companies now comprising the Target Business is presented using the carrying value of the Target Business for all periods presented.

Intercompany transactions, balances and unrealized gains/losses on transactions between group companies are eliminated on consolidation.

2 Summary of significant accounting policies

The principally accounting policies applied for the preparation of the Historical Financial Information of the Target Business are set out as below, which have been consistently applied to the Track Record Period, unless otherwise stated.

– II-18 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

2.1 Basis of preparation

The Historical Financial Information of the Target Business have been prepared in accordance with International Financial Reporting Standards (“ IFRSs ”) issued by the International Accounting Standards Board under the historical cost convention, as modified by the revaluation of financial assets at fair value through profit or loss which are carried at fair value.

The Target Business adopted all of the new standards, amendments to standards and interpretations that have been issued and effective during the Track Record Period consistently throughout the Track Record Period, including IFRS 9 Financial Instruments, IFRS 15 Revenue from Contracts with Customers and IFRS 16 Leases.

The preparation of the financial statements in conformity with IFRSs requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Target Business’ accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4.

– II-19 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

2.2 Impact of standards issued but not yet applied by the entity

The following new standards and amendments to standards have been issued but are not effective for the Track Record Period and have not been early adopted by the Target Business:

Effective for annual periods beginning on or after

Amendments to IFRS 3 Definition of a business January 1, 2020 Amendments to IAS 1 Definition of material January 1, 2020 and IAS 8 Conceptual Framework Revised Conceptual Framework for January 1, 2020 for Financial Reporting Financial Reporting 2018 IFRS 17 Insurance contracts January 1, 2021 Amendments to IFRS 10 Sale or contribution of assets between an To be determined and IAS 28 investor and its associates or joint ventures

Management has performed an assessment on these new standards and amendments to standards, and has concluded on a preliminary basis that the adoption of these new standards and amendments to standards is not expected to have a significant effect on the Target Business’ financial performance and position.

– II-20 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

2.3 Subsidiaries

(a) Consolidation

(i) Subsidiaries

A subsidiary is an entity (including a structured entity) over which the Target Business has control. The Target Business controls an entity when the Target Business is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date on which control is transferred to the Target Business. They are deconsolidated from the date that control ceases.

The acquisition method of accounting is used to account for business combinations by the Target Business (refer to note 2.4).

Intercompany transactions, balances and unrealised gains on transactions between the Target Business companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Target Business.

Non-controlling interests in the results and equity of subsidiaries are shown separately in the combined statement of profit or loss, statement of comprehensive income, statement of changes in equity and balance sheet respectively.

(ii) Changes in ownership interests

The Target Business treats transactions with non-controlling interests that do not result in a loss of control as transactions with equity owners of the Target Business. A change in ownership interest results in an adjustment between the carrying amounts of the controlling and non-controlling interests to reflect their relative interests in the subsidiary. Any difference between the amount of the adjustment to non-controlling interests and any consideration paid or received is recognised in a separate reserve within equity attributable to owners of the Target Business.

When the Target Business ceases to consolidate or equity account for an investment because of a loss of control, joint control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in profit or loss. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts

– II-21 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

previously recognised in other comprehensive income in respect of that entity are accounted for as if the Target Business had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable IFRSs.

If the ownership interest in a joint venture or an associate is reduced but joint control or significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate.

(b) Separate financial statements

Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable costs of investment. The results of subsidiaries are accounted for by the Target Company on the basis of dividend received and receivable.

Impairment testing of the investments in subsidiaries is required upon receiving a dividend from these investments if the dividend exceeds the total comprehensive income of the subsidiary in the period the dividend is declared or if the carrying amount of the investment in the separate financial statements exceeds the carrying amount in the combined financial statements of the investee’s net assets including goodwill.

2.4 Business combinations

The acquisition method of accounting is used to account for all business combinations, regardless of whether equity instruments or other assets are acquired. The consideration transferred for the acquisition of a subsidiary comprises the:

• fair values of the assets transferred

• liabilities incurred to the former owners of the acquired business

• equity interests issued by the Target Business

• fair value of any asset or liability resulting from a contingent consideration arrangement, and

• fair value of any pre-existing equity interest in the subsidiary.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are, with limited exceptions, measured initially at their fair values at the acquisition date. The Target Business recognises any non-controlling interest in the acquired entity on an acquisition-by-acquisition basis either at fair value or at the non-controlling interest’s proportionate share of the acquired entity’s net identifiable assets.

Acquisition-related costs are expensed as incurred.

The excess of the

• consideration transferred,

• amount of any non-controlling interest in the acquired entity, and

• acquisition-date fair value of any previous equity interest in the acquired entity

over the fair value of the net identifiable assets acquired is recorded as goodwill. If those amounts are less than the fair value of the net identifiable assets of the business acquired, the difference is recognised directly in profit or loss as a bargain purchase.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognised in profit or loss.

2.5 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the executive directors of the Target Company.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

2.6 Property, plant and equipment

Property, plant and equipment are stated at historical cost less depreciation and impairment loss. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Target Business and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to the statement of profit or loss during the financial period in which they are incurred.

Depreciation on Property, plant and equipment is calculated using the straight-line method to allocate their cost to their residual values over their estimated useful lives, as follows:

• Computer and other equipment 3 years

• — Vehicles 4 years — Furniture & Office Equipment 3-5 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized within ‘Other gains/(losses), net’ in the statement of profit or loss.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

2.7 Intangible assets

(a) Goodwill

Goodwill arises on the acquisition of subsidiaries represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identified net assets acquired.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units (“ CGUs ”), or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of the CGU containing the goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognized immediately as an expense and is not subsequently reversed.

(b) Acquired intellectual property license contracts

Intellectual property license contracts acquired in a business combination are recognized initially at fair value at the acquisition date and subsequently carried at the amount initially recognized less accumulated amortization and impairment losses, if any. Separately acquired intellectual property licenses and contracts are carried at cost less accumulated amortization and impairment losses, of any. Amortization is calculated using the straight-line method to allocate the costs of acquired intellectual property license contracts over their estimated useful lives of 5 years.

2.8 Impairment of non-financial assets

Goodwill and intangible assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment, or more frequently if events or changes in circumstances indicate that they might be impaired. Other assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

independent of the cash inflows from other assets or groups of assets (cash-generating units). Non-financial assets other than goodwill that suffered an impairment are reviewed for possible reversal of the impairment at the end of each reporting period.

2.9 Financial assets

(a) Classification and measurement

The Target Business classifies its financial assets in the following measurement categories:

• those to be measured subsequently at fair value (either through other comprehensive income, or through profit or loss), and

• those to be measured at amortized cost.

The classification depends on the entity’s business model for managing the financial assets and the contractual terms of the cash flows.

For assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in equity instruments that are not held for trading, this will depend on whether the Target Business has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income.

The Target Business reclassifies debt investments when and only when its business model for managing those assets changes.

Regular way purchases and sales of financial assets are recognized on trade-date, the date on which the Target Business commits to purchase or sell the asset. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Target Business has transferred substantially all the risks and rewards of ownership.

At initial recognition, the Target Business measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss.

Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payments of principal and interest.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Debt instruments

Initial recognition and subsequent measurement of debt instruments depend on the Target Business’ business model for managing the asset and the contractual cash flow characteristics of the asset. There are three categories into which the Target Business classifies its debt instruments:

• Amortized cost: Financial assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are classified as and measured at amortized cost. A gain or loss on a debt investment measured at amortized cost which is not part of a hedging relationship is recognized in profit or loss when the asset is derecognized or impaired. Interest income from these financial assets is recognized using the effective interest rate method.

• Fair value through other comprehensive income: Financial assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are classified as and measured at fair value through other comprehensive income. Movements in the carrying amount of these financial assets are taken through other comprehensive income, except for the recognition of impairment losses or reversals, interest income and foreign exchange gains and losses which are recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss and recognized in “other gains, net” in the combined income statement. Interest income from these financial assets is recognized using the effective interest rate method.

• Fair value through profit or loss: Financial assets that do not meet the criteria for amortized cost or fair value through other comprehensive income are classified as and measured at fair value through profit or loss. A gain or loss on a debt investment measured at fair value through profit or loss which is not part of a hedging relationship is recognized in profit or loss and presented in “other gains, net” for the period in which it arises.

Equity instruments

The Target Business subsequently measures all equity investments at fair value. Where the Target Business’ management has elected to present fair value gains and losses on equity investments in other comprehensive income, there is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividends from such investments continue to be recognized in profit or loss as other income when the Target Business’ right to receive payments is established.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Changes in the fair value of financial assets at fair value through profit or loss are recognized in other gains/(losses) in the statement of profit or loss as applicable. Impairment losses (and reversal of impairment losses) on equity investments measured at fair value through other comprehensive income are not reported separately from other changes in fair value.

(b) Impairment

The Target Business assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortised cost and fair value through other comprehensive income. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

For accounts receivable and contract assets, the Target Business applies the simplified approach permitted by IFRS 9, which requires expected lifetime losses to be recognised since initial recognition.

Impairment on deposits and other receivables is measured as either 12-month expected credit losses or lifetime expected credit losses, depending on whether there has been a significant increase in credit risk since initial recognition. If a significant increase in credit risk of a deposit or receivable has occurred since initial recognition, the impairment is measured as lifetime expected credit losses.

The Target Business assesses on a forward looking basis the expected credit losses associated with its debt instruments carried at amortized cost and fair value through other comprehensive income. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

(c) Determination of fair value

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market (or in the absence of a principal market, the most advantageous market) at the measurement date.

For financial instruments traded in active markets, the determination of fair values of financial assets and financial liabilities is based on quoted market prices. For financial instruments not traded in active markets, fair value is determined using appropriate valuation techniques. Valuation techniques include the use of recent transaction prices, discounted cash flow analysis, option pricing models and others commonly used by market participants.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

For financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirely, which are described as follows:

• Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

• Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices); or

• Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

(d) Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Target Company or the counterparty.

2.10 Trade and other receivables

Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business. If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade and other receivables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less allowance for impairment.

2.11 Cash and cash equivalents

In the combined statement of cash flows, cash and cash equivalents include cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

2.12 Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

2.13 Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Trade payables are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.

Trade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

2.14 Convertible bonds

The Target Business designates the convertible bonds as financial liabilities at fair value through profit or loss. They are initially recognized at fair value. Any directly attributable transaction costs are recognized as finance costs in the combined statement of comprehensive income. Subsequent to initial recognition, the convertible bonds are carried at fair value with changes in fair value recognized in the profit or loss. The convertible bonds are classified as non-current liabilities unless the Target Business has an obligation to settle the liability within 12 months after the end of the reporting period.

A substantial modification of the terms of convertible bonds should be accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. In this regard, the terms are substantially different if the discounted present value of the cash flows under the new terms is at least 10 percent different from the discounted present value of the remaining cash flows of the original financial liability. If this test is met, the exchange is considered an extinguishment. In addition, the Target Business also assesses if the change in terms adds, removes, significantly changes to a substantive contractual term or to the nature of the overall instrument.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

2.15 Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the statement of profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively.

(a) Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Target Company’s subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

(b) Deferred income tax

Inside basis differences

Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the combined financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill, the deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Outside basis differences

Deferred income tax liabilities are provided on taxable temporary differences arising from investments in subsidiaries, associates and joint arrangements, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Target Business and it is probable that the temporary difference will not reverse in the foreseeable future. Generally the Target Business is unable to control the reversal of the temporary difference for

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

associates. Only when there is an agreement in place that gives the Target Business the ability to control the reversal of the temporary difference in the foreseeable future, deferred tax liability in relation to taxable temporary differences arising from the associate’s undistributed profits is not recognized.

Deferred income tax assets are recognized on deductible temporary differences arising from investments in subsidiaries, associates and joint arrangements only to the extent that it is probable the temporary difference will reverse in the future and there is sufficient taxable profit available against which the temporary difference can be utilised.

(c) Offsetting

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income tax assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

2.16 Employee benefits

(a) Pension and social obligations

The Target Business companies operate various defined contribution plan in accordance with the local conditions and practices in which they operate. Defined contribution plans are pensions and the other social benefit plans under which the Target Business pay fixed contributions into a separate entity. The Target Business has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The contributions are recognized as labor costs when they are due.

(b) Employee leave entitlements

Employee entitlements to annual leave are recognized when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

Employee entitlements to sick leave and maternity leave are not recognized until the time of leave.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(c) Bonus plans

The expected cost of bonuses is recognized as a liability when the Target Business has a present legal or constructive obligation for payment of bonus as a result of services rendered by employees and a reliable estimate of the obligation can be made. Liabilities for profit sharing and bonus plans are expected to be settled within 1 year and are measured at the amounts expected to be paid when they are settled.

2.17 Provisions

Provisions are recognized when the Target Business has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognized for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognized as interest expense.

2.18 Revenue recognition

The Target Business evaluated and recognized revenue based on a five step approach:

• Identify the contract(s) with a customer

• Identify the performance obligations in the contract

• Determine the transaction price

• Allocate the transaction price to each performance obligation

• Recognize revenue when each performance obligation is satisfied

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for services provided, stated net of discounts, returns and value added taxes. Revenue is recognized when or as the control of the goods or services is transferred to the customer. Depending on the terms of the contract and the laws that apply to the contract, control of the goods and services may be transferred over time or at a point in time.

(a) Online game revenue

The Target Business is a web-based and mobile online game developer. The Target Business primarily grants its online games (both self-development games and licensed games) to third-party game publishers (“ Publishers ”) to publish its online games through their own platforms, including web-based and mobile game portals, or other distribution platforms, including major social networking websites, online application stores installed in mobile, web-based and mobile game portals.

The Target Business’ online games are operated under free-to-play model whereby game players can play the games free of charge and are charged for the purchase of in-game tokens, which entitle the game players to exchange for in-game virtual items, including those consumable and durable virtual items. Proceeds earned from selling in-game tokens are collected by the Publishers or its designated payment platform and shared between the Target Business and the Publishers based on a pre-determined rate.

The Target Business reports revenue on a gross or net basis depending on whether the Target Business is acting as a principal or an agent in a transaction. The Target Business is a principal if it controls the specified product or service before that product or service is transferred to a customer or it has a right to direct others to provide the product or service to the customer on the Target Business’ behalf. Indicators that the Target Business is a principal include but not limited to whether the Target Business (i) is the primary obligor in the arrangement; (ii) has latitude in establishing the selling price; (iii) has discretion in supplier selection; (iv) changes the product or performs part of the service, and (v) has involvement in the determination of product or service specifications.

(i) When the Target Business acts as a principal

There were game distribution arrangements under which the Target Business takes primary responsibilities of further game development and updates, game operation, including providing customer services, hosting game servers, if needed, and controlling pricing and game and services specifications during the license period. The Target Business bears the cost incurred to further develop the game. Under this type of game distribution arrangement, the Target Business

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

considered itself as a principal in this arrangement. Accordingly, the Target Business records the online game revenue on a gross basis. Commission fees paid to Publishers and amortization of license fees paid to third party game developers are recorded as cost of revenues.

The Target Business is obligated to provide on-going services to the game players and such obligation is not deemed to be inconsequential after game players purchase in-game virtual items. Revenue is recognized when the Target Business satisfies its performance obligations, i.e. point in time for the consumable virtual items upon consumed and over the estimated playing period of paying players (“ Player Relationship Period ”) for the durable virtual items, given there is an implicit obligation of the Target Business to maintain and allow access of the players to the games operated by the Target Business.

Estimation of Player Relationship Period

The Target Business estimates the Player Relationship Period and re-assesses such periods semi-annually. If there is insufficient data to determine the Player Relationship Period, such as in the case of a newly launched game, it estimates the Player Relationship Period based on other similar types of games developed by the Target Business until the new game establishes its own patterns and history. The Target Business also considers the games profile, target audience, and its appeal to players of different demographics groups in estimating the Player Relationship Period. Adjustments arising from changes in the estimated useful lives of durable virtual items are applied prospectively.

(ii) When the Target Business acts as an agent

Licensed games

With respect to certain of the Target Business’ license arrangements of its licensed games entered during the Track Record Period, there are some license arrangements under which the Publishers are responsible for determining payment channels, hosting and maintenance of game servers for game operation providing customer service as well as marketing activities. The Target Business’ responsibilities are delivering games to Publishers, and thus the Target Business views the game developers to be its customers and considers itself as the agent of game developers in the arrangements with Publishers, as the Target Business does not have the primary responsibility to game developers for the service provided by these Publishers. Proceeds from users are collected by the Publishers or its designated payment platform and shared with the Target Business based on a pre-determined rate. Accordingly, the Target Business records revenue on a net basis, being the net proceed received from the Publishers, and amounts paid to game developers are deducted from revenue.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(b) Revenue from intellectual property licensing

The Target Business also generates revenue from licensing its copyrights to other online game companies for agreed periods. The license fees normally comprise of a fixed license fees (either up-front or under specific payment schedule) and variable fees calculated based on a predetermined terms.

The fixed license fee from licensing agreements is recognized as revenue at the point in time when the license has been transferred to the licensee when it is considered to be a right to use arrangement, or it is recognized as revenue rateably over the license period when it is considered to be a right to access arrangement. The variable license fees which are contingent upon future events (future cash paid by game players collected by the Publishers related to the licensed game title) are recognized when the contingency is met provided that collectability is reasonably assured.

(c) Sales of customization game software

The Target Business is entrusted to provide customization game software to third parties. Revenue is recognized at a point in time when the services are rendered to third parties.

(d) Sales of game copyrights

Revenue from the sale of game copyrights is recognised at a point in time when control of the asset is transferred to the customer, generally on delivery of the game software master copy and completion of the registration change of game copyrights.

