愷興文化控股有限公司 (Incorporated in the Cayman Islands with Limited Liability)

The Stock Exchange of Hong Kong Limited and the Securities and Futures Commission take no responsibility for the contents of this Application Proof, 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 Application Proof.

Kaixing Culture Holding Co., Ltd 愷興文化控股有限公司 (incorporated in the Cayman Islands with limited liability)

WARNING

The publication of this Application Proof is required by The Stock Exchange of Hong Kong Limited (the ”Exchange”) and the Securities and Futures Commission (the ”Commission”) solely for the purpose of providing information to the public in Hong Kong.

This Application Proof is in draft form. The information contained in it is incomplete and is subject to change which can be material. By viewing this document, you acknowledge, accept and agree with the Company, its sponsor, advisers or member of the underwriting syndicate that:

1. this document is only for the purpose of providing information about the Company to the public in Hong Kong and not for any other purposes. No investment decision should be based on the information contained in this document;

2. the publication of this document or supplemental, revised or replacement pages on the Exchange’s website does not give rise to any obligation of the Company, its sponsor, advisers or members of the underwriting syndicate to proceed with an offering in Hong Kong or any other jurisdiction. There is no assurance that the Company will proceed with the offering;

3. the contents of this document or supplemental, revised or replacement pages may or may not be replicated in full or in part in the actual final listing document;

4. the Application Proof is not the final listing document and may be updated or revised by the Company from time to time in accordance with the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited;

5. this document does not constitute a prospectus, offering circular, notice, circular, brochure or advertisement offering to sell any securities to the public in any jurisdiction, nor is it an invitation to the public to make offers to subscribe for or purchase any securities, nor is it calculated to invite offers by the public to subscribe for or purchase any securities;

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7. neither the Company nor any of its affiliates, advisers or underwriters is offering, or is soliciting offers to buy, any securities in any jurisdiction through the publication of this document;

8. no application for the securities mentioned in this document should be made by any person nor would such application be accepted;

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If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors are reminded to make their investment decisions solely based on the Company’s prospectus registered with the Registrar of Companies in Hong Kong, copies of which will be distributed to the public during the offer period. THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. IMPORTANT

If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.

Kaixing Culture Holding Co., Ltd 愷興文化控股有限公司 (incorporated in the Cayman Islands with limited liability) [REDACTED]

Number of [REDACTED] under the : [REDACTED] Shares (subject to the [REDACTED] [REDACTED]) Number of [REDACTED] : [REDACTED] Shares (subject to reallocation) Number of [REDACTED] : [REDACTED] Shares (subject to reallocation and the [REDACTED]) Maximum [REDACTED] : HK$[REDACTED] per [REDACTED] plus brokerage of 1%, SFC transaction levy of 0.0027% and the Stock Exchange trading fee of 0.005% (payable in full on application, subject to refund) Nominal value : HK$0.01 per Share [REDACTED] : [●] Sole Sponsor

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Hong Kong Exchanges and Clearing Limited, The Stock Exchange of Hong Kong Limited and Hong Kong Securities Clearing Company Limited take no responsibility for the contents of this document, 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 document. A copy of this document, having attached thereto the documents specified in the paragraph headed “Documents Delivered to the Registrar of Companies and Available for Inspection” in Appendix V to this document, has been registered by the Registrar of Companies in Hong Kong as required by section 342C of the Companies (Winding Up and Miscellaneous Provisions) Ordinance. The Securities and Futures Commission and the Registrar of Companies in Hong Kong take no responsibilityforthe contents of this document or any other document referred to above. The [REDACTED] is expected to be fixed by agreement among the [REDACTED] (for itself and on behalf of the [REDACTED]) and our Company on the [REDACTED]. The [REDACTED] is expected to be on or around [REDACTED] and, in any event, not later than [REDACTED]. The [REDACTED] will not be more than HK$[REDACTED] and is currently expected to be not less than HK$[REDACTED]. [REDACTED] applying for the [REDACTED] must pay, on application, the maximum [REDACTED] of HK$[REDACTED] for each Share together with a brokerage of 1%, the SFC transaction levy of 0.0027% and the Stock Exchange trading fee of 0.005%, subject to refund if the [REDACTED] is less than HK$[REDACTED] per [REDACTED]. The [REDACTED] (for itself and on behalf of the [REDACTED]) with our consent, may reduce the number of [REDACTED] and/or the indicative [REDACTED] range below that stated in this document (which is HK$[REDACTED] to HK$[REDACTED] per [REDACTED]) at any time prior to the morning of the last day for lodging [REDACTED] under the [REDACTED]. In such a case, notices of the reduction in the number of [REDACTED] and/or the indicative [REDACTED] range will be published on the website of the Stock Exchange at www.hkexnews.hk and our website at www.kxculture.com not later than the morning of the last day for lodging applications under the [REDACTED]. Further details are set out in “Structure of the [REDACTED]” and “How to Apply for [REDACTED]”. If, for any reason, the [REDACTED] (for itself and on behalf of the [REDACTED]) and our Company are unable to reach an agreement on the [REDACTED] by [REDACTED], the [REDACTED] will not become unconditional and will lapse immediately. Prior to making an [REDACTED], [REDACTED] should consider carefully all of the information set out in this document, including the risk factors set outin“Risk Factors”. The obligations of the [REDACTED] under the [REDACTED] to subscribe for, and to procure subscribers for, the [REDACTED], are subject to termination by the [REDACTED] (for itself and on behalf of the [REDACTED]) if certain events shall occur prior to 8:00 a.m. on [REDACTED]. Such grounds are set out in “[REDACTED]”. It is important that you refer to that section for further details. The [REDACTED] have not been, and will not be, registered under the [REDACTED] or any state securities laws of the United States and may not be [REDACTED], sold, pledged or transferred within the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and applicable U.S. state securities laws. The [REDACTED] may only be [REDACTED], sold or delivered outside the United States in accordance with [REDACTED] under the [REDACTED].

ATTENTION We have adopted a fully electronic [REDACTED] process for the [REDACTED]. We will not provide printed copies of this document or printed copies of any [REDACTED] to the public in relation to the [REDACTED]. This document is available at the websites of the Stock Exchange (www.hkexnews.hk) and our Company (www.kxculture.com). If you require a printed copy of this document, you may download and print from the website addresses above.

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IMPORTANT NOTICE TO [REDACTED]

This document is issued by us solely in connection with the [REDACTED] and the [REDACTED] and does not constitute an [REDACTED] to sell or a solicitation of an [REDACTED] to buy any security other than the [REDACTED]. This document may not be used for the purpose of, and does not constitute, an [REDACTED] or invitation in any other jurisdiction or in any other circumstances. The distribution of this document and the [REDACTED] and sale of the [REDACTED] in other jurisdictions are subject to restrictions and may not be made except as permitted under the applicable securities laws of such jurisdictions pursuant to registration with or authorisation by the relevant securities regulatory authorities or an exemption therefrom.

You should rely only on the information contained in this document to make your [REDACTED]. We have not authorised anyone to provide you with information that is different from what is contained in this document. Any information or representation not contained or made in this document must not be relied on by you as having been authorised by us or any of the Relevant Persons.

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Important...... i

Expected Timetable ...... iii

Contents ...... vii

Summary ...... 1

Definitions ...... 11

Glossary of Technical Terms ...... 26

Forward-Looking Statements ...... 28

Risk Factors...... 29

Waiver from Strict Compliance with the Listing Rules ...... 54

Information about this Document and the [REDACTED] ...... 56

Directors and Parties Involved in the [REDACTED] ...... 61

Corporate Information ...... 64

Industry Overview ...... 66

Regulatory Overview ...... 76

History, Reorganisation and Corporate Structure ...... 90

Business ...... 116

Relationship with Controlling Shareholders ...... 167

Connected Transactions ...... 174

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Share Capital ...... 176

Substantial Shareholders ...... 180

Directors and Senior Management ...... 182

Financial Information ...... 193

Future Plans and [REDACTED] ...... 237

[REDACTED]...... 242

Structure of the [REDACTED] ...... 254

How to Apply for [REDACTED] ...... 266

Appendix I — Accountants’ Report ...... I-1

Appendix II — [REDACTED]...... II-1

Appendix III — Summary of Articles of Association and Cayman Islands Companies Law ...... III-1

Appendix IV — Statutory and General Information...... IV-1

Appendix V — Documents Delivered to the Registrar of Companies and Available for Inspection ...... V-1

− viii − THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY

This summary aims to give you an overview of the information contained in this document. As this is a summary, it does not contain all the information that may be important to you. You should read the whole document before you decide to [REDACTED] in the [REDACTED]. There are risks associated with any [REDACTED]. Some of the particular risks in [REDACTED] in the [REDACTED] are set out in the section headed “Risk Factors” in this document. You should read that section carefully before you decide to [REDACTED] in the [REDACTED]. Various expressions used in this summary are defined in the section headed “Definitions” and “Glossary of technical terms” in this document. BUSINESS OVERVIEW We are an online literature IP operation company in the PRC focusing on sourcing and developing online literary works for adaptation into various entertainment formats and licensing literary works to online reading platforms. We aim to connect participants across the value chain of IP operation, devise cultivation plans for maximising the commercial value of literary works, such as the adaptation of literary works into films, TV and web series, animations and PC and mobile games and license our literary works to online reading platforms. According to the F&S Report, we ranked tenth in the online literature IP operation market in the PRC with a market share of 1.5% in terms of revenue in 2020. The following flowchart illustrates our business model: Produce or license License self-developed IPs, literary works or IPs acquired IPs and literary works

Upstream Our Group Downstream • Writers • Sourcing and developing • Content adaptation

• IP holders online literary works and partners ˏ ˏ IPs for adaptation into • Online reading various entertainment platforms formats • Licensing literary works to online reading platforms

Source specific IPs and Enquire for IPs or content ideas literary works As an online literature IP operation company in the PRC, our role is to act as an incubation hub in the online literature ecosystem in the PRC, whereby we source literary works, assess the nature and develop the commercial potential of literary works and work closely with our content adaptation partners for licensing such literary works for adaptations into various entertainment formats. As at 31 December 2018, 2019 and 2020 and the Latest Practicable Date, we had a total of 288, 425, 466 and 483 IPs in our IP reserve, respectively. As at the Latest Practicable Date, we had 17 “class S” IPs and 15 “class A” IPs in our IP reserve. We have licensed to our content adaptation partners a total of 54, 96, 175 and four IPs for adaptation into entertainment products for FY2018, FY2019, FY2020 and from 1 January 2021 and up to the Latest Practicable Date, respectively. Notable example of adaption of our self-developed and acquired IPs during the Track Record Period includes Female CEO’s Bodyguard (女總裁的貼身高手), Player’s Battlegrounds (吃雞戰場), Door of Revolution (造化之門), Dragon Symbol (龍符) and Wulin Hostel (武林客棧). We also license such literary works for publication on online reading platforms which serves as a means to raise readers’ awareness and helps extend the reach and visibility of the literary works to potential content adaptation partners and audiences. It is our goal to identify, maximise and monetise the value of literary works. We conduct our IP operations business through (i) licensing online literary works to our content adaptation partners for adaptation into various entertainment formats; and (ii) licensing literary works to online reading platforms. We also invest in the production of entertainment products including online games, drama series and films.

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The following table sets forth a breakdown of our revenue by amount and percentage of our total revenue for the years indicated below: For the year ended 31 December 2018 2019 2020 Revenue Approximate Revenue Approximate Revenue Approximate (RMB’000) % of total (RMB’000) % of total (RMB’000) %oftotal revenue revenue revenue

IP adaptation licensing 41,549 67.5 64,245 81.4 83,255 92.8 Online reading licensing 19,601 31.9 14,252 18.1 6,445 7.2 Others 397 0.6 401 0.5 12 (Note)

Total: 61,547 100.0 78,898 100.0 89,712 100.0

Note: Our other revenues are primarily derived from our investments in the development and production of entertainment products. Such revenues represented approximately 0.01% of our total revenue for FY2020.

During the Track Record Period, our revenue has showed a growth from RMB61.5 million for FY2018 to RMB78.9 million for FY2019 (representing a 28.2% increase) and to RMB89.7 million for FY2020 (representing a 13.7% increase). In particular, our revenue generated from our IP adaptation licensing business increased by (i) 54.6% from RMB41.5 million for FY2018 to RMB64.2 million for FY2019; and (ii) 29.6% from RMB64.2 million for FY2019 to RMB83.3 million for FY2020.

OUR OPERATION

Leveraging our experience and knowledge of the industry and our strong network among the industry players, (i) we assist writers to gain access and visibility to vast community of online readers with our editorial and marketing support; and (ii) our large content library provides our content adaptation partners and our cooperated online platforms with the source materials which they can license from us to create adaptations in various forms of entertainment.

The following diagram sets forth our operation flows and processes:

Writers’ own Enquiry from content Sourcing of IPs and initiative Initiated by us adaptation partners Initiated by us literary works

Creation of literary Engagement of writers for Acquisition of content works from writers certain of literary works adaptation rights from IP holders

Cultivation of IPs Editorial support and literary works to the literary works

Selection of literary works with content Content Library IP Reserve adaptation potentials or based on enquiry from content adaptation partners

Licensing of IPs Online reading licensing IP adaptation licensing and literary works • Licensing of literary works to • Licensing of content adaptation online reading platforms rights of our IPs to content adaptation partners

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With an aim to develop a literary work for licensing for adaptation and/or publication on the online reading platforms, our business starts by sourcing and identifying literary works with commercial potentials. Our Group would source literary works mainly through (i) inviting writers to submit draft literary works; and (ii) writers submitting draft literary works on their own initiatives directly to us. At times, we would communicate with our content adaptation partners to understand whether they have any specific needs for certain genres, themes, storylines or characters of literary works and based on such communications, we would commission writers, particularly phenomenal writers, to produce literary works customised for such needs. As at the Latest Practicable Date, our content library has grown into a literary reserve of more than 2,800 literary works from over 2,200 writers, spanning over 10 genres. As at the Latest Practicable Date, we engaged five platinum writers and 22 phenomenal writers. Notably, we have cooperated with popular writers such as Tiao Wu (跳舞) and Huangfuqi (皇甫奇). Tiao Wu became a member of China Writers Association (中國作家協會)in 2011 and the chairman of Jiangsu Province Online Writers Association (江蘇省網絡作家協會) in 2016 and ranked top 12 in the Third Chenggua Online Literatures Competition (橙瓜網絡文學獎) in 2018. We entered into contract with him in relation to his work Original World - Tian Yan (源世界之天衍) in 2017. Huangfuqi ranked among top 100 in the Second and Third Chenggua Online Literatures Competition (橙瓜網絡文學獎) in 2017 and 2018. We entered into contract with such writer in related to his work Original World - Kun Lun Yu (源世界之昆侖域) in 2017. Apart from engaging writers to develop literary works, we would also identify and license IPs with commercial potentials for adaptation into other entertainment formats. Following the selection of the literary works, we endeavour to cultivate and enhance the value of our literary works and IPs through various means including: (i) our editorial team will cooperate with the writers in the content creation process; (ii) our sales and marketing team conduct marketing activities; and (iii) we cooperate with online reading platforms on which we can make available, promote and recommend the literary works of our cooperating writers to existing and prospective users of such platform. In the next phase of our IP operations, we will enter into an agreement with our content adaptation partners, which are typically producers or distributors of the adapted products, pursuant to which we will license the relevant IPs (exclusively or non-exclusively) to such partners for adaptation into commercial media products. During the Track Record Period and up to the Latest Practicable Date, we had entered into IP adaptation agreements with more than 40 content adaptation partners in the entertainment industry, which adapted the literary works in our IP reserve into TV series, films, PC and mobile games or animations. The content adaptation partners will generally pay an upfront licensing fee to our Group. Notably, one of the writers we cultivated from his early creation stage, known as Xiaoxiao Xinger (笑笑星兒), created the popular online fiction series titled Female CEO’s Bodyguard (女總裁的貼身高手), which had a total click rate of over one billion on an online reading platform previously. Building upon the high visibility of the fiction series, our Group licensed its adaptation rights to our cooperating partners, adapting the literary work into an online TV series with a total click rate of approximately 670 million on Leshi Video (樂視視頻) as at the Latest Practicable Date. In addition to the licensing fees generated from our adaptation partners, we also derive revenue from licensing literary works to online reading platforms at a licence fee and/or under a profit sharing arrangement under which we share a stipulated percentage of the profit generated from subscription of literary works provided by our Group. As at the Latest Practicable Date, we were in cooperation with 41 online reading platforms. Our major cooperating online reading platforms include Shuqi Reading (書旗小說) operated by Alibaba Group Holding Limited (阿里巴巴), iReader (掌閱) and Migu Reading (咪咕閱讀), which ranked among the top online reading programs in the PRC according to the F&S Report. Through such platforms, we can further extend the reach of the literary works and thus their visibility to a wider audience. Historically, we operated our own online reading platform, namely Chuangbie Book City, which we established in 2014. With a view to streamline our business and focussing on our IP operations and given that (i) revenue generated from Chuangbie Book City had been consistently falling year by year, which only amounted to 12.7%, 1.3% and 0.1% of our total revenue for FY2018, FY2019 and FY2020, respectively; and (ii) we consider that it would require operating costs and human resources to develop and maintain Chuangbie Book City to compete effectively with the major online reading platforms in the PRC, we transferred Chuangbie Book City to Beijing Guixin, a company owned as to 92% by Ms. Shi, in November 2020. Please see section headed “History and Corporate Structure — Corporate Reorganisation” in this document for further details. Following the transfer of such

−3− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY platform to Beijing Guixin, we have continued to make available our literary works on the platform. To regulate our transactions with Beijing Guixin on Chuangbie Book City after [REDACTED], we entered into an online licensing framework agreement with Beijing Guixin and the transactions contemplated under such agreement will constitute continuing connected transactions of our Group under Chapter 14A of the Listing Rules. For further information, please refer to the section headed “Connected Transactions” in this document. OUR CUSTOMERS AND OUR SUPPLIERS During the Track Record Period, our customers were mainly content adaptation partners who license our intellectual property for adaptations and our cooperating online reading platforms where we release our literary works in consideration for licensing fees. We had business relationships with our five largest customers for approximately one to seven years as at 31 December 2020. For the years ended 31 December 2018, 2019 and 2020, revenue from our five largest customers accounted for approximately 70.7%, 82.2% and 82.5%, respectively, of our total revenue, and revenue from our largest customer accounted for approximately 29.1%, 60.4% and 31.5%, respectively, of our total revenue for the same periods. During the Track Record Period, our suppliers were mainly IP holders and writers. We had business relationships with our five largest suppliers for approximately one to five years as at 31 December 2020. During the Track Record Period, purchases from our five largest suppliers collectively accounted for approximately 64.0%, 88.4% and 92.9% of our total purchases for the years ended 31 December 2018, 2019 and 2020, respectively, and purchases from our largest supplier accounted for approximately 18.3%, 34.7% and 41.5%, respectively, of our total purchases for the same periods. OUR COMPETITIVE STRENGTHS We believe the following competitive strengths have contributed and will continue to contribute to our success: (i) we are one of the top 10 online literary IP operation companies in the PRC in terms of our revenue generated from online literature IP operation in FY2020 according to the F&S Report; (ii) we have strong cooperation with writers and a large pool of original content of literary works; and (iii) we have a strong network of content adaptation parties and online reading platforms; and (iv) we possess an experienced and dedicated management team with solid industry experience. OUR BUSINESS STRATEGIES To strengthen our competitiveness in the growing IP operations industry, we intend to pursue the following strategies: (i) to enrich our IP reserve with high quality literary work; (ii) to enhance our content library and IP reserve by expanding our pool of writers and devoting further resources to identify, cultivate and promote literary talents and literary works; and (iii) to selectively pursue strategic alliances and acquisitions which we believe to be strategic and complementary to our business operations. RISK FACTORS There are certain risks involved in our operations which may be beyond our control. These risks are further described in the section headed “Risk Factors” in this document. You should read the entire section carefully before deciding whether to [REDACTED] in the [REDACTED]. Major risks we face include: (i) we are subject to risks associated with operating in a rapidly developing and evolving industry. Our failure to keep up with the developments in the online literature market and IP operation industry, and our inability to match and address the appetites of our customers or the end users may affect our competitiveness; (ii) the future success of our business depends on our ability to engage talented writers and to source popular literary works; (iii) we may not enjoy the full benefit of our IPs if they have less market appeal than expected following the adaptation of the IPs by our content adaptation partners into other entertainment forms; (iv) we face competition in every aspect of our businesses. If we fail to compete effectively, we may lose writers with high quality literary talents which could materially and adversely affect our business, financial condition and results of operations; (v) we rely on third party online reading platforms and literature publishers to publish literary works of our cooperating writers; (vi) we cannot guarantee that our current or future monetisation strategies related to our IP operations will be successfully implemented or will generate sustainable revenue, profit or positive operating cash flows; (vii) uncertainties involving the process of adaptation of our IPs and their relatively long revenue period may materially and adversely affect

−4− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY our results of operations and financial condition; and (viii) impairment of our intangible assets could negatively affect our financial condition and results of operations. SELECTED OPERATIONAL AND FINANCIAL DATA Our key financial data set forth below has been derived from the Accountants’ Report set out in Appendix I and should be read in conjunction with our financial information included in “Appendix I — Accountants’ Report” including the accompanying notes and the information set forth in the section headed “Financial Information”. Summary data from combined statements of profit or loss The following table sets out a summary of our combined statements of profit or loss and other comprehensive income during the years indicated: For the year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Revenue 61,547 78,898 89,712 Cost of sales (38,409) (40,036) (49,240) Gross profit 23,138 38,862 40,472 Profit from operations 12,028 27,474 26,014 Profit before taxation 11,889 27,302 25,886 Profit and total comprehensive income for the year 10,279 25,356 24,896 Attributable to: Equity shareholders of the Company 8,805 21,368 24,678 Non-controlling interests 1,474 3,988 218 Profit and total comprehensive income for the year 10,279 25,356 24,896

Our revenue increased by 13.7% from RMB78.9 million for FY2019 to RMB89.7 million for FY2020. Such increase was primarily attributable to (i) the revenue of RMB28.3 million generated from the licensing of Tian Ying (天影) to our content adaptation partner; and (ii) the increase in the number of IPs which we licensed to our content adaptation partners and generated revenue from 74 for FY2019 to 171 for FY2020, which was due to the bundled license of the adaptation rights of 160 IPs we granted to a major online reading platform during FY2020, and was slightly offset by the decrease in the revenue from the online reading licensing business. Our revenue increased by 28.2% from RMB61.5 million for FY2018 to RMB78.9 million for FY2019. Such increase was primarily attributable to the fact the we licensed the adaptation rights of a number of major literary works to one of our content adaptation partners at a total licensing fee of approximately RMB33.5 million and was slightly offset by the decrease in the revenue from the online reading licensing. Set out below is the revenue contribution from our self-developed IPs and acquired IPs under the IP adaptation licensing business during the Track Record Period: For the year ended 31 December 2018 2019 2020 Number Revenue %of Number Revenue %of Number Revenue %of of IPs(3) (RMB’000) total of IPs(3) (RMB’000) total of IPs(3) (RMB’000) total revenue revenue revenue

Our self-developed IPs 20 18,082 43.5 53 24,056 37.4 2 7,358 8.8 Our acquired IPs 8 23,373 56.2 9 26,038 40.5 9 66,038 79.3 Combination of our self-developed and acquired IPs(1) 6 94 0.03 12 14,151 22.1 160(2) 9,859 11.9

Total: 34 41,549 100 74 64,245 100 171 83,255 100

−5− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY

Notes: 1. Our Company may license several self-developed IPs and acquired IPs together under the same agreement for a lump sum, the revenue generated from which could not be divided for each of the self-developed IPs and acquired IPs licensed under such agreement. 2. In FY2020, we granted a bundled license of the adaptation rights of 160 IPs to a major online reading platform, namely Customer B (as identified in the section headed “Business” in this document). 3. The number of IPs disclosed in the table represents the IPs to which the revenue generated in the relevant year was attributable. For the avoidance of doubt, the figures do not represent the number of IPs we licensed to our content adaptation partners for the relevant year and a particular IP may generate revenue in two or more years during the Track Record Period. Summary data from combined statements of financial position The following table sets out a summary of our combined statements of financial position as at the dates indicated: As at 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Non-current assets 86,183 121,400 101,972 Current assets 42,834 30,397 65,215 Current liabilities 37,423 35,464 26,855 Net current assets/(liabilities) 5,411 (5,067) 38,360 Total assets less current liabilities 91,594 116,333 140,332 Net assets 89,949 115,084 139,460 As at 31 December 2019, we had net current liabilities of RMB5.1 million, consisting of current assets of RMB30.4 million and current liabilities of RMB35.5 million, and represented a decline 193.6% from our net current assets of RMB5.4 million as at 31 December 2018. This was primarily attributable to (i) a decrease in trade receivables as a result of the settlement of a number of substantial trade receivables during FY2019; (ii) a decrease in our prepayment, deposits and other receivables mainly due to the repayment of advances by third parties; which was partially offset by a decrease in trade payables as a result of a decrease in payables for acquisitions of adaptation rights of online literary works. As at 31 December 2020, we had net current assets of RMB38.4 million, consisting of current assets of RMB65.2 million and current liabilities of RMB26.9 million, and represented a significant improvement from our net current liabilities of RMB5.1 million as at 31 December 2019. This was primarily attributable to (i) an increase in trade receivables, which corresponded to the general improvement in revenue recognised; (ii) an increase in prepayment, deposits and other receivables as a result of the increase in prepayments under co-investment arrangements for drama series of RMB16.6 million made in FY2020, in connection with an investment we made with respect to the production of two drama series; (iii) an increase in cash at bank and on hand; (iv) a decrease in trade payables as a result of a decrease in payables for acquisition of adaptation rights of online literary works; and (v) a decrease in other payables and accrued expenses primarily as a result of the repayment of the loans from a Shareholder. Summary data from combined statements of cash flows The following table is a condensed summary of our combined statements of cash flows and analysis of balances of cash and cash equivalents for the years indicated: For the year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Net cash generated from operating activities 54,964 71,216 60,631 Net cash used in investing activities (65,145) (70,306) (49,286) Net cash generated from/(used in) financing activities 6,208 (523) (2,707) Net (decrease)/increase in cash and cash equivalents (3,973) 387 8,638 Cash and cash equivalents at beginning of year 4,829 856 1,243 Cash and cash equivalents at end of year 856 1,243 9,881

−6− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY

Key financial ratios The following table sets out certain key financial ratios as at or for the years indicated: As at/For the year ended 31 December 2018 2019 2020 %%%

Net profit margin(1) 16.7 32.1 27.8 Return on equity(2) 11.4 22.0 17.9 Return on total assets(3) 8.0 16.7 14.9 Current ratio/quick ratio(4) 1.1 0.9 2.4 Gearing ratio(5) 0.02 0.01 0.001

Note: (1) Net profit margin is profit for the year divided by revenue for the same year. (2) Return on equity ratio is profit for the year divided by total equity as at the end of the year. (3) Return on total assets ratio is profit for the year divided by total assets as at the end of the year. (4) Current ratio is total current assets as at the end of the year divided by total current liabilities as at the end of the year. Quick ratio is current assets (net of inventories) divided by total current liabilities as at the end of the year. As we do not have any inventories, the quick ratio is the same as the current ratio of our Group. (5) Gearing ratio is interest-bearing bank loan as at the end of the year divided by total equity as at the end of the year. OUR CONTROLLING SHAREHOLDERS AND [REDACTED] Immediately after completion of the [REDACTED] and the [REDACTED], assuming that the [REDACTED] is not exercised and no Shares are allotted and issued under the Share Option Scheme. Upon [REDACTED], Ms. Shi (our non-executive Director) and Mr. Chen (our executive Director and chief executive officer) will be interested in and control, indirectly through (i) Yutang Investment and Renkai Investment (companies wholly-owned by Ms. Shi); and (ii) Xiangzhen Investment (a company wholly-owned by Mr. Chen), [REDACTED]% and [REDACTED]% of our issued share capital, respectively, assuming that the [REDACTED] is not exercised. Ms. Shi and Mr. Chen are co-founders of our Group and parties acting in concert with each other. As such, Ms. Shi, Mr. Chen, Yutang Investment, Renkai Investment and Xiangzhen Investment are together entitled to control the exercise of 30% or more of the voting power at general meeting of our Company and are thus regarded as a group of Controlling Shareholders of our Company. Details of our [REDACTED] Investors are set out below: Hold Guojin CPC CMGE Mr. Sin Virtue(1) Kaixing(1) Alpha(1) Technology(1) Hendrick(2)

Date of settlement of 16 May 2018 23 February 30 May 2016 3 April 2020 19 April consideration 2017 2021 Investment amount / 90,000,000 15,000,000 12,079,430 1,625,000 630,000.98 acquisition price (RMB) Shareholding in our [REDACTED]% [REDACTED]% [REDACTED]% [REDACTED]% [REDACTED]% Company upon [REDACTED]

Notes: 1. These [REDACTED] Investors acquired equity interests in our Group through their respective related entities. 2. This [REDACTED] Investor invested in our Group through his direct capital contribution to Beijing Kaixing. LEGAL PROCEEDINGS AND COMPLIANCE During the Track Record Period and up to the Latest Practicable Date, we were not involved in any actual or pending legal, arbitration or administrative proceedings (including any bankruptcy or receivership proceedings) that we believe is likely to have a material adverse effect on our business, results of operations, financial condition or reputation. During the Track Record Period, we were not in compliance with certain PRC legal requirements, namely, the failure to make social insurance fund contributions and housing provident fund contributions in full in the PRC in full compliance with the Social Insurance Law《中華人民共和國社會保險法》 ( ) and the Housing Provident Fund Regulations

−7− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY

(《中華人民共和國住房公積金管理條例》). Please refer to the paragraph headed “Business — Legal Proceedings and Compliance — Non-compliance incidents” in this document for further details. [REDACTED] We expect to incur a total of approximately RMB[REDACTED] million of [REDACTED] in connection with the [REDACTED], representing approximately [REDACTED]% of the gross [REDACTED] from the [REDACTED] (assuming an [REDACTED] of HK$[REDACTED] per Share, being the mid-point of the indicative [REDACTED] range and assuming that the [REDACTED] is not exercised). During the Track Record Period, we incurred [REDACTED] of approximately RMB[REDACTED] charged to our combined statements of profit or loss. We expect to further incur [REDACTED] and other [REDACTED] of approximately RMB[REDACTED] million upon completion of the [REDACTED], out of which approximately RMB[REDACTED] million is expected to be charged to our consolidated statements of results of operations for the year ending 31 December 2021 and approximately RMB[REDACTED] million is expected to be deducted from the share premium. The [REDACTED] above are the best estimate as at the Latest Practicable Date and for reference only. The actual amount may differ from this estimate. [REDACTED] STATISTICS Based on the [REDACTED] Based on the [REDACTED] of HK$[REDACTED] per of HK$[REDACTED] per [REDACTED] [REDACTED] Market capitalisation of our [[REDACTED] million] [[REDACTED] million] Shares at [REDACTED] (1) (HK$) [REDACTED] [REDACTED] [REDACTED]

Notes: 1. The calculation of market capitalisation is based on [REDACTED] Shares expected to be in issue immediately upon completion of the [REDACTED] and the [REDACTED] (without taking into account any Share which may be allotted and issued pursuant to the exercise of the [REDACTED] or any option which were or may be granted under the [REDACTED]). 2. For further details, please refer to “Appendix II — [REDACTED]” to this document. [REDACTED] Assuming an [REDACTED] of HK$[REDACTED] per [REDACTED]) being the mid-point of the indicative range of the [REDACTED] of HK$[REDACTED] to HK$[REDACTED] per Share and the [REDACTED] is not exercised, will be approximately HK$[REDACTED] million. To be in line with our strategies, we intend to use our [REDACTED] from the [REDACTED] for the purposes and in the amounts set out below: (i) approximately [REDACTED]%, or HK$[REDACTED] million, is expected to be used to enhance our IP reserve by expanding the breadth of our literary genre; (ii) approximately [REDACTED]%, or HK$[REDACTED] million, is expected to be used to enhance our content library and IP reserve by expanding our pool of writers and to strengthen editorial capabilities to give further support to the writers; (iii) approximately [REDACTED]%, or HK$[REDACTED] million, is expected to be used to fund our potential investments in, acquisitions of or joint ventures with, companies downstream along the value chain (i.e. our content adaptation partner), so as to expand our business coverage and broaden our income base; and (iv) the remaining amount of approximately [REDACTED]%, or HK$[REDACTED] million is expected to be used for working capital and general corporate purposes. Our Directors believe that the [REDACTED] will enhance our corporate profile and the [REDACTED] from the [REDACTED] to be received by us will strengthen our financial position and enhance our ability to implement our business plans. Please refer to the section headed “Future plans and [REDACTED] — Reasons for the [REDACTED]” for detailed reasons of the [REDACTED]. DIVIDEND AND DIVIDEND POLICY During the Track Record Period, no dividend had been paid or declared by our Company and other entities comprising our Group. We do not have a pre-determined dividend payout ratio for the time being to distribute dividend immediately after the [REDACTED]. Under our current policy, our Board will consider to recommend a payment of dividends in the future after taking into account our

−8− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions, capital expenditure and future development requirements, shareholders’ interests and such other conditions and other factors which they may deem relevant at such time. Any declaration and payment as well as the amount of the dividend will be subject to the Articles of Association, the Cayman Companies Act and any applicable laws and regulations. Any future declarations of dividend may or may not reflect our historical declarations of dividend and will be at the absolute discretion of our Directors.

