Weiye Holdings Limited — Proxy Solicitation & Information Statement 2020

Jun 22, 2020

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

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.

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 licensed securities dealer, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your shares in China Tangshang Holdings Limited, you should at once hand this circular together with the accompanying proxy form to the purchaser or the transferee or to the bank, stockbroker, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or the transferee.

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

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CHINA TANGSHANG HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: 674)

(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE TARGET GROUP AND

(2) NOTICE OF SPECIAL GENERAL MEETING

Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders

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A notice convening the SGM of China Tangshang Holdings Limited to be held at 13th Floor, Bupa Centre, No. 141 Connaught Road West, Hong Kong on Friday, 10 July 2020 at 3 p.m. is set out on pages SGM-1 to SGM-3 of this circular. Whether you are able to attend the SGM or not, you are requested to complete the accompanying form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar and transfer office of the Company in Hong Kong, Tricor Secretaries Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and voting in person at the SGM or any adjourned meeting if you so wish and in such event, the form of proxy shall be deemed to be revoked.

22 June 2020

CONTENTS

		Page
DEFINITIONS.....................................................................................................		1
LETTER FROM THE BOARD...........................................................................		5
LETTER FROM THE INDEPENDENT BOARD COMMITTEE......................		28
LETTER FROM THE INDEPENDENT FINANCIAL ADVISER......................		30
APPENDIX I	FINANCIAL INFORMATION OF THE GROUP..................	I-1
APPENDIX II	FINANCIAL INFORMATION OF
	THE TARGET GROUP.......................................................	II-1
APPENDIX III	UNAUDITED PRO FORMA FINANCIAL INFORMATION
	OF THE GROUP.................................................................	III-1
APPENDIX IV	MANAGEMENT DISCUSSION AND
	ANALYSIS OF THE GROUP..............................................	IV-1
APPENDIX V	MANAGEMENT DISCUSSION AND
	ANALYSIS OF THE TARGET GROUP.............................	V-1
APPENDIX VI	VALUATION REPORT..........................................................	VI-1
APPENDIX VII	GENERAL INFORMATION...................................................	VII-1
NOTICE OF SGM...............................................................................................		SGM-1

— i —

DEFINITIONS

In this circular, unless the context otherwise requires, the following expressions shall have the following meanings:

• “Acquisition”

the acquisition of the Sale Shares by the Company from Mr. Chen Weiwu in accordance with the terms and conditions of the Agreement

• “Agreement” or “Equity Sale and Purchase Agreement”

• the conditional Equity Sale and Purchase Agreement dated 9 April 2020 entered into between the Company and Mr. Chen Weiwu in respect of the Acquisition

• “Board”

the board of Directors

• “Company”

• China Tangshang Holdings Limited, a company incorporated in Bermuda with limited liability, and the issued Shares of which are listed on the Main Board of the Stock Exchange (Stock code: 674)

• “Completion”

• completion of the Acquisition in accordance with the terms and conditions of the Agreement

• “Completion Date”

the date of Completion

• “connected person(s)”

has the meaning ascribed to it under the Listing Rules

• “Consideration”

• the consideration of HK$196,861,538 (equivalent to approximately RMB179,144,000) for the acquisition of the Sale Shares

• “Consideration Share(s)”

• 800,000,000 new Shares to be allotted and issued by the Company to the Vendor to satisfy part of the Consideration

• “controlling shareholder”

has the meaning ascribed to it under the Listing Rules

• “Director(s)”

the director(s) of the Company

• “Dongguan Holding Company (Puhua)”

• Dongguan Puhua Land Ltd.* （東莞普華置地有限公 司）, a company incorporated on 28 February 2020 under the laws of the PRC with limited liability

— 1 —

DEFINITIONS

• “Dongguan Holding Company

• (Huachuang)”

• Dongguan Huachuang Industry Development Ltd.*（東 莞華創文實業開發有限公司）, a company incorporated on 12 March 2020 under the laws of the PRC with limited liability

• “Dongguan Land”

• the land situated at Caole Village, Xiegang Town, Dongguan City, PRC, with a land parcel number of 2019WG052 and a site area of 30,265.58 square meters designated for urban residential use and business service use

• “Enlarged Group” the Group as enlarged by the Acquisition upon Completion

• “Group”

the Company and its subsidiaries

• “HK$”

• Hong Kong dollars, the lawful currency of Hong Kong

• “Hong Kong”

• the Hong Kong Special Administrative Region of the People’s Republic of China

• “Hong Kong Holding Company”

• Happy Star Investments Limited, a company incorporated under the laws of Hong Kong which is directly wholly-owned by the Target Company

• “Independent Board Committee”

• the independent board committee, comprising all of the independent non-executive Directors, namely Mr. Chen Youchun, Ms. Lui Mei Ka and Mr. Zhou Xin, established for the purpose of advising the Independent Shareholders in respect of the signing of Equity Sale and Purchase Agreement

• “Independent Financial Adviser” or “Rainbow Capital”

• Rainbow Capital (HK) Limited, a corporation licensed under the SFO to carry out Type 6 (advising on corporate finance) regulated activity, the independent financial adviser appointed by the Company to advise the Independent Board Committee and the Independent Shareholders in relation to the Acquisition

— 2 —

DEFINITIONS

• “Independent Shareholders” shareholders other than the connected person(s) who is/are interested in the relevant transactions

• “Latest Practicable Date”

• 16 June 2020, being the latest practicable date prior to the printing of this circular for the purpose of ascertaining certain information contained herein

• “Listing Rules”

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

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

• “Project Company”

• Dongguan Huachuangwen Land Ltd.*（東莞市華創文 置地有限公司）, a company incorporated on 6 January 2020 under the laws of the PRC with limited liability

• “RMB”

• Renminbi, the lawful currency of the PRC

• “Sale Share(s)” 10,000 shares of the Target Company of US$1 each, representing 100% of the issued share capital of the Target Company

• “SGM” the 2020 second special general meeting of the Company to be convened and held at 13th Floor, Bupa Centre, No. 141 Connaught Road West, Hong Kong at 3 p.m. on 10 July 2020 or any adjournment, for considering and approving, if appropriate, the transactions contemplated under the Equity Sale and Purchase Agreement

• “Share(s)”

• ordinary share in the share capital of the Company

• “Shenzhen Yaoling”

• Shenzhen Yaoling Investment Ltd.*（深圳市耀領投資 有限公司）, a company incorporated under the laws of the PRC

— 3 —

DEFINITIONS

• “Shenzhen Leju” Shenzhen Leju Real Estate Information and Advisory Partnership (limited partnership)*（深圳市樂居房地產 信息諮詢合夥企業（有限合夥））, a limited partnership formed under the laws of the PRC

• “Shareholders” the holder(s) of the Share(s) of the Company from time to time

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

• “Target Company” Topper Genius Investments Limited（峰智投資有限公 司）, a company incorporated on 11 July 2019 under the laws of the British Virgin Islands with limited liability

• “Target Group” the Target Company and its subsidiaries “%” per cent.

• For identification purpose only

— 4 —

LETTER FROM THE BOARD

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CHINA TANGSHANG HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: 674)

Executive Directors: Registered office: Mr. Chen Weiwu (Chairman) Clarendon House 2 Mr. Zhou Houjie (Acting Chief Executive Officer) Church Street Hamilton HM11 Independent Non-executive Directors: Bermuda Mr. Chen Youchun Ms. Lui Mei Ka Principal place of business in Mr. Zhou Xin Hong Kong: 13th Floor, Bupa Centre, No. 141 Connaught Road West, Hong Kong

22 June 2020

To the Shareholders,

Dear Sir or Madam,

(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED

TRANSACTION IN RELATION TO THE ACQUISITION OF THE TARGET GROUP AND

(2) NOTICE OF SPECIAL GENERAL MEETING

INTRODUCTION

Reference is made to the announcement of the Company dated 9 April 2020 in relation to the entering of the Equity Sale and Purchase Agreement.

The purpose of this circular is to provide you with details of, among others,

• (i) information of the terms of the Equity Sale and Purchase Agreement;

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LETTER FROM THE BOARD

• (ii) the recommendations from the Independent Board Committee to the Independent Shareholders in respect of the Equity Sale and Purchase Agreement;

• (iii) the advice from the Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders in respect of the Equity Sale and Purchase Agreement;

• (iv) the financial information of the Target Group;

• (v) the unaudited pro forma financial information of the Group;

• (vi) a valuation report;

• (vii) the SGM which will be convened for the purposes of, inter alia, considering and, if thought fit, passing the resolutions relating to the Equity Sale and Purchase Agreement; and

• (viii) other information as required under the Listing Rules relating to the Equity Sale and Purchase Agreement.

EQUITY SALE AND PURCHASE AGREEMENT

Date:

• 9 April 2020

Parties:

Purchaser: the Company

Vendor: Mr. Chen Weiwu

Assets to be acquired:

Under the Equity Sale and Purchase Agreement, the Company has agreed conditionally to acquire, and Mr. Chen Weiwu has agreed conditionally to sell, the Sale Shares, which represent the total issued share capital of the Target Company.

— 6 —

LETTER FROM THE BOARD

In December 2019, Shenzhen Yaoling and Shenzhen Leju jointly won the bid for the Dongguan Land at the price of RMB511,840,000, and established the Project Company to hold and develop the Dongguan Land. Prior to the date of the Equity Sale and Purchase Agreement, Shenzhen Yaoling and Shenzhen Leju held 90% and 10% of the shares of the Project Company respectively. The Target Company shall, through its indirect whollyowned subsidiary, acquire 35% of the equity interest of the Project Company from Shenzhen Yaoling. Upon Completion of the Acquisition, the Company will engage in the development of the Dongguan Land through the Target Company.

Connected parties and independent third parties:

Mr. Zeng Qinghua and Shenzhen Tangshang Equity Investment Company Limited（深圳市 唐商股權投資有限公司）hold 3% and 97% of the shares of Shenzhen Yaoling respectively. Mr. Zeng Qinghua is the legal representative of Shenzhen Tangshang Equity Investment Company Limited, and the ultimate beneficial owner of Shenzhen Yaoling. Mr. Zeng Qinghua is also the cousin-in-law of Mr. Chen Weiwu.

Mr. Chen Danjun is the general partner of Shenzhen Leju. Shenzhen Yinghui Investment Ltd.* （深圳盈暉投資有限公司）, Mr. Chen Zhenshou and Mr. Weng Qihao are its limited partners. Mr. Chen Danjun, Shenzhen Yinghui Investment Ltd.（深圳盈暉投資有限公 司）, Mr. Chen Zhenshou and Mr. Weng Qihao hold 60%, 10%, 15% and 15% of interest in Shenzhen Leju respectively. Ms. Jiang Xiumei is the legal representative and ultimate beneficial owner of Shenzhen Yinghui Investment Ltd.

To the Directors’ knowledge, information and belief and having made all reasonable enquiries, save that Ms. Jiang Xiumei’s niece is the spouse of the aforesaid Mr. Zeng Qinghua, Shenzhen Leju and its ultimate beneficial owners are independent third parties not connected with the Company and its connected persons, as well as Shenzhen Yaoling and its beneficial owners.

Consideration:

Pursuant to the Equity Sale and Purchase Agreement, the Consideration of HK$196,861,538 (equivalent to approximately RMB179,144,000) shall be payable by the Company to Vendor by way of (i) cash payment of HK$36,861,538 (equivalent to RMB33,544,000), and (ii) issue and allotment of Consideration Shares to Mr. Chen Weiwu at an issue price of HK$0.2 per Consideration Share, i.e. 800,000,000 new Shares for total HK$160,000,000 in value, on the Completion Date. The above cash payment of Consideration can be settled in Hong Kong dollar or Renmenbi equivalent.

— 7 —

LETTER FROM THE BOARD

The Company has the discretion to decide the currency for settlement. The closing middle rate of exchange between Hong Kong Dollar and Renminbi as quoted by the People’s Bank of China at 5 p.m. on the business day preceding the date of Completion will be adopted.

The Consideration was calculated proportionally based on the Dongguan Land’s land bidding price of RMB511,840,000 (equivalent to approximately HK$562,461,538.46) and the 35% of the equity interest in the Dongguan Land to be indirectly held by the Target Company.

The Company determined the current portion of cash consideration and Consideration Shares after considering the liquidity and financial resources of the Company. As at 30 September 2019, the Group had current assets of approximately HK$277.6 million and current liabilities of HK$216.4 million, resulting in a net current asset position of approximately HK$61.1 million. The issue of the Consideration Shares to satisfy the bulk of the Consideration shall reduce the cash outlay for the Acquisition to a level which is within the Group’s financial capacity. To reserve sufficient working capital for the operation of the Company, the Company is of the view that the cash consideration should be approximately HK$40.0 million at most.

The Company is of the view that the issuance of Consideration Shares would be the best way to satisfy the remaining Consideration because:

• (a) the issue price of the Consideration Shares of HK$0.2 per Consideration Share represents a significant premium over historical closing prices of the Shares as well as the unaudited net asset value of approximately HK$0.11 per Share as at 30 September 2019. As such, the issue of the Consideration Shares would not reduce the net asset value per Share;

• (b) though the Company has considered debt financing, such as bank borrowings, to be other possible fund raising alternatives, the Company is of the view that this will depend on the prevailing market condition, and may be subject to lengthy due diligence and negotiations with banks. As such, the Company considers debt financing to be relatively uncertain and time-consuming as compared to equity financing. In addition, taking into account the requirement of interest payments, working capital requirement and the maturity of the Group’s borrowings, the Company is of the view that obtaining further bank borrowings to finance the Acquisition, which would reduce banking facilities otherwise available for other working capital requirements, is not in the interests of the Shareholders; and

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LETTER FROM THE BOARD

• (c) the Company has also considered other alternatives of equity financing for the Acquisition which would not affect the cash and debt position of the Group, including a private placement of Shares to independent third party investors or a rights issue or open offer to existing Shareholders. A private placement has a similar dilutive potential as an issue to a connected person. However, private placements are also normally made at a significant discount to current market price, say around 10%, whereas the issue of the Consideration Shares is priced at a premium to the Share price. As regards a rights issue or open offer, the Company has considered such factors as (1) the price of a rights issue or open offer would normally involve a substantial discount to market, based on the discounts involved for recent rights issues and open offers of companies listed on the Stock Exchange; (2) the large size of the rights issue or open offer which would be required; (3) the likely costs involved (including the amount of underwriting commissions and other administrative and legal expenses); and (4) the lack of certainty in the successful implementation of a rights issue or open offer with their longer timetable. On this basis, the Company did not consider a rights issue or open offer as appropriate means of raising fund for the Acquisition.

A consolidated management account of the Target Group after consolidation as at the date of Completion should be prepared by the accountants appointed by the Company within 30 days after the Completion. If there is any difference between the net asset value of the Target Group as at the date of the Equity Sale and Purchase Agreement and as at the date of Completion, any deficit would decrease the amount of the cash consideration. The number of Consideration Shares shall remain unchanged. There will not be any upward adjustment on the Consideration. The Directors consider that this arrangement is fair and reasonable and in the interest of the Company and the Shareholders as a whole as any decrease in the net asset value of the Target Group would be reflected in the Consideration proportionally pursuant to the shareholding of Dongguan Holding Company (Huachuang) in the Project Company. For example, if the net asset value of the Target Group decreases by RMB1,000,000, the Consideration will be adjusted downward by RMB350,000.

The net asset value of the Target Group as at the date of the Equity Sale and Purchase Agreement (assuming the acquisition of 35% shares of the Project Company by the Dongguan Holding Company (Huachuang) is completed) is RMB511,840,000, being the acquisition cost of the Dongguan Land. The loan from Mr. Chen Weiwu used to acquire 35% equity interests in the Project Company by Dongguan Holding Company (Huachuang) shall be capitalized immediately before Completion.

— 9 —

LETTER FROM THE BOARD

Consideration Shares:

As at the Latest Practicable Date, the authorised share capital of the Company is HK$1,000,000,000, divided into 20,000,000,000 ordinary shares with a par value of HK$0.05 each. There are 1,077,778,570 issued shares in total, which are all paid up.

The issue price of HK$0.2 per Consideration Share at which the Consideration Shares will be allotted and issued represents:

• (i) a premium of approximately 61.29% over the closing price of HK$0.124 per Share as quoted on the Stock Exchange on the date of the Agreement;

• (ii) a premium of approximately 61.29% over the average closing price of approximately HK$0.124 per Share as quoted on the Stock Exchange for the last 5 consecutive trading days up to and including the date of the Agreement;

• (iii) a premium of approximately 53.85% over the average closing price of approximately HK$0.130 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including the date of the Agreement;

• (iv) a premium of approximately 30.72% over the average closing price of approximately HK$0.153 per Share as quoted on the Stock Exchange for the last 30 consecutive trading days up to and including the date of the Agreement;

• (v) a premium of approximately 19.05% over the average closing price of approximately HK$0.168 per Share as quoted on the Stock Exchange for the last 60 consecutive trading days up to and including the date of the Agreement;

• (vi) a premium of approximately 6.95% over the average closing price of approximately HK$0.187 per Share as quoted on the Stock Exchange for the last 360 consecutive trading days up to and including the date of the Agreement; and

• (vii) a premium of approximately 81.8% over the unaudited net asset value of approximately HK$0.11 per Share as at 30 September 2019 calculated based on the 1,077,778,570 Shares in issue as at the date of the Agreement.

The issue price was determined after arm’s length negotiation between the Company and Mr. Chen Weiwu with reference to the recent price performance of the Shares and the prevailing market conditions.

— 10 —

LETTER FROM THE BOARD

The Consideration Shares also represent:

• (i) approximately 74.23% of the issued share capital of the Company as at the Latest Practicable Date; and

• (ii) approximately 42.60% of the issued share capital of the Company as enlarged by the allotment and issue of the Consideration Shares.

The Consideration Shares will be issued under the specific mandate to be sought from the Independent Shareholders at the special general meeting. The Consideration Shares, when allotted and issued, shall rank pari passu in all respects with the outstanding Shares in issue on the date of the allotment and issue of the Consideration Shares. The allotment and issue of the Consideration Shares will not result in a change of control of the Company.

Application for the listing of, and permission to deal in, the Consideration Shares to be allotted and issued pursuant to the Equity Sale and Purchase Agreement will be made by the Company to the Stock Exchange.

Conditions Precedent:

Completion is conditional upon fulfilment or waiver (as the case may be) of the following conditions:

• (i) the Company having obtained the approval from its Independent Shareholders in respect of, inter alia, (a) the Acquisition; and (b) the issue of the Consideration Shares to Mr. Chen Weiwu pursuant to the terms of the Equity Sale and Purchase Agreement, in the manner required by the Listing Rules;

• (ii) the Company having obtained the approval from the Board in respect of the transactions contemplated under the Equity Sale and Purchase Agreement;

• (iii) the Company having obtained the approval from the Board in respect of the allotment and issue of the Consideration Shares;

• (iv) the Target Company having indirectly held 35% of the equity interest in the Project Company through its subsidiary;

• (v) the Project Company having legally obtained the entire interest of the Dongguan Land and having fully repaid all the relevant land premium due to the PRC government;

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LETTER FROM THE BOARD

• (vi) the Company having obtained the approval from the Stock Exchange for the listing of, and permission to deal in, the Consideration Shares;

• (vii) the allotment and issue of the Consideration Shares not being prohibited by any statute, order, rule, regulation or directive promulgated or issued after the date of the Agreement by any legislative, executive or regulatory body or authority of Bermuda or Hong Kong;

• (viii) each of the parties having complied with the terms and conditions of the Agreement and there having been no material breach of the Agreement by any party thereto;

• (ix) all of the warranties and representations contained in the Agreement remaining true, correct, complete, accurate and not misleading in all material respects at Completion, as if repeated at Completion and all undertakings contained in the Agreement, to the extent that it is capable of being fulfilled prior to the Completion Date, having been fulfilled in all respects;

• (x) there having been no material adverse change in the Target Group between the date of the Agreement and the Completion Date;

• (xi) the purchaser, the vendor and the Target Company having complied with the Listing Rules in all respects for the Acquisition;

• (xii) the Company being satisfied with the results of the legal and/or financial due diligence review on the Target Group, including having obtained sufficient evidence indicating the valid title of the properties held by the Target Group pursuant to the relevant laws and regulations of the PRC; and

• (xiii) the Company having satisfied that each member of the Target Group is duly incorporated, validly existing and of good standing, and that the shareholding structure of the Target Group pursuant to the Agreement is true, correct, accurate, complete, legal and valid.

As at the date of this circular, conditions (ii), (iii), (iv), (v) and (xiii) above are already satisfied.

The Company may at any time waive the conditions set out in (x) and (xii) above by notice in writing to Mr. Chen Weiwu. As at the date of this circular, the Company has no intention to waive any of the above conditions.

— 12 —

LETTER FROM THE BOARD

If the conditions above have not been fulfilled or waived (as the case may be) within six months from the date of the Agreement (or such later date as the parties may agree), the Equity Sale and Purchase Agreement shall cease and determine and neither party shall have any obligations and liabilities towards each other thereunder save for any antecedent breaches of the Agreement.

Board composition:

The Company shall have the right to appoint all director(s) of the Project Company. The director(s) of the Project Company shall have the power and authority to decide on matters relating to its affairs and business.

Given that the existing Board already has experience in property development business, the other shareholders of the Project Company agreed that the Company shall have the right to appoint all directors of the Project Company to operate and manage the business.

There will be one director and one chief executive officer in the Project Company, which will both be nominated by Dongguan Holding Company (Huachuang) as per the shareholders’ agreement (the “ Shareholders’ Agreement ”) signed by all shareholders of the Project Company on 9 April 2020. Therefore, the Target Group could exercise decision-making power at both the board level and the management level despite it will only be interested in 35% equity interest of the Project Company.

Completion:

Completion shall take place within seven business days after fulfilment or waiver (as the case may be) of all the conditions precedent to the Agreement, or such other date as the parties to the Agreement may agree in writing.

Upon Completion, the Target Company will become a wholly-owned subsidiary of the Company and the financial statements of the Target Group will be consolidated into the consolidated financial statements of the Group. As the decision-making power of the Project Company shall be exercisable by the Target Group upon Completion of the Acquisition, the financial statements of the Project Company will also be consolidated into the consolidated financial statements of the Group, and the auditors of the Company have agreed with such proposed consolidation.

— 13 —

LETTER FROM THE BOARD

Shareholders’ agreement:

All the shareholders of the Project Company have entered into the Shareholders’ Agreement on 9 April 2020 alongside with the execution of the Equity Sale and Purchase Agreement, and the Shareholders’ Agreement will prevail over the articles of association of the Project Company, as advised by the PRC legal advisers to the Company.

The keys terms of the Shareholders’ Agreement are as follows:

Scope of business

The scope of business of the Project Company includes urban renewal information consulting, business management consulting, business information consulting; real estate intermediary services: urban renewal project planning; engineering consulting; real estate development and operation; real estate investment; industry investment; property investment; property management; leasing of own property; gardening and greening project design and construction.

The scope of business of the Project Company may not be changed unless the written consent of all shareholders is obtained.

Registered capital and capital contribution arrangements

The registered capital of the Project Company shall be RMB10,000,000, which shall be contributed by the shareholders in proportion to their respective shareholding.

Corporate governance

The Project Company shall have one director which will be nominated by Dongguan Holding Company (Huachuang) and elected at general meeting. The director appointed shall not be subject to retirement.

The Project Company shall have one supervisor which will be nominated by Dongguan Holding Company (Huachuang) and elected at general meeting.

The Project Company shall have one manager (chief executive officer) which will be nominated by Dongguan Holding Company (Huachuang) and appointed by the director of the Project Company.

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LETTER FROM THE BOARD

Power of director and shareholders

Notwithstanding anything contrary in the articles of association of the Project Company, the director shall exercise the major decision-making power relating to the operation and management of the Project Company, which includes:

• (a) to determine the company’s annual business plan and investment plan;

• (b) to formulate the annual financial budget plan and accounting proposal of the company;

• (c) to formulate the profit distribution plans and loss compensation plan of the company;

• (d) to formulate the plans of increasing and reducing the registered share capital of the company and issuance of debt securities;

• (e) to formulate plans for merger, division, changing the incorporation form and dissolution of the company;

• (f) to decide on the setting up of internal management organization;

• (g) to decide on the appointment or dismissal of the manager of the company and its remuneration, and to decide on the appointment or dismissal of the company’s deputy manager and chief financial officer according to the manager’s nomination; and

• (h) to determine the basic management system of the company.

80% votes of shareholders attending the general meeting will be required for resolving the following matters:

• (a) changing the name of the Project Company;

• (b) amending the articles of association of the Project Company;

• (c) capitalisation, repayment or making other form of distribution of any amount standing to the credit of any reserve of the Project Company on the redemption or purchase of any shares or any other reorganisation of share capital;

• (d) altering the rights attached to the shares of the Project Company;

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LETTER FROM THE BOARD

• (e) passing any resolution the result of which would be the winding-up, liquidation or receivership of the Project Company, or making any composition or arrangement with creditors.

Distribution of profit and dividend and issue of additional shares of the Project Company will be resolved by the director of the Project Company and will not be subject to approval of shareholders.

The appointment of the sole director and chief executive officer will be approved by ordinary resolution of the Project Company. However, as the shareholders of the Project Company have already agreed that such director and chief executive officer will be the persons nominated by Dongguan Holding Company (Huachuang) pursuant to the Shareholders’ Agreement, it would be in breach of the Shareholders’ Agreement if the shareholders of the Project Company do not pass the resolution for such appointment. Other shareholders of the Project Company do not have veto rights to the nomination of director and chief executive officer by Dongguan Holding Company (Huachuang).

Financing

In the event that the Project Company’s financial resources are at any stage insufficient to satisfy its working capital requirements as determined by the director, the shareholders shall use all reasonable endeavours to arrange borrowings in the form of loans or overdraft facilities from banks or other financial institutions. If such borrowings could not be obtained, the director may request the shareholders to advance further interest bearing loans or subscribe for additional shares of the Project Company.

Pre-emptive right

Each shareholder of the Project Company shall not transfer or dispose of (or agrees to transfer or dispose of) the whole or any part of its shares in the Project Company or any interest thereon without first offering to sell such shares to the other shareholders or obtaining their written consent.

Amendments

The Shareholders Agreement can only be amended with the written consent of all shareholders of the Project Company.

— 16 —

LETTER FROM THE BOARD

INFORMATION OF THE DONGGUAN LAND

The Dongguan Land situates at Caole Village, Xiegang Town, Dongguan City, PRC with a site area of 30,265.58 square meters designated for urban residential use and business service use (R2 Class II residential land). R2 Class II residential land （R2 二類居住用 地） means the state-owned land used for constructing multi-storey buildings mainly for residential purpose with all-round supporting facilities, which accounts for the major part among the residential lands in the PRC. With the approval of the People’s Government of Dongguan Municipality, Dongguan Municipal Bureau of Natural Resources （東莞市自 然資源局） and Dongguan City Public Resources Trading Center （東莞市公共資源交易 中心） determined to list the Dongguan Land for sale, and Shenzhen Yaoling successfully won the bid at the price of RMB511,840,000 jointly with Shenzhen Leju in December 2019.

As at the date of this circular, the Dongguan Land is vacant pending development, of which the development plan is yet to be fixed and approved by the relevant governmental authority. As advised by the Company, the Group plans to develop the Dongguan Land into a mix of residential and commercial properties, part of which is for leasing purpose. It is currently intended that approximately 50% of the planned gross floor area (“ GFA ”) of the Dongguan Land will be used to construct residential properties for sale, and approximately 50% of the planned GFA of the Dongguan Land will be used to construct commercial properties (for example, shopping malls, retail shops, car parking space, offices, etc.) for the purpose of leasing.

The construction of the Dongguan Land is planned to be completed by phases between 2020 and 2022. Depending on the actual supply and demand condition, it is intended that the pre-sale or sale will be conducted between 2020 and 2023.

The development of the Dongguan Land would be in line with the Company’s existing business. As stated above, the Group plans to develop the Dongguan Land into a mix of residential and commercial properties, part of which is for leasing purpose. Commercial properties, including shopping malls, entertainment facilities and carparks, are typically integrated with residential properties in the vicinity, which the Company believes will not only diversify its source of income, but most importantly, generate more traffic in the locality and therefore enhance the value of, and drive the demand for, both its commercial and residential properties. As such, the Company considers that the engagement in property development is closely related to its existing property leasing business.

— 17 —

LETTER FROM THE BOARD

The Company has no intention to downsize or terminate its existing businesses. The existing property leasing business will be expanded by developing commercial properties on the Dongguan Land for leasing purpose, and the Company intends to expand its property sub-leasing business in other first tier cities in Mainland China. As the Group develops both residential and commercial properties over time, should appropriate opportunities arise, the revenue generated from both the existing property leasing and the new property development businesses will enlarge simultaneously.

It is expected that the capital commitment of the Project Company for the development of the Dongguan Land will be RMB300,000,000, and will be financed by borrowings obtained by the Project Company. The Project Company is currently applying for a commercial loan from the Bank of Dongguan, which is expected to be in the sum of approximately 60% of the value of the Dongguan Land. Since the Dongguan Land is not subject to any encumbrances, the Directors believe that the Project Company would be able to obtain such commercial loan. In view of the bidding price of the Dongguan Land which amounts to RMB511,840,000, the commercial loan which could be obtained would likely exceed RMB300,000,000, covering the entire development costs for phase 1 of the development. Hence, there is currently no need for the shareholders of the Project Company to make further capital contribution. In the unlikely event that the Project Company could not obtain sufficient borrowings, the development costs of RMB300,000,000 may be contributed by the shareholders of the Project Company in proportion to their shareholdings, and the Company would, through its subsidiaries, contribute RMB105,000,000 for the development of the Dongguan Land.

The capital commitment of the Project Company is determined based on the following:

• (a) Upfront engineering costs of approximately RMB24-29 million will be incurred, which include the costs for surveying and planning, ensuring the utilities supply for the commencement of construction, and for settling the charges of the government;

• (b) Construction and engineering costs of approximately RMB254-261 million will be incurred, which include the costs for various civil engineering, decoration of residential properties and installation of facilities; and

• (c) Infrastructure and ancillary facilities of approximately RMB23-28 million will be incurred, which include the costs for landscaping, telecommunication facilities, fire fighting facilities, intelligence system and utilities;

Hence, it is estimated that the first phase development costs of the Dongguan Land will be approximately RMB300 million.

— 18 —

LETTER FROM THE BOARD

It is expected that two-third of the Dongguan Land would be developed in the first phase of the development of the Dongguan Land. Further development would be subject to various factors such as the then market condition and the market response to the development, and the shareholders of the Project Company do not have any plan for the second phase of the development yet. In any event, it is expected that the sale proceeds from the sale of residential properties in the first phase of the development as well as rental income would be able to finance further development of the Dongguan Land.