(e) Contract liabilities and contract costs

A contract liability is the Target Business’ obligation to transfer goods or services to a customer for which the Target Business has received consideration (or an amount of consideration is due) from the customer. The Target Business’ contract liabilities mainly comprise of revenue sharing received in advance from customers, the unamortised revenue from sales of virtual items for online games and the up-front license fee paid by licensees, where there is still an implied obligation to be provided by the Target Business and will be recognised as revenue when all of the revenue recognition criteria are met.

Contract costs are mainly related to contract fulfilment costs, which primarily consist of unamortised commission costs charged by the Publishers. The Target Business recognises contract costs in relation to commission charged by the Publishers, which meet contract acquisition cost

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

criteria as an incremental cost of acquiring a customer contract. They are capitalised as contract fulfilment costs and amortised over their respective Player Relationship Periods, which is consistent with the pattern of recognition of the associated revenue.

2.19 Research and development costs

The expenditure on an internal research and development project is classified into research cost and development cost based on its nature and whether there is material uncertainty that the research and development activities can form an intangible asset at end of the project.

Research cost is recognized in profit or loss in the period in which it is incurred. Development cost is capitalize only if all of the following conditions are satisfied:

• It is technically feasible to complete the intangible asset so that it will be available for use or sale;

• Management intends to complete the intangible asset, and use or sell it;

• Management ability to use or sell the intangible asset;

• It can be demonstrated how the intangible asset will generate economic benefits;

• There are adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

• The expenditure attributable to the intangible asset during its development phase can be reliably measured.

The development cost of an internally generated intangible asset is the sum of the expenditure incurred from the date the asset meets the recognition criteria above to the date when it is available for use. The development costs capitalized in connection with the intangible asset include costs of materials and services used or consumed and employee costs incurred in the creation of the asset.

Capitalized development costs are amortized using the straight-line method over their estimated useful lives.

Development costs not satisfying the above criteria are recognized in the profit or loss as incurred. Development costs previously recognized as expenses are not recognized as an asset in a subsequent period.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

During the Track Record Period, the Target Business did not capitalized any development costs.

2.20 Government Grants

Grants from the government are recognized at their fair value where there is a reasonable assurance that the grant will be received and the Target Business will comply with all attached conditions. Government grants relating to costs are deferred and recognized in the profit or loss over the period necessary to match them with the costs that they are intended to compensate. Government grants relating to property and equipment are included in non-current liabilities as deferred government grants and are credited to the profit or loss on a straight-line basis over the expected lives of the related assets.

2.21 Leases

The Target Business leases various properties to operate its business. Property leases are typically made for fixed periods of 1 to 2 years. Lease terms are negotiated case by case, each with different terms and conditions.

Leases are recognised as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Target Business. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease term on a straight-line basis.

Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

• fixed payments (including in-substance fixed payments), less any lease incentives receivable;

• variable lease payment that are based on an index or a rate;

• amounts expected to be payable by the lessee under residual value guarantees;

• the exercise price of a purchase option if the lessee is reasonably certain to exercise that option, and

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

• payments of penalties for terminating the lease, if the lease term reflects the lessee exercising that option.

The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined, or the Target Business’ incremental borrowing rate.

Right-of-use assets are measured at cost comprising the following:

• the amount of the initial measurement of lease liability;

• any lease payments made at or before the commencement date less any lease incentives received;

• any initial direct costs, and

• restoration costs.

Payments associated with short-term leases are exempted from applying IFRS 16, and recognised on a straight-line basis as expenses in the combined statements of total comprehensive income. Short-term leases are leases with a lease term of 12 months or less. The Target Business adopted the exemption for all short-term leases.

2.22 Dividend distribution

Dividend distribution to the Target Company’s owners is recognized as a liability in the Target Business’ financial statements in the period in which the dividends are approved by the Target Company’s owners or directors, where appropriate.

3 Financial risk management

3.1 Financial risk factors

The Target Business’ activities expose it to a variety of financial risks: market risk (including foreign exchange risk, price risk and cash flow and fair value interest rate risk), credit risk and liquidity risk. The Target Business’ overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Target Business’ financial performance. Risk management is carried out by the senior management of the Target Business.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(a) Market risk

• (i) Foreign exchange risk

The Target Business’ business is conducted in RMB. The Target Business has no significant foreign exchange risk due to limited foreign currency transactions other than the functional currency.

(ii) Price risk

The Target Business is exposed to price risk in respect of investments held by the Target Business that are classified on the combined balance sheets as financial assets at fair value through profit or loss. The Target Business is not exposed to commodity price risk. Each investment is managed by senior management on a case by case basis.

In respect of the Target Business’ financial assets at fair value through profit or loss, the sensitivity analysis is determined based on the exposure to price risk of the investments at the end of the reporting period. If the fair value of the respective investments held by the Target Business had been 5% higher/lower, the post-tax loss for the period ended December 31, 2016 and the year ended December 31, 2017 would have nil impact, and the post-tax profit for 2018 and three months ended March 31, 2019 would have been approximately RMB65,000 and RMB63,000 higher/lower, respectively.

(iii) Cash flow and fair value interest rate risk

As at December 31, 2016, 2017 and 2018 and three months ended March 31, 2019, the Target Business has no interest-bearing borrowing and is not subject to cash flow and fair value interest rate risk.

Other than interest-bearing cash and cash equivalents, the Target Business has no other significant interest-bearing assets. The directors of the Target Company do not anticipate there is any significant impact to interest-bearing assets resulted from the changes in interest rates, because the interest rates of bank balances and financial assets are not expected to change significantly.

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APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(b) Credit risk

Credit risk arises from cash and cash equivalents placed with banks, trade receivables and other loan and receivables. The carrying amount of each class of the above financial assets represent the Target Business’ maximum exposure to credit risk in relation to the corresponding class of financial assets.

(i) Risk management

Credit risk is managed on group basis. Finance team is responsible for managing and analysing the credit risk for each of their new clients before the payment terms are offered. The Target Business assesses the credit quality of its customers and other debtors by taking into account various factors including their financial position, past experience and other factors.

Cash and cash equivalents are mainly placed with state-owned financial institutions in the PRC. There has been no recent history of default in relation to these financial institutions. The expected credit loss is assessed close to zero.

(ii) Impairment of financial assets

The Target Business has two types of financial assets that are subject to the expected credit loss model: trade receivables and other receivables.

The Target Business applies the IFRS 9 simplified approach to measure expected credit losses which uses a lifetime expected loss allowance for all trade receivables. To measure the expected credit losses, trade receivables have been grouped based on shared credit risk characteristics and the days past due.

Other receivables is measured as either 12-month expected credit losses or lifetime expected credit losses, depending on whether there has been a significant increase in credit risk since initial recognition.

The expected loss rates are based on the payment profiles of revenues over a period of 12 month before December 31, 2016, 2017 and 2018 and March 31, 2019, and the corresponding historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of the customers to settle the receivables. The Target Business has identified the GDP of PRC, and accordingly adjusts the historical loss rates based on expected changes in these factors.

– II-41 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

On that basis, the net impairment losses on financial assets for the year/period ended December 31, 2016, 2017 and 2018 and March 31, 2019 was determined as follows:

			Net
			impairment
			losses on
	Expected	Basis for recognition of	financial
Receivables	credit loss	expected credit loss provision	assets
			RMB’000
Year ended December 31,
2016
Other receivables	Immaterial	12-month expected credit losses	—
Year ended December 31,
2017
Trade receivables	1.1%	Life time expected credit losses	184
Other receivables	0.7%	12-month expected credit losses	886
Year ended December 31,
2018
Trade receivables	8.1%	Life time expected credit losses	9,699
Other receivables	Immaterial	12-month expected credit losses	(604)
Three months ended
March 31, 2019
Trade receivables	11.1%	Life time expected credit losses	5,287
Other receivables	Immaterial	12-month expected credit losses	—

– II-42 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

The closing loss allowances for trade receivables as at December 31, 2016, 2017 and 2018 and March 31, 2019 reconcile to the opening loss allowances as follows:

	Period from
	January 6,
	2016 (date of
	incorporation)
	to	Year ended		Three months ended
	December 31,	December 31,		March 31,
	2016	2017	2018	2018	2019
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
At beginning of the
period/year	—	—	(374)	(374)	(9,981)
Acquisition of subsidiaries	—	(220)	—	—	—
Provision for impairment	—	(184)	(9,699)	(1,325)	(5,827)
Receivables written off during
the year as uncollectible	—	30	92	63	16
At end of the period/year	—	(374)	(9,981)	(1,636)	(15,792)

Trade receivables are written off when there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include, amongst others, the failure of a debtor to engage in a repayment plan with the Target Business, and suffering from severe financial difficulty.

Impairment losses on trade receivables are presented as net impairment losses on financial assets within operating profit. Subsequent recoveries of amounts previously written off are credited against the same line item.

(c) Liquidity risk

The Target Business aims to maintain sufficient cash and cash equivalents. Due to the dynamic nature of the underlying businesses, the Target Business’ finance department maintains flexibility in funding by maintaining adequate cash and cash equivalents.

– II-43 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Target Business At December 31, 2016 Trade and other payables (excluding advance, staff payroll and welfare payables, government grants and other taxes payables) (Note 22) At December 31, 2017 Trade and other payables (excluding advance, staff payroll and welfare payables, government grants and other taxes payables) (Note 22) Lease liabilities At December 31, 2018 Trade and other payables (excluding advance, staff payroll and welfare payables, government grants and other taxes payables) (Note 22) Lease liabilities At March 31, 2019 Trade and other payables (excluding advance, staff payroll and welfare payables, government grants and other taxes payables) (Note 22) Financial liabilities at fair value through profit or loss (Note 16) Lease liabilities	Less than 1 year RMB’000 327 327 90,546 1,899 92,445 28,658 731 29,389 30,483 2,000 125 32,608	Between 1 and 2 years RMB’000 — — — 731 731 — — — — — — —	Total RMB’000 327
			327
			90,546 2,630
			93,176
			28,658 731
			29,389
			30,483 2,000 125
			32,608

– II-44 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

3.2 Capital management

The Target Business’ objectives when managing capital are to safeguard the Target Business’ ability to continue as a going concern in order to provide returns for owners and benefits for other owners and to maintain an optimal capital structure to reduce the cost of capital.

The Target Business monitors capital by regularly reviewing the capital structure. As a part of this review, the directors of the Target Company considers the cost of capital and the risks associated with the issued share capital. The Target Business may adjust the amount of dividends paid to owners, return capital to owners, issue new shares or repurchase the Target Company’s shares. In the opinion of the directors of the Target Company, the Target Business’ capital risk is low.

3.3 Fair value estimation

As at December 31, 2016 and 2017, the Target Business did not have any financial instruments carried at fair value. As at December 2018 and March 31, 2019, all of the Target Business’ financial instruments carried at fair value that were categorized into level 3, including the following:

As at December 31, 2018 Financial assets at fair value through profit or loss (Note 15) Financial liabilities at fair value through profit or loss (Note 16) As at March 31, 2019 Financial assets at fair value through profit or loss (Note 15) Financial liabilities at fair value through profit or loss (Note 16)	RMB’000 1,440 —
	1,440
	1,440 2,000
	3,440

As at December 31, 2016, 2017 and 2018, and March 31, 2019, none of the Target Business’ financial liabilities are measured at fair value.

The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis. These instruments are included in level 1.

– II-45 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

The fair value of financial instruments that is not traded in an active market (for example, over-the-counter derivatives) is determined by using valuation techniques. These valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

Specific valuation techniques used to value financial instruments include:

• Quoted market prices or dealer quotes for similar instruments.

• Other techniques, such as discounted cash flow analysis, are used to determine fair value for financial instruments.

The changes in level 3 instruments of financial assets at fair value through profit or loss and financial liability at fair value through profit or loss for the years ended December 31, 2016, 2017 and 2018 and three months ended March 31, 2019 have been disclosed in Note 15 and 16.

The Target Business’ level 3 instruments represented investments in unlisted equity securities mainly comprise of equity investments in private game companies at start-up stage and a convertible bond. As these instruments are not traded in an active market, and the transaction date is close to the balance sheet date, their fair values are considered approximate to initial transaction cost.

4 Critical accounting estimates and judgments

Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Target Business makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

– II-46 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(a) Estimates of Player Relationship Period in the Target Business’ online game services

As described in Note 2.18, the Target Business recognizes certain revenue from sale of in-game durable virtual items in online game services ratably over the Player Relationship Period. The determination of the Player Relationship Period for relevant in-game virtual items requires significant judgement and estimates by the management. These judgements and estimates included (i) the determination of key assumptions applied in the expected Player Relationship Period, including but not limited to the observation of historical paying players’ behaviour, log-in records, churn rates and games life-cycle; and (ii) the identification of events that may trigger changes in the expected Player Relationship Period. Such estimates are subject to re-evaluation on a semi-annual basis. Any adjustments arising from changes in the Player Relationship Period as a result of new information will be accounted for as a change in accounting estimate.

(b) Fair value measurement of level 3 financial assets

The fair value of financial assets that are not quoted in active markets is determined by using different valuation techniques, which requires selection of significant unobservable inputs in the valuation process. Changes in these assumptions and estimates could materially affect the respective fair value of these financial assets.

(c) Impairment provision for trade and other receivable

The impairment provisions for trade and other receivables are based on assumptions about the expected credit loss rates. The Target Business uses judgements in making these assumptions and selecting the inputs to the impairment calculation, based on the Target Business’ historical data, existing market conditions as well as forward looking information at the end of each reporting period. For details of the key assumptions and inputs used, refer to Note 3.1 (b), Note 17 and Note 18. Changes in these assumptions and estimates could materially affect the result of the assessment and it may be necessary to make additional impairment charge to the combined statements of profit or loss.

5 Segment information and revenue

The Target Business’ business activities, for which discrete financial statements are available, are regularly reviewed and evaluated by the chief operating decision maker. As a result of this evaluation, the directors of the Target Company consider that the Target Business’ operations are operated and managed as a single segment and no segment information is presented, accordingly.

As at December 31, 2016, 2017 and 2018 and March 31, 2019, substantially, all of the non-current assets of the Target Business other than certain long-term receivables were located in the PRC.

– II-47 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Revenue for the Track Record Period are as follows:

Period from

Period from
January 6,
2016 (date of
incorporation)
to	Year ended		Three months ended
December 31,	December 31,		March 31,
2016	2017	2018	2018	2019
RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
			(Unaudited)

Online Game Revenue — Principal (self-development games) published by the Target Business published by other publishers — Agent (licensed games) published by other publishers Revenue from intellectual property licensing — A right to use license — A right to access license — Technical support and upgrades service Sales of customization game software Sales of game copyrights	— — 235 — — — — — 235	— — 1,788 21,332 37,299 — — — 60,419	1,681 107,752 18,275 57,974 33,543 — 21,698 — 240,923	— 19,751 21 3,150 12,578 — — — 35,500	103 28,281 2,027 42,517 — 229 31 9,434
					82,622

– II-48 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Period from

January 6, 2016 (date of incorporation)

	incorporation)
Timing of revenue recognition At a point in time Over time	to December 31, 2016 RMB’000 235 — 235	Year ended December 31, 2017 2018 RMB’000 RMB’000 23,120 97,947 37,299 142,976 60,419 240,923	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 3,171 54,009 32,329 28,613 35,500 82,622
				82,622

During the period ended December 31, 2016, no revenue was derived from a single external customer accounted for more than 10% of the total revenue.

During the year ended December 31, 2017, revenue of approximately RMB37,299,000 and RMB6,548,000 were derived from single external customers accounted for more than 10% of the total revenue.

During the year ended December 31, 2018, revenues of approximately RMB33,543,000 and RMB32,013,000 were derived from respective single external customers each accounted for more than 10% of total revenue.

During the three months ended March 31, 2018, revenues of approximately RMB12,579,000 was derived from a single external customer each accounted for more than 10% of total revenue.

During the three months ended March 31, 2019, revenues of approximately RMB24,434,000 and RMB15,923,000 were derived from respective single external customers each accounted for more than 10% of total revenue.

– II-49 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

The Target Business has recognized the following assets and liabilities related to contracts with customers:

Contract fulfilment costs Current — Costs to obtain contracts for online game revenue Contract liabilities Current — Unamortised revenue from sales of in-game virtual items — Revenue sharing received in advance — Unamortised balance of the up-front license fees — Received in advance from sales of software copyrights and customization game software Total contract liabilities	As 2016 RMB’000 — — 1,682 — — 1,682	at December 31, 2017 2018 RMB’000 RMB’000 — 7,243 — 12,071 25,592 8,448 12,802 — — — 38,394 20,519	As at March 31, 2019 RMB’000 7,408
			12,347 3,391 — 5,050
			20,788

Contract costs are mainly related to contract fulfilment costs, which primarily consist of unamortised commission costs charged by the Publishers. They are capitalised as contract fulfilment costs and amortised over their respective Player Relationship Periods, which is consistent with the pattern of recognition of the associated revenue.

Contract liabilities primarily represented the unamortized revenue derived from sale of in-game virtual items in the Target Business’ online game services, the fixed license fee, revenue sharing received in advance from customers, and revenue received in advance from sales of software copyrights and customization game software which the Target Business continued to have obligations as at the reporting date.

– II-50 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(i) Revenue recognised in relation to contract liabilities

The following table shows how much of the revenue recognised in the current reporting period relates to carried-forward contract liabilities.