We cannot assure you that we will be able to distribute dividends in the future. The declaration and payment of dividends may also be limited by legal restrictions, loan or other agreements that our Company and our subsidiaries have entered into or may enter into in the future.

RECENT DEVELOPMENT

Following the Track Record Period and up to the Latest Practicable Date, we acquired two IPs and the number of our self-developed IPs increased from 291 to 306. We entered into IP adaptation agreements with four content adaptation partners as at the Latest Practicable Date in respect of the licensing of adaptation rights to adapt the literary works into PC and mobile games, TV series, films and animations, whereby the contracted license fees amounted to RMB39 million in total. As at the Latest Practicable Date, two TV series adaptations had started casting and 12 game adaptations are applying for the adaptation partner’s internal project approval.

In FY2020, we co-invested an amount of RMB12 million in the production of a drama series with a media production company based on one of our literary works. In FY2021, due to prolonged production time for the drama series, we have negotiated and agreed with the media production company for the refund of RMB9 million to us, among which RMB7 million has been settled as at the Latest Practicable Date. The remaining RMB3 million was transferred into the production of another drama series with the same production company. Other than this amount, we have also invested an additional amount of RMB15 million to the production of such drama series. Please refer to the section headed “Business — Our business model — Co-investment in development of entertainment products” for the further details of such arrangements.

The impact of the COVID-19 outbreak on our operations

Since early 2020, the outbreak of COVID-19 pandemic has materially and adversely affected the global economy as well as the economy in the PRC. The PRC central government and other governments around the world have implemented strict measures to contain such outbreak.

The industries where our content adaptation partners operate in were affected in various ways and to different extents. According to the F&S Report, while the pandemic affected the film and drama series industries, due to, among other things, suspension or delay in filming or production, and closure of movie theatres, it has accelerated the development of the animation and gaming industries. The total revenue of the film market decreased from RMB68.5 billion in 2019 to RMB24.6 billion in 2020, as a result of the suspension of shooting or production for approximately two months since 1 February 2020 pursuant to the “Notice of Shooting Suspension of All Film and Television During the COVID-19 Period” (關於新冠疫情期間停止影視劇拍攝工作的通知) issued by the China Federation of Radio and Television Association and the China Television Production Committee. On the other hand, the gaming market in the PRC has generated a total revenue of RMB278.7 billion in 2020, representing a growth of 20.7% from that in 2019. In light of the impact on such industries, as compared to FY2019, the number of IPs we licensed to our content adaptation partners decreased in FY2020 and we also acquired less IPs during FY2020. Further, there has been a substantial delay in the production of a drama series that we co-invested in as disclosed above.

−9− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. SUMMARY efforts to promote and recommend our literary works during the pandemic, in particular, to our content adaptation partners in the gaming and animation industry. According to the F&S Report, with the gradual recovery from COVID-19, the PRC’s online literature market will maintain its further growth.

NO MATERIAL ADVERSE CHANGE

After due and careful consideration, our Directors confirm that, up to the date of this document, there has been no material adverse change in our financial or trading position since 31 December 2020 (being the date to which our combined financial statements set forth in Appendix I to this document are prepared), and there had been no event since 31 December 2020 which would materially affect the information shown in the Accountants’ Report set forth in Appendix I to this document.

−10− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

In this document, unless the context otherwise requires, the following terms shall have the following meanings. Certain technical terms are explained in the section headed “Glossary of Technical Terms” in this document.

“3M 2021” the three months ended 31 March 2021

“Acting in Concert Confirmation” the confirmation dated 29 March 2021 signed by our Controlling Shareholders, whereby they confirmed the existence of their acting in concert arrangements. For details, please refer to the section headed “Relationship with Controlling Shareholders — Acting in Concert Confirmation” in this document

“affiliate(s)” with respect to any specified person, any other person directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified person

“Articles” or “Articles of the amended and restated articles of association of our Association” Company, conditionally adopted on [REDACTED] with effect from the [REDACTED], and as amended from time to time, a summary of which is set out in the section headed “Summary of Articles of Association and Cayman Islands Companies Law” in Appendix III to this document

[REDACTED]

“associate(s)” has the meaning ascribed thereto under the Listing Rules

“Beijing Guixin” Beijing Guixin Technology Consultation Company Limited (北京珪心科技諮詢有限公司), a company established in the PRC with limited liability on 15 November 2018 and owned as to 92% by Ms. Shi, 4% by Cheng Fangdong (程方東), our executive Director, and 4% by Song Qihao (宋其浩), our chief financial officer

“Beijing Jinshi” Beijing Jinshi Kenghong Technology Centre (General Partnership) (北京金石鏗弘科技中心（普通合夥）), a general partnership enterprise established in the PRC on 21 November 2012 and owned as to approximately 50% by Mr. Chen, 45.49% by Ms. Shi and 4.51% by Yichun Interactive Entertainment

“Beijing Junkai” Beijing Junkai Enterprise Management Co., Ltd. (北京駿愷企業管理有限公司), a company established in the PRC with limited liability on 8 February 2021 and an indirect wholly-owned subsidiary of our Company

−11− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

“Beijing Kaiwen” Beijing Kaiwen Technology Development Co., Ltd. (北京愷文科技發展有限公司), a company established in the PRC with limited liability on 3 February 2021 and an indirect wholly-owned subsidiary of our Company

“Beijing Kaixing” Beijing Kaixing Culture Media Limited (北京愷興文化傳媒有限公司) (formerly known as Zhongrun Kaixing Culture Development (Beijing) Limited (中潤愷興文化發展（北京）有限公司) and Beijing Kaixing Culture Communication Company Limited (北京愷興文化傳播股份有限公司)), a company established in the PRC with limited liability on 8 December 2009 and an indirect wholly-owned subsidiary of our Company

“Beijing Qiwen” Beijing Qiwen Network Technology Limited (北京奇文網絡科技有限公司), a company established in the PRC with limited liability on 2 July 2014 and an indirect wholly-owned subsidiary of our Company

“Beijing Wenbo” Beijing Wenbo Internet Book Limited (北京文博互聯圖書有限公司), a company established in the PRC with limited liability on 9 October 2011 and an indirect wholly-owned subsidiary of our Company

“Board” the board of Directors

[REDACTED]

“Business Day” or “business day” any day (other than a Saturday, Sunday or public holiday in Hong Kong) on which banks in Hong Kong are generally open for normal banking business

“BVI” the British Virgin Islands

“CAGR” compound annual growth rate

“[REDACTED]” the capitalisation of an amount of HK$[REDACTED] standing to the credit of the share premium account of our Company by applying such sum in paying up in full [REDACTED] Shares for allotment and issue to our Shareholder(s) as resolved by our Shareholders on [REDACTED]

“Cayman Companies Act” or the Companies Act (as revised) of the Cayman Islands as “Companies Act” amended, supplemented or otherwise modified from time to time

[REDACTED]

−12− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

[REDACTED]

“Chuangbie Book City” Chuangbie Book City (創別書城), an online reading platform established by the Group in January 2014 and transferred to a company controlled by Ms. Shi in June 2021 pursuant to the Reorganisation

“China” or “PRC” the People’s Republic of China and for the purposes of this document only, except where the context requires otherwise, excluding Hong Kong, Macau Special Administrative Region of the PRC and Taiwan

−13− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

“Circular 37” Circular of the State Administration of Foreign Exchange on Issues Related to Foreign Exchange Administration in Terms of Overseas Investments and Financing via Special Purpose Companies and Return Investment by Domestic Residents (國家外匯管理局關於境內居民通過特殊目的公司境外投融資及返程投資外匯管理有關問題的通知) promulgated by the SAFE on 4 July 2014 and effective from the same day

“Chongqing Shuimu” Chongqing Shuimu Chengde Culture Industry Equity Investment Fund Partnership Enterprise (Limited Liability Partnership Enterprise) (重慶水木誠德文化產業股權投資基金合夥企業（有限合夥）), a limited partnership enterprise established in the PRC on 6 May 2015, the largest limited partner of which is Shenzhen Houde

“CMGE Technology” CMGE Technology Group Limited (中手遊科技集團有限公司), an exempted company incorporated in the Cayman Islands with limited liability whose shares are listed on the Stock Exchange (HKEx stock code: 00302) and our Shareholder

“close associate(s)” has the meaning ascribed to it under the Listing Rules

“Companies Ordinance” the Companies Ordinance (Chapter 622 of the Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time

“Companies (Winding Up and the Companies (Winding Up and Miscellaneous Provisions) Miscellaneous Provisions) Ordinance (Chapter 32 of the Laws of Hong Kong), as Ordinance” amended, supplemented or otherwise modified from time to time

“Company”, “our Company”, or Kaixing Culture Holding Co., Ltd (愷興文化控股有限公司), “the Company” an exempted company incorporated in the Cayman Islands with limited liability on 14 January 2021 and references to “we”, “us” or “our” refer to our Group or , where the context requires, our Company

“connected person(s)” has the meaning ascribed to it under the Listing Rules

“connected transaction(s)” has the meaning ascribed to it under the Listing Rules

“Controlling Shareholder(s)” has the meaning ascribed to it under the Listing Rules and unless the context otherwise requires, refers to Yutang Investment, Renkai Investment, Xiangzhen Investment, Ms. Shi and Mr. Chen. For further details of these entities, see “Relationship with Controlling Shareholders”

−14− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

“Copyright Protection Centre” Copyright Protection Centre of China (中國版權保護中心)is the national copyright public service institution in PRC

“core connected person(s)” has the meaning ascribed to it under the Listing Rules

“Corporate Governance Code” the Corporate Governance Code set out in Appendix 19 to the Listing Rules

“COVID-19” an infectious disease caused by the recently discovered coronavirus (severe acute respiratory syndrome coronavirus 2), first reported in December 2019

“CPC Alpha” China Prosperity Capital Alpha Limited, a company incorporated in Samoa with limited liability on 26 May 2016 and is wholly-owned by CPC Fund and ultimately controlled by Mr. Sin Hendrick

“CPC Fund” China Prosperity Capital Mobile Internet Fund L.P., a limited partnership established in the Cayman Islands and ultimately controlled by Mr. Sin Hendrick

“CSRC” China Securities Regulatory Commission (中國證劵監督管理委員會)

“Deed of Indemnity” a deed of indemnity dated [●] and executed by our Controlling Shareholders in favour of our Company (for itself and as trustee for its subsidiaries) containing the indemnities more particularly referred to in “Statutory and General Information” in Appendix IV to this document

“Deed of Non-competition” the non-compete undertaking dated [●] and executed by our Controlling Shareholders in favour of our Company, details of which are set out in “Relationship with Controlling Shareholders ”

“Director(s)” the director(s) of our Company

“Extreme Conditions” extreme conditions caused by a super typhoon as announced by the Hong Kong government according to the revised “Code of Practice in Times of Typhoons and Rainstorms” issued by the Hong Kong Labour Department

“F&S” or “Frost & Sullivan ” Frost & Sullivan (Beijing) Inc., Shanghai Branch Co., an industry research consultant which prepared the F&S Report

“F&S Report” or “Frost & an independent market report commissioned by us and Sullivan Report” prepared by F&S, the content of which is quoted in this document

−15− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

“FY2018” the financial year ended 31 December 2018

“FY2019” the financial year ended 31 December 2019

“FY2020” the financial year ended 31 December 2020

“FY2021” the financial year ending 31 December 2021

“GDP” gross domestic product

“GFA” gross floor area

[REDACTED]

“Group”, “our Group”, “the our Company and its subsidiaries, or where the context refers Group”, “we” or “us” to any time prior to our Company becoming the holding company of its present subsidiaries, the present subsidiaries of our Company and the businesses operated by such subsidiaries or their predecessors (as the case may be)

“Guangzhou Kaiqi” Guangzhou Kaiqi Technology Co., Ltd. (廣州愷琪科技有限公司), a company established in the PRC with limited liability on 11 January 2021 and an indirect non-wholly owned subsidiary of our Company, owned as to 70% by Beijing Kaixing and as to 30% by Liang Xingwen (梁興文)

“Guojin Kaixing” Guojin Kaixing Venture Capital Co., Ltd., a company incorporated in the BVI with limited liability on 22 December 2020 and is wholly owned by Guojin Tiankai Investment Holding Co., Ltd., a company incorporated in the BVI with limited liability on 21 December 2020, our [REDACTED] Investor and is ultimately owned as to 99.93% by Yiu Wai (姚偉), an Independent Third Party and 0.07% by Lin Jiaxi (林嘉喜), our non-executive Director and chairman of our Board

“Guojin Prosperous” Guojin Prosperous Venture Capital Co., Ltd., a company incorporated in the BVI with limited liability on 18 December 2020 and is wholly owned by Zongheng Investment

“Guojin Venture” Shenzhen Guojin Entrepreneurial Investment Enterprise (Limited Liability Partnership) (深圳國金創業投資企業（有限合夥）), a limited partnership enterprise established in the PRC with limited liability on 6 December 2013 and a [REDACTED] Investor in our Company managed by Guojin Zongheng and ultimately owned as to 42.8% by Lu Xingzhu (陸姓朱), an Independent Third Party, and other Independent Third Parties

−16− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

“Guojin Zongheng” Shenzhen Guojin Zongheng Investment Management Liability Company (深圳國金縱橫投資管理有限公司), a company established in the PRC with limited liability on 6 December 2013 which is ultimately wholly and beneficially owned by Lin Jiaxi, our non-executive Director and chairman of our Board

[REDACTED]

“Hold Virtue” Hold Virtue International Investment Hong Kong Limited (厚德前海國際投資香港有限公司), a company incorporated in Hong Kong with limited liability on 7 October 2015, our Shareholder and is indirectly wholly-owned by Shenzhen Houde

“Hong Kong” or “HK” the Hong Kong Special Administrative Region of the PRC

“Hong Kong dollars”, “HKD” or Hong Kong dollars, the lawful currency of Hong Kong “HK$”

[REDACTED]

−17− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

“Horgos Kaiqi” Horgos Kaiqi Culture Media Limited (霍爾果斯愷琪文化傳媒有限公司), a company established in the PRC with limited liability on 11 September 2019 and an indirect wholly-owned subsidiary of our Company

“Horgos Kaiwen” Horgos Kaiwen Culture Media Limited (霍爾果斯愷文文化傳媒有限公司), a company established in the PRC with limited liability on 10 December 2015 and an indirect wholly-owned subsidiary of our Company

“Horgos Qilin” Horgos Qilin Culture Media Limited (霍爾果斯麒麟文化傳媒有限公司), a company established in the PRC with limited liability on 22 June 2016 and indirectly owned as to 72.35% by our Company and as to 27.65% by other Independent Third Parties

“Huizhou Guangxun” Huizhou Guangxun Network Technology Limited (惠州市廣訊網絡科技有限公司), a company established in the PRC with limited liability on 11 December 2012 and an indirect wholly-owned subsidiary of our Company

“IFRS” International Financial Reporting Standards

“Independent Third Party(ies)” any entity or person who is not a connected person of our Company within the meaning ascribed thereto under the Listing Rules

[REDACTED]

−18− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

[REDACTED]

“Jinan Yuezhiyi” Jinan Yuezhiyi Culture Media Limited (濟南悅之翼文化傳媒有限公司), a company established in the PRC with limited liability on 9 June 2014 and an indirect wholly-owned subsidiary of our Company

“Kaixing Venture Capital” Kaixing Venture Capital Limited, a company incorporated in BVI with limited liability on 20 January 2021 and a direct wholly-owned subsidiary of our Company

“Latest Practicable Date” 20 June 2021, being the latest practicable date for ascertaining certain information in this document before its publication

[REDACTED]

“Listing Committee” the Listing Committee of the Stock Exchange

[REDACTED]

“Listing Rules” the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, as amended, supplemented or otherwise modified from time to time

“Liwei Investment” Liwei Investment Co., Ltd, a company incorporated in the BVI with limited liability on 7 December 2020 and wholly owned by Li Wei (李巍), an individual shareholder in Beijing Kaixing immediately prior to the Reorganisation

“Main Board” the stock exchange (excluding the option market) operated by the Stock Exchange which is independent from and operates in parallel with the GEM of the Stock Exchange

“Memorandum” or “Memorandum the amended and restated memorandum of association of our of Association” Company, conditionally adopted on [REDACTED] with effect from the [REDACTED], and as amended from time to time

“MIIT” the Ministry of Industry and Information Technology of the PRC (中華人民共和國工業和信息化部)

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“MOFCOM” the Ministry of Commerce of the PRC (中華人民共和國商務部) or its predecessor, the Ministry of Foreign Trade and Economic cooperation of the PRC (中華人民共和國對外貿易經濟合作部)

“Mr. Chen” Chen Xiangzhen (陳向真), executive Director and one of our Controlling Shareholders

“Ms. Shi” Shi Renkai (施人愷), non-executive Director and one of our Controlling Shareholders

“Noble Future” Noble Future Limited (駿泛有限公司), a company incorporated in Hong Kong with limited liability on 8 January 2021 and an indirect wholly-owned subsidiary of our Company

[REDACTED]

“PRC Legal Advisor” Jingtian & Gongcheng, our legal advisor as to PRC laws

“[REDACTED]” the [REDACTED] in our Company undertaken by the [REDACTED], details of which are set out in the section headed “History, Reorganisation and Corporate Structure” in this document

“[REDACTED]” those investors in our Group referred to as such in “[REDACTED]”

−20− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

[REDACTED]

“Relevant Persons” the Sole Sponsor, the [REDACTED], the [REDACTED], the [REDACTED], the [REDACTED], any of their or our Company’s respective directors, officers, or representatives or any other parties involved in the [REDACTED]

“Renkai Investment” Renkai Investment Co., Ltd, a company incorporated in the BVI with limited liability on 7 December 2020 and wholly owned by Ms. Shi

“Reorganisation” the corporate reorganisation of our Group in preparation for the [REDACTED] as set out in “History, Reorganisation and Corporate Structure” in this document

“RMB” or “Renminbi” Renminbi, the lawful currency of the PRC

“SAFE” the State Administration of Foreign Exchange of the PRC (中華人民共和國外匯管理局)

“SAMR” the State Administration for Market Regulation of the PRC (中華人民共和國國家市場監督管理總局)

“SAT” the State Administration of Taxation of the PRC (中華人民共和國國家稅務總局)

“SFC” the Securities and Futures Commission of Hong Kong

“SFO” or “Securities and Futures the Securities and Futures Ordinance (Chapter 571 of the Ordinance” Laws of Hong Kong), as amended, supplemented or otherwise modified from time to time

−21− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

“Share Option Scheme” the share option scheme conditionally adopted by our Company on [●], the principal terms of which are summarised in “Statutory and General Information — Share Option Scheme” in Appendix IV to this document

“Shareholder(s)” holder(s) of our Share(s)

“Share(s)” ordinary shares in the share capital of our Company with a par value of HK$0.01 each

“Shenzhen Guohong” Shenzhen Guohong Jiaxin Consulting Management Services Company Limited (深圳市國宏嘉信諮詢管理服務有限公司), a company established in the PRC with limited liability on 25 March 2016 and owned as to 60% by Ma Zhiqiang (馬志強) and as to 40% by Liu Simin (劉思敏), both being Independent Third Parties

“Shenzhen Guojin” Shenzhen Guojin Tiankai Entrepreneurial Investment Enterprise (Limited Liability Partnership) (深圳國金天愷創業投資企業（有限合夥）), a limited partnership enterprise established in the PRC on 24 May 2016 and directly owned as to 99.93% by Shenzhen Qianhai and as to 0.07% by Guojin Zongheng. It also held 0.1% equity interest in Beijing Kaixing upon completion of the Reorganisation

”Shenzhen Houde” Shenzhen Houde Qianhai Equity Investment Funds Partnership (Limited Liability Partnership) (深圳市厚德前海股權投資基金合夥企業（有限合夥）), a limited partnership enterprise established in the PRC on 17 October 2013 and the ultimate beneficial owner of Hold Virtue. The general partner of Shenzhen Houde is ultimately owned as to 70% by Hua Lixin (華立新) and 30% by Shi Ganjian (石根達), both being Independent Third Parties

“Shenzhen Lanyue” Shenzhen Lanyue Network Technology Company Limited (深圳市嵐悅網絡科技有限公司), a company established in the PRC with limited liability on 7 June 2013 and a direct wholly owned subsidiary of CMGE Mobile Technology Limited (中手遊移動科技有限公司), a company established in the PRC with limited liability on 14 October 2015

“Shenzhen Qianhai” Shenzhen Qianhai Zhongrunchang Investment Management Company Limited (深圳市前海中潤昌投資管理有限公司), a company established in the PRC with limited liability on 8 May 2015 and is wholly and beneficially owned by Yiu Wai (姚偉), an Independent Third Party

−22− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

“Shibei Investment” Shibei Investment Co., Ltd, a company incorporated in the BVI with limited liability on 7 December 2020 and wholly owned by Zhang Shibei (張式貝), an individual shareholder in Beijing Kaixing immediately prior to the Reorganisation

“Sole Function” Sole Function J. Holding Limited, a company incorporated in the BVI with limited liability on 6 June 2018 and is wholly owned by Jiang Hongwen (姜洪文), an individual shareholder in Beijing Kaixing immediately prior to the Reorganisation

“Sole Sponsor” or “Soochow Soochow Securities International Capital Limited, a licensed Securities” corporation under the SFO to carry out Type 6 (advising on corporate finance) regulated activities

[REDACTED]

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“subsidiary(ies)” has the meaning ascribed to it in the Listing Rules

“substantial shareholder” has the meaning ascribed to it in the Listing Rules

“Takeovers Code” Code on Takeovers and Mergers and Share Buy-back issued by the SFC, as amended, supplemented or otherwise modified from time to time

“Track Record Period” the period comprising FY2018, FY2019 and FY2020

[REDACTED]

“US dollars”, “U.S. dollars” or United States dollars, the lawful currency of the United States “US$”

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[REDACTED]

“Victory Games” Victory Games Network Technology Co., Ltd. (深圳市勝利互娛網絡科技有限公司), a company established in the PRC with limited liability on 1 July 2015, which is an indirect wholly-owned subsidiary of CMGE Technology

[REDACTED]

“Xiangzhen Investment” Xiangzhen Investment Co., Ltd, a company incorporated in the BVI with limited liability on 7 December 2020 and wholly owned by Mr. Chen

“Yichun Interactive Yichun City Interactive Entertainment Network Technology Entertainment” (宜春市動點互娛網絡科技有限公司), a company established in the PRC with limited liability on 26 November 2019 and an indirect wholly-owned subsidiary of CMGE Mobile Technology Limited (中手遊移動科技有限公司), a company established in the PRC with limited liability on 14 October 2015

“Yutang Investment” Yutang Investment Co., Ltd, a company incorporated in the BVI with limited liability on 7 December 2020 and wholly owned by Renkai Investment

“Yuxiu Investment” Yuxiu Investment Co., Ltd, a company incorporated in the BVI with limited liability on 7 December 2020 and wholly owned by Yu Xiu (余秀), an individual shareholder in Beijing Kaixing immediately prior to the Reorganisation

“Zongheng Investment” Zongheng GJ Investment Co., Ltd, a company incorporated in the BVI with limited liability on 17 December 2020 and is wholly owned by Lin Jiaxi, our non-executive Director and chairman of our Board

“%” per cent

−24− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. DEFINITIONS

Unless otherwise expressly stated or the context otherwise requires, all data in this document is as at the date of this document.

The English names of literary works, IPs, psendonyms of writers, the PRC entities, PRC laws or regulations, and the PRC governmental authorities referred to in this document are translations from their Chinese names and are for identification purposes. If there is any inconsistency, the Chinese names shall prevail.

Certain amounts and percentage figures included in this document have been subject to rounding adjustments. Accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures preceding them.

−25− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. GLOSSARY OF TECHNICAL TERMS

This glossary contains definitions of certain terms used in this document in connection with our business and the industry in which we operate. Some of these may not correspond to standard industry definitions. app abbreviation for application, which refers to a computer or mobile program that is designed for a particular purpose acquired IP(s) the IPs we licensed from the IP holders

“class A” IPs IPs usually created by phenomenal writers

“class S” IPs IPs usually created by platinum writers content library a depository of literary works created by writers for online reading

DAUs daily active users who access online reading platforms at least once during the day in question

• “DAUs” for a specific mobile app are calculated using the number of unique devices that activate the app at least once during the day in question. If a mobile device accesses two different mobile apps over the course of a day, it would, under this methodology, be counted as two DAUs.

• “DAUs” for a specific WAP or website are calculated using the number of unique cookies (a commonly used tracking code) recorded by the internet browsers that access such WAP or website at least once during the day in question.

GDP gross domestic product

GFA gross floor area

IP(s) intellectual properties of literary works that have the potential to be adopted, entirely or partially, into entertainment products, such as films or TV series, PC and mobile games, animations and other derivative products

IP holder(s) the parties who have the right to license the copyrights of literary works to us, including writers, copyright and publishing companies and other industry players

IP reserve a reserve of self-developed IPs and acquired IPs which is considered to have commercial potential for adaptation into entertainment products

MAUs refers to monthly active users who access online reading platforms at least once during the calendar month in question

−26− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. GLOSSARY OF TECHNICAL TERMS

• “MAUs” for a specific mobile app are calculated using the number of unique devices that activate the app at least once during the calendar month in question. If a mobile device accesses two different mobile apps over the course of a calendar month, it would, under this methodology, be counted as two MAUs.

• “MAUs” for a specific WAP or website are calculated using the product of (i) the number of registered users of such WAP or website who logged into their accounts during the calendar month in question, multiplied by (ii) a ratio that estimates the total active users over logged-in users of such WAP or website.

PC personal computer self-developed IP(s) the IPs we selected from our content library which we consider to have commercial potentials for adaptation and the IPs of literary works we commission writers to develop specifically for adaptation purposes

TV television

TV series a series of scripted episodes that are broadcasted on TV channels and/or new media channels such as online video platforms

WAP “Wireless Application Protocol”, referring to access via a mobile browser using this protocol

−27− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements that state our intentions, beliefs, expectations or predictions for the future that are, by their nature, subject to significant risks and uncertainties. These forward-looking statements include, without limitation, statements relating to:

• our operations and business prospects;

• our business and operating strategies and our ability to implement such strategies;

• our ability to develop and manage our operations and business;

• general economic, political and business conditions in the industries and markets in which we operate;

• ability to maintain good relationship of business partners;

• our future selling and administrative expenses;

• competition for, among other things, capital, technology and skilled personnel;

• our ability to control costs;

• our dividend policy;

• changes to regulatory and operating conditions in the industry and geographical markets in which we operate; and

• all other risks and uncertainties described in “Risk Factors”.