The Project Company has commenced the negotiation with the Bank of Dongguan already and it is expected that commercial loan could be obtained in the coming two months. Hence, there is not a required timeframe for the shareholders of the Project Company to contribute further capital, and the Company itself does not have plan for further fundraising activities for the development of the Dongguan Land currently.

In the unlikely event that the Company is required to make capital contribution to satisfy the development costs of the first phase of the development of the Dongguan Land, the Company intends to fund the development of the Dongguan Land through external equity and/or debt financings including but not limited to issuance of note or bond, open offer and/or rights issue, depending on the then prevailing circumstances. This is because after the payment of the cash consideration of HK$36,861,538, the Company would need to retain the remaining cash as working capital for its operation.

— 19 —

LETTER FROM THE BOARD

INFORMATION OF THE TARGET GROUP

The shareholding structure of the Target Group before the Completion is as follows:

Mr. Chen Weiwu 100% The Target Company 100% Hong Kong Holding Company 100% Dongguan Holding Company (Puhua) 100% Dongguan Holding Company (Huachuang) 35% The Project Company

— 20 —

LETTER FROM THE BOARD

The structure of shareholding of the Target Group held by the Company immediately after the Completion is as follows:

The Company 100% The Target Company 100% Hong Kong Holding Company 100% Dongguan Holding Company (Puhua) 100% Dongguan Holding Company (Huachuang) 35% The Project Company

The Company understands that the major asset of the Target Group as of the Completion of the Acquisition will be the Dongguan Land. The Target Group did not have any identifiable income for the past two financial years.

Prior to the date of the Equity Sale and Purchase Agreement, Shenzhen Yaoling and Shenzhen Leju held 90% and 10% of the shares of the Project Company respectively. As a condition precedent to the Completion of the Acquisition, Dongguan Holding Company (Huachuang) will hold 35% of the shares of the Project Company. Upon the completion of the Acquisition, Dongguan Holding Company (Huachuang) will be an indirect whollyowned subsidiary of the Company and hold 35% of the shares of the Project Company, and Shenzhen Yaoling and Shenzhen Leju will hold 55% and 10% of the shares of the Project Company, respectively.

The Company is given to understand that the consideration for 35% of the equity interest in the Project Company is RMB179,144,000, being 35% of the bidding price of the Dongguan Land. Mr. Chen Weiwu will provide funds to Dongguan Holding Company (Huachuang) for settling the consideration. Such acquisition will be completed before the Completion and the successful acquisition of 35% of the equity interest by the Target Group indirectly is a condition precedent to the Completion of the Acquisition.

— 21 —

LETTER FROM THE BOARD

Immediately after the Completion, the Project Company will be indirectly owned as to 35% by the Company, as to 55% by Shenzhen Yaoling and as to 10% by Shenzhen Leju, respectively.

The shareholding structure of the Project Company before the date of the Equity Sale and Purchase Agreement and immediately before and after the Completion is as follows:

Before the date of the Equity Sale and Purchase Agreement:

==> picture [395 x 94] intentionally omitted <==

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

Shenzhen Yaoling Shenzhen Leju
90% 10%
The Project Company
----- End of picture text -----

Immediately before and after Completion:

==> picture [397 x 105] intentionally omitted <==

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

Dongguan Holding
Shenzhen Yaoling Shenzhen Leju
Company (Huachuang)
35% 55% 10%
The Project Company
----- End of picture text -----

CHANGES IN THE SHAREHOLDING STRUCTURE OF THE COMPANY

As at the Latest Practicable Date, the Company has 1,077,778,570 Shares in issue. Set out below is the shareholding structure of the Company (i) as at the Latest Practicable Date; and (ii) immediately after the Completion and the allotment and issue of Consideration Shares:

			Immediately after
			the Completion and
			the allotment and issue of
	As at the Latest	Practicable Date	Consideration Shares
	No. of Shares	Approximate %	No. of Shares Approximate %
Mr. Chen Weiwu	579,806,977	53.80	1,379,806,977 73.48
Public Shareholders	497,971,593	46.20	497,971,593 26.52
Total	1,077,778,570	100.00	1,877,778,570 100.00

— 22 —

LETTER FROM THE BOARD

REASONS FOR AND BENEFITS OF THE ACQUISITION

The business objectives of the Group are to develop its business and achieve sustainable growth of its business. The Group aims to achieve such objectives by pursuing the growthoriented strategies, including investment in more property sub-leasing, development and investment projects in the PRC.

As disclosed in the annual report of the Company, the management team and the Board of the Company are highly experienced in the real estate development industry in the PRC and possess significant resources and networks in the PRC which the Company expects to be able to leverage for its future development in the property sub-leasing, development and investment business sector.

Mr. Chen Weiwu, being the controlling shareholder of the Company and the chairman of the Board, enables the Group to engage in the development of the Dongguan Land and assists the Group to commence its property development business in the PRC through the transfer of the equity interests in the Project Company indirectly held by him to the Company.

It is expected that approximately RMB300 million will be required by the Project Company for the development project of the Dongguan land. The Dongguan Land is intended to be used for constructing residential and commercial properties.

Having considered the above factors, the Board (excluding members of the Independent Board Committee whose views can only be formed after having been advised by the Independent Financial Adviser) considers that the terms of the Equity Sale and Purchase Agreement are on normal commercial terms, fair and reasonable and are in the interest of the Company and its Shareholders as a whole.

EFFECTS ON EARNINGS AND ASSETS AND LIABILITIES OF THE GROUP

Upon completion of the Acquisition, the Target Company will become a wholly-owned subsidiary of the Company and its financial results will be consolidated into the financial results of the Group. It is expected that the Acquisition will have the following financial effects on the Group:

Assets and liabilities

The unaudited consolidated total assets, total liabilities and net assets of the Group as at 30 September 2019 as extracted from the interim report of the Company for the six months ended 30 September 2019 were HK$477,350,672, HK$336,224,861 and

— 23 —

LETTER FROM THE BOARD

HK$141,125,811 respectively. Based on the unaudited pro forma financial information of the Enlarged Group as set out in the Appendix III to this circular, assuming completion of the Acquisition had taken place on 30 September 2019, the pro forma total assets and total liabilities of the Enlarged Group would have been approximately HK$1,034,631,375 and approximately HK$366,344,057 respectively. The unaudited pro forma net asset value attributable to equity shareholders of the Enlarged Group would increase to approximately HK$278,550,564.

Earnings

The unaudited net loss of the Group for the year ended 31 March 2019 as extracted from the audited report of the Company for the year ended 31 March 2019 was HK$14,998,643. Based on the unaudited pro forma financial information of the Enlarged Group as set out in the Appendix III to this circular, assuming completion of the Acquisition had taken place on 31 March 2019, the pro forma net loss of the Enlarged Group would increase to approximately HK$15,450,482. In view of the future prospects of the property market in Dongguan, the PRC, it is anticipated that the Acquisition will improve the Enlarged Group’s trading prospects in the future.

INFORMATION OF THE COMPANY

The Company is a Hong Kong-based investment holding company principally engaged in exhibition and property businesses. The Company has four segments. Exhibition-related business organizes exhibition events and meeting events. Food and beverages represents the sales of food and beverages and restaurant operations. Money lending represents the business of loan to customers, including individuals and corporation, pursuant to the provisions of the Money Lenders Ordinance (Chapter 163 of the Laws of Hong Kong). Property sub-leasing, property development and investment represents the sub-leasing and development of real estates and the leasing of investment properties.

APPROVAL OF THE BOARD

To the best of the Directors’ knowledge, information and belief and having made all reasonable enquiries, no Director has a material interest in the Equity Sale and Purchase Agreement except Mr. Chen Weiwu, the connected Director. Other Directors have unanimously approved the Equity Sale and Purchase Agreement (Mr. Chen Weiwu, the connected Director, has abstained from voting).

— 24 —

LETTER FROM THE BOARD

IMPLICATIONS UNDER THE LISTING RULES

As certain percentage ratios as defined under Chapter 14 of the Listing Rules in respect of the Acquisition exceed 100%, the Acquisition constitutes a very substantial acquisition of the Company under Chapter 14 of the Listing Rules and is therefore subject to the reporting, announcement and Shareholders’ approval requirements. Besides, as of the Latest Practicable Date, Mr. Chen Weiwu, being the executive Director of the Company, is interested in approximately 53.80% of the shares of the Company, Mr. Chen Weiwu is therefore a connected person of the Company under Chapter 14A of the Listing Rules. Accordingly, the Acquisition also constitutes a connected transaction of the Company and is subject to the reporting, announcement and Independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules. The Consideration Shares will be issued under the specific mandate of the Company in accordance with the Listing Rules.

An SGM will be convened and held by the Company for the purpose of considering, and if thought fit, approving the resolution(s) in relation to the Equity Sale and Purchase Agreement and the transactions contemplated thereunder, including the allotment and issue of the Consideration Shares. Mr. Chen Weiwu, being the chairman of the Board and an executive Director, has a material interest in the Equity Sale and Purchase Agreement and the transactions contemplated thereunder and has abstained from voting on the Board resolution(s) approving the Equity Sale and Purchase Agreement and the transactions contemplated thereunder.

The Independent Board Committee will advise the Independent Shareholders in respect of the relevant terms of the Equity Sale and Purchase Agreement. Rainbow Capital has been appointed by the Company as the Independent Financial Adviser to advise the Independent Board Committee and the Independent Shareholders in relation to the Acquisition.

OTHER MATTERS

Pursuant to the Listing Rules, an Independent Board Committee comprising all the independent non-executive Directors has been established by the Company to advise the Independent Shareholders on the terms of the transactions under the Equity Sale and Purchase Agreement. Rainbow Capital has been appointed as the Independent Financial Adviser by the Company to advise the Independent Board Committee and Independent Shareholders as to whether the terms and conditions of the Equity Sale and Purchase Agreement and the transactions contemplated thereunder are fair and reasonable so far as the Independent Shareholders are concerned, are on normal commercial terms or better and in the ordinary and usual course of business of the Group, and are in the interests of the Company and Shareholders as a whole.

— 25 —

LETTER FROM THE BOARD

SGM

A notice of SGM is set out on pages SGM-1 to SGM-3 of this circular. All the resolutions as set out in the notice of SGM will be proposed at the SGM.

A form of proxy for the SGM is enclosed with this circular. Whether you are able to attend the SGM or not, you are requested to complete the form of proxy in accordance with the instructions printed thereon and return it to the branch share registrar and transfer office of the Company in Hong Kong, Tricor Secretaries Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong, as soon as possible but in any event not less than 48 hours before the time appointed for the holding of the SGM or any adjournment thereof. Completion and return of the form of proxy shall not preclude you from attending and voting in person at the SGM or any adjourned meeting should you so wish and in such event, the form of proxy shall be deemed to be revoked.

In accordance with Rule 13.39(4) of the Listing Rules, all votes of the Shareholders on the proposed ordinary resolutions at the SGM shall be taken by poll. The chairman of the SGM will demand that all resolutions as set out in the SGM Notice be voted upon by way of poll at the SGM.

To the best of the Director’s knowledge, information and belief and having made all reasonable enquires, other than Mr. Chen Weiwu who shall abstain from voting at the SGM in respect of the Equity Sale and Purchase Agreement, none of the Directors or Shareholders has a material interest on the resolutions proposed at the SGM, and no Shareholder is required to abstain from voting on any of the resolutions at the SGM.

RECOMMENDATION

The Directors believe that the proposed resolutions relating to the Equity Sale and Purchase Agreement are in the best interests of the Company and the Shareholders as a whole. Accordingly, the Directors recommend the Shareholders to vote in favour of all the resolutions to be proposed at the SGM.

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.

— 26 —

LETTER FROM THE BOARD

ADDITIONAL INFORMATION

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

Yours faithfully,

For and on behalf of the Board

China Tangshang Holdings Limited Chen Weiwu

Chairman

— 27 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

==> picture [84 x 69] intentionally omitted <==

CHINA TANGSHANG HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: 674)

22 June 2020

To the Independent Shareholders

Dear Sir or Madam,

(1) VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE TARGET GROUP AND

(2) NOTICE OF SPECIAL GENERAL MEETING

Reference is made to the circular issued by the Company to the Shareholders dated 22 June 2020 (the “ Circular ”) of which this letter forms a part. Unless the context otherwise specified, capitalized terms used herein shall have the same meanings as those defined in the Circular.

We have been appointed by the Board to advise you on the terms of the Equity Sale and Purchase Agreement. Rainbow Capital has been appointed as the Independent Financial Adviser to advise you and us in this regard. Details of its advice, together with the principal factors and reasons it has taken into consideration in giving such advice, are set out on pages 30 to 57 of the Circular and the additional information is set out in the appendices thereto.

— 28 —

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

Having considered the terms of the Equity Sale and Purchase Agreement, and taking into account the independent advice of Rainbow Capital, in particular the principal factors, reasons and recommendations set out in its letter on pages 30 to 57 of the Circular, we consider that the Equity Sale and Purchase Agreement are on normal commercial terms or better and fair and reasonable so far as the Independent Shareholders are concerned and the entering into of the Equity Sale and Purchase Agreement, while not in the ordinary and usual course of business of the Group, is in the interests of the Company and the Shareholders as a whole. Accordingly, we recommend you to vote in favor of the resolution to be proposed at the SGM to approve the Equity Sale and Purchase Agreement.

Yours faithfully,

the Independent Board Committee Chen Youchun Lui Mei Ka Zhou Xin

Independent non-executive directors of the Company

— 29 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The following is the full text of a letter of advice from Rainbow Capital, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition, which has been prepared for the purpose of incorporation in this circular.

Rainbow Capital (HK) Limited

22 June 2020

To the Independent Board Committee and the Independent Shareholders

China Tangshang Holdings Limited 13th Floor Bupa Centre 141 Connaught Road West Hong Kong

Dear Sir or Madam,

VERY SUBSTANTIAL ACQUISITION AND CONNECTED TRANSACTION IN RELATION TO THE ACQUISITION OF THE TARGET GROUP

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Acquisition, details of which are set out in the “Letter from the Board” (the “ Letter from the Board ”) contained in the circular issued by the Company to the Shareholders dated 22 June 2020 (the “ Circular ”), of which this letter forms part. Unless the context otherwise requires, capitalised terms used in this letter shall have the same meanings as those defined in the Circular.

On 9 April 2020, the Company entered into the Equity Sale and Purchase Agreement with Mr. Chen Weiwu, pursuant to which the Company has conditionally agreed to acquire the Sale Shares from Chen Weiwu at a consideration of HK$196,861,538, which shall be satisfied as to HK$36,861,538 by cash and as to HK$160,000,000 by the allotment and issue of 800,000,000 Consideration Shares at an issue price of HK$0.2 per Consideration Share (the “ Issue Price ”). The Sale Shares represent the entire issued share capital of the Target Company. Upon Completion, the Company will indirectly hold 35% equity interest in the Project Company through the Target Company. The major asset of the Project Company is the Dongguan Land.

— 30 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Upon Completion, the Target Company shall become a wholly-owned subsidiary of the Company and the financial statements of the Target Group shall be consolidated into the consolidated financial statements of the Group. As the decision-making power of the Project Company shall be exercisable by the Target Group upon Completion, the financial statements of the Project Company shall also be consolidated into the consolidated financial statements of the Group.

As certain percentage ratios in respect of the Acquisition exceed 100%, the Acquisition constitutes a very substantial acquisition for the Company under Chapter 14 of the Listing Rules. As at the Latest Practicable Date, Mr. Chen Weiwu, an executive Director, was interested in approximately 53.80% of the issued share capital of the Company and was therefore a connected person of the Company under Chapter 14A of the Listing Rules. Accordingly, the Acquisition also constitutes a connected transaction for the Company, which is subject to the reporting, announcement and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules. The Consideration Shares will be issued under the specific mandate of the Company in accordance with the Listing Rules.

The Company will seek approval from the Independent Shareholders in respect of the Acquisition by way of a poll at the SGM. In view of the interest above, Mr. Chen Weiwu and his associates are required to abstain from voting in respect of the ordinary resolution approving the Acquisition at the SGM.

The Independent Board Committee, comprising all the three independent non-executive Directors, namely Mr. Chen Youchun, Ms. Lui Mei Ka and Mr. Zhou Xin, has been formed to advise the Independent Shareholders on whether the terms of the Acquisition are fair and reasonable, on normal commercial terms and in the interests of the Company and the Shareholders as a whole, and advise the Independent Shareholders as to voting. We, Rainbow Capital, have been appointed as the independent financial adviser to advise the Independent Board Committee and the Independent Shareholders in this regard.

As at the Latest Practicable Date, we did not have any relationships or interests with the Group and Mr. Chen Weiwu that could reasonably be regarded as relevant to our independence. We have acted as the independent financial adviser to the Independent Board Committee and the Independent Shareholders in relation to certain lease contracts, details of which are set out in the circular of the Company dated 25 February 2020. Other than that, there was no engagement between the Group and us in the last two years. Apart from normal professional fees paid or payable to us in connection with this appointment as the Independent Financial Adviser, no arrangements exist whereby we had received any fees or benefits from the Group or Mr. Chen Weiwu. Accordingly, we are qualified to give independent advice in respect of the Acquisition.

— 31 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

BASIS OF OUR OPINION

In formulating our opinion and advice, we have relied on (i) the information and facts contained or referred to in the Circular; (ii) the information supplied by the Group; (iii) the opinions expressed by and the representations of the Directors and the management of the Group; and (iv) our review of the relevant public information. We have assumed that all the information provided and representations and opinions expressed to us or contained or referred to in the Circular were true, accurate and complete in all respects as at the date thereof and may be relied upon. We have also assumed that all statements contained and representations made or referred to in the Circular are true at the time they were made and continue to be true as at the Latest Practicable Date and all such statements of belief, opinions and intentions of the Directors and the management of the Group and those as set out or referred to in the Circular were reasonably made after due and careful enquiry. We have no reason to doubt the truth, accuracy and completeness of the information and representations provided to us by the Directors and the management of the Group. We have also sought and received confirmation from the Directors that no material facts have been withheld or omitted from the information provided and referred to in the Circular and that all information or representations provided to us by the Directors and the management of the Group are true, accurate, complete and not misleading in all respects at the time they were made and continued to be so until the date of the Circular.

We consider that we have reviewed sufficient information currently available to reach an informed view and to justify our reliance on the accuracy of the information contained in the Circular so as to provide a reasonable basis for our recommendation. We have not, however, carried out any independent verification of the information provided, representations made or opinion expressed by the Directors and the management of the Group, nor have we conducted any form of in-depth investigation into the business, affairs, operations, financial position or future prospects of the Group, the Target Group or their respective substantial shareholders, subsidiaries or associates.

PRINCIPAL FACTORS AND REASONS CONSIDERED

In considering whether the terms of the Equity Sale and Purchase Agreement are fair and reasonable, we have taken into account the principal factors and reasons set out below:

1. Background information of the Group

The Group is principally engaged in (i) exhibition-related business; (ii) property subleasing business; (iii) money lending business; and (iv) food and beverages business.

— 32 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

Set out below is a summary of the consolidated financial information of the Group for the two years ended 31 March 2019 and six months ended 30 September 2019 as extracted from the annual report (the “ 2019 Annual Report ”) and interim report (the “ 2019 Interim Report ”) of the Company for the year ended 31 March 2019 and the six months ended 30 September 2019, respectively:

(i) Financial performance

Revenue from continuing operations — Exhibition-related business — Property sub-leasing business — Food and beverages — Money lending business Loss attributable to the Shareholders for the year/period Segment (loss)/profit before income tax expense — Exhibition-related business — Property sub-leasing business — Food and beverages — Money lending business	For the six months ended 30 September For the year ended 31 March 2019 2018 2019 2018 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) (unaudited) (audited) (audited) 41,704 29,960 81,438 81,333	For the six months ended 30 September For the year ended 31 March 2019 2018 2019 2018 HK$’000 HK$’000 HK$’000 HK$’000 (unaudited) (unaudited) (audited) (audited) 41,704 29,960 81,438 81,333
	10,337 10,771 26,032 39,396 30,741 18,105 45,310 35,763 — 1 7,550 3,962 626 1,083 2,546 2,212
	(24,083) (1,020) (18,871) (11,058) (1,781) (2,217) (4,027) (2,695) (4,642) 4,614 6,572 433 (2) (2) (4,485) (4,426) 657 718 1,741 2,196

Year ended 31 March 2019 (“ FY2019 ”) compared to year ended 31 March 2018 (“ FY2018 ”)

Exhibition-related business and property sub-leasing business are the primary businesses of the Group, accounting for approximately 32.0% and 55.6% of total revenue, respectively, in FY2019.

— 33 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

In FY2019, revenue increased slightly by approximately 0.1% to approximately HK$81.4 million as compared to FY2018. The decrease in revenue from the exhibition-related business by approximately 33.9% to approximately HK$26.0 million in FY2019 was mainly due to the decrease in the number of events participants. However, revenue from the property sub-leasing business increased by approximately 26.7% to approximately HK$45.3 million in FY2019, primarily attributable to the increase in rental for new and existing tenants at certain properties in Nanjing, the PRC, and the acquisition of a PRC company engaged in sub-leasing business in Shenzhen in October 2018. For the same reasons, the segment loss of the exhibition-related business increased by approximately 49.4% to approximately HK$4.0 million in FY2019 whereas the segment profit of the property sub-leasing business increased to approximately HK$6.6 million in FY2019.

Loss attributable to the Shareholders increased from approximately HK$11.1 million in FY2018 to approximately HK$18.9 million in FY2019, primarily attributable to the one-off gain on disposal of subsidiaries of approximately HK$58.2 million in FY2018. If excluding the effect of this one-off gain, loss attributable to the Shareholders in FY2019 in fact decreased significantly, primarily resulting from (a) completion of disposal of loss-making subsidiaries in March 2018; (b) the reversal of provision for financial guarantee; and (c) the implementation of a series of cost cutting measures.

Six months ended 30 September 2019 (“ 2019H1 ”) compared to six months ended 30 September 2018 (“ 2018H1 ”)

In 2019H1, revenue from the exhibition-related business and the property subleasing business constituted approximately 24.8% and 73.7% of total revenue, respectively.

Revenue increased by approximately 39.2% to approximately HK$41.7 million in 2019H1, primarily attributable to the significant increase in revenue from the property sub-leasing business by approximately 69.8% to approximately HK$30.7 million in 2019H1, as compared to 2018H1, as there was an increase in sub-leasing certain properties in the PRC. As a result of the decrease in the number of participants, revenue from the exhibition-related business decreased by approximately 4.0% to approximately HK$10.3 million in 2019H1. Segment losses of the exhibition-related business and the property sub-leasing business amounted to approximately HK$1.8 million and HK$4.6 million, respectively, in 2019H1.

— 34 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The increase in loss attributable to the Shareholders from approximately HK$1.0 million in 2018H1 to approximately HK$24.1 million in 2019H1 was primarily due to (a) the loss on fair value change in investment properties of approximately HK$15.8 million after adoption of Hong Kong Financial Reporting Standard 16 — Leases; and (b) the provision for financial guarantee of approximately HK$12.7 million, in 2019H1.

(ii) Financial position

	As at
	30 September	As at 31	March
	2019	2019	2018
	HK$’000	HK$’000	HK$’000
	(unaudited)	(audited)	(audited)
Non-current assets	199,782	49,782	58,451
— Property, plant and equipment	5,540	48,437	56,487
— Investment properties	192,710	—	—
Current assets	277,569	287,332	255,782
— Trade and other receivables	102,136	153,808	113,692
— Cash and bank balances	162,209	120,347	114,165
Total assets	477,351	337,114	314,233
Current liabilities	216,441	207,582	170,634
— Trade, bills and other payables	81,491	91,007	113,102
— Bank and other borrowings	48,935	43,647	29,953
— Convertible bonds	39,081	45,345	—
— Lease liabilities	18,682	—	—
Net current assets	61,128	79,750	85,147
Non-current liabilities	119,784	37,576	42,278
— Bank and other borrowings	14,967	—	—
— Convertible bonds	40,736	37,576	42,278
— Lease liabilities	63,313	—	—
Total liabilities	336,225	245,158	212,913
Equity attributable to the Shareholders	118,793	99,147	112,271

— 35 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As at 30 September 2019, total assets of the Group were approximately HK$477.4 million which mainly included (a) investment properties of approximately HK$192.7 million; (b) trade and other receivables of approximately HK$102.1 million; and (c) cash and bank balances of approximately HK$162.2 million.

As at 30 September 2019, total liabilities of the Group were approximately HK$336.2 million, which mainly included (a) trade, bills and other payables of approximately HK$81.5 million; (b) bank and other borrowings of approximately HK$63.9 million; (c) convertible bonds of approximately HK$79.8 million; and (d) lease liabilities of approximately HK$82.0 million.

As at 30 September 2019, the Group had net current assets of approximately HK$61.1 million with a net cash position. Cash and bank balances less the sum of bank and other borrowings and convertible bonds amounted to approximately HK$18.5 million as at 30 September 2019. As stated in the 2019 Interim Report, the Directors consider that the Group was in a healthy financial position.

Based on (a) the equity attributable to the Shareholders of approximately HK$118.8 million as at 30 September 2019; and (b) 1,077,778,570 issued Shares as at the Latest Practicable Date, the net asset value per Share was approximately HK$0.11 (the “ NAV per Share ”).

(iii) Overall comment

Exhibition-related business and property sub-leasing business are the primary businesses of the Group. The Group has been incurring losses for the two years ended 31 March 2019 and the six months ended 30 September 2019. There was a minimal growth in total revenue in FY2019. Although there was a significant growth in revenue in 2019H1, both exhibition-related and property sub-leasing businesses incurred segment losses. As such, we consider that there is an imminent need for the Group to diversify its income and earnings stream to improve its profitability. In December 2019, an indirect wholly-owned subsidiary of the Company entered into certain lease agreements with Beijing Tian’an Innovation Technology and Estates Limited (“ BTIT ”), pursuant to which the Group would rent certain industrial properties from BTIT for subleasing purpose with a view to expanding the Group’s existing business. As disclosed in the 2019 Interim Report, the Group is continuously exploring and identifying other suitable investment opportunities to enhance its earning potential.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The financial position of the Group is sound. As at 30 September 2019, the Group had net current assets of approximately HK$61.1 million with a net cash position of approximately HK$18.5 million.

2. Information of the Target Group and the Dongguan Land

(i) The Target Group

With the approval of the People’s Government of Dongguan Municipality, the Dongguan Land was listed for sale. Shenzhen Yaoling and Shenzhen Leju jointly won the bid at the price of RMB511,840,000 (the “ Original Bidding Price ”) in December 2019 and established the Project Company to hold and develop the Dongguan Land. Shenzhen Yaoling subsequently transferred 35% equity interest in the Project Company to Dongguan Holding Company (Huachuang), an indirect wholly-owned subsidiary of the Target Company. As at the Latest Practicable Date, the Project Company was held as to 35%, 55% and 10% by Dongguan Holding Company (Huachuang), Shenzhen Yaoling and Shenzhen Leju, respectively, and the major asset of the Project Company was the Dongguan Land, as follows:

==> picture [370 x 364] intentionally omitted <==

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

Mr. Chen Weiwu
100%
Target Company
100%
Hong Kong
Holding Company
100%
Dongguan Holding
Company (Puhua)
100%
Dongguan Holding
Shenzhen Yaoling Shenzhen Leju
Company (Huachang)
35% 55% 10%
Project Company
Dongguan
Land
----- End of picture text -----

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) The Dongguan Land

The Dongguan Land is situated at Caole Village, Xiegang Town, Dongguan, the PRC with a site area of 30,265.58 square meters (“ sq.m. ”) designated for urban residential use and business service use (i.e. R2 Class II residential land). R2 Class II residential land means the state-owned land used for constructing multi-storey buildings mainly for residential purpose with allround supporting facilities, which accounts for the major part among the residential lands in the PRC.

As advised by the management of the Group, the Dongguan Land is situated in a prime location with only 6.4 km to the entrance of Dongguan Changhu Expressway Entrance which connects with other expressways and major cities in the PRC. It is also surrounded by various facilities including kindergarten, market, food store, grocery store and restaurants in the vicinity. In view of the above, the Directors consider that the Dongguan Land has considerable development potential.

As disclosed in the Letter from the Board, the Group plans to develop the Dongguan Land into a mix of residential and commercial properties, part of which is for leasing purpose. It is currently intended that approximately 50% of the planned gross floor area of the Dongguan Land will be used to construct residential properties for sales, and approximately 50% of the planned gross floor area of the Dongguan Land will be used to construct commercial properties such as shopping malls, retail shops, car parking spaces and offices for leasing purpose.

The construction of the Dongguan Land is planned to be completed by phases between 2020 and 2022. Depending on the actual supply and demand conditions, it is intended that the pre-sale or sale will be conducted between 2020 and 2023. It is expected that the capital commitment of the Project Company for the first phase of the development of the Dongguan Land will be RMB300,000,000, which shall be financed by a commercial loan (the “ Construction Loan ”) in the principal amount of RMB350 million obtained by the Project Company from the Bank of Dongguan. The sale proceeds from the sale of residential properties and the rental income from commercial properties in the first phase of the development are expected to finance further development of the Dongguan Land. It is expected that the first phase of the development shall involve two-third of the Dongguan Land. As at the Latest Practicable Date, the Project Company did not have any plan for the second phase of the development of the Dongguan Land.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) Financial information of the Target Group

The Project Company, incorporated on 6 January 2020, is the operating subsidiary of the Target Company. Save as the Project Company, other companies in the Target Group are investment holding companies. Since establishment and up to the Latest Practicable Date, the Target Group has not generated any revenue.

As set out in Appendix II to the Circular, as at 31 March 2020, (a) consolidated net asset value of the Target Company (excluding the Project Company) was HK$41,633; (b) total assets of the Project Company primarily included properties under development of approximately RMB532.3 million and cash and cash equivalents of approximately RMB30.5 million; and (c) total liabilities of the Project Company primarily included amount due to a shareholder of approximately RMB20.7 million. The net asset of the Project Company was approximately RMB536.8 million as at 31 March 2020, primarily consisting of the Dongguan Land.

3. Reasons for and benefits of the Acquisition

As disclosed in the Letter from the Board, the Group plans to develop the Dongguan Land into a mix of residential and commercial properties, part of which is for leasing purpose. As a result, the engagement in property development will enable the Group to construct properties for future leasing. As advised by the Directors, commercial properties, including shopping malls, entertainment facilities and carparks, are typically integrated with residential properties in the vicinity, which will generate more traffic in the locality and therefore enhance the value of, and drive the demand for, both its commercial and residential properties. As such, we concur with the Directors that the engagement in property development through the Acquisition is closely related to the Group’s existing property sub-leasing business.