Revenue recognized during the year that was included in the contract liabilities balance at the beginning of the year/period — Unamortised revenue from sales of in-game virtual items — Revenue sharing received in advance — Unamortised balance of the up-front license fees	Period from January 6, 2016 (date of incorporation) to December 31, 2016 RMB’000 — — — —	Year ended December 31, 2017 2018 RMB’000 RMB’000 — — — 22,222 — 12,802 — 35,024	Three months ended March 31 2018 2019 RMB’000 RMB’000 (Unaudited) — 12,071 8,333 57 5,000 — 13,333 12,128	Three months ended March 31 2018 2019 RMB’000 RMB’000 (Unaudited) — 12,071 8,333 57 5,000 — 13,333 12,128
				12,128

– II-51 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(ii) Unsatisfied long-term online game license arrangements

The following table shows unsatisfied performance obligations resulting from fixed long-term license fee or advanced revenue sharing in the online game license arrangements.

	Period from
	January 6,
	2016 (date of
	incorporation)
	to	Year ended		Three months ended
	December 31,	December 31,		March 31,
	2016	2017	2018	2018	2019
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Aggregate amount of the
transaction price allocated to
long-term online game
license arrangements that are
partially or fully unsatisfied
as at year/period end	—	35,024	5,000	21,690	—

The Target Business expects that the transaction price allocated to the unsatisfied contracts as of December 31, 2016, 2017 and 2018 and March 31, 2018 and 2019 will be recognised as revenue within one year.

The amount disclosed above does not include variable consideration which is constrained.

All other long-term online game license arrangements are for periods of one year or less or are billed based on time incurred. As permitted under IFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed.

– II-52 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

6 Other income

Interest income from loan to third parties Government grants Others	Period from January 6, 2016 (date of incorporation) to December 31, 2016 RMB’000 — — — —	Year ended December 31, 2017 2018 RMB’000 RMB’000 2,050 943 984 194 — — 3,034 1,137	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 943 — — — — 34 943 34	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 943 — — — — 34 943 34
				34

– II-53 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

7 Expenses by nature

Period from

Employee benefit expense (Note 8) Service charges by game distribution channels Promotion and advertising expenses Utilities and office expenses Expense relating to short-term leases Outsourced technical services Depreciation of property, plant and equipment and right-of-use assets (Note 11 and 12) Amortization of intangible assets (Note 13) Bandwidth and servers custody fee Auditors’ remuneration Other professional consulting fee Tax and levies Others	January 6, 2016 (date of incorporation) to December 31, 2016 RMB’000 1,220 — 533 18 — 21 — — 158 10 — 6 12 1,978	Year ended December 31, 2017 2018 RMB’000 RMB’000 10,731 20,986 — 64,651 1,415 678 771 434 37 71 6,480 7,316 1,419 2,048 17,387 29,922 2,000 2,701 416 40 — 786 833 1,336 628 625 42,117 131,594	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 2,080 10,361 11,850 17,035 — — 61 571 10 10 3,130 661 508 469 7,472 7,584 735 486 — — — 1,147 310 287 179 737 26,335 39,348	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 2,080 10,361 11,850 17,035 — — 61 571 10 10 3,130 661 508 469 7,472 7,584 735 486 — — — 1,147 310 287 179 737 26,335 39,348
				39,348

– II-54 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

8 Employee benefit expense

Wages and salaries Bonuses Other social security costs, housing fund and other employee benefits Pension costs — defined contribution plans	Period from January 6, 2016 (date of incorporation) to December 31, 2016 RMB’000 878 — 174 168 1,220	Year ended December 31, 2017 2018 RMB’000 RMB’000 4,124 10,002 5,500 8,824 541 1,035 566 1,125 10,731 20,986	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 1,676 8,030 — — 204 1,134 200 1,197 2,080 10,361	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 1,676 8,030 — — 204 1,134 200 1,197 2,080 10,361
				10,361

– II-55 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(a) Five highest paid individuals

The five individuals whose emoluments were the highest in the Target Business for the period ended December 31, 2016, year ended December 31, 2017 and 2018, and three months ended March 31, 2018 and 2019 include nil, nil, nil, nil and one director whose emoluments are reflected in analysis shown in note (c) below. The emoluments payable to the remaining five, four, four, four and four individuals for each of the period ended December 31, 2016, year ended December 31, 2017 and 2018, and three months ended March 31, 2018 and 2019 are as follows:

January 6, 2016 (date of incorporation)

Basic salaries Bonuses Pension costs — defined contribution plans Other social security costs, housing fund and other employee benefits Total	to December 31, 2016 RMB’000 107 — 21 21 149	Year ended December 31, 2017 2018 RMB’000 RMB’000 424 1,157 420 652 41 40 39 39 924 1,888	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 265 537 — — 8 33 9 43 282 613	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 265 537 — — 8 33 9 43 282 613
				613

(b) The emoluments fell within the following band:

Number of individuals

			January 6,
			2016 (date of
			incorporation)
			to	Year ended		Three months ended
			December 31,	December 31,		March 31,
			2016	2017	2018	2018	2019
						(Unaudited)
Nil	to	HK$500,000	5	5	5	5	4

– II-56 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

• (c) Benefits and interests of directors

(i) Directors’ and the chief executive’s emoluments

The remuneration of each director for the Track Record Period is set out as below:

Period ended December 31, 2016 Li Li (Note a) Total Year ended December 31, 2017 Li Li (Note a) Shi Hao (Note b) Total Year ended December 31, 2018 Shi Hao (Note b) Zhang Cheng (Note c) Liu Xianpeng (Note d) Total (Unaudited) Three months ended March 31, 2018 Shi Hao (Note b) Total Three months ended March 31, 2019 Liu Xianpeng (Note d) Total	Salary RMB’000 — — — — — — 175 127 302 — — 82 82	Pension costs- defined contribution cost RMB’000 — — — — — — 8 4 12 — — 13 13	Other social security costs, housing fund and other employee benefits RMB’000 — — — — — — 7 4 11 — — 12 12	Total RMB’000 —
				—
				— —
				—
				— 190 135
				325
				—
				—
				107
				107

– II-57 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Notes:

• (a) Mr. Li Li was appointed as a director of the Target Business on January 1, 2016 and resigned as a director on Mar 31, 2017.

• (b) Mr. Shi Hao was appointed as a director of the Target Business on April 1, 2017 and resigned as a director on Mar 24, 2018.

• (c) Mr. Zhang Cheng was appointed as a director of the Target Business on March 25, 2018 and resigned as a director on Nov 22, 2018.

• (d) Mr. Liu Xianpeng was appointed as directors of the Target Business on November 23, 2018.

(ii) Director’s retirement benefits and termination benefits

None of the directors received or will receive any retirement benefits or termination benefits during the Track Record Period.

(iii) Consideration provided to third parties for making available director’s services

During the Track Record Period, the Target Company did not pay consideration to any third parties for making available directors’ services.

• (iv) Information about loans, quasi-loans and other dealings in favour of directors, controlled bodies corporates by and controlled entities with such directors

Save as disclosed in Note 24, there is no loans, quasi-loans and other dealing arrangement in favor of directors, or controlled body corporates and connected entities of such directors during the Track Record Period.

(v) Directors’ material interest in transactions, arrangements or contracts

There is no significant transactions, arrangements and contracts in relation to the Target Business in which the Target Company was a party and in which a director of the Target Company had a material interest, whether directly or indirectly subsisted at the end of the year or at any time during 2018.

– II-58 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

9 Finance costs, net

Period from January 6, 2016

Finance income Interest income Finance costs Interest on lease liabilities	(date of incorporation) to December 31, 2016 RMB’000 — — — — —	Year ended December 31, 2017 2018 RMB’000 RMB’000 83 87 83 87 (118) (78) (118) (78) (35) 9	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 19 16 19 16 (28) (6) (28) (6) (9) 10

10 Income tax expense

The income tax expense of the Target Business during the Track Record Period is analysed as follows:

Period from

January 6, 2016

Current income tax Deferred income tax	(date of incorporation) to December 31, 2016 RMB’000 — (436) (436)	Year ended December 31, 2017 2018 RMB’000 RMB’000 6,163 8,571 (1,873) (6,369) 4,290 2,202	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 2,400 8,746 (1,379) (3,851) 1,021 4,895

– II-59 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(a) PRC Enterprise Income Tax (“EIT”)

The income tax provision of the Target Business in respect of its operations in PRC was calculated at the tax rate of 25% on the assessable profits, except for stated below.

Shanghai Xinla and Hangzhou Shengfeng were accredited as “software enterprises” under the relevant PRC laws and regulations in 2018 and 2015, respectively. Pursuant to the relevant tax circular, they are both subject to a two-year “EIT” exemption period, followed by a three-year period with 50% reduction in the applicable income tax rate (i.e. 12.5%). The preferential tax period commences either from the first year of commercial operations or from the first year of profitable operation after offsetting tax losses generating from prior years. Therefore, the directors of the Target Company considered that Shanghai Xinla is entitled to an income tax rate of 25% for PRC EIT for the year ended December 31, 2016 and 2017, and entitled to income tax exemption for the year ended December 31, 2018. Hangzhou Shengfeng was currently entitled to a preferential income tax rate of 12.5% for the year ended December 31, 2017, 2018 and 2019.

Huoerguosi 39 was incorporated in a special economic development zone under relevant PRC laws and regulations in 2017 and is entitled to a tax concession of exemption from EIT until December 31, 2020, commencing either from the first year of commercial operations or from the first year of profitable operation after offsetting tax losses generating from prior years, whichever is later.

– II-60 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

The tax on the Target Business’ profit before tax differs from the theoretical amount that would arise using the PRC statutory income tax rate as follows:

(Loss)/Profit before income tax Tax calculated at PRC statutory tax rate of 25% Tax effects of: Effects of preferential income tax benefits of certain subsidiaries Additional deduction for research and development expenses Different tax rate applied for deferred tax due to future tax rate change Expenses not deductible for tax purposes Unrecognized tax loss (note (b)) Income tax expenses	Period from January 6, 2016 (date of incorporation) to December 31, 2016 RMB’000 (1,743) (436) — — — — — (436)	Year ended December 31, 2017 2018 RMB’000 RMB’000 20,245 101,375 5,061 25,344 (3,387) (24,446) (41) (192) 19 (1,551) 2,238 2,451 400 596 4,290 2,202	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 5,145 37,484 1,286 9,371 (697) (8,571) (25) (244) — — 312 3 145 4,336 1,021 4,895

– II-61 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(b) Tax losses

Unused tax losses for which no deferred tax asset has been recognised Potential tax benefit	Period from January 6, 2016 (date of incorporation) to December 31, 2016 RMB’000 — —	Year ended December 31, 2017 2018 RMB’000 RMB’000 1,599 2,385 400 596	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 581 17,343 145 4,336	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 581 17,343 145 4,336
				4,336

The unused tax losses were incurred by some of the Target Company’s dormant subsidiaries that is not likely to generate taxable income in the foreseeable future. They can be carried forward for 5 years according to the tax law. See note 21 for information about recognised tax losses.

– II-62 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

11 Property, plant and equipment

At January 6, 2016 (date of incorporation), December 31, 2016 and January 1, 2017 Cost Accumulated depreciation Net book amount Year ended December 31, 2017 Opening net book amount Acquisition of subsidiaries (Note 24) Additions Depreciation charge (Note 7) Closing net book amount At December 31, 2017 Cost Accumulated depreciation Net book amount Year ended December 31, 2018 Opening net book amount Additions Disposal Depreciation charge (Note 7) Closing net book amount At December 31, 2018 Cost Accumulated depreciation Net book amount	Computer & other equipment RMB’000 — — — — 243 314 (92) 465 557 (92) 465 465 196 (3) (248) 410 698 (288) 410	Furniture & office equipment RMB’000 — — — — 55 78 (12) 121 133 (12) 121 121 — (1) (26) 94 131 (37) 94	Vehicles RMB’000 — — — — 584 — (122) 462 584 (122) 462 462 — (1) (208) 253 578 (325) 253	Total RMB’000 — — — — 882 392 (226) 1,048 1,274 (226) 1,048 1,048 196 (5) (482) 757 1,407 (650) 757

– II-63 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(Unaudited) Three months period ended March 31, 2018 Opening net book amount Additions Disposal Depreciation charge (Note 7) Closing net book amount At March 31, 2018 Cost Accumulated depreciation Net book amount Three months period ended March 31, 2019 Opening net book amount Additions Disposal Depreciation charge (Note 7) Closing net book amount At March 31, 2019 Cost Accumulated depreciation Net book amount	Computer & other equipment RMB’000 465 76 — (58) 483 633 (150) 483 410 55 (7) (62) 396 605 (209) 396	Furniture & office equipment RMB’000 121 — — (7) 114 133 (19) 114 94 7 — (8) 93 138 (45) 93	Vehicles RMB’000 462 — — (52) 410 584 (174) 410 253 — — (52) 201 578 (377) 201	Total RMB’000 1,048 76 — (117) 1007 1,350 (343) 1,007 757 62 (7) (122) 690 1,321 (631) 690

All depreciation expense have been charged to combined statements of income within administrative expenses during the Track Record Period.

– II-64 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

12 Leases

(a) Amounts recognised in the balance sheet

The balance sheet shows the following amounts relating to leases:

Right-of-use assets Buildings Lease liabilities Current Non-current	As 2016 RMB’000 — — — — —	at December 31, 2017 2018 RMB’000 RMB’000 2,274 708 2,274 708 1,810 725 725 — 2,535 725	As at March 31, 2019 RMB’000 361
			361
			303 —
			303

(b) Amounts recognised in the statement of profit or loss

The statement of profit or loss shows the following amounts relating to leases:

Period from January 6, 2016 (date of incorporation)

	to	Year ended		Three months ended	Three months ended
	December 31,	December 31,		March 31,
	2016	2017	2018	2018	2019
	RMB’000	RMB’000	RMB’000	RMB’000	RMB’000
				(Unaudited)
Depreciation charge of
right-of-use assets (Note 7)	—	1,193	1,566	391	347
Interest expense (included in
finance cost) (Note 9)	—	118	78	28	6
Expense relating to short-term
leases (included in research
and development expense and
administrative expenses)
(Note 7)	—	37	71	10	10

– II-65 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

13 Intangible assets

At January 6, 2016 (date of incorporation), December 31, 2016 and January 1, 2017 Cost Accumulated amortization Net book amount Year ended December 31, 2017 Opening net book amount Acquisition of subsidiaries (Note 24) Amortization charge (Note 7) Closing net book amount At December 31, 2017 Cost Accumulated amortization Net book amount At December 31, 2018 Opening net book amount Additions Amortization charge (Note 7) Closing net book amount At December 31, 2018 Cost Accumulated amortization Net book amount	Goodwill RMB’000 — — — — 360,744 — 360,744 360,744 — 360,744 360,744 — — 360,744 360,744 — 360,744	Intellectual property licenses contracts RMB’000 (note) — — — — 149,034 (17,387) 131,647 149,034 (17,387) 131,647 131,647 377 (29,922) 102,102 149,411 (47,309) 102,102	Total RMB’000 — — — — 509,778 (17,387) 492,391 509,778 (17,387) 492,391 492,391 377 (29,922) 462,846 510,155 (47,309) 462,846

– II-66 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(Unaudited) Three months ended March 31, 2018 Opening net book amount Additions Amortization charge (Note 7) Closing net book amount At March 31, 2018 Cost Accumulated amortization Net book amount Three months ended March 31, 2019 Opening net book amount Additions Amortization charge (Note 7) Closing net book amount At March 31, 2019 Cost Accumulated amortization Net book amount	Goodwill RMB’000 360,744 — — 360,744 360,744 — 360,744 360,744 — — 360,744 360,744 — 360,744	Intellectual property licenses contracts RMB’000 (note) 131,647 377 (7,472) 124,552 149,411 (24,859) 124,552 102,102 966 (7,584) 95,484 150,377 (54,893) 95,484	Total RMB’000 492,391 377 (7,472) 485,296 510,155 (24,859) 485,296 462,846 966 (7,584) 456,228 511,121 (54,893) 456,228

Note:

The Target Business’s intellectual property licenses contract was obtained from a third party for a period of 5 years until May 2022, of which the intellectual property license is under the joint ownership of the grantor’s affiliate company. The directors of the Company is aware that the affiliate company of the grantor was under certain legal dispute in respect of the intellectual property license. The directors of the Company, with the advice from its legal advisor, are considered that the likelihood of the Target Business being subject to legal claim is low, and will not result in any material impact on the legality of Target Business’s intellectual property licenses contract and rights to use the licenses.

All amortization expense have been charged to combined statements of income within cost of revenue during the Track Record Period.

– II-67 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Impairment tests for goodwill

The goodwill of Target Business amounted to RMB360,711,000 was attributable to the acquisition of Hangzhou Shengfeng, an online game developer. After the acquisition, the operation and work force of Hangzhou Shengfeng have been fully integrated into the Target Business. As a result, the goodwill is regarded as attributable to the sole reportable segment of the Target Business, i.e. the Target Business as a whole.

The Target Business determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value in use of the cash-generating units (“ CGU ”) to which the goodwill is allocated, i.e. the Target Business as a whole. Estimating the value in use requires the Target Business to make an estimate of the expected future cash flows from the cash-generating units and also to choose a suitable discount rate in order to calculate the present value of those cash flows. The value-in-use calculations use cash flow projections based on financial budgets approved by management for the purposes of impairment reviews. The forecast period is 3 years. Key assumptions for the value in use calculation as of December 31, 2017 and 2018 including:

Revenue growth	4%-74%
Gross margin	42%-83%
Cash flows beyond the budget period growth rate	3%
Pre-tax discount rate	16.56%-18.40%

According to the above assessment, the recoverable amount of the CGU is significantly higher than the carrying amounts of the CGU including goodwill and no impairment is required.