When used in this document, the words “will”, “anticipate”, “believe”, “could”, “estimate”, “expect”, “plan”, “aim”, “target”, “continue”, “intend”, “may”, “predict”, “potential”, “seek”, “should”, “prospects”, “going forward” and similar expressions, as they relate to us or our business, are intended to identify forward-looking statements. Such statements reflect our current views with respect to future events and are subject to risks, uncertainties and various assumptions, including the risk factors described in this document. Should one or more of these risks or uncertainties materialise, or if any of the underlying assumptions prove incorrect, actual results may diverge significantly from the forward-looking statements in this document. Whether actual results will conform with our expectations and predictions is subject to a number of risks and uncertainties, many of which are beyond our control, and reflect future business decisions that are subject to change. In light of these and other uncertainties, the inclusion of forward-looking statements in this document should not be regarded as representations that our plans or objectives will be achieved, and [REDACTED] should not place undue reliance on such forward-looking statements. All forward-looking statements contained in this document are qualified by reference to the cautionary statements set out above. We do not intend to update these forward-looking statements in addition to our on-going disclosure obligations pursuant to the Listing Rules or other requirements of the Stock Exchange.

−28− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS

An [REDACTED] in our Shares involves significant risks. You should carefully consider all of the information in this document, including the risks and uncertainties described below, before making an [REDACTED] in our Shares. The following is a description of what we consider to be our material risks. Any of the following risks could have a material adverse effect on our business, financial condition and results of operations. In any such case, the market price of our [REDACTED] could decline, and you may lose all or part of your [REDACTED].

These factors are contingencies that may or may not occur, and we are not in a position to express a view on the likelihood of any such contingency occurring. The information given is as at the Latest Practicable Date unless otherwise stated, will not be updated after the date hereof, and is subject to the cautionary statements in the section headed “Forward-looking Statements” in this document.

RISKS RELATING TO OUR BUSINESS AND INDUSTRY

We are subject to risks associated with operating in a rapidly developing and evolving industry. Our failure to keep up with the developments in the online literature market and IP operation industry in the PRC, and our inability to match and address the appetites of our customers or the end users may affect our competitiveness

The IP operation industry in the PRC is rapidly evolving and is subject to continuous market developments and ever-changing customer demands. Our Directors believe that our business success depends on our ability to anticipate future trends and preferences of our content adaptation partners or the end users, which change from time to time. Leveraging on our understanding of the online literature market in the PRC, we believe that we have the foresight, business acumen and astute insights to the latest preference of readers in the online literature market in the PRC so as to discover the commercial potentials of a writer or a literary work and develop tailor-made marketing solutions to maximise the value of the writer and the literary work. During the Track Record Period and up to the Latest Practicable Date, we had entered into IP adaptation agreements with more than 40 content adaptation partners in the PRC in a wide range of pan-entertainment industries, which adapted our literary work into TV series, films, PC and mobile games or animations.

Our ability to keep up with the developments in the online literature market and IP operation industry in the PRC, as well as to match the appetites of our content adaptation partners and to address the evolving needs and preferences of the end users, are key to staying competitive and succeed in our business. If we fail to observe the rapidly evolving market trends and understand the requirements from our content adaptation partners or the end users, thereby select, acquire or develop literary works with little commercial potentials or unsuitable for content adaptation, our cooperating partners may be temperate in cooperating, or committing to maintain a strong and long-lasting relationship with us, which in turn would negatively affect our business performance and prospects.

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The future success of our business depends on our ability to engage talented writers and to source popular literary works

As one of the IP operation companies in the PRC that generates a majority of its revenue from licensing literary works to our cooperating partners for adaptation into other forms of entertainment, our future success depends largely on our ability to discover, identify, engage and cultivate talented writers, source popular literary works, explore opportunities and devise tailor-made solutions to monetise the value of the literary works, all on a continuing basis and in a timely and cost-effective manner. For example, we must provide quality editorial support and boost marketing activities in order to attract and onboard aspiring and popular writers, thereby sustaining the amount of quality literary works in our content library. If we do not adapt our services to such demands and changes in an effective and timely manner, we may suffer from a decreased writer pool, which may result in a reduced amount of new literary works in our content library. However, we may not execute our business strategies successfully due to a variety of reasons such as misunderstanding or erroneous prediction of market demand or lack of necessary resources. Failure to keep up with the changes in user preferences or requirements may result in our offerings of advices and services to our cooperating writers and content adaptation partners being less attractive than those provided by our competitors, which in turn may materially and adversely affect our business, results of operations and prospects.

We may not enjoy the full benefit of our IPs if they have less market appeal than expected following the adaptation of the IPs by our content adaptation partners into other entertainment forms

We seek to match the appetites and fulfil preferences of our content adaptation partners with the source materials and literary content in our IP reserve. Our Directors believe that our success depends on our ability to discover and identify popular literary works which we consider to have commercial potentials for cultivation and adaptation. However, many factors, some of which are beyond our control, may affect the eventual commercial value of our literary work following the adaptation into other entertainment forms, such as the ever changing tastes and shifting interest of the ultimate consumers, the timing of the development and release of the entertainment product, as well as the conditions in the media and entertainment industry generally. If the performance of the selected IPs failed to meet expectations, or if there was a shift in consumer tastes away from a selected and adapted IP by the time the entertainment product was released to the market, this may undermine the commercial value of and revenue generated by such IPs, thereby adversely affecting our results of operations.

Some of our IP adaptation agreements require our content adaptation partners to pay, in addition to a fixed sum of licensing fee, a pre-determined percentage of the revenue or profit, as the case may be, generated from the entertainment products developed under the IP adaptation agreement. Any underperformance of the selected and adapted IPs may result in a reduction in revenue or profit for us, and negatively impact our business performance and prospects.

−30− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS

We face competition in every aspect of our businesses. If we fail to compete effectively, we may lose writers with high quality literary talents which could materially and adversely affect our business, financial condition and results of operations

We face competition in every aspect of our business, and particularly from other IP operation companies that seek to provide services for online literary content creation, cultivation, marketing and monetisation. Our competitors may compete with us in a variety of ways, including attracting writers with more favourable contractual terms or competitive packages, obtaining exclusive licensing rights of popular literary works from IP holders, conducting promotion events or other marketing activities, adopting more aggressive pricing policies and making acquisitions. Such competition may significantly increase the market price for literary works, causing us to lose our existing or potential writers with high quality literary talents, and therefore materially and adversely affect our business, financial condition and operational results. Please refer to the section headed “Business — Competition” in this document.

In addition, certain IP operation companies may offer to license literary works for adaptation at lower prices or other more favourable terms and as a result, content adaptation partners may be diverted away from our Group. Furthermore, as the online literature industry in the PRC is constantly evolving, our current or future competitors may compete more successfully as the industry matures. In addition, any of our current or future competitors may be acquired by, receive investments from or enter into other strategic or commercial relationships with larger, more established and/or better financed companies and therefore obtain significantly greater financial, marketing, licensing and development resources than we do. If any of our competitors achieves greater market acceptance than we do, or are able to devote more resources to create, popularise and commercialise more attractive or comparable literary content, our pool of talented writers, selection of popular online literary works and our market share may decrease, which may have a material adverse effect on our business, financial condition and operational results.

We rely on third party online reading platforms and literature publishers to publish literary works of our cooperating writers

We cooperate with various third party online reading platforms on which we release and license our literary works for subscription, thereby extending the reach and enhancing awareness of the literary works of our cooperating writers to a wider audience. We enter into cooperation agreements with the third party online reading platforms pursuant to which their registered users are able to access literary works we licence to such platforms at a licence fee and/or under a profit-sharing arrangement. As at the Latest Practicable Date, we had entered into cooperation agreements with 41 online reading platforms, including our major cooperating online reading platforms, namely iReader (掌閱), Shuqi Reading (書旗小說) (shuqi.com) and Migu Reading (咪咕文學) (cmread.com). However, there are no assurance that our cooperation agreements with those platforms will be extended or renewed after their respective expiration or that we will be able to extend or renew such agreements on terms and conditions favourable to us. If these third party online reading platforms are dissatisfied with our profit-sharing arrangements or the revenue-generating ability of the literary works we licence to them, they may cease to cooperate with us. Loss of cooperation arrangements with such platforms may affect our ability to publicise, advertise and popularise the literary works of our cooperating writers, which may in turn diminish the commercial potential of the literary works, and our business, financial condition and results of operations could be materially and adversely affected.

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We cannot guarantee that our current or future monetisation strategies related to our IP operations will be successfully implemented or will generate sustainable revenue, profit or positive operating cash flows. Our failure to identify appropriate entertainment industry partners to maximise the monetisation potential of our popular literary works for our IP operations may also materially and adversely affect our business and financial condition.

We have experienced rapid growth in our IP adaptation licensing business, which primarily involve licensing our online literary works and/or acquired IPs to our cooperation partners for adaptation into various other forms of entertainment products, such as films or TV series, PC and mobile games or animations. In FY2018, FY2019 and FY2020, our revenue from our IP adaptation licensing amounted to RMB41.5 million, RMB64,2 million and RMB83.3 million, respectively, representing approximately 67.5%, 81.4% and 92.8%, respectively, of our total revenue during the same periods. We retain existing content adaptation partners and develop new partnerships in order to maximise the monetary value of our selected literary works and acquired IPs. However, we cannot assure you that this level of significant growth will be sustainable or fully achievable in the future. If we fail to license our IPs in our IP reserve for adaptation into suitable entertainment formats or accurately forecast the market reaction with respect to our content adaptation products, our IP adaptation licensing business may not succeed, which would negatively affect our business performance. Therefore the future revenue and income potential of our IP adaptation licensing business may be difficult to evaluate.

Moreover, if we fail to effectively identify and develop popular literary works or acquired IPs with adaptation and commercial potential or properly maintain our existing business relationship with our content adaptation partners in the future or develop new business relationships, our content adaptation partners may be less likely to source content from and develop business cooperation with us, the occurrence of which may materially and adversely affect our business, financial condition, operational results and prospects. In addition, we may not have sufficient control over the adaptation process and quality of the films or TV series, PC and mobile games or animated works adapted from our popular content and produced, on an outsourced basis, by our partners, and we may be negatively affected or even held liable for the activities or the financial soundness of our content adaptation partners.

Uncertainties involving the process of adaptation of our IPs and their relatively long revenue period may materially and adversely affect our results of operations and financial condition.

IP adaptation licensing is our major source of revenue. The process of adapting the relevant literary works into other entertainment formats is subject to uncertainties relating to our content adaptation partners or other third parties, some of which are beyond our control. For example, there may be sudden changes in market preferences and/or applicable rules and regulations, which may prevent us or our content adaption partners from successfully developing and monetising the value of our IPs or literary works as anticipated. In addition, at the filming and production stage, our content adaption partners may not be able to finish the production as scheduled due to various factors, such as insufficient funding, actors’ unsatisfactory performance or unexpected changes of filming sites.

−32− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS

If our content adaption partners are unable to adhere to the production schedules and distribution plans, the production cost may increase and distribution of the adaptations may be delayed. If this occurs, we will not be able to realise income from the shared profits on a timely basis, which may materially and adversely affect our business, financial condition and results of operations.

Further, the process of adaptation of our IPs, especially the production of films, TV and web series generally require one to four years to complete, leading to a relatively long revenue recognition period for this business, which may adversely impact our operating cash flows. If we are not able to effectively shorten our revenue recognition period, our business, financial condition and results of operations could be materially and adversely affected.

Impairment of our intangible assets could negatively affect our financial condition and results of operations

We record intangible assets of RMB81.0 million, RMB118.1 million and RMB99.0 million as at 31 December 2018, 31 December 2019 and 31 December 2020, respectively. Our intangible assets consist mainly of (i) copyright of online literary work, (ii) copyright of games, and less importantly (iii) software which we purchased for financial management. We expect our intangible assets to continue to increase in the future as we develop and acquire more literary works. Intangible assets are subject to amortisation and reviewed for impairment whenever events or changes in circumstances indicated that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. For FY2018, FY2019 and FY2020, we recorded amortisation charge of approximately RMB31.2 million, RMB36.6 million and RMB46.5 million, respectively, and impairment losses of intangible assets of RMB2.2 million, RMB1.1 million and RMB3.1 million, respectively. We cannot guarantee that we will not record greater impairment losses of intangible assets in the future. Material impairment of intangible assets could negatively affect our financial condition and results of operations.

We may experience delays or defaults in collecting our trade receivables which may affect our operating results and liquidity position.

Our trade receivables mainly represent the outstanding amount of licensing fees due from our customers for licensing of our literary works. As at 31 December 2018, 2019 and 2020, the total carrying amount of trade receivables of our Group amounted to approximately RMB35.2 million, RMB29.1 million and RMB35.7 million, respectively. Further, we recognised impairment losses on trade receivables for FY2018 and FY2019 in the amount of RMB1.2 million and RMB2.2 million, respectively.

−33− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS

If a customer delays their payment to us, our cash flow and working capital may be materially and adversely affected. Even if we are able to recover any losses incurred pursuant to the terms of the contract, the process of such recovery may be time-consuming and requires extra financial and other resources to settle the disputes. Furthermore, there can be no assurance that any outcome will be in our favour or that any dispute will be resolved in a timely manner. Failure to secure adequate payments in time or to manage past due debts effectively could have a material and adverse effect on our business, financial position, results of operations and prospects.

During the Track Record Period, save as disclosed in the section headed “Financial Information” in this document, we have not encountered any material delay in payment by our customers. However, there can be no assurance that such payments will be made on time by our customers in the future. Any failure by our customers to make payments to us on a timely manner may have an adverse effect on our future liquidity position.

Failure to comply with PRC laws and regulations prohibiting the publication, license and release of pornographic content may subject us to liabilities, administrative actions or penalties imposed by the relevant PRC regulatory authorities, and may have a material and adverse impact on our business, financial condition and operational results

PRC laws and regulations require us to ensure that our literary content does not include any obscenity or pornography, to immediately delete any obscene or pornographic content, and to keep records and report to the governmental authorities in charge. As advised by our PRC Legal Advisor, under applicable PRC laws and regulations, the determination of obscenity and pornography is within the power of relevant regulatory authorities, including but not limited to the Office of the National Working Group for Crackdown on Pornographic and Illegal Publications (全國“掃黃打非”工作小組辦公室), the Cyberspace Administration of China (the “CAC”), the Ministry of Public Security (公安部), the National Press and Publication Administration (國家新聞出版署), the Ministry of Culture and Tourism (文化和旅遊部) and their respective local counterparts.

Failure to comply with the relevant PRC laws and regulations on a timely and adequate basis may subject us to liability, administrative actions or penalties imposed by the relevant competent PRC authorities. During the Track Record Period, Beijing Kaixing was fined an aggregate of approximately RMB15,000 by the Beijing Cultural Market Administrative Law Enforcement Team (北京市文化市場行政執法總隊) in accordance with the Regulations on the Administration of Online Publishing Services《網絡出版服務管理規定》 ( ) for the publication and dissemination of online publications containing pornographic content. As advised by our PRC Legal Advisor, Beijing Kaixing has paid the relevant fine in full and that it is unlikely that the authority will impose further fine on Beijing Kaixing in respect of the aforementioned non-compliance. The imposition of any of these penalties may result in a material and adverse effect on our ability to conduct our business and have a material and adverse impact on our business, financial condition and operational results. In the worst scenario, the competent PRC authorities could revoke our business and operating licenses, or require us to discontinue or restrict our operations.

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Our business may also be adversely affected by the national or local policies relating to entertainment products

National or local policies, as well as the laws, regulations and restrictions relating to publication or broadcast of entertainment products in the PRC, may have an adverse impact on our business operations. Entertainment products, such as films, drama series or games, may be subject to such restrictions which may involve prohibitions on the release of certain types or themes of entertainment products in the PRC. For instance, beginning in the third quarter of 2019 and until early December 2019, the PRC government has requested that all levels of the media in the PRC, including drama series producers and distributors, shall participate in the nationwide celebration of the 70th anniversary of the founding of the PRC. During this period, the TV channels at all levels in the PRC were not allowed to broadcast costume drama (古裝劇) with relatively high entertainment content. Policies such as this may have an adverse impact on the demand for drama series with such themes and thus studios may avoid the production of similar dramas. If there are similar government policies implemented against the release of entertainment products relating to the themes of our literary works, the demands from our content adaptation partners for such works may be reduced and our operating results may be materially and adversely affected. There can be no assurance that the PRC government will not change the existing laws or regulations, adopt additional or more stringent laws or regulations or impose new policies and restrictions which may affect our business operation in the manner described above.

Any plagiarism, infringement or misappropriation of intellectual properties by our cooperating writers may give rise to potential infringement or misappropriation claims or litigations relating to the violation of copyrights or other intellectual property rights against us, thereby adversely affect our business and reputation.

We conduct our IP operations business through (i) licensing online literary workds to our content adaptation partners for adaptation into various entertainment formats; and (ii) licensing literary works to online reading platforms. Any plagiarism, infringement or misappropriation of the intellectual properties relating to the literary works by our cooperating writers or the IP holders may give rise to potential infringement or misappropriation claims or litigations relating to the violation of copyrights or other intellectual property rights against us.

Although we have adopted internal procedures to screen, monitor and discard the literary works which may potentially infringe third-party intellectual property rights and PRC laws and regulations, we may not be able to identify and remove all potentially problematic content in a timely manner due to the large amount of literary work being licensed to our content adaptation partners and the online reading platforms. Accordingly, from time to time, we may be exposed to intellectual property infringement or misappropriation claims by third parties, including our content adaptation partners, thereby exposed to increase risk of litigation.

Defending against any of these potential claims could be both costly and time-consuming, and could significantly divert the efforts and resources of our management and other personnel. An adverse determination in any such litigation or proceedings to which we may become a party could subject us to significant liability to third parties, require us to seek licenses from third parties, pay ongoing royalties, or subject us to injunctions prohibiting the licensing and release of the relevant literary content. To the extent that licenses are not available to us on commercially reasonable terms

−35− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS or at all, we may be required to expend considerable time and resources sourcing alternative content, if any, or we may be forced to delay or suspend the license or release of the relevant literary content. Furthermore, any charge against us or our cooperating writers for copyright infringement may also affect our ability to monetise the corresponding online literary content to the full extent and damage our reputation as a source of high quality literary content to our content adaptation partners. In addition, we may be subject to administrative actions brought by the copyright administrative department for alleged copyright infringement. As a result of such claims, litigations and administrative actions, our business, brand image and reputation could be materially and adversely affected.

Although we require our cooperating writers with whom we sign licensing contracts to indemnify us against any violations by the writers of their contractual obligations, we cannot assure you that intellectual property right infringements or misappropriation claims resulting from our cooperating writers’ violations of their contractual obligations to us will not occur. Moreover, despite indemnification arrangements with our cooperating writers, they may not have the financial resources to fulfill their indemnity obligations to us under any such infringement or misappropriation claim, which may, as a result, affect adversely affect our business, financial condition and results of operations.

Unauthorised use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may adversely affect our business and competitive position.

Intellectual property is crucial to our competitiveness and success. Unauthorised use of the intellectual properties of our cooperating writers or our Company may adversely affect our business and reputation. Although our licensing contracts with our cooperating writers typically require them to provide us with the exclusive licensing rights to the literary work, we cannot assure you that our cooperating writers have not or will not transfer or licence or publish their literary works to or on other platforms in violation of their contracts with us. Our cooperating writers are obligated to indemnify us for any losses resulting from violations of their obligations under the licensing contracts with us. However, we cannot assure you that we will be able to recover such losses from them.

As part of our IP operations, we also release literary works in our content library to various third party online reading platforms. If such third party online reading platforms distribute any content on their platforms that violates our cooperation agreements, it may damage our interests and have an adverse impact on the results of our operations. In particular, if such reading platforms display any pirated content of the literary works released by us, readers may opt to such pirated content instead of paying for our literary works, and our proportion of revenue generated will accordingly be negatively impacted due to the distribution of such pirated content.

Further, we rely on a combination of copyright, trademark, patent, trade secret laws and restrictions on disclosure as well as non-competition, confidentiality and license contracts with our employees, editors, writers, business partners or others to protect our intellectual property rights and to meet the obligations we owe to IP holders from whom we license intellectual property rights. Nevertheless, these afford only limited protection and it can be difficult and expensive to police unauthorised use of intellectual property that we own or license. We have taken, and will continue to take, a variety of actions to combat piracy. However, we cannot be certain that the steps we have taken

−36− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS will prevent misappropriation of our intellectual properties, particularly in countries where the laws may not protect our property rights as fully as in more developed countries. Unauthorised use of our intellectual property by third parties, and the expenses incurred in protecting our intellectual property rights, may materially and adversely affect our business.

Moreover, we may enforce our intellectual property rights through litigation, which could result in substantial costs, divert the attention and resources of our management personnel and disrupt our business. The validity and scope of any claims relating to our copyrights or other intellectual property rights may involve complex legal analyses and, as a result, the outcome may be highly uncertain. Failure to protect our intellectual property rights could have a material adverse effect on our business, financial condition and results of operations as well as severely harm our competitive position.

Our IP operations business depends heavily on the market recognition and reputation of our brand, and any harm to our brand or failure to maintain and enhance our brand recognition may materially and adversely affect our business and results of operations

Leveraging on our experience in the online literature industry in the PRC, we believe that our established brand name is one of the key factors for maintaining our existing relationships with our cooperating writers and content adaptation partners, as well as attracting prospective writers and cooperating partners. Maintaining and enhancing the recognition and reputation of our brand is critical to our success and ability to compete. Many factors, some of which are beyond our control, are important to maintaining and enhancing our brand and may negatively impact our brand and reputation if not properly managed, such as our ability to:

• gauge and keep up with the latest preferences of readers in the online literature market so as to discover the potentials of a writer or a literary work and develop tailor-made marketing solutions to maximise the commercial value of the writer and the literary work;

• cooperate with our cooperating writers to develop market-oriented contents and to cater for the supply of contents from our cooperating writers to the specific needs of our content adaptation partners;

• increase brand awareness among existing and potential writers and readers through various means of marketing and promotional activities;

• offer a reasonable degree of flexibility in our cooperation arrangements which contain less extensive and stringent contract restrictions with our cooperating writers; and

• effectively control the quality of third party online reading platforms.

If we are unable to maintain our reputation, further enhance our brand recognition and increase positive awareness of literary works, our business and results of operations may be materially and adversely affected.

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If we lose the services of any of our key executive officers, senior management, or are unable to retain, recruit and hire experienced staff, our ability to effectively manage and execute our operations and meet our strategic objectives could be harmed

Our future success depends on the continued service of our key executive officers and other key employees. We benefit from the leadership of a strong management team with proven vision, extensive knowledge of China’s online literature market and rich professional work experience in IP operations. We also rely on a number of key editorial staff for the development and operation of our business. In addition, we will need to continue attracting and retaining skilled and experienced staff for our businesses to maintain our competitiveness. If one or more of our key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all and may incur additional expenses to recruit and train new personnel, our business could be severely disrupted, and our business, financial condition and results of operations could be materially and adversely affected. In addition, if any of our executive officers or key employees joins a competitor or forms a competing company, we may lose know-how, trade secrets, writers, suppliers and customers.

Our business and growth could suffer if we are unable to hire and retain a sustainable editorial team

We rely on our experienced IP operation and editorial team, which plays a critical role in cultivating writers, nurturing content creation, channeling and processing the latest tastes and preference of the consumers, and synthesising and incorporating consumers’ feedback. As at the Latest Practicable Date, we had 23 employees in our IP operation team (including editors). Since the demand and competition for talent is intense in our industry, particularly for editors, we may need to offer higher compensation and other benefits in order to attract and retain a substantial IP operation and editorial team in the future, which could increase our compensation expenses. We cannot assure you that we will be able to attract or retain editors sufficient to support our business and our business and growth could suffer if we fail to do so.

Our financial position and results of operations may be materially and adversely affected by the outbreak of pandemics and other acts of God

The outbreak of pandemics and other acts of God are beyond our control and may materially and adversely affect our business operations. The unforeseen outbreak of pandemics and other acts of God may have material and adverse effect on the level of economic activity in the PRC as the government may impose regulatory or administrative measures to contain the situation, such as country and city lockdowns, closure of businesses or offices, or restrictions on travelling and business activities. Any economic downturn or recession and significant reduction in trades or business activities as a result of these outbreaks of pandemics and other acts of God which are beyond our control may materially and adversely affect our business operations.

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The continuing COVID-19 pandemic in the PRC where we operate may adversely affect our business operations and financial results

Since early 2020, the outbreak of COVID-19 pandemic has materially and adversely affected the global economy as well as the economy in the PRC. The PRC government and other governments around the world have implemented strict measures to contain such outbreak.

The industries where our content adaptation partners operate in were affected in various ways and to different extent. According to the F&S Report, while the pandemic affected the film and drama series industries, due to, among other things, suspension or delay in filming or production, closure of movie theatres, it has accelerated the development of the animation and gaming industries. The total revenue of the film market decreased from RMB68.5 billion in 2019 to RMB24.6 billion in 2020, as a result of the suspension of shooting or production for approximately two months since 1 February 2020 pursuant to the “Notice of Shooting Suspension of All Film and Television During the COVID-19 Period” (關於新冠疫情期間停止影視劇拍攝工作的通知) issued by the China Federation of Radio and Television Association and the China Television Production Committee. On the other hand, the gaming market in the PRC has generated a total revenue of RMB278.7 billion in 2020, representing a growth of 20.7% from that in 2019. In light of the impact on such industries, as compared to FY2019, the number of IPs we licensed to our content adaptation partners decreased in FY2020 and we also acquired less IPs during FY2020. Further, there has been a substantial delay in the production of a drama series we co-invested in due to the reason disclosed above.

However, the extent to which the COVID-19 pandemic affects our results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of the COVID-19 outbreak and the actions to contain the COVID-19 outbreak or to treat its impact. As a result, we may not be able to achieve our anticipated future revenue and profit growth, and our financial condition, results of operations and prospects may be materially and adversely affected by the COVID-19 pandemic.

Our prepayments may involve significant uncertainty

As at 31 December 2018, 31 December 2019 and 31 December 2020, our prepayments, deposits and other receivables was RMB9.7 million, RMB4.8 million and RMB22.1 million, respectively, and our prepayments for our co-investment in drama series was nil, nil and RMB16.6 million, representing nil, nil and 75.2%, respectively, of our total prepayments during the same period. We have written off impairment losses in the amount of RMB2.4 million in FY2020, as a result of our arrangement with game developers with which we have co-invested in game development where the relevant game has not been able to be published.

Our investment in the production of drama series and online games is a lengthy and capital-intensive process, and are subject to uncertainties and risk to different extent. For instance, if our content adaptation partners for the production of drama series fail to develop or produce the entertainment products in time due to, among other things, substantial delay or suspension in filming or production, we may need to bear the overrun costs and our expected investment return may be reduced, thereby materially and adversely affecting our financial position and results of operations. Moreover, any material adverse change to the operation, financial performance or financial condition of these cooperating partners may have a significant adverse impact on us.

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RISKS RELATING TO DOING BUSINESS IN THE PRC

Changes in PRC economic, political, and social conditions, as well as government policies may have an adverse effect on us

We conduct virtually all our operations in the PRC. Accordingly, the PRC economic, political, and social conditions, its laws and regulations, as well as government policies significantly affect our business, financial condition, results of operations, and prospects. The PRC economy has historically been a planned economy subject to government plans and quotas and has, in certain aspects, been transitioning to a more market-oriented economy. Although we believe that the economic reform and the macroeconomic measures adopted by the Chinese government have had a positive effect on the PRC economic development, we cannot predict the future direction of these economic reforms or the effects these measures may have on our business, financial position or results of operation. For instance, our financial condition and results of operations may be adversely affected by government control over the internet or changes in tax regulations applicable to us. Any adverse change in the economic, political and social conditions as well as government policies in the PRC laws, regulations and policies could materially and adversely affect the PRC overall economic growth, and in turn, have an adverse impact on our business and financial condition.

If we fail to obtain and maintain the requisite licenses and approvals required under the complex regulatory environment applicable to our business in china, or if we are required to take compliance actions that are time-consuming or costly, our business, financial condition and results of operations may be materially and adversely affected.

The online literature and online operation industry in China is highly regulated. A number of PRC governmental authoristies, including but not limited to the Ministry of Commerce, the Ministry of Culture, or the Ministry of Industry and Information Technology, the General Administration of Press and Publication, Radio, Film and Television, and the Cyberspace Administration of China, oversee different aspects of the online operation industry. These governmental authorities together promulgate and enforce laws and regulations that cover many aspects of the telecommunications, Internet information services, Internet publishing industries and online audio-visual products services, including entry into such industries, scope of permitted business activities, licenses and permits for various business activities and foreign investments into such industries. Operators are required to obtain various government approvals, licenses and permits in connection with their provision of Internet information services, Internet publication services, online audio-visual products and other related value-added telecommunications services.

As confirmed by our PRC Legal Advisor, as of the Latest Practicable Date, we have obtained all the licenses and permits that are essential to the operation of our business. However, we cannot assure you that we can successfully update or renew the licenses required for our business in a timely manner or that these licenses are sufficient to conduct all our present or future business. For detailed discussion of certain licenses and permits relevant to our business, see the section headed “Business — Licenses and Permits” in this document. If we fail to obtain and maintain approvals, licenses or permits required for our business, we could be subject to liabilities, penalties and operational disruption and our business could be materially and adversely affected. We may also be liable for fines or a penalty of confiscating illegal gains.

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Further, considerable uncertainties exist regarding the interpretation and implementation of existing and future laws and regulations governing our business activities. We cannot assure you that we will not be found in violation of any future laws and regulations or any of the laws and regulations currently in effect due to changes in the relevant authorities’ interpretation of these laws and regulations.

Changes in government regulations of the internet and telecommunications industries in the PRC may result in uncertainties in interpretation and/or the Chinese government requiring us to obtain additional licenses or other governmental approvals to conduct our business, both of which may restrict our operations

The internet and telecommunications industries are highly regulated by the PRC government. In addition, the internet and telecommunications-related laws and regulations are relatively new and constantly evolving, and their interpretation and enforcement involve significant uncertainties. As a result, in certain circumstances, it may be difficult to determine what actions or omissions may be deemed to be in violation of applicable laws and regulations in this area.