As set out in 2019 Interim Report, while the Group has continued the efforts to consolidate and realign its businesses to enable the Group to achieve an improvement in its financial position, it has been exploring and identifying other suitable investment opportunities to enhance its earning potential so as to attain a sustainable growth. In addition, the Group expects to leverage on the experience of its management team in the real estate development industry as well as the resources and networks of its management team in the PRC for its future development in the property sub-leasing, development and investment business sector. We consider that the engagement in the property development project of the Dongguan Land

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

will provide an opportunity for the Group to leverage on the experience of its management team in the real estate development industry as well as the resources and networks of its management team in the PRC to diversify its income and earnings stream to achieve sustainable growth, which is consistent with the Group’s stated strategy to seek new investment opportunities to enhance its earning potential.

As stated in the section headed “1. Background information of the Group” above, the Group has been incurring losses for the two years ended 31 March 2019 and the six months ended 30 September 2019. We consider that the Acquisition represents an opportunity for the Group to diversify its operations and income stream and facilitate the growth of its existing property sub-leasing business by engaging in the property development business which may bring a higher return to the Group and the Shareholders.

4. Industry overview

(i) Property market in Dongguan, the PRC

Set out below are (i) 全年完成房地產開發投資 (completed investment in property development); (ii) 新建商品房網上簽約銷售金額 (online contracted sales value of newly constructed commodity properties); and (iii) average selling price of online contracted sales of newly constructed commodity properties, in Dongguan, the PRC, from 2015 to 2019:

						2015-
						2019
	2015	2016	2017	2018	2019	CAGR
Completed investment in
property development
(in RMB billion)	57.5	64.3	70.2	73.7	79.6	8.5%
Online contracted
sales value of newly
constructed commodity
properties (in RMB
billion)	107.6	145.9	128.2	123.5	138.5	6.5%

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

20152019 2015 2016 2017 2018 2019 CAGR

Average selling price of

online contracted sales

of newly constructed commodity properties (in RMB per sq. m.) 9,992 13,744 15,796 16,959 18,733 17.0%

Source: 東莞市統計局 (Dongguan Bureau of Statistics)

As shown in the table above, total completed investment in property development in Dongguan, the PRC, exhibited an upward trend from approximately RMB57.5 billion in 2015 to approximately RMB79.6 billion in 2019, representing a compound annual growth rate (“ CAGR ”) of approximately 8.5%. This indicated a moderate growth in supply of commodity properties on the market. Meanwhile, total online contracted sales value of newly constructed commodity properties in Dongguan, the PRC, grew significantly in 2015 and 2016 before it decelerated in 2017 and 2018 and resumed growth in 2019, representing a CAGR of approximately 6.5% during the entire period. Average selling price of online contracted sales of newly constructed commodity properties in Dongguan, the PRC, increased significantly at a CAGR of approximately 17.0% from approximately RMB9,992 per sq. m. in 2015 to approximately RMB18,733 per sq. m. in 2019. This showed that the demand for commodity properties outweighed the supply of commodity properties.

According to Dongguan Bureau of Statistics, the property market in Dongguan, the PRC, in the first quarter of 2020 was adversely affected by the novel coronavirus outbreak. Investment in property development and online contracted sales area of newly constructed commodity properties in Dongguan, the PRC, amounted to approximately RMB13.4 billion and 861,200 sq. m., representing a decrease of approximately 10.9% and 35.4%, respectively, as compared to the corresponding period in 2019. Nevertheless, as economic activities gradually resume after the epidemic situation is kept under control, the economic fundamentals of Dongguan, the PRC, will remain stable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) Property market in Xiegang Town, Dongguan, the PRC

Set out below are (i) 新建商品住宅網上簽約銷售金額 (online contracted sales value of newly constructed residential properties); and (ii) average selling price of online contracted sales of newly constructed residential properties, in Xiegang Town, Dongguan, the PRC, from 2015 to 2019 and in the first four months of 2020:

						January
						to April
	2015	2016	2017	2018	2019	2020
Online contracted
sales value of newly
constructed residential
properties (in RMB
million)	5.2	10.7	2.3	7.6	192.1	37.6
Average selling price of
online contracted sales
of newly constructed
residential properties (in
RMB per sq. m.)	5,158	3,348	3,299	10,892	20,440	20,915

Source: 東莞市統計局 (Dongguan Bureau of Statistics)

As shown in the table above, as regards newly constructed residential properties in Xiegang Town, Dongguan, the PRC, both online contracted sales value and average selling price have been increasing rapidly during the period from 2015 to 2019. Notwithstanding the impact of the novel coronavirus, in the first four months of 2020, online contracted sales value amounted to approximately RMB37.6 million, with an average selling price of approximately RMB20,915 per sq. m. The demand for residential properties remained strong.

(iii) Outlook

Since early 2020, the PRC economy and the property market in Dongguan, the PRC, have been significantly affected by the outbreak of the novel coronavirus, in addition to uncertainties in the US-Mainland trade tensions and economic recession in major economies. As such, the growth in Dongguan’s

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

property market may be restricted in the short run. However, given (i) the sustained demand for properties as evidenced by the increasing average selling prices of online contracted sales of newly constructed properties in Dongguan, the PRC, as well as in Xiegang Town, Dongguan, the PRC, as shown above; and (ii) the PRC government’s dedication to recovering the economy through stimulus policies subsequent to the epidemic, the balance of evidence suggests that the outlook for the property market in Dongguan, the PRC, will be generally positive in the long run. This is especially the case when the novel coronavirus infection is kept under control.

5. Principal terms of the Equity Sale and Purchase Agreement

Set out below is a summary of the principal terms of the Equity Sale and Purchase Agreement. Independent Shareholders are advised to read further details of the Equity Sale and Purchase Agreement as disclosed in the Letter from the Board.

Date : 9 April 2020 Parties : (i) The Company, as the purchaser; and

• (ii) Mr. Chen Weiwu, as the vendor

Subject matter : The entire issued share capital of the Target Company which indirectly held 35% equity interest in the Project Company as at the Latest Practicable Date. The major asset of the Project Company is the Dongguan Land, details of which are set out in the section headed “2. Information of the Target Group and the Dongguan Land” above.

Consideration : HK$196,861,538, which shall be satisfied, on the Completion Date, as to:

• (i) HK$36,861,538 by cash; and

• (ii) HK$160,000,000 by the allotment and issue of 800,000,000 Consideration Shares at the Issue Price of HK$0.2 per Consideration Share.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

As disclosed in the Letter from the Board, the Consideration was determined with reference to the Dongguan Land’s Original Bidding Price of RMB511,840,000 (equivalent to approximately HK$562,461,538.46) and the 35% equity interest in the Project Company held by the Target Company.

A consolidated management account of the Target Group as at the date of Completion shall be prepared by the accountants appointed by the Company within 30 days after Completion. If there is any difference between the net asset value of the Target Group as at the date of the Equity Sale and Purchase Agreement and as at the date of Completion, any deficit shall decrease the amount of the cash consideration. The number of Consideration Shares shall remain unchanged. There will not be any upward adjustment on the Consideration.

Conditions precedent : Completion is conditional upon, among other things, the Company having obtained the approval from the Independent Shareholders in respect of the Acquisition (including the allotment and issue of the Consideration Shares) as required under the Listing Rules.

Board composition : The Company shall have the right to appoint all the director(s) of the Project Company.

Upon Completion, the Target Company shall become a wholly-owned subsidiary of the Company and the financial statements of the Target Group shall be consolidated into the consolidated financial statements of the Group. As the decision-making power of the Project Company shall be exercisable by the Target Group upon Completion, the financial statements of the Project Company shall also be consolidated into the consolidated financial statements of the Group.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

6. Valuation of the Dongguan Land

The Consideration is determined with reference to the Dongguan Land’s Original Bidding Price of RMB511,840,000 (equivalent to approximately HK$562,461,538.46). The Dongguan Land was also valued by APAC Asset Valuation and Consulting Limited (the “ Valuer ”), an independent valuer, at RMB512,000,000 (the “ Valuation ”) as at 31 March 2020, approximately the same as the Original Bidding Price. The full text of the valuation report and certificate dated 22 June 2020 (the “ Valuation Report ”) is set out in Appendix VI to the Circular, and Independent Shareholders are recommended to read in full.

We have conducted an interview with the Valuer to enquire its experience in valuing similar property interests in the PRC and its independence. We have also reviewed the terms of engagement of the Valuer, in particular to its scope of work. We noted that its scope of work is appropriate to form the opinion required to be given and there are no limitations on the scope of work which might adversely impact on the degree of assurance given by the Valuer in the Valuation Report. We have also performed work as required under note (1)(d) to the Listing Rule 13.80 in relation to the Valuer and its work as regards the Valuation.

The Valuer confirmed that it has performed a site visit to the Dongguan Land. We have discussed with the management of the Group to understand the latest status as well as the development and funding plans of the Dongguan Land.

When arriving at the Valuation, the Valuer has adopted the direct comparison approach assuming sale with the benefit of vacant possession in its existing state by making reference to comparable sales evidences as available in the relevant market. As stated in the Valuation Report, the valuation is conducted in compliance with Chapter 5 and Practice Note 12 of the Listing Rules and the HKIS Valuation Standards 2017 Edition published by the Hong Kong Institute of Surveyors. We have reviewed and discussed with the Valuer regarding the methodology, basis and assumptions adopted in arriving at the value of the Dongguan Land. We have also reviewed the valuation methodologies adopted for similar types of properties of certain property companies and noted that the methodology adopted in the Valuation Report is usual. Taking into consideration of the nature of the Dongguan Land and that the Valuation is conducted in accordance with the aforesaid requirements, we consider that the methodology, basis and assumptions adopted by the Valuer for determining the value of the Dongguan Land are appropriate.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

7. Evaluation of the Consideration

(i) Basis of the Consideration

Pursuant to the Equity Sale and Purchase Agreement, the Company shall acquire the entire issued share capital of the Target Company which indirectly holds 35% equity interest in the Project Company, the operating subsidiary of the Target Group. It is expected that the net asset value of the Target Group primarily consists of the Dongguan Land with insignificant liabilities. Accordingly, our evaluation of the Consideration is made with reference to the value of the Dongguan Land.

The consideration of the Acquisition is HK$196,861,538, which is determined based on the Dongguan Land’s Original Bidding Price of RMB511,840,000 (equivalent to approximately HK$562,461,538.46) and the 35% equity interest in the Project Company held by the Target Company.

In assessing the fairness and reasonableness of the Consideration, we consider it appropriate to refer to the independent Valuation made by the Valuer. As set out in the section headed “6. Valuation of the Dongguan Land” above, the Valuation was RMB512,000,000 (equivalent to approximately HK$562,637,362.64) as at 31 March 2020. In other words, 35% interest in the Dongguan Land was valued at RMB179,200,000 (equivalent to approximately HK$196,923,076.92).

Pursuant to the Equity Sale and Purchase Agreement, if there is any difference between the net asset value of the Target Group as at the date of the Equity Sale and Purchase Agreement and as at the date of Completion, any deficit shall decrease the cash portion of the Consideration and there will not be any upward adjustment on the Consideration.

Taking into account that (a) the Consideration is in line with the independent Valuation of the Dongguan Land; (b) any decrease in the net asset value of the Target Group upon Completion as compared to that as at the date of the Equity Sale and Purchase Agreement shall be reflected in the Consideration proportionally by reducing the cash portion of the Consideration; and (c) there will not be any upward adjustment on the Consideration upon Completion, we consider the Consideration to be fair and reasonable.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(ii) The Consideration Shares

Pursuant to the Equity Sale and Purchase Agreement, part of the Consideration in the sum of HK$160,000,000 is to be satisfied by the allotment and issue of 800,000,000 Consideration Shares (the “ Share Issue ”) at the Issue Price of HK$0.2 per Consideration Share by the Company to Mr. Chen Weiwu at Completion. As disclosed in the Letter from the Board, the Issue Price was determined after arm’s length negotiation between the Company and Mr. Chen Weiwu with reference to the recent Share price and the prevailing market conditions.

(a) Reasons for the Share Issue

The Consideration of HK$196,861,538 shall be satisfied (1) as to HK$36,861,538 by cash; and (2) as to HK$160,000,000 by the allotment and issue of 800,000,000 Consideration Shares. Relative to the Group’s unaudited consolidated cash and bank balances of approximately HK$162.2 million as at 30 September 2019, it is not possible, or in our view prudent, to satisfy the Consideration of HK$196,861,538 significantly in cash. We concur with the Directors that the issue of the Consideration Shares to satisfy the bulk of the Consideration shall reduce the cash outlay for the Acquisition to a level which is within the Group’s financial capacity and reserve sufficient working capital for the operations of the Group.

As disclosed in the Letter from the Board, the Company has also considered alternative financing methods instead of the Share Issue, including bank borrowings. Taking into account (1) the potential lengthy due diligence and negotiations with banks which are relatively uncertain and time consuming as compared to equity financing; (2) the requirement of interest payments; (3) the Group’s working capital requirement; and (4) the maturity of the Group’s borrowings, we concur with the Directors that obtaining further bank borrowings to finance the Acquisition, which would reduce banking facilities otherwise available for other working capital requirements, is not in the interests of the Shareholders.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• (b) Method of Share Issue

The Directors have also considered other alternatives of equity financing for the Acquisition which would not affect the cash and debt position of the Group, including a private placement of Shares to independent third party investors or a rights issue or open offer to existing Shareholders. A private placement, as far as the Independent Shareholders are concerned, has a similar dilutive potential as an issue to a connected person. However, private placements are typically made at a significant discount to the current market price, say around 10%, whereas the Share Issue is priced at a premium to the Share price. As regards a rights issue or open offer, the Directors have considered such factors as (1) the price of a rights issue or open offer would normally involve a substantial discount to market, based on the discounts involved for recent rights issues and open offers of companies listed on the Stock Exchange; (2) the large size of the rights issue or open offer which would be required; (3) the likely costs involved (including the amount of underwriting commissions and other administrative and legal expenses); and (4) the lack of certainty in the successful implementation of a rights issue or open offer with their longer timetable. On this basis, we concur with the Directors that a rights issue or open offer is not an appropriate means of raising fund for the Acquisition.

• (c) Price comparison of the Issue Price

The Issue Price of HK$0.2 per Consideration Share represents:

• (1) a premium of approximately 61.3% over the closing price of HK$0.124 per Share as quoted on the Stock Exchange on 9 April 2020, the date of the Equity Sale and Purchase Agreement (the “ Last Trading Day ”);

• (2) a premium of approximately 61.3% over the average closing price of approximately HK$0.124 per Share as quoted on the Stock Exchange for the last 5 consecutive trading days up to and including the Last Trading Day;

• (3) a premium of approximately 53.8% over the average closing price of approximately HK$0.130 per Share as quoted on the Stock Exchange for the last 10 consecutive trading days up to and including the Last Trading Day;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• (4) a premium of approximately 30.7% over the average closing price of approximately HK$0.153 per Share as quoted on the Stock Exchange for the last 30 consecutive trading days up to and including the Last Trading Day;

• (5) a premium of approximately 19.0% over the average closing price of approximately HK$0.168 per Share as quoted on the Stock Exchange for the last 60 consecutive trading days up to and including the Last Trading Day;

• (6) a premium of approximately 17.0% over the average closing price of approximately HK$0.171 per Share as quoted on the Stock Exchange for the last 90 consecutive trading days up to and including the Last Trading Day;

• (7) a premium of approximately 13.0% over the average closing price of approximately HK$0.177 per Share as quoted on the Stock Exchange for the last 180 consecutive trading days up to and including the Last Trading Day;

• (8) a premium of approximately 14.9% over the volume weighted average price (“ VWAP(s) ”) of approximately HK$0.174 per Share for the last 180 consecutive trading days up to and including the Last Trading Day;

• (9) a premium of approximately 7.0% over the average closing price of approximately HK$0.187 per Share as quoted on the Stock Exchange for the last 360 consecutive trading days up to and including the Last Trading Day;

• (10) a premium of approximately 11.1% over the VWAP of approximately HK$0.180 per Share for the last 360 consecutive trading days up to and including the Last Trading Day;

• (11) a premium of approximately 4.7% over the VWAP of approximately HK$0.191 per Share for the period from 3 April 2018, being the beginning of the Review Period (as defined below), to the Last Trading Day;

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• (12) a premium of approximately 72.4% over the closing price of HK$0.116 per Share as quoted on the Stock Exchange as at the Latest Practicable Date; and

• (13) a premium of approximately 81.8% over the unaudited NAV per Share of approximately HK$0.11 as at 30 September 2019.

• (d) Analysis of the historical Share price performance

Set out below is a chart of the closing prices of the Shares on the Stock Exchange for the period from 3 April 2018 to the Latest Practicable Date (the “ Review Period ”), being approximately two years preceding the Last Trading Day:

==> picture [341 x 152] intentionally omitted <==

Source: Bloomberg

As shown in the chart above, during the Review Period, the Share price fluctuated between HK$0.094 per Share (on 2 June 2020) and HK$0.249 (on 8 March 2019) and generally closed below the Issue Price (392 trading days, accounting for approximately 72.1% of a total of 544 trading days). The average closing price and the VWAP of the Shares during the period from 3 April 2018 (i.e. the beginning of the Review Period) to 9 April 2020 (i.e. the Last Trading Day) were approximately HK$0.191 per Share, representing a discount of approximately 4.5% to the Issue Price of HK$0.2 per Consideration Share.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

The Share price closed at HK$0.124 per Share on 9 April 2020, the Last Trading Day. Immediately after the publication of the announcement after trading hours on 9 April 2020 in relation to the Acquisition, the Share price rose to HK$0.14 per Share on 14 April 2020, representing an increase of approximately 12.9% over the previous trading day, indicating a positive market reaction on the Acquisition. As at the Latest Practicable Date, the Share price closed at HK$0.116 per Share, representing a discount of approximately 42.0% to the Issue Price.

Taking into account that (a) the Issue Price represents a considerable premium of approximately 81.8% over the unaudited NAV per Share of approximately HK$0.11 as at 30 September 2019; (b) the premiums of the Issue Price over the closing Share prices for various periods in the 90 trading days up to and including the Last Trading Day are significant, in the range of approximately 17.0% to 61.3%; (c) the Issue Price represents a substantial premium of approximately 14.9% and 11.1% over the VWAPs of the Shares for the last 180 and 360 trading days up to and including the Last Trading Day, respectively; and (d) the Share price generally closed below the Issue Price (392 trading days, accounting for approximately 72.1% of a total of 544 trading days) during the Review Period, we consider that the Issue Price is fair and reasonable as far as the Independent Shareholders are concerned.

8. Financial effects of the Acquisition

Upon Completion, the Target Company shall become a wholly-owned subsidiary of the Company and the financial statements of the Target Group shall be consolidated into the consolidated financial statements of the Group. Given that the Company shall control the board of directors of the Project Company and therefore the operating, investing and financing activities of the Project Company, the financial statements of the Project Company shall also be consolidated into the consolidated financial statements of the Group upon Completion. The unaudited pro forma financial information of the Group (the “ Unaudited Pro Forma Financial Information ”) is set out in Appendix III to the Circular.

(i) Earnings

As the Dongguan Land is still under development and the construction of the Dongguan Land is planned to be completed by phases between 2020 and 2022, the Acquisition would not immediately contribute turnover and profit to the Group upon Completion. However, depending on the prevailing

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

market conditions, it is intended that the pre-sale or sale will be conducted between 2020 and 2023. The Directors believe that the development project of the Dongguan Land would contribute to the results of the Group when the residential and commercial properties in the first phase of development of the Dongguan Land are gradually delivered or leased out.

(ii) Equity attributable to the Shareholders

As set out in the Unaudited Pro Forma Financial Information, the pro forma consolidated equity attributable to the Shareholders (“ NAV ”) is approximately HK$278.6 million after Completion, representing an increase of approximately 134.5%, from approximately HK$118.8 million as at 30 September 2019. The pro forma NAV after Completion has taken into account, among other things, the acquisition of the Dongguan Land, the payment of the cash portion of the Consideration and the Share Issue.

We set out below the NAV and pro forma NAV, on a per Share basis, of the Group based on the Unaudited Pro Forma Financial Information:

	The Group	The Group
	as at	immediately
	30 September	upon
	2019	Completion
NAV (HK$)	118,792,725	278,550,564
Total number of Shares in issue	1,077,778,570	1,877,778,570
NAV per Share (HK$)	0.11	0.15
Percentage increase in NAV per Share		36.4%

As shown in the table above, the pro forma NAV per Share has increased by approximately 36.4% to approximately HK$0.15 immediately after Completion, since the Issue Price of the Consideration Shares of HK$0.2 per Consideration Share is higher than the NAV per Share of HK$0.11 as at 30 September 2019.

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LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

(iii) Gearing

As set out in the Unaudited Pro Forma Financial Information, upon Completion, the Group would have a net cash of approximately HK$15.0 million, being cash and bank balances less the sum of bank and other borrowings and convertible bonds, as compared to approximately HK$18.5 million as at 30 September 2019.

As at the Latest Practicable Date, the Project Company has obtained the Construction Loan in the principal amount of RMB350 million from the Bank of Dongguan for the first phase of the development of the Dongguan Land. It is expected that the gearing of the Group would increase when the Construction Loan is drawn down to finance the construction of the Dongguan Land.

(iv) Working capital

The Consideration shall be partly satisfied by cash payment of approximately HK$36,861,538 on the Completion Date, which shall be funded by the Group’s internal resources. As mentioned above, the first phase development costs of the Dongguan Land shall be financed by the Construction Loan. The sale proceeds from the sale of residential properties and the rental income from commercial properties in the first phase of the development are expected to finance further development of the Dongguan Land.

The Directors confirm that, after due and careful enquiry and taking into account the existing bank balances and cash, internal resources, available credit facilities and the effect of the transactions, the Group will have sufficient working capital for its present requirements for a period of 12 months from the date of the Circular.

It should be noted that the aforementioned analyses are for illustrative purpose only and do not purport to represent how the financial performance and position of the Group will be upon Completion.

— 53 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

9. Shareholding structure

The following table sets out the shareholding structure of the Company as at the Latest Practicable Date and immediately after completion of the Share Issue (assuming no further Shares are issued between the Latest Practicable Date and the date of Completion):

Mr. Chen Weiwu Public Shareholders Total	As at the Latest Practicable Date No. of Shares Approx. % 579,806,977 53.80 497,971,593 46.20 1,077,778,570 100.00	Immediately after Completion No. of Shares Approx. % 1,379,806,977 73.48 497,971,593 26.52 1,877,778,570 100.0	Immediately after Completion No. of Shares Approx. % 1,379,806,977 73.48 497,971,593 26.52 1,877,778,570 100.0
			100.0

The Share Issue allows the Company to limit the cash consideration required for the Acquisition to a prudent level. Assuming the Consideration Shares would be issued and delivered to Mr. Chen Weiwu in full and there was no further issue of Shares between the Latest Practicable Date and the date of Completion, Independent Shareholders’ holdings would be diluted by approximately 19.68% upon Completion, from approximately 46.20% to approximately 26.52%. Following Completion, the Independent Shareholders would be able to secure interests in, among other thing, the Dongguan Land, which is expected to contribute to the results of the Group following the delivery of the residential properties and leasing of the commercial properties completed in the first phase of the development of the Dongguan Land between 2020 and 2023.

— 54 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

OPINION AND RECOMMENDATION

In arriving at our recommendation in respect of the Equity Sale and Purchase Agreement, we have considered the principal factors and reasons as discussed above and in particular the following (which should be read in conjunction with and interpreted in the full context of this letter):

• Strategic move for the Group

The Group has been incurring losses in the past years with minimal growth in revenue. The Acquisition represents an opportunity for the Group to tap into the property development business that is closely related to its property sub-leasing business and with growth potential with a view to diversifying its income and earnings stream to improve its profitability. This is strategically aligned with the Group’s development strategy to seek new investment opportunities to enhance its earning potential and achieve sustainable growth.

• Industry outlook

The Dongguan Land is located at Xiegang Town, Dongguan, the PRC.

During the period from 2015 to 2019, with a moderate growth in supply of commodity properties as evidenced by the amount of completed investment in property development, the average selling price of online contracted sales of newly constructed commodity properties in Dongguan, the PRC, increased significantly at a CAGR of approximately 17.0%, indicating a strong demand for properties. According to Dongguan Bureau of Statistics, the property market in Dongguan, the PRC, in the first quarter of 2020 was adversely affected by the novel coronavirus outbreak.

As regards the property market in Xiegang Town, Dongguan, the PRC, both online contracted sales value and average selling price of newly constructed residential properties have been increasing rapidly during the period from 2015 to 2019 and even in the first four months of 2020, indicating a sustained demand for residential properties.

While the growth in Dongguan’s property market may be restricted in the short run by uncertain and unstable factors such as the novel coronavirus infection and the US-Mainland trade tensions, we consider that the outlook for the property market in Dongguan, the PRC, will be generally positive in the long run, providing a favorable environment for the Group’s new business.

— 55 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• Consideration

The Consideration of HK$196,861,538 is determined with reference to the Original Bidding Price of the Dongguan Land and the 35% equity interest in the Project Company held by the Target Company. The Original Bidding Price also approximates the independent valuation of the Dongguan Land based on the direct comparison approach, which we consider appropriate.

The Consideration shall be satisfied (i) as to HK$160,000,000 by the Company issuing the Consideration Shares; and (ii) as to HK$36,861,538 by cash. This is an approximately 80:20 split between equity and cash financing. Bearing in mind the size of the Acquisition, the working capital requirement of the Group and the potential lengthy negotiations with banks for any debt financing, we regard this split to be a prudent method of financing.

• Issue Price of the Consideration Shares compared to market and NAV

The Issue Price of HK$0.2 per Consideration Share represents (i) significant premiums over the closing Share prices for various periods in the 90 trading days up to and including the Last Trading Day, in the range of approximately 17.0% to 61.3%; (ii) a substantial premium of approximately 14.9% and 11.1% over the VWAPs of the Shares for the last 180 and 360 trading days up to and including the Last Trading Day, respectively; and (iii) a premium of approximately 72.4% over the closing price of HK$0.116 per Share as at the Latest Practicable Date.

In addition, the Share price generally closed below the Issue Price (392 trading days, accounting for approximately 72.1% of a total of 544 trading days) during the Review Period, being approximately two years preceding the Last Trading Day.

The Issue Price also represents a considerable premium of approximately 81.8% over the unaudited NAV per Share of approximately HK$0.11 as at 30 September 2019.

On the above basis, we consider the Issue Price to be fair and reasonable.

•

Enhancement in NAV per Share

The unaudited pro forma NAV per Share on completion of the Acquisition is approximately HK$0.15, approximately 36.4% higher than the NAV per Share of the Group of approximately HK$0.11 as at 30 September 2019.

— 56 —

LETTER FROM THE INDEPENDENT FINANCIAL ADVISER

• Decrease in Independent Shareholders’ percentage shareholding

Independent Shareholders’ holdings would be diluted upon Completion from approximately 46.20% to approximately 26.52%. We regard this as a significant dilution but a considerable degree of dilution was inevitable once it was decided to finance the Acquisition mostly in equity, which we agree is prudent, unless a rights issue was made which had longer timetable and greater execution risk. The dilution is an unattractive feature in itself, but in our view should be viewed in the context of the Acquisition as a whole, which we consider fair on the grounds summarised above.

Based on the above, we consider that the Equity Sale and Purchase Agreement is on normal commercial terms which are fair and reasonable so far as the Independent Shareholders are concerned. We also consider that the entering into of the Equity Sale and Purchase Agreement, while not in the ordinary and usual course of business of the Group, is nevertheless in the interests of the Company and its shareholders as a whole. We therefore advise the Independent Board Committee to recommend, and ourselves recommend, the Independent Shareholders to vote in favour of the ordinary resolution to be proposed at the SGM to approve the Equity Sale and Purchase Agreement.

Yours faithfully, For and on behalf of Rainbow Capital (HK) Limited Larry Choi Managing Director

Mr. Larry Choi is a licensed person and a responsible officer of Rainbow Capital (HK) Limited registered with the Securities and Futures Commission to carry out type 6 (advising on corporate finance) regulated activity under the SFO. He has over ten years of experience in the corporate finance industry.

— 57 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

1. FINANCIAL INFORMATION

The audited consolidated financial statements of the Group for the three financial years ended 31 March 2017, 2018 and 2019, including the independent auditors’ report thereon and the notes thereto, have been disclosed in the respective annual reports of the Company. The auditor of the Company has not issued any qualified opinion on the Group’s consolidated financial statements for the three financial years ended 31 March 2017, 2018 and 2019. The annual reports of the Company for the three financial years ended 31 March 2017, 2018 and 2019; and the interim report for the period ended 30 September 2019 are published on the websites of HKEXnews (http://www.hkexnews.hk) and the Company (http://www.ts674.com) respectively.

The 2017 Financial Statements are set out from page 64 to 212 in the 2017 Annual Report which was published on 27 July 2017. The 2017 Annual Report is available on the websites of the Stock Exchange (http://www.hkexnews.com) and the Company (http://www.ts674.com) and is accessible via the following hyperlink: https://www1.hkexnews.hk/listedco/listconews/sehk/2017/0727/ltn20170727549.pdf

The 2018 Financial Statements are set out from page 58 to 200 in the 2018 Annual Report which was published on 27 July 2018. The 2018 Annual Report is available on the websites of the Stock Exchange (http://www.hkexnews.com) and the Company (http://www.ts674.com) and is accessible via the following hyperlink: https://www1.hkexnews.hk/listedco/listconews/sehk/2018/0727/ltn20180727564.pdf

The 2019 Financial Statements are set out from page 59 to 236 in the 2019 Annual Report which was published on 25 July 2019. The 2019 Annual Report is available on the websites of the Stock Exchange (http://www.hkexnews.com) and the Company (http://www.ts674.com) and is accessible via the following hyperlink: https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0725/ltn20190725937.pdf

The 2019 unaudited interim results are set out from page 18 to 56 in the 2019 Interim Report which was published on 24 December 2019. The 2019 Interim Report is available on the websites of the Stock Exchange (http://www.hkexnews.com) and the Company (http://www.ts674.com) and is accessible via the following hyperlink: https://www1.hkexnews.hk/listedco/listconews/sehk/2019/1224/2019122400239.pdf

— I-1 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

2. INDEBTEDNESS

As at the close of business on 30 April 2020, being the latest practicable date for the purpose of preparing the indebtedness statement prior to the printing of this Circular, the Enlarged Group had outstanding borrowings of approximately HK$208.9 million, details of which are set out below:

Bills payable Bank and other borrowings, secured and guaranteed Repayable within one year Repayable between one and two years Repayable between two and within three years Amount due to related party, unsecured Convertible bonds, unsecured_(Note)_	Approximate HK$ million 3.3
	67.4 14.6 8.2
	90.2
	27.0
	88.4

Note:

As at the close of business on 30 April 2020, the outstanding principal amounts of the convertible bonds were HK$88,373,040. The convertible bonds with outstanding principal amount of HK$46,341,960, which are non-interest bearing, were issued on 25 July 2017 and will be redeemed on 24 July 2021. The convertible bonds with outstanding principal amount of HK$42,031,080, which are non-interest bearing, were issued on 31 August 2018 and will be redeemed on 31 August 2020.