As at March 31, 2019, the directors of the Target Company did not identify any impairment indicator of the Target Business’ goodwill.

– II-68 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

14 Financial instruments by category

Assets as per balance sheet Financial assets at fair value through profit or loss (Note 15) Loans and receivables: — Trade and other receivables (excluding prepayments) (Note 17 and 18) — Cash and cash equivalents (Note 19) Liabilities as per balance sheet Financial liabilities at amortized cost: — Trade and other payables (excluding advance, staff payroll and welfare payables and other taxes payable) (Note 22) — Lease liabilities — Financial liabilities at fair value through profit or loss (Note 16)	As 2016 RMB’000 — 1,000 569 1,569 327 — — 327	at December 31, 2017 2018 RMB’000 RMB’000 — 1,440 122,131 115,935 59,474 12,912 181,605 130,287 90,546 28,658 2,535 725 — — 93,081 29,383	As at March 31, 2019 RMB’000 1,440 131,985 25,384
			158,809
			30,483 303 2,000
			32,786

– II-69 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

15 Financial assets at fair value through profit or loss

							As at
		**As **	**at **	**December **	31,		March 31,
		2016		2017		2018	2019
		RMB’000		RMB’000		RMB’000	RMB’000
Unlisted	investment	—		—		1,440	1,440

Movements in financial assets at fair value through profit or loss during the years ended December 31, 2016, 2017 and 2018, and three months ended March 31, 2018 and 2019 are as follows:

At the beginning of the year/period Addition At the end of year/period Unrealized gains recognized in statement of profit or loss included in the above balance	Year/period ended December 31, 2016 2017 2018 RMB’000 RMB’000 RMB’000 — — — — — 1,440 — — 1,440 — — —	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) — 1,440 190 — 190 1,440 — —	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) — 1,440 190 — 190 1,440 — —
			1,440
			—

16 Financial liability at fair value through profit or loss

							As at
		**As **	**at **	**December **	31,		March 31,
		2016		2017		2018	2019
		RMB’000		RMB’000		RMB’000	RMB’000
Convertible	bond	—		—		—	2,000

– II-70 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

On January 28, 2019, Shaoxing Shangyu Saihe Equity Investment Co., Ltd. (“ Shaoxing Shangyu ”) provided a loan to Shanghai Yingling of RMB2,000,000 with an annual interest rate at 6% and a maturity date on July 29, 2019. Shaoxing Shangyu also have a right to convert the amount into registered capital of Shanghai Yingling at market price, but not exceeding RMB100 for each RMB1 of registered capital. The whole loan arrangement was identified as a convertible bond.

On March 18, 2019, Shaoxing Shangyu and Shanghai Yingling converted the bond into registered capital of Shanghai Yingling at RMB100 for each RMB1 of registered capital. The share registration was completed on April 26, 2019.

The Target Business designated this convertible bond as a financial liability at fair value through profit or loss.

17 Prepayment and other receivables

Included in non-current assets Rental deposits Prepayment for investment (Note (a)) Included in current assets Advance granted to related parties (Note (b)) Advance granted to third parties (Note (c)) Receivables from shareholders Prepayment for copyright loyalty Rental deposits Input value-added tax (“VAT”) to be deducted Others Less: provision for impairment (Note (d))	As 2016 RMB’000 — — — — — 1,000 — — — — — 1,000	at December 31, 2017 2018 RMB’000 RMB’000 269 — — — 269 — 34,500 — 54,500 — — 360 — 412 — 269 — 1,227 20 238 (603) — 88,417 2,506	As at March 31, 2019 RMB’000 — 16,300
			16,300
			— 2,872 360 — 269 1,451 648 —
			5,600

– II-71 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Notes:

• (a) On March 20, 2019, the Target Business entered into a share purchase agreement with a related party. Pursuant to the agreement, Shanghai Xinla prepaid RMB16,300,000 as down payments for the underlying purchase of 12% shares of a potential target which currently held by the related party. In June 2019, based on mutual agreement between Shanghai Xinla and the related party, the above transaction was terminated. On June 28, 2019, the down payments were fully repaid.

• (b) In December 2017, the Target Business provided an advance to a related party of RMB34,500,000. This advance was interest-free and was fully repaid by April 2018.

• (c) In July and August 2017, the Target Business entered into a series of loan contracts with a third party of RMB22,500,000 at interest-free with a maturity date on December 31, 2018. The loan was fully repaid in November 2018.

In July and August 2017, the Target Business entered into loan contracts with a third party company in aggregate RMB30,000,000 at an annual interest rate of 10% with a maturity date on April 15, 2018. The loans was fully repaid in April 2018.

In January 2019, the Target Business entered into an interest-free loan contract with a third party of RMB1,810,000 with a maturity date on December 31, 2020.

In February 2019, the Target Business entered into an interest-free loan contract with a third party of RMB1,062,000 with a maturity date on December 31, 2019.

• (d) Except for incurred losses, the Target Business did not identify any significant increase in credit risk for loans to third party, receivables from government and others. Accordingly, the Target Business evaluated the expected credit loss using a 12-month period (Note 3.1(b)).

18 Trade receivables

Trade receivables Less: provision for impairment Trade receivables — net	As 2016 RMB’000 — — —	at December 31, 2017 2018 RMB’000 RMB’000 33,819 123,822 (374) (9,981) 33,445 113,841	As at March 31, 2019 RMB’000 142,177 (15,792) 126,385

As at December 31, 2016, 2017 and 2018, and March 31, 2019, the Target Business’ trade receivables were all denominated in RMB.

– II-72 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

The Target Business allows a credit period of 60−120 days to its customers. An ageing analysis of trade receivables based on invoice date is as follows:

Up to 3 months 3 to 6 months 6 months to 1 year 1 to 2 years Over 2 years Within payment term Overdue within 3 months Overdue 3 to 6 months Overdue 6 to 9 months Overdue over 9 months	As 2016 RMB’000 — — — — — — As 2016 RMB’000 — — — — — —	at December 31, 2017 2018 RMB’000 RMB’000 9,634 78,483 10,900 27,732 13,045 9,168 240 8,439 — — 33,819 123,822 at December 31, 2017 2018 RMB’000 RMB’000 6,260 62,717 10,323 38,278 9,591 11,181 6,984 2,281 661 9,365 33,819 123,822	As at March 31, 2019 RMB’000 66,080 45,615 25,085 5,294 103
			142,177
			As at March 31, 2019 RMB’000 47,710 53,949 23,208 11,181 6,129
			142,177

Movements on the Target Business’ provision for impairment of trade receivables are as follows:

– II-73 –

APPENDIX II

FINANCIAL INFORMATION OF THE TARGET BUSINESS

At beginning of the year/period Acquisition of subsidiaries Provision for impairment Receivables written off during the year as uncollectible At end of the year/period	Year/period ended December 31, 2016 2017 2018 RMB’000 RMB’000 RMB’000 — — (374) — (220) — — (184) (9,699) — 30 92 — (374) (9,981)	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) (374) (9,981) — — (1,325) (5,827) 63 16 (1,636) (15,792)	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) (374) (9,981) — — (1,325) (5,827) 63 16 (1,636) (15,792)
			(15,792)

The creation and release of provision for impaired receivables have been included in ‘Net impairment losses on financial assets’ in the statement of profit or loss. The maximum exposure to credit risk at the reporting date is the carrying value of trade receivables. The Target Business does not hold any collateral as security.

19 Cash and cash equivalents

											As at
						**As **	**at **	**December **	31,		March 31
						2016		2017		2018	2019
						RMB’000		RMB’000		RMB’000	RMB’000
Cash	at	bank	and	on	hand	569		59,474		12,912	25,384

Cash at banks earns interest at floating rates based on daily bank deposit rates. The conversion of the RMB denominated balances maintained in the PRC into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated by the PRC government.

– II-74 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

20 Combined capital

The combined capital comprised the share capital of the Target Business and the paid-in capital of Shanghai Xinla, the principal operating company of the Target Business.

At beginning of the year/period Capital injection from the owners At end of the year/period	As 2016 RMB’000 — 1,000 1,000	at December 31, 2017 2018 RMB’000 RMB’000 1,000 501,000 500,000 — 501,000 501,000	As at March 31, 2019 RMB’000 501,000 —
			501,000

21 Deferred income tax

The analysis of deferred tax assets and deferred tax liabilities is as follows:

Deferred tax assets: — to be recovered after more than 12 months — to be recovered within 12 months Deferred tax liabilities: — to be recovered after more than 12 months — to be recovered within 12 months	As 2016 RMB’000 — 436 436 — — —	at December 31, 2017 2018 RMB’000 RMB’000 — — 163 3,712 163 3,712 21,734 18,008 3,726 4,631 25,460 22,639	As at March 31, 2019 RMB’000 — 6,652
			6,652
			16,145 5,583
			21,728

– II-75 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

The movements in the deferred income tax assets accounts are as follows:

At January 6, 2016 (date of incorporation) Credited to statement of profit or loss At December 31, 2016 At January 1, 2017 Business Combination (Note 24) Credited/(charged) to statement of profit or loss At December 31, 2017 At January 1, 2018 Credited to statement of profit or loss At December 31, 2018 (Unaudited) At January 1, 2018 Credited to statement of profit or loss At March 31, 2018 At January 1, 2019 Credited to statement of profit or loss At March 31, 2019	Contract liabilities RMB’000 — — — — — — — — 1,509 1,509 — 353 353 1,509 34 1,543	Impairments RMB’000 — — — — 28 135 163 163 1,540 1,703 163 307 470 1,703 2,906 4,609	Tax loss RMB’000 — 436 436 436 — (436) — — — — — — — — — —	Employee benefits RMB’000 — — — — — — — — 500 500 — — — 500 — 500	Total RMB’000 — 436 436 436 28 (301) 163 163 3,549 3,712 163 660 823 3,712 2,940 6,652

– II-76 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

The movements in the deferred income tax liability accounts are as follows:

At January 6, 2016 (date of incorporation) Charged to profit and loss At December 31, 2016 At January 1, 2017 Business combination (Note 24) Charged to profit and loss At December 31, 2017 At January 1, 2018 Charged/(credited) to profit and loss At December 31, 2018 (Unaudited) At January 1, 2018 Charged/(credited) to profit and loss At March 31, 2018 At January 1, 2019 Charged/(credited) to profit and loss At March 31, 2019	Contract fulfilment costs RMB’000 — — — — — — — — 905 905 — 212 212 905 21 926	Intangible asset acquired in business combination RMB’000 — — — — 27,633 (2,173) 25,460 25,460 (3,726) 21,734 25,460 (931) 24,529 21,734 (932) 20,802	Total RMB’000 — — — — 27,633 (2,173) 25,460 25,460 (2,821) 22,639 25,460 (719) 24,741 22,639 (911) 21,728

– II-77 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

22 Trade and other payables

Trade payables Payroll liabilities Advance from a supplier Advance from a non-controlling shareholder of a subsidiary Loan from third parties Loan from related parties Other tax payables Consideration payables in relation to business combination (Note 24) Others	As 2016 RMB’000 327 241 — — — — 62 — — 630	at December 31, 2017 2018 RMB’000 RMB’000 15,676 27,905 6,112 9,273 — 5,000 — — — — — — 3,341 6,044 73,752 — 1,118 753 99,999 48,975	As at March 31, 2019 RMB’000 25,566 10,758 — 1,500 3,597 500 5,367 — 820
			48,108

The aging analysis of trade payables based on invoice date is as follows:

0-30 days 31-60 days 61-90 days 91-180 days 181-365 days Over 1 year	As 2016 RMB’000 327 — — — — — 327	at December 31, 2017 2018 RMB’000 RMB’000 4,612 16,155 8,514 873 269 990 1,208 3,499 1,073 4,448 — 1,940 15,676 27,905	As at March 31, 2019 RMB’000 1,230 2,008 878 10,350 7,321 3,779
			25,566

– II-78 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

23 Cash flow information

(a) Cash generated from operations

Period from January 6, 2016 (date of incorporation) to December 31, 2016 RMB’000 (Loss)/profit before income tax (1,743) Amortization of intangible assets (Note 13) — Depreciation of property, plant and equipment (Note 11) — Depreciation of right-of-use asset (Note 12) — Net impairment losses on financial assets (Note 17 and 18) — Losses on disposal of property, plant and equipment — Finance costs, net — Increase in trade receivables, prepayment and other receivables (Note 17 and 18) — Increase in trade and other payables (Note 22) 2,312 Increase/(decrease) in contract liabilities (Note 5) — 569	Year ended December 31, 2017 2018 RMB’000 RMB’000 20,245 101,375 17,387 29,922 226 482 1,193 1,566 1,070 9,095 — 5 (2,015) (951) (937) (99,195) 23,492 22,480 36,712 (17,875) 97,373 46,904	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 5,145 37,484 7,472 7,584 117 122 391 347 4,954 5,827 — 7 (935) (10) (646) (17,306) (7,703) (7,726) (10,511) 269 (1,716) 26,598

– II-79 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(b) Non-cash investing activities

Dividend declared to then holding company of a subsidiary	Period from January 6, 2016 (date of incorporation) to December 31, 2016 RMB’000 — —	Year ended December 31, 2017 2018 RMB’000 RMB’000 20,248 — 20,248 —	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) — — — —	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) — — — —
				—

– II-80 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(c) Net debt reconciliation

Liabilities from financing activities

Net debt as at January 6, 2016 Cash flows from financing activities Net debt as at December 31, 2016 Net debt as at January 1, 2017 Cash flows from financing activities Addition of lease liabilities Interest Classification between 1 year and after 1 year Net debt as at December 31, 2017 Net debt as at January 1, 2018 Cash flows from financing activities Interest Classification between 1 year and after 1 year Net debt as at December 31, 2018 Net debt as at January 1, 2019 Cash flows from financing activities Interest Net debt as at March 31, 2019	Lease liabilities due within 1 year RMB’000 — — — — (1,050) 1,679 118 1,063 1,810 1,810 (1,888) 78 725 725 725 (428) 6 303	Lease liabilities due after 1 year RMB’000 — — — — — 1,788 — (1,063) 725 725 — — (725) — — — — —	Loan from third party due within 1 year RMB’000 — — — — — — — — — — — — — — — 3,597 — 3,597	Loan from related party due within 1 year RMB’000 — — — — — — — — — — — — — — — 500 — 500	Convertible bond RMB’000 — —
					—
					— — — — —
					—
					— — — —
					—
					— 2,000 —
					2,000

24 Business combination

On May 27, 2017, Ningbo Jingxuan, sole shareholder of the Target Business, acquired 100% equity interest of Hangzhou Shengfeng from Wuxi Qiku Network Technology Co., Ltd. (“ Wuxi Qiku ”) at a cash consideration of RMB500,000,000. Wuxi Qiku is a subsidiary of an A share listed company named Zhejiang Century Huatong Group Co., Ltd. (“ Huatong ”).

– II-81 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

On June 2, 2017, Wuxi Qiku resolved Hangzhou Shengfeng to distribute dividend of RMB94,000,000 and to offset receivables of RMB20,248,000 against the dividend payable. The offset payable due to Wuxi Qiku of RMB73,752,000 was accounted for as part of the consideration.

On June 5, 2017, the change of shareholder registration was completed.

On September 18, 2017, Ningbo Jingxuan further transferred the shares of Hangzhou Shengfeng to the Target Company at the same cash consideration of RMB500,000,000. This transaction was considered as business combination of entities under common control. Thus, the acquisition date was on May 27, 2017.

The goodwill of approximately RMB362,560,000 arising from the acquisition is attributable to the economies of scale expected to be derived from combining with the operations of the Target Business. None of the goodwill recognized is expected to be deductible for income tax purposes. The following table summarizes the consideration paid for the acquisition, the fair value of assets acquired and liabilities assumed at the acquisition date.

Cash consideration Considerable payable in relation to business combination Recognized amounts of identifiable assets acquired and liabilities assumed: Cash and cash equivalents Other net working capital Property, plant and equipment Deferred income tax liability Intangible Asset Total identifiable net liabilities Goodwill	At May 27, 2017 RMB’000 500,000 73,752 573,752 760 89,937 882 (27,605) 149,034 213,008 360,744 573,752

– II-82 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

The acquired business contributed revenue of RMB33,970,000 and net profit of RMB27,254,000 to the Target Business for the period from the acquisition date to December 31, 2017. Acquisition-related costs were not significant and have been charged to general and administrative expenses.

If the acquisition had occurred on January 1, 2017, pro-forma revenue and profit for the year ended December 31, 2017 would have been increased by RMB21,398,000 and RMB14,326,000.

Purchase consideration — cash outflow

Outflow of cash to acquire subsidiary, net of cash acquired Cash consideration Payment of considerable payable in relation to business combination Less: Balances acquired Cash and cash equivalents Net outflow of cash — investing activities	2017 RMB’000 500,000 — (760) 499,240	2018 RMB’000 — 73,752 —
		73,752

25 Related party transactions

Save as disclosed in other notes, the following significant transactions were carried out between the Target Business and its related parties during the Track Record Period. In the opinion of the directors of the Target Company, the related party transactions were carried out in the normal course of business and at terms negotiated between the Target Business and the respective related parties.

(a) Names and relationships with related parties

The following companies are related parties of the Target Business that had balances and/or transactions with the Target Business during the Track Record Period.