The evolving PRC regulatory system for the internet and telecommunications industries may lead to the establishment of new regulatory agencies. For example, in May 2011, the State Council announced the establishment of the CAC, whose primary role is to facilitate the policy-making and legislative development in the telecommunications and internet industries by coordinating with other relevant governmental agencies in connection with online content administration and handling cross-ministry regulatory matters in relation to such industries.

Any future changes in PRC government policies affecting the provision of information services, including provision of online services, internet access, online publication, e-commerce services may impose additional regulatory requirements on us or our service providers, and in turn, materially and adversely affect our business, financial condition and results of operation.

The successful operations of our business and our growth depend on the performance and reliability of the internet infrastructure and telecommunication networks in the PRC

Our business operations depend on the performance and reliability of the internet infrastructure and telecommunication networks in the PRC. Almost all access to the internet in the PRC is maintained through state-owned telecommunication operators under the administrative control and regulatory supervision of the MIIT. Any failure to maintain the satisfactory performance, reliability, security and availability of internet infrastructure and telecommunication network to our cooperating online reading platforms or our content adaptation partners may cause significant harm to our business operation, which could materially and adversely affect our [REDACTED].

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The PRC government’s control of currency conversion may limit our ability to use capital effectively and could negatively affect our financial condition, operations, and our ability to pay dividends, affect the value of our net assets, earnings, and dividends in foreign currency terms

The PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of money out of the PRC. We receive substantially all our revenue in RMB. Under our current structure, our Company’s income is to a significant extent derived from dividend payments from our PRC subsidiaries. Shortages in the availability of foreign currencies may restrict the ability of our PRC subsidiaries to remit sufficient foreign currencies to pay dividends or other payments to us, or otherwise satisfy their foreign currency-denominated obligations, if any. If the foreign exchange control system prevents us from obtaining sufficient foreign currency to satisfy our currency demands, we may not be able to pay dividends in foreign currencies to our Shareholders.

The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. Under existing PRC foreign exchange regulations, payment of certain current account items can be made in foreign currencies without prior approval from the local branch of the SAFE by complying with certain procedural requirements. However, approval from appropriate government authorities is required where RMB is to be converted into foreign currencies and remitted out of the PRC to pay capital expenses such as the repayment of indebtedness denominated in foreign currencies. The restrictions on foreign exchange transactions under capital accounts could also affect our subsidiaries’ ability to obtain foreign exchange through debt or equity financing, including by means of loans or capital contribution from us.

We are a holding company and our dividends payments rely on, among others, our subsidiaries in the PRC

Our Company is a holding company incorporated in the Cayman Islands and all of our operations are conducted through our subsidiaries in the PRC. Therefore, the availability of funds to pay dividends to our Shareholders and to service any of our indebtedness depends on dividends received from these subsidiaries. If our subsidiaries incur any debt or losses, such indebtedness or loss may impair their ability to pay dividends or other distributions to us. As a result, our ability to pay dividends or other distributions and to service our indebtedness will be restricted.

PRC law requires that dividends be paid only out of the net profit calculated according to PRC accounting principles, which differ in many aspects from generally accepted accounting principles in other jurisdictions, including HKFRS. PRC law also requires foreign invested enterprises, such as our subsidiaries in the PRC, to set aside part of their net profit as statutory reserves, which are not available for distribution as cash dividends. Limitations on the ability of our PRC subsidiaries to remit their entire after-tax profits to us in the form of dividends or other distributions could adversely affect our ability to grow, make investments that could be beneficial to our business, pay dividends and otherwise fund and conduct our business. We cannot assure you that our subsidiaries will generate sufficient earnings and cash flows to pay dividend or otherwise distribute sufficient funds to us to enable us to pay dividends to our Shareholders.

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Fluctuations in the value of the RMB may have a material adverse impact on your [REDACTED]

During the Track Record Period, all of our operating subsidiaries are located in the PRC. Dividends, if any, we pay on our Shares will be in Hong Kong dollars. Depreciation in the RMB, on the other hand, would adversely affect the amount of any dividends we pay to our Shareholders, or require us to use more RMB funds to service the same amount of any foreign debt. The RMB exchange rates are affected by, among other things, changes in political and economic conditions and PRC’s foreign exchange regime and policy. There are limited hedging instruments available in the PRC to reduce our exposure to exchange rate fluctuations between the RMB and other currencies. The cost of such hedging instruments may fluctuate significantly over time and can outweigh the potential benefit from the reduced currency volatility. As at the Latest Practicable Date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risks. In any event, the availability and effectiveness of these hedges may be limited and we may not be able to hedge our exposure successfully, or at all.

Uncertainties in the interpretation and enforcement of PRC laws and regulations could limit the legal protections available our business and our Shareholders

The PRC legal system is based on written statutes and their interpretations by the Standing Committee of the National People’s Congress. Prior court decisions have limited precedential value. Since the late 1970s, the PRC government has promulgated laws and regulations that had the effect of enhancing the protections afforded to corporate organisations and their governance, as well as various forms of foreign investments in the PRC. Our PRC subsidiaries are subject to various PRC laws and regulations generally applicable to companies in the PRC. However, since these laws and regulations are relatively new and as the PRC legal system continues to evolve rapidly, the interpretation and enforcement of these laws, regulations and rules involves significant uncertainty and different degrees of inconsistency, limiting potentially the available legal protections to our business operations.

In particular, PRC laws and regulations concerning the IP operations industry are developing and evolving. Although we have taken measures to comply with the laws and regulations that are applicable to our business operations and avoid conducting any non-compliant activities under the applicable laws and regulations, the PRC governmental authorities may promulgate new laws and regulations regulating the online literature industry in the future. We cannot assure you that our practice would not be deemed to violate any new PRC laws or regulations relating to IP operations. Moreover, developments in the IP operations industry may lead to changes in PRC laws, regulations and policies or in the interpretation and application of existing laws, regulations and policies that may limit or restrict online reading marketplaces like us, which could materially and adversely affect our business and operations.

In addition, PRC administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms. Therefore, it is difficult to evaluate the outcome of administrative and court proceedings and the actual level of legal protection we enjoy. These uncertainties may affect our judgment on the relevance of legal requirements and our decisions on the measures and actions to be taken to comply therewith, and may affect our ability to realise our rights under laws in connection with contract or tort. Further, we cannot predict the effect of future legal developments in the PRC, including the promulgation of new laws, changes to existing laws or the

−43− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RISK FACTORS interpretation or enforcement thereof, or the pre-exemption of local regulations by national laws. We cannot therefore assure that we will enjoy the same level of legal protection in the future, nor such new laws and regulations will not affect our operations, causing adverse effects on our financial condition and results.

It may be difficult to effect service of process or to enforce foreign judgments in the PRC. Most of our assets are located in the PRC. [REDACTED] may encounter difficulties in effecting service of process from outside the PRC upon us or most of our Directors and officers

Most of our assets and subsidiaries are located in the PRC. The majority of our Directors and senior management reside in the PRC and their assets may also be substantially located in the PRC. Accordingly, it may not be possible for [REDACTED] to effect service of process from outside the PRC upon us or these persons or to enforce against us or them in the PRC any judgments obtained from non-PRC courts. The PRC does not have treaties providing for the reciprocal recognition and enforcement of judgments of courts with the Cayman Islands, the United States, the United Kingdom, Japan, and many other developed countries. Therefore, the recognition and enforcement in the PRC of judgments of a court in any of these jurisdictions may be difficult or even impossible.

The M&A Rules and certain other PRC regulations establish complex procedures for some acquisitions of Chinese companies by foreign investors, which could make it more difficult for us to pursue growth through acquisitions in the PRC

The Provisions on Merger and Acquisition of Domestic Enterprises by Foreign Investor《關於 ( 外國投資者併購境內企業的規定》), or the M&A Rules, adopted by six PRC regulatory authorities in 2006 and amended in 2009, and some other regulations and rules concerning mergers and acquisitions established additional procedures and requirements that could make merger and acquisition activities by foreign investors more time-consuming and complex, including requirements in some instances that the MOFCOM be notified in advance of any change-of-control transaction in which a foreign investor takes control of an affiliated PRC domestic enterprise. Moreover, the Anti-Monopoly Law《反壟斷法》 ( ) requires that the anti-trust governmental authority shall be notified in advance of any concentration of undertaking if certain thresholds are triggered. In addition, the Provisions of the Ministry of Commerce on the Implementation of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors《商務部實施外國投資者併購境內企業安 ( 全審查制度的規定》) issued by the MOFCOM that became effective in September 2011 specify that mergers and acquisitions by foreign investors that raise “national defense and security” concerns and mergers and acquisitions through which foreign investors may acquire de facto control over domestic enterprises that raise “national security” concerns are subject to strict review by the MOFCOM, and the rules prohibit any activities attempting to bypass security review, including by structuring the transaction through a proxy or contractual control arrangement. In the future, we may grow our business by acquiring complementary businesses. Complying with the requirements of the above-mentioned regulations and other relevant rules to complete such transactions could be time consuming, and any required approval processes, including obtaining approval from the MOFCOM or its local counterparts, may delay or inhibit our ability to complete such transactions, which could affect our ability to expand our business or maintain our market share.

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PRC regulation of loans to and direct [REDACTED] in PRC entities by offshore holding companies may delay or prevent us from using the [REDACTED] of the [REDACTED] to make loans or additional capital contributions to our PRC subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and expand our business

As an offshore holding company of our PRC subsidiaries, we may make loans to our relevant PRC subsidiaries which are directly [REDACTED] by offshore subsidiaries, or we may make additional capital contributions to our PRC subsidiaries. Any loans to our PRC subsidiaries are subject to PRC regulations and foreign exchange loan registrations. For example, loans by us to our PRC subsidiaries to finance their activities cannot exceed statutory limits and must be registered with the SAFE or its local counterpart. If we finance our PRC subsidiaries by means of increasing capital contributions, these capital contributions are subject to registration with the SAMR or its local branch, reporting of foreign investment information with the PRC Ministry of Commerce, or registration with other government authorities in China. We expect that PRC laws and regulations may continue to limit our use of net [REDACTED] from the [REDACTED] or from other financing sources. We may not be able to obtain these government registrations on a timely basis, if at all, with respect to future loans or capital contributions by us to finance our PRC subsidiaries. If we fail to receive relevant registrations, our ability to use the [REDACTED] of the [REDACTED] and to capitalise on our PRC operations would be negatively affected which would adversely and materially affect our liquidity and our ability to expand our business.

We may be deemed to be a PRC tax resident enterprise for PRC enterprise income tax purposes, which could result in unfavourable tax consequences to us and our shareholders and have a material adverse effect on our results of operations and the value of your [REDACTED]

We are a holding company incorporated in the Cayman Islands. However, under the PRC Enterprise Income Tax Law (the “EIT Law”), which was last amended on 29 December 2018 and came into effect on the same, enterprises established under the laws of jurisdictions outside the PRC with their “de facto management bodies” located within the PRC may be considered “PRC tax resident enterprises” and subject to a uniform 25% PRC income tax on their worldwide income. The implementation rules to the EIT Law define the term “de facto management body” as body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and treasury, and acquisition and disposition of properties and other assets of an enterprise.

The SAT issued the Notice on Identifying Chinese-Controlled Offshore Enterprises as Chinese Resident Enterprises in accordance with Criteria for Determining Place of Effective Management (《關於境外註冊中資控股企業依據實際管理機構標準認定為居民企業有關問題的通知》) and the Administrative Measures on the Corporate Income Tax of Chinese-Controlled Offshore Incorporated Resident Enterprises (Trial)《境外註冊中資控股居民企業所得稅管理辦法 ( (試行)》) in April 2009 and July 2011, respectively, which set out certain criteria for specifying what constitutes a “de facto management body” in respect of enterprises that are established offshore by PRC enterprises. However, no such criteria are provided in these or other publications by the SAT in respect of enterprises established offshore by private individuals or foreign enterprises like us.

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As a result, it is unclear whether we will be deemed to be a “PRC tax resident enterprise” for the purpose of the EIT Law even though virtually all of our operational management is currently based in the PRC. We are currently not treated as a PRC resident enterprise by the relevant tax authorities. Nonetheless, we cannot assure you that we will not be treated as a PRC resident enterprise under the EIT Law and not be subject to the EIT rate of 25% on our global income in the future. If we were treated as “PRC tax resident enterprise”, we would be subject to PRC income taxes on our worldwide income, which may adversely affect our profitability and distributable profit to our Shareholders.

Dividends payable by us to our foreign [REDACTED] and any gain on the sale of our Shares may become subject to withholding taxes under the PRC tax laws

Under the EIT Law, the payment of dividends by “PRC tax resident enterprises” to shareholders that are “non-PRC residents”, that is, shareholders that do not have any establishment or place of business in the PRC, or that have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, is subject to withholding tax at the rate of 10%. Similarly, any gain realised on the transfer of shares of “PRC tax resident enterprises” by such shareholders is also subject to PRC income tax, usually at rate of 10% unless otherwise reduced or exempted by relevant tax treaties or similar arrangements, if such gain is regarded as income derived from sources within the PRC.

Our Company is incorporated in the Cayman Islands and substantially all of our operations are in the RPC. There is uncertainty whether we will be considered a “PRC tax resident enterprise” for the purpose of the EIT Law. If we are considered a “PRC tax resident enterprise”, then any dividends paid to our Shareholders that are “non-PRC residents” and any gains realised by them from the transfer of our Shares may be regarded as income derived from PRC sources and, as a result, would be subject to a 10% PRC income tax, unless otherwise reduced or exempted. If we are considered a “non-PRC resident enterprise”, when our subsidiaries in the PRC are capable of paying our Company dividends, we may be liable for the PRC dividend withholding tax.

Pursuant to the Agreements between the PRC and the Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income《內地和香港特別行政區關於對所得避免雙重徵稅和防止偷漏稅的安排》 ( ) signed in Hong Kong on 21 August 2006, the withholding tax rate on dividends paid by a “non-PRC resident” shareholder would be reduced to 5%, provided that such shareholder is incorporated in Hong Kong and meets the relevant requirements therein. The relevant law may be changed adversely to us from time to time and our results of operations may be adversely affected. It is unclear whether our Shareholders would be able to claim the benefit of income tax treaties or agreements. If dividends payable to our Shareholders are “non-PRC residents”, or gains from the transfer of our Shares are subject to PRC tax, the value of such non-PRC Shareholders’ [REDACTED] in our Shares may be materially and adversely affected.

The Chinese tax authorities have strengthened their scrutiny over transfers of equity interests in a PRC-resident enterprise by a non-resident enterprise, which may negatively affect our business and our ability to conduct mergers, acquisitions, or other investments

On 3 February 2015, the SAT issued the Announcement on Several Issues Concerning Enterprise Income Tax for Indirect Transfer of Assets by Non-Resident Enterprises《關於非居民企業間接轉讓 (

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財產企業所得稅若干問題的公告》)(“Circular 7”). On 17 October 2017, SAT issued the Announcement on Issues concerning the Withholding of Enterprise Income Tax at Source on Non-Resident Enterprises《關於非居民企業所得稅源泉扣繳有關問題的公告》 ( ) which came into effect on 1 December 2017, which provides that the income from property transfer means the consideration collected by the equity transferor from the transfer of equities, including all kinds of monetary and non-monetary income. Income from equity transfer shall include the income from the transfer of equities and equity investment assets (hereinafter referred to as “equities”). The balance after deducting the net value of equities from the income from equity transfer is the taxable income from equity transfer. Circular 7 provides comprehensive guidelines relating to, and heightened the Chinese tax authorities’ scrutiny on, indirect transfers by a non-resident enterprise of assets (including equity interests) of a PRC resident enterprise (“PRC Taxable Assets”). For example, when a non-resident enterprise transfers equity interests in an overseas holding company that directly or indirectly holds certain PRC Taxable Assets and if the transfer is believed by the Chinese tax authorities to have no reasonable commercial purpose than to evade enterprise income tax, Circular 7 allows the Chinese tax authorities to reclassify this indirect transfer of PRC Taxable Assets into a direct transfer and impose on the non-resident enterprise a 10% rate of PRC enterprise income tax. Circular 7 exempts this tax, for examples, (i) where a non-resident enterprise derives income from an indirect transfer of PRC Taxable Assets by acquiring and selling shares of a listed overseas holding company in the public market; and (ii) where a non-resident enterprise transfers PRC Taxable Assets that it directly holds and an applicable tax treaty or arrangement exempts this transfer from PRC enterprise income tax. It remains unclear whether any exemptions under Circular 7 will be applicable to any future mergers, acquisitions or other investments that we may make outside of the PRC involving PRC Taxable Assets or to transfers of our Shares by our Shareholders. If the Chinese tax authorities impose PRC enterprise income taxes on these activities, our ability to expand our business or seek financing through these transactions may be adversely affected.

Failure to obtain any preferential tax treatments or the discontinuation, reduction or delay of any of the preferential tax treatments that may be available to us in the future could materially and adversely affect our business, financial condition and results of operations.

We have been granted certain governmental subsidies and tax preferences. Enterprises that qualify as “small and micro-sized enterprises” are entitled to a preferential tax rate of enterprise income tax pursuant to its revenue. Huizhou Guangxun was certified as a “small and micro-sized enterprise” and enjoyed the preferential rate of 10% and 5% of its enterprise income tax in 2018 and 2019, respectively. Also, entities newly established in Horgos, Xinjiang during the years from 2010 to 2020 can enjoy full exemption on enterprise income tax for five years starting from the tax year in which revenue was first generated. We have established subsidiaries in the Xinjiang Horgos special economic areas in 2015, 2016 and 2019, respectively, and accordingly, these subsidiaries are entitled to full exemption on enterprise income tax from the calendar year of their respective establishments to the calendar year of 2020, 2021 and 2024. Historically, Horgos Kaiwen, one of our subsidiaries established in Xinjiang Horgos special economic areas, enjoyed full exemption on PRC Corporate Income Tax from the calendar year of its establishment (i.e. 2015) up to the calendar year of 2020. Horgos Kaiwen is principally engaged in IP adaptation licensing and it made material revenue contribution to our Group during Track Record Period. As at 31 March 2021, Horgos Kaiwen was the holder of more than 50 IPs and it would continue to conduct the IP adaptation licensing business following the expiry of tax exemption as disclosed above. Following the expiry, Horgos Kaiwen shall continue to enjoy partial tax exemption pursuant to the tax benefit policies set out in the Preferential

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Fiscal and Tax Policies for Investment Promotion in Horgos Economic Development Zone《霍爾果 ( 斯經濟開發區招商引資財稅優惠政策(霍特管辦發[2013]55號)》) promulgated by Management Committee of Horgos Economic Development Zone (霍爾果斯經濟開發區管理委員會). Pursuant to this policy, the portion of all taxes levied and retained by the local government shall be reimbursed to the eligible company in the form of grants for another five years. Based on the standard tax rate of 25%, and taking into account of the above tax benefit policies, Horgos Kaiwen is expected to receive a reimbursement equivalent to 10% of taxable profit, resulting in an expected net tax rate of 15% applicable to Horgos Kaiwen’s taxable profit from 2021 onwards. Please refer to section headed “Financial Information — Description of Selected Components of Combined Statements of Profit or Loss and Other Comprehensive Income — Our Company — Income Tax” in this document. Nevertheless, the preferential tax rates enjoyed by certain of our subsidiaries are non-recurring in nature, and the government agencies may decide to reduce, eliminate or cancel such subsidies and tax preferences at any time. We cannot assure you of the continued availability of the government subsidies and tax preferences currently enjoyed by us. Discontinuation, reduction or delay of these governmental subsidies and preferential tax treatment could adversely affect our financial condition and results of operations.

Any failure to comply with PRC regulations relating to offshore [REDACTED] activities may subject our PRC resident shareholders to personal liability and restrict our overseas and cross-border [REDACTED] activity. If our shareholders fail to make any required applications and filings under such regulations, we may be unable to distribute profits which may materially and adversely affect us.

The State Administration for Foreign Exchange, or SAFE, has promulgated the Circular on Relevant Issues concerning Foreign Exchange Administration of Overseas Investment and Financing and Return Investments Conducted by Domestic Residents through Overseas Special Purpose Vehicle《關於境內居民通過特殊目的公司境外投融資及返程投資外匯管理有關問題的通知》 ( ) (the “Circular 37”), which became effective on 4 July 2014 stipulates that a PRC resident must register with and obtain approval from local branches of SAFE for their direct ownership of the equity interests in an offshore special purpose vehicle (“SPV”) and following such initial registration, the PRC resident shareholder is required to register with the local SAFE branch when the SPV undergo material events or changes with respect to the basic information, such as changes to the name, the operation term or the identity of PRC resident shareholders, or increases or decreases in the [REDACTED] amount, share transfers or exchanges, or mergers or divisions. These regulations apply to our direct or indirect shareholders who are PRC residents and may apply to any offshore acquisitions that we make in the future.

As for a domestic institution, it shall undergo the registration procedure for foreign [REDACTED] in accordance with the Administrative Measures on Overseas Investments《境外投資 ( 管理辦法》) and the Administrative Measures for the Outbound Investment by Enterprises ( 《企業境外投資管理辦法》) and other relevant provisions (the “ODI Rules”) which would require registration with the relevant authorities prior to its overseas direct [REDACTED] and obtain the relevant recordation, approval, certificate or permit as required under the ODI Rules.

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As confirmed by our PRC Legal Advisor, each of Ms. Shi, Mr. Chen, Jiang Hongwen (姜洪文), Li Wei (李巍), Lin Jiaxi (林嘉喜), Yu Xiu (余秀) and Zhang Shibei (張式貝) has completed the foreign exchange registrations pursuant to Circular 37 in relation to their offshore investments as PRC residents. However, we cannot assure you that all of our shareholders or their beneficial owners who are PRC residents or domestic institutions will comply with our request to make or obtain any applicable registrations or comply with other requirements required by Circular 37, the ODI Rules or other related rules. In addition, it is unclear how these general regulations in Circular 37 and the ODI Rules will be interpreted and implemented and how or whether SAFE or other government agencies will apply them to us. Therefore, we cannot predict how they will affect our business operations or future strategies as we may or may not be required to comply with specific regulations in the aforesaid Circulars and the ODI Rules. In addition, we cannot assure you that the outcome of such registration will be successful nor that the PRC resident shareholders or their beneficial shareholders will amend, complete or update their previously filed registration in a timely manner or at all. In the event we may decide to acquire a PRC domestic company, we cannot assure you that we or the owners of such company, as the case may be, will be able to obtain the necessary approvals or complete the necessary filings and registrations. If we fail to comply with such regulations, we and/or the PRC resident shareholders or their beneficial shareholders will be subject to fines or legal sanctions which include imposing restrictions on our cross-border investment activities and limiting our ability of our PRC subsidiaries to distribute dividends as well as the proceeds from any reduction in capital, share transfer or liquidation to us. These penalties would materially adversely affect our business operations and our ability to distribute profits.

RISKS RELATING TO THE [REDACTED]

There has been no prior public market for the Shares and the liquidity and market price of our Shares may be volatile.

Prior to completion of the [REDACTED], there has been no public market for our Shares. There can be no guarantee that an active trading market for our Shares will develop or be sustained after completion of the [REDACTED]. The [REDACTED] may not be necessarily indicative of the price at which our Shares will be traded following the completion of the [REDACTED]. The market price of our Shares may drop below the [REDACTED] at any time after completion of the [REDACTED]. An [REDACTED] may not be able to resell such Shares at or above the [REDACTED] and, as a result, may lose all or part of the [REDACTED] in such Shares.

Since there will be a gap of several days between the pricing and trading of our [REDACTED], the price of our [REDACTED] could fall below the [REDACTED] when trading commences.

The [REDACTED] for the [REDACTED] will commence on [REDACTED] and close on [REDACTED], being longer than normal market practice of four days. The [REDACTED] of our Shares will be determined on the [REDACTED], which is expected to be on or around [REDACTED], and in any event, no later than [REDACTED]. The [REDACTED] (including the brokerage fee, SFC transaction levy and Stock Exchange trading fee) will be held by the [REDACTED] on behalf of the Company and the refund monies, if any, will be returned to the applicants without interest on [REDACTED], and our Shares will not commence trading on the Stock Exchange until the [REDACTED], which is expected to be on [REDACTED].

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Accordingly, [REDACTED] may not be able to [REDACTED] or [REDACTED] our Shares during the period between the [REDACTED] and the [REDACTED]. Our Shareholders are subject to the risk that the price of our Shares could fall before trading begins, as a result of adverse market conditions or other adverse developments that could occur between the [REDACTED] and the [REDACTED].

The liquidity, trading volume and trading price of the Shares may be volatile, which could result in substantial losses for the Shareholders

The price and [REDACTED] volume of our Shares may be volatile as a result of the following factors, as well as others, which are discussed in “Risk Factors” or elsewhere in this document, some of which are beyond our control:

• actual or anticipated fluctuations in our results of operations;

• news regarding recruitment or loss of key personnel by us;

• the prospects and general market sentiment, for us and the industry in which we compete;

• the valuation of publicly traded companies that are engaged in business activities similar to ours;

• potential litigation or regulatory investigations;

• changes in general economic conditions or other developments affecting us or our industry;

• changes in applicable laws and regulations in the PRC and Hong Kong; and

• political, economic, financial and social developments in the PRC and worldwide.

In addition, the Stock Exchange have from time to time experienced significant price and volume fluctuations that are not related or disproportionate to the operating performance of particular companies. Any such developments may result in large and sudden changes in the trading volume and of our Shares. We cannot assure you that these developments will not occur in the future.

Future issues, [REDACTED], or sale of our Shares in the public market may adversely affect the prevailing market price of the Shares

Future issues of the Shares by our Company or the disposal of the Shares by any of our Shareholders or the perception that such issues or sale may occur, may negatively affect the prevailing market price of the Shares. Moreover, future sale or perceived sale of a substantial amount of our Shares or other securities relating to our Shares in the public market may cause a decrease in the market price of our Shares, or adversely affect our ability to raise capital in the future at a time and at a price which we deem appropriate. Our Shareholders may experience dilution in their holdings in the event we issue additional securities in future [REDACTED].

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Further, the Shares held by our Controlling Shareholders are subject to certain lock-up undertakings for a period of up to 12 months after the [REDACTED]. For details of such lock-up undertakings, please refer to section headed “[REDACTED] — [REDACTED] — Undertakings to the Stock Exchange pursuant to the Listing Rules”. After these restrictions lapse, the market price of the Shares may decline as a result of sales of substantial amounts of the Shares or other securities relating to the Shares in the public market, or the perception that such sales may occur. We cannot give any assurance that they will not dispose of their Shares they may own now or in the future.

The market price of our Shares when trading begins could be lower than the [REDACTED] as a result of, among other things, adverse market conditions or other adverse developments that could occur between the time of sale and the time trading begins

The [REDACTED] will be determined on the [REDACTED]. However, the [REDACTED] will not commence trading on the Stock Exchange until they are delivered, which is expected to be on the [REDACTED] Business Day after the [REDACTED]. As a result, [REDACTED] may not be able to sell or otherwise [REDACTED] the [REDACTED] during that period. Accordingly, holders of the [REDACTED] are subject to the risk that the price of the [REDACTED] when trading begins could be lower than the [REDACTED] as a result of adverse market conditions or other adverse developments that may occur between the time of sale and the time trading begins.

You may face difficulties in protecting your interests because we are incorporated under Cayman Islands law, and these laws relating to the protection of interests of minority shareholders differ in some respects from those in Hong Kong and other jurisdictions

Our corporate affairs are governed by our Articles of Association, the Cayman Companies Law, and the common law of the Cayman Islands. The rights of shareholders to take action against directors, the rights of minority shareholders to institute actions and the fiduciary responsibilities of our Directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from English common law, which has persuasive, but not binding, authority on a court in the Cayman Islands. The rights of our Shareholders and the fiduciary responsibilities of our Directors under Cayman Islands law may not be the same as they would be under statutes or judicial precedent in Hong Kong. In particular, the Cayman Islands have different securities laws as compared to Hong Kong and may not provide the same protection to investors. Furthermore, shareholders of Cayman Islands companies may not have standing to initiate a shareholder derivative action in a Hong Kong court.

[REDACTED] from the [REDACTED] may be subject to foreign exchange risk

Our headquarter is in the PRC with our income and expenses mainly denominated in RMB while the [REDACTED] from the [REDACTED] will be denominated in Hong Kong dollars. As such, we may be exposed to fluctuations in exchange rate and any unfavourable fluctuation against our Group may adversely affect the underlying value of our [REDACTED] from the [REDACTED].

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RISKS RELATING TO INFORMATION CONTAINED IN THIS DOCUMENT

Certain facts, forecasts, industry information and other statistics obtained from various independent third-party sources contained in this document may not be accurate and reliable

Certain facts, statistics and data in this document, including industry data and forecasts, are derived from various sources including various official government publications and sources that we generally believe to be reliable and appropriate for such information. However, we cannot guarantee the quality or reliability of such source materials. We have no reason to believe that such information is false or misleading or that any fact has been omitted that would render such information false or misleading. None of us, our Directors, the Sole Sponsor, [the [REDACTED], the [REDACTED], the [REDACTED],] the [REDACTED] and their respective affiliates or advisers have independently verified, or made any representation as to, the accuracy of such facts, statistics, data and forecasts. Therefore none of them makes any representation as to the accuracy or completeness of such facts, statistics and data.

Due to possibly flawed or ineffective collection methods or discrepancies between published information, market practice, and other problems, the statistics in this document may be inaccurate or may not be comparable to statistics produced for other publications or purposes and you should not place undue reliance on them. Furthermore, there is no assurance that they are stated or compiled on the same basis or with the same degree of accuracy as similar statistics presented elsewhere. In all cases, [REDACTED] should give consideration as to how much weight or importance they should attach to, or place on, such information or statistics.