Securities

As at 30 April 2020, Mr. Yang Lei (a director of certain subsidiaries of the Company), his spouse and a company beneficially owned by Mr. Yang Lei and his spouse (the “ Related Company ”), a related party and the independent third party companies respectively provided guarantees for certain bank and other borrowings of the Enlarged Group. Certain assets of Mr. Yang Lei, his spouse, a related party, the Related Company, the independent third party companies and investment properties of the Enlarged Group with carrying amounts of approximately HK$119,060,000 were also pledged to secure the aforesaid bank and other borrowings of the Enlarged Group.

— I-2 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

Guarantees

As at 30 April 2020, an indirect non-wholly owned subsidiary of the Company provided the guarantee in respect of a loan facility from a financial institution in the Peoples’ Republic of China for the principal amount of up to RMB100,000,000 to an independent third party.

Lease liabilities

The Enlarged Group has adopted HKFRS 16 “Leases” for the accounting period beginning on 1 April 2019. The lease liabilities as at 30 April 2020 were approximately HK$194.9 million.

Save as disclosed above and apart from intra-group liabilities and normal trade and other payables, the Enlarged Group did not have any loan capital issued or agreed to be issued, debt securities issued and outstanding, authorized or otherwise created but unissued, bank overdrafts or loans or term loans, other borrowings or other similar indebtedness, liabilities under acceptance, acceptance credits, debentures, mortgages, charges, finance lease or hire purchase commitments, guarantees or other material contingent liabilities outstanding at the close of business on 30 April 2020.

3. WORKING CAPITAL STATEMENT

The Directors are of the opinion that, after due and careful enquiry and taking into account the existing bank balances and cash, internal resources, available credit facilities and the effect of the transactions, the Enlarged Group will have sufficient working capital for its present requirements for a period of 12 months from the date of this circular.

4. 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 30 April 2020, being the date on which the latest published audited consolidated financial statements of the Group were made up.

— I-3 —

FINANCIAL INFORMATION OF THE GROUP

APPENDIX I

5. FINANCIAL AND TRADING PROSPECTS OF THE GROUP

China continued to advance its industrialisation and urbanisation, and deepen the supply-side reform. As the recurrent intensification of the Sino-US trade war may become a normalised phenomenon and exports to the United States may continue to weaken, economic development will be under pressure. However, driven by “The Belt and Road Initiative” and other favorable policies, domestic demand promotion, economic development structure adjustment and other measures to promote highquality economic development will remain as the dominant trend. Therefore, the Directors expect the business environment to remain challenging, but are cautiously optimistic towards the overall outlook of the Group.

The management team and the Board are highly experienced in the real estate development industry in China and possess significant resources and networks in China which the Company expects to be able to leverage for its future development in the property sub-leasing, development and investment business sector.

The Group has continued the efforts to consolidate and realign its businesses to enable the Group to achieve improvements in its financial position. The Group is working towards attaining a sustainable growth, and at the same time the Group is also continuously exploring and identifying other suitable investment opportunities (if any) to enhance its earning potential so as to enhance shareholder value as a whole.

Through acquiring the Target Group, the Enlarged Group would be able to participate in the development of the Dongguan Land and commence the engagement of property development business in the PRC. The Enlarged Group plans to make investment in more property sub-leasing, development and investment projects in the PRC. The Company believes that this would bring steady returns to the shareholders of the Company.

— I-4 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

• (A) A C C O U N T A N T S ’ R E P O R T O N H I S T O R I C A L F I N A N C I A L INFORMATION OF TOPPER GENIUS INVESTMENTS LIMITED AND ITS SUBSIDIARIES

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

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ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF CHINA TANGSHANG HOLDINGS LIMITED

Introduction

We report on the historical financial information of Topper Genius Investments Limited (the “ Target Company ”) and its subsidiaries (collectively “ Topper Group ”) set out on pages II-4 to II-22, which comprises the consolidated statement of financial position of Topper Group as at 31 March 2020 and the statement of financial position of the Target Company as at 31 March 2020, the consolidated statement of profit or loss and other comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows of Topper Group for the period from 11 July 2019 (date of incorporation) to 31 March 2020 (the “ Relevant 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-22 forms an integral part of this report, which has been prepared for inclusion in the circular of China Tangshang Holdings Limited (the “ Company ”) dated 22 June 2020 (the “ Circular ”) in connection with the very substantial acquisition and connected transaction in relation to acquisition of the entire issued share capital of Topper Genius Investments Limited (the “ Proposed Acquisition ”).

Directors’ responsibility for the Historical Financial Information

The directors of the Company are responsible for the preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information, and for such internal control as the directors determines is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error.

— II-1 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Reporting accountants’ responsibility

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

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 2 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 sole director, as well as evaluating the overall presentation of the Historical Financial Information.

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

Opinion

In our opinion the Historical Financial Information gives, for the purposes of the accountants’ report, a true and fair view of the Topper Group’s and the Target Company’s financial position as at 31 March 2020, and of the Topper Group’s financial performance and cash flows for the Relevant Period in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information.

— II-2 —

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

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 as defined on page II-4 have been made.

BDO Limited

Certified Public Accountants

Chan Wing Fai Practising Certificate Number: P05443

Hong Kong 22 June 2020

— II-3 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

I. HISTORICAL FINANCIAL INFORMATION OF TOPPER GROUP

Preparation of the Historical Financial Information

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

The consolidated financial statements of Topper Group for the Relevant Period, on which the Historical Financial Information is based, were audited by BDO Limited in accordance with Hong Kong Standards on Auditing (“ HKSAs ”) issued by the HKICPA (“ Underlying Financial Statements ”).

The Historical Financial Information is presented in Hong Kong Dollars (“ HK$ ”).

C O N S O L I D A T E D S T A T E M E N T O F P R O F I T O R L O S S A N D O T H E R COMPREHENSIVE INCOME

		For the period
		from 11 July
		2019 (date of
		incorporation)
		to 31 March
		2020
	Notes	HK$
Revenue	7	—
Other operating expenses		(36,346)
Loss before income tax expense		(36,346)
Income tax expense	9	—
Loss for the period		(36,346)
Other comprehensive income
Item that may be reclassified to profit or loss:
Exchange differences arising on translating foreign operations		179
Total other comprehensive income for the period		179
Total comprehensive income for the period		(36,167)

— II-4 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

Notes ASSET AND LIABILITY Current asset Amount due from a shareholder 11 Current liability Accruals Net assets EQUITY Share capital 12 Reserves 13 Total Equity	At 31 March 2020 HK$ 48,200 6,567 41,633 77,800 (36,167) 41,633

— II-5 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

STATEMENT OF FINANCIAL POSITION

Notes ASSETS AND LIABILITIES Non-current asset Investment in a subsidiary 14 Current asset Amount due from a shareholder 11 Total assets Current liability Amount due to a subsidiary 11 Net current assets Net assets EQUITY Share capital 12 Reserves 13 Total Equity	At 31 March 2020 HK$ 1 69,000 69,001 1 68,999 69,000 77,800 (8,800) 69,000

— II-6 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

Issuance of shares upon incorporation Loss for the period Other comprehensive income for the period Total comprehensive income for the period At 31 March 2020	Share capital HK$ (Note 12) 77,800 — — — 77,800	Foreign exchange reserve HK$ (Note 13) — — 179 179 179	Accumulated losses HK$ (Note 13) — (36,346) — (36,346) (36,346)	Total HK$ 77,800 (36,346) 179 (36,167) 41,633

— II-7 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

CONSOLIDATED STATEMENT OF CASH FLOWS

	For the
	period from
	11 July 2019
	(date of
	incorporation)
	to 31 March
	2020
	HK$
Loss before income tax expense and cash flows used in
operating activities	(36,346)
Increase in accruals	6,746
Net cash used in operating activities	(29,600)
Cash flows from financing activities
Proceeds from issuance of shares	77,800
Advance to a shareholder	(48,200)
Net cash generated from financing activities	29,600
Cash and cash equivalents at beginning and end of period	—

— II-8 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. Corporate information

The Target Company was incorporated in British Virgin Islands (the “ BVI ”) as a limited liability company on 11 July 2019. Its registered office is located at 3rd Floor, J & C Building, Road Town, Tortola, British Virgin Islands, VG1110 and its principal place of business is located at 13/F, Bupa Centre, No. 141 Connaught Road West, Hong Kong. The principal activity of the Target Company and Topper Group is investment holding.

2. Basis of preparation and presentation

The Historical Financial Information has been prepared in accordance with accounting policies set out in Note 4 below which conform with Hong Kong Financial Reporting Standards (“ HKFRSs ”), Hong Kong Accounting Standards (“ HKASs ”) and interpretations (hereinafter collectively referred to as the “ HKFRS ”) issued by the Hong Kong Institute of Certified Public Accountants (“ HKICPA ”). The Historical Financial Information also complies with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”).

The Historical Financial Information has been prepared under the historical cost basis. The measurement bases are fully described in the accounting policies below in Note 4. All of applicable new and revised HKFRSs during the Relevant Period as set out in the significant accounting policies in Note 4 has been adopted by the Topper Group including amendments to HKFRS 3 Business Combination, amendments to HKAS 1 and HKAS 8 Definition of Material and amendments to HKFRS 9, HKAS 39 and HKFRS 7 Interest Rate Benchmark Reformand, related amendments of those standards have been early adopted from 11 July 2019 (date of incorporation) by the Topper Group except for any new amendments that are not yet effective for the financial period beginning on or after 1 January 2021.

The preparation of Historical Financial Information in conformity with HKFRSs requires the use of certain critical accounting assumptions and estimates. It also requires management to exercise its judgement in the process of applying Topper Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Historical Financial Information are disclosed in Note 5.

3. Impact of issued but not yet effective HKFRSs

The following new/revised HKFRS, potentially relevant to the Historical Financial Information, has been issued, but not yet effective and has not been early adopted by Topper Group. Topper Group’s current intention is to apply this change on the date it become effective.

Amendments to HKAS 1 Classification of Liabilities as Current or Non-current1 Amendments to HKFRS 10 and Sale or Contribution of Assets between an Investor and its HKAS 28 Associate or Joint Venture2

1 Effective for annual periods beginning on or after 1 January 2022

2 No mandatory effective date yet determined but available for adoption

The Target Company is in the process of making an assessment of the potential impact of these pronouncements and is not yet in a position to state whether the application of these new pronouncements will have material impact on these financial statements.

— II-9 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

4. Summary of significant accounting policies

a) Business combination and basis of consolidation

The consolidated financial statements comprise the financial statements of the Target Company and its subsidiaries. Inter-company transactions and balances between group companies together with unrealised profits are eliminated in full in preparing the consolidated financial statements. Unrealised losses are also eliminated unless the transaction provides evidence of impairment on the asset transferred, in which case the loss is recognised in profit or loss.

The results of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective dates of acquisition or up to the effective dates of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by other members of Topper Group.

Acquisition of subsidiaries or businesses is accounted for using the acquisition method. The cost of an acquisition is measured at the aggregate of the acquisition-date fair value of assets transferred, liabilities incurred and equity interests issued by Topper Group, as the acquirer. The identifiable assets acquired and liabilities assumed are principally measured at acquisition-date fair value. Topper Group’s previously held equity interest in the acquire is re-measured at acquisition-date fair value and the resulting gains or losses are recognised in profit or loss. Topper Group may elect, on a transaction-by-transaction basis, to measure the non-controlling interests that represent present ownership interests in the subsidiary either at fair value or at the proportionate share of the acquiree’s identifiable net assets. All other non-controlling interests are measured at fair value unless another measurement basis is required by HKFRSs. Acquisition-related costs incurred are expensed unless they are incurred in issuing equity instruments in which case the costs are deducted from equity.

Any contingent consideration to be transferred by the acquirer is recognised at acquisition date fair value. Subsequent adjustments to consideration are recognised against goodwill only to the extent that they arise from new information obtained within the measurement period (a maximum of 12 months from the acquisition date) about the fair value at the acquisition date. All other subsequent adjustments to contingent consideration classified as an asset or a liability are recognised in profit or loss.

When Topper Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interest. Amounts previously recognised in other comprehensive income in relation to the subsidiary are accounted for in the same manner as would be required if the relevant assets or liabilities were disposed of.

Subsequent to acquisition, the carrying amount of non-controlling interests that represent present ownership interests in the subsidiary is the amount of those interests at initial recognition plus such non-controlling interest’s share of subsequent changes in equity. Total comprehensive income is attributed to such non-controlling interests even if this results in those non-controlling interests having a deficit balance.

— II-10 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

b)

Subsidiaries

A subsidiary is an investee over which the Target Company is able to exercise control. The Target Company controls an investee if all three of the following elements are present: (1) power over the investee, (2) exposure, or rights, to variable returns from the investee, and (3) the ability to use its power to affect those variable returns. Control is reassessed whenever facts and circumstances indicate that there may be a change in any of these elements of control.

In the Target Company’s statement of financial position, investments in subsidiaries are stated at cost less impairment loss. The results of subsidiaries are accounted for by the Target Company on the basis of dividend received and receivable.

c) Financial instruments

(i) Financial assets

A financial asset (unless it is a trade receivable without a significant financing component) is initially measured at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that Topper Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the market place.

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

Debt instruments

Subsequent measurement of debt instruments depends on Topper Group’s business model for managing the asset and the cash flow characteristics of the asset. Topper Group classifies its debt instruments as follows:

Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Financial assets at amortised cost are subsequently measured using the effective interest rate method. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain on derecognition is recognised in profit or loss.

(ii) Impairment loss on financial assets

Topper Group recognises loss allowances for expected credit loss (“ ECL ”) on financial assets which are subject to impairment under HKFRS 9 (including other receivables and bank balances), financial assets measured at amortised cost. The ECLs are measured on either of the following bases: (1) 12 months ECLs: these are the ECLs that result from possible default events within the 12 months after the reporting date: and (2) lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument. The maximum period considered when estimating ECLs is the maximum contractual period over which Topper Group is exposed to credit risk.

— II-11 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the difference between all contractual cash flows that are due to Topper Group in accordance with the contract and all the cash flows that Topper Group expects to receive. The shortfall is then discounted at an approximation to the assets’ original effective interest rate.

For debt financial assets, the ECLs are based on the 12-months ECLs. However, when there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime ECLs.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, Topper Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information analysis, based on Topper Group’s historical experience and informed credit assessment and including forward-looking information.

Topper Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

Topper Group considers a financial asset to be credit-impaired when: (1) the borrower is unlikely to pay its credit obligations to Topper Group in full, without recourse by Topper Group to actions such as realising security (if any is held); or (2) the financial asset is more than 90 days past due.

Interest income on credit-impaired financial assets is calculated based on the amortised cost (i.e. the gross carrying amount less loss allowance) of the financial asset. For non credit-impaired financial assets interest income is calculated based on the gross carrying amount.

(iii) Write-off policy

The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when Topper Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off.

(iv) Financial liabilities

Topper Group classifies its financial liabilities, depending on the purpose for which the liabilities were incurred. Financial liabilities at amortised costs are initially measured at fair value, net of directly attributable costs incurred.

Financial liabilities at amortised cost

Financial liabilities at amortised cost including accruals and amount due to a shareholder are subsequently measured at amortised cost, using the effective interest method. The related interest expense is recognised in profit or loss.

Gains or losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process.

— II-12 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(v) Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability, or where appropriate, a shorter period.

(vi) Equity instruments

Equity instruments issued by the Company are recorded at the proceeds received, net of direct issue costs.

(vii) Derecognition

Topper Group derecognises a financial asset when the contractual rights to the future cash flows in relation to the financial asset expire or when the financial asset has been transferred and the transfer meets the criteria for derecognition in accordance with HKFRS 9.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires.

Where Topper Group issues its own equity instruments to a creditor to settle a financial liability in whole or in part as a result of renegotiating the terms of that liability, the equity instruments issued are the consideration paid and are recognised initially and measured at their fair value on the date the financial liability or part thereof is extinguished. If the fair value of the equity instruments issued cannot be reliably measured, the equity instruments are measured to reflect the fair value of the financial liability extinguished. The difference between the carrying amount of the financial liability or part thereof extinguished and the consideration paid is recognised in profit or loss for the year.

(viii) Offsetting

Financial assets and financial liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group currently has a legally enforceable right to set off the amounts and it intends either to settle them on a net basis or to realise the asset and settle the liability simultaneously.

d) Impairment of non-financial assets

At the end of each reporting periods, the Target Company reviews the carrying amounts of investment in a subsidiary to determine whether there is any indication that those assets have suffered an impairment loss or an impairment loss previously recognised no longer exists or may have decreased.

If the recoverable amount (i.e. the greater of the fair value less costs of disposal and value in use) of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another HKFRS, in which case the impairment loss is treated as a revaluation decrease under that HKFRS.

— II-13 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Value in use is based on the estimated future cash flows expected to be derived from the asset, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash generating unit.

e) Income taxes

Income taxes comprise current tax and deferred tax.

Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purposes and is calculated using tax rates that have been enacted or substantively enacted at the end of reporting period.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for tax purposes. Except for recognised assets and liabilities that affect neither accounting nor taxable profits, deferred tax liabilities are recognised for all temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is measured at the tax rates expected to apply in the period when the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted at the end of reporting period.

Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries, except where Topper Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Income taxes are recognised in profit or loss except when they relate to items recognised in other comprehensive income in which case the taxes are also recognised in other comprehensive income.

f) Foreign currency

Transactions entered into by the group entities in currencies other than the functional currency, which is the currency of the primary economic environment in which it operates, are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the end of each reporting period. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised in other comprehensive income, in which case, the exchange differences are also recognised in other comprehensive income.

— II-14 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

On consolidation, income and expense items of foreign operations are translated into the presentation currency of Topper Group (i.e. Hong Kong dollars) at the average exchange rates for the year, unless exchange rates fluctuate significantly during the period, in which case, the rates approximating to those ruling when the transactions took place are used. All assets and liabilities of foreign operations are translated at the rate ruling at the end of reporting period. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity as foreign exchange reserve (attributed to minority interests as appropriate). Exchange differences recognised in profit or loss of group entities’ separate financial statements on the translation of long-term monetary items forming part of the Group’s net investment in the foreign operation concerned are reclassified to other comprehensive income and accumulated in equity as foreign exchange reserve.

On disposal of a foreign operation, the cumulative exchange differences recognised in the foreign exchange reserve relating to that operation up to the date of disposal are reclassified to profit or loss as part of the profit or loss on disposal.

g)

Employee benefits

(i) Short term employee benefits

Short term employee benefits are employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. Short term employee benefits are recognised in the year when the employees render the related service.

(ii) Retirement benefit cost

The employees of Topper Group’s subsidiaries that operate in the PRC are required to participate in a government-managed retirement benefit schemes. These subsidiaries are required to contribute a fixed cost per employee to the government-managed retirement benefit schemes. The contributions are charged to profit or loss as they become payable.

h) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when Topper Group has a legal or constructive obligation arising as a result of a past event, which will probably result in an outflow of economic benefits that can be reasonably estimated.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, the existence of which will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

— II-15 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

i) Related party

• (a) A person or a close member of that person’s family is related to Topper Group if that person:

• (i) has control or joint control over Topper Group;

• (ii) has significant influence over Topper Group; or

• (iii) is a member of key management personnel of Topper Group or the Target Company’s parent.

• (b) An entity is related to Topper Group if any of the following conditions apply:

• (i) The entity and Topper Group are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others);

• (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member);

• (iii) Both entities are joint ventures of the same third party;

• (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity;

• (v) The entity is a post-employment benefit plan for the benefit of the employees of Topper Group or an entity related to Topper Group;

• (vi) The entity is controlled or jointly controlled by a person identified in (a);

• (vii) A person identified in (a)(i) has significant influence over the entity or is a member of key management personnel of the entity (or of a parent of the entity); and

• (viii) The entity, or any member of a group of which it is a part, provides key management personnel services to Topper Group or to Topper Group’s parent.

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity and include:

• (i) that person’s children and spouse or domestic partner;

• (ii) children of that person’s spouse or domestic partner; and

• (iii) dependents of that person or that person’s spouse or domestic partner.

— II-16 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

5. Critical accounting judgement and estimates

Estimates and judgements 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.

Topper Group 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 discussed below:

a) Impairment loss on financial assets at amortised cost

Significant judgements is required in applying the accounting requirements by Topper Group’s management for measuring the loss allowances of financial assets at amortised cost.

Topper Group’s management use its judgement in making such measurements including the credit history, existing market conditions, qualitative and quantitative reasonable and supportable forward-looking information, and market value of collaterals if applicable. In order to determine the most appropriate models in estimating the loss allowances for the financial assets at amortised cost, significant judgement is required to relate appropriate key drivers of credit risk as well as future movement of different economic drivers and how these drivers will affect each other. Where the expectation is different from the original estimate, such difference will affect the carrying amount of financial assets at amortised cost and thus the loss allowance in the period in which such estimate is changed. Topper Group reassesses the loss allowances at the end of reporting period.

6. Operating segment information

Topper Group has identified its operating segment based on the regular internal financial information reported to the chief decision makers about allocation of resources to assess the performance of Topper Group’s business.

The principal activity of Topper Group is engaged in investment holding. The sole director considers that this is the only component for internal reporting to the chief decision makers and, accordingly, the only one operating segment under the requirements of HKFRS 8 “Operating Segments”.

Segment assets and liabilities are mainly located in Hong Kong.

During the Relevant Period, there is no customer contributed 10% or more to Topper Group’s revenue.

7. Revenue

The principal activity of Topper Group is engaged in investment holding. No revenue was generated by Topper Group during the Relevant Period.

— II-17 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

8. Director’s and five highest paid individuals’ remuneration

• (a) Director’s remuneration

		For the period	from 11 July 2019
	(date of incorporation) to 31 March 2020
		Salaries	Contribution
		and	to defined
		other	contribution
	Fees	benefits	pension plan	Total
	HK$	HK$	HK$	HK$
The sole director
Mr. CHEN Wei Wu	—	—	—	—

No compensation or any kind of benefit was paid to the Target Company’s sole director in respect of their services during the Relevant Period.

(b) Highest paid individuals

During the Relevant Period, there is no remuneration paid for the sole director and any individuals and there was no arrangement under which any of the directors or the highest paid individuals of Topper Group waived or agreed to waive any remuneration and there were no emoluments paid by Topper Group to the sole director or any of the highest paid individuals as an inducement to join or upon joining Topper Group, or as compensation for loss of office.

9. Income tax expense

Pursuant to the rules and regulations of the BVI, the Target Company is not subject to any tax in the BVI.

During the Relevant Period, no Hong Kong Profits Tax nor the People’s Republic of China (the “ PRC ”) Enterprise Income Tax was provided as Topper Group did not generate any assessable profits.

Reconciliation between income tax expense and accounting loss at applicable tax rate is as follows:

Loss before income tax Tax calculated at applicable tax rates Tax effect of expenses not deductible for tax purpose Income tax expense	For the period from 11 July 2019 (date of incorporation) to 31 March 2020 HK$ (36,346)
	(5,119) 5,119
	—

— II-18 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

10. Dividends

No dividend was paid or declared by the Target Company during the Relevant Period.

11. Amounts due from/(to) a shareholder/subsidiary

Topper Group and the Target Company

The amounts are unsecured, interest free and repayable on demand.

12. Share capital

Authorised: Shares of US$1 each At 11 July 2019 (date of incorporation) and 31 March 2020 Issued and fully paid: Shares of US$1 each At 11 July 2019 (date of incorporation) and 31 March 2020	Number of shares 50,000 10,000	Amount HK$ 389,000
		77,800

13. Reserves

Topper Group

The amount of the Target Group’s reserves and the movement therein for the Relevant Period are presented in the consolidated statement of changes in equity.

The Target Company

At 11 July 2019 (date of incorporation) Loss and total comprehensive income for the period At 31 March 2020	Accumulated losses HK$ — (8,800) (8,800)	Total HK$ — (8,800)
		(8,800)

The following describes the nature and purpose of each reserve within equity.

Reserves

Description and purpose

Foreign exchange reserve Net exchange differences recognised in other comprehensive income and accumulated in a separate component of equity, and a reconciliation of the amount of such exchange differences at the beginning and end of the relevant period.

Accumulated losses

Cumulative net gains and losses recognised in the consolidated statement of profit or loss and other comprehensive income.

— II-19 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

14. Investment in a subsidiary

The Target Company

As at 31 March 2020 HK$

Unquoted shares, at cost

1

Details of the subsidiaries of the Topper Group are as follows:

						Issued share
			Principal activities			capital/paid-
		Place of	and place of	Percentage of	ownership	up registered
Name	Form of business structure	Incorporation	operation	interest held 2020		capital
				Directly	Indirecty
				%	%
Happy Star Investments	Limited liability company	Hong Kong	Investment holding	100	—	1 ordinary share
Limited			in Hong Kong			of HK$1
Dongguan Puhua Land	Limited liability company	The PRC	Investment holding	—	100	—
Ltd*（東莞普華置地	(Taiwan, Hong Kong or Macau		in the PRC
有限公司）	legal person sole investment)
Dongguan Huachuangwen	Limited liability company	The PRC	Investment holding	—	100	—
Industry Development	(Foreign-invested enterprise		in the PRC
Ltd*（東莞華創文實業	sole investment)
開發有限公司）

• The unofficial English translation is for identification purpose only.

15. Related party transactions

Save as disclosure elsewhere in the Historical Financial Information, significant related party transactions during the Relevant Period is as follow:

Key management compensation

Key management personnel is deemed to be the sole director of the Target Company which has responsibility for the placing, directing and controlling the activities of the Target Company, whose disclosed in Note 8 to the Accountants’ Report.

16. Summary of financial instruments by category

Financial asset at amortised cost Amount due from a shareholder Financial liability at amortised cost Accruals	As at 31 March 2020 HK$ 48,200
	6,567

The carrying amounts of Topper Group’s financial asset and liability measured at amortised cost approximate their fair values due to their short maturities.

— II-20 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

17. Financial risk management objectives and policies

The main risks arising from Topper Group’s financial instruments in the normal course of Topper Group’s business are credit risk and liquidity risk.

These risks are limited by Topper Group’s financial management policies and practices described below.

(a) Credit risk

Topper Group’s maximum exposure to credit risk is the carrying amounts of amount due from a shareholder. No loss allowance was recognised in respect of the amount due from a shareholder as Topper Group assessed the impairment is immaterial. Topper Group has no concentration of credit risk from third party debtors.

(b)

Liquidity risk

Prudent liquidity risk management includes maintaining sufficient cash and the ability to settle the payables of Topper Group. Due to the dynamic nature of the underlying businesses, the sole director of the Target Company aim to maintain flexibility in funding by keeping sufficient working capital.

Management monitors rolling forecasts of Topper Group’s liquidity reserve which comprise cash and cash equivalents on the basis of expected cash flow. Topper Group aims to maintain flexibility in funding while minimising its overall costs by keeping sufficient working capital.

As at 31 March 2020, Topper Group’s financial liability is due within one year or on demand.

(c) Capital management

Topper Group’s primary objective when managing capital is to safeguard Topper Group’s ability to continue as a going concern and to maximise the return to stakeholders. Topper Group’s capital structure is regularly reviewed and managed by the sole director of the Target Company. Topper Group is not subject to externally imposed capital requirements. To maintain or adjust capital structure, Topper Group may adjust dividend payment to shareholders or issue new shares. Adjustments will be made to the capital structure in light of changes in economic conditions affecting Topper Group, and the risk characteristics of Topper Group’s underlying assets.

The capital structure of Topper Group consists of debts, which includes accruals and equity of the Target Company, comprising share capital, foreign exchange reserve and accumulated losses. Topper Group’s risk management reviews the capital structure on a semi-annual basis. As part of this review, the management considers the cost of capital and the risks associated with each class of capital.

— II-21 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The net debt to equity ratio at the end of the Relevant Period is as follows:

Topper Group Accruals Net Debt Equity Net debt to equity ratio	As at 31 March 2020 HK$ 6,567
	6,567
	41,633
	15.7%

18. Subsequent financial statements

No audited financial statements have been prepared by the Target Company in respect of any period subsequent to 31 March 2020.

— II-22 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

• (B) A C C O U N T A N T S ’ R E P O R T O N H I S T O R I C A L F I N A N C I A L INFORMATION OF DONGGUAN HUACHUANGWEN LAND LTD.

The following is the text of a report set out on pages II-23 to II-25, received from the Company’s reporting accountants, BDO Limited, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this circular.

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ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF CHINA TANGSHANG HOLDINGS LIMITED

Introduction

We report on the historical financial information of 東莞市華創文置地有限公 司 (Dongguan Huachuangwen Land Ltd.) (the “ Project Company ”) set out on pages II-23 to II-48, which comprises the statement of financial position of the Project Company as at 31 March 2020 and the statement of profit or loss and other comprehensive income, the statement of changes in equity and the statement of cash flows of the Project Company for the period from 6 January 2020 (date of incorporation) to 31 March 2020 (the “ Relevant 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-26 to II-48 forms an integral part of this report, which has been prepared for inclusion in the circular of China Tangshang Holdings Limited (the “ Company ”) dated 22 June 2020 (the “ Circular ”) in connection with the very substantial acquisition and connected transaction in relation to acquisition of the entire issued share capital of Topper Genius Investments Limited (the “ Target Company ”) by the Company (the “ Proposed Acquisition* ”)

Directors’ responsibility for the Historical Financial Information

The directors of the Company are responsible for the preparation of Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information, and for such internal control as the directors determines is necessary to enable the preparation of Historical Financial Information that is free from material misstatement, whether due to fraud or error.

• The unofficial English translation is for identification purpose only.

— II-23 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Reporting accountants’ responsibility

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

Our work involved performing procedures to obtain evidence about the amounts and disclosures in the Historical Financial Information. The procedures selected depend on the reporting accountants’ judgement, including the assessment of risks of material misstatement of the Historical Financial Information, whether due to fraud or error. In making those risk assessments, the reporting accountants consider internal control relevant to the entity’s preparation of the Historical Financial Information that gives a true and fair view in accordance with the basis of preparation and presentation set out in Note 2 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 sole director, as well as evaluating the overall presentation of the Historical Financial Information.

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

Opinion

In our opinion the Historical Financial Information gives, for the purposes of the accountants’ report, a true and fair view of the Project Company’s financial position as at 31 March 2020 and of its financial performance and cash flows for the Relevant Period in accordance with the basis of preparation and presentation set out in Note 2 to the Historical Financial Information.

— II-24 —

APPENDIX II FINANCIAL INFORMATION OF THE TARGET GROUP

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 as defined on page II-26 have been made.