Parties	Relationship
Ningbo Jingxuan	Parent company
Shanghai Feiye Investment Management	Intermediate holding company
Centre LP (“Shanghai Feiye”)
Shanghai Hexi Investment Management	Ultimate holding company
Co., Ltd. (“Shanghai Hexi”)

– II-83 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(b) Key management compensation

Wages, salaries and bonuses Other social security costs and housing benefits and other employee benefits Pension costs — defined contribution plans Total	Period from January 6, 2016 (date of incorporation) to December 31, 2016 RMB’000 7 1 1 9	Year ended December 31, 2017 2018 RMB’000 RMB’000 507 1,380 24 71 25 75 556 1,526	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 199 326 13 31 18 39 230 396	Three months ended March 31, 2018 2019 RMB’000 RMB’000 (Unaudited) 199 326 13 31 18 39 230 396
				396

(c) Loans from Ningbo Jingxuan

Movements during the years: At beginning of the period/year Loans advanced Loan repaid At end of the period/year Maximum outstanding during the year	Period from January 6, 2016 (date of incorporation) to December 31, 2016 RMB’000 — — — — —	Year ended December 31, 2017 2018 RMB’000 RMB’000 — — 1,000 3,000 (1,000) (3,000) — — 1,000 3,000	Three months ended March 31, 2019 RMB’000 — 2,000 (1,500) 500
			2,000

– II-84 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(d) Loans to Shanghai Hexi

Movements during the years: At beginning of the period/year Loans advanced during year Loan repayments paid At end of the period/year Maximum outstanding during the year	Period from January 6, 2016 (date of incorporation) to December 31, 2016 RMB’000 — — — — —	Year ended December 31, 2017 2018 RMB’000 RMB’000 — — 30,000 5,000 (30,000) (5,000) — — 30,000 5,000	Three months ended March 31, 2019 RMB’000 — — — —
			—

(e) Loans to Shanghai Feiye

Movements during the years: At beginning of the period/year Loans advanced during year Loan repayments paid At end of the period/year Maximum outstanding during the year	Period from January 6, 2016 (date of incorporation) to December 31, 2016 RMB’000 — — — — —	Year ended December 31, 2017 2018 RMB’000 RMB’000 — 34,500 34,500 66,001 — (100,501) 34,500 — 34,500 70,500	Three months ended March 31, 2019 RMB’000 — — — —
			—

26 Contingencies

The Target Business did not have any material contingent liabilities as at December 31, 2016, 2017 and 2018 and March 31, 2019.

– II-85 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

27 Additional Financial Information of Hangzhou Shengfeng

Hangzhou Shengfeng was acquired by the Target Business on May 27, 2017. Following is the financial information of Hangzhou Shengfeng for the year ended December 31, 2016, and period ended May 26, 2017 (also being the pre-acquisition period from January 1, 2016 to May 26, 2017).

(a) Consolidated statement of Comprehensive Income

Note Revenue (i) Cost of revenues (iii) Gross Profit Research and development expenses (iii) Selling and marketing expenses (iii) Administrative expenses (iii) Net impairment losses on financial assets Other income (ii) Other gains, net Operating profit Finance costs Finance income Finance costs, net Profit before income tax Income tax expense (iv) Profit and total comprehensive income attributable to owners of Hangzhou Shengfeng	Year ended December 31, 2016 RMB’000 135,204 (21,387) 113,817 (13,409) (10,153) (4,498) 1,775 178 (101) 87,609 — 85 85 87,694 — 87,694	Period ended May 26, 2017 RMB’000 21,398 (1,919) 19,479 (3,503) — (396) (68) 1,080 — 16,592 — 2 2 16,594 (2,268) 14,326

– II-86 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(b) Consolidated statement of Balance Sheets

Note ASSETS Non-current assets Property, plant and equipment (v) Deferred income tax assets Current assets Trade receivables (vi) Prepayments and other receivables (vii) Cash and cash equivalents (viii) Total Assets LIABILITIES Current liabilities Trade and other payables (ix) Current income tax liabilities Total liabilities Net Asset Equity Share capital Other reserves Retained earnings Total equity	As at December 31, 2016 RMB’000 1,010 — 1,010 12,757 90,957 6,698 110,412 111,422 16,893 — 16,893 94,529 4,000 2,000 88,529 94,529	As at May 26, 2017 RMB’000 882 28
		910
		32,572 80,780 760
		114,112
		115,022
		2,016 1,151
		3,167 111,855
		4,000 5,000 102,855
		111,855

– II-87 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(c) Consolidated Statements of Changes in Equity

Note Balance at January 1, 2016 Comprehensive income Profit for the year Total comprehensive income Transactions with owners in their capacity as owners Dividends Total transactions with owners in their capacity as owners Balance at December 31, 2016 Balance at January 1, 2017 Comprehensive income Profit for the year Total comprehensive income Exemption from then holding shareholder (xi) Transactions with owners in their capacity as owners Total transactions with owners in their capacity as owners Balance at May 26, 2017

Attributable to owners of Hangzhou Shengfeng Share capital Statutory reserve Retained earnings Total RMB’000 RMB’000 RMB’000 RMB’000 4,000 2,000 24,874 30,874 — — 87,694 87,694 — — 87,694 87,694 — — (24,039) (24,039) — — (24,039) (24,039) 4,000 2,000 88,529 94,529 4,000 2,000 88,529 94,529 — — 14,326 14,326 — — 14,326 14,326 — 3,000 — 3,000 — 3,000 — 3,000 — — — — 4,000 5,000 102,855 111,855

– II-88 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(d) Consolidated statement of cash flows

Note Cash flows from operating activities Cash generated from operations (x) Interest received Income tax paid Net cash generated from/(used in) operating activities Cash flows from investing activities Payments for purchases of property, plant and equipment Loans granted to related parties Loans granted to third parties Repayments of loans granted to related parties Net cash used in investing activities Cash flows from financing activities Dividends paid to then holding company Net cash used in financing activities Net increase/(decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year/period (viii)	Year ended December 31, 2016 RMB’000 120,280 85 — 120,365 (454) (90,000) (290) — (90,744) (24,039) (24,039) 5,582 1,116 6,698	Period ended May 26, 2017 RMB’000 39 2 (1,145) (1,104) (12) (5,000) — 178 (4,834) — — (5,938) 6,698 760

Note:

(i) Revenue

Hangzhou Shengfeng’s business activities, for which discrete financial statements are available, are regularly reviewed and evaluated by the chief operating decision maker. As a result of this evaluation, the directors of the Hangzhou Shengfeng consider that its operations are operated and managed as a single segment and no segment information is presented, accordingly.

– II-89 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

As at December 31, 2016, and May 26, 2017, substantially, all the assets and operation of Hangzhou Shengfeng were located in the PRC.

Revenue for the years ended December 31, 2016, and period ended May 26, 2017 are as follows:

Revenue from intellectual property licensing — A right to use license — A right to access license Sales of customization game software Timing of revenue recognition At a point in time Over time	Year ended December 31, 2016 RMB’000 125,085 — 10,119 135,204 135,204 — 135,204	Period ended May 26, 2017 RMB’000 16,768 4,630 —
		21,398
		16,768 4,630
		21,398

During the year ended December 31, 2016, revenue of approximately RMB59,946,000, RMB37,310,000 and RMB18,411,000 were derived from single external customers accounted for more than 10% of the total revenue.

During the period ended May 26, 2017, revenues of approximately RMB9,831,000, RMB4,630,000 and RMB4,254,000 were derived from respective single external customers each accounted for more than 10% of total revenue.

(ii) Other income

Interest income from loan to a related party VAT charged	Year ended December 31, 2016 RMB’000 178 — 178	Period ended May 26, 2017 RMB’000 1,156 (76)
		1,080

– II-90 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(iii) Expense by nature

Employee benefit expense Promotion and advertising expenses Utilities and office expenses Outsourced technical services Depreciation of property, plant and equipment (Note (v)) Bandwidth and servers custody fee Travelling and entertainment expenses Expense relating to short-term leases Others	Year ended December 31, 2016 RMB’000 5,361 10,153 1,199 23,139 284 5,027 2,932 385 967 49,447	Period ended May 26, 2017 RMB’000 701 — 199 2,830 140 1,793 50 17 88
		5,818

(iv) Income tax expense

The income tax expense of Hangzhou Shengfeng for the years ended December 31, 2016, and period ended May 26, 2017 are analysed as follows:

Current income tax Deferred income tax	Year ended December 31, 2016 RMB’000 — — —	Period ended May 26, 2017 RMB’000 2,296 (28)
		2,268

(a) PRC Enterprise Income Tax (“EIT ”)

Hangzhou Shengfeng were accredited as “software enterprises” under the relevant PRC Laws and regulations in 2015. Accordingly, it was tax exemption for the year ended December 31, 2016 and subject to a preferential tax rate at 12.5% for the year ended December 31, 2017 (Note 10).

– II-91 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

The tax on Hangzhou Shengfeng’s profit before tax differs from the theoretical amount that would arise using the PRC statutory income tax rate as follows:

Profit before tax Tax calculated at PRC statutory tax rate of 25% Tax effects of: Effects of preferential income tax benefits of certain subsidiaries Additional deduction for research and development expenses Expenses not deductible for tax purposes Income tax expenses	Year ended December 31, 2016 RMB’000 87,694 21,924 (21,924) — — —	Period ended May 26, 2017 RMB’000 16,594 4,149 (2,075) (184) 378 2,268

(v) Property, plant and equipment

At January 1, 2016 Cost Accumulated depreciation Net book amount Year ended December 31, 2016 Opening net book amount Additions Depreciation charge (Note (iii)) Closing net book amount At December 31, 2016 Cost Accumulated depreciation Net book amount At ended May 26, 2017 Opening net book amount Additions Depreciation charge (Note (iii)) Closing net book amount At May 26, 2017 Cost Accumulated depreciation Net book amount	Computer & other equipment RMB’000 52 (2) 50 50 302 (74) 278 354 (76) 278 278 12 (47) 243 366 (123) 243	Furniture & office equipment RMB’000 — — — — 65 (5) 60 65 (5) 60 60 — (5) 55 65 (10) 55	Vehicles RMB’000 790 — 790 790 87 (205) 672 877 (205) 672 672 — (88) 584 877 (293) 584	Total RMB’000 842 (2) 840 840 454 (284) 1,010 1,296 (286) 1,010 1,010 12 (140) 882 1,308 (426) 882

– II-92 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

All depreciation expense have been charged to consolidated statements of income within administrative expenses during the Track Record Period.

(vi) Trade receivables

Trade receivables Less: provision for impairment Trade receivables — net	As at December 31, 2016 RMB’000 12,914 (157) 12,757	As at May 26, 2017 RMB’000 32,792 (220)
		32,572

Hangzhou Shengfeng allows a credit period of 60−120 days to its customers. An ageing analysis of trade receivables based on invoice date is as follows:

Up to 3 months 3 to 6 months 6 months to 1 year 1 to 2 years Over 2 years Not overdue Overdue up to 3 months Overdue 3 to 6 months Overdue 6 to 9 months Overdue 9 months	As at December 31, 2016 RMB’000 11,748 356 810 — — 12,914 As at December 31, 2016 RMB’000 11,634 457 275 430 118 12,914	As at May 26, 2017 RMB’000 14,728 12,250 5,688 126 —
		32,792
		As at May 26, 2017 RMB’000 10,813 11,129 10,724 — 126
		32,792

– II-93 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

On that basis, the loss allowance as at December 31, 2016, and May 26, 2017 was determined as follows:

				Carrying
			Estimated	amount (net of
	Expected	Basis for recognition of expected	gross amount	impairment
Trade Receivables	credit loss	credit loss provision	at default	provision)
			RMB’000	RMB’000
As at December 31, 2016
Trade receivables	1.2%	Life time expected credit losses	12,914	12,757
As at May 26, 2017
Trade receivables	0.7%	Life time expected credit losses	32,792	32,572

Movements on the Target Business’ provision for impairment of trade receivables are as follows:

At beginning of the year Reversal/(provision) for impairment Receivables written off during the year as uncollectible At end of the year/period	As at December 31, 2016 RMB’000 (2,206) 2,049 — (157)	As at May 26, 2017 RMB’000 (157) (68) 5
		(220)

The creation and release of provision for impaired receivables have been included in ‘Net impairment losses on financial assets’ in the statement of profit or loss.

The maximum exposure to credit risk at the reporting date is the carrying value of trade receivables. Hangzhou Shengfeng does not hold any collateral as security.

(vii) Prepayment and other receivables

Included in current assets Advance granted to related parties (note a) Input VAT to be deducted Others Less: provision for impairment (note b)	As at December 31, 2016 RMB’000 90,178 645 134 — 90,957	As at May 26, 2017 RMB’000 80,258 322 200 —
		80,780

– II-94 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

Notes:

• (a) In December 2016 and January 2017, the Target Business entered into a series loan contracts with a related party of RMB95,000,000 at an interest rate of 3% per annum for a maturity of period of months. The loan was fully repaid in June 2017.

• (b) Hangzhou Shengfeng did not identify any significant increase in credit risk for advance to related party, rental deposits or others. Accordingly, Hangzhou Shengfeng evaluated the 12-month expected credit losses.

(viii) Cash and cash equivalents

						As at	As at
						December 31,	May 26,
						2016	2017
						RMB’000	RMB’000
Cash	at	bank	and	on	hand	6,698	760

Cash at banks earns interest at floating rates based on daily bank deposit rates. The conversion of the RMB denominated balances maintained in the PRC into foreign currencies is subject to the rules and regulations of foreign exchange control promulgated by the PRC government.

(ix) Trade and other payables

Trade payables Payroll liabilities Other tax payables Others	As at December 31, 2016 RMB’000 16,806 23 41 23 16,893	As at May 26, 2017 RMB’000 1,901 111 — 4
		2,016

The aging analysis of trade payables based on invoice date is as follows:

0-30 days 31-60 days 61-90 days 91-180 days	2016 RMB’000 16,364 442 — — 16,806	2017 RMB’000 301 332 440 828
		1,901

– II-95 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(x) Cash flow information

(a) Cash generated from operations

Profit before tax Depreciation of property, plant and equipment (Note v) Net impairment losses on financial assets (Note vi) Finance costs, net Decrease/(increase) in trade receivables, prepayment and other receivables (Note vi and vii) Increase in trade and other payables (Note ix)	Year ended December 31, 2016 RMB’000 87,694 284 (1,775) (263) 23,111 11,229 120,280	Period ended May 26, 2017 RMB’000 16,594 140 68 (1,082) (19,541) 3,860 39

(b) Non-cash investing activities

In May 2017, Wuxi Qiku and Hangzhou Shengfeng agreed to partially offset the loans due from Wuxi Qiku with the trade payable due to Wuxi Qiku of RMB15,898,000 (Note xi (3)).

(xi) Related party transactions

Save as disclosed in other notes, the following significant transactions were carried out between Hangzhou Shengfeng and its related parties during January 1, 2016 to May 26, 2017. In the opinion of the directors of the Target Company, the related party transactions were carried out in the normal course of business and at terms negotiated between Hangzhou Shengfeng and the respective related parties.

(1) Names and relationships with related parties

The following companies are related parties of Hangzhou Shengfeng that had balances and/or transactions with Hangzhou Shengfeng during year ended December 31, 2016 and period ended May 26, 2017.

Party Relationship Wuxi Qiku Parent company

– II-96 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

(2) Key management compensation

Wages, salaries and bonuses Other social security costs and housing benefits and other employee benefits Pension costs — defined contribution plans Total	Year ended December 31, 2016 RMB’000 350 20 15 385	Period ended May 26, 2017 RMB’000 86 6 6
		98

(3) Loans to Wuxi Qiku

Movements during the years: At January 1, Loans advanced Net off of trade payables Interest charged Interest received At the year/period end Maximum outstanding during the year	Year ended December 31, 2016 RMB’000 — 90,000 — 178 — 90,178 90,000	Period ended May 26, 2017 RMB’000 90,178 5,000 (15,898) 1,156 (178) 80,258
		79,102

(4) Transaction with Wuxi Qiku

	Year ended	Period ended
	December 31,	May 26,
	2016	2017
	RMB’000	RMB’000
Transactions during the years:
Outsourced technical services	14,998	2,830

(5) Exemption from Wuxi Qiku

In May 2017, Hangzhou Shengfeng was exempted from the outsourced technical services amounted to RMB3,000,000 by Wuxi Qiku.

(6) Research and development expense borne by Wuxi Qiku

In 2015, Wuxi Qiku developed three games on behalf of Hangzhou Shengfeng for free. As a result, Wuxi Qiku borne research and development expense of RMB2,202,000 for Hangzhou Shengfeng. All the revenue derived from these games were recognised to the statement of profit or loss of Hangzhou Shengfeng.

– II-97 –

APPENDIX II FINANCIAL INFORMATION OF THE TARGET BUSINESS

III HISTORICAL FINANCIAL INFORMATION OF THE TARGET COMPANY

As at March 31, 2019, the Target Company had not been incorporated and, accordingly, it had no assets, liabilities or distributable reserves as at that date.

IV SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by any entity comprising the Target Business in respect of any period subsequent to March 31, 2019 and up to date of this report. No dividend or distribution has been declared or made by any entity comprising the Target Business in respect of any period subsequent to March 31, 2019.

– II-98 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET BUSINESS

APPENDIX III

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET BUSINESS

Set out below is the management discussion and analysis of the Target Business for the period from January 6, 2016 (date of incorporation) to December 31, 2016, each of the financial years ended December 31, 2017 and 2018 and each of the three months ended March 31, 2018 and 2019, which is prepared based on the financial information of the Target Business as set out in Appendix II to this circular.

Overview

The Target Business is owned by and operated through the Target Company and its subsidiaries. Its principal business activities include the research and development of online games. The Target Business actively adapts to the changes in the online game market by strategically taking mobile games as the core of its development strategy, as well as proactively seeking opportunities for overseas business development.

