Newborn Town Inc. — Capital/Financing Update 2021

Mar 24, 2021

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement.

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NEWBORN TOWN INC. 赤子城科技有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 9911)

CHANGE IN USE OF PROCEEDS

Reference is made to the prospectus (the “ Prospectus ”) of Newborn Town Inc. (the “ Company ”, together with its subsidiaries, the “ Group ”) dated 17 December 2019, in relation to the listing (the “ Listing ”) of the shares of the Company on the Main Board of the Stock Exchange of Hong Kong Limited by way of global offering (the “ Global Offering ”), and the interim report of the Company for the six months ended 30 June 2020 (the “ 2020 Interim Report ”) dated 24 September 2020, which discloses use of net proceeds from the Global Offering from date of the Listing up to 30 June 2020. In this announcement, unless the context otherwise defines, capitalized terms used herein shall have the same meanings as those defined in the Prospectus.

The board (the “ Board ”) of directors (the “ Director ”) of the Company hereby announces that the Board resolves to change the use of proceeds from the Global Offering.

Use of Proceeds from the Global Offering

As disclosed in the section headed “Future Plans and Use of Proceeds” in the Prospectus, the Company intends to apply the net proceeds from the Global Offering as follows:

• (i) Approximately 41.1% of the net proceeds will be used to develop, expand and upgrade our Solo X product matrix (the “ Solo X Product Matrix ”);

• (ii) Approximately 34.6% of the net proceeds will be used to upgrade our Solo Math programmatic advertising platform (the “ Solo Math Programmatic Advertising Platform ”);

• (iii) Approximately 17.0% of the net proceeds will be used to enhance the big data and AI capabilities of our Solo Aware AI engine;

• (iv) Approximately 3.9% of the net proceeds will be used to enhance our local service capabilities and build our global information distribution network (the “ Global Information Distribution Network ”);

• (v) Approximately 3.4% of the net proceeds will be used for working capital and other general corporate purposes.

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As disclosed in the 2020 Interim Report, net proceeds amounted to approximately HK$166.9 million (after deducting professional fees, underwriting commissions and other related listing expenses), of which, (i) approximately HK$68.6 million of which were allocated for the Solo X Product Matrix; (ii) approximately HK$57.7 million of which were allocated for the Solo Math Programmatic Advertising Platform; (iii) approximately HK$28.4 million of which were allocated for the enhancement of the big data and AI capabilities of our Solo Aware AI engine; (iv) approximately HK$6.5 million of which were allocated for the Global Information Distribution Network; and (v) approximately HK$5.7 million of which were allocated for working capital and other general corporate purposes. As at the date of this announcement, net proceeds were utilized as follows:

	Net proceeds	Net proceedsutilized as ofthe date of this	Net proceedsunutilized as ofthe date of thisannouncement(approximately)Proposed timetable forutilization of the netproceeds unutilizedHK$ million47.3On or before 31 December 202255.9On or before 31 December 202219.2On or before 31 December 20226.5On or before 31 December 20222.9On or before 31 December 2022131.8
Specific use of net proceeds	allocated(approximately)HK$ million	announcement(approximately)HK$ million	(
Solo X Product MatrixSolo Math Programmatic Advertising PlatformTo enhance the big data and AI capabilitiesof our Solo Aware AI engine	68.657.728.4	21.31.89.2
Global Information Distribution NetworkWorking capital and other general corporate purposes	6.55.7	0.02.8
	166.9	35.1

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Change of use of proceeds

As at the date of this announcement, net proceeds unutilized were approximately HK$131.8 million. The Board has determined, after due and careful consideration of the current business environment and the development needs of the Group, to change the use of the proceeds of approximately HK$55.9 million originally allocated for the Solo Math Programmatic Advertising Platform and part of the proceeds of HK$1.5 million originally allocated for the Global Information Distribution Network to Solo X Product Matrix and to change the use of part of the proceeds of HK$5.0 million originally allocated for the Global Information Distribution Network to working capital and other general corporate purposes. Below are the details of the original allocation and revised allocation of the net proceeds:

Specific use of net proceedsSolo X Product MatrixSolo Math ProgrammaticAdvertising PlatformTo enhance the big data andAI capabilities of ourSolo Aware AI engineGlobal Information DistributionNetworkWorking capital and othergeneral corporate purposes	Net proceedsallocated(approximately)HK$ million68.657.728.46.55.7166.9	Net proceedsutilized as ofthe date of thisannouncement(approximately)HK$ million21.31.89.20.02.835.1	Net proceedsunutilized as ofthe date of thisannouncement(approximately)HK$ million47.355.919.26.52.9131.8	Revisedallocation ofnet proceedsunutilized(approximately)Proposed timetablefor utilization ofthe net proceedsunutilizedHK$ million104.7On or before31 December 2022––19.2On or before31 December 2022––7.9On or before31 December 2022131.8

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Reasons for the change in use of proceeds

In order to respond to the risks of global advertising expense cuts and account receivables as a result of COVID-19 pandemic, the Group has scaled down its programmatic advertising platform service business on a large scale since 2020 while focusing on core businesses such as social networking and game, and has been committed to pushing forward “Traffic+” strategy. The continuous downsizing of the programmatic advertising platform service business is mainly due to the following reasons: i) amid increasing deterioration of the global economy, the upstream and downstream capital chains of the advertising industry are highly strained and bad debts risk is on the rise; ii) with COVID-19 lockdowns, the Group is unable to continue to conduct normal business travel and other activities required for expanding overseas advertising customers in the short term; iii) the Group intensified efforts to push ahead with “Traffic+” strategy, and strived to pool all the resources together to develop our core business of social networking and game.

After one year’s development, the Company’s “Traffic+” strategy transformation produced good results. As the user base of the Solo X Product Matrix (mainly including social networking and game products) of the Company experienced rapid expansion, the Company achieved good business performance. Revenue growth from social networking and game business offset and exceeded the decrease in the revenue of the advertising platform business. To this end, our management focused on developing social networking and game business, developing and upgrading proprietary apps by firmly following the guideline of “Traffic+” strategy, and further promoted localized operation, in an effort to rapidly expand market reach, increase user base and enhance networking effects.

In respect of the Global Information Distribution Network, as disclosed in the announcements of the Company dated 11 June 2020 and 17 August 2020, the Company had gained control over Mico and consolidated the financial statements of Mico. Through establishing close partnership with Mico, the Company had greatly expanded its market share in global open social network. The Company could develop its own businesses by leveraging on the existing resources on global information distribution network of Mico, laying a solid foundation for the Company to enhance localization service capability and build Global Information Distribution Network.

Therefore, it is reasonable that (i) the net proceeds unutilized and retained for Solo Math Programmatic Advertising Platform and part of the net proceeds unutilized and retained for Global Information Distribution Network will be used for Solo X Product Matrix, so as to facilitate the development of principal business of the Group; and (ii) part of the net proceeds unutilized and retained for Global Information Distribution Network will be used as working capital and other general corporate purposes, which also plays a constructive and supportive role in the long term growth of revenue of the Group.

The Board is of the view that the re-allocation of the unutilized net proceeds will be able to meet the Group’s current business and operational needs and is in line with the Group’s latest business development plan. The Board also considers that the proposed change in the use of the unutilized net proceeds will not have any material adverse effect on the existing business and operation of the Group and is in the best interests of the Company and its shareholders as a whole.

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The Board will continuously assess the plans for use of net proceeds, and may revise or amend such plans, where necessary, to adapt to the changing market conditions and strive for better business performance of the Group.

By order of the Board Newborn Town Inc. LIU Chunhe Chairman of the Board

Beijing, 24 March 2021

As at the date of this announcement, the executive Directors of the Company are Mr. LIU Chunhe, Mr. LI Ping and Mr. WANG Kui; and the independent non-executive Directors of the Company are Mr. PAN Xiya, Mr. CHI Shujin and Mr. LIU Rong.

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