BDO Limited

Certified Public Accountants

Chan Wing Fai Practising Certificate Number: P05443

Hong Kong 22 June 2020

— II-25 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

• I. H I S T O R I C A L F I N A N C I A L I N F O R M A T I O N O F T H E P R O J E C T COMPANY

Preparation of the Historical Financial Information

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

The financial statements of the Project Company for the Relevant Period, on which the Historical Financial Information is based, were audited by BDO Limited in accordance with Hong Kong Standards on Auditing (“ HKSAs ”) issued by the HKICPA (“ Underlying Financial Statements ”).

The Historical Financial Information is presented in Renminbi (“ RMB ”).

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

		For the period
		from 6 January
		2020 (date of
		incorporation)
		to 31 March
		2020
	Notes	RMB
Revenue	7	—
Other gains or losses, net	8	4,119
Staff costs	10	(69,030)
Other operating expenses		(304,634)
Finance cost	9	—
Loss before income tax expense		(369,545)
Income tax expense	12	—
Loss and total comprehensive expense for the period		(369,545)

— II-26 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

STATEMENT OF FINANCIAL POSITION

Notes ASSETS Non-current asset Property, plant and equipment 14 Current assets Prepayments, deposits and other receivables 15 Properties under development 16 Cash and cash equivalents 17 Total current assets Total assets LIABILITIES Current liabilities Accounts payable 18 Accruals and other payables 18 Lease liabilities 19 Total current liabilities Net current assets Total assets less current liabilities Non-current liability Lease liabilities 19 Net Assets CAPITAL AND RESERVES ATTRIBUTABLE TO OWNERS OF THE PROJECT COMPANY Paid-in capital 20 Reserves 21 Total equity	At 31 March 2020 RMB 392,377
	117,915 532,209,146 30,473,433
	562,800,494
	563,192,871
	4,458,715 21,614,931 193,257
	26,266,903
	536,533,591
	536,925,968
	100,313
	536,825,655
	10,000,000 526,825,655
	536,825,655

— II-27 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

STATEMENT OF CHANGES IN EQUITY

Issuance of shares upon incorporation Capital contribution (Note) Loss and total comprehensive income for the period At 31 March 2020	Paid-in capital RMB (Note 20) 10,000,000 — — 10,000,000	Capital reserve RMB (Note 21) — 527,195,200 — 527,195,200	Accumulated losses RMB (Note 21) — — (369,545) (369,545)	Total RMB 10,000,000 527,195,200 (369,545) 536,825,655

Note:

The amount of approximately RMB527,195,200 credited to capital reserve represents the amounts due to a shareholder being waived by a shareholder during the period ended from 6 January 2020 (date of incorporation) to 31 March 2020 . The waiver is accounted as deemed capital contribution from shareholders.

— II-28 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

STATEMENT OF CASH FLOWS

	For the period
	from 6 January
	2020 (date of
	incorporation)
	to 31 March
	2020
	RMB
Loss before income tax expenses	(369,545)
Adjustment for:
Interest income	(4,119)
	(373,664)
Increase in prepayments, deposits and other receivables	(117,915)
Increase in properties under development	(532,173,948)
Increase in accounts payable	4,458,715
Increase in accruals and other payables	21,614,931
Cash flows used in operating activities	(506,591,881)
Interest received	4,119
Net cash used in operating activities	(506,587,762)
Cash flows from investing activity
Purchases of property, plant and equipment	(32,005)
Net cash used in investing activity	(32,005)
Cash flows from financing activities
Proceeds from issue of shares	10,000,000
Advance from a shareholder	527,195,200
Repayment of principal portion of the lease liabilities	(100,784)
Interest paid	(1,216)
Net cash generated from financing activities	537,093,200
Net increase in cash and cash equivalents	30,473,433
Cash and cash equivalents at beginning of period	—
Cash and cash equivalents at end of period	30,473,433

— II-29 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

II. NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1. Corporate information

The Project Company was incorporated in the People’s Republic of China (the “ PRC ”) as a limited liability company on 6 January 2020. Its registered office and its principal place of business is located at Room 101, no. 842, Zhenxing Avenue, Xiegang Town, Dongguan City, Guangdong Province, the PRC. The principal activity of the Project Company is property development in the PRC.

2. Basis of preparation and presentation

The Historical Financial Information has been prepared in accordance with accounting policies set out in Note 4 below which conform with Hong Kong Financial Reporting Standards (“ HKFRSs ”), Hong Kong Accounting Standards (“ HKASs ”) and interpretations (hereinafter collectively referred to as the “ HKFRS ”) issued by the Hong Kong Institute of Certified Public Accountants (“ HKICPA ”). The Historical Financial Information also complies with the applicable disclosure provisions of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “ Listing Rules ”).

The Historical Financial Information has been prepared under the historical cost basis. The measurement bases are fully described in the accounting policies below in Note 4. All HKFRSs effective for accounting period commencing from 1 January 2020 together with the relevant transitional provisions have been adopted by the Project Company in the preparation of the Historical Financial Information throughout the Relevant Period.

The preparation of Historical Financial Information in conformity with HKFRSs requires the use of certain critical accounting assumptions and estimates. It also requires management to exercise its judgement in the process of applying the Project Company’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the Historical Financial Information are disclosed in Note 5.

3. Impact of issued but not yet effective HKFRSs

The following new/revised HKFRS, potentially relevant to the Historical Financial Information, has been issued, but not yet effective and has not been early adopted by the Project Company. The Project Company’s current intention is to apply this change on the date it become effective.

Amendments to HKAS 1 Classification of Liabilities as Current or Non-current1 Amendments to HKFRS 10 and Sale or Contribution of Assets between an Investor and its HKAS 28 Associate or Joint Venture2

1 Effective for annual periods beginning on or after 1 January 2022

2 No mandatory effective date yet determined but available for adoption

The Project Company has already commenced an assessment of the potential impact of the new/ revised standards but is not yet in a position to state whether these new/revised standards would have a significant impact on the Project Company’s result of operations and financial position.

— II-30 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

4. Summary of significant accounting policies

• a) Leasing

The Group has applied HKFRS 16 in recognising all the lease contracts or part of a contract that conveys the right to use an asset (the underlying asset) for a period of time in exchange for consideration.

Under HKFRS 16, all leases (irrespective of they are operating leases or finance leases) are required to be capitalised in the statement of financial position as right-of-use assets and lease liabilities, but accounting policy choices exist for an entity to choose not to capitalise (i) leases which are short-term leases and/or (ii) leases for which the underlying asset is of low-value. The Project Company has elected not to recognise right-of-use assets and lease liabilities for low-value assets and leases for which at the commencement date have a lease term less than 12 months. The lease payments associated with those leases have been expensed on straight-line basis over the lease term.

Right-of-use asset

The right-of-use asset should be recognised at cost and would comprise: (i) the amount of the initial measurement of the lease liability (see below for the accounting policy to account for lease liability); (ii) any lease payments made at or before the commencement date, less any lease incentives received; (iii) any initial direct costs incurred by the lessee; and (iv) an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are incurred to produce inventories.

Lease liability

The lease liability is recognised at the present value of the lease payments that are not paid at the date of commencement of the lease. The lease payments are discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the Project Company uses its incremental borrowing rate.

The following payments for the right-to-use the underlying asset during the lease term that are not paid at the commencement date of the lease are considered to be lease payments: (i) fixed payments less any lease incentives receivable: (ii) variable lease payments that depend on an index or a rate, initially measured using the index or rate as at commencement date; (iii) amounts expected to be payable by the lessee under residual value guarantees; (iv) the exercise price of a purchase option if the lessee is reasonably certain to exercise that option; and (v) payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.

Subsequent to the commencement date, the Project Company measures the lease liability by: (i) increasing the carrying amount to reflect interest on the lease liability; (ii) reducing the carrying amount to reflect the lease payments made; and (iii) remeasuring the carrying amount to reflect any reassessment or lease modifications, e.g., a change in future lease payments arising from change in an index or rate, a change in the lease term, a change in the in substance fixed lease payments or a change in assessment to purchase the underlying asset.

— II-31 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

b) Financial instruments

(i) Financial assets

A financial asset (unless it is a trade receivable without a significant financing component) is initially measured at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue. A trade receivable without a significant financing component is initially measured at the transaction price.

All regular way purchases and sales of financial assets are recognised on the trade date, that is, the date that the Project Company commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the market place.

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

Debt instruments

Subsequent measurement of debt instruments depends on the Project Company’s business model for managing the asset and the cash flow characteristics of the asset. The Project Company classifies its debt instruments as follows:

Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortised cost. Financial assets at amortised cost are subsequently measured using the effective interest rate method. Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain on derecognition is recognised in profit or loss.

(ii) Impairment loss on financial assets

The Project Company recognises loss allowances for expected credit loss (“ ECL ”) on financial assets which are subject to impairment under HKFRS 9 (including deposits, other receivables and cash and cash equivalents). The ECLs are measured on either of the following bases: (1) 12 months ECLs: these are the ECLs that result from possible default events within the 12 months after the reporting date: and (2) lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument. The maximum period considered when estimating ECLs is the maximum contractual period over which the Project Company is exposed to credit risk.

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the difference between all contractual cash flows that are due to the Project Company in accordance with the contract and all the cash flows that the Project Company expects to receive. The shortfall is then discounted at an approximation to the assets’ original effective interest rate.

For debt financial assets, the ECLs are based on the 12-months ECLs. However, when there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime ECLs.

— II-32 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Project Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information analysis, based on the Project Company’s historical experience and informed credit assessment and including forward-looking information.

The Project Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

The Project Company considers a financial asset to be credit-impaired when: (1) the borrower is unlikely to pay its credit obligations to the Project Company in full, without recourse by the Project Company to actions such as realising security (if any is held); or (2) the financial asset is more than 90 days past due.

Interest income on credit-impaired financial assets is calculated based on the amortised cost (i.e. the gross carrying amount less loss allowance) of the financial asset. For non credit-impaired financial assets interest income is calculated based on the gross carrying amount.

(iii) Write-off policy

The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the sole director of the Project Company determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off.

(iv) Financial liabilities

The Project Company classifies its financial liabilities, depending on the purpose for which the liabilities were incurred. Financial liabilities at amortised costs are initially measured at fair value, net of directly attributable costs incurred.

Financial liabilities at amortised cost

Financial liabilities at amortised cost including accounts payable, accruals and other payables are subsequently measured at amortised cost, using the effective interest method. The related interest expense is recognised in profit or loss.

Gains or losses are recognised in profit or loss when the liabilities are derecognised as well as through the amortisation process.

(v) Effective interest method

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments through the expected life of the financial asset or liability, or where appropriate, a shorter period.

— II-33 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(vi) Derecognition

The Project Company derecognises a financial asset when the contractual rights to the future cash flows in relation to the financial asset expire or when the financial asset has been transferred and the transfer meets the criteria for derecognition in accordance with HKFRS 9.

Financial liabilities are derecognised when the obligation specified in the relevant contract is discharged, cancelled or expires.

Where the Project Company issues its own equity instruments to a creditor to settle a financial liability in whole or in part as a result of renegotiating the terms of that liability, the equity instruments issued are the consideration paid and are recognised initially and measured at their fair value on the date the financial liability or part thereof is extinguished. If the fair value of the equity instruments issued cannot be reliably measured, the equity instruments are measured to reflect the fair value of the financial liability extinguished. The difference between the carrying amount of the financial liability or part thereof extinguished and the consideration paid is recognised in profit or loss for the year.

c) Impairment of non-financial assets

At the end of each reporting periods, the Project Company reviews the carrying amounts of property, plant and equipment to determine whether there is any indication that those assets have suffered an impairment loss or an impairment loss previously recognised no longer exists or may have decreased.

If the recoverable amount (i.e. the greater of the fair value less costs of disposal and value in use) of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised as an expense immediately, unless the relevant asset is carried at a revalued amount under another HKFRS, in which case the impairment loss is treated as a revaluation decrease under that HKFRS.

Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately.

Value in use is based on the estimated future cash flows expected to be derived from the asset, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash generating unit.

d) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

The cost of property, plant and equipment includes its purchase price and the costs directly attributable to the acquisition of the items.

— II-34 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

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

Property, plant and equipment are depreciated so as to write off their cost net of expected residual value over their estimated useful lives on a straight-line basis. The useful lives, residual value and depreciation method are reviewed, and adjusted if appropriate, at the end of each reporting period. The useful lives are as follows:

Furniture, fixtures and equipment 3 years

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

The gain or loss on disposal of an item of property, plant and equipment is the difference between the net sale proceeds and its carrying amount, and is recognised in profit or loss on disposal.

e) Properties under development

Properties under development are stated at the lower of cost and net realisable value. Net realisable value is determined by reference to the anticipated sales proceeds of properties sold in the ordinary course of business, less estimated selling expenses and the anticipated costs to completion.

Development cost of property comprises cost of land, development costs and other direct costs attributable to the development of such properties.

f)

Cash and cash equivalents

For the purpose of the statement of cash flows, cash and cash equivalents comprise cash on hand and demand deposits, and short-term highly liquid investments that are readily convertible into known amount of cash, and are subject to an insignificant risk of changes in value, and have a short maturity of generally within three months when acquired, less bank overdrafts which are repayable on demand and form an integral part of the Project Company’s cash management.

g)

Revenue recognition

Interest income is accrued on a time basis on the principal outstanding at the applicable interest rate.

h) Borrowing costs

Borrowing costs attributable directly to the acquisition, construction or production of qualifying assets which require a substantial period of time to be ready for their intended use or sale, are capitalised as part of the cost of those assets. Income earned on temporary investments of specific borrowings pending their expenditure on those assets is deducted from borrowing costs capitalised. All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

— II-35 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

i) Income taxes

Income taxes comprise current tax and deferred tax.

Current tax is based on the profit or loss from ordinary activities adjusted for items that are non-assessable or disallowable for income tax purposes and is calculated using tax rates that have been enacted or substantively enacted at the end of reporting period.

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the corresponding amounts used for tax purposes. Except for recognised assets and liabilities that affect neither accounting nor taxable profits, deferred tax liabilities are recognised for all temporary differences. Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Deferred tax is measured at the tax rates expected to apply in the period when the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted at the end of reporting period.

Income taxes are recognised in profit or loss except when they relate to items recognised in other comprehensive income in which case the taxes are also recognised in other comprehensive income.

j) Foreign currency

Transactions entered into by the Project Company in currencies other than the functional currency, which is the currency of the primary economic environment in which it operates, are recorded at the rates ruling when the transactions occur. Foreign currency monetary assets and liabilities are translated at the rates ruling at the end of each reporting period. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the translation of monetary items, are recognised in profit or loss in the period in which they arise.

k)

Employee benefits

(i) Short term employee benefits

Short term employee benefits are employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. Short term employee benefits are recognised in the year when the employees render the related service.

(ii) Retirement benefit cost

The employees of the Project Company are required to participate in a government-managed retirement benefit schemes. The Project Company is required to contribute a fixed cost per employee to the government-managed retirement benefit schemes. The contributions are charged to profit or loss as they become payable.

— II-36 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

l) Provisions and contingent liabilities

Provisions are recognised for liabilities of uncertain timing or amount when the Project Company has a legal or constructive obligation arising as a result of a past event, which will probably result in an outflow of economic benefits that can be reasonably estimated.

Where it is not probable that an outflow of economic benefits will be required, or the amount cannot be estimated reliably, the obligation is disclosed as a contingent liability, unless the probability of outflow of economic benefits is remote. Possible obligations, the existence of which will only be confirmed by the occurrence or non-occurrence of one or more future events, are also disclosed as contingent liabilities unless the probability of outflow of economic benefits is remote.

m) Related party

• (a) A person or a close member of that person’s family is related to the Project Company if that person:

• (i) has control or joint control over the Project Company;

• (ii) has significant influence over the Project Company; or

• (iii) is a member of key management personnel of the Project Company or its parent.

• (b) An entity is related to the Project Company if any of the following conditions apply:

• (i) The entity and the Project Company are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others);

• (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member);

• (iii) Both entities are joint ventures of the same third party;

• (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity;

• (v) The entity is a post-employment benefit plan for the benefit of the employees of the Project Company or an entity related to the Project Company;

• (vi) The entity is controlled or jointly controlled by a person identified in (a);

• (vii) A person identified in (a)(i) has significant influence over the entity or is a member of key management personnel of the entity (or of a parent of the entity); and

• (viii) The entity, or any member of a group of which it is a part, provides key management personnel services to the Project Company or to the Project Company’s parent.

— II-37 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

Close members of the family of a person are those family members who may be expected to influence, or be influenced by, that person in their dealings with the entity and include:

• (i) that person’s children and spouse or domestic partner;

(ii) children of that person’s spouse or domestic partner; and

(iii) dependents of that person or that person’s spouse or domestic partner.

5. Critical accounting judgement and estimates

Estimates and judgements 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 Project Company 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 discussed below:

(a) Net realisable value of properties under development

Included in the statement of financial position at 31 March 2020, properties under development were with an aggregate carrying amount of RMB532,209,146. Management assessed the recoverability of the amount based on an estimation of the net realisable value of the underlying properties which involves, inter-alia, considerable analysis of current market price of properties of a comparable standard and location, construction costs to be incurred to complete the development based on existing asset structure and a forecast of future sales based on zero growth rate of property price. If the actual net realisable values of the underlying inventories of properties are more or less than expected as a result of change in market condition and/or significant variation in the budgeted development costs, material reversal of or provision for impairment losses may result.

6. Operating segment information

The Project Company has identified its operating segment based on the regular internal financial information reported to the chief decision makers about allocation of resources to assess the performance of the Project Company’s business.

The principal activity of the Project Company is engaged in property development in the PRC. The sole director considers that this is the only component for internal reporting to the chief decision makers and, accordingly, the only one operating segment under the requirements of HKFRS 8 “Operating Segments”.

All the segment assets and liabilities are located in the PRC.

During the Relevant Period, there is no customer contributed 10% or more to the Project Company’s revenue.

7. Revenue

The principal activity of the Project Company is engaged in property development in the PRC. No revenue was generated by the Project Company during the Relevant Period.

— II-38 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

8. Other gains or losses, net

Interest income 9. Finance cost Interest expense on lease liabilities Finance cost capitalised in property under development Net finance costs recognised in profit or loss 10. Staff costs	For the period from 6 January 2020 (date of incorporation) to 31 March 2020 RMB 4,119 For the period from 6 January 2020 (date of incorporation) to 31 March 2020 RMB 2,437 (2,437) —

Salaries and other benefits Pension scheme contributions Total staff costs _Less:_Amounts capitalised on properties under development	For the period from 6 January 2020 (date of incorporation) to 31 March 2020 RMB 308,539 11,629 320,168 (251,138) 69,030

— II-39 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

11. Director’s and five highest paid individuals’ remuneration

(a) Director’s remuneration

	For the period from 6 January 2020	For the period from 6 January 2020	For the period from 6 January 2020
	(date of	incorporation) to 31 March 2020
			Contribution
		Salaries	to defined
		and other	contribution
	Fees	benefits	pension plan	Total
	RMB	RMB	RMB	RMB
The sole director
Mr. WANG Rui	—	—	—	—

No compensation or any kind of benefit was paid to the Project Company’s sole director in respect of their services during the Relevant Period.

(b) Five highest paid individuals

The five highest paid individuals during the Relevant Period do not include the sole director. Details of the remuneration of the five highest paid individuals during the Relevant Period are as follows:

Salaries and other benefits Pension scheme contribution	For the period from 6 January 2020 (date of incorporation) to 31 March 2020 RMB 287,956 10,373
	298,329

Their remuneration fell within the following bands:

	For the period
	from 6 January
	2020 (date of
	incorporation)
	to 31 March 2020
	No. of Individuals
Nil to RMB1,000,000	5

During the Relevant Period, there was no arrangement under which any of the director or the highest paid individuals of the Project Company waived or agreed to waive any remuneration and there were no emoluments paid by the Project Company to the sole director or any of the highest paid individuals as an inducement to join or upon joining the Project Company, or as compensation for loss of office.

— II-40 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

12. Income tax expense

During the Relevant Period, no PRC Enterprise Income Tax was provided as the Project Company did not generate any assessable profits.

Reconciliation between income tax expense and accounting loss at applicable tax rate is as follows:

Loss before income tax Tax calculated at applicable tax rate of 25% Tax effect of expenses not deductible for tax purpose Income tax expense	For the period from 6 January 2020 (date of incorporation) to 31 March 2020 RMB (369,545)
	(92,386) 92,386
	—

13. Dividends

No dividend was paid or declared by the Project Company during the Relevant Period.

14. Property, plant and equipment

Furniture, fixtures and equipment RMB COST At 6 January 2020 (date of incorporation) — Additions 32,005 At 31 March 2020 32,005 ACCUMULATED DEPRECIATION At 6 January 2020 (date of incorporation) — Charge during the period — At 31 March 2020 — CARRYING AMOUNT At 31 March 2020 32,005	Right-of-use assets RMB — 393,133 393,133 — 32,761 32,761 360,372	Total RMB — 425,138
		425,138
		— 32,761
		32,761
		392,377

— II-41 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The Project Company elected to include the right-of-use assets within the same line item as that within which the corresponding underlying assets would be presented if they were owned.

Right-of-use assets

As at 31 December 2019, right-of-use assets represented the office premises leased for own use of RMB360,372 and were included in the carrying amount of property, plant and equipment.

15. Prepayments, deposits and other receivables

Prepayments Deposits Other receivables	As at 31 March 2020 RMB 16,187 52,000 49,728
	117,915

16. Properties under development

Within normal operating cycle included under current assets The balance comprises — Land Cost — Construction cost The properties under development are all located in the PRC. Properties under development: — Expected to be completed and available for sale after more than 12 months — Expected to be completed and available for sale within 12 months	As at 31 March 2020 RMB 532,209,146
	527,195,200 5,013,946
	532,209,146
	As at 31 March 2020 RMB 532,209,146 —
	532,209,146

Properties under development comprise certain construction and development costs and leasehold interest in land located in the PRC with lease term of 70 years.

— II-42 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

During the Relevant Period, borrowing costs of RMB2,437 arising from lease liabilities recognised specifically for the properties under development were capitalised. Borrowing costs have been capitalised at rates of 5.01% per annum.

17. Cash and cash equivalents

As at 31 March 2020, the cash and cash equivalents for the Project Company was cash and bank balance denominated in RMB. RMB is not freely convertible into other currencies. However, under the PRC’s Foreign Exchange Control Regulations and Administration of Settlement, Sale and Payment of Foreign Exchange Regulations, the Project Company is permitted to exchange RMB for other currencies through banks authorised to conduct foreign exchange business.

18. Accounts payable and other payables

Accounts payable_(note (a)) Accruals and other payables(note (b))_	As at 31 March 2020 RMB 4,458,715 21,614,931
	26,073,646

(a) Accounts payable

The following is an aged analysis of accounts payable at the end of the reporting period, presented based on the invoice date:

Within 3 months 3 to 12 months 1 to 2 years Over 2 years	As at 31 March 2020 RMB 4,458,715 — — —
	4,458,715

(b) Accruals and other payables

Amount due to a shareholder_(Note)_ Other payables Accruals	As at 31 March 2020 RMB 20,704,800 675,585 234,546
	21,614,931

Note:

The amount is unsecured, interest free and repayable on demand.

— II-43 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

19. Lease liabilities

Nature of leasing activities (in the capacity as lessee)

The Project Company leases a property in the PRC for own use. The lease comprises of fixed rent over the lease term.

At 6 January 2020 (date of incorporation) Additions Interest expense Lease payments At 31 March 2020	Office premises RMB — 393,133 2,437 (102,000)
	293,570

Future lease payments are due as follows:

Not later than one year Later than one year and not later than two years At 31 March 2020	Minimum lease payment RMB 204,000 102,000 306,000	Interest RMB 10,743 1,687 12,430	Present value RMB 193,257 100,313
			293,570

The present value of future lease payments are analysed as:

Current liabilities Non-current liabilities	As at 31 March 2020 RMB 193,257 100,313
	293,570

20. Paid-in capital

Registered: At 6 January 2020 (date of incorporation) and 31 March 2020 Paid up: At 6 January 2020 (date of incorporation) and 31 March 2020	Amount RMB 10,000,000
	10,000,000

— II-44 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

21. Reserves

The following describes the nature and purpose of each reserve within equity.

Reserves

Description and purpose

Capital reserve

During the Relevant Period, a shareholder of the Project Company waived the amount due from the Project Company of RMB527,195,200 for repayment. This balance has accordingly deemed as part of capital contribution of the shareholder and transfer to capital reserve during the Relevant Period.

Accumulated losses

Cumulative net gains and losses recognised in the statement of profit or loss and other comprehensive income.

22. Capital Commitments

At the end of the Relevant Period, capital commitments not provided for in the financial statements were as follows:

As at 31 March 2020 RMB

Contracted but not provided for:

— Construction related cost

26,857,190

23. Related party transactions

Save as disclosure elsewhere in the Historical Financial Information, significant related party transactions during the Relevant Period is as follow:

Key management compensation

Key management personnel is deemed to be the sole director of the Project Company which has responsibility for the placing, directing and controlling the activities of the Project Company, whose disclosed in note 11 to the Accountants’ Report.

— II-45 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

24. Summary of financial instruments by category

Financial assets at amortised cost Deposits and other receivables Cash and cash equivalents Financial liabilities at amortised cost Accounts payable Accruals and other payables Lease liabilities	As at 31 March 2020 RMB 101,728 30,473,433
	30,575,161
	4,458,715 21,614,931 293,570
	26,367,216

Except for the lease liabilities, the carrying amounts of the Project Company’s financial assets and liabilities measured at amortised cost approximate their fair values due to their short maturities.

Financial risk management objectives and policies

The main risks arising from the Project Company’s financial instruments in the normal course of the Project Company’s business are credit risk and liquidity risk.

These risks are limited by the Project Company’s financial management policies and practices described below.

(a) Credit risk

The Project Company’s maximum exposure to credit risk is the carrying amounts of cash and cash equivalents, deposits and other receivables. The Project Company has no concentration of credit risk from third party debtors.

As at 31 March 2020, substantially all of the Project Company’s bank deposits were deposited with major financial institutions in the PRC, which management believes are of high-credit-quality without significant credit risk.

For the deposits and other receivables, the management of the Project Company takes into account the historical default experience and forward-looking information, as appropriate, for example the Project Company considers the consistently low historical default rates of counterparties, and concludes that credit risk inherent in the Project Company’s outstanding deposits and other receivables is insignificant. The management of the Project Company has assessed that deposits and other receivables do not have a significant increase in credit risk since initial recognition and risk of default is insignificant, therefore the ECLs for these deposits and other receivables were immaterial under the 12 months expected losses method and no loss allowance provision was recognised during the Relevant Period.

— II-46 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

(b) Liquidity risk

Prudent liquidity risk management includes maintaining sufficient cash and the ability to settle the payables of the Project Company. Due to the dynamic nature of the underlying businesses, the sole director of the Project Company aim to maintain flexibility in funding by keeping sufficient working capital.

Management monitors rolling forecasts of the Project Company’s liquidity reserve which comprise cash and cash equivalents on the basis of expected cash flow. The Project Company aims to maintain flexibility in funding while minimising its overall costs by keeping sufficient working capital.

The following table details the remaining contractual maturity for the Project Company’s financial liabilities based on the agreed repayment terms. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Project Company can be required to pay. The table includes both interest and principal cash flows.

At at 31 March 2020 Non-derivatives Accounts payable Accruals and other payables Lease liabilities	Carrying amount Total undiscounted cash flows On demand and less than 3 months RMB RMB RMB 4,458,715 4,458,715 4,458,715 21,614,931 21,614,931 21,614,931 293,570 306,000 51,000 26,367,216 26,379,646 26,124,646	3 months to 1 year Over 1 year RMB RMB — — — — 153,000 102,000 153,000 102,000	3 months to 1 year Over 1 year RMB RMB — — — — 153,000 102,000 153,000 102,000
			102,000

(c) Capital management

The Project Company’s primary objective when managing capital is to safeguard the Project Company’s ability to continue as a going concern and to maximise the return to stakeholders. The Project Company’s capital structure is regularly reviewed and managed by the sole director of the Project Company. The Project Company is not subject to externally imposed capital requirements. To maintain or adjust capital structure, the Project Company may adjust dividend payment to shareholders or issue new shares. Adjustments will be made to the capital structure in light of changes in economic conditions affecting the Project Company, and the risk characteristics of the Project Company’s underlying assets.

The capital structure of the Project Company consists of debts, which includes accounts payable, accruals and other payables and lease liabilities and equity attributable to owners of the Project Company, comprising paid-in capital, capital reserve and accumulated losses. The Project Company’s risk management reviews the capital structure on a semiannual basis. As part of this review, the management considers the cost of capital and the risks associated with each class of capital.

— II-47 —

FINANCIAL INFORMATION OF THE TARGET GROUP

APPENDIX II

The net debt to equity ratio at the end of the Relevant Period is as follows:

Accounts payable Accruals and other payables Lease liabilities _Less:_Cash and cash equivalents Net cash Equity Net debt to equity ratio	As at 31 March 2020 RMB 4,458,715 21,614,931 293,570 (30,473,433) (4,106,217) 536,825,655 N/A

25. Notes to statement of cash flows

(a) Reconciliation of liabilities arising from financing activities:

At 6 January 2020 (date of incorporation) Financing cash flows: Repayment of principal portion of the lease liabilities Interest paid Advance from a shareholder Total changes from cash flows Non-cash changes: Addition of lease liabilities Interest expense Deemed capital contribution Total non-cash changes At 31 March 2020	Amount due to a shareholder RMB — — — 527,195,200 527,195,200 — — (527,195,200) (527,195,200) —	Lease liabilities RMB — (100,784) (1,216) — (102,000) 393,133 2,437 — 395,570 293,570

(b) Major non-cash transactions:

During the Relevant Period, the repayment of amount due to a shareholder of RMB527,195,200 has been waived and the waiver is accounted as deemed capital contribution from the shareholder.

26. Subsequent financial statements

No audited financial statements have been prepared by the Project Company in respect of any period subsequent to 31 March 2020.

— II-48 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

• (A) UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

Introduction

The following is an illustrative and unaudited pro forma consolidated statement of financial position, unaudited pro forma consolidated statement of comprehensive income and unaudited pro forma consolidated statement of cash flows of the Enlarged Group (the “ Unaudited Pro Forma Financial Information ”), which has been prepared by the directors of the Company in accordance with paragraph 4.29 of the Listing Rules and on the basis of the notes set out below for the purpose of illustrating the effect of the acquisition of the entire issued capital of Topper Genius Investments Limited (the “ Proposed Acquisition ”) on the Group, as if it had taken place on 30 September 2019 for the unaudited pro forma consolidated statement of financial position and as if it had taken place on 1 April 2018 for the unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated statement of cash flows.