The Target Business has a track record in producing a number of outstanding online games, including The Legendary Prosperity Series 《傳奇盛世》系列( ), The Dragon Slayer 《屠龍戰記》( ), The Dragon Slaughter 《屠龍殺》( ), The Legendary Prosperity: Little Dragon Slayer 《傳奇盛世之( 小小屠龍》) and The God of War in Sandcastle 《沙城戰神》( ), and also has several different types of game reserves in its development pipeline.

The Target Business has strong capabilities and advanced technologies in the development of game framework, game engine, game support system, game operation system and game maintenance system. The Target Business excels at identifying and capturing the needs of game players and reflecting such needs in its game development process.

– III-1 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET BUSINESS

APPENDIX III

Business and financial results of the Target Business

For the period from January 6, 2016 (date of incorporation) to December 31, 2016, each of the financial years ended December 31, 2017 and 2018 and each of the three months ended March 31, 2018 and 2019, the Target Business recorded:

• (i) revenue of approximately RMB0.24 million, RMB60.42 million, RMB240.92 million, RMB35.50 million and RMB82.62 million, respectively, which mainly comprised the revenue derived from the development of online games, including The Legendary Prosperity Series and The Dragon Slayer Series .

• The increase in revenue for the year ended December 31, 2017 as compared with the period from January 6, 2016 (date of incorporation) to December 31, 2016 was mainly attributable to the online games developed by the Target Business, namely The Dragon Slayer and The Legendary Prosperity 1 《傳奇盛世》( 1), were at the stage of rapid growth.

• The increase in revenue for the year ended December 31, 2018 as compared with the year ended December 31, 2017 was mainly attributable to the launching of new online games developed by the Target Business, namely The Legendary Prosperity 2 《傳奇盛世》》( 2) and The Legendary Prosperity: Little Dragon Slayer during the year.

• The increase in revenue for the three months ended March 31, 2019 as compared with the corresponding period in 2018 was mainly attributable to the launching of a number of new games developed by the Target Business.

• (ii) Cost of revenue was RMB0.20 million, RMB20.38 million, RMB102.98 million, RMB20.42 million and RMB26.34 million, respectively.

• The increase in cost of revenue for the year ended December 31, 2017 as compared with the period from January 6, 2016 (date of incorporation) to December 31, 2016 was mainly attributable to the increase in amortization of intangible assets, staff expenses as well as bandwidth and server custody fees.

• The increase in cost of revenue for the year ended December 31, 2018 as compared with the year ended December 31, 2017 was mainly attributable to the increase in amortization of intangible assets and service charges by game distribution channels.

– III-2 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET BUSINESS

APPENDIX III

• The increase in cost of revenue for the three months ended March 31, 2019 as compared with the corresponding period in 2018 was mainly attributable to the increase in service charges by game distribution channels.

• (iii) gross profit of approximately RMB40,000, RMB40.04 million, RMB137.94 million, RMB15.08 million and RMB56.29 million, respectively.

• (iv) Research and development expenses of approximately RMB1.22 million, RMB17.62 million, RMB22.15 million, RMB5.43 million and RMB9.15 million, respectively, which mainly comprised staff costs and outsourcing expenses:

• The increase in research and development expenses for the year ended December 31, 2017 as compared with the period from January 6, 2016 (date of incorporation) to December 31, 2016 was mainly attributable to the increase in remuneration paid to research and development staff.

• The increase in research and development expenses for the year ended December 31, 2018 as compared with the year ended December 31, 2017 was mainly attributable to the increase in remuneration paid to research and development staff.

• The increase in research and development expenses for the three months ended March 31, 2019 as compared with the corresponding period in 2018 was mainly attributable to the increase in remuneration paid to research and development staff.

• (v) administrative expenses of approximately RMB28,000, RMB2.70 million, RMB5.78 million, RMB0.49 million and RMB3.86 million, respectively, which mainly comprised staff costs and professional consulting fees.

• The increase in administrative expenses for the year ended December 31, 2017 as compared with the period from January 6, 2016 (date of incorporation) to December 31, 2016 was mainly attributable to the increase in staff costs.

• The increase in administrative expenses for the year ended December 31, 2018 as compared with the year ended December 31, 2017 was mainly attributable to the increase in staff costs and professional consulting fees.

• The increase in administrative expenses for the three months ended March 31, 2019 as compared with the corresponding period in 2018 was mainly attributable to the increase in staff costs.

– III-3 –

APPENDIX III

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET BUSINESS

• (vi) income tax of approximately RMB(0.44) million, RMB4.29 million, RMB2.20 million, RMB1.02 million and RMB4.90 million, respectively.

• (vii) (loss)/profit after taxation of approximately RMB(1.31) million, RMB15,96 million, RMB99.17 million, RMB4.12 million and RMB32.59 million, respectively.

• The increase in profit after taxation for the year ended December 31, 2017 as compared with the period from January 6, 2016 (date of incorporation) to December 31, 2016 was mainly attributable to the increase in revenue from online games developed by the Target Business.

• The increase in profit after taxation for the year ended December 31, 2018 as compared with the year ended December 31, 2017 was mainly attributable to the increase in revenue from online games developed by the Target Business.

• The increase in profit after taxation for the three months ended March 31, 2019 as compared with the corresponding period in 2018 was mainly attributable to the increase in revenue from online games developed by the Target Business.

Financial position and other financial information of the Target Business

As at December 31, 2016, December 31, 2017, December 31, 2018 and March 31, 2019:

• (i) property, plant and equipment of the Target Business were nil, approximately RMB1.05 million, RMB0.76 million and RMB0.69 million respectively, which primarily include motor vehicles, office equipment, computers and electronic equipment;

• (ii) intangible assets of the Target Business were nil, approximately RMB492.39 million, RMB462.85 million and RMB456.23 million respectively, which primarily include intangible assets include intellectual property licenses contracts and goodwill arising from investments;

• (iii) prepayments and other receivables of the Target Business were approximately RMB1.0 million, RMB88.69 million, RMB2.51 million and RMB21.90 million respectively, which primarily include the business loans to third parties; and

– III-4 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET BUSINESS

APPENDIX III

• (iv) trade payables of the Target Business were approximately RMB0.33 million, RMB15.68 million, RMB27.91 million and RMB25.57 million respectively, which primarily include obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers.

Liquidity and financial resources

As at December 31, 2016, December 31, 2017, December 31, 2018 and March 31, 2019:

• (i) Total assets of the Target Business were approximately RMB2.01 million, RMB677.48 million, RMB605.06 million and RMB645.83 million, respectively;

• (ii) Cash and cash equivalent of the Target Business were approximately RMB0.57 million, RMB59.47 million, RMB12.91 million and RMB25.38 million, respectively.

• (iii) Net current (liabilities)/assets of the Target Business were approximately RMB(0.74) million, RMB36.19 million, RMB59.76 million and RMB79.23 million, respectively.

Funding and treasury policies

The Target Business has adopted prudent funding and treasury policies to ensure the Target Business has sufficient working capital for its operation uses. For the period from January 6, 2016 (date of incorporation) to December 31, 2016, each of the financial years ended December 31, 2017 and 2018 and the three months ended March 31, 2019, there had been no material change in the funding and treasury policies of the Target Business. The Target Business has a sufficient level of working capital for the conduct of its operations in the normal course of business.

The management of the Target Business closely reviews trade receivable balances and any overdue balances on an ongoing basis and only trades with creditworthy parties. The management of the Target Business also closely monitors its liquidity position to ensure that the liquidity structure of the Target Business’ assets, liabilities and commitments can meet its funding requirements to manage liquidity risk.

Gearing ratio

The gearing ratio of the Target Business (calculated by long term debt divided by total equity) was approximately nil, 0.14%, nil and nil as at December 31, 2016, December 31, 2017, December 31, 2018 and March 31, 2019.

– III-5 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET BUSINESS

APPENDIX III

Contingent liabilities

As at December 31, 2016, December 31, 2017, December 31, 2018 and March 31, 2019, the Target Business did not have any contingent liabilities.

Pledge of assets

As at December 31, 2016, December 31, 2017, December 31, 2018 and March 31, 2019, the Target Business did not pledge any of its assets for any borrowing or loan.

Foreign currencies

For the period from January 6, 2016 (date of incorporation) to December 31, 2016, each of the financial years ended December 31, 2017 and 2018, and the three months ended March 31, 2019, all of the transactions, assets and liabilities of the Target Business were denominated in RMB. As such, the Target Business currently does not have a foreign currency hedging policy. However, the management monitors foreign exchange exposure and will consider hedging significant foreign currency exposure should the need arise.

Bank borrowings

As at December 31, 2016, December 31, 2017, December 31, 2018 and March 31, 2019, the Target Business did not have any outstanding bank borrowings.

Segment information and revenue

The Target Business’ business activities, for which discrete financial statements are available, are regularly reviewed and evaluated by the chief operating decision maker. As a result of this evaluation, the management of the Target Business consider that the Target Business’ operations are operated and managed as a single segment and no segment information is presented, accordingly.

As at December 31, 2016, 2017 and 2018 and March 31, 2019, substantially, all of the non-current assets of the Target Business other than certain long-term receivables were located in the PRC.

– III-6 –

MANAGEMENT DISCUSSION AND ANALYSIS ON THE TARGET BUSINESS

APPENDIX III

Significant investment, material acquisitions and disposals of subsidiaries and associated companies

On May 27, 2017, The Target Business acquired the entire equity interest of Hangzhou Shengfeng Network Technology Co., Ltd. (杭州盛峰網絡科技有限公司) (“ Hangzhou Shengfeng ”) at a consideration of RMB573.75 million. Hangzhou Shengfeng is an indirect subsidiary of the Target Company as at the date of this circular. Principal business of Hangzhou Shengfeng include the research and development of online games.

Hangzhou Sheng Feng contributed revenue of RMB33,970,000 and net profit of RMB27,254,000 to the Target Business for the period from the acquisition date to December 31, 2017. Acquisition-related costs were not significant and have been charged to general and administrative expenses.

Save as above, for the period from January 6, 2016 (date of incorporation) to December 31, 2016, each of the financial years ended December 31, 2017 and 2018 and the three months ended March 31, 2019, The Target Business had no significant investment, material acquisitions and disposals of subsidiaries and associated companies.

Future plans for material investments

The Target Business did not have any future plans for material investments or acquisitions of capital assets.

– III-7 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The following information set out in this appendix does not form part of the accountant’s report prepared by the reporting accountant of the Company, PricewaterhouseCoopers, Certified Public Accountants, Hong Kong set out in Appendix II “Financial Information of the Target Business” to this circular, and are included herein for information only.

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is an illustrative unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group (the “ Unaudited Pro Forma Financial Information ”) which has been prepared in accordance with Rule 4.29 of the Listing Rules for the purpose of illustrating the effects on the assets and liabilities of the Enlarged Group as if the Transaction had been completed on June 30, 2019.

The Unaudited Pro Forma Financial Information has been prepared based on:

• (a) the interim condensed consolidated balance sheet of the Group as at June 30, 2019 as set out in the Company’s published 2019 interim report for the six months ended June 30, 2019;

• (b) the audited combined balance sheet of the Target Business as at March 31, 2019 which has been extracted from Appendix II to this circular; and

• (c) the pro forma adjustments prepared to reflect the effects of the Transaction as described in the accompanying notes.

The Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only and is based on certain assumptions, estimates, uncertainties and other currently available information. Because of its hypothetical nature, the Unaudited Pro Forma Financial Information may not give a true picture of the financial position of the Enlarged Group had the Transaction been completed as at June 30, 2019 or any future date.

The Unaudited Pro Forma Financial Information should be read in conjunction with other financial information included elsewhere in this circular.

– IV-1 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Pursuant to the Sale and Purchase Agreement, the consideration for the Transaction is RMB1.0 billion which is determined after arm’s length negotiations between the Company and the Vendors on normal commercial terms and shall be settled in cash in the following manner:

• (i) Pursuant to a letter of intent entered between the Group and the then shareholder of Onshore Subsidiaries, down payments amounted to RMB369.1 million were paid in December 2018 (“ Down Payment ”). Pursuant to the Sale and Purchase Agreement, the Down Payment shall be used as a partial payment of the consideration to set against, taking into account of change in exchange rate, RMB371.6 million of the Consideration upon the issuance of completion certificate by the Company;

• (ii) RMB128.4 million shall be settled within 90 days after the Completion Date; and

• (iii) RMB200.0 million, RMB200.0 million and RMB100.0 million shall be settled within 30 days upon the issuance of unqualified audit report by the auditor of the Target Group for the years ended December 31, 2019, 2020 and 2021, respectively.

The consideration of RMB1.0 billion is subject to the adjusting mechanism in respect of, “Profit Compensation”, “Goodwill Impairment Compensation” and “Additional Consideration” (collectively, the “ Adjusting Mechanism ”) (the consideration after taking into account of Adjusting Mechanism, the “ Contingent Consideration Payable ”):

• The Profit Compensation may reduce the consideration to as low as zero shall the actual net profit of the Target Business (“ Actual Net Profit ”, before or after the deduction of the non-recurring profit or loss, whichever is lower) for the three financial years ending December 31, 2019, 2020 and 2021 (the “ Profit Guaranteed Years ”) fall below RMB117.0 million, RMB134.0 million and RMB151.0 million, respectively, and RMB402.0 million in total (the “ Net Profit Benchmark ”) for certain level in accordance with the formulas set out on pages 14 to 15 in this Circular.

• The Goodwill Impairment Compensation may reduce the consideration by the goodwill impairment amounts net of Profit Compensation for each of the financial years ending December 31, 2019, 2020 and 2021 in accordance with the formulas set out on pages 16 to 17 in this Circular.

– IV-2 –

APPENDIX IV

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

• The Additional Consideration may increase the consideration for an additional cash consideration of RMB200.0 million and additional shares to be issued by the Company to the Vendors (the “ Additional Shares ”) of RMB211.5 million shall the Target Business successfully fulfil the Net Profit Benchmark for each of the Profit Guaranteed Years and the aggregate Actual Net Profits exceed the Total Net Profit Benchmark in accordance with the formulas set out on pages 17 to 19 in this Circular.

The Profit Compensation and the Goodwill Impairment Compensation (the “ Aggregate Compensation ”) shall be settled within 30 business days upon the issuance of unqualified audit report by the auditor of the Target Business for the years ended December 31, 2019, 2020 and 2021, respectively, through deducting from the partial payment of consideration to be paid by the Company to the Vendors.

The Additional Consideration shall be paid/issued to the Vendors within 90 business days after the issuance of the standard unqualified audit report on the Target Business for the financial year ending December 31, 2021.

For the purpose of the Unaudited Pro Forma Financial Information and for illustrative purpose only, the management best estimates on the fair value of the consideration as pro forma adjustment is set forth in note 3 to the unaudited pro forma statement of assets and liabilities of the Enlarged Group in this Appendix.

– IV-3 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

B. UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

ASSETS AND LIABILITIES Non-current assets Property, plant and equipment Right-of-use assets Intangible assets — Goodwill — Others Financial assets at fair value through other comprehensive income Financial assets at fair value through profit or loss Prepayment and other receivables Restricted cash Deferred income tax assets Current assets Trade receivables Prepayment and other receivables Income tax recoverable Financial assets at fair value through profit or loss Contract fulfilment costs Mobile game joint promotion contract Restricted cash Cash and cash equivalents Total assets	The Group as at June 30, 2019 RMB’000 Note 1 16,013 80,825 26,031 2,592 3,821 124,139 380,740 1,930 10,380 646,471 64,662 151,443 10,675 119,743 — 93,793 294 246,824 687,434 1,333,905		Pro forma adjustments	Pro forma adjustments	Pro forma adjustments	RMB’000 Note 6 — — — — — — — — — — — — — — — — — — — —	Unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group RMB’000 16,703 81,186 727,130 180,892 3,821 125,579 27,894 1,930 16,106
		The Target Business as at March 31, 2019 RMB’000 Note 2 690 361 360,744 95,484 — 1,440 16,300 — 5,726 480,745 126,385 5,600 310 — 7,408 — — 25,384 165,087 645,832	RMB’000 Note 3 — — — — — — (369,146) — — (369,146) — — — — — — — — — (369,146)	RMB’000 Note 4 — — (360,744) 82,816 — — — — — (277,928) — — — — — — — — — (277,928)	RMB’000 Note 5 — — 701,099 — — — — — — 701,099 — — — — — — — — — 701,099
							1,181,241
							191,047 157,043 10,985 119,743 7,408 93,793 294 272,208
							852,521
							2,033,762

– IV-4 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

LIABILITIES Non-current liabilities Financial liabilities at fair value through profit or loss Borrowings Lease liabilities Deferred income tax liabilities Current liabilities Trade and other payables Financial liabilities at fair value through profit or loss Borrowings Current income tax liabilities Contract liabilities Lease liabilities Total liabilities Net assets	The Group as at June 30, 2019 RMB’000 Note 1 — 38,365 6,214 8,080 52,659 112,015 — 6,138 — 11,263 4,086 133,502 186,161 1,147,744		Pro forma adjustments	Pro forma adjustments	Pro forma adjustments	RMB’000 Note 6 — — — — — 6,810 — — — — — 6,810 6,810 (6,810)	Unaudited pro forma consolidated statement of assets and liabilities of the Enlarged Group RMB’000 453,278 38,365 6,214 45,313
		The Target Business as at March 31, 2019 RMB’000 Note 2 — — — 20,802 20,802 48,108 2,000 — 14,661 20,788 303 85,860 106,662 539,170	RMB’000 Note 3 453,278 — — — 453,278 — 123,486 — — — — 123,486 576,764 (945,910)	RMB’000 Note 4 — — — 16,431 16,431 — — — — — — — 16,431 (294,359)	RMB’000 Note 5 — — — — — — — — — — — — — 701,099
							543,170
							166,933 125,486 6,138 14,661 32,051 4,389
							349,658
							892,828
							1,140,934

– IV-5 –

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

C. NOTES TO UNAUDITED PRO FORMA STATEMENT OF ASSETS AND LIABILITIES OF THE ENLARGED GROUP

1. The balances are extracted from the published 2019 interim report of the Company for the six months ended June 30, 2019.