[REDACTED] should read the entire document carefully and should not place any reliance on any information contained in press articles or media regarding us and the [REDACTED]

We strongly caution you not to rely on any information contained in press articles or other media regarding us and the [REDACTED]. Prior to the publication of this document, there has been press and media coverage regarding us and the [REDACTED]. Such press and media coverage may include references to certain information that does not appear in this document, including certain operating and financial information and projections, valuations and other information. We have not authorised the disclosure of any such information in the press or media and do not accept any responsibility for any such press or media coverage or the accuracy or completeness of any such information or publication. We make no representation as to the appropriateness, accuracy, completeness or reliability of any such information or publication. To the extent that any such information is inconsistent or conflicts with the information contained in this document, we disclaim responsibility for it and you should not rely on such information. Accordingly, [REDACTED] should read the entire document carefully and should not rely on any of the information in press articles or other media coverage. [REDACTED] should only rely on the information contained in this document to make [REDACTED] decisions about us.

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Forward-looking statements contained in this document are subject to risks and uncertainties

This document contains certain statements that are “forward-looking” and may use forward looking terminology such as “aim”, “anticipate”, “believe”, “can”, “could”, “estimate”, “expect”, “going forward”, “intend”, “may”, “might”, “plan”, “potential”, “predict”, “project”, “seek”, “should”, “will”, “would” or similar expressions, or their negatives or other similar expressions. Those statements include, among other things, the discussion of our business strategies and the expectations of our future operations, liquidity and capital resources. Purchasers and subscribers of our [REDACTED] are cautioned that reliance on any forward-looking statement involves risk and uncertainties and that, any or all of those assumptions could prove to be inaccurate and as a result, the forward-looking statements based on those assumptions could also be incorrect. The uncertainties in this regard include those identified in the risk factors discussed above. In light of these and other uncertainties, the inclusion of forward-looking statements in this document should not be regarded as representations or warranties by us, our Directors, the Sole Sponsor, [the [REDACTED], the [REDACTED], the [REDACTED]], the [REDACTED], or our or their respective affiliates or advisers that our plans and objectives will be achieved. [REDACTED] should not place undue reliance on such forward-looking information.

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In preparation for the [REDACTED], our Company has sought the following waivers from strict compliance with the relevant provisions of the Listing Rules.

MANAGEMENT PRESENCE IN HONG KONG

Pursuant to Rule 8.12 of the Listing Rules, we must have sufficient management presence in Hong Kong. This normally means that at least two of the executive Directors must be ordinarily resident in Hong Kong. Since the headquarter of our Group is located in the PRC and substantially all of our business operations are located in in the PRC and our Group’s head office situates in the PRC. Due to the business requirements of our Group, none of the executive Directors has been, is or will intend in the near future to be, based in Hong Kong.

Accordingly, we have applied to the Stock Exchange for, and the Stock Exchange [has granted,] a waiver from strict compliance with the requirements under Rule 8.12 of the Listing Rules. In order to maintain effective communication with the Stock Exchange, we have or will put in place the following measures in order to ensure that regular communication is maintained between the Stock Exchange and us:

(a) we have appointed two authorised representatives pursuant to Rule 3.05 of the Listing Rules, who will act as our principal channel of communication with the Stock Exchange. The two authorised representatives are Mr. Chen, our executive Director and chief executive officer, and Mr. Chan Fung Man, our company secretary. Mr. Chen holds valid travel documents to visit Hong Kong, and Mr. Chan Fung Man is a holder of Hong Kong permanent identity card and ordinarily resides in Hong Kong. In addition, Mr. Cheng Fangdong, an executive Director, who also holds valid travel documents to visit Hong Kong, will be appointed as the alternate to the two authorised representatives. The authorised representatives will provide their usual contact details to the Stock Exchange and will be readily contactable by telephone, facsimile and/or email by the Stock Exchange, if necessary, to deal with enquiries from the Stock Exchange from time to time;

(b) each of the authorised representatives has the means to contact all the Directors (including the independent non-executive Directors) promptly at all times, as and when the Stock Exchange wishes to contact the Directors on any matters;

(c) all the Directors who are not ordinarily resident in Hong Kong possess or can apply for valid travel documents to visit Hong Kong and would be able to come to Hong Kong and meet with the Stock Exchange upon reasonable notice;

(d) Soochow Securities, our compliance adviser (“Compliance Adviser”), will act as an additional channel of communication with the Stock Exchange. The Compliance Adviser will provide our Company with professional advice on ongoing compliance with the Listing Rules. We will ensure that the Compliance Adviser has prompt access to our Company’s authorised representatives and Directors. In turn, they will provide the Compliance Adviser

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with such information and assistance as the Compliance Adviser may need or may reasonably request in connection with the performance of the Compliance Adviser’s duties. The Compliance Adviser will also provide advice to our Company when consulted by our Company in compliance with Rule 3A.23 of the Listing Rules;

(e) our Company shall promptly inform the Stock Exchange if there is any change to the authorised representatives and/or the compliance advisor in accordance with the requirements of the Listing Rules;

(f) each Director (including independent non-executive Directors) will provide their respective mobile phone numbers, office phone numbers, email addresses and fax numbers and residential addresses to the Stock Exchange pursuant to Rule 3.20 of the Listing Rules and their alternate representative and to the authorised representatives. This will ensure that the Stock Exchange, their alternate representative and the authorised representatives should have means for contacting all Directors promptly at all times as and when required, including means to communicate with the Directors when they are traveling; and

(g) meetings between the Stock Exchange and our Directors can be arranged through the authorised representatives, or directly with our Directors within a reasonable time frame. We will inform the Stock Exchange as soon as practicable in respect of any change in the authorised representatives and/or the Compliance Adviser in accordance with the Listing Rules.

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[REDACTED]

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[REDACTED]

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[REDACTED]

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See “Directors and Senior Management” for further information on our Directors.

DIRECTORS

Name Residential Address Nationality

Executive Directors

Mr. Chen Xiangzhen (陳向真) 802, Building 6 Chinese Yard 3 Changyi Road Chaoyang District Beijing, China

Mr. Cheng Fangdong (程方東) 501, Unit 5, Building 8 Chinese Dongyuan Community Huairou District, Beijing, China

Non-executive Directors

Mr. Lin Jiaxi (林嘉喜) Duplex 1D, Building 2B, 17 Mile Chinese Garden, No. 575, Shenkui Road Dapeng New District, Shenzhen City, Guangdong Province, China

Ms. Shi Renkai (施人愷) 202, Unit 2, Building 3 Chinese Western Zone No. 9 Shuangqiao East Road Chaoyang District Beijing, China

Mr. Shi Kexin (史可新) 2-705, Boya Garden Chinese No.9 Nongzhanguan South Road Chaoyang District, Beijing, China

Independent non-executive Directors

Hon. Quat Elizabeth (JP) Flat C 6/F Tower 3 Deerhill Bay Chinese (葛珮帆) 4699 Tai Po Kau, New Territories Hong Kong

Mr. Liu Sai Keung Thomas Flat C, 5/F Chinese (廖世強) Block 11 Royal Ascot Shatin, New Territories Hong Kong

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Name Residential Address Nationality

Mr. Liu Xin (劉昕) D2205, No.155 Yinghua Street Australian Dongxiao South Road Guangzhou Guangdong Province China

For further information regarding our Directors, see “Directors and Senior Management” in this document.

PARTIES INVOLVED IN THE [REDACTED]

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Industry Consultant Frost & Sullivan Room 1018, Tower B No. 500 Yunjin Road Xuhui District Shanghai China

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Registered Office in the Cayman 4th Floor, Harbour Place Islands 103 South Church Street P.O. Box 10240 Grand Cayman KY1-1002 Cayman Islands

Headquarters and Principal Place of Room 104, Building 84,Xidian Village Business in China Chaoyang District Beijing China

Principal of business in Hong Kong 27/F, Alexandra House registered under Part 16 of the 18 Chater Road Companies Ordinance Central Hong Kong

Company’s Website http://www.kxculture.com (The information on the website does not form part of this document)

Company Secretary Mr. Chan Fung Man Certified Public Accountant of Hong Kong Flat F, 6/F Tower 1C 23 Sung On Street, Upper East Hung Hom, Kowloon Hong Kong

Authorised Representatives Mr. Chen Xiangzhen 802, Building 6 Yard 3 Changyi Road Chaoyang District Beijing, China

Mr. Chan Fung Man Flat F, 6/F Tower 1C 23 Sung On Street, Upper East Hung Hom, Kowloon Hong Kong

Audit Committee Mr. Liu Xin (chairman) Hon. Quat Elizabeth (JP) Ms. Shi Renkai

Remuneration Committee Mr. Liu Sai Keung Thomas (chairman) Mr. Liu Xin Mr. Shi Kexin

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Nomination Committee Mr. Lin Jiaxi (chairman) Mr. Liu Xin Mr. Liu Sai Keung Thomas

Compliance Adviser Soochow Securities International Capital Limited Level 17, Three Pacific Place 1 Queen’s Road East Hong Kong

[REDACTED]

Principal Banks China Merchants Bank, Beijing Wanda Plaza Branch 1st Floor, Tower 7, Wanda Plaza 93 Jianguo Road Chaoyang District Beijing, PRC

China Construction Bank, Khorgas Ya’ou North Road Branch No. 1 Ya’ou North Road Horgos, Ili Prefecture Xinjiang, PRC

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The information and statistics set forth in this section and elsewhere in this document have been derived from the industry report commissioned by us and independently prepared by Frost & Sullivan, in connection with the [REDACTED]. In addition, certain information is based on, or derived or extracted from, among other sources, publications of government authorities and internal organisations, market statistics providers, communications with various PRC government agencies or other independent third party sources unless otherwise indicated. We believe that the sources of such information and statistics are appropriate and have taken reasonable care in extracting and reproducing such information. We have no reason to believe that such information and statistics are false or misleading in any material respect or that any material fact has been omitted that would render such information and statistics false or misleading. None of our Company, the Sole Sponsor, the [REDACTED], the [REDACTED], the [REDACTED], the [REDACTED] or their respective directors, advisors and affiliates have independently verified such information and statistics and no representation has been given as to their accuracy. Accordingly, such information should not be unduly relied upon in making, or retraining from making any [REDACTED] decision.

REPORT COMMISSIONED FROM FROST & SULLIVAN

We have commissioned Frost & Sullivan (Beijing) Inc., Shanghai Branch Co., or Frost & Sullivan, an independent third-party global consulting firm, to conduct analysis and prepare a report (the “Frost & Sullivan Report”) on the PRC online literature market and online IP operation of online literature market. Frost & Sullivan is a global consulting firm with 45 offices in over 20 countries and regions. It has industry knowledge with specialized expertise in industry research and market strategies and provides growth consulting and corporate training. We agreed to pay Frost & Sullivan a fee of RMB 768,000 for the preparation and use of the Frost & Sullivan Report. We have extracted certain information from the Frost & Sullivan Report in this section and elsewhere in this document to provide our [REDACTED] with a comprehensive presentation of the industries in which we operate. Unless otherwise indicated, market estimates or forecasts in this section represent Frost & Sullivan’s view on the future development of the PRC online literature market and online IP operation of online literature market. In preparing the report, Frost & Sullivan has relied on statistics and information obtained through both primary and secondary research. Primary research involves discussing the status of the industry with leading industry participants and industry experts, while secondary research involves reviewing company reports, independent research reports and data based on Frost & Sullivan’s own research database. Frost & Sullivan has also extrapolated publicly available data such as information provided by governments, industry associations, annual reports of public companies, industry reports and other available information gathered by non-profit organizations. Projected total market size was obtained from historical data analysis plotted against macroeconomic data as well as specific related industry drivers. During the forecast period from 2021 to 2025, the forecasts were made by Frost & Sullivan on the basis of the following assumptions: • PRC’s economy is expected to maintain steady growth in the forecast period; • PRC’s social, economic, and political environment is expected to remain stable in the forecast period; and • market drivers such as sustainable growth of entertainment demand, more variety of high-quality content, various adaptation of IPs, rapid development of mobile internet are expected to drive the growth of China’s online literature IP operation market. Our Directors confirm that, after taking reasonable care, they are not aware of any adverse change in market information since the date of the Frost & Sullivan Report which may qualify, contradict or adversely impact the quality of the information in this section. OVERVIEW OF CHINA’S ONLINE LITERATURE MARKET

Online literature refers to literary works originally created for consumption online. Online literature in China spans over hundreds of genres, including fantasy, wuxia, science fiction, mystery, romance and cosmopolitan, military, detective as well as a wide spectrum of other refined literary interests.

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Value chain of online literature intellectual property (“IP”) Writers are the primary source of content creation on the online literature platforms. They provide both finished works as well as works-in-progress to online literature platforms and / or online publishers directly or through content providers. Online literature platforms source content from writers as well as content providers and distribute through online literature websites and mobile Apps. The business model of online literature platforms can be divided into online paid reading and online free reading. Online publishers publish e-books once the literature works are completed, which are digital versions of physical books of a literary nature. Compared with traditional literature which is typically classic or contemporary novels, online literature is more diverse and caters to broad content demands of readers. Meanwhile, online literature platforms and online publishers monetise their high-quality IPs to entertainment products such as online games, movies, television (“TV”) series and web series, online animation, etc. adapted from online literature.

Upstream Midstream Downstream

• Content creation • Content screening, monitoring, and distributing • Provide online literature content to readers • E-book conversion and publication • Content adaptation

Content Providers Online Literature Platforms Readers Writers Content Adaptation E-book Operators Publishers

Source: Frost & Sullivan Market size of China’s Online Literature In recent years, with the improvement of people’s living standards, consumers’ demand for leisure and entertainment consumption has steadily increased. With the development of mobile reading and online literature platforms, as well as diversification of online literature industry has grown rapidly. The total revenue of online literature market consists of subscription revenue of online paid reading, as well as revenue of IP operation, advertising, electronic hardware, etc. In 2017, the Ministry of Culture and Tourism issued the “13th Five-year Plan for Cultural Development and Reform”《關於 ( “十三五”時期文化發展改革規劃》), which aimed to accelerate the development of animation, games, creative design, network culture and other new forms of cultural activities, and support the creation, production and promotion of original animation, cultivate creative and brand ethnic animation. At present, the pan-entertainment industry has become an important pillar of China’s digital economy, which plays an important role in promoting the high-quality development of China’s economy. With increasing penetration of mobile internet, rapid development of online literature as well as booming pan-entertainment industries adapted from online literature IP, the total revenue of online literature market has grown rapidly from RMB9.6 billion in 2016 to RMB28.8 billion in 2020, representing a CAGR of 31.8% during the period. In 2020, the pandemic of COVID-19 has an impact on most industries of China. However, it slightly increased the revenue and user base of online literature market, as people spent more time on online literature in 2020. According to China Internet Network Information Center (“CNNIC”), the reader base of online literature increased from 455.0 million in 2019 to 460.1 million in 2020. Thanks to the greater importance of IP operation of online literature, the total revenue of online literature market is expected to reach RMB54.2 billion in 2025, representing a CAGR of 13.4% from 2020. As leading online literature platforms have been devoted to providing high-quality contents, the overall trend of the industry is still stable and upward. Some online reading platforms have been lowering their reading fees for readers or even providing free reading service to acquire large user base and to monetise their user base through advertisement and value-added services. The major online literature platforms offering free reading service include Qimao (七貓), iReader (掌閱), etc.

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Total Revenue of Online Literature Market (China), 2016-2025E

Growth Rate CAGR: 13.4% Total Revenue of Online Literature Market 60 54.2 100 49.8 Growth Rate (%) 50 45.2 80 CAGR: 31.8% 40.1 40 34.6 60 28.8 30 21.1 40

(RMB Billion) 20 12.9 15.9 20.1% 15.7% 9.6 35.1% 36.6% 12.7% 10.2% 10 8.9% 20 23.3% 32.6% 0 0

Revenue of Online Literature Market Revenue 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E

Source: China Audio-video and Digital Publishing Association, Chinese Academy of Social Sciences, Frost & Sullivan Market drivers of online literature market There are multiple supply and demand side macro factors that drive the rapid growth of online literature industry in China. Growing demand for high-quality content and wider genres China’s online literature market owns a large and growing reader base, who have increasing demand for high-quality literary content in terms of depth and diversity. Online literature spans a wide variety of genres from romance and cosmopolitan to fantasy, wuxia, xianxia, science fiction, mystery, etc., which greatly enriches readers‘ choices in content. The quality of online literature has been improved not only due to the stricter content supervision launched by the government, but also the improving educational background of online literature writers, according to China Audio-video and Digital Publishing Association. This trend is likely to keep growing in the next couple years. Increasing penetration of mobile internet China has experienced robust development of mobile internet and accumulated a massive mobile internet user base over the past decade. With the increasing penetration rate of mobile internet, which reached 62.3% in 2019, online literary works have become easily accessible to internet users on PC and mobile devices. Online literature reading through mobile apps has become mainstream and will continue to go deep into people’s daily lives and occupy more fragmented time. Diversified adaptation of IP The adaptation forms of online literature IP are various, which can be well integrated with other pan-entertainment forms, such as films, television, games, and animation. In the past few years, an increasing number of popular films, television, PC and mobile games, and animation works have emerged and been adapted from online literature, showing strong fan effect of online literature IP and high willingness of fans to consume. On the other hand, the outstanding IP adaptation works can feed back the original online literature by increasing the popularity and bringing a new round of potential consumption of online literature. Favorable policies and regulations The government has introduced a series of policies to guide and support the online literature market. These policies have strengthened the supervision of channels and content, and have further strengthened the awareness of fine works and copyright protection, effectively purifying the industrial environment. For example, the “Regulation on Further Supporting the Development of Culture Companies”《進一步支援文化企業發展的規定》 ( ) clearly pointed out to strengthen the development of culture industries, including online literature market. Market trends of online literature market More high-quality original content Due to an increasing number of online literature writers and online literature works entering the market annually, the competition in the online literature market becomes more intense.

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Writers, content providers, and online literature platforms can only stand out by creating / producing / discovering more high-quality original content to meet the changing demand of readers for content consumption. In this situation, content quality will continue to be improved in future.

More diversified monetization formats

The mobile era of online literature has witnessed tremendous increase in the monetization formats and commercial potential of online literature content. Major online literature content adaptation verticals include films, TV series, web series, PC and mobile games, and animations. Also, the mainstream consumers of cultural products, including literary content, have gradually shifted to the demographics born in the 1980s and later. Younger readers have greater demand for engaging content in rich media formats than older readers, and are more receptive to the trendy storylines and diversified genres of online literature, as well as other entertainment products adapted from online literature. Increasing Industrial Concentration

To survive and enhance competitiveness in the online literature market, content providers and online literature platforms tend to sign up with head writers or work with head writers and studios. Leading content providers and online literature platforms normally own or control most of the high-quality resources and better chains between upstream and downstream. Therefore, the online literature market will become more concentrated with few leading participants. CHINA’S IP OPERATION OF ONLINE LITERATURE MARKET

Online literature IP refers to intellectual property rights relating to online literature. Popular online literature IPs are generally adapted into other commercial media products such as games, movies, series, animation, and adjacent merchandise, etc. Value chain of online literature IP

The value chain of China’s online literature IP contains four major components, including IP creators, IP operators, content adaptation partners, and end customers. The Group mainly works as an IP holder (i.e. IP creators and IP operators), serving as a channel between writers and content adaptation partners. As an important part of China’s pan-entertainment market, IP operators operate valuable IPs based on the content of online literature works and provides high-quality IP materials for downstream entertainment producers and distributors. And their editors may be involved in the IP creation and the content adaptation process by driving content discovery and contributing their in-depth understanding of literary works. For entertainment distributors, they are involved with the distribution of the entertainment products such as drama series, films, games, animations, etc.

Note: 1. IP creation companies refer to those commission writers to create the literary works, which are owned by the IP creation companies. 2. Some online literature platforms also engaged in IP operation. Source: Frost & Sullivan

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Market Size of IP Operation of Online Literature Market The revenue of online literature IP operation refers to IP operating revenue or share of operating revenue and licensing fees. China’s fast-growing online literature market has become an important source of inspiration for pan-entertainment such as film, television, game, animation, etc. The revenue of online literature IP operation market in China has increased from RMB0.8 billion in 2016 to approximately RMB5.6 billion in 2020, with a CAGR of 61.7%. The rapid growth in 2019 was mainly due to the rising number of online literature IP adapted into pan-entertainment and popularity of the adapted film and television. While moving into 2020, the revenue of online literature IP operation market declined slightly, which was primarily caused by the delayed production and release dates for films and drama series due to the COVID-19 pandemic in 2020, and an increased focus towards the quality, rather than quantity, of online literature IP. Currently, the film and television industry in the PRC is undergoing profound adjustment as it responds to the fluid and changing macro-environment such as the decreasing growth of the per capital nominal GDP in 2019 and 2020, and is experiencing a decline in the number of project filings, productions, and releases. In addition, the outbreak of the COVID-19 epidemic has continued to affect the macro-economy, and the film and television industry in the PRC has suffered substantially due to production delays, uncertain release dates and elongated production cycle for films and television projects, resulting a transient decline of demand for IP adaptation and operation of online literature. The COVID-19 has an impact on drama series and films, which caused a short term decrease of revenue as the shooting and producing is restrained. On the other hand, since people have more time at home, they spend more time and money on online games and animations. As a result, it accelerates the development of games and animation markets in 2020. Looking ahead, the development of ecosystem for IP operation and pan-entertainment, as well as consumers’ increasing preference for entertainment adapted from IPs will continue to drive China’s online literature IP market to grow. The revenue of online literature IP operation market is expected to reach RMB15.0 billion in 2025, representing a CAGR of 21.7% from 2020. Revenue of Online Literature IP Operation Market (China), 2016-2025E

Revenue of Online Literature IP Operation Growth Rate 20 CAGR: 21.7% 500

CAGR: 61.7% Growth Rate (%) 15.0 400 15 12.9 250.3% 300 10.8 10 8.8 200 110.7% 7.1 6.2 5.6 26.6% 24.2% 22.9% 19.4% 16.0% 100 5 2.4% -9.5% 1.8 0 0.8 0.8 Operation (RMB Billion) 0 -100 Revenue of Online Literature IP Revenue 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E Source: China Audio-video and Digital Publishing Association, Frost & Sullivan Market size of film market in China Film market is one of the major components of the pan-entertainment market which involves IP operations. The film market consists of theatrical film market and web film market. The total revenue of film market increased rapidly from RMB50.1 billion in 2016 to RMB68.5 billion in 2019, which was mainly due to rapid economic growth, increase in household income, growing demand for entertainment goods, and improvement of quality of films. However, the films market in China experienced a fall in 2020 due to the impact of COVID-19 both production and distribution. On the production side, China Federation of Radio and Television Association and its Actors Committee together with China Television Production Committee released the “Notice of Stop Shooting of All Film and Television During the COVID-19 Period” (關於新冠疫情期間停止影視劇拍攝工作的通知) on February 1, 2020, which stated that the shooting activities should be suspended since February 1, 2020. As a result, the production of film and television market in the PRC had been generally suspended for approximately two months in 2020. On the other hand, as request by the government, the movie theaters have been closed for approximately six months since January 23, 2020. From July 20, 2020, with the notice of China Film

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Administration, movie theaters in “low risk” areas can reopen for business with strict rules regarding audience capacity and numbers of theatrical films screened. Due to business shutdown for approximately six months and lower audience capacity, the total revenue of film market decreased to RMB24.6 billion in 2020, with a CAGR of -16.3% from 2016 to 2020.

Going forward, the total revenue of film market is expected to recover since 2021 and increase to RMB93.0 billion in 2025, representing a CAGR of 30.5% from 2020, thanks to the government’s effectively control of COVID-19 and consumers’ rising demand for entertainment.

Total Revenue of Film Market (China), 2016-2025E

CAGR 2016-2020 2020-2025E Total -16.3% 30.5% Theatrical Film Market -19.8% 33.6% 100 93.0 Web Film Market 51.4% 7.7% 86.7 79.8 80 73.0 66.3 68.5 64.6 58.2 60 50.1 80.9 86.9 40 68.0 74.4 61.0 64.3 60.0 55.9 24.6 49.3

(RMB Billion) 20 20.4 0 0.8 2.3 5.3 4.2 4.2 4.6 5.0 5.4 5.8 6.1

Total Revenue of Film Market of Film Market Revenue Total 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E

Source: China Film Administration, Frost & Sullivan

Market size of drama series market in China

Television, or drama series market is another major component of the pan-entertainment market which involves IP operations. The drama series market consists of TV series market and web series market. The total revenue of drama series increased rapidly from RMB18.0 billion in 2016 to RMB38.5 billion in 2018, benefiting from the increasing income level, consumers’ rising demand for entertainment, and the improvement of drama series’ quality. However, the drama series market in China experienced a contraction in 2019 due to decline of number of drama series resulting from intensive policy and regulatory adjustment since 2018. Still, the revenue of drama series represented a CAGR of 13.5% from 2016 to 2020.

The COVID-19 pandemic has an impact on the drama series market in China, resulting shutting down or delaying production of programs with consequent negative impacts on both number and revenue.

Going forward, the total revenue of drama series market is expected to increase to RMB45.5 billion in 2025, representing a CAGR of 8.8% from 2020.

Total Revenue of Drama Series Market (China), 2016-2025E

CAGR 2016-2020 2020-2025E Total 13.5% 8.8% Web Series Market 51.4% 9.8% 50 45.5 TV Series Market -3.0% 7.4% 42.3 40 38.5 39.2 36.1 36.0 33.8 32.6 12.4 29.9 26.8 30 9.6 24.8 23.0 14.6 21.2 19.2 20 18.0 16.8 3.2 (RMB Billion) 26.5 26.1 10 19.2 16.2 17.5 18.7 18.014.8 13.1 13.4 14.8 Total Revenue of Drama Series Revenue Total 0 2016 2017 2018 2019 2020E 2021E 2022E 2023E 2024E 2025E

Source: National Radio and Television Administration, Frost & Sullivan

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Market size of game market in China The game market consists of mobile games, web games, client games and others. The total revenue of game market increased rapidly from RMB165.6 billion in 2016 to RMB278.7 billion in 2020, representing a CAGR of 13.9% from 2016 to 2020. The COVID-19 pandemic has a positive effect on the game market in China, as many entertainment demands shifts from offline to online. Which lead to a 20.7% increase from 2019 to 2020. Going forward, the total revenue of game market is expected to increase to RMB440.6 billion in 2025, representing a CAGR of 9.6% from 2020. Total Revenue of Game Market (China), 2016-2025E

CAGR 2016-2020 2020-2025E 450 440.6 Game Market 13.9% 9.6% 403.8 400 368.8 350 335.7 308.1 300 278.7 250 230.9 203.6 214.4 200 165.6 150 (RMB Billion) 100 50 Total Revenue of Game Market of Game Market Revenue Total 0 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E

Source: China Audio-video and Digital Publishing Association, Frost & Sullivan Market size of animation market in China The total revenue of animation market increased rapidly from RMB9.7 billion in 2016 to RMB11.7 billion in 2020, representing a CAGR of 4.8% from 2016 to 2020. The COVID-19 pandemic has a positive effect on animation industry, as during the quarantine period, people cannot go outside, and animation is a good entertainment method. As a result, it keeps growing in contrast to the films and drama series market. Going forward, the total revenue of animation market is expected to increase to RMB18.5 billion in 2025, representing a CAGR of 9.5% from 2020. Total Revenue of Animation Market (China), 2016-2025E

CAGR 2016-2020 2020-2025E 20 18.5 Animation Market 4.8% 9.5% 17.4 16.1 14.8 13.3 11.7 11.0 10 9.7 9.4 9.7 (RMB Billion)

Total Revenue of Animation Market Animation Market of Revenue Total 0 2016 2017 2018 2019 2020 2021E 2022E 2023E 2024E 2025E

Source: Ministry of Culture and Tourism of the PRC, Frost & Sullivan Market drivers of online literature IP operation market Sustainable growth of entertainment demand With the continuous improvement of disposable income and living standard, Chinese consumers begin to pursue high-quality spiritual enjoyment products. The per capital annual expenditure on culture, education and entertainment increased from RMB1,915 in 2016 to RMB2,032 in 2020, representing a CAGR of 1.5%. At the same time, more and more capital entered the pan-entertainment market, which boosted the development of online literature IP operation. Such favorable macro circumstances and sustainable growth of entertainment demands provide massive opportunities for the development of online Chinese literature IP operation market.

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More variety of high-quality content With the high demand of reader and guidance of the policy, online literature continues to develop with high quality. With the continuous refinement of the content of online literature, the genres and contents of online literature continue to expand, while strengthening the integration and innovation, and actively inherit the traditional Chinese culture. The rich subject types and strong story lines make the online Chinese literature IP with huge operation value, which thus continuously promotes the development of online Chinese literature IP operation market. Various adaptation of IP The adaptation forms of online Chinese literature IP are various, which can be well integrated with other pan-entertainment forms, such as TV series, movies, games, and animation. In the past few years, several popular TV series and web series, movies, games, and animation works have emerged, showing the strong fan effect of online literature IP and high willingness of fans to consume. Therefore, various adaptation forms promote the continuous progress of online literature IP operation. Rapid development of mobile internet With the rapid development of mobile internet technology, the business forms of internet and cultural entertainment are widely interconnected and deeply integrated. The popularity of online entertainment such as web series and web films generates large potential demand for online IP operation. With the diversifying forms and methods of entertainment diversified, and the increasing proportion of people’s entertainment life, the business model of pan-entertainment industry chain is becoming more and more mature. The development of mobile internet technology continues to promote the development of online literature IP operation. Market trends of online literature IP operation market More diversified, more selective and high-quality content With the development of economy and the further improvement of reading demand and consumption ability of readers, higher quality and enriched works can better meet the spiritual and cultural needs of readers and fans. Compare with the focus was on quantity in the past, quality has now become the top priority when selecting IP content. On the other hand, the government will continue to strengthen the guidance mechanism for the healthy development of online literature, publishers in the industry should focus on quality works with innovative ideas to strengthen the appeal of online literature. In the future, online literature will continue to diversify and develop content with high quality. Improving IP operation capacity With the accumulation of years of successful experience, IP operators will continue to improve their IP operation capabilities. IP operators are expected to adopt different development methods for different types of IPs, and develop and operate a variety of IPs for different demand of consumers. It is expected that the IP-based penetration rate will continue to increase in the future. Enhancing competitive edge Due to the improving monetisation prospects of high-quality online literature IP content, there is increasing demand and competition for popular literary works. In order to enhance the competitive edge, leading online literature IP operators should differentiate themselves from other operators in terms of IP awareness and reputation, adaptation capabilities, IP fans base, relationships with distribution channels. Technological advances bring immersive IP experiences It is predicted that with the further development of science and technology, the forms of interaction among online literature IP products and users will become richer and more diverse in the future. Thanks to the maturity of 5G and VR, users are expected to enjoy immersive interactive experiences during games, films, and drama series. Moreover, artificial intelligence technology can analyze user demand through big data, thus increasing the stickiness of IP to end consumers and improve the development scenario and monetisation channels of IP operation.

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Increasing potential of monetisation The online literature industry is expected to expand more monetisation channels. For example, when providing IP for movies and drama, IP operators can cooperate with online television platforms with link of content to original novels. In addition, with the development and growth of new entertainment methods such as short video and live broadcast, online literature IP operators also attract audiences through these attractive channels, so as to continuously reach more and wider user groups and further stabilise the dissemination and coverage of IP, and thereby enhance the value of IP. Cost items for online literature IP operations It is an industry norm that the fee paid for entry-level online literature writers is calculated by per thousand words, which highly depends on the writers’ tier. Generally, entry-level online literature writers earn less than RMB30 per thousand words. While the fee for online literature writers at phenomenal or platinum level is generally paid by more complicated package, which may include subscription fee, copyright transaction fee, etc. Commonly, the fee for phenomenal writers is RMB30 to RMB500 per thousand words and for platinum writers is above RMB500 per thousand words. IPs under “class S” are usually created by platinum writers and the IPs under “class A” are usually created by phenomenal writers. The price of acquiring a “class S” IP is approximately more than RMB10 million and the price of acquiring a “class A” IP is in the range of RMB5 million to RMB10 million. COMPETITIVE LANDSCAPE OF CHINA’S IP OPERATION OF ONLINE LITERATURE MARKET China’s online literature IP operation market was dominated by the top player with a market share of 61.5% and the top five players accounted for 82.9% market share in aggregate, in terms of revenue generated from online literature IP operation in 2020. There were hundreds of IP operators in China as at December 31, 2020. Compared with the concentrated IP operation market, the upstream (IP providers, IP authors, etc.) and downstream (IP adaptation partners such as video game adaptation partners, etc.) of IP operators are highly fragmented. In 2020, the Group ranked tenth in the China’s online literature IP operation market in terms of revenue of online literature IP operation, with a market share of 1.5% in 2020 with a revenue of RMB83.3 million. As each IP is quite unique, the Group competes with other literature IP operators on a number of factors, including IP awareness and reputation, IP fans base, access to and relationships with distribution channels, and pricing. According to China Audio-video and Digital Publishing Association, there were thousands of online literature IPs that were adapted into pan-entertainment forms in 2020. China’s Top 10 Online Literature IP Operators in terms of Revenue of Online Literature IP Operation, 2020 Revenue of online literature IP Ranking Online literature IP operators operation Market share (RMB million) (%)

1 Company A1 3,451.1 61.5% 2 Company B2 504.1 9.0% 3 Company C3 280.0 5.0% 4 Company D4 250.0 4.5% 5 Company E5 160.0 2.9% 6 Company F6 100.0 1.8% 6 Company G7 100.0 1.8% 8 Company H8 90.0 1.6% 9 Company I9 85.0 1.5% 10 The Group10 83.3 1.5%

Top Ten 5,103.5 91.1%

Total 5,608.2 100.0%

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Note: 1. Company A is a company listed on the Stock Exchange, headquartered in Shanghai. It principally engaged in online businesses (including online paid reading, online advertising and game publishing) and IP operation and others (including licensing and distribution of film and television properties, copyrights licensing/sub-licensing, sales of adaptation rights and scripts, sales of physical books, in-house online games operation, etc.). 2. Company B is an A-share listed company, headquartered in Beijing. It principally engaged in online reading platform businesses (including paid digital reading services and commercialisation value-add services) and IP product business (i.e. licensing copyrights of online literatures to customers in the entertainment industry). 3. Company C is a private company, headquartered in Beijing. It principally engaged in online literature reading, IP operation and traditional publication business. 4. Company D is a subsidiary of a company listed on the Stock Exchange, headquartered in Beijing. It principally engaged in provision of mobile internet digital content services. 5. Company E is a subsidiary of a company listed on the Stock Exchange and New York Stock Exchange, headquartered in Guangzhou. It principally engaged in online literature reading and IP operation. 6. Company F is a private company, headquartered in Beijing. It principally engaged in online literature reading and IP operation. 7. Company G is a private company, headquartered in Beijing. It principally engaged in online literature reading and IP opertaion. 8. Company H is an A-share listed company, headquartered in Beijing. It principally engaged in cultural business (including online reading service, IP protection business, IP adaptation and licensing business, and overseas interactive reading platform service). 9. Company I is an A-share listed company, headquartered in Hangzhou. It principally engaged in home automation system production and online literature reading. 10. As per audited figures of the Group. Source: China Audio-video and Digital Publishing Association, Frost & Sullivan Entry Barriers IP & IP creator reserve IP is the original source and basis for the IP Operation of online literature market. As a result, a high-quality, sizable and diverse IP reserve is a key successful factor for the players in the industry, which can increase the likelihood of successful commercialisation for an IP. As IP creators (writers) are the source of IP, the number of contracted writer for an online literature platform or an IP Operator is also key. A larger pool of contracted writers allow the IP operator to have access to more IPs. Talents for IP operation People of talent are essential assets for a company in the industry. Certain key roles, such as editors are under intensive demand in the industry. Without talented editors, the IPs cannot be adapted into other forms such as scripts which can be properly generate another form of work such as drama series, films, games and so on. Staff with talents, skills and experience can discover high quality IPs with higher potential to be popular and easier to be adapted. Relationship with content adaptation partner As IP adaptation is the core step for IP operation, the experience and quality of content adaptation partners (IP producers and distributors) has a major influence on the outcome IP adaptation. If a company have a good working relationship with high-quality content adaptation partner such as renowned filming studios, and scriptwriters, it can shorter the process and improve the quality of final products. Abundant funds IP operation involves multiple steps and cooperation between different parties and requires a certain period of time before generating income. It is common that the IP operators may only receive payback and income in timeframe of one year or longer. On the other hand, the purchasing cost for some IPs especially those from popular writers, are high, with price fetching up to tens of millions of dollars. Abundant funds are necessary for an IP operator to build a IP reserve and to be successful.

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The following is a brief summary of the laws and regulations in the PRC that currently materially affect our Group and our operations. The principal objective of this summary is to provide [REDACTED] with an overview of the key laws and regulations applicable to us. This summary does not purport to be a comprehensive description of all the laws and regulations applicable to the business and operations of our Group and/or which may be important to [REDACTED]. [REDACTED] should note that the following summary is based on laws and regulations in force as at the date of this document, which may be subject to change.

This section summarises the most significant laws, regulations, and rules that affect and govern our current major business activities and operation in the PRC.

LAWS AND REGULATIONS RELATING TO INTELLECTUAL PROPERTY RIGHTS

China is a signatory to some major international conventions on the protection of copyright and became a member of the Berne Convention for the Protection of Literary and Artistic Works in October 1992, the Universal Copyright Convention in October 1992, and the Agreement on Trade-Related Aspects of Intellectual Property Rights upon its accession to the World Trade Organization in December 2001. Furthermore, China has enacted various laws and regulations relating to the protection of copyright. The Copyright Law of the PRC《中華人民共和國著作權法》 ( ) (the “Copyright Law”), promulgated on 7 September 1990 and newly revised on 11 November 2020 and became effective from 1 June 2021. The Implementation of the Copyright Law of the PRC《中華人 ( 民共和國著作權法實施條例》) (the “Copyright Implementation”) promulgated on 2 August 2002, revised on 30 January 2013 protect copyright and explicitly covers artworks, film works and works created using methods similar to film making copyright.

The Copyright Law provides that Chinese citizens, legal persons, or other organisations shall, whether published or not, enjoy copyright in their works, which include, among others, works of literature, art, natural science, social science, engineering technology and computer software. The purpose of the Copyright Law is to encourage the creation and dissemination of works which is beneficial for constructing socialist spiritual civilisation and material civilisation and promoting the development and prosperity of Chinese culture. According to the Copyright Law, legal persons or other organisations, whether published or not, enjoy copyright protection under the Copyright Law. The copyright shall vest in the works from the date of completion of such works. Works of non-Chinese nationals or stateless persons first published in the PRC territory enjoy copyright protection under the Copyright Law. The term “copyright” shall include the following personal rights and property rights: 1) the right of publication; 2) the right of authorship; 3) the right of modification; 4) the right of integrity; 5) the right of reproduction; 6) the right of distribution; 7) the right of rent; 8) the right of exhibition; 9)the right of performance; 10) the right of projection; 11) the right of broadcasting; 12) the right of communication of information via the network; 13) the right of cinematization;14) the right of adaptation; 15) the right of translation; 16) the right of compilation; and 17) the other rights to which a copyright owner is entitled. For an audio-visual work, the protection period for its right of publication shall be 50 years, ending on 31 December of the 50th year after the creation of the work; and the protection period for its rights stipulated above from items (5) to (17) shall be 50 years, ending on 31 December of the 50th year after the first publication of the

−76− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. REGULATORY OVERVIEW work, but if a work has not been published within 50 years after the completion of the creation, it shall no longer be protected under the Copyright Law. Where the copyright in a work is owned by a citizen, the right stipulated above in items 1) and 5) to 17) of the Copyright shall be protected for a term of the life of the author and 50 years after his/her death, ending on 31 December of the 50th year after the author’s death. An author’s rights of authorship, revision and integrity shall continue in perpetuity. Unless otherwise stipulated in the Copyright Law, anyone that wishes to use another’s work shall conclude a licensing contract with the copyright owner of the work. A licensing contract shall include: the type(s) of right(s) being licensed; whether the license is exclusive or non-exclusive; the geographic scope and terms of the license; the amount and method of remuneration; liability for breach of contract; and other details which the parties consider necessary. Where the right licensed is an exclusive licensing right, the contracts shall be made in writing, except in cases where works are to be published by newspapers and periodicals according to the Copyright Implementation. Any person, who concludes an exclusive licensing contract or assignment contract with a copyright owner, may submit, for filing, the contractual documents to the copyright administrative departments.

The copyright of cinematographic works and TV play works in audio-visual works shall be enjoyed by producers, but screenwriters, directors, photographers, lyricists, composers, and other authors shall enjoy the right of signature and have the right to obtain remunerations as agreed upon in the contracts signed with producers. The ownership of the copyright of an audio-visual work other than aforementioned shall be agreed upon by the parties; and where there is no agreement or the agreement is unclear, the copyright shall be enjoyed by the producer, but the author shall have the right of signature and receive remunerations. The authors of script, music, and other works that may be used separately shall have the right to separately exercise their right of copyright. The Copyright Law further stipulates that the ownership of the copyright in a commissioned work shall be subject to the terms of the contract entered into between the commissioning party and the commissioned party. Where the contract does not expressly provide for the copyright owner or where there is no contract, the copyright shall be owned by the commissioned party.

Software Copyright

The Copyright Law extends copyright protection to internet activities, products disseminated over the internet and software products. To address the problem of copyright infringement related to the content posted or transmitted over the internet, the National Copyright Administration and the MIIT jointly promulgated the Measures on Administrative Protection of Copyright Related to the Internet《互聯網著作權行政保護辦法》 ( ) on 29 April 2005 and this measure became effective on 30 May 2005. In order to further implement the Regulations on the Protection of Computer Software (《計算機軟件保護條例》) promulgated by the State Council on 4 June 1991, and most recently amended on 30 January 2013 and taking into effect on 1 March 2013, the State Copyright Bureau issued the Measures for Registration of Computer Software Copyright《計算機軟件著作權登記辦 ( 法》) on 6 April 1992 (amended on 20 February 2002), which applies to software copyright registration, license contract registration and transfer contract registration. The National Copyright Administration of the PRC shall be the competent authority for the nationwide administration of software copyright registration and the Copyright Protection Centre of China or the CPCC, is designated as the software registration authority. The CPCC shall grant registration certificates to the Computer Software Copyrights applicants which conforms to the provisions of both the Computer Software Copyright Registration Procedures and the Computer Software Protection Regulations (Revised in 2013).

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Information Network Transmission Right

In accordance with the Regulations on Protection of Information Network Transmission Right (《信息網絡傳播權保護條例》) (the “Regulations of Information Network Transmission Right”), which was promulgated by the State Council on 18 May 2006, came into effect on 1 July 2006, then was amended on 30 January 2013 and came into effect on 1 March 2013, Information Network Transmission Right shall mean provision of works, performances or audio and video products through wired or wireless method to the public so as to give the public rights to access works, performances or audio and video products at their selected time and venue. The Information Network Transmission Right of right holders shall be protected by the Copyright Law and the Regulations of Information Network Transmission Right. Unless otherwise provided by the laws and administrative regulations, any organisation or individual providing the works, performances, audio and video products of others to the public via information network shall obtain the consent of the rights holders and pay remuneration. Rightsholders may adopt technical measures to protect information network transmission right. Any organisation or individual shall not intentionally avoid or destroy technical measures and shall not intentionally manufacture, import or provide devices or parts used principally for the avoidance or destruction of technical measures and shall not provide technical services for others to avoid or destroy technical measures, unless otherwise provided by the laws and administrative regulations. Furthermore, without the consent of the rights holder, any organisation or individual shall not: (1) intentionally delete or alter digital rights management information of works, performances, audio and video products provided to the public via information network, except where the deletion or alteration is unavoidable due to technical reasons; or (2) provide works, performances, audio and video products via information network to the public when the organisation or individual is aware or should be aware that the digital rights management information of such works, performances, audio and video products have been deleted or altered without the consent of the rights holder.

Trademark

Trademarks are protected by the Trademark Law of the PRC《中華人民共和國商標法》 ( ) (promulgated by the SCNPC on 23 August 1982, came into effect on 1 March 1983 and revised on 22 February 1993, 27 October 2001, 30 August 2013 and 23 April 2019) and the PRC Trademark Law Implementing Regulations《中華人民共和國商標法實施條例》 ( ) (promulgated by the State Council on 29 April 2014 and came into effect on 1 May 2014). The trademark bureaus under the General Administration for Industry and Commerce are responsible for trademark registration and authorising registered trademarks for a validity period of 10 years. Trademark registrants may apply for renewal of registration, and the validity of a renewed registered trademark is the following 10 years. Trademark registrants may, by signing a trademark license contract, authorise others to use their registered trademark. The trademark license contract shall be submitted to the trademark office for filing. For trademarks, trademark law adopts the principle of “prior application” while handling trademark registration. Where a trademark under registration application is identical with or similar to the trademark of another party that has, in respect of the same or similar goods or services, been registered or, after examination, preliminarily approved, the application for trademark registration shall be rejected. Anyone who applies for trademark registration shall not impair any existing prior right of anyone else, or forestall others in registering a trademark which others have already begun to use and which has “some influence”.

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Domain Names

The MIIT promulgated the Measures for the Administration of Internet Domain Names《互聯 ( 網絡域名管理辦法》) (the “Domain Name Measures”) on 16 August 2017 and forced on 1 November 2017. According to the Domain Name Measures, domain name owners are required to register their domain names and the MIIT is in charge of the administration of PRC internet domain names. The domain name services follow a “first come, first file” principle. Applicants for registration of domain names shall provide their true, accurate and complete information of such domain names to and enter into registration agreements with domain name registration service institutions. The applicants will become the holders of such domain names upon the completion of the registration procedure.

LAW AND REGULATIONS RELATING TO THE RESTRICTIONS ON INTERNET CONTENT

The content of the internet information is also highly regulated in the PRC. On 16 February 2007, the National Press and Publication Administration (the “NPPA”) promulgated the Notice of the General Administration of Press and Publication on Strengthening Review Work of Audio-visual Products and Electronic Publication Items and internet Publication Items《新聞出版總署關於加強音 ( 像製品、電子出版物和網絡出版物審讀工作的通知》), pursuant to which NPPA shall strengthen the review of internet publication items, including (i) annual topic plan review for those unpublished internet publication items, (ii) special review and daily review for published internet publication items; and (iii) regulation of internet publication content.

The Administrative Measures on internet Information Services《互聯網信息服務管理辦法》 ( ) (the “Internet Measures”), which was promulgated by the State Council on 25 September 2000 (amended on 8 January 2011), set out guidelines on the provision of internet content. According to the internet Measures, violators may be subject to penalties, including criminal sanctions, for providing internet content that: opposes the fundamental principles stated in the PRC Constitution; compromises national security, divulges national secrets, subverts national power or damages national unity; harms national dignity or interest; incites ethnic hatred or racial discrimination or damages inter-ethnic unity; undermines the PRC’s religious policy or propagates superstition; disseminates rumours, disturbs social order or disrupts social stability; disseminates obscenity or pornography, encourages gambling, violence, murder or fear or incites the commission of a crime; insults or slanders a third party or infringes upon the lawful rights and interests of a third party; or is otherwise prohibited by law or administrative regulations. An internet information service provider may not post or disseminate any content that falls within prohibited categories and must stop providing such content on their websites.

LAWS AND REGULATIONS RELATING TO MOBILE INTERNET APPLICATIONS INFORMATION SERVICES

Mobile internet applications (the “APPs”) and the internet application store (the “APP Store”) are specially regulated by the Administrative Provisions on Mobile Internet Applications Information Services《移動互聯網應用程序信息服務管理規定》 ( ) (the “APP Provisions”), which were promulgated by the Cyberspace Administration of China (“CAC”) on 28 June 2016 and became

−79− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. REGULATORY OVERVIEW effective on 1 August 2016. The APP Provisions regulate the APP information service providers and the APP Store service providers. The CAC and local offices of cyberspace administration shall be responsible for the supervision and administration of nationwide or local APP information, respectively.

Pursuant to the PRC laws and regulations, the APP information service providers shall acquire relevant qualifications, implement the information security management responsibilities strictly and fulfil their obligations, including real-name system, protection of users’ information, examination and management of information content, etc. The APP Store service providers shall file a record with the related local offices of cyberspace administration within 30 days after such services have been rolled out online for operation. They shall fulfil the administrative responsibilities over the application providers. For any application provider who violates the aforementioned provisions, the APP Store service providers shall take such measures as warning, suspending the release or withdrawing the applications as the case may be, keep records and report such violation to the relevant competent authorities. In addition, the APP Store service providers shall enter into the service agreements with the APP information service providers, clarifying the rights and obligations of both parties.

LAWS AND REGULATIONS RELATING TO INFORMATION SECURITY AND PRIVACY PROTECTION

According to the PRC Cybersecurity Law《中華人民共和國網絡安全法》 ( ), promulgated On 7 November 2016 and became effective from 1 June 2017, network operators shall strictly keep confidential users’ personal information that they have collected, and establish and improve the users’ information protection system. To collect and use personal information, network operators shall follow the principles of legitimacy, rightfulness and necessity, disclose their rules of data collection and use, clearly express the purposes, means and scope of collecting and using the information, and obtain the consent of the persons whose data is gathered. In December 2012, the SCNPC promulgated the Decision on Strengthening Network Information Protection《關於加強網絡信息保護的決定》 ( )to enhance the legal protection of information security and privacy on the internet. In July 2013, the MIIT promulgated the Provisions on Protection of Personal Information of Telecommunication and Internet Users《電信和互聯網用戶個人信息保護規定》 ( ) to regulate the collection and use of users’ personal information in the provision of telecommunication services and internet information services in the PRC and the personal information includes a user’s name, birth date, identification card number, address, phone number, account name, password and other information that can be used for identifying a user. On 29 December 2011, the MIIT promulgated the Several Provisions on Regulation of the Order of Internet Information Service Market《規範互聯網信息服務市場秩序若干規定》 ( ), which became effective on 15 March 2012. The Provisions stipulate that without the consent of users, internet information service providers shall not collect information relevant to the users that can lead to the recognition of the identity of the users independently or in combination with other information, nor shall they provide personal information of users to others, unless otherwise provided by laws and administrative regulations.

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Furthermore, on 21 October 2020, the National People’s Congress Law Committee announced the full text and description of the “Personal Information Protection Law of the People’s Republic of China (Draft)”《個人信息保護法 ( (草案)》) and solicited public opinions. On 29 April 2021, the Second Draft for Review was promulgated. It is still uncertain when the draft would be signed into law and whether the final version would have any substantial changes from this draft. When the Personal Information Protection Law becomes effective, a relatively complete cyberspace security governance system and a data and personal information protection system will be built, and the level of protection of personal information (especially personal privacy) in society as a whole is expected to be improved.

COMPANY LAW AND LAWS AND REGULATIONS RELATING TO FOREIGN INVESTMENT

Companies established and operating in the PRC shall be subject to Company Law of the PRC (《中華人民共和國公司法》) (the “Company Law”), which was promulgated by the National People’s Congress Standing Committee (the “SCNPC”) on 29 December 1993 and newly amended on 26 October 2018. The Company Law provides for the establishment, corporate structure and corporate management of companies, which also applies to foreign-invested enterprises in the PRC. Unless otherwise provided in the PRC foreign investment laws, the provisions in the Company Law shall prevail. The Company Law stipulates that a limited company shall prepare a shareholders’ register, which shall record the following matters: (1) The name and address of each shareholder; (2) The capital contribution made by each shareholder; and (3) The serial number of each capital contribution certificate. The shareholders recorded in the shareholders’ register may, pursuant to the shareholders’ register, claim and exercise shareholders’ rights. A company shall register each shareholder’s name and its capital contribution at the company registration authority. The company shall carry out the amendment of the registration in the event of any change in the registered details. Any registration detail that fails to be amended or registered shall not be valid against any third-party.

According to the Provisions Regarding Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the Ministry of Commerce, the State Owned Assets Supervision and Administration Commission, the State Administration of Taxation, the State Administration for Industry and Commerce, the China Securities Regulatory Commission, the State Administration of Foreign Exchange [2006] No. 10)《關於外國投資者併購境內企業的規定》 ( )(商務部、國務院國有資產監督管理委員會、國家稅務總局、國家工商行政管理總局、中國證券監督管理委員會、國家外匯管理局令[2006]第10號), which was promulgated on 8 August 2006 and became effective on 8 September 2006, and was amended on 22 June 2009, a foreign investor is required to obtain necessary approvals when (i) a foreign investor acquires equity in a domestic non-foreign invested enterprise thereby converting it into a foreign-invested enterprise, or subscribes for new equity in a domestic enterprise via an increase of registered capital thereby converting it into a foreign-invested enterprise; or (ii) a foreign investor establishes a foreign-invested enterprise which purchases and operates the assets of a domestic enterprise, or which purchases the assets of a domestic enterprise and injects those assets to establish a foreign-invested enterprise. Where a domestic company, domestic enterprise, or a domestic natural person, through an overseas company established or controlled by it/him/her, acquires a domestic company which is affiliated with it/him/her, an approval from the MOFCOM is required.

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On 15 March 2019, the National People’s Congress (the “NPC”) approved the PRC Foreign Investment Law《中華人民共和國外商投資法》 ( ) (the “FIL”), which came into effect on 1 January 2020 and replaced three existing laws on foreign investments in the PRC, namely, the PRC Equity Joint Venture Law《中華人民共和國中外合資經營企業法》 ( ), the PRC Cooperative Joint Venture Law《中華人民共和國中外合作經營企業法》 ( ) and the Law of the PRC on Wholly Foreign-owned Enterprises《中華人民共和國外資企業法》 ( ). On 26 December 2019, the State Council issued the Regulations on Implementing the Foreign Investment Law of the PRC《中華人民共和國外商投資法 ( 實施條例》), which came into effect on 1 January 2020 and replaced the Regulations on Implementing the Sino-Foreign Equity Joint Venture Enterprise Law《中華人民共和國中外合資經營企業法實施條 ( 例》), Provisional Regulations on the Duration of Sino-Foreign Equity Joint Venture Enterprise Law《中外合資經營企業合營期限暫行規定》 ( ), the Regulations on Implementing the Wholly Foreign-Owned Enterprise Law《中華人民共和國外資企業法實施細則》 ( ) and the Regulations on Implementing the Sino-Foreign Cooperative Joint Venture Enterprise Law《中華人民共和國中外合 ( 作經營企業法實施細則》). The FIL embodies a predictable PRC regulatory trend to rationalize its foreign investment regulatory regime in line with prevailing international practice and the legislative efforts to unify the PRC’s corporate legal requirements for both foreign and domestic invested enterprises. The FIL establishes the basic framework for the access to, and the promotion, protection and administration of foreign investments in view of investment protection and fair competition.

On 30 December 2019, the MOFCOM and the State Administration for Market Regulation issued the Measures on Reporting of Foreign Investment Information《外商投資信息報告辦法》 ( ) which became effective on 1 January 2020. According to the Measures on Reporting of Foreign Investment Information, foreign investors or foreign investment enterprises shall submit investment information to the commerce administrative authorities through the Enterprise Registration System and the National Enterprise Credit Information Publicity System. Foreign investment enterprises shall also submit the annual report for the preceding year during 1 January to 30 June annually through the National Enterprise Credit Information Publicity System.

The Catalogue of Industries for Encouraged Foreign Investment (2020 Edition)《鼓勵外商投資 ( 產業目錄(2020年版)》) (the “Encouraging Catalogue”) was jointly promulgated by the National Development and Reform Commission (the “NDRC”) and the MOFCOM on 27 December 2020. And it came into effect on 27 January 2021. The Special Administrative Measures for Access of Foreign Investment (Negative List) (2020 Edition)《外商投資准入特別管理措施 ( (負面清單)(2020年版)》) (the “2020 Negative List”) was jointly promulgated by the NDRC and the MOFCOM on 23 June 2020 and took effect on 23 July 2020. The Encouraging Catalogue and the 2020 Negative List categorizes the industries into three categories, including “encouraged”, “restricted”, and “prohibited” (all industries that are not listed under one of “encouraged”, “restricted” or “prohibited” categories are deemed to be “permitted”). The Encouraging Catalogue and the 2020 Negative List is subject to review and update by the Chinese government from time to time. According to the Encouraging Catalogue and the 2020 Negative List, the Company’s business does not fall into such categories in which foreign investment is encouraged, restricted or prohibited.

−82− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. REGULATORY OVERVIEW

LAWS AND REGULATIONS RELATING TO DIVIDEND DISTRIBUTIONS

Pursuant the FIL, foreign investors, according to the present PRC Law, may freely remit into or out of the PRC, in RMB or any other foreign currency, their capital contributions, profits, capital gains, income from asset disposal, intellectual property royalties, lawfully acquired compensation, indemnity or liquidation income and so on within the territory of PRC. In addition, pursuant to the Company Law, a wholly foreign-owned enterprise in PRC must set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves until its cumulative total reserve funds reach 50% of its registered capital. These reserve funds, however, may not be distributed as cash dividends.

LAWS AND REGULATIONS RELATING TO LEASING PROPERTY

Pursuant to the Law of the People’s Republic of China on the Administration of the Urban Real Estate《中華人民共和國城市房地產管理法》 ( ), promulgated by the SCNPC on 5 July 1994 and last amended on 26 August 2019 and effective on 1 January 2020, in the lease of a house, the leaser and the lessee shall conclude a written lease contract defining such matters as the term, purpose and price of the lease, liability for repair, as well as other rights and obligations of both parties. They shall register the lease contract with the department of housing administration for the record. Pursuant to the Administrative Measures on Commodity Housing Leasing《商品房屋租賃管理辦法》 ( ), issued by Ministry of Housing and Urban-Rural Development on 1 December 2010 and became effective on 1 February 2011, without the mentioned registration above, the leaser and the lessee may be imposed a fine by the development (real estate) department.

LAWS AND REGULATIONS RELATING TO TAXATION

Enterprise Income Tax (“EIT”)

In accordance with the PRC Enterprise Income Tax Law《中華人民共和國企業所得稅法》 ( ) (the “EIT Law”) (promulgated on 16 March 2007 and became effective from 1 January 2008 and newly amended on 29 December 2018) and the Regulation on the Implementation of Enterprise Income Tax Law of the PRC《中華人民共和國企業所得稅法實施條例》 ( ) (promulgated on 6 December 2007 and became effective from 1 January 2008, and revised on 23 April 2019), enterprises are classified as either “resident enterprises” or “non-resident enterprises”. The “resident enterprises” are defined as enterprises set up in the PRC under the PRC laws or set up according to the foreign country/region’s law whereas whose actual or de facto control is administered from within the PRC. Enterprises established under the foreign country/region’s law with “de facto management bodies” outside the PRC, but have set up institutions or establishments in the PRC or, without institutions or establishments set up in the PRC, have income originating from the PRC, shall be considered as “non-resident enterprises”. A resident enterprise shall pay EIT on its income originating from both inside and outside the PRC at an EIT rate of 25%. A non-resident enterprise that has establishments or places of business in the PRC shall pay EIT on its income originating from the PRC obtained by such establishments or places of business, and on its income which deriving outside PRC but has an actual connection with such establishments or places of business, at the EIT rate of 25%. A

−83− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. REGULATORY OVERVIEW non-resident enterprise that does not have an establishment or place of business in the PRC, or it has an establishment or place of business in the PRC but the income has no actual connection with such establishment or place of business, shall pay EIT on its passive income derived from the PRC at a reduced rate EIT of 10%.

According to the Notice on Preferential Enterprise Income Tax Policies for the Two Special Economic Development Zones in Horgos, Kashgar, Xinjiang《關於新疆喀什霍爾果斯兩個特殊經濟 ( 開發區企業所得稅優惠政策的通知》), which was issued by the Ministry of Finance and SAT on 29 November 2011 and came into effect on the same day, from 1 January 2010 to 31 December 2020, the newly opened enterprises that fall into the Catalogue of Preferential Enterprise Income Taxes for Encouraged Industries in Difficult Areas in Xinjiang《新疆困難地區重點鼓勵發展產業企業所得稅 ( 優惠目錄》) (the “Catalogue”),which became effective on 22 December 2011 and revised on 29 July 2016, shall be exempted from enterprise income tax for five years starting from the tax year in which revenue was first generated. Further, according to Preferential Fiscal and Tax Policies for Investment Promotion in Horgos Economic Development Zone《霍爾果斯經濟開發區招商引資財稅優惠政策 ( (霍特管辦發[2013]55號)》) promulgated by Management Committee of Horgos Economic Development Zone (霍爾果斯經濟開發區管理委員會) in 2013, the eligible enterprise shall enjoy preferential tax treatment for another five years, where the portion of taxes levied and retained by the local government shall be reimbursed to the relevant enterprise during this period. According to the Opinions on speeding up the construction of the Two Special Economic Development Zones in Kashgar and Horgos, the State will support the development of Kashgar and Horgos in many aspects. And according to Notice on issues related to the implementation of the preferential income tax policy of “two exemptions and three halves” for new enterprises in difficult areas of Xinjiang（《關於貫徹落實中央新疆困難地區新辦企業“兩免三減半”所得稅優惠政策有關問題的通知》）, became effective on 27 October 2011, in Kashgar and Horgos ,the enterprises within the scope of the Catalogue established from 1 January 2010 to 31 December 2020 will be exempted from enterprise income tax from the first year to the second year, and the enterprise income tax will be reduced by half from the third year to the fifth year.

Dividend Withholding Tax

The EIT Law provides that an income tax rate of 10% will normally be applicable to dividends declared to investors that are “non-resident enterprises”, and gains derived by such investors, which (a) do not have an establishment or place of business in the PRC or (b) have such establishment or place of business in the PRC, but the relevant income is not effectively connected with the establishment or place of business to the extent such dividends and gains are derived from sources within the PRC. Such income tax on the dividends may be reduced pursuant to a tax treaty between the PRC and the jurisdictions in which our foreign shareholders reside.

Pursuant to the Arrangement Between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Tax on Income《內地和香港特別行政區關於對所得避免雙重徵稅和防止偷漏稅的安 ( 排》) (the “Double Tax Avoidance Arrangement”), and other applicable PRC laws, if a Hong Kong resident enterprise is determined by the competent tax authority in the PRC to have satisfied the relevant conditions and requirements under such Double Tax Avoidance Arrangement and other applicable laws, the 10% withholding tax on the dividends the Hong Kong resident enterprise receives

−84− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. REGULATORY OVERVIEW from a mainland China resident enterprise may be reduced to 5% upon receiving approval from the in-charge tax authority. However, based on the Notice on Certain Issues with Respect to the Enforcement of Dividend Provisions in Tax Treaties《關於執行稅收協定股息條款有關問題的通知》 ( ) (the “Notice No. 81”) issued on 20 February 2009 by the SAT, if the relevant PRC tax authorities determine, in their discretion, that a company benefits from such reduced income tax rate due to a structure or arrangement that is primarily tax-driven, such PRC tax authorities may adjust the preferential tax treatment. Based on Notice of the State Administration of Taxation on How to Understand and Determine the “Beneficial Owners” in Tax Agreements《國家稅務總局關於如何理 ( 解和認定稅收協定中“受益所有人”的通知》) (the “Notice No. 601”), issued on 27 October 2009 by the SAT, conduit companies, which are established for the purpose of evading or reducing tax, or transferring or accumulating profits, shall not be recognized as beneficial owners and thus are not entitled to the above-mentioned reduced income tax rate of 5% under the Double Tax Avoidance Arrangement. On 3 February 2018, SAT issued the Announcement of the State Administration of Taxation on Issues Relating to “Beneficial Owner” in Tax Treaties《國家稅務總局關於稅收協定中 ( “受益所有人”有關問題的公告》), which became effective on 1 April 2018 and “the Notice 601” was repealed simultaneously. The Announcement of the State Administration of Taxation on Issues Relating to “Beneficial Owner” in Tax Treaties stipulates issues relating to the determination of “beneficial owner” status in clauses of tax treaties on dividends, interest, and royalties.

Value-added Tax (“VAT”)

According to Provisional Regulations on Value-added Tax of the PRC《中華人民共和國增值稅 ( 暫行條例》) (the “VAT Regulations”) (promulgated by the State Council on 13 December 1993, came into effect on 1 January 1994, newly amended on 19 November 2017), and The Detailed Rules for the Implementation of the Provisional Regulations of the People’s Republic of China on Value-added Tax (Revised in 2011 )《中華人民共和國增值稅暫行條例實施細則 ( (2011修訂)》) (promulgated by the Ministry of Finance and was last amended on 28 October 2011 and came into effect on 1 November 2011), organizations and individuals engaging in the sale of goods or processing, repair and assembly services, the sale of services, intangible assets, immovables and importation of goods in the PRC shall be taxpayers of VAT, and shall pay VAT pursuant to these Regulations. The amount of VAT payable is calculated as “output VAT” minus “input VAT”. Pursuant to the VAT Regulations, the rate of VAT is 17% for those engaging in the sale of goods or labour services or tangible personal property leasing services or importation of goods except as otherwise provided by the VAT Regulations. The tax rate of VAT is 11% for the sales of the service of transportation, posting, basic telecommunications, construction and leasing real estate, the sale of real estate and the transfer of land use right, or sell or import the goods listed in the VAT Regulations.

On 4 April 2018, MOF and SAT jointly promulgated the Circular of the Ministry of Finance and the State Administration of Taxation on Adjustment of Value-Added Tax Rates《關於調整增值稅稅 ( 率的通知》), or Circular 32, according to which for VAT taxable sales acts or importation of goods originally subject to value-added tax rates of 17% and 11% respectively, such tax rates shall be adjusted to 16% and 10%, respectively. Circular 32 became effective on 1 May 2018 and shall supersede existing provisions inconsistent with Circular 32. On 20 March 2019, MOF, SAT and General Administration of Customs (“GAC”) jointly promulgated the Announcement on Policies for

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Deepening the VAT Reform《關於深化增值稅改革有關政策的公告》 ( ), or Circular 39, according to which for general VAT payers’ sales activities or imports that are subject to VAT at a current applicable rate of 16% or 10%, the applicable VAT rate is adjusted to 13% or 9% respectively. This Announcement came into force on 1 April 2019.

LAWS AND REGULATIONS RELATING TO FOREIGN EXCHANGE

Under the Administrative Regulations of the PRC on Foreign Exchange《中華人民共和國外匯 ( 管理條例》) (the “Foreign Exchange Administrative Regulations”) (promulgated by the State Council on 29 January 1996, newly amended on 5 August 2008), Renminbi is generally freely convertible for payments of current account items, such as trade and service-related foreign exchange transactions and dividend payments, but is not freely convertible for capital account items, such as direct investment or engaging in the issuance or trading of negotiable securities or derivatives unless the prior approval by the competent authorities for the administration of foreign exchange is obtained. In accordance with the Foreign Exchange Administrative Regulations, foreign-invested enterprises in the PRC may purchase foreign exchange without the approval of the State Administration of Foreign Exchange (the “SAFE”) for paying dividends by providing certain evidencing documents (board resolutions, tax certificates, etc.), or for trade and service-related foreign exchange transactions by providing commercial documents evidencing such transactions. They are also allowed to retain foreign currency (subject to a cap approval by the SAFE) to satisfy foreign exchange liabilities. In addition, foreign exchange transactions involving overseas direct investment or investment and trading in securities, derivative products abroad are subject to registration with the competent authorities for the administration of foreign exchange and approval or filings with the relevant government authorities (if necessary).

According to the Circular of the State Administration of Foreign Exchange on Relevant Issues concerning Foreign Exchange Administration of the Overseas Investment and Financing and Roundtrip Investments by Domestic Residents through Special Purpose Vehicles (Hui Fa [2014] No. 37)《國家外匯管理局關於境內居民通過特殊目的公司境外投融資及返程投資外匯管理有關問題的 ( 通知》)(匯發[2014]37號) (the “SAFE Circular No. 37”), which was promulgated by State Administration of Foreign Exchange of the PRC (the “SAFE”) and came into effect on 4 July 2014, the SAFE and its branch carry out registration management for domestic resident’s establishment of special purpose vehicles (the “SPV”). An SPV is defined as “an offshore enterprise directly established or indirectly controlled by the domestic resident (including domestic institution and individual resident) with their legally owned assets and equity of the domestic enterprise, or legally owned offshore assets or equity, for the purposes of investment and financing.” Before a domestic resident contributes its legally owned onshore or offshore assets and equity to an SPV, the domestic resident shall conduct foreign exchange registration for offshore investment with the local branch of the SAFE. If SPV registered offshore has any change of basic information such as the individual shareholder, name, operation term, or if there is a capital increase, decrease, equity transfer or swap, merge, spin-off, or other amendments of the material items, they shall complete foreign exchange alteration of the registration formality for offshore investment in the SAFE. According to the Notice of the SAFE on Further Simplifying and Improving the Foreign Exchange Management Policies for Direct Investment (Hui Fa [2015] No.13)《國家外匯管理局關於進一步簡化和改進直接投資外匯管 ( 理政策的通知》)(匯發[2015]13號) (the “Circular 13”), which was promulgated by the SAFE on 13 February 2015 and came into effect on 1 June 2015, and was amended on 30 December 2019, the

−86− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. REGULATORY OVERVIEW foreign exchange registration under domestic direct investment and the foreign exchange registration under overseas direct investment are directly reviewed and handled by banks in accordance with the Circular 13. The SAFE and its branches shall perform indirect regulation over the foreign exchange registration via banks.

According to the Circular on Reforming the Management Approach regarding the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises《關於改革外商投資企業外匯資本金結匯 ( 管理方式的通知》) (the “Circular 19”) (promulgated by SAFE on 30 March 2015, and became effective on 1 June 2015 and partially repealed on 30 December 2019), the foreign exchange capital of foreign-invested enterprises shall be subject to the Discretional Foreign Exchange Settlement (the “Discretional Foreign Exchange Settlement”). The Discretional Foreign Exchange Settlement refers to the foreign exchange capital in the capital account of a foreign-invested enterprise for which the rights and interests of monetary contribution has been confirmed by the local foreign exchange bureau (or the book-entry registration of monetary contribution by the banks) can be settled at the banks based on the actual operational needs of the foreign-invested enterprise. The proportion of Discretional Foreign Exchange Settlement of the foreign exchange capital of a foreign-invested enterprise is temporarily determined as 100%. The Renminbi converted from the foreign exchange capital will be kept in a designated account. If a foreign-invested enterprise needs to make a further payment from such assigned accounts, it still needs to provide supporting documents and go through the banks’ review process.

Pursuant to the Circular on Reforming and Regulating Policies on the Control over Foreign Exchange Settlement of Capital Accounts《關於改革和規範資本項目結匯管理政策的通知》 ( ), or “the Circular 16” (Hui fa [2016] No.16) (promulgated by SAFE on 9 June 2016, which became effective simultaneously), enterprises registered in the PRC (including Chinese-funded enterprises and foreign-invested enterprises, excluding financial institutions) may also convert their foreign debts from foreign currency to Renminbi on a self-discretionary basis. The Circular 16 provides an integrated standard for converting foreign exchange under capital account items (including but not limited to foreign exchange capital and foreign debts) on a discretionary basis which applies to all enterprises registered in the PRC. The Circular 16 reiterates the principle that Renminbi converted from foreign currency-denominated capital of a company may not be directly or indirectly used for purposes beyond its business scope or prohibited by PRC laws or regulations, and such converted Renminbi shall not be provided as loans to its non-affiliated entities, except where it is expressly permitted in the business license.

In accordance with the Circular on Further Promoting Cross-border Trade and Investment Facilitation (Hui Fa [2019] No. 28)《國家外匯管理局關於進一步促進跨境貿易投資便利化的 ( 通知》)(匯發[2019]28號), which was issued and came into effect on 23 October 2019 by the SAFE, foreign-invested enterprise engaged in non-investment business are permitted to settle foreign exchange capital in RMB and make domestic equity investments with such RMB funds according to laws and regulations under the condition that the current Special Administrative Measures (Negative List) for Foreign Investment Access are not violated and the relevant domestic investment projects are true and compliant.

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LAWS AND REGULATIONS RELATING TO LABOUR AND SOCIAL WELFARE

Labour Protection

According to the Labour Law of the PRC《中華人民共和國勞動法》 ( ) (promulgated by the SCNPC on 5 July 1994, became effective as at 1 January 1995, and as amended on 27 August 2009 and 29 December 2018), enterprises and institutions shall establish and improve their system of workplace safety and sanitation, strictly abide by State rules and standards on workplace safety, educate employee in labour safety and sanitation in the PRC. Labour safety and sanitation facilities shall comply with national standards. The enterprises and institutions shall provide employees with workplace safety and sanitation conditions which comply with State stipulations and relevant labour protection articles.

According to the Labour Contract Law of the PRC《中華人民共和國勞動合同法》 ( ), which was promulgated on 29 June 2007 and came into effect on 1 January 2008, and was amended on 28 December 2012 and came into effect on 1 July 2013, and the Regulation on the Implementation of the Labour Contract Law of the PRC (No. 535 Order of the State Council)《中華人民共和國勞動合同 ( 法實施條例》), which was promulgated and came into effect on 18 September 2008, labour contracts must be concluded in written form. Upon reaching an agreement after due negotiation, an employer and an employee may conclude a fixed-term labour contract, a non-fixed-term labour contract, or a labour contract that concludes upon the completion of certain work assignments. Upon reaching an agreement after due negotiation with employees or under other circumstances in line with legal conditions, an employer may terminate a labour contract and dismiss its employees in accordance with the PRC laws. Labour contracts concluded before the issuance of Labour Law and existing during its effective term shall continue to be acknowledged.

Social Insurance and Housing Fund

As required under the Regulation of Insurance for Labour Injury《工傷保險條例》 ( ) implemented on 1 January 2004 and amended in 2010, the Provisional Measures for Maternity Insurance of Employees of Corporations《企業職工生育保險試行辦法》 ( ) implemented on 1 January 1995, the Decisions on the Establishment of a Unified Program for Basic Old-Aged Pension Insurance of the State Council《國務院關於建立統一的企業職工基本養老保險制度的決定》 ( ) issued on 16 July 1997, the Decisions on the Establishment of the Medical Insurance Program for Urban Workers of the State Council《國務院關於建立城鎮職工基本醫療保險制度的決定》 ( ) promulgated on 14 December 1998, The Unemployment Insurance Measures《失業保險條例》 ( ) promulgated on 22 January 1999, the Interim Regulations Concerning the Collection and Payment of Social Insurance Premiums《社 ( 會保險費徵繳暫行條例》) implemented on 22 January 1999 and amended on 24 March 2019 and the Social Insurance Law of the People’s Republic of China《中華人民共和國社會保險法》 ( ) promulgated on 28 October 2010 and amended on 29 December 2018, enterprises are obliged to provide their employees in mainland China with welfare schemes covering pension insurance, unemployment insurance, maternity insurance, labor injury insurance and medical insurance. These payments are made to local administrative authorities and any employer that fails to contribute may be fined and ordered to make up within a prescribed time limit. Employers who failed to promptly contribute social security premiums in full amount shall be ordered by the social security premium

−88− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. REGULATORY OVERVIEW collection agency to make or supplement contributions within a stipulated period, and shall be subject to a late payment fine computed from the due date at the rate of 0.05% per day; where payment is not made within the stipulated period, the relevant administrative authorities shall impose a fine ranging from one to three times the amount of the amount in arrears.

In accordance with the Regulations on the Administration of Housing Provident Fund of the PRC (《住房公積金管理條例》) (promulgated by the State Council on 3 April 1999 and was amended on 24 March 2002 and 24 March 2019), enterprises must register at the competent managing centre for housing funds and upon the examination by such managing centre of housing funds, these enterprises shall complete procedures for opening an account for the deposit of employees’ housing funds. Enterprises are also required to pay and deposit housing funds on behalf of their employees in full and in a timely manner. In violation of the provisions of Administration of Housing Provident Fund, an employer is overdue in the payment and deposit of, or underpays, the housing provident fund, the housing provident fund management centre shall order it to make the payment and deposit within a prescribed time limit; where the payment and deposit have not been made after the expiration of the time limit, an application may be made to a people’s court for compulsory enforcement.

Policies about burden reduction of social insurance and housing fund due to COVID-19 pandemic

About social insurance, pursuant to Notice on reducing or exempting enterprise social insurance premium by stages《關於階段性減免企業社會保險費的通知》 ( ) (promulgated by Ministry of Human Resources and Social Security Ministry of Finance and State Administration of Taxation on 20 February 2020) and Notice on extending the implementation period of the policy of reducing or exempting enterprise social insurance premiums in stages《關於延長階段性減免企業社會保險費政 ( 策實施期限等問題的通知》) (promulgated by Ministry of Human Resources and Social Security Ministry of Finance and State Administration of Taxation on 7 July 2020), from February to December in 2020, the unit contribution of social insurance premiums for pension, unemployment and work-related injury will be exempted for all kinds of small micro enterprises and individual businesses insured by units, and the unit contribution of social insurance premiums for all kinds of large enterprises from February to June 2020 will be reduced by half.

As to housing fund, in accordance with Notice on preventing COVID-19 and implementation phase support policy of housing fund《關於應對新冠肺炎疫情實施住房公積金階段性支持政策的通 ( 知》) (promulgated by Ministry of Housing and Urban Rural Development and Ministry of Finance and People’s Bank of China on 21 February 2020), enterprises affected by COVID-19 may apply for the housing fund to be suspended before 30 June 2020.

−89− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. HISTORY, REORGANISATION AND CORPORATE STRUCTURE

OVERVIEW

We are an online literature IP operation company in the PRC focusing on sourcing and developing online literary works for adaptation into various entertainment formats and licensing literary works to online reading platforms. We aim to connect participants across the value chain of IP operations and devise cultivation plans for maximising the commercial value of literary works, such as the adaptation of literary titles into films, TV and web series, animations or PC and mobile games and licensing of literary works to the online reading platforms.

Our history can be traced back to 2009, when our co-founders, Ms. Shi and Mr. Chen, identified an opportunity to capitalise on the growth potential of the online and digital literature market in the PRC and launched our business. Please see the section headed “Directors and Senior Management” in this document for further details of the background and experience of Ms. Shi and Mr. Chen. In December 2009, Beijing Kaixing was established to operate and carry on our business as a content provider for online reading platforms in the PRC, whereby we engage writers to create and develop literary content for releasing and licensing to third party online reading platforms in return for licensing fees. Since then, we have been licensing literary works to online reading platforms in return for licensing fees.

Over the years, the fast-growing online literature market has become an important source of online literature IPs for adaptation in the pan-entertainment market, including films, TV series, games, and animations according to the F&S Report. Leveraging on our understanding of and our experience in the online literature industry, and the substantial number of popular online literary works accumulated in our content library since our establishment, we then developed our IP adaptation licensing business in the online literature market. As an online IP operation company in the PRC, our role is to act as an incubation hub in the online literature ecosystem in the PRC, whereby we source literary works from writers or other IP holders, assess the nature and develop the commercial potential of literary works and implement appropriate deal arrangements with our content adaptation partners for licensing such literary works for adaptations into various entertainment formats, such as films, TV series, animations and PC and mobile games. For our IP adaptation licensing business, we have established Horgos Kaiwen in December 2015, Horgos Qilin in June 2016 and Horgos Kaiqi in September 2019 to enter into IP adaptation agreements with content adaptation partners, pursuant to which we license to them the right to adapt the literary work into entertainment products, such as films, TV series, PC and mobile games or audio books, in return for licensing fees. We have then placed increasing effort in expanding our IP adaptation licensing business. According to the F&S Report, we ranked tenth in the online literature IP operation market in the PRC with a market share of 1.5% in terms of revenue in 2020. During the Track Record Period, our revenue generated from IP adaptation licensing increased from RMB41.5 million for FY2018 to RMB64.2 million for FY2019, and further increased to RMB83.3 million for FY2020, representing 67.5%, 81.4% and 92.8%, respectively, of our total revenue during the same period. In light of the increasing preference for entertainment forms adapted from online literature IPs, and thus, the increasing demand for online literature IPs from the pan-entertainment market in the PRC, we expect that our IP adaptation licensing business will continue to grow and be the major source of our revenue. On 14 January 2021, our Company was incorporated as an exempted company with limited liability in the Cayman Islands as the holding company of all other members of our Group.

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KEY MILESTONES

The following is a summary of our business and corporate milestones:

Year Event

2009 Beijing Kaixing, our major operating subsidiary, was established

2012 Beijing Kaixing became a member of the China Communications Standardisation Association (中國通信標準化協會全權會員)

2014 Beijing Kaixing was recognised as a small and medium-sized technology-based companies by the Beijing Municipal Science & Technology Commission (北京市科學技術委員會)

2016 Horgos Qilin was established to develop the Original World (源世界) - one of our notable literature series

Beautiful Marriage (錦繡良婚), a fiction created by our cooperating writer, has been awarded the Favourite Capital Youth Online Literature Award (首都青少年最喜歡網絡文學作品) issued by Beijing Writers Association (北京作家協會) and the Beijing Internet Information Office (北京互聯網信息辦公室)

Dead Notes (葬魂筆記), a fiction created by our cooperating writer, has been awarded the Excellent Literature of the First China Internet Literature Competition (首屆中國互聯網文學聯賽優秀作品獎) issued by Migu Digital Media Co., Ltd. (咪咕數字傳媒有限公司)

2017 Door of Revolution (造化之門), one of our self-developed IPs, was adapted to mobile game, which was awarded the Second “Super Fun” Gold Key Award (“超好玩”金鑰獎), the Best Online Literature IP Mobile Game Golden Apple Award (最佳網絡文學IP手遊金蘋果獎) by Top Fun Club (上方匯) and sfw.cn and Most Anticipated Mobile Game of the Year Award (年度最受期待手機遊戲)ofthe Third Golden Whale Award (金鯨獎) by eeyy.com and yoyo.com

2018 Players’ Battlegrounds (吃雞戰場), one of our self-developed IPs, was completed in 2018 and adapted to online film in 2019, and has obtained a click rate of approximately 21 million on the online streaming platform of Mango TV (芒果TV) as at the Latest Practicable Date

Tian Ying (天影), one of our acquired IPs, was licensed to our content adaptation partner for adaptation into film and TV drama which is expected to be released in 2022. Tian Ying (天影) has accumulated an online recommendation rate of approximately 14.7 million on the online reading platforms of Qidian (起點中文網) as at the Latest Practicable Date and its writer, namely Xiao Ding (蕭鼎), ranked fourth in the Forbes China Original Literature Billboard (福布斯中國原創文學風雲榜) in 2016 by virtue of Tian Ying (天影)

2019 Beijing Kaixing was recognised as a 2019 Cultural Program Support Enterprise (2019文菁計劃支持企業) by the Government of East District, Beijing, the PRC

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OUR MAJOR OPERATING ENTITIES

Our major operating entities are established in the PRC. The principal business activities and date of establishment and commencement of business of each member of our Group that contributed to our results of operation in the PRC during the Track Record Period are shown below:

Date of establishment and Name of companies Principal business activities commencement of business

Beijing Kaixing IP adaptation licensing business 8 December 2009 and licensing literary works to online reading platforms

Beijing Wenbo licensing literary works to online 9 October 2011 reading platforms

Huizhou Guangxun licensing literary works to online 11 December 2012(1) reading platforms

Jinan Yuezhiyi licensing literary works to online 9 June 2014(2) reading platforms

Horgos Kaiwen IP adaptation licensing business 10 December 2015

Horgos Qilin(3) IP adaptation licensing business 22 June 2016

Notes:

1. We acquired the entire equity interest in Huizhou Guangxun in August 2015. Please refer to the paragraph headed “Acquisitions in our history” below for further details of such acquisition.

2. We acquired the entire equity interest in Jinan Yuezhiyi in December 2017. Please refer to the paragraph headed “Acquisitions in our history” below for further details of such acquisition.

3. As at the Latest Practicable Date, we held 72.35% equity interest in Horgos Qilin. The remaining equity interests in Horgos Qilin were held as to 4.82% by Xia Yun (our cooperating writer whose pseudonym is Huangfuqi (皇甫奇) and an Independent Third Party), 4.82% by Chen Bin (our cooperating writer whose pseudonym is Tiao Wu (跳舞) and an Independent Third Party) and 18.01% by Zhangshu Ruiying Investment Management Center (Limited Partnership) (樟樹市瑞盈投資管理中心(有限合伙)) (an investment fund established as a limited partnership in the PRC and owned (i) as to 36.36% by Luo Jianhua (羅健華), an Independent Third Party; and (ii) as to 4.55% by its general partner, namely, Shenzhen Qianhai Ruixiang Investment Management Co., Ltd (深圳前海瑞翔投資管理有限公司), which is ultimately controlled by Yi Xinwen (易新文), a director of Horgos Qilin, and Zhou Juan (周娟), an Independent Third Party).

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Beijing Kaixing

Establishment

The establishment of Beijing Kaixing marked the foundation of our Group. Beijing Kaixing was established in the PRC as a company with limited liability on 8 December 2009 with an initial registered capital of RMB1,000,000. For administrative and commercial reasons, Beijing Kaixing was established by two individuals (who were employees of a company controlled by Ms. Shi) on behalf of Ms. Shi with capital contributed from Ms. Shi and these two individuals held the entire equity interest in Beijing Kaixing for and on behalf of Ms. Shi.

After around two years of development, Ms. Shi, through a company wholly-owned by her, acquired the entire equity interest in Beijing Kaixing in September 2011. In December 2012, such company transferred the entire equity interest in Beijing Kaixing to Ms. Shi and a number of investors at a total consideration of RMB1,000,000 with reference to its then paid up capital. The following table sets forth the list of shareholders of, and their respective equity interest in, Beijing Kaixing immediately after the said transfers:

Amount of consideration Approximate Name of shareholders of Beijing Kaixing (RMB) % of interest

Ms. Shi 371,000 37.1% Lin Jiaxi (林嘉喜)(1) 294,000 29.4% Beijing Jinshi(2) 210,000 21% Zhang Shibei (張式貝)(3) 23,200 2.32% Zhang Yue (張悅)(3) 79,400 7.94% Li Wei (李巍)(3) 22,400 2.24% Total 1,000,000 100%

Notes:

(1) Lin Jiaxi is a non-executive Director and chairman of our Board as at the date of this document.

(2) Beijing Jinshi is a limited partnership established in the PRC on 21 November 2012 whose partners were Mr. Chen and Ms. Shi, each holding 50% interest in the partnership at the relevant time.

(3) Each of them is an Independent Third Party prior to becoming a shareholder of Beijing Kaixing.

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Acquisitions made by seed investors

At the early stage of our development, a number of seed investors acquired interests in Beijing Kaixing, as summarised in the following table:

Approximate % of interest Name of investors acquired Purchase Price Completion Date (RMB)

Jiang Hongwen (姜洪文)(1) 10% 100,000 27 July 2015 Yu Xiu (余秀)(2) 3% 33,333 17 August 2015 Qin Dongyi (覃東宜)(3) 0.64% 178,721 18 November 2016

Notes:

(1) The interest was acquired by Jiang Hongwen (an Independent Third Party) from all of its then shareholders on a pro rata basis at a total consideration of RMB100,000 with reference to its then paid up capital.

(2) The interest was acquired by Yu Xiu (an Independent Third Party) from Beijing Jinshi, a limited partnership established in the PRC and owned by Mr. Chen and Ms. Shi at the relevant time, at a total consideration of RMB33,333 with reference to its then paid up capital.

(3) The interest was acquired by Qin Dongyi (an Independent Third Party) from Zhang Yue (張悅) (an Independent Third Party) at a total consideration of RMB178,721 with reference to its then paid up capital. As Qin Dongyi agreed not to subscribe for our Shares and will remain as a domestic shareholder of Beijing Junkai following our Reorganisation, he does not constitute a [REDACTED] Investor. Please refer to the paragraph headed “Reorganisation” below for further details of our Reorganisation.

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Acquisitions made by [REDACTED] Investors

As the business of Beijing Kaixing developed, a number of [REDACTED] Investors acquired interest in Beijing Kaixing since 2016 as summarised in the following table:

Approximate % of interest Name of investors acquired Purchase Price Completion Date (RMB)

Shenzhen Guohong(1) 8% 12,079,430 18 November 2016 Shenzhen Guojin(2) 10% 15,000,000 28 March 2017 Chongqing Shuimu(3) 15% 90,000,000 21 December 2017

Notes:

(1) The interest was acquired from Shenzhen Lanyue (which acquired its equity interest in Beijing Kaixing from Beijing Jinshi in August 2015), at consideration of RMB12,079,430, which was determined with reference to the then valuation of Beijing Kaixing. The consideration was fully settled on 30 May 2016, and the registration of the equity transfer was duly completed on 18 November 2016. As agreed between Shenzhen Guohong and CPC Fund, since such interests were held by Shenzhen Guohong, CPC Fund is entitled to 100% of the economic benefits and actual ownership of the equity interests in Beijing Kaixing held by Shenzhen Guohong and such interests shall be transferred to CPC Fund (or any entity held by it) under the Reorganisation.

(2) The interest was acquired from Guojin Venture at the consideration of RMB15,000,000 based on the capital contribution amount injected by Guoijn Venture to Beijing Kaixing in August 2015. Details of Guojin Venture and Shenzhen Guojin are as follows:

(i) Guojin Venture is an investment fund established in the PRC in the form of a limited partnership, which was managed by its general partner, Guojin Zongheng, and owned as to approximately 42.8% by Lu Xingzhu (陸姓朱), an Independent Third Party, and the remaining by other Independent Third Parties, and managed by its general partner Guojin Zongheng, which is wholly owned by a number of investment entities wholly and beneficially owned by Lin Jiaxi (our non-executive Director and the chairman of our Board); and

(ii) Shenzhen Guojin is an investment fund established in the PRC in the form of a limited partnership, which was managed by its general partner, namely Guojin Zongheng (the same general partner managing Guojin Venture). Shenzhen Guojin is owned as to 99.93% by Shenzhen Qianhai, which is wholly and beneficially owned by Yiu Wai (姚偉) (an Independent Third Party), and 0.07% by Guojin Zongheng. Guojin Zongheng is wholly-owned by a number of investment entities wholly and beneficially owned by Lin Jiaxi (our non-executive Director and the chairman of our Board).

(3) The interest was acquired from Lin Jiaxi (a non-executive Director and the chairman of our Board) at a total consideration of RMB90,000,000 based on arm’s length negotiation between parties to the share transfer agreement. Chongqing Shuimu is a limited partnership established in the PRC on 6 May 2015, the largest limited partner of which is Shenzhen Houde.

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Shareholding immediately prior to Reorganisation

The following table sets forth the list of shareholders of, and their respective equity interest in, Beijing Kaixing immediately prior to Reorganisation after a series of transfers:

Approximate Name of shareholder Relationship with our Group % of interest

Ms. Shi Co-founder and a non-executive Director 35.85% Chongqing Shuimu [REDACTED] Investor 15.00% Shenzhen Guojin [REDACTED] Investor 10.00% Jiang Hongwen (姜洪文) Seed investor 9.00% Lin Jiaxi (林嘉喜) Non-executive Director and investor 8.81% Shenzhen Guohong(1) [REDACTED] Investor 8.00% Beijing Jinshi(2) Investor 6.01% Yu Xiu (余秀) Seed investor 3.00% Zhang Shibei (張式貝) Investor 1.88% Li Wei (李巍) Investor 1.81% Qin Dongyi (覃東宜) Seed investor 0.64%

100%

Notes:

(1) As agreed between Shenzhen Guohong and CPC Fund, since such interests were held by Shenzhen Guohong, CPC Fund is entitled to 100% of the economic benefits and actual ownership of the equity interests in Beijing Kaixing held by Shenzhen Guohong and such interests shall be transferred to CPC Fund (or any entity held by it) under the Reorganisation.

(2) Beijing Jinshi is a limited partnership established in the PRC and whose partners are Mr. Chen (50%) (a co-founder), Ms. Shi (45.49%) and Yichun Interactive Entertainment (4.51%) at the relevant time. Yichun Interactive Entertainment, a subsidiary of CMGE Technology, acquired such 4.51% interest in Beijing Jinshi from Ms. Shi in April 2020 in an exchange of its 33.5% interest in our subsidiary Beijing Qiwen. Please see the paragraph headed “Exploration into developing gaming adaptations” below for details of such exchange arrangements.

Establishment of subsidiaries for our business expansion

With a view to expand our business, various subsidiaries of Beijing Kaixing were established from 2011 to 2019. Beijing Wenbo was established in October 2011 to engage in licensing and releasing literary works to third party online reading platforms for subscription.

As our IP operations business began to scale up, we established subsidiaries which are dedicated to operate and carry out our IP adaptation licensing business, including Horgos Kaiwen established in December 2015, Horgos Qilin established in June 2016 and Horgos Kaiqi in September 2019. In our IP adaptation licencing business, Horgos Kaiwen acts as the entity entering into IP adaptation agreements with content adaptation partners, pursuant to which we licence to them the rights to

−96− THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. HISTORY, REORGANISATION AND CORPORATE STRUCTURE adapt our literary works into entertainment products, such as films, TV series, PC and mobile games, in return for licensing fees. In accordance with the Notice on Preferential Enterprise Income Tax Policies in relation to Kashgar and Horgos as Two Special Economic Development Zones in Xinjiang《關於新疆喀什霍爾果斯兩個特殊經濟開發區企業所得稅優惠政策的通知》 ( ), Horgos Kaiwen enjoys exemptions on PRC Corporate Income Tax for five years starting from the tax year in which revenue was first generated. In view of expiry of the aforementioned five-year tax exemption for Horgos Kaiwen, which was established in December 2015, Horgos Kaiqi was established in September 2019, to further enjoy the aforesaid tax exemption and it also serves as an entity in our Group for entering IP adaptation agreements with content adaptation partners. In respect of Horgos Qilin, this entity was established to manage our strategic partnerships with various writers and to develop the Original World (源世界), a literature series based on the concept of a shared fictional universe with serialised stories, where events or growth of the characters in one title may have repercussions in another title. In January 2021, we established Guangzhou Kaiqi with Liang Xingwen (梁興文), an Independent Third Party, to engage in IP adaptation licensing and game development, as and when appropriate.

Acquisitions in our history

To further enhance our service offerings, we have made the following acquisitions:

• In August 2015, Beijing Kaixing acquired the entire equity interest of Huizhou Guangxun from four Independent Third Parties at a total consideration of RMB1,000,000, which was determined based on arm’s lengths negotiation with reference to the then financial results of Huizhou Guangxun and was settled in full in October 2015 in cash. Huizhou Guangxun is principally engaged in licensing and releasing literary works to third party online reading platforms for subscription. As advised by our PRC Legal Advisor, the said acquisition was legally completed in August 2015 and upon the completion of such transfer, Huizhou Guangxun has become a wholly-owned subsidiary of Beijing Kaixing.

• In December 2017, Beijing Kaixing acquired the entire equity interest of Jinan Yuezhiyi from two Independent Third Parties at a total consideration of RMB1,000,000, which was determined based on arm’s lengths negotiation with reference to the then financial results of Jinan Yuezhiyi and was settled in full in January 2018 in cash. Jinan Yuezhiyi is principally engaged in licensing and releasing literary works to third party online reading platforms for subscription. As advised by our PRC Legal Advisor, the said acquisition was legally completed in December 2017 and upon the completion of such transfer, Jinan Yuezhiyi has become a wholly-owned subsidiary of Beijing Kaixing.

Exploration into developing gaming adaptations

With an aim to developing gaming adaptations of our literary works, in February 2016 Beijing Kaixing acquired 67.5% equity interest in Beijing Qiwen from Mr. Chen (one of our executive Directors and Controlling Shareholders) at the consideration of RMB3,375,000 based on the registered capital of Beijing Qiwen, upon completion of which Beijing Kaixing and Shenzhen Lanyue (the registered owner of the operating subsidiaries of CMGE Technology in the PRC) owned 67.5% and 32.5% equity interest in Beijing Qiwen, respectively. Pursuant to a corporate restructuring, Shenzhen Lanyue transferred its 32.5% equity interest in Beijing Qiwen to Horgos CMGE Venture

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Capital Co., Ltd. (霍爾果斯中手游創業投資有限公司), a subsidiary of CMGE Technology, in May 2017 which subsequently transferred such equity interest to Victory Games, a subsidiary of CMGE Technology, in February 2018. In April 2020, Victory Games transferred 32.5% equity interest in Beijing Qiwen to Beijing Kaixing at the consideration of RMB1,625,000, which represented the amount of registered capital in Beijing Qiwen attributable to Victory Games immediately prior to the transfer. The consideration was fully settled pursuant to a set of contractual arrangements under which Ms. Shi agreed to transfer 4.51% equity interest in Beijing Jinshi (which then held 6.01% equity interest in Beijing Kaixing) to Yichun Interactive Entertainment, another wholly-owned subsidiary of CMGE Technology, and thus Yichun Interactive Entertainment then held 0.271% effective interest in Beijing Kaixing through Beijing Jinshi. The amount of such effective interest held by Yichun Interactive Entertainment in Beijing Kaixing was determined after arm’s length negotiation between parties based on their assessment of the respective value of Beijing Qiwen and Beijing Kaixing with reference to their then respective valuation at the relevant time.

Under the aforesaid contractual arrangements, (i) Ms. Shi agreed to settle (on behalf of Beijing Kaixing) the consideration of RMB1,625,000 payable by Beijing Kaixing to Victory Games for the aforementioned equity transfer (the “Qiwen Consideration”) and she also agreed to waive Beijing Kaixing’s obligation to repay such amount; (ii) Ms. Shi agreed to transfer 4.51% equity interest in Beijing Jinshi to Yichun Interactive Entertainment at the consideration of RMB1,625,000 (the “Jinshi Consideration”) and Yichun Interactive Entertainment novated its obligation to pay the consideration for such transfer to Victory Games; and (iii) Ms. Shi’s obligation to pay the Qiwen Consideration to Victory Games was set-off against Victory Games’ obligation to pay the Jinshi Consideration to Ms. Shi in full.

As advised by our PRC Legal Advisor, the said acquisition of 32.5% equity interest in Beijing Qiwen was legally completed in July 2020 and upon the completion of such transfer, Beijing Qiwen has become a wholly-owned subsidiary of Beijing Kaixing. Beijing Qiwen is principally engaged in the licensing and releasing literary works to third party online reading platforms for subscription.

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CORPORATE REORGANISATION

The following chart sets forth our corporate and shareholding structure immediately prior to the Reorganisation:

Yichun Ms. Shi Mr. Chen Interactive (1) Entertainment (PRC) 4.51% 45.49% 50%

Beijing Shenzhen Shenzhen Chongqing (2) Other individual Ms. Shi Lin Jiaxi (3) Jinshi Guohong Guojin Shuimu shareholders (PRC) (PRC) (PRC) (PRC) 35.85% 6.01% 8.00% 10.00% 15.00% 8.81% 16.33%

Beijing Kaixing (PRC)

100% 100% 100% 100% 100% 72.35%

Beijing Huizhou Jinan Beijing Horgos Horgos Wenbo Guangxun Yuezhiyi Qiwen Kaiwen Qilin(4) (PRC) (PRC) (PRC) (PRC) (PRC) (PRC) 100%

Horgos Kaiqi (PRC)

Notes:

(1) Yichun Interactive Entertainment is a subsidiary of CMGE Technology, one of our [REDACTED] Investors. Notwithstanding that it held indirect interests in Beijing Kaixing together with Ms. Shi and Mr. Chen through Beijing Jinshi, Yichun Interactive Entertainment was a passive investor and a minority shareholder, and did not constitute a member of the group of our Controlling Shareholders.

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(2) Lin Jiaxi is our non-executive Director and chairman of our Board.

(3) The other individual shareholders are:

Approximate percentage of equity interest in Shareholder Relationship with our Group Beijing Kaixing

Jiang Hongwen (姜洪文) Seed investor 9.00% Yu Xiu (余秀) Seed investor 3.00% Zhang Shibei (張式貝) Investor 1.88% Li Wei (李巍) Investor 1.81% Qin Dongyi (覃東宜) Seed investor 0.64%

Each of Jiang Hongwen, Yu Xiu, Zhang Shibei, Li Wei and Qin Dongyi is an Independent Third Party.

(4) The remaining equity interests in Horgos Qilin were held as to 4.82% by Xia Yun (夏雲) (our cooperating writer whose pseudonym is Huangfuqi (皇甫奇) and an Independent Third Party), 4.82% by Chen Bin (陳彬) (our cooperating writer whose pseudonym is Tiao Wu (跳舞) and an Independent Third Party) and 18.01% by Zhangshu Ruiying Investment Management Center (Limited Partnership) (樟樹市瑞盈投資管理中心(有限合伙)) (an investment fund established as a limited partnership in the PRC and owned (i) as to 36.36% by Luo Jianhua (羅健華), an Independent Third Party; and (ii) as to 4.55% by its general partner, namely, Shenzhen Qianhai Ruixiang Investment Management Co., Ltd (深圳前海瑞翔投資管理有限公司), which is ultimately controlled by Yi Xinwen (易新文), a director of Horgos Qilin, and Zhou Juan (周娟), an Independent Third Party).

(5) Certain percentage figures included in the above chart have been subject to rounding adjustments.

In preparation for the [REDACTED], we underwent the Reorganisation.

1. Incorporation of offshore holding companies

Our Company

Our Company was incorporated to act as the holding company of our Group following the Reorganisation.

Our Company was incorporated as an exempted company with limited liability in the Cayman Islands on 14 January 2021 with an authorised share capital of HK$380,000 divided into 38,000,000 Shares of HK$0.01 each. On the date of incorporation of our Company, one Share was issued and allotted to the first subscriber, an Independent Third Party, for HK$0.01 and was fully paid-up. Such Share was subsequently transferred to Yutang Investment on the same day. Yutang Investment is a company incorporated in the BVI indirectly wholly owned by Ms. Shi.

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To effect the Reorganisation and mirror the ownership structure of our Company with that of Beijing Kaixing, on 14 January 2021 our Company allotted and issued a total of 37,999,999 Shares to the respective affiliates (or offshore investment vehicles) of the then existing shareholders of Beijing Kaixing for a nominal value of HK$0.01 per Share, credited as fully paid. Such share allotment and issuance is summarised in the following table:

Corresponding Number of Approximate shareholder in Shares Number of percentage of Beijing subscribed Shares held shareholding Name of Shareholder Kaixing for after issue after issue

Yutang Investment(1) Ms. Shi 14,905,119 14,905,120 39.22% Hold Virtue(2) Chongqing 5,700,000 5,700,000 15% Shuimu Guojin Kaixing(3) Shenzhen 3,800,000 3,800,000 10% Guojin Sole Function(4) Jiang Hongwen 3,420,000 3,420,000 9% (姜洪文) Guojin Prosperous(5) Lin Jiaxi 3,347,800 3,347,800 8.81% (林嘉喜) CPC Alpha(6) Shenzhen 3,040,000 3,040,000 8% Guohong Xiangzhen Investment(7) Mr. Chen(7) 1,141,900 1,141,900 3.01% Yuxiu Investment(8) Yu Xiu (余秀) 1,140,000 1,140,000 3% Shibei Investment(9) Zhang Shibei 714,400 714,400 1.88% (張式貝) Liwei Investment(10) Li Wei (李巍) 687,800 687,800 1.81% CMGE Technology(11) Yichun 102,980 102,980 0.27% Interactive Entertainment(11)

Total: 37,999,999 38,000,000 100%

Notes:

(1) Yutang Investment is a company incorporated in the BVI and is indirectly wholly owned by Ms. Shi through Renkai Investment. Immediately prior to the Reorganisation, Ms. Shi held 38.58% effective interest in Beijing Kaixing, comprising 35.85% equity interest in Beijing Kaixing and a further 2.73% effective interest in Beijing Kaixing through Beijing Jinshi (as she held 45.49% equity interest in Beijing Jinshi, which in turn held 6.01% equity interest in Beijing Kaixing). Following the transfer of the 0.64% equity interest in Beijing Kaixing held by Qin Dongyi (覃東宜), our seed investor, to Beijing Junkai as part of the Reorganisation, Qin Dongyi agreed not to subscribe for any Shares in our Company, and the shareholders of our Company agreed that while the other Shareholders shall subscribe for Shares according to their respective corresponding equity holding in Beijing Kaixing, representing 60.79% shareholding in our Company in total, Ms. Shi (through Yutang Investment) shall accordingly subscribe for the remaining 39.22% shareholding in our Company (instead of reflecting Ms. Shi’s 38.58% effective interest in Beijing Kaixing immediately prior to the Reorganisation).

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(2) Hold Virtue is a company incorporated in Hong Kong, and an offshore investment holding company indirectly wholly-owned by Shenzhen Houde, which in turn controls Chongqing Shuimu. Immediately prior to the Reorganisation, Chongqing Shuimu held 15% equity interest in Beijing Kaixing and accordingly Hold Virtue subscribed for 15% shareholding in our Company.

(3) Guojin Kaixing is a company incorporated in the BVI and is ultimately owned as to 99.93% by Yiu Wai (姚偉) (an Independent Third Party prior to becoming our Shareholder) and 0.07% by Lin Jiaxi (林嘉喜) . Immediately prior to the Reorganisation, Shenzhen Guojin held 10% equity interest in Beijing Kaixing and accordingly Guojin Kaixing subscribed for 10% shareholding in our Company.

(4) Sole Function is a company incorporated in the BVI and wholly-owned by Jiang Hongwen (姜洪文), our seed investor. Immediately prior to the Reorganisation, Jiang Hongwen held 9% equity interest in Beijing Kaixing and accordingly, he indirectly through Sole Function subscribed for 9% shareholding in our Company.

(5) Guojin Prosperous is a company incorporated in the BVI and indirectly wholly-owned by Lin Jiaxi (林嘉喜) through Zongheng Investment. Immediately prior to the Reorganisation, Lin Jiaxi held 8.81% equity interest in Beijing Kaixing and accordingly, he indirectly through Guojin Prosperous subscribed for 8.81% shareholding in our Company.

(6) CPC Alpha is a company incorporated in Samoa and is wholly owned by CPC Fund. Immediately prior to the Reorganisation, Shenzhen Guohong held 8% equity interest in Beijing Kaixing and accordingly, CPC Fund indirectly through CPC Alpha subscribed for 8% shareholding in our Company.

(7) Xiangzhen Investment is a company incorporated in the BVI and wholly-owned by Mr. Chen. Immediately prior to the Reorganisation, Mr. Chen held approximately 3.01% effective interest in Beijing Kaixing through Beijing Jinshi (as he held 50% equity interest in Beijing Jinshi, which in turn held 6.01% equity interest in Beijing Kaixing). Accordingly, Mr. Chen indirectly through Xiangzhen Investment subscribed for approximately 3.01% shareholding in our Company.

(8) Yuxiu Investment is a company incorporated in the BVI and wholly-owned by Yu Xiu (余秀), our seed investor. Immediately prior to the Reorganisation, Yu Xiu held 3% equity interest in Beijing Kaixing and accordingly, she indirectly through Yuxiu Investment subscribed for 3% shareholding in our Company.

(9) Shibei Investment is a company incorporated in the BVI and wholly-owned by Zhang Shibei (張式貝), our seed investor. Immediately prior to the Reorganisation, Zhang Shibei held 1.88% equity interest in Beijing Kaixing and accordingly, she indirectly through Shibei Investment subscribed for 1.88% shareholding in our Company.

(10) Liwei Investment is a company incorporated in the BVI and wholly-owned by Li Wei (李巍), our seed investor. Immediately prior to the Reorganisation, Li Wei held 1.81% equity interest in Beijing Kaixing and accordingly, he indirectly through Liwei Investment subscribed for 1.81% shareholding in our Company.

(11) CMGE Technology is an exempted company incorporated in the Cayman Islands with limited liability whose shares are listed on the Stock Exchange (HKEx stock code: 00302). CMGE Technology owns the entire equity interest in Yichun Interactive Entertainment, which immediately prior to the Reorganisation, held 0.271% effective interest in Beijing Kaixing through Beijing Jinshi (as Yichun Interactive Entertainment held 4.51% equity interest in Beijing Jinshi, which in turn held 6.01% equity interest in Beijing Kaixing). Accordingly, CMGE Technology subscribed for 0.271% shareholding in our Company.

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Kaixing Venture Capital

Kaixing Venture Capital was incorporated in the BVI as a limited liability company on 20 January 2021. Upon incorporation, it was authorised to issue a maximum of 50,000 shares of a single class each with no par value. On the date of incorporation, Kaixing Venture Capital allotted and issued one share to our Company, credited as fully paid. Upon completion of the said allotment and issuance of share, Kaixing Venture Capital became a direct wholly-owned subsidiary of our Company. Kaixing Venture Capital has no business operations other than investment holding in Noble Future.

Noble Future

Noble Future acts as the intermediate holding company of our PRC subsidiaries. Noble Future was incorporated in Hong Kong as a limited liability company on 8 January 2021 with the total issued share capital of HKD1.00 comprising one share, which was transferred to Kaixing Venture Capital on 4 March 2021. Upon completion of the said transfer, Noble Future became an indirect wholly-owned subsidiary of our Company. As at the Latest Practicable Date, Noble Future has no business operations other than investment holding in Beijing Kaiwen.

2. Conversion of Beijing Kaixing into a sino-foreign joint venture company

As part of the Reorganisation, Beijing Kaixing, which is the PRC holding company of our PRC subsidiaries, was converted into a sino-foreign joint venture company. Specifically, Mr. Sin Hendrick, a non-PRC investor, contributed capital of RMB630,000.98 to Beijing Kaixing and subscribed for 1% equity interest in Beijing Kaixing. The capital contribution was determined based on the value of Beijing Kaixing as at 30 September 2020 as appraised by an independent valuer, and was settled in cash on 19 April 2021. The said subscription of 1% equity interest in Beijing Kaixing was legally completed in on 1 February 2021 where the capital contribution was fully settled on 19 April 2021.

3. Incorporation of Beijing Kaiwen

On 3 February 2021, Beijing Kaiwen was established in the PRC as a wholly foreign owned enterprise with a registered capital of RMB500,000 and is wholly-owned by Noble Future. As at the Latest Practicable Date, Beijing Kaiwen has no business operations other than investment holding in Beijing Junkai.

4. Incorporation of Beijing Junkai and transfer of 99% equity interest in Beijing Kaixing to Beijing Junkai

On 8 February 2021, Beijing Junkai was established in the PRC owned as to 1% by the then existing shareholders of Beijing Kaixing (except Mr. Sin Hendrick) (the “Original KX Shareholders”) and 99% by Beijing Kaiwen with a registered capital of RMB1 million. The registered capital was subscribed by Beijing Kaiwen and by the Original KX Shareholders transferring

− 103 − THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. HISTORY, REORGANISATION AND CORPORATE STRUCTURE an aggregate of 99% equity interest in Beijing Kaixing to Beijing Junkai. As advised by our PRC Legal Advisor, the aforementioned equity transfer were legally completed on 25 April 2021. As at the Latest Practicable Date, Beijing Junkai has no business operations other than investment holding in Beijing Kaixing.

5. Transfer of 1% equity interest in Beijing Kaixing to Noble Future

On 15 April 2021, Mr. Sin Hendrick transferred 1% equity interest in Beijing Kaixing to Noble Future at the consideration of RMB630,000.98, which was determined based on the value of Beijing Kaixing as at 30 September 2020 as appraised by an independent valuer. The consideration was satisfied by Noble Future procuring Yutang Investment (a company wholly-owned by Ms. Shi) to transfer 380,000 Shares to Mr. Sin Hendrick, representing 1% of the total issued capital of our Company, on 26 May 2021. As advised by our PRC Legal Advisor, the aforementioned equity transfer were legally completed in 25 April 2021.

6. Transfer of Chuangbie Book City to Beijing Guixin

In an effort to set up the infrastructure for growing our IP operation business, in 2014, we established our online reading platform, the Chuangbie Book City, which offered a platform for writers to publish their literary work. We have since then placed increasing effort in expanding our IP adaptation licensing business. During the Track Record Period, our revenue generated from our IP adaptation licensing business increased from RMB41.5 million for FY2018 to RMB64.2 million for FY2019, and further increased to RMB83.3 million for FY2020, representing 67.5%, 81.4% and 92.8%, respectively, of our total revenue during the same year. In light of the increasing preference for entertainment forms adapted from online literature IPs, and thus, the increasing demand for online literature IPs from the pan-entertainment market in the PRC, we expect that our IP adaptation licensing business will continue to grow and be the major source of our revenue. As part of our Reorganisation, with a view to streamlining our business and focusing on our IP operations and given that (i) revenue generated from Chuangbie Book City had been consistently falling year by year, which only amounted to 12.7%, 1.3% and 0.1% of our total revenue for FY2018, FY2019 and FY2020 respectively; and (ii) we consider that it would require operating costs and human resources to develop and/or maintain Chuangbie Book City to compete effectively with the key online reading platforms in the PRC which dominates the market to a large extent, our Group transferred the Chuangbie Book City to Beijing Guixin. In November 2020, Beijing Kaixing entered into an asset transfer agreement with Ms. Shi, pursuant to which Beijing Kaixing agreed to transfer the Chuangbie Book City, including the domain name and other assets associated with the operation of such platform, to Ms. Shi at the consideration of RMB27,000. The consideration was determined by reference to the value of Chuangbie Book City as at 30 September 2020 as appraised by an independent valuer in the PRC. As advised by our PRC Legal Advisor, the aforementioned asset transfer were legally completed in 17 June 2021.

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[REDACTED] INVESTMENTS

Investments by our [REDACTED] Investor into our Group

On 19 April 2021, Mr. Sin Hendrick contributed capital of RMB630,000.98 into Beijing Kaixing and subscribed for 1% equity interest in Beijing Kaixing. The capital contribution was determined based on arm’s length negotiations between the parties, taking into consideration an independent valuation of Beijing Kaixing. It was expected that Mr. Sin Hendrick would bring strategic benefit to the Group in view of his extensive experience in investments, corporate management and business development and his position as vice chairman of CMGE Technology, a leading mobile game company in China. Set forth below is a summary of the details of the investment made by Mr. Sin Hendrick to our Group:

Date on which investment 19 April 2021 was fully settled Gross proceeds raised RMB630,000.98 % of equity interests acquired in Beijing 1% Kaixing

Consideration paid to Beijing Kaixing

Basis of consideration An independent valuation of Beijing Kaixing

Approximate cost per Share paid by the [RMB[REDACTED]] [REDACTED] Investors

Discount over mid-point of [REDACTED] [[REDACTED]%] range (i.e. HK$[REDACTED]) (Note)

Use of proceeds Fully utilised as general working capital

Strategic benefits the [REDACTED] Investors Mr. Sin Hendrick would bring strategic brought to our Group benefits and business vision to our Group in view of his extensive experience in investments, corporate management and business development and his track record as the founder of CMGE Technology, a leading mobile game company in China. Our Directors are of the view that Mr. Sin Hendrick’s investment in our Company would demonstrate his confidence in the operations of our Group and serve as an endorsement of our Company’s performance, strength and prospects.

Shareholding in our Company upon [REDACTED]% completion of the [REDACTED]

Special rights N/A

Note: Translations between Renminbi and Hong Kong dollars were made at the rate of RMB0.8228 to HK$1.0.

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We believe the [REDACTED] Investors made such [REDACTED] in our Group based on their expectations of our growth potential and prospects. Our Directors are of the view that the [REDACTED] Investments have the benefits of broadening our shareholders’ base and further improving our corporate governance and internal control.

Acquisitions made by our [REDACTED] Investors

The table below sets forth a summary of certain details of the [REDACTED] made by our [REDACTED] Investors, who acquired their interest in our Group from certain of the Original KX Shareholders. These transfers are private transactions between the [REDACTED] Investors and the shareholders, and our Company was not a party to these transactions. None of the proceeds from these investors’ investment were injected into our Group. We did not participate in the negotiations related to these transfers. Our Company believes that the consideration basis of such transfers was determined based on arm’s length negotiation among the relevant parties taking into account various factors such as the business prospects, results of operations and financial conditions of Beijing Kaixing, the background and financial capability of the relevant parties and payment terms of the relevant investments. These factors differ from case to case and therefore, the relevant consideration basis for such transfers was not necessarily the same for each transfer even though some of the transfers were completed on the same date.

Premium/ (Discount) to the Shareholding Cost per mid-point of Number of in our Share paid Date of on the Shares held Company by the which the [REDACTED] following following [REDACTED] consideration range (i.e. Total completion completion of [REDACTED] investors was fully HKD consideration(5) of the the Investors (RMB) settled [REDACTED])(5) (RMB) [REDACTED] [REDACTED](6)

Hold Virtue(1) [REDACTED] 16 May 2018 [REDACTED]% 90,000,000 [REDACTED] [[REDACTED]%] Guojin Kaixing(2) [REDACTED] 23 February [REDACTED]% 15,000,000 [REDACTED] [[REDACTED]%] 2017 CPC Alpha(3) [REDACTED] 30 May 2016 [REDACTED]% 12,079,430 [REDACTED] [[REDACTED]%] CMGE [REDACTED] 3 April 2020 [REDACTED]% 1,625,000 [REDACTED] [[REDACTED]%] Technology(4)

Notes:

(1) Hold Virtue is a company incorporated in Hong Kong on 7 October 2015, and an offshore investment holding company indirectly wholly-owned by Shenzhen Houde, which in turn owns approximately 66.03% partnership interest in Chongqing Shuimu. Immediately prior to the Reorganisation, Chongqing Shuimu held 15% equity interest in Beijing Kaixing and accordingly Hold Virtue subscribed for 15% shareholding in our Company. The general partner of Shenzhen Houde is ultimately owned as to 70% by Hua Lixin (華立新) and 30% by Shi Ganjian (石根達), both being Independent Third Parties.

(2) Guojin Kaixing is a company incorporated in the BVI and is ultimately owned as to 99.93% by Yiu Wai (姚偉) (an Independent Third Party) and 0.07% by Lin Jiaxi (a non-executive Director and the chairman of our Board). Immediately prior to the Reorganisation, Shenzhen Guojin held 10% equity interest in Beijing Kaixing and accordingly Guojin Kaixing subscribed for 10% shareholding in our Company. Shenzhen Guojin is an investment fund established in the PRC on 24 May 2016 in the form of a limited partnership, which was managed by its general partner, namely Guojin Zongheng. Shenzhen Guojin is owned as to (i) 99.93% by Shenzhen Qianhai,

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which is wholly and beneficially owned by Yiu Wai, and (ii) 0.07% by Guojin Zongheng, which is owned as to 70% by Shenzhen Guojin Investment Consulting Company Limited (深圳國金投資顧問有限公司) and 30% by Shenzhen Guojin Qishou Investment Management Centre (Limited Partnership) (深圳棋手投資管理中心(有限合伙)), each of which is in turn wholly and beneficially controlled by Lin Jiaxi.

(3) CPC Alpha is a company incorporated in Samoa on 26 May 2016, and is wholly owned by CPC Fund. The [REDACTED] Investment refers to the equity interests in Beijing Kaixing acquired by Shenzhen Guohong. As agreed between Shenzhen Guohong and CPC Fund, since such interests were held by Shenzhen Guohong, CPC Fund is entitled to 100% of the economic benefits and actual ownership of the equity interests in Beijing Kaixing held by Shenzhen Guohong and such interests shall be transferred to CPC Fund (or any entity held by it) under the Reorganisation. Immediately prior to the Reorganisation, Shenzhen Guohong held 8% equity interest in Beijing Kaixing and accordingly, CPC Fund indirectly through CPC Alpha subscribed for 8% shareholding in our Company. For details of the acquisition by Shenzhen Guohong of equity interests in Beijing Kaixing, please refer to “Our major operating entities — Beijing Kaixing — Acquisitions made by [REDACTED] Investors” in this section.

(4) CMGE Technology is an exempted company incorporated in the Cayman Islands with limited liability whose shares are listed on the Stock Exchange (HKEx stock code: 00302). CMGE Technology owns the entire equity interest in Yichun Interactive Entertainment, which immediately prior to the Reorganisation, held 0.271% effective interest in Beijing Kaixing through Beijing Jinshi (as Yichun Interactive Entertainment held 4.51% equity interest in Beijing Jinshi, which in turn held 6.01% equity interest in Beijing Kaixing). Accordingly, CMGE