The Unaudited Pro Forma Financial Information are prepared based on

• (a) the unaudited condensed consolidated statement of financial position of the Group as at 30 September 2019 as set out in the Company’s published interim report dated 24 December 2019;

• (b) the audited consolidated statement of comprehensive income and consolidated statement of cash flows of the Group for the year ended 31 March 2019 as set out in the Company’s published annual report dated 25 July 2019;

• (c) the audited consolidated statement of financial position of the Topper Group (as defined in Appendix II in the circular) and the Project Company as at 31 March 2020 which have been extracted from Appendix II to the circular; and

• (d) the unaudited pro forma adjustments relating to the Proposed Acquisition that are (i) directly attributable to the Proposed Acquisition and not relating to future events or decisions; and (ii) factually supportable.

The Unaudited Pro Forma Financial Information has been prepared by the directors of the Company for illustrative purpose only and is based on a number of assumptions, estimates, uncertainties and currently available information.

— III-1 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Accordingly, the Unaudited Pro Forma Financial Information does not purport to describe the actual financial position, financial performance and cash flows of the Enlarged Group that would have been attained has the Proposed Acquisition been completed as at 30 September 2019 or 1 April 2018, nor purport to predict the Enlarged Group’s future financial position, financial performance and cash flows.

The Unaudited Pro Forma Financial Information should be read in conjunction with the financial information of the Group as set out in the published interim report of the Company for the six months ended 30 September 2019, the published annual report of the Company for the year ended 31 March 2019 and other financial information included elsewhere in the Circular.

This Unaudited Pro Forma Financial Information has been prepared for illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the financial position, financial performance and cash flows of the Enlarged Group had the Proposed Acquisition been completed as at 30 September 2019 or 1 April 2018, where applicable, or any future date.

This Unaudited Pro Forma Financial Information has been prepared for the purpose of illustrating the effect of the Proposed Acquisition as if the group structure of the Target Group, in which the Target Company (as defined in Appendix II in the circular) had completed the acquisition of 35% equity interest of the Project Company, under the Proposed Acquisition had been in existence as at 30 September 2019 for the unaudited pro forma consolidated statement of financial position and as at 1 April 2018 for the unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated statement of cash flows.

Upon completion of the Proposed Acquisition, the Target Company will become a wholly-owned subsidiary of the Company and the financial statements of Target Group will be consolidated into the consolidated financial statements of the Group in accordance with the basis of consolidation stated in the note 4 as below.

— III-2 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

(1) Unaudited Pro Forma Consolidated Statement of Financial Position of the Enlarged Group

The Group as at 30 September 2019 HK$ Note 1 Non-current assets Property, plant and equipment 5,540,425 Investment properties 192,710,200 Goodwill 201,909 Intangible assets 496,752 Investment in a subsidiary — Deferred tax assets 832,320 Total non-current assets 199,781,606 Current assets Inventories 9,972,823 Properties under development — Trade and other receivables 102,135,657 Amounts due from non- controlling shareholders of subsidiaries 4,000 Amount due from a shareholder — Amounts due from related parties 3,247,365 Cash and bank balances 162,209,221 Total current assets 277,569,066 Total assets 477,350,672 Current liabilities Trade, bills and other payables 81,490,806 Contract liabilities 669,049 Amounts due to related parties 27,040,427 Bank and other borrowings 48,935,156 Convertible bonds 39,080,748 Lease liabilities 18,682,483 Current tax liabilities 542,536 Total current liabilities 216,441,205	Topper Group as at 31 March 2020 HK$ Note 2 — — — — — — — — — — — 48,200 — — 48,200 48,200 6,567 — — — — — — 6,567	The Project Company as at 31 March 2020 RMB Note 2 392,377 — — — — — 392,377 — 532,209,146 117,915 — — — 30,473,433 562,800,494 563,192,871 26,073,646 — — — — 193,257 — 26,266,903	The Project Company as at 31 March 2020 HK$ Note 3 429,437 — — — — — 429,437 — 582,476,903 129,052 — — — 33,351,684 615,957,639 616,387,076 28,536,331 — — — — 211,510 — 28,747,841	Pro forma adjustments HK$ HK$ HK$ Note 6 Note 7 Note 8 197,874,377 — (197,874,377) 1,255,000 (23,548,035) — (36,861,538) 1,255,000	The Enlarged Group HK$ 5,969,862 192,710,200 201,909 496,752 — 832,320
					200,211,043
					9,972,823 560,183,868 102,264,709 4,000 48,200 3,247,365 158,699,367
					834,420,332
					1,034,631,375
					111,288,704 669,049 27,040,427 48,935,156 39,080,748 18,893,993 542,536
					246,450,613

— III-3 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Non-current liabilities Convertible bonds Bank and other borrowings Lease liabilities Deferred tax liabilities Total non-current liabilities Total liabilities Net assets Capital and reserves attributable to owners of the Company Share capital Reserves Non-controlling interests Total equity	The Group as at 30 September 2019 HK$ Note 1 40,736,397 14,966,575 63,312,519 768,165 119,783,656 336,224,861 141,125,811 53,888,928 64,903,797 118,792,725 22,333,086 141,125,811	Topper Group as at 31 March 2020 HK$ Note 2 — — — — — 6,567 41,633 77,800 (36,167) 41,633 — 41,633	The Project Company as at 31 March 2020 RMB Note 2 — — 100,313 — 100,313 26,367,216 536,825,655 10,000,000 526,825,655 536,825,655 — 536,825,655	The Project Company as at 31 March 2020 HK$ Note 3 — — 109,788 — 109,788 28,857,629 587,529,447 11,141,000 576,388,447 587,529,447 — 587,529,447	Pro forma adjustments HK$ HK$ HK$ Note 6 Note 7 Note 8 40,000,000 (11,218,800) 121,012,839 (23,548,035) (554,059,245) 367,403,668	The Enlarged Group HK$ 40,736,397 14,966,575 63,422,307 768,165
						119,893,444
						366,344,057
						668,287,318
						93,888,928 184,661,636
						278,550,564 389,736,754
						668,287,318

— III-4 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

• (2) Unaudited Pro Forma Consolidated Statement of Comprehensive Income of the Enlarged Group

Revenue Other gains or losses, net Costs of inventories Depreciation on property, plant and equipment Operating lease payments Staff costs Other operating expenses Finance costs Loss before income tax expense Income tax expenses Loss for the year/period Other comprehensive income Items that may by reclassified subsequently to profit or loss Exchange differences arising on translating foreign operations Other comprehensive income for the year/period, net of tax Total comprehensive income for the year/period Total comprehensive income for the year/period attributable to: Owners of the Company Non-controlling interests	The Group Year ended 31 March 2019 to HK$ Note 1 81,438,154 9,766,908 (12,031,657) (5,020,743) (22,377,129) (16,154,858) (43,377,732) (6,496,826) (14,253,883) (744,760) (14,998,643) (343,959) (343,959) (15,342,602) (19,101,728) 3,759,126 (15,342,602)	Topper Group For the period from 11 July 2019 (date of incorporation) 31 March 2020 HK$ Note 2 — — — — — — (36,346) — (36,346) — (36,346) 179 179 (36,167) (36,167) — (36,167)	The Project Company For the period from 6 January 2020 (date of incorporation) to 31 March 2020 The Project Company For the period from 6 January 2020 (date of incorporation) to 31 March 2020 RMB HK$ Note 2 Note 3 — — 4,119 4,631 — — — — — — (69,030) (77,613) (304,634) (342,511) — — (369,545) (415,493) — — (369,545) (415,493) — (10,544,233) — (10,544,233) (369,545) (10,959,726) (129,341) (3,835,904) (240,204) (7,123,822) (369,545) (10,959,726)	Pro forma adjustments HK$	The Enlarged Group HK$ 81,438,154 9,771,539 (12,031,657) (5,020,743) (22,377,129) (16,232,471) (43,756,589) (6,496,826)
					(14,705,722) (744,760)
					(15,450,482) (10,888,013)
					(10,888,013)
					(26,338,495)
					(22,973,799) (3,364,696)
					(26,338,495)

— III-5 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

• (3) Unaudited Pro Forma Consolidated Statement of Cash Flows of the Enlarged Group

CASH FLOWS FROM OPERATING ACTIVITIES Loss before income tax expenses Adjustments for: Interest income Interest expenses Depreciation of property, plant and equipment Amortisation of intangible assets Gain on disposal of property, plant and equipment, net Impairment losses on trade and other receivables Loss/(gain) on disposal of subsidiaries, net Decrease in inventories Increase in properties under development Increase in trade and other receivables (Decrease)/increase in trade and other payables Interest received Tax paid Net cash used in operating activities	The Group Year ended 31 March 2019 to HK$ Note 1 (14,253,883) (154,119) 6,496,826 5,020,743 116,884 (2,494,989) 344,865 113,842 (4,809,831) 12,031,657 — (43,184,353) (14,078,028) (50,040,555) 154,119 (36,361) (49,922,797)	Topper Group For the period from 11 July 2019 (date of incorporation) 31 March 2020 HK$ Note 2 (36,346) — — — — — — — (36,346) — — — 6,746 (29,600) — — (29,600)	The Project Company For the period from 6 January 2020 (date of incorporation) to 31 March 2020 The Project Company For the period from 6 January 2020 (date of incorporation) to 31 March 2020 RMB HK$ Note 2 Note 3 (369,545) (415,493) (4,119) (4,632) — — — — — — — — — — — — (373,664) (420,125) — — (532,173,948) (598,342,713) (117,915) (132,576) 26,073,646 29,315,558 (506,591,881) (569,579,856) 4,119 4,632 — — (506,587,762) (569,575,224)	Pro forma adjustments Pro forma adjustments HK$ HK$ Note 5 Note 6 1,255,000	The Enlarged Group HK$ (14,705,722) (158,751) 6,496,826 5,020,743 116,884 (2,494,989) 344,865 113,842
					(5,266,302) 12,031,657 (593,342,713) (43,316,929) 16,499,276
					(618,395,011) 158,751 (36,361)
					(618,272,621)

— III-6 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of subsidiary, net of cash acquired Disposal of subsidiaries, net of cash disposed Release of pledged bank deposits Decrease in amounts due form related parties Proceeds from disposal of property, plant and equipment Purchase of property, plant and equipment Net cash generated from/(used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES Increase in bank borrowings Proceeds from issue of shares Repayment of bank borrowings Advance from a shareholder Advance to a shareholder Repayment of principal portion of the lease liabilities Interest paid Proceed from issuance of convertible bonds	The Group Year ended 31 March 2019 to HK$ Note 1 1,126,388 (29,037) 2,300,000 2,299,168 2,655,000 (4,910,757) 3,440,762 43,812,912 — (28,085,200) — — — (1,707,417) 41,831,080	Topper Group For the period from 11 July 2019 (date of incorporation) 31 March 2020 HK$ Note 2 — — — — — — — — 77,800 — — (48,200) — — —	The Project Company For the period from 6 January 2020 (date of incorporation) to 31 March 2020 The Project Company For the period from 6 January 2020 (date of incorporation) to 31 March 2020 RMB HK$ Note 2 Note 3 — — — — — — — — — — (32,005) (35,984) (32,005) (35,984) — — 10,000,000 11,243,367 — — 527,195,200 592,744,923 — — (100,784) (113,316) (1,216) (1,367) — —	Pro forma adjustments Pro forma adjustments HK$ HK$ Note 5 Note 6 (36,861,538)	The Enlarged Group HK$ (35,735,150) (29,037) 2,300,000 2,299,168 2,655,000 (4,946,741)
					(33,456,760)
					43,812,912 11,321,167 (28,085,200) 592,744,923 (48,200) (113,316) (1,708,784) 41,831,080

— III-7 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Net cash generated from financing activities Increase in cash and cash equivalents Cash and cash equivalents at beginning of year/period Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of year/period	The Group Year ended 31 March 2019 to HK$ Note 1 55,851,375 9,369,340 111,865,492 (888,092) 120,346,740	Topper Group For the period from 11 July 2019 (date of incorporation) 31 March 2020 HK$ Note 2 29,600 — — — —	The Project Company For the period from 6 January 2020 (date of incorporation) to 31 March 2020 The Project Company For the period from 6 January 2020 (date of incorporation) to 31 March 2020 RMB HK$ Note 2 Note 3 537,093,200 603,873,607 30,473,433 34,262,399 — — — (910,716) 30,473,433 33,351,683	Pro forma adjustments Pro forma adjustments HK$ HK$ Note 5 Note 6	The Enlarged Group HK$ 659,754,582
					8,025,201 111,865,492 (1,798,808)
					118,091,885

Notes:

1. The amounts are extracted from the unaudited condensed consolidated statement of financial position of the Group as at 30 September 2019 included in 2019 published interim report of the Company (“ Interim Condensed Financial Statements ”) and the audited consolidated statement of profit or loss and other comprehensive income and the audited consolidated statement of cash flows of the Group for the year ended 31 March 2019 included in 2019 published annual report of the Company (“ Annual Financial Statements ”).

2. The amounts are extracted from the consolidated statement of financial position of Topper Group as at 31 March 2020 and the statement of financial position of the Project Company as at 31 March 2020, the consolidated statement of profit or loss and other comprehensive income and the consolidated statement of cash flows of Topper Group for the period from 11 July 2019 (date of incorporation) to 31 March 2020, and the statement of profit or loss and other comprehensive income and the statement of cash flows of the Project Company for the period from 6 January 2020 (date of incorporation) to 31 March 2020 are set out in Appendix II.

3. The functional currency and the presentation currency of the the Project Company are Renminbi (“ RMB ”). For illustrative purpose, the statement of financial position of the Project Company as at 31 March 2020 set out in Appendix II to this circular is translated into HK$, the presentation currency of the Group, at the exchange rate of RMB1 to HK$1.094. The statement of comprehensive income and the statement of cash flows of the Project Company for the period from 6 January 2020 (date of incorporation) to 31 March 2020 set out in Appendix II are translated into HK$ at the exchange rate of RMB1 to HK$1.124.

— III-8 —

APPENDIX III UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

1. As at 31 March 2020, the acquisition 35% of the Project Company by the Target Company has not been completed. The unaudited pro forma financial information is prepared as if the group structure for Target Group under the Proposed Acquisition had been in existence as at 30 September 2019 for the unaudited pro forma consolidated statement of financial position and as at 1 April 2018 for the unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated statement of cash flows.

Upon Completion of the Proposed Acquisition of entire issued share capital of the Target Company, the Target Company will become a wholly-owned subsidiary of the Company and the Group would indirectly owned 35% equity interests of the Project Company. The financial statements of the Target Group will be consolidated into the financial statements of the Group based on the shareholders’ agreement signed between the Target Group and the other two shareholders of the Project Company as below (the “ Shareholders’ Agreement ”).

The respective board of director of the Project Company consists of 1 director and the Group is entitled to appoint the director in the pursuant to the Shareholders’ Agreement. The Group also entitled to appoint the supervisor and chief executive officer. Ordinary resolutions are voted by simple majority. As all shareholders of the Project Company have agreed that such director and chief executive officer will be the persons nominated by the Group pursuant to the Shareholders’ Agreement, it would be in breach of the Shareholders’ Agreement if the shareholders of the Project Company do not pass the resolution for such appointment. Other shareholders of the Project Company do not have veto rights to the nomination of director and chief executive officer by the Project Company. Accordingly, the Group presents the following elements of controls over the Project Company:

• (i) power over the investee,

• (ii) exposure, or rights to variable returns from the investee, and

• (iii) the ability to use tis power to affect those variable returns.

The Project Company will become a subsidiary of the Group upon Completion of the Proposed Acquisition.

1. The adjustment represents the Consideration and the estimated legal and professional expenses and other direct expenses directly attributable to the Proposed Acquisition. Pursuant to the Equity Sale and Purchase Agreement, the Consideration of HK$196,861,538 (equivalent to approximately RMB179,144,000) shall be payable by way of:

2. (i) cash payment of HK$36,861,538 (equivalent to RMB33,544,000); and

3. (ii) issue and allotment of Consideration Shares of 800,000,000 Shares on the Completion Date.

The pro forma financial information are prepared on the basis of early adoption of amendments to Hong Kong Financial Reporting Standard 3 (Revised) “Business Combination” (“ HKFRS 3 ”) “Definition of Business”. Pursuant to the amendments of HKFRS 3, the acquisition to be considered a business, it would have to include an input and a substantive process that together significantly contribute the ability to create outputs. An entity may apply the concentration test to assess the acquisition whether an

— III-9 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

acquired set of activities and assets is not a business. If the concentration test is met, the set of activities and assets is determined not to be a business and no further assessment is needed. As the Target Group did not have any inputs and process to its business and substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset, the Proposed Acquisition of the Target Group is accounted for as acquisition of asset. The Company shall identify and recognise the individual identifiable assets acquired and liabilities assumed. The Consideration shall be allocated to the individual identifiable assets and liabilities on the basis of their relative fair values at the Completion Date of the Proposed Acquisition of the Target Group. The Proposed Acquisition does not give rise to goodwill.

The estimated legal and professional fees and other direct expenses directly attributable to the Proposed Acquisition of approximately HK$1,255,000 would be part of the cost of the assets acquired. This adjustment is not expected to have a continuing financial effect on the Enlarged Group.

1. As the Target Group is principally engaged in property developments, there is no other associated services and substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset. The Directors are of opinion that the Proposed Acquisition does not constitute a business combination for accounting purposes and is in fact a purchase of net assets in nature under which the fair value of the Consideration is the fair value of net assets purchased. Upon Completion, the fair value of the net assets would be adjusted as follows:

Property, plant and equipment Properties under development Other receivables Amount due from shareholder Cash and bank balances Trade, bills and other payable Lease liabilities Non-controlling interests of the Project Company after the proforma adjustments (65%) Net identifiable assets acquired by the Group Consideration for the Proposed Acquisition: — Cash — Consideration shares*	Topper Group HK$ — — — 48,200 — (6,567) — 41,633	The Project Company HK$ 429,437 582,476,903 129,052 — 33,351,684 (28,536,331) (321,298) 587,529,447	The Target Group Proforma adjustments HK$ HK$ HK$ Note 5 Note 7 429,437 582,476,903 1,255,000 (23,548,035) 129,052 48,200 33,351,684 (28,542,898) (321,298) 587,571,080	Fair value of the net assets of the Target Group HK$ 429,437 560,183,868 129,052 48,200 33,351,684 (28,542,898) (321,298)
				565,278,045
				367,403,668
				197,874,377
				36,861,538 161,012,839
				197,874,377

— III-10 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

• The fair value of 800,000,000 Shares are determined based on the fair value of assets acquired by the Group as at 31 March 2020 after deducting the cash consideration paid in accordance with HKFRS 2.

800,000,000 Shares of HK$0.05 each of HK$40,000,000 would be accounted as share capital of the Company and the remaining balance of HK$121,012,839 would accounted as part of the reserve of the Company.

1. HKFRS 3 states that when an entity acquires a group of assets or net assets that is not a business, the acquirer allocates the cost of the group between the individual identifiable assets and liabilities in the group based on their relative fair values at the date of acquisition. Such a transaction or event does not give rise to goodwill in accordance with paragraph 2(b) of HKFRS 3. As indicated in the valuation report issued by APAC Asset Valuation and Consulting Limited, the fair value of the properties under development was RMB512,000,000 (equivalent to HK$560,183,868) as at 31 March 2020. The carrying amount of the properties under development is higher than its fair value and accordingly, a fair value loss of HK$23,548,035 would been made to the Unaudited Pro Forma Financial Information.

In accordance with HKFRS 3, the fair value of the Target Group’s properties under development should be measured at its fair value on the completion date of the Proposed Acquisition. As such, the fair value of the Target Group’s properties under development as at the Completion Date of the Proposed Acquisition may be different from their fair values used in the preparation of the unaudited pro forma financial information presented above. The actual fair value adjustment over the properties under development, if any, may be different from the estimated amount as presented above.

1. The adjustment represents the elimination of the share capital and pre-acquisition reserves of the Target Group of approximately HK$11,218,800 and HK$554,059,245 respectively.

— III-11 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

(B) REPORT ON UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

The following is the text of a report, prepared for the purpose of inclusion in this circular, received from the reporting accountants of the Company, BDO Limited, Certified Public Accountants, Hong Kong

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

To the directors of China Tangshang Holdings Limited

We have completed our assurance engagement to report on the compilation of unaudited pro forma financial information of China Tangshang Holdings Limited (the “ Company ”) and its subsidiaries (collectively the “ Group ”) and Topper Genius Investments Limited (the “ Target Company ”) and its subsidiaries including Dongguan Huachuangwen Land Ltd. (the “ Project Company ”) (collectively the “ Target Group ”) (collectively the “ Enlarged Group ”) prepared by the directors of the Company for illustrative purposes only. The unaudited pro forma financial information consists of the unaudited pro forma consolidated statement of financial position as at 30 September 2019, the unaudited pro forma consolidated statement of comprehensive income and the unaudited pro forma consolidated statement of cash flows of the Group for the year ended 31 March 2019 and related notes as set out on pages III-3 to III-11 of Appendix III of the Company’s circular dated 22 June 2020 (the “ Circular ”) in connection with the very substantial acquisition and connected transactions in relation to the acquisition of the entire issued share capital of Topper Genius Investments Limited (the “ Proposed Acquisition ”). The applicable criteria on the basis of which the directors of the Company have compiled the unaudited pro forma financial information are described on page III-1 to III-2 of Appendix III of the Circular.

The unaudited pro forma financial information has been compiled by the directors of the Company to illustrate the impact of the Proposed Acquisition on the Company’s consolidated financial position as at 30 September 2019 as if the

— III-12 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

Proposed Acquisition had taken place at 30 September 2019, and on the Company’s consolidated financial performance and cash flows for the year ended 31 March 2019 as if the Proposed Acquisition had been taken place at 1 April 2018 respectively. As part of this process, information about the consolidated financial position has been extracted by the directors of the Company from the Company’s unaudited condensed consolidated financial statements for the six months ended 30 September 2019, on which no audit or review report has been published, and information about the Company’s consolidated financial performance and cash flows has been extracted by the directors of the Company from the Company’s consolidated financial statements for the year ended 31 March 2019, on which an audit report has been published.

Directors’ Responsibility for the Unaudited Pro Forma Financial Information

The directors of the Company 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 ”).

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 “Quality Control for Firms that Perform Audits and Reviews of Financial Statements, and Other Assurance and Related Services Engagements” 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 Accountants’ 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

— III-13 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

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 accountants plan and perform procedures to obtain reasonable assurance about whether the directors of the Company 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 Proposed Acquisition at 30 September 2019 or 1 April 2018 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 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 unaudited 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.

— III-14 —

UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE GROUP

APPENDIX III

The procedures selected depend on the reporting accountants’ judgment, having regard to the reporting accountants’ understanding of the nature of the entity, 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 Company; 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.

BDO Limited

Certified Public Accountants

Hong Kong

22 June 2020

— III-15 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

Set out below is the management discussion and analysis of the Group for each of the three years ended 31 March 2017, 2018 and 2019 and for the six months ended 30 September 2019.

For the year ended 31 March 2017

FINANCIAL REVIEW

Consolidated results

For the year ended 31 March 2017, the Group recorded revenue of approximately HK$81.3 million compared to approximately HK$112.8 million for the last financial year, representing a decrease of about 27.9%, and loss of approximately HK$94.1 million compared to approximately HK$133.8 million for the last financial year, representing a decrease of about 29.7%. The Group had a decrease in the loss for the year ended 31 March 2017 primarily because of the absence of (i) the impairment loss on trade and other receivable and goodwill of approximately HK$61.3 million, and (ii) the gain of disposal on available-for sale investments of approximately HK$14.3 million, which were recognised in the last financial year.

BUSINESS REVIEW

Licence fee collection and provision of intellectual property enforcement services business

On 8 May 2006, (i) China Music Video Broadcast (Shenzhen) Company Limited（中 音傳播（深圳）有限公司）(“ China Music ”), an indirect non-wholly owned subsidiary of the Company, and MVCM Association entered into a copyright co-operation agreement; and (ii) China Music, Song Labs Co, Ltd （北京天語同聲信息技術有限公司）(“ Song Labs ”), an indirect wholly-owned subsidiary of the Company, and the MVCM Association entered into a copyright business operation cooperation agreement (together with their supplemental agreements, (the “ Copyright Co-operation Agreements ”). Pursuant to the Copyright Co-operation Agreements, the MVCM Association, China Music and Song Labs have set up a market operation team in the PRC to manage and operate the business of the licences of copyright to karaoke music products in the PRC, and China Music and Song Labs are entitled to certain portion of the licence fees in the PRC. Under the Copyright Cooperation Agreements, the MVCM Association takes the role as the sole market manager and China Music and Song Labs together take the role as the sole market operator. Pursuant to the Copyright Co-operation Agreements, the MVCM Association is required to

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

collect the licence fees from the karaoke operators and distribute and pay certain portion of such licence fees to China Music and Song Labs on a weekly basis as operating fees (“ Operating Fees ”).

On 1 June 2016, China Music and Song Labs have initiated the Litigation against MVCM Association in the PRC court claiming for:

• (a) the payment of (i) outstanding Operating Fees of approximately RMB34,000,000 (equivalent to approximately HK$40,800,000) by MVCM Association to China Music and Song Labs pursuant to the Copyright Co-operation Agreements which represents the outstanding Operating Fees up to the second quarter of 2015 (the “ Outstanding Operating Fees ”); and (ii) the default interest of approximately RMB2,000,000 (equivalent to approximately HK$2,400,000), if calculated up to 31 May 2016;

• (b) a declaration that the unilateral termination of one of the Copyright Co-operation Agreements by MVCM Association was invalid and that MVCM Association should continue to perform its obligations under the Copyright Co-operation Agreements; and

• (c) the costs of the Litigation to be borne by MVCM Association.

On 1 June 2016, the Chaoyang People’s Court notified China Music and Song Labs that the application for the Litigation was accepted.

As disclosed in the Company’s announcement dated 19 July 2016, the Group received a counter claim (the “ Counter Claim ”) filed by MVCM Association (the original defendant to the Litigation) with the Chaoyang People’s Court against China Music and Song Labs. Pursuant to the Counter Claim, MVCM Association requested the Chaoyang People’s Court to declare that the fifth supplemental agreement dated 16 June 2014 (the “ Fifth Supplemental Agreement ”) in relation to the payment of Outstanding Operating Fees under the Copyright Cooperation Agreements be invalidated on the basis that, among other things:

• (i) MVCM Association considered the core value of the joint cooperation among MVCM Association, China Music and Song Labs had lapsed;

• (ii) the payment of the Operating Fees is in breach of the constitutional documents and distribution plan of MVCM Association; and

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

• (iii) the entering into of the Fifth Supplemental Agreement did not comply with the relevant internal approval procedures of MVCM Association.

The Counter Claim was accepted by the Chaoyang People’s Court on 13 July 2016. The Litigation is in a preliminary stage and the Company’s PRC legal counsel is currently taking all necessary steps to protect the Company’s interests. For details in relation to the Litigation and the Counter Claim, please also refer to the Company’s announcements dated 12 November 2015, 23 May 2016, 2 June 2016 and 19 July 2016.

Accordingly, no Operating Fees were recognised for the Group’s licence fee collection and provision of intellectual property enforcement services business for the years ended 31 March 2017 and 2016, pending the results of the Litigation.

Exhibition-related business

China Resources Advertising & Exhibition Company Limited, a direct wholly-owned subsidiary of the Company (together with its subsidiaries, the “ CRA Group ”) is principally engaged in exhibition-related business. The CRA Group has acted as an organizer and contractor for exhibitions and meeting events held in Hong Kong. It has developed over 20 years of relationship with the Hong Kong Trade Development Council (“ HKTDC ”) and has become one of the major agents organising trade fairs for PRC groups whilst most of which were co-organised with the HKTDC. The clients of the CRA Group are primarily PRC based including numerous sub-councils of the China Council for the Promotion of International Trade in the PRC. For the year ended 31 March 2017, this business segment recorded revenue of approximately HK$42.7 million compared to approximately HK$54.6 million for the last financial year, representing a decrease of about 21.8%, and loss of approximately HK$4.1 million compared to approximately HK$2.5 million for the last financial year, representing an increase of about 64.0%. The drop in revenue was mainly due to the decrease in the number of participating exhibitors by 25%.

Property sub-leasing, development and investment business

For the year ended 31 March 2017, this business segment recorded revenue of approximately HK$32.4 million compared to approximately HK$44.2 million for the last financial year, representing a decrease of about 26.7%, and recorded a loss of approximately HK$1.2 million as compared to profit of approximately HK$2.8 million for the last financial year. The drop in the revenue was mainly due to the discontinuance in sub-leasing certain properties in the PRC.

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MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

Money lending

With a money lenders licence granted previously and the completion of the open offer on 2 September 2016, the Group continued to conduct money lending business in Hong Kong and recognised interest income of approximately HK$3.5 million during the year (2016: HK$0.8 million).

Sludge and sewage treatment

On 30 September 2016, 深圳市文地多媒體技術有限公司 (Shenzhen Wendi Multimedia Technology Company Limited), the Company’s indirect wholly-owned subsidiary, entered into an equity transfer agreement (the “ Equity Transfer Agreement ”) with 重 慶宸惠物流有限公司 (Chongqing Chen Hui Logistics Limited), a party independent of the Company and its connected persons, in respect of a disposal of 51% equity interests in Great Research at a consideration of RMB13,800,000 (equivalent to approximately HK$16,000,000).

In view of (i) the subsequent failure in re-negotiation for reinitiating the certain potential projects and (ii) further future financing needs thereof, the Directors expect the future profits generated by the Great Research and its subsidiaries (the “ Great Group ”) to be minimal, and consider that the Suzhou Disposal will enable the Group to realise its investment in the Great Group and to focus on its existing business and business development.

The Suzhou Disposal is conditional on (i) the signing of the Equity Transfer Agreement; and (ii) all necessary approvals and waivers having been obtained in accordance with the Rules Governing the Listing of Securities (the “ Listing Rules ”) of The Stock Exchange of Hong Kong Limited (the “ Stock Exchange ”). The waiver from the strict compliance with Rule 14.92 of the Listing Rules in respect of the Suzhou Disposal was granted by the Stock Exchange on 6 October 2016.

On 23 January 2017, the parties entered into a supplemental agreement (the “ Supplemental Agreement ”) to the Equity Transfer Agreement pursuant to which the parties agreed to (i) amend the completion date of the registration of the equity transfer to within 9 months after the full payment of the Consideration by the Purchaser, instead of the original time frame of within 3 months; and (ii) negotiate into entering further supplemental agreement if the registration of the equity transfer cannot be completed within the newly agreed time frame as stipulated in (i) above.

— IV-4 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

Upon completion, the Great Group will cease to be subsidiaries of the Company and the Group would no longer have any interest in sludge and sewage treatment business. For details in relation to the Suzhou Disposal and the Supplemental Agreement, please refer to the Company’s announcements dated 30 September 2016 and 23 January 2017.