2. The balances are extracted from in Appendix II to this circular.

3. According to IFRS 3 “Business Combinations” (“ IFRS 3 ”), the Contingent Consideration Payable shall be recognised at the acquisition-date fair value and measured at fair value at each reporting date with changes in fair value to be recognised in the consolidated statement of profit or loss in accordance with IFRS 9 “Financial Instruments”.

For the purpose of the Unaudited Pro Forma Financial Information and for illustrative purpose only, the fair value of Contingent Consideration Payable of RMB945,910,000 is assessed by management based on certain assumptions, including annual growth rate and profit margins as the payable is determined in accordance with the Adjusting Mechanism that set out in the Sale and Purchase Agreement. Such estimated payable was then discount at a rate of 5.39% that reflects the associated risk of the payment to arrive the fair value. The adjustments represent the fair value of Contingent Consideration Payable of RMB123,486,000 to be settled within one year from the date of the unaudited pro forma statement of assets and liabilities, RMB453,278,000 to be settled after one year from the date of the unaudited pro forma statement of assets and liabilities and RMB369,146,000 to be settled by the Down Payment.

The fair value of the Contingent Consideration Payable assessed by the management is not exceed the fair value of the Target Business valued by Allied Appraisal Co., Limited, an independent professional qualified valuer using the market approach.

– IV-6 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

At the end of each reporting period after the completion of the Transaction and until the final settlement of the Contingent Consideration Payable, the Group will perform the fair value valuation of the Contingent Consideration Payable. Any subsequent changes in assumptions used by management after the acquisition date, including the actual and projected financial performance of the Target Business, in assessing the fair value could affect the fair value and as a result affect the financial condition and results of operation of the Enlarged Group. Shall the Target Business expected to exceed the Net Profit Benchmark during the Profit Guaranteed Years with payment of the Additional Consideration is expected after the Completion, the fair value of the Contingent Consideration Payable will be increased and as a result a fair value loss will be recognised in the consolidated statement of profit or loss of the Enlarged Group, and vice versa.

Pursuant to the Sale and Purchase Agreement, any tax in relation to the Transaction shall be borne by the Vendors. The Vendors shall compensate the Company for any loss in relation to tax and the Company can withhold the compensation from the unsettled consideration, including any income tax arising from indirect transfer of equity interest.

– IV-7 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

1. The carrying amounts of the net assets of the Target Business as at the date of valuation, i.e. March 31, 2019, were approximately RMB244,811,000. The Group appointed Allied Appraisal Co., Limited (中聯國際評估諮詢有限公司), an independent professional qualified valuer, to carry out the purchase price allocation exercise in accordance with IFRS 3 including the assessment of fair value of the acquired assets and liabilities of the Target Business. The fair values and carrying amounts of the assets and liabilities of the Target Business as at March 31, 2019 are analysed as follows:

Property, plant and equipment Right-of-use assets Intangible assets — Goodwill — Others: Game copyrights and intellectual properties Financial assets at fair value through profit or loss Deferred income tax assets Prepayments and other receivables Income tax recoverable Trade receivables Contract fulfilment costs Cash and cash equivalents Deferred income tax liabilities Trade and other payables Financial liabilities at fair value through profit or loss Current income tax liabilities Contract liabilities Lease liabilities Total Less: Goodwill Identifiable net assets acquired by the Group	Carrying amount Fair value adjustments RMB’000 RMB’000 690 — 361 — 360,744 — 95,484 82,816 1,440 — 5,726 — 21,900 — 310 — 126,385 — 7,408 — 25,384 — (20,802) (16,431) (48,108) — (2,000) — (14,661) — (20,788) — (303) — 539,170 (360,744) 178,426	Fair value RMB’000 690 361 360,744 178,300 1,440 5,726 21,900 310 126,385 7,408 25,384 (37,233) (48,108) (2,000) (14,661) (20,788) (303) 605,555 (360,744) 244,811

– IV-8 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Since the fair values and the carrying amounts of the identifiable net assets of the Target Business as at the Completion may be materially different from their respective values used in the preparation of the Unaudited Pro Forma Financial Information, the actual amounts of the assets and liabilities to be recorded in the consolidated financial statements of the Group upon Completion Date may be materially different from the estimated amounts shown in this Appendix.

The Directors of the Company confirm that the fair value of the intangible assets for game copyrights and intellectual properties of approximately RMB20.2 million and RMB158.1 million, respectively, has taken into consideration of a valuation report prepared using multiple period excess earnings method (“ MEEM ”). With due and careful enquiry, the Directors of the Company are not aware of any indication of impairment of the intangible assets in accordance with the requirements under International Accounting Standard 36 “Impairment of Assets” (“ IAS 36 ”).

The fair value adjustments on deferred income tax liabilities of approximately RMB16.4 million is determined based on the tax base and fair value of intangible assets for game copyrights and intellectual properties by applying the Target Business’s income tax rate from 12.5% to 25%. It is the tax rate expected to apply in the period when the liability is settled.

1. The goodwill arising from the Transaction is calculated as follows:

	RMB’000
Total consideration at fair value (See Note 3 above)	945,910
Less: Total identifiable net assets at fair value (See Note 4 above)	(244,811)
Goodwill to be recognised for the Transaction	701,099

Since the fair values of the identifiable net assets of the Target Business as at the Completion Date may be substantially different from the fair values used in the preparation of the Unaudited Pro Forma Financial Information, the final amount of the goodwill may be different from the amounts shown in this Appendix.

– IV-9 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

For the purpose of the Unaudited Pro Forma Financial Information of the Enlarged Group, the Group’s management has performed an impairment assessment on the goodwill arising from the Transaction in accordance with the requirements under International Accounting Standard 36 “Impairment of Assets” (“ IAS 36 ”) and considers that there would have been no impairment of the goodwill if the Transaction had been completed on June 30, 2019 for the purpose of the Unaudited Pro Forma Financial Information of the Enlarged Group. The recoverable amount of the goodwill under impairment assessment was derived based on the higher of its fair value less cost of disposal and its value-in-use according to IAS 36, and this approach will be adopted by the Group in the preparation of consolidated financial statements in the subsequent accounting periods. Upon the Completion and at the end of each reporting period, the Group will perform assessment on the Enlarged Group’s goodwill annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable in accordance with the Group’s accounting policies and principal assumptions.

1. The adjustment represents the estimated amounts regarding the legal and other professional fees and other direct expenses for the Transaction.

2. No other adjustment has been made to the Unaudited Pro Forma Financial Information to reflect any trading results or other transactions of the Group subsequent to June 30, 2019, and of the Target Group subsequent to March 31, 2019.

– IV-10 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

The following is the text of a report received from PricewaterhouseCoopers, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

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INDEPENDENT REPORTING ACCOUNTANT’S ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA FINANCIAL INFORMATION

To the Directors of 7Road Holdings Limited

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of 7Road Holdings Limited (the “ Company ”) and its subsidiaries (collectively the “ Group ”) and the online game business owned by Osmanthus Vale Holdings Limited (the “ Target Business ”) (collectively the “ Enlarged Group ”) by the directors for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statement of assets and liabilities as at June 30, 2019 and related notes (the “ Unaudited Pro Forma Financial Information ”) as set out on pages IV-1 to IV-10 of the Company’s circular dated September 26, 2019, in connection with the acquisition of the Target Business (the “ Transaction ”) by the Company. The applicable criteria on the basis of which the directors have compiled the Unaudited Pro Forma Financial Information are described on pages IV-1 to IV-10.

The Unaudited Pro Forma Financial Information has been compiled by the directors to illustrate the impact of the Transaction on the Group’s financial position as June 30, 2019 as if the Transaction had taken place at June 30, 2019. As part of this process, information about the Group’s financial position has been extracted by the directors from the Group’s financial statements for the six months ended June 30, 2019, on which a review report has been published.

Directors’ Responsibility for the Unaudited Pro Forma Financial Information

The directors are responsible for compiling the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”) and with reference to Accounting Guideline 7 “Preparation of Pro Forma Financial Information for Inclusion in Investment Circulars” (“ AG 7 ”) issued by the Hong Kong Institute of Certified Public Accountants (“ HKICPA ”).

– IV-11 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

Our Independence and Quality Control

We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the HKICPA, which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour.

Our firm applies Hong Kong Standard on Quality Control 1 issued by the HKICPA and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements.

Reporting Accountant’s Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the Listing Rules, on the Unaudited Pro Forma Financial Information and to report our opinion to you. We do not accept any responsibility for any reports previously given by us on any financial information used in the compilation of the Unaudited Pro Forma Financial Information beyond that owed to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance Engagements 3420 “Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus”, issued by the HKICPA. This standard requires that the reporting accountant plans and performs procedures to obtain reasonable assurance about whether the directors have compiled the Unaudited Pro Forma Financial Information in accordance with paragraph 4.29 of the Listing Rules and with reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any reports or opinions on any historical financial information used in compiling the Unaudited Pro Forma Financial Information, nor have we, in the course of this engagement, performed an audit or review of the financial information used in compiling the Unaudited Pro Forma Financial Information.

The purpose of unaudited pro forma financial information included in a circular is solely to illustrate the impact of a significant event or transaction on unadjusted financial information of the entity as if the event had occurred or the transaction had been undertaken at an earlier date selected for purposes of the illustration. Accordingly, we do not provide any assurance that the actual outcome of the Transaction at June 30, 2019 would have been as presented.

A reasonable assurance engagement to report on whether the unaudited pro forma financial information has been properly compiled on the basis of the applicable criteria involves performing procedures to assess whether the applicable criteria used by the directors in the compilation of the

– IV-12 –

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

APPENDIX IV

unaudited pro forma financial information provide a reasonable basis for presenting the significant effects directly attributable to the event or transaction, and to obtain sufficient appropriate evidence about whether:

• The related pro forma adjustments give appropriate effect to those criteria; and

• The unaudited pro forma financial information reflects the proper application of those adjustments to the unadjusted financial information.

The procedures selected depend on the reporting accountant’s judgment, having regard to the reporting accountant’s understanding of the nature of the company, the event or transaction in respect of which the unaudited pro forma financial information has been compiled, and other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the unaudited pro forma financial information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion:

• (a) the Unaudited Pro Forma Financial Information has been properly compiled by the directors of the Company on the basis stated;

• (b) such basis is consistent with the accounting policies of the Group; and

• (c) the adjustments are appropriate for the purposes of the Unaudited Pro Forma Financial Information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.

PricewaterhouseCoopers

Certified Public Accountants

Hong Kong, September 26, 2019

– IV-13 –

GENERAL INFORMATION

APPENDIX V

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility, includes particulars given in compliance with the Listing Rules for the purpose of giving information with regard to the Company. The Directors, having made all reasonable enquiries, confirm that to the best of their knowledge and belief, the information contained in this circular is accurate and complete in all material respects and not misleading or deceptive, and there are no other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF DIRECTORS’ INTERESTS

As at the Latest Practicable Date, the following Director is interested in, or deemed to be interested in, the following long and short positions in the Shares, underlying Shares and debentures of the Company or any associated corporation (within the meaning of Part XV of the SFO) which (a) were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO; or (b) were required, pursuant to section 352 of the SFO, to be entered in the register referred to therein; or (c) were required, pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers as set out in Appendix 10 to the Listing Rules (“ Model Code ”) adopted by the Company to be notified to the Company and the Stock Exchange:

Long position in Shares of the Company

Number of Shares

		**Number of **	Shares
				Approximate
		Interests held		percentage of
	Personal	by controlled		issued share
Name of Director	interests	corporation(2)	Total	capital(1)
Mr. Meng Shuqi	N/A	528,854,000(3)	528,854,000	20.19%

Notes:

• (1) This calculation is based on the total number of 2,619,500,000 Shares in issue as at the Latest Practicable Date.

• (2) All interest stated are long positions.

• (3) 429,922,000 Shares are registered under the name of Ben 7Road Holdings Limited, the issued share capital of which is owned as to 100% by Mr. Meng Shuqi. Accordingly, Mr. Meng Shuqi is deemed to be interested in all the Shares held by Ben 7Road Holdings Limited for the purpose of Part XV of the SFO. In addition, the entire issued share capital of 7Road Elite Holdings Limited is directly owned by Ben 7Road Holdings Limited. Accordingly, Ben 7Road Holdings Limited is deemed to be interested in such number of Shares held by 7Road Elite Holdings Limited.

– V-1 –

GENERAL INFORMATION

APPENDIX V

Long Position in other members of the Group

			Approximate
	Name of other		percentage of
	members of the	Capacity/	registered
Name of Director	Group	Nature of interest	capital(1)
Mr. Meng Shuqi	Shenzhen 7Road(2)	Beneficial owner	21.50%
		Interest in a
	Shenzhen Qianqi(2)	controlled corporation	21.50%
		Interest in a
	Huoerguosi 7Road(2)	controlled corporation	21.50%

Notes:

• (1) All interests stated are long positions.

• (2) Shenzhen 7Road, Shenzhen Qianqi and Huoerguosi 7Road, by virtue of the Contractual Arrangements, all of them are accounted for as subsidiaries of the Company.

Save as disclosed herein, as at the Latest Practicable Date, to the knowledge of the Company, none of the Directors or chief executive of the Company had any interest or short position in any Share, underlying share or debenture of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which was required to be (i) notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including the interests and short positions in which they were deemed or taken to have under such provisions of the SFO); (ii) pursuant to section 352 of the SFO, entered in the register referred to therein; or (iii) notified to the Company and the Stock Exchange pursuant to the Model Code.

– V-2 –

GENERAL INFORMATION

APPENDIX V

3. DISCLOSURE OF SUBSTANTIAL SHAREHOLDERS’ INTERESTS

As at the Latest Practicable Date, so far as the Directors were aware, the following persons (other than a director or chief executive of the Company) who had an interest or short position in the Shares and underlying Shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

		Number of
		Shares or	Approximate
		underlying	percentage of
Name	Nature of interest	Shares held(2)	interest(1)
Baohu Holdings Limited	Beneficial owner	352,714,000	13.46%
Shanghai Bao Hu Investment	Interest in a controlled	352,714,000	13.46%
Management Center (Limited	corporation(3)
Partnership)
上海趵虎投資管理中心
（有限合夥）
Shanghai Bao Pu Investment	Interest in controlled	353,586,000	13.50%
Management Co., Ltd.	corporations(3)
上海趵樸投資管理有限公司
Ningbo Hao Chu Investment	Interest in controlled	353,586,000	13.50%
Management Co., Ltd.	corporations(3)
寧波浩初投資管理有限公司
Mr. Zhou Hao	Interest in controlled	353,586,000	13.50%
周皓先生	corporations(3)
Shangyulongcheng Holdings Limited	Beneficial owner	174,410,000	6.66%
Shaoxing Shang Yu Long Cheng	Interest in a controlled	174,410,000	6.66%
Capital Investment Fund (Limited	corporation(4)
Partnership)
紹興上虞龍誠股權投資合夥
企業（有限合夥）

– V-3 –

GENERAL INFORMATION

APPENDIX V

		Number of
		Shares or	Approximate
		underlying	percentage of
Name	Nature of interest	Shares held(2)	interest(1)
Zhejiang Long Xin Equity Investment	Interest in a controlled	174,410,000	6.66%
Management Co., Ltd.	corporation(4)
浙江龍信股權投資管理有限公司
Wolong Holding Group Co., Ltd.	Interest in a controlled	174,410,000	6.66%
臥龍控股集團有限公司	corporation(4)
Mr. Chen Jiancheng	Interest in a controlled	174,410,000	6.66%
陳建成先生	corporation(4)
Ms. Chen Yanni	Interest in a controlled	174,410,000	6.66%
陳焉妮女士	corporation(4)
Ben 7Road Holdings Limited	Beneficial owner	429,922,000	16.41%
	Interest in a controlled	98,932,000	3.78%
	corporation(5)
World 7Road Holdings Limited	Beneficial owner	331,130,000	12.64%
	Interest in a controlled	80,000,000	3.05%
	corporation(6)
Mr. Hu Min	Interest in a controlled	441,130,000	15.70%
胡敏先生	corporation(6)
Songshuxing Holdings Limited	Beneficial owner	189,936,000	7.25%
Mr. Song Shuxing	Interest in a controlled	189,936,000	7.25%
宋書星先生	corporation(7)

Notes:

(1) This calculation is based on the total number of 2,619,500,000 Shares in issue as at the Latest Practicable Date.

(2) All interests stated are long positions.

– V-4 –

APPENDIX V

GENERAL INFORMATION

• (3) 352,714,000 Shares are registered under the name of Baohu Holdings Limited, the entire issued share capital of Baohu Holdings Limited is directly owned by Shanghai Bao Hu Investment Management Center. Accordingly, Shanghai Bao Hu Investment Management Center is deemed to be interest in such number of Shares held by Baohu Holdings Limited. In addition, the general partner of Shanghai Bao Hu Investment Management Center is Shanghai Bao Pu Investment Management Co., Ltd., Shanghai Bao Pu Investment Management Co., Ltd. is owned by Ningbo Hao Chu Investment Co., Ltd. as to 40%; and Ningbo Hao Chu Investment Co., Ltd. is owned by Mr. Zhou Hao as to 70%. Accordingly, each of Shanghai Bao Pu Investment Management Co., Ltd., Ningbo Hao Chu Investment Management Co., Ltd. and Mr. Zhou Hao is deemed to be interested in such number of Shares held by Baohu Holdings Limited. In addition, 872,000 Shares are registered under the name of Baopu Hong Kong Limited, the entire issued share capital of Baopu Hong Kong Limited is directly owned by Shanghai Bao Pu Investment Management Co., Ltd. Accordingly, Shanghai Bao Pu Investment Management Co., Ltd. is deemed to be interested in such number of Shares held by Baopu Hong Kong Limited.

• (4) 174,410,000 Shares are registered under the name of Shangyulongcheng Holdings Limited, the entire issued share capital of Shangyulongcheng Holdings Limited is directly owned by Shaoxing Shang Yu Long Cheng Capital Investment Fund (Limited Partnership). Accordingly, Shaoxing Shang Yu Long Cheng Capital Investment Fund (Limited Partnership) is deemed to be interested in such number of Shares held by Shangyulongcheng Holdings Limited. In addition, the general partner of Shaoxing Shang Yu Long Cheng Capital Investment Fund (Limited Partnership) is Zhejiang Long Xin Equity Investment Management Co., Ltd., which is directly owned by Wolong Holding Group Co., Ltd. Wolong Holding Group Co., Ltd. is owned directly as to 48.93% by Mr. Chen Jiancheng and 38.73% by Ms. Chen Yanni, who is the daughter of Mr. Chen Jiancheng and 12.34% by certain other shareholders. Accordingly, each of Zhejiang Long Xin Equity Investment Management Co., Ltd., Wolong Holding Group Co., Ltd., Mr. Chen Jiancheng and Ms. Chen Yanni is deemed to be interested in such number of Shares held by Shangyulongcheng Holdings Limited.

• (5) The entire issued share capital of 7Road Elite Holdings Limited is directly owned by Ben 7Road Holdings Limited. Accordingly, Ben 7Road Holdings Limited is deemed to be interested in such number of Shares held by 7Road Elite Holdings Limited.

• (6) The entire issued share capital of 7Road Talent Holdings Limited is directly owned by World 7Road Holdings Limited. Accordingly, World 7Road Holdings Limited is deemed to be interested in such number of Shares held by 7Road Talent Holdings Limited. In addition, World 7Road Holdings Limited is wholly-owned by Mr. Hu Min. Accordingly, Mr. Hu Min is deemed to be interested in such number of Shares held by World 7Road Holdings Limited and 7Road Talent Holdings Limited.

• (7) The entire issued share capital of Songshuxing Holdings Limited is directly owned by Mr. Song Shuxing. Accordingly, Mr. Song Shuxing is deemed to be interested in such number of Shares held by Songshuxing Holdings Limited.

Save as disclosed above, the Directors are not aware of any other persons (other than a director or chief executive of the Company) who, as at the Latest Practicable Date, had an interest or short position in the Shares and underlying Shares of the Company which would fall to be disclosed to the Company under the provisions of Divisions 2 and 3 of Part XV of the SFO.

– V-5 –

GENERAL INFORMATION

APPENDIX V

4. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, no Director had any existing or proposed service contracts with the Company or any member of the Group which is not determinable within one year without payment of compensation other than statutory compensation.

5. MATERIAL CONTRACTS

During the two years immediately preceding the date of this circular up to and including the Latest Practicable Date, the following contracts (not being contracts entered into in the ordinary course of business of the Company) have been entered into by the Group and are or may be material:

1. a letter of intent dated December 12, 2018 entered into between Qianhai Huanjing and Ningbo Jingxuan Investment Center (limited partnership) (寧波鏡瑄投資管理中心(有限 合夥)), a limited partnership established in the PRC (“ Ningbo Jingxuan ”) being the then shareholder of Shanghai Xinla Networks Technology Co., Ltd, for acquisition of the entire equity interest in Shanghai Xinla Networks Technology Co., Ltd, pursuant to which the Down Payment equals to approximately RMB371.55 million was paid by the Group;

2. a conditional Hong Kong underwriting agreement dated June 28, 2018 relating to the offer by the Company of the 66,668,000 Shares for subscription by the public in Hong Kong at the offer price of HK$1.50 per Share, as further described in the section headed “Underwriting” in the Prospectus;

3. a cornerstone investment agreement dated June 26, 2018, entered into among Shengqu Technology Korean Limited, the Company, GF Securities (Hong Kong) Brokerage Limited, GF Capital (Hong Kong) Limited and CCB International Capital Limited, pursuant to which Shengqu Technology Korean Limited agreed to subscribe for such number of Shares (rounded down to the nearest whole board lot of 2,000 Shares) at the offer price of HK$1.50 which may be purchased for the Hong Kong dollars equivalent of US$10.0 million;

4. a cornerstone investment agreement dated June 26, 2018, entered into among Zhonghua Financial Holdings Limited, the Company, GF Securities (Hong Kong) Brokerage Limited, GF Capital (Hong Kong) Limited, CCB International Capital Limited and Haitong International Securities Company Limited, pursuant to which Zhonghua

– V-6 –

GENERAL INFORMATION

APPENDIX V

Financial Holdings Limited agreed to subscribe for such number of Shares (rounded down to the nearest whole board lot of 2,000 Shares) at the offer price of HK$1.50 which may be purchased for the Hong Kong dollars equivalent of US$30.0 million;

1. a voting rights proxy agreement dated April 13, 2018, entered into among Qianhai Huanjing, Mr. Meng Shuqi, Mr. Hu Min, Mr. Liu Jing (劉靖), Ningbo Bao Pu Xing Sheng Investment Management Center (Limited liability partnership) (寧波趵樸鑫盛投 資管理中心(有限合夥)) (“ Ningbo Bao Pu ”), Shanghai Ting Can Equity Investment Center (Limited liability partnership) (上海廷燦股權投資中心(有限合夥)) (“ Shanghai Ting Can ”) and Shenzhen 7Road, as further described in the section headed “Contractual Arrangements” in the Prospectus;

2. an equity pledge agreement dated April 13, 2018, entered into among Qianhai Huanjing, Mr. Meng Shuqi, Mr. Hu Min, Mr. Liu Jing, Ningbo Bao Pu, Shanghai Ting Can and Shenzhen 7Road, as further described in the section headed “Contractual Arrangements” in the Prospectus;

3. the exclusive option agreement dated April 13, 2018, entered into among Qianhai Huanjing, Mr. Meng, Mr. Hu Min, Mr. Liu Jing, Ningbo Bao Pu, Shanghai Ting Can and Shenzhen 7Road, as further described in the section headed “Contractual Arrangements” in the Prospectus;

4. the exclusive business cooperation agreement dated April 13, 2018, entered into between Qianhai Huanjing and Shenzhen 7Road, as further described in the section headed “Contractual Arrangements” in the Prospectus;

5. the equity transfer agreement dated February 10, 2018, entered into among Shenzhen 7Road, Ms. Bao Wei and 7Road HK Digital Limited, pursuant to which Shenzhen 7Road agreed to transfer 95% of the equity interest in Qianhai Huanjing to 7Road HK Digital Limited at a consideration of RMB2.97 million, and Ms. Bao Wei agreed to transfer 5% of the equity interest in Qianhai Huanjing to 7Road HK Digital Limited at a consideration of RMB156,167;

6. the equity transfer agreement dated December 15, 2017, entered into between Shenzhen 7Road and Ms. Bao Wei, pursuant to which Shenzhen 7Road agreed to transfer 5% of the equity interest in Qianhai Huanjing to Ms. Bao Wei at a consideration of RMB250,000; and

7. the Sale and Purchase Agreement.

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GENERAL INFORMATION

APPENDIX V

6. LITIGATION

As at the Latest Practicable Date, neither the Company nor any of its subsidiaries was engaged in any litigation or claims of material importance and no litigation or claims of material importance is known to the Directors to be pending or threatened against the Group.

7. COMPETING INTERESTS

So far as the Directors were aware, as at the Latest Practicable Date, Save as disclosed in the section headed “Relationship with our Controlling Shareholders” in the Prospectus, none of the Directors or their respective close associates (as defined in the Listing Rules) had any interest in a business that competed or was likely to compete, either directly or indirectly, with the business of the Group.

8. DIRECTORS’ MATERIAL INTERESTS

As at the Latest Practicable Date,

• (i) none of the Directors had any direct or indirect interest in any assets which have, since December 31, 2018 (being the date to which the latest published audited financial statements of the Company were made up), been (i) acquired or disposed of by; or (ii) leased to; or (iii) proposed to be acquired or disposed of by; or (iv) proposed to be leased to, any member of the Group; and

• (ii) none of the Directors was materially interested in any contract or arrangement subsisting at the Latest Practicable Date which is significant in relation to the business of the Group.

9. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, the Directors were not aware of any material adverse change in the financial or trading position of the Group since December 31, 2018, being the date to which the latest published audited financial statements of the Group were made up.

For the sake of prudence, please note that pursuant to the Profit Warning and the Interim Results Announcement, the Company recorded a loss attributable to the Shareholders of approximately RMB25.59 million. Nevertheless, the Board considers that, after taking into consideration that:

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GENERAL INFORMATION

APPENDIX V

• (1) the influences of market uncertainties as stated in the Profit Warning and Interim Results Announcements are short term;

• (2) the online game market in the PRC is expected to maintain a sustainable growth in 2019; and

• (3) the sufficiency of the Group’s capital.

The Board is therefore of the view that the loss of the Group for the six months ended June 30, 2019 is temporary and there is no material adverse change to the Company.

10. QUALIFICATIONS AND CONSENTS OF EXPERTS

• (a) The following sets out the qualifications of the experts who have given their opinions or advice or statements as contained in this circular:

Name

Qualification

PricewaterhouseCoopers Certified public accountants Allied Appraisal Co., Limited Independent professional valuer

• (b) As at the Latest Practicable Date, the above experts had no shareholding in any member of the Group or any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.

• (c) As at the Latest Practicable Date, the above experts had no direct or indirect interests in any asset which had been, since December 31, 2018 (the date to which the latest published audited consolidated financial statements of the Group were made up) acquired or disposed of by or leased to any member of the Group, or was proposed to be so acquired, disposed of or leased to any member of the Group.

• (d) The above experts have given and have not withdrawn their written consents to the issue of this circular with the inclusion herein of its reports or opinion and references to its name in the form and context in which they respectively appear.

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GENERAL INFORMATION

APPENDIX V

11. GENERAL

• (i) The joint company secretaries are Ms. Wang Xiaorui and Mr. Cheung Kai Cheong, who is a certified accountant of both the Hong Kong Institute of Certified Public Accountants and the Association of Chartered Certified Accountants in the United Kingdom.

• (ii) The registered office of the Company is Sertus Chambers, Governors Square, Suite #5−204, 23 Lime Tree Bay Avenue, P.O. Box 2547, Grand Cayman, KY1−1104, Cayman Islands.

• (iii) The principal place of business of the Company in Hong Kong is at 40th Floor, Sunlight Tower, No. 248 Queen’s Road East, Wanchai, Hong Kong.

• (iv) The share registrar and transfer office of the Company in the Cayman Islands, is Sertus Incorporations (Cayman) Limited at Sertus Chambers, Governors Square, Suite #5−204, 23 Lime Tree Bay Avenue, P.O. Box 2547, Grand Cayman, KY1−1104, Cayman Islands.

• (v) The branch share registrar of the Company in Hong Kong is Computershare Hong Kong Investor Services Limited at Shops 1712−1716, 17th Floor Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong.

• (vi) In the event of inconsistency, the English text shall prevail over the Chinese text.

12. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during normal business hours on any Business Days from the date of this circular up to and including 14 days (except public holidays) at the Company’s principal place of business in Hong Kong situated at 40th Floor, Sunlight Tower, No. 248 Queen’s Road East, Wanchai, Hong Kong:

• (a) the articles of associations of the Company;

• (b) the Prospectus;

• (c) the annual report of the Company for the financial year ended December 31, 2018;

• (d) the letter from the Board, the text of which is set out from pages 5 to 26 of this circular;

• (e) the written consent given by PricewaterhouseCoopers as referred to in paragraph 10 of this appendix;

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GENERAL INFORMATION

APPENDIX V

• (f) the written consent given by Allied Appraisal Co., Limited as referred to in paragraph 10 of this appendix;

• (g) the accountant’s report on the Target Business as set out in Appendix II to this circular;

• (h) the report relating to the Unaudited Pro Forma Financial Information of the Enlarged Group as set out in Appendix IV to this circular;

• (i) the material contracts referred to in paragraph 5 of this appendix;

• (j) the Valuation Report on the Target Business prepared by Allied Appraisal Co., Limited; and

• (k) this circular.

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NOTICE OF EGM

APPENDIX VI

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7Road Holdings Limited 第七大道控股有限公司

(Incorporated in the Cayman Islands with limited liability) (Stock Code: 797)

NOTICE IS HEREBY GIVEN that the Extraordinary General Meeting (“ EGM ”) of the shareholders of 7Road Holdings Limited (the “ Company ”) will be held at 4/F, Block 1-A, Ting Wei Industrial Park, 6 Liu Fang Road, Bao An District, Shenzhen, PRC on October 17, 2019 at 10:00 a.m. for the purposes of considering and, if thought fit, passing the ordinary resolutions set out as follows:

“ THAT :

• (a) the sale and purchase agreement dated August 23, 2019 (the “ Sale and Purchase Agreement ”) entered into between the Company, Maple Vale Limited and Ms. Huang Le in relation to the sale and purchase of the online game business owned by Osmanthus Vale Holdings Limited (the “ Target Business ”) is hereby approved, confirmed and ratified;

• (b) subject to the fulfillment of the conditions of the Sale and Purchase Agreement, any one executive director of the Company (the “ Executive Director ”) be and is hereby authorised to exercise all the powers of the Company and to take all steps as might in his opinion be desirable or necessary in connection with the Sale and Purchase Agreement;

• (c) all other transactions contemplated under the Sale and Purchase Agreement be and are hereby approved and any one Executive Director be and is authorised to do all such acts and things, to sign and execute such documents or Sale and Purchase Agreement or deeds on behalf of the Company and to do such other things and to take all such actions as he considers necessary, appropriate, desirable or expedient for the purposes of giving effect to or in connection with the Sale and Purchase Agreement; and

• (d) pursuant to the Sale and Purchase Agreement, in the event that the actual net profit of the Target Business exceeds certain benchmarked level, the vendors shall entitle the Addition Shares (as defined in the circular). Condition upon the Listing Committee of the Stock Exchange of Hong Kong Limited granting the listing of, and the permission to deal in, the Additional Shares, the directors of the Company be and are hereby granted a

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NOTICE OF EGM

APPENDIX VI

specific mandate to allot and issue the Additional Shares pursuant to the terms andconditions of the Sale and Purchase Agreement and the articles of association of the Company, provided that such specific mandate shall be in addition to, and shall not prejudice or revoke any existing or such other general or special mandates which may from time to time be granted to the directors of the Company prior to the passing of this resolution.”

By order of the Board 7Road Holdings Limited Meng Shuqi Chairman

Shenzhen, the PRC, September 26, 2019

Notes:

1. The register of members of the Company will be closed from October 14, 2019 to October 17, 2019, both dates inclusive, for the purpose of ascertaining shareholders’ entitlement to attend and vote at the EGM. In order to be eligible to attend and vote at the EGM, all transfer documents accompanied by the relevant share certificates must be lodged for registration with the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, at Shops 1712-1716, 17th Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong for registration not later than 4:30 p.m. on October 11, 2019.

2. A member of the Company (“ Shareholder ”) entitled to attend and vote at the EGM is entitled to appoint one or, if such Shareholder is a holder of more than one share, more proxies to attend and vote in his stead. A proxy need not be a Shareholder.

3. In order to be valid, the form of proxy must be deposited at the Company’s branch share registrar and transfer office in Hong Kong, Computershare Hong Kong Investor Services Limited, at 17M floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong Kong together with a power of attorney or other authority under which it is signed or a notarially certified copy of that power of attorney (whichever being applicable) not less than 48 hours before the time appointed for holding the EGM or any adjournment thereof (no later than 10:00 a.m. on October 15, 2019 (Hong Kong time)).

4. Completion and delivery of the form of proxy will not preclude a Shareholder from attending and voting in person at the EGM if the Shareholder so desires and, in such event, the instrument appointing a proxy shall be deemed to have been revoked.

5. Where there are joint registered holders of any share of the Company, any one of such holders may vote at the EGM, either personally or by proxy, in respect of such share as if he was solely entitled thereto but, if more than one of such holders be present at the EGM personally or by proxy, the holder so present whose name stands first on the register of members of the Company in respect of such share shall alone be entitled to vote in respect thereof.

6. If Typhoon Signal No. 8 or above, or a “black” rain storm warning is in effect any time after 7:00 a.m. on the date of the EGM, the meeting will be postponed. The Company will publish an announcement on the website of the Company at www.7road.com. and on the website of the Stock Exchange at www.hkexnews.hk to notify Shareholders of the date, time and venue of the rescheduled meeting.

7. Voting of the resolutions as set out in this notice will be by poll.

As at the date of this notice, the executive directors of the Company are Mr. Meng Shuqi, Mr. Li Zhengquan and Mr. Yang Cheng; the non-executive directors of the Company are Mr. Li Shimeng and Mr. Yan Kaidan; and the independent non-executive directors of the Company are Mr. Xue Jun, Mr. Liu Yunli and Ms. Wang Ying.

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