Liquidity and financial resources

As at 31 March 2017, the Group had bank borrowings of approximately HK$51.4 million (2016: HK$68.7 million). The gearing ratio of the Group as at 31 March 2017 was 36.5% compared with 58.0% as at 31 March 2016. Such ratio was calculated with reference to the bank borrowings over the Company’s equity attributable to owners of the Company. As at 31 March 2017, the Group had net current assets of approximately HK$2.1 million (2016: net current liabilities of approximately HK$45.3 million). The current ratio of the Group as at 31 March 2017 was 1.0 compared with 0.8 as at 31 March 2016.

The maturity profile of the Group’s bank borrowings is set out as follows:

Repayable Within one year After one year but within two years	2017 HK$ Million 51.4 — 51.4	2016 HK$ Million 50.7 18.0
		68.7

The carrying amounts of all the Group’s bank loans were denominated in RMB except for certain loan balances with an aggregate amount of HK$30.0 million as at 31 March 2017 which were denominated in Hong Kong dollar. All of the Group’s bank loans were charged at fixed interest rates except for loan balance of HK$30 million as at 31 March 2017 which was charged at floating interest rate. The bank loans carry interest rates at 2.76% to 6.5% per annum. As at 31 March 2017, the total amount of unutilised bank borrowing facility is HK$30 million (2016: nil).

The revenue of the Group, being mostly denominated in Renminbi and Hong Kong dollar, matches the currency requirement of the Group’s expenses while other foreign currencies were immaterial.

— IV-5 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

During the year ended 31 March 2017, no financial instrument was entered into by the Group used for hedging purpose. The Group was not exposed to any exchange rate risk or any related hedges.

Fund raising activities

During the year ended 31 March 2017, the Group completed the following fund raising exercise to strengthen its financial position and raised the gross proceeds of approximately HK$107.8 million, with the net proceeds of approximately HK$104.1 million. Details of which are set out as follows:

	Description of		Actual use of	Unutilised
Date of	fund raising	Intended use of	proceeds as at 31	amount as at 31
announcement	activities	proceeds	March 2017	March 2017
16 May 2016	Issue of	(i) Approximately	(i) Approximately	(i) Approximately
	359,259,523	HK$74.8	HK$74.0	HK$0.8
	new Shares at	million for	million	million
	the subscription	conducting the
	price of	money lending	(ii) Approximately	(ii) Approximately
	HK$0.30 per	business of the	HK$21.8	HK$7.5
	Share on the	Group in Hong	million has	million
	basis of one	Kong	been utilised
	offer share		as intended
	for every two	(ii) Approximately
	existing Shares	HK$29.3
		million for
		general
		working
		capital of the
		Group

— IV-6 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

Treasury policies

The Group adopts conservative treasury policies in cash and financial management. The Group’s treasury activities are centralised in order to achieve better risk control and minimise cost of funds. Cash is generally placed in short-term deposits with majority denominated in Hong Kong dollar, Renminbi or US dollar. The Group’s liquidity and financing requirements are frequently reviewed. In anticipating new investments or maturity of bank borrowings, the Group will consider new financing while maintaining an appropriate level of gearing.

Charges

As at 31 March 2017, certain bank deposits of the Group in the aggregate amount of RMB30.0 million and HK$2.3 million were pledged to secure the banking and credit facilities of the Group respectively.

As at 31 March 2017, certain bank loans of the Group in the total amount of RMB19 million were secured by personal and corporate guarantees provided by Mr. Yang Lei (a director of certain subsidiaries of the Company), his spouse and a company beneficially owned by Mr. Yang Lei and his spouse (the “ Related Company ”) and certain assets of Mr. Yang Lei, his spouse and, a related party.

Nanjing Yinkun Investment Corporation*（南京垠坤投資實業有限公司）, an indirect nonwholly owned subsidiary of the Company, provided the guarantee in respect of a loan facility for the principal amount of up to RMB35.0 million provided to an independent third party from a financial institution in the PRC. The estimated fair value of the financial guarantee is HK$nil which was arrived on the basis of valuation carried out by APAC for the year ended 31 March 2017.

Save as disclosed above, the Group did not have any charges on assets as at 31 March 2017.

Contingent liabilities

As at 31 March 2017, the Group had no material contingent liabilities.

— IV-7 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

Emolument policy

As at 31 March 2017, the Group employed a total number of 139 employees. The remuneration of the employees of the Group amounted to approximately HK$39.4 million for the year ended 31 March 2017 (31 March 2016: HK$47.1 million). The Group remunerates its employees based on their performance, experience and prevailing industry practices. The emoluments of the Directors and senior management of the Company are decided by the remuneration committee of the Company, having regard to the Company’s operating results, individual performance and comparable market statistics.

The Group periodically reviews its remuneration package in order to attract, motivate and retain its employees. Discretionary bonuses are rewarded to Directors and employees based on the Group’s operating results and their performance.

Further, the Company has also adopted a share option scheme for the primary purpose of providing incentives or rewards to any Director, employee and other eligible participant who made significant contribution to the Group. The Group also provides external training courses to its staff to improve their skills and services on an ongoing basis.

Significant investments held, material acquisitions and disposals of subsidiaries, associates and joint ventures, and future plans for material investments or capital assets

Save as the disposal of the Great Group, there were no other significant investments held, no material acquisitions or disposals of subsidiaries, associates and joint ventures during the year ended 31 March 2017.

Outlook

During the year, the Company introduced a new controlling shareholder with the acquisition by Grand Nice International Limited (a company owned by Mr. Chen Weiwu, an executive Director and the Chairman of the Company) of a majority stake of approximately 53.8% interest in the Company and introduced new members to our management team and Board of Directors, who are highly experienced in the real estate development industry in China and possess with significant resources and networks in China which the Company expects to be able to leverage for its future development in the property sub-leasing, development and investment business sector. Further details of the change in controlling shareholders are disclosed in the announcements dated 25 October 2016 and 23 January 2017.

— IV-8 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

The Board was conducting reviews on the business operations and financial position of the Group for the purpose of formulating suitable business plans and strategies for the future business development of the Group. Subject to the results of the reviews, and should suitable investment or business opportunities arise, the Board may consider acquisition of assets and/ or business by the Group in order to enhance its financial performance as well as value to the shareholders of the Company in the long run.

Currency risk

The Group mainly operates in Hong Kong and the PRC with most of the transactions settled in their respective functional currencies in which the group entities operate. Therefore the Group does not have significant exposure to risk resulting from changes in foreign currency exchange rates.

For the year ended 31 March 2018

FINANCIAL REVIEW

Consolidated results

For the year ended 31 March 2018, the Group recorded revenue of approximately HK$81.3 million compared to approximately HK$78.7 million for the last financial year, representing an increase of about 3.3%, and loss for the year ended 31 March 2018 of approximately HK$13.4 million compared to approximately HK$94.1 million for the last financial year, representing a decrease of about 85.8%. The Group had a substantially reduction in the loss for the year ended 31 March 2018 as compared to last financial year primarily because of: (i) net gain attribute to the completion of disposal of subsidiaries of the Company; and (ii) decrease in administration expenses in relation of reduction in staff costs (including directors’ emolument), rental expenses and legal and professional fees.

BUSINESS REVIEW

Exhibition-related business

China Resources Advertising & Exhibition Company Limited, a direct wholly-owned subsidiary of the Company (together with its subsidiaries, the “ CRA Group ”) is principally engaged in exhibition-related business. The CRA Group has acted as an organizer and contractor for exhibitions and meeting events held in Hong Kong. It has developed over 20 years of relationship with the Hong Kong Trade Development Council (“ HKTDC ”) and

— IV-9 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

has become one of the major agents organising trade fairs for PRC groups whilst most of which were co-organised with the HKTDC. The clients of the CRA Group are primarily PRC based including numerous sub-councils of the China Council for the Promotion of International Trade in the PRC. For the year ended 31 March 2018, this business segment recorded revenue of approximately HK$39.4 million compared to approximately HK$42.7 million for the last financial year, representing a decrease of about 7.7%. The drop in revenue was mainly due to the decrease in number of events participants. The loss for the financial year of approximately HK$2.7 million compared to approximately HK$4.1 million for the last financial year, representing a decrease of about 34.1%.

Property sub-leasing, development and investment business

For the year ended 31 March 2018, this business segment recorded revenue of approximately HK$35.8 million compared to approximately HK$32.4 million for the last financial year, representing a increase of about 10.5%, the rise in revenue was mainly due to the increase in rent for new tenants and renewal tenants in sub-leasing certain properties in the PRC. It recorded loss for the financial year of approximately HK$0.4 million as compared to loss of approximately HK$1.2 million for the last financial year.

Money lending

During the year, the Group conducted money leading business in Hong Kong and recognised interest income for approximately HK$2.2 million during the year (2017: HK$3.5 million).

Liquidity and financial resources

As at 31 March 2018, the Group had bank borrowings, bills payables and convertible bonds in total of approximately HK$98.1 million (2017: HK$51.4 million). The gearing ratio of the Group as at 31 March 2018 was 87.4% compared with 36.5% as at 31 March 2017. Such ratio was calculated with reference to the bank borrowings, bills payables and convertible bonds over the Company’s equity attributable to owners of the Company. As at 31 March 2018, the Group had net current assets of approximately HK$85.1 million (2017: net current assets of approximately HK$2.1 million). The current ratio of the Group as at 31 March 2018 was approximately 1.5 compared with 1.0 as at 31 March 2017.

— IV-10 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

The maturity profile of the Group’s bank borrowings is set out as follows:

	2018	2017
	HK$ Million	HK$ Million
Repayable
Within one year	30.0	51.4

The carrying amounts of all the Group’s bank borrowings were denominated in RMB. All of the Group’s bank borrowings balance of approximately HK$30.0 million as at 31 March 2018 which was charged at a floating interest rate. The bank borrowings carry interest rates ranged from 5.66% to 6.50% (2017: 2.76% to 6.50%) per annum. As at 31 March 2018, no unutilised bank borrowing facility was remained (2017: HK$30 million).

The revenue of the Group, being mostly denominated in Renminbi and Hong Kong dollar, matches the currency requirement of the Group’s expenses while other foreign currencies were immaterial. During the year ended 31 March 2018, no financial instrument was entered into by the Group used for hedging purpose. The Group was not exposed to any exchange rate risk or any related hedges.

Fund raising activities

During the year ended 31 March 2018, the Group completed the following fund raising exercise to strengthen its financial position and raised the gross proceeds of approximately HK$46.3 million, with the net proceeds of approximately HK$46.1 million after deduction of issuance expenses. Details of which are set out as follows:

	Description of		Actual use of	Unutilised
Date of	fund raising	Intended use of	proceeds as at	amount as at
announcement	activities	proceeds	31 March 2018	31 March 2018
26 July 2017	Issue of	Approximately	Approximately	Approximately
	convertible	HK$46.1	HK$11.8	HK$34.3
	bonds in an	million for	million	million
	aggregate	general working
	principal	capital of the
	amount of	Group
	HK$46,341,960

— IV-11 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

Charges

As at 31 March 2018, all of the bank borrowings of the Group in the total amount of HK$30.0 million were secured by personal and corporate guarantees provided by Mr. Yang Lei, a director of certain subsidiaries of the Company, his spouse and a related company, which is beneficially owned by Mr. Yang Lei and his spouse (the “ Related Company and certain assets of Mr. Yang Lei, his spouse and a related party.

On 25 November 2015, 南京垠坤投資實業有限公司 (Nanjing Yinkun Investment Corporation Co. Ltd.), an indirect non-wholly owned subsidiary of the Company, provided the guarantee in respect of a loan facility for the principal amount of up to RMB35 million provided to an independent third party from a financial institution in the PRC. The amount under the loan facility has been fully repaid on 21 November 2017. On 13 September 2017, 南京垠坤投資實業有限公司 (Nanjing Yinkun Investment Corporation Co. Ltd.) and 南京創意東八區科技有限責任公司 (Nan Jing Chuang Yi Dong Ba Qu Technology Development Co., Ltd.*), two indirect non-wholly owned subsidiaries of the Company, provided the guarantees in respect of a loan facility for the principal amount of up to RMB40 million provided to an independent third party from a financial institution in the PRC. Details of the guarantee have been set out in the Company’s announcement dated 27 November 2017.

Save as disclosed above, the Group did not have any charges on assets as at 31 March 2018.

Contingent liabilities

As at 31 March 2018, the Group had no material contingent liabilities.

Emolument policy

As at 31 March 2018, the Group employed a total number of 85 (2017: 139) employees. The remuneration of the employees of the Group for continuing operations is amounted to approximately HK$22.4 million for the year ended 31 March 2018 (2017: HK$35.8 million). The Group remunerates its employees based on their performance, experience and prevailing industry practices. The emoluments of the Directors and senior management of the Company are decided by the remuneration committee of the Company, having regard to the Company’s operating results, individual performance and comparable market statistics.

— IV-12 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

The Group periodically reviews its remuneration package in order to attract, motivate and retain its employees. Discretionary bonuses are rewarded to the Directors and employees based on the Group’s operating results and their performance.

Further, the Company has also adopted a share option scheme for the primary purpose of providing incentives or rewards to any the Director, employee and other eligible participant who made significant contribution to the Group. The Group also provides external training courses to its staff to improve their skills and services on an ongoing basis.

Significant investments held, material acquisitions and disposals of subsidiaries, associates and joint ventures, and future plans for material investments or capital assets

On 18 May 2017, the Group disposed on-market a total of 13,500,000 ordinary shares of Leyou Technologies Holdings Limited (“ Leyou ”) (Stock code: 1089), a company incorporated in Cayman Islands with limited liabilities and the ordinary shares of which are listed on the Main Board of The Stock Exchange, through a series of transactions on market conducted during the period from 18 April 2017 to 17 May 2017, at an average price of HK$1.594 per ordinary share of Leyou for an aggregate gross sale proceeds of approximately HK$21,523,838 (excluding transaction costs).

During the year, the Company, as the vendor, entered into a framework disposal agreement (the “ Framework Disposal Agreement ”), pursuant to which the Company has conditionally agreed to sell, and the Purchaser has conditionally with True Glory Ventures Limited (the “ Purchaser ”) agreed to purchase the entire equity interests of a number of subsidiaries (the “ Target Companies ”), for a total cash consideration of HKD500,000. The completion of the disposal took place on 31 March 2018 in accordance with the terms and conditions of the Framework Disposal Agreement. Following the completion, those subsidiaries will no longer be held by the Group. Details of the Disposal were disclosed in the Company’s announcements dated 9 February 2018, 4 March 2018 and 31 March 2018.

Save as disclosed above, there was no other significant investments held, no material acquisitions or disposals of subsidiaries, associates or joint ventures during the year ended 31 March 2018.

— IV-13 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

Outlook

Looking ahead, the Directors expected the business environment to remain challenging, but are cautiously optimistic towards the overall outlook of the Group. The Group has continued the efforts to consolidate and realign its businesses to enable the Group to achieve improvements in its financial position. The Group was working towards to attain a sustainable growth, and at the same time the Group was also continuously exploring and identifying other suitable investment opportunities (if any) to enhance its earning potential so as to enhance shareholder value as a whole.

Currency risk

The Group mainly operates in Hong Kong and the PRC with most of the transactions settled in their respective functional currencies in which the group entities operate. Therefore the Group does not have significant exposure to risk resulting from changes in foreign currency exchange rates.

For the year ended 31 March 2019

FINANCIAL REVIEW

Consolidated results

For the year ended 31 March 2019, the Group recorded revenue of approximately HK$81.4 million compared to approximately HK$81.3 million for the last financial year, representing a slight increase of about 0.1%, and loss for the year ended 31 March 2019 of approximately HK$15.0 million compared to approximately HK$13.4 million for the last financial year, representing an increase of about 11.9%. If the Group’s last year net loss excluded the one-off net gain of HK$58.2 million attributable to the completion of disposal of subsidiaries of the Company, the net loss would be HK$61.6 million (“ Adjusted Net Loss ”). By comparing this year’s net loss and last year’s Adjusted Net Loss, it represented a significant decrease of approximately HK$46.6 million or 75.7%. This improvement of the financial performance was primarily resulted from 1) completion of disposal of lossmaking subsidiaries in March 2018, 2) reversal of provision for financial guarantee and 3) collective efforts by the management in a series of cost cutting measures.

— IV-14 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

BUSINESS REVIEW

Exhibition-related business

China Resources Advertising & Exhibition Company Limited, a direct wholly-owned subsidiary of the Company (together with its subsidiaries, the “ CRA Group ”) is principally engaged in exhibition-related business. The CRA Group has acted as an organizer and contractor for exhibitions and meeting events held in Hong Kong. It has developed over 20 years of relationship with the Hong Kong Trade Development Council (“ HKTDC ”) and has become one of the major agents organising trade fairs for PRC groups whilst most of which were co-organised with the HKTDC. The clients of the CRA Group are primarily PRC based including numerous sub-councils of the China Council for the Promotion of International Trade in the PRC. For the year ended 31 March 2019, this business segment recorded revenue of approximately HK$26.0 million compared to approximately HK$39.4 million for the last financial year, representing a decrease of about 34.0%. The drop in revenue was mainly due to the decrease in number of events participants. The segment loss for the financial year of approximately HK$4.0 million compared to approximately HK$2.7 million for the last financial year, representing an increase of about 48.2%.

Property sub-leasing, development and investment business

For the year ended 31 March 2019, this business segment recorded revenue of approximately HK$45.3 million compared to approximately HK$35.8 million for the last financial year, representing an increase of about 26.5%, the increase in revenue was mainly resulted from: (i) the increase in rent for new tenants and renewal tenants in sub-leasing certain properties in Nanjing, PRC; and (ii) acquisition of a PRC company engaging in subleasing business in Shenzhen in October 2018, which contributed approximately HK$5.5 million of revenue from the date of acquisition to 31 March 2019. This business segment recorded profit for the financial year of approximately HK$6.6 million as compared to loss of approximately HK$0.4 million for the last financial year, primarily attributable to improvement of financial result of the existing sub-leasing business in Nanjing, PRC.

— IV-15 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

FINANCIAL SERVICES BUSINESS

Money lending

During the year, the Group conducted money lending business in Hong Kong and recognised interest income for approximately HK$2.5 million during the year (2018: HK$2.2 million). The Group will continue to explore opportunities prudently to develop this business sector but at the same time will maintain a balance and review its loan portfolio so as to control the risks of debt default.

Securities, futures and asset management

The Group was successfully granted Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) licenses by Securities and Futures Commission (“ SFC ”) in May 2019 and Type 2 (dealing in futures contracts) license by SFC in June 2019. By obtaining these licenses, the management consider this would enable the Group to further diversify its business within the financial services sector, and thereby provide viable business development opportunities to the Group.

Liquidity and financial resources

As at 31 March 2019, the Group had bank and other borrowings and convertible bonds in total of approximately HK$126.6 million. As at 31 March 2018, the Group has bank borrowings, bills payables, and convertible bonds in total of approximately HK$98.1 million. The gearing ratio of the Group as at 31 March 2019 was 6.4% (2018: N/A). Such ratio was calculated with reference to the bank and other borrowings, bills payables and convertible bonds, and deduction of cash and cash equivalents, over the Company’s equity attributable to owners of the Company. As at 31 March 2019, the Group had net current assets of approximately HK$79.7 million (2018: net current assets of approximately HK$85.1 million). The current ratio of the Group as at 31 March 2019 was approximately 1.4 compared with 1.5 as at 31 March 2018.

The maturity profile of the Group’s bank and other borrowings is set out as follows:

	2019	2018
	HK$ Million	HK$ Million
Repayable
Within one year	43.6	30.0

— IV-16 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

The carrying amounts of all the Group’s bank and other borrowings were denominated in RMB. As at 31 March 2019, the Group’s bank and other borrowings balance of approximately HK$12.8 million was charged at a fixed interest rate, and approximately HK$30.8 million was charged at a floating interest rate. As at 31 March 2018, all of the Group’s bank borrowings balance was charged at a fixed interest rate. The bank and other borrowings carry effective interest rates ranged from 5.73% to 7.36% (2018: 5.8%).

On 15 August 2018, the Company entered into subscription agreements with certain independent individuals in relation to the placing of convertible bonds in an aggregate principal amount of HK$42,031,080. For the year ended 31 March 2019, no such bonds had been converted to ordinary shares of the Company. The completion of issue of convertible bonds took place on 31 August 2018, please refer to the Company’s announcement dated 31 August 2018 for details.

The revenue of the Group, being mostly denominated in Renminbi and Hong Kong dollar, matches the currency requirement of the Group’s expenses while other foreign currencies were immaterial. During the year ended 31 March 2019, no financial instrument was entered into by the Group used for hedging purpose. The Group was not exposed to any exchange rate risk or any related hedges.

Fund raising activities

During the year ended 31 March 2019, the Group completed the following fund raising exercise to strengthen its financial position and raised the gross proceeds of approximately HK$42.0 million, with the net proceeds of approximately HK$41.8 million after deduction of issuance expenses. Details of which are set out as follows:

— IV-17 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

Description of Actual use of Unutilised amount Date of fund raising Intended use of proceeds as at 31 as at 31 March announcement activities proceeds March 2019 2019 31 August 2018 Issue of Approximately Nil Approximately convertible HK$27.2 HK$27.2 bonds in an million for million was aggregate money lending reserved to be principal business of the used to provide amount of Group in Hong additional HK$42,031,080 Kong resources for

Approximately HK$27.2 million was reserved to be used to provide additional resources for expansion and development of the Group’s money lending business when such expansion and development plan materializes

Approximately Approximately Approximately HK$14.6 HK$7.4 million HK$7.2 million million for general working capital of the Group

— IV-18 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

	Description of		Actual use of	Unutilised amount
Date of	fund raising	Intended use of	proceeds as at 31	as at 31 March
announcement	activities	proceeds	March 2019	2019
26 July 2017	Issue of	Approximately	Nil	Approximately
	convertible	HK$32.1		HK$32.1
	bonds in an	million for		million intended
	aggregate	potential		to be used by
	principal	acquisition		the Group to
	amount of			acquire 73%
	HK$46,341,960			share equity
				of深圳金帆投
				資發展有限公
				司(Shenzhen
				Jinfan
				Investment
				Development
				Co., Ltd*)
		Approximately	Approximately	Nil
		HK$14.0	HK$14.0
		million for	million
		general working
		capital of the
		Group

— IV-19 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

Charges

As at 31 March 2019, all of the bank and other borrowings of the Group in the total amount of HK$43.6 million were secured by personal and corporate guarantees provided by Mr. Yang Lei, a director of certain subsidiaries of the Company, his spouse and a related company, which is beneficially owned by Mr. Yang Lei and his spouse (the “ Related Company ”) and certain assets of Mr. Yang Lei, his spouse and a related party.

On 13 September 2017, 南京垠坤投資實業有限公司 (Nanjing Yinkun Investment Corporation Co. Ltd.) and 南京創意東八區科技有限責任公司 (Nan Jing Chuang Yi Dong Ba Qu Technology Development Co., Ltd.), two indirect non-wholly owned subsidiaries of the Company, provided the guarantees in respect of a loan facility for the principal amount of up to RMB40 million provided to an independent third party from a financial institution in the PRC. The amount under the loan facility has been fully repaid during the year and accordingly, the guarantee arrangement was terminated.

Save as disclosed above, the Group did not have any charges on assets as at 31 March 2019.

Contingent liabilities

As at 31 March 2019, the Group had no material contingent liabilities.

Emolument policy

As at 31 March 2019, the Group employed a total number of 98 (2018: 85) employees. The remuneration of the employees of the Group for continuing operations is amounted to approximately HK$16.2 million for the year ended 31 March 2019 (2018: HK$22.4 million). The Group remunerates its employees based on their performance, experience and prevailing industry practices. The emoluments of the Directors and senior management of the Company are decided by the remuneration committee of the Company, having regard to the Company’s operating results, individual performance and comparable market statistics.

The Group periodically reviews its remuneration package in order to attract, motivate and retain its employees. Discretionary bonuses may be rewarded to the Directors and employees depending on the Group’s operating results and their performance.

— IV-20 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

Further, the Company has also adopted a share option scheme for the primary purpose of providing incentives or rewards to any the Director, employee and other eligible participant who made significant contribution to the Group. The Group also provides external training courses to its staff to improve their skills and services on an ongoing basis.

Significant investments held, material acquisitions and disposals of subsidiaries, associates and joint ventures, and future plans for material investments or capital assets

There was no significant investments held, no material acquisitions or disposals of subsidiaries, associates or joint ventures during the year ended 31 March 2019.

On 21 May 2019, the Group has entered into an acquisition agreement with an independent third party in relation to the acquisition of 73% of the share equity of Shenzhen Jinfan Investment Development Co., Ltd.*（深圳市金帆投資發展有限公司）at a cash consideration of RMB40 million. This transaction is still pending for completion. Details of the transaction were disclosed in the Company’s announcement dated 21 May 2019.

Outlook

China continued to advance its industrialisation and urbanisation, and deepen the supplyside reform. As the recurrent intensification of the Sino-US trade war may become a normalised phenomenon and exports to the United States may continue to weaken, economic development will be under pressure. However, driven by “The Belt and Road Initiative” and other favorable policies, domestic demand promotion, economic development structure adjustment and other measures to promote high quality economic development will remain as the dominant trend. Therefore, the Directors expect the business environment to remain challenging, but are cautiously optimistic towards the overall outlook of the Group.

The management team and Board of Directors are highly experienced in the real estate development industry in China and possess significant resources and networks in China which the Company expects to be able to leverage for its future development in the property sub-leasing, development and investment business sector. The Group has continued the efforts to consolidate and realign its businesses to enable the Group to achieve improvements in its financial position.

— IV-21 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

The Group is working towards attaining a sustainable growth, and at the same time the Group is also continuously exploring and identifying other suitable investment opportunities (if any) to enhance its earning potential so as to enhance shareholder value as a whole.

Currency risk

The Group mainly operates in Hong Kong and the PRC with most of the transactions settled in their respective functional currencies in which the group entities operate. Therefore the Group does not have significant exposure to risk resulting from changes in foreign currency exchange rates.

For the six months ended 30 September 2019

Consolidated Results

For the six months ended 30 September 2019, the Group recorded revenue of approximately HK$41.7 million compared to approximately HK$30.0 million for the corresponding period of 2018, representing an increase of approximately 39.0%, and loss of approximately HK$26.9 million compared to approximately HK$0.9 million for the corresponding period of 2018. Despite an increase in revenue, the significant increase in loss was primarily resulted from 1) fair value loss on investment properties of approximately HK$15.8 million after adoption of HKFRS 16 Lease and 2) provision for financial guarantee of approximately HK$12.7 million.

The Board considers that provision on financial guarantee and the change in fair value of investment properties are non-cash items and has no effect on the cash flow of the Group’s operations.

BUSINESS REVIEW

Exhibition-related business

China Resources Advertising & Exhibition Company Limited, a direct wholly-owned subsidiary of the Company (together with its subsidiaries, the “ CRA Group ”) is principally engaged in exhibition related business. The CRA Group has acted as an organizer and contractor for exhibitions and meeting events held in Hong Kong. It has developed over 20 years of relationship with the Hong Kong Trade Development Council (“ HKTDC ”) and has become one of the major agents organising trade fairs for PRC groups whilst most of

— IV-22 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

which were co-organised with the HKTDC. The clients of the CRA Group are primarily PRC based including numerous sub-councils of the China Council for the Promotion of International Trade in the PRC. For the period ended 30 September 2019, this business segment recorded revenue of approximately HK$10.3 million compared to approximately HK$10.8 million for the corresponding period in 2018, representing a decrease of about 4.6%, and loss of approximately HK$1.8 million compared to approximately HK$2.2 million for the corresponding period in 2018, representing a decrease of about 18.2%. The mild drop in revenue was mainly due to the decrease in the number of participants.

Property sub-leasing, development and investment business

For the six months ended 30 September 2019, this business segment recorded revenue of approximately HK$30.7 million compared to approximately HK$18.1 million for the corresponding period in 2018, representing an increase of about 69.6%, and recorded a loss of approximately HK$4.6 million as compared to gain of approximately HK$4.6 million for the corresponding period of 2018. The increase in the revenue was mainly due to the increase in sub-leasing certain properties in the PRC.

Financial Services Business

Money lending

During the period, the Group continued to conduct money lending business in Hong Kong and recognised interest income of approximately HK$0.6 million during the period (2018: HK$1.1 million).

Securities, futures and asset management

The Group was successfully granted Type 1 (dealing in securities), Type 4 (advising on securities) and Type 9 (asset management) licenses by Securities and Futures Commission (“ SFC ”) in May 2019 and Type 2 (dealing in futures contracts) license by SFC in June 2019. By obtaining these licenses, the management consider this would enable the Group to further diversify its business within the financial services sector, and thereby provide viable business development opportunities to the Group.

— IV-23 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

PROSPECTS

China continued to advance its industrialisation and urbanisation, and deepen the supplyside reform. As the recurrent intensification of the Sino-US trade war may become a normalised phenomenon and exports to the United States may continue to weaken, economic development will be under pressure. However, driven by “The Belt and Road Initiative” and other favorable policies, domestic demand promotion, economic development structure adjustment and other measures to promote high quality economic development will remain as the dominant trend. Therefore, the Directors expect the business environment to remain challenging, but are cautiously optimistic towards the overall outlook of the Group.

The management team and Board of Directors are highly experienced in the real estate development industry in China and possess significant resources and networks in China which the Company expects to be able to leverage for its future development in the property sub-leasing, development and investment business sector. The Group has continued the efforts to consolidate and realign its businesses to enable the Group to achieve improvements in its financial position.

The Group is working towards attaining a sustainable growth, and at the same time the Group is also continuously exploring and identifying other suitable investment opportunities (if any) to enhance its earning potential so as to enhance shareholder value as a whole.

FINANCIAL REVIEW

Liquidity and financial resources

As at 30 September 2019, the Group had bank and other borrowings and convertible bonds of approximately HK$143.7 million (31 March 2019: approximately HK$126.6 million).

— IV-24 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

The maturity profile of the Group’s bank and other borrowings is set out as follows:

Repayable Within one year After one year but within two years After two years but within three years	30 September 2019 (Unaudited) HK$ Million 48.9 4.5 10.5 63.9	31 March 2019 (Audited) HK$ Million 43.6 — — 43.6

The carrying amounts of the Group’s bank and other borrowings were denominated in RMB. The bank loans carry interest rates at 4.35% to 7.13% per annum.

On 9 July 2019, the Company amended the principal term of convertible bonds in relation to the maturity date and conversion period of the convertible bonds in an aggregate principal amount of HK$46,341,960. For the six months ended 30 September 2019, no such bonds had been converted to ordinary shares of the Company. Please refer to the Company’s announcement dated 9 July 2019 for details.

The gearing ratio of the Group as at 30 September 2019 was in net cash position compared with 6.4% as at 31 March 2019. The Directors consider the Group as in a healthy financial position. Such ratio was calculated with reference to the bank and other borrowings, bills payables and convertible bonds and deduction of cash and cash equivalents over the Company’s equity attributable to owners of the Company. As at 30 September 2019, the Group had net current assets of approximately HK$61.1 million as compared with the net current assets as at 31 March 2019 of approximately HK$79.7 million. The current ratio of the Group as at 30 September 2019 was 1.3 compared with 1.4 as at 31 March 2019.

The revenue of the Group, being mostly denominated in RMB and Hong Kong dollar, matches the currency requirement of the Group’s expenses while other foreign currencies were immaterial. During the six months ended 30 September 2019, no financial instrument was entered into by the Group used for hedging purpose. The Group was not exposed to any exchange rate risk or any related hedges.

— IV-25 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

FUND RAISING ACTIVITIES

The Group had completed the following fund raising exercise to strengthen its financial position and raised the gross proceeds of approximately HK$42.0 million, with the net proceeds of approximately HK$41.8 million in 31 August 2018 and raised the gross proceeds of approximately HK$46.3 million, with the net proceeds of approximately HK$46.1 million in 25 July 2017 respectively. Details of which are set out as follows:

• Description of Actual use of Unutilised

• Date of fund raising Intended use of proceeds as at amount as at announcement activities proceeds 31 March 2019 31 March 2019 31 August 2018 Issue of Approximately Nil Approximately convertible HK$27.2 HK$27.2 bonds in an million for million was aggregate money lending reserved to be principal business of the used to provide amount of Group in Hong additional HK$42,031,080 Kong resources for

Approximately HK$27.2 million was reserved to be used to provide additional resources for expansion and development of the Group’s money lending business when such expansion and development plan materializes

Approximately Approximately Nil HK$14.6 HK$14.6 million for million for general working general working capital of the capital of the Group Group

— IV-26 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

Description of Actual use of Unutilised Date of fund raising Intended use of proceeds as at amount as at announcement activities proceeds 31 March 2019 31 March 2019 26 July 2017 Issue of Approximately Nil Approximately convertible HK$32.1 HK$32.1 bonds in an million for million intended aggregate potential to be used by principal acquisition the Group to amount of acquire 73% HK$46,341,960 share equity of 深圳金帆投 資發展有限公 司 (Shenzhen Jinfan Investment Development Co., Ltd.*)

Approximately Approximately Nil HK$14.0 HK$14.0 million for million for general working general working capital of the capital of the Group Group

CHARGES AND GUARANTEES

As at 30 September 2019, certain bank and other borrowings of the Group in the total amount of approximately HK$63.9 million were secured by personal and corporate guarantees provided by Mr. Yang Lei (a director of certain subsidiaries of the Company), his spouse and a company beneficially owned by Mr. Yang Lei and his spouse (the “ Related Company ”) and certain assets of Mr. Yang Lei, his spouse, a related party and the Related Company.

On 3 September 2019, 南京垠坤投資實業有限公司 (Nanjing Yinkun Investment Corporation Co. Ltd.*) an indirect non-wholly owned subsidary of the Company, provided the guarantees in respect of a loan facility for the principal amount of up to RMB100 million provided to an independent third party from a financial institution in the PRC. The outstanding balance of the loan agreement is RMB80 million as at 30 September 2019.

— IV-27 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE GROUP

APPENDIX IV

Save as disclosed above, the Group did not have any charges on assets as at 30 September 2019.

CONTINGENT LIABILITIES

The Group had no material contingent liabilities as at 30 September 2019.

EMOLUMENT POLICY

As at 30 September 2019, the Group employed a total of 121 (31 March 2019: 98) employees. The remuneration of the employees of the Group amounted to approximately HK$9.1 million for the six months ended 30 September 2019 (30 September 2018: approximately HK$7.1 million). The Group remunerates its employees based on their performance, experience and prevailing industry practices. The emoluments of the Directors and senior management of the Company are reviewed and decided by the remuneration committee of the Company, having regard to the Company’s operating results, individual performance and comparable market statistics.

The Group periodically reviews its remuneration package in order to attract, motivate and retain its employees. Discretionary bonuses are awarded to Directors and the employees of the Group based on its operating results and their performance.

Further, the Company has also adopted the Share Option Scheme for the purpose of providing incentives or rewards to any Director, employee and other eligible participant who made significant contribution to the Group. The Group also provides external training courses to its staff to improve their skills and services on an on-going basis.

— IV-28 —

APPENDIX V MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

Set out below is the management discussion and analysis on the Target Group for the period commencing on the date of the establishment of the Target Company, i.e. 11 July 2019 up to 31 March 2020:

TURNOVER

For the period from 11 July 2019 up to 31 March 2020, the Target Group had no turnover.

INCOME TAX EXPENSE

For the period from 11 July 2019 up to 31 March 2020, there was no income tax expense for the Target Group as there was no assessible profit.

PROFIT/LOSS FOR THE PERIOD

For the period from 11 July 2019 up to 31 March 2020, the Target Group recorded loss for the period of HK$36,346, which is comprised of staff costs and other operating expenses.

CAPITAL STRUCTURE AND FINANCIAL RESOURCES

As at 31 March 2020, the paid-up capital of the Target Company is HK$77,800 and the paid-up capital of the Project Company is RMB10,000,000.

As at 31 March 2020, the Target Group did not have any outstanding bank borrowings and bank facilities.

For the period from 11 July 2019 up to 31 March 2020, the capital requirement of the Target Group which is mainly for the payment of consideration of the Dongguan Land is financed by the capital contribution of a shareholder and is credited to capital reserve of the Project Company.

CHARGES ON ASSETS

For the period from 11 July 2019 up to 31 March 2020, the Target Group did not pledge any assets.

— V-1 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX V

LIQUIDITY AND GEARING RATIO

The capital structure of Target Group consists of debts, which includes accruals and equity attributable to owners of the Target Company, comprising share capital, foreign exchange reserve and accumulated losses. The net debt to equity ratio as at 31 March 2020 is 15.7%.

MATERIAL ACQUISITIONS AND DISPOSALS OF SUBSIDIARIES AND AFFILIATED COMPANIES

Save and except the acquisition of the Dongguan Land, the Target Group had not made material acquisition and disposal of subsidiary and affiliated company for the period from 11 July 2019 up to 31 March 2020.

FUTURE PLANS FOR MATERIAL INVESTMENTS

The Target Company is an investment holding company while the business scope of the Project Company includes property development and management. The Target Group intends to develop the Dongguan Land into residential and commercial properties for resale and/or rental purposes. The Project Company will seek bank loans in order to meet its financial obligation.

SIGNIFICANT INVESTMENTS HELD

Save and except the Dongguan Land, the Target Group had not made any significant investment for the period from 11 July 2019 up to 31 March 2020.

CONTINGENT LIABILITIES

For the period from 11 July 2019 up to 31 March 2020, the Target Group had no contingent liabilities.

EXCHANGE RISK AND HEDGING

As the operations of the Target Group were principally in the PRC, the operations of the Target Group were not subject to significant exchange risk. Accordingly, no financial instruments for hedging purposes were used by the Target Group for the period from 11 July 2019 up to 31 March 2020.

— V-2 —

MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

APPENDIX V

STAFF AND REMUNERATION POLICIES

For the period from 11 July 2019 up to 31 March 2020, the staff costs of the Target Group amounted to HK$6,746.

SEGMENT INFORMATION

The Target Company is a company incorporated in the British Virgin Islands with limited liability and is principally engaged in investment holding. The Project Company, incorporated on 6 January 2020, is the operating subsidiary of the Target Company. Save as the Project Company, other companies in the Target Group are investment holding companies and have no business operations since their establishment.

— V-3 —

VALUATION REPORT

APPENDIX VI

The following is the text of a property valuation report prepared for inclusion in this document, received from APAC Asset Valuation and Consulting Limited, an independent property valuer, in connection with their valuations as of 31 March 2020 of the Dongguan Land to be acquired by the Group.

==> picture [83 x 83] intentionally omitted <==

APAC Asset Valuation and Consulting Limited

5/F, Blissful Building, 243 – 247 Des Voeux Road Central, Hong Kong Tel: (852) 2357 0059 Fax: (852) 2951 0799

China Tangshang Holdings Limited 13/F, Bupa Centre, 141 Connaught Road West Hong Kong 22 June 2020

Dear Sirs,

RE: VALUATION OF A PARCEL OF LAND LOCATED IN CAOLE VILLAGE, XIEGANG TOWN, DONGGUAN, GUANGDONG PROVINCE, THE PEOPLE’S REPUBLIC OF CHINA (THE “PROPERTY”)

In accordance with the instructions from China Tangshang Holdings Limited (the “ Company ”) for us to value the Property situated in The People’s Republic of China (the “ PRC ”), we confirm that we have made relevant enquiries and obtained such further information as we consider necessary for the purpose of providing you with our opinion of the market value of the Property as at 31 March 2020 (the “ valuation date ”) for the purpose of incorporation into the circular issued by the Company.

BASIS OF VALUATION

Our valuation of the Property is our opinion of its market value which we would define as intended to mean “the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion”.

— VI-1 —

VALUATION REPORT

APPENDIX VI

Market value is understood as the value of an asset or liability estimated without regard to costs of sale or purchase (or transaction) and without offset for any associated taxes or potential taxes.

We confirm that the valuations are undertaken in accordance with the requirements set out in Chapter 5 and Practice Note 12 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited published by The Stock Exchange of Hong Kong Limited, and the HKIS Valuation Standards 2017 Edition issued by the Hong Kong Institute of Surveyors.

VALUATION ASSUMPTIONS

Our valuation has been made on the assumption that the owners sell the Property on the open markets without the benefit or burden of a deferred term contract, leaseback, joint venture, management agreement or any similar arrangement, which would serve to affect the values of the Property.

No allowance has been made in our valuation report for any charge, mortgage or amount owing on the Property nor for any expense or taxation which may be incurred in effecting a sale. Unless otherwise stated, it is assumed that the Property is free from encumbrances, restrictions and outgoings of an onerous nature which could affect their values.

VALUATION METHODOLOGY

In valuing the Property, we have adopted the direct comparison approach assuming sale with the benefit of vacant possession in its existing state by making reference to comparable sales evidences as available in the relevant market.

TITLE AND ASSUMPTIONS

We have been provided with copies of extracts of title documents relating to the Property. However, we have not caused title searches to be made for the Property at the relevant government bureaus in the PRC and have not inspected the original documents to verify the ownership, encumbrances or the existence of any subsequent amendments which may not appear on the copies handed to us. In undertaking our valuation for the Property in the PRC, we have relied on the legal opinion provided by the Company’s PRC legal adviser, Beijing JunzeJun (Shenzhen) Law Offices （北京市君澤君（深圳）律師事務所）, regarding the title and other legal matters to the Property.

— VI-2 —

VALUATION REPORT

APPENDIX VI

SOURCES OF INFORMATION

We have relied to a very considerable extent on information given by the Company and have accepted advice given to us on such matters as planning approvals or statutory notices, easements, tenure, site area and all other relevant matters. No on-site measurement has been taken. Dimensions, measurements and areas included in the valuation report are only approximations. We have taken every reasonable care both during inspecting the information provided to us and in making relevant enquiries. We have no reason to doubt the truth and accuracy of the information provided to us by the Company, which is material to our valuation. We were also advised by the Company that no material facts have been omitted from the information provided to us.

SITE INSPECTIONS

Site inspections of the Property were carried out by Mr. Li Qiang (Mr. Li is a China Registered Real Estate Appraiser) in January 2020. We have inspected the Property but have not carried out detailed measurements to verify the correctness of the areas in respect of the Property but have assumed that the areas shown on the title documents handed to us are correct. We have not carried out investigations on the site to determine the suitability of the ground conditions and the services for any future development. All documents and contracts have been used as reference only and all dimensions, measurements and areas are approximations.

LIMITATION OF LIABILITIES

This valuation report is issued on the understanding that you have drawn our attention to all matters of which they are aware concerning the Property which may have an impact on our valuation report up to the valuation date. We have no responsibility to update this valuation report for events and circumstances occurring after the date of completion of our assessment but will be pleased to discuss further instructions as may be required.

— VI-3 —

VALUATION REPORT

APPENDIX VI

CURRENCY

Unless otherwise stated, all monetary amounts in our valuation are in Renminbi (RMB).

Our valuation report is attached.

Yours faithfully,

For and on behalf of

APAC Asset Valuation and Consulting Limited

Ken Wong

MCIREA, MHKIS, RPS (GP) Director

Note: Mr. Ken Wong is a Registered Professional Surveyor in General Practice Division with over 18 years valuation experience on properties in Hong Kong and the PRC.

Encl.

— VI-4 —

VALUATION REPORT

APPENDIX VI

VALUATION REPORT

Property held for development

Property

Description and tenure

Market value in existing state Particulars of as at occupancy 31 March 2020

• A Parcel of Land The Property is a parcel of located in land located at the east of Caole Village, Yuehai Dadao and north of Xiegang Town, Xiechang Road of Caole Dongguan, Village, Xiegang Town of Guangdong Donguan. Province, The PRC The Property has a site area of approximately 30,265.58 sq.m.

  • The property was RMB512,000,000 vacant as at the valuation date.

• The land use rights of the Property have been granted for terms expiring on 1 February 2090 for residential use and 1 February 2060 for commercial services use.

• Pursuant to the State-owned Land Use Rights Grant Contract – Dong Zi Ran Chu Rang (Shi Chang) He (2020) Di No. 004 dated 15 January 2020 and its supplementary contract dated 19 January 2020, the land use rights of a parcel of land located in Caole Village, Xiegang Town of Dongguan have been granted to 東莞市華創文置地有限公司 (“ Huachuangwen Zhidi ”). Details of the said contract are as follows:

Lot No. 2019WG502 Site Area: 30,265.58 sq. m. Usage: Residential and Commercial Land Use Term: Residential: 70 years Commercial: 40 years Plot Ratio: Not more than 2.20 and not less than 1.00 Building Covenant: The construction work has to be commenced before 2 February 2021 and completed before 2 February 2024. Consideration: RMB511,840,000

— VI-5 —

VALUATION REPORT

APPENDIX VI

1. Pursuant to the State-owned Land Use Rights Certificate – Yue (2020) Dongguan Budongchanquan Di No. 0022738 dated 17 February 2020, the land use rights of the Property with a site area of 30,265.58 sq.m. were granted to Huachuangwen Zhidi for land use rights terms expiring on 1 February 2090 for residential use and 1 February 2060 for commercial services use.

2. As advised by the Company, the property was vacant pending development as at the date of this report, of which the development plan is yet to be fixed and approved by the relevant governmental authority. As advised by the Company, the property will be developed into a residential and commercial development, and part of which will be for leasing purpose. It is currently intended that approximately 50% of the planned gross floor area (“ GFA ”) of the Property will be used to construct residential area for sale, and approximately 50% of the planned GFA of the Property will be used to construct commercial area for the purpose of leasing. Moreover, the construction of the property is planned to be completed by phases between 2020 and 2022. Depending on the actual supply and demand condition, it is intended that the pre-sale or sale will be conducted between 2020 and 2023.

3. We have been provided with a legal opinion on the Property issued by the Company’s PRC legal adviser, which contains, inter alia, the followings:

4. i. Huachuangwen Zhidi is a joint venture company owned by Shenzhen Yaoling Investment Co. Limited（深圳耀領投資有限公司）(“ Party A ”), Shenzhen Leju Real Estate Information Consulting Partnership (Limited Partnership)（深圳市樂居房地產信息諮詢合夥企業（有限合夥））(“ Party B ”) and Dongguen Huachuang Industry Development Ltd.（東莞華創文實業開發有限公司）(“ Party C ”) and is legally established with a registered capital of RMB10 million (Party A: 55%; Party B: 10% and Party C: 35%). The profit of the joint venture company will be distributed in proportion of equity;

5. ii. Huachuangwen Zhidi has fully paid the consideration of the Property according to the Stateowned Land Use Rights Grant Contract;

6. iii. Huachuangwen Zhidi is the legal owner of the Property and has legally obtained the land use rights of the Property and is entitled to legally use the land according to the legal uses of the land within the granted land use term; and

7. iv. the land use rights of the property are free from mortgage and other encumbrances.

— VI-6 —

GENERAL INFORMATION

APPENDIX VII

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. DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURE

Long positions in the ordinary shares of the Company

			Approximate
			percentage of
		Number of	shareholding in
Name of Director	Nature of interest	Shares held	the Company
Mr. Chen Weiwu	Interest of	579,806,977	53.8%
(Note)	controlled
	corporation

Note: These shares are owned by Grand Nice International Limited which is wholly and beneficially owned by Mr. Chen Weiwu.

Save as disclosed above, as at the Latest Practicable Date, none of the Directors and the chief executives of the Company had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) which were required to be notified to the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests or short positions which they were deemed or taken to have under such provisions of the SFO);

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GENERAL INFORMATION

APPENDIX VII

3. SUBSTANTIAL SHAREHOLDERS

As at the Latest Practicable Date, other than the interests of the Directors and chief executive of the Company disclosed in the paragraph headed “DIRECTORS’ AND CHIEF EXECUTIVES’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURE” above, the following persons had interests or short position in the shares and underlying Shares as recorded in the register of interests required to be kept by the Company under section 336 of the SFO:

			Approximate
			percentage of the
Name of	Nature of	Number of	shareholding in
Shareholder	interest	Shares held	the Company
Grand Nice	Beneficial owner	579,806,977	53.8%
International
Limited (“Grand
Nice”)(Note 1)
Mr. Cheng Yang	Beneficial owner	76,180,000	7.07%
(Note 2)
	Interest of the	73,500	0.01%
	spouse
China Resources	Interest of	66,666,666	6.19%
National	controlled
Corporation	corporations
(“CRNC”)(Note 3)

Notes:

• (1) Grand Nice is wholly and beneficially owned by Mr. Chen Weiwu who is an Executive Director and the Chairman of the Company.

• (2) Mr. Cheng Yang personally owned 76,180,000 shares of the Company and his wife, Ms. Bai Xue, owned 73,500 shares of the Company.

• (3) To the best knowledge of the Directors, Commotra Company Limited is a wholly-owned subsidiary of China Resources, which is a wholly-owned subsidiary of CRC Bluesky Limited (“ CRCB ”), which is in turn wholly-owned by China Resources Co., Limited, which is in turn wholly owned by CRNC.

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GENERAL INFORMATION

APPENDIX VII

Save as disclosed above, as at the Latest Practicable Date, according to the register of interests required to be kept by the Company under section 336 of the SFO, there was no person who had any interest or short position in the shares or 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.

4. MATERIAL CONTRACTS

The following contracts (not being contracts entered into in the ordinary course of business) have been entered into by members of the Enlarged Group within the two years immediately preceding the Latest Practicable Date which are or may be material:

• (a) The framework disposal agreement entered into between the Company as the vendor and True Glory Ventures Limited as the purchaser on 9 February 2018, in relation to the sale and purchase of equity interest of certain target companies (information of which was set out in the announcement of the Company dated 2 April 2018) at the consideration of HKD500,000, details of which are set out in the announcement of the Company dated 9 February 2018;

• (b) The subscription agreements entered into between the Company and six individual subscribers in relation to the issue of Convertible Bonds in an aggregate principal amount of HK$42,031,080, details of which are set out in the announcement of the Company dated 15 August 2018;

• (c) The acquisition agreement entered into between Shenzhen Tangshang Industrial Park Management Co., Ltd., Shenzhen Jinqi Group Co., Ltd., Shenzhen Jinfan Investment Development Co., Ltd. (“ Shenzhen Jinfan ”), and Mr. Zeng PinLian on 21 May 2019 in relation to the sale and purchase of the 73% equity interest in Shenzhen Jinfan at the consideration of RMB40 million, details of which are set out in the announcement of the Company dated 21 May 2019;

• (d) The sale and purchase agreement entered into between Great Regal Limited, Mr. Li Jiexin and 855 Crown Property Investment Co., Ltd. (“ 855 Crown Property ”) on 5 September 2019 in relation to the sale and purchase of the 49% of the equity interest of 855 Crown Property at the consideration of US$1, details of which are set out in the announcement of the Company dated 5 September 2019;

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GENERAL INFORMATION

APPENDIX VII

• (e) The guarantee agreement dated 3 September 2019 entered into by Nanjing Yinkun Investment Corporation in favour of Bank of Jiangsu in relation to the loan facility for the principal amount of up to RMB100,000,000 provided by Bank of Jiangsu to Nanjing Ruiyixiang Network Technology Co., Ltd., details of which are set out in the announcement of the Company dated 8 November 2019;

• (f) The lease contracts dated 27 December 2019 entered into between Beijing Mingchuang Business Management Co., Ltd and Beijing Tian’an Innovation Technology and Estates Limited in relation to Block Nos. 15, 32, 38, 40, 41, 54, 62 and 63, Yard No. 109, Jinhai 3rd Road, Beijing Economic and Technology Development Zone, Daxing District, Beijing, The People’s Republic of China, details of which are set out in the announcement of the Company dated 27 December 2019; and

• (g) The Equity Sale and Purchase Agreement.

5. MATERIAL LITIGATION

As at the Latest Practicable Date, there were no litigation or claim of material importance that is known to the Directors to be pending or threatened against the Enlarged Group.

6. DIRECTORS’ SERVICE CONTRACT

As at the Latest Practicable Date, none of the Directors had entered into a service agreement with any member of the Group which is not expiring or determinable by the employer within one year without payment of compensation (other than statutory compensation)

7. DIRECTORS INTEREST IN COMPETING BUSINESSES

As at the Latest Practicable Date, so far as the Directors were aware, none of the Directors or their respective associates had any interest in a business which competes or is likely to compete, either directly or indirectly, with the business of the Group pursuant to Rule 8.10 of the Listing Rules.

— VII-4 —

GENERAL INFORMATION

APPENDIX VII

8. DIRECTORS’ INTEREST IN ASSETS, CONTRACTS OR ARRANGEMENT

As at the Latest Practicable Date, none of the Directors had: (i) any direct or indirect interests in any asset which have been since 31 March 2019 (being 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 Enlarged Group, or were proposed to be acquired or disposed of by or lease to any member of the Enlarged Group; or (ii) any subsisting material interest in any contract or arrangement at the date of this circular which is significant in relation to the business of the Enlarged Group.

9. EXPERTS AND CONSENTS

• (a) The following is the qualifications of the experts who have provided advice referred to or contained in this circular:

Name Qualification

Rainbow Capital A licensed corporation to carry out Type 6 (advising on corporate finance) regulated activity under the SFO (Chapter 571 of the Laws of Hong Kong)

APAC Asset Independent professional valuer Valuation and Consulting Limited

BDO Limited Certified Public Accountants

Beijing JunZeJun Law Law firm qualified in the PRC Offices (Shenzhen)

（北京市君澤君

• （深圳）律師事務所）

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

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GENERAL INFORMATION

APPENDIX VII

• (c) The experts named above have given and have not withdrawn their written consents to the issue of this circular with the inclusion of their letters of advice and references to their names in the form and context in which the respectively appear.

• (d) As at the Latest Practicable Date, the experts named above did not have any interest, direct or indirect, in any assets which have been acquired or disposed of by or leased to any member of the Group, or which are proposed to be acquired or disposed of by or leased to any member of the Group since 31 March 2019 (being the date to which the latest published audited financial statements of the Group were made up).

10. GENERAL

• (a) The registered office of the Company is located at Clarendon House, 2 Church Street, Hamilton HM11, Bermuda.

• (b) The principal place of business of the Company in Hong Kong is located at 13th Floor, Bupa Centre, No. 141 Connaught Road West, Hong Kong.

• (c) The principal share registrar and transfer office of the Company is MUFG Fund Services (Bermuda) Limited at The Belvedere Building, 69 Pitts Bay Road, Pembroke HM08, Bermuda.

• (d) The branch share registrar and transfer office of the Company in Hong Kong is Tricor Secretaries Limited at Level 54, Hopewell Centre 183 Queen’s Road East, Hong Kong.

• (e) The company secretary of the Company is Hung Hing Hung (“ Mr. Hung ”). Mr. Hung is a member of Hong Kong Institute of Certified Public Accountants.

• (f) This circular is in both English and Chinese. In the event of inconsistency, the English text shall prevail.

— VII-6 —

GENERAL INFORMATION

APPENDIX VII

11. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents are available for inspection during normal business hours at the principal place of business of the Company in Hong Kong is located at 13th Floor, Bupa Centre, No. 141 Connaught Road West, Hong Kong. from the date of this circular up to and including the date following on fourteenth day from the date of this circular:

• (a) the memorandum of association and bye-laws of the Company;

• (b) the material contracts referred to in the section headed “Material Contracts” in this appendix;

• (c) the written consent of each of the experts referred to in the section headed “Experts and Consents” in this appendix;

• (d) the annual reports of the Company for the three years ended 31 March 2017, 31 March 2018 and 31 March 2019;

• (e) the interim report of the Company ended 30 September 2019;

• (f) the letter from the Board as set out in this circular;

• (g) the letter from the Independent Board Committee to the Independent Shareholders, the text of which is set out on pages 28 to 30 of this circular;

• (h) the letter from the Independent Financial Adviser, the text of which is set out on pages 30 to 57 of this circular;

• (i) the report from BDO Limited of the Target Group, the text of which is set out in Appendix II to this circular;

• (j) the report from BDO Limited on the unaudited pro forma financial information of the Group, the text of which is set out in Appendix III to this circular;

• (k) the valuation report in relation to the Dongguan Land, the text of which is set out in Appendix VI to this circular;

• (l) the legal opinion of Beijing JunZeJun Law Offices (Shenzhen)（北京市君澤君 （深圳）律師事務所）; and

• (m) this circular.

— VII-7 —

NOTICE OF SGM

==> picture [84 x 69] intentionally omitted <==

CHINA TANGSHANG HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: 674)

NOTICE OF 2020 2nd SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that the 2020 2nd special general meeting (the “ Meeting ”) of China Tangshang Holdings Limited (the “ Company ”) will be held at 13th Floor, Bupa Centre, No. 141 Connaught Road West, Hong Kong on Friday, 10 July 2020 at 3 p.m. to consider and, if thought fit, pass the following resolution (with or without modification) as ordinary resolution of the Company:

ORDINARY RESOLUTION

“ THAT :

• (a) the conditional Equity Sale and Purchase Agreement dated 9 April 2020 (the “ Agreement ”) entered into between the Company as purchaser and Mr. Chen Weiwu as the vendor (the “ Vendor ”), in relation to the acquisition of the entire issued share capital in Topper Genius Investments Limited at the consideration of HK$196,861,538 (or the equivalent Renminbi), which shall be partly satisfied by cash and partly satisfied by the Company’s issue and allotment of 800,000,000 consideration shares (each a “ Consideration Share ”) in the share capital of the Company to the Vendors (or at their direction) at the issue price of approximately HK$0.2 per Consideration Share (a copy of the Agreement has been produced to this meeting marked “A” and signed by the chairman of the meeting for the purpose of identification), and the transactions contemplated thereunder (including but not limited to the issue and allotment of the Consideration Shares), be and are hereby approved, confirmed and ratified;

• (b) the allotment and issue of the Consideration Shares by the Company to the Vendor (or at their direction) to settle part of the consideration payable by the Company in accordance with the terms and conditions of the Agreement and all transactions contemplated thereunder be and are hereby approved, confirmed and ratified;

— SGM-1 —

NOTICE OF SGM

• (c) the board of directors of the Company (the “ Directors ”) be and is hereby granted a specific mandate to allot and issue of the Consideration Shares in accordance with the terms and conditions of the Agreement; and

• (d) any Director be and is hereby authorised to sign and execute such documents, including under seal where applicable, and do all such acts and things, as he/she considers necessary, desirable or expedient in connection with the implementation of or giving effect to the Agreement and the transactions contemplated thereunder and to agree with such variation, amendment or waiver as, in the opinion of the Directors, in the interests of the Company and its shareholders as a whole.

By order of the Board of China Tangshang Holdings Limited Chen Weiwu Chairman

Hong Kong 22 June 2020

Registered office: Clarendon House 2 Church Street Hamilton HM11 Bermuda

Head office and principal place of business in Hong Kong:

13th Floor, Bupa Centre,

No. 141 Connaught Road West,

Hong Kong

Notes:

• (i) For the purpose of determining members who are qualified for attending the Meeting, the register of members of the Company will be closed from Wednesday, 8 July 2020 to Friday, 10 July 2020 (both days inclusive), during which no transfer of the Shares will be effected. In order to qualify for attending the Meeting, all transfers of Shares accompanied by the relevant share certificates must be lodged with the branch share registrar and transfer office of the Company in Hong Kong, Tricor Secretaries Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong by no later than 4:30 p.m. on Tuesday, 7 July 2020.

• (ii) A member entitled to attend and vote at the Meeting is entitled to appoint one proxy or, if he/she/it is a holder of two or more Shares may appoint more than one proxy to attend and vote instead of him/her/it. A proxy needs not be a member of the Company.

— SGM-2 —

NOTICE OF SGM

• (iii) Where there are joint holders of any Share, any one of such joint holder may vote at the Meeting, either personally or by proxy, in respect of such Share as if he/she/it was solely entitled thereto, but if more than one of such joint holders be present at the Meeting personally or by proxy, that the vote of the senior holder who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders, and for this purpose seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the joint holding.

• (iv) To be valid, the instrument appointing a proxy and the power of attorney or other authority, if any, under which it is signed, or a certified copy of such power or authority, must be lodged with the branch share registrar and transfer office of the Company in Hong Kong, Tricor Secretaries Limited, at Level 54, Hopewell Centre, 183 Queen’s Road East, Hong Kong for registration not less than 48 hours before the time appointed for holding the Meeting or any adjournment thereof.

• (v) Completion and return of the form of proxy will not preclude a member of the Company from attending and voting in person at the Meeting or any adjournment thereof if he/she/it so desires. If a member of the Company attends the Meeting after having deposited the form of proxy, his/her/its form of proxy will be deemed to have been revoked.

• (vi) If Typhoon Signal No.8 or above, or a “black” rainstorm warning is in effect any time after 11:00 a.m. on the date of the Meeting, the Meeting will be adjourned. The Company will post an announcement on the website of the Company at http://www.ts674.com and on the HKExnews website of the Stock Exchange at www.hkexnews.hk to notify Shareholders of the date, time and place of the rescheduled meeting.

• (vii) Pursuant to Rule 13.39(4) of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, all resolutions set out in this Notice will be decided by poll at the meeting.

As at the date of this notice, the Executive Directors are Mr. Chen Weiwu (the Chairman) and Mr. Zhou Houjie; and the Independent Non-executive Directors are Mr. Chen Youchun, Ms. Lui Mei Ka and Mr. Zhou Xin.

— SGM-3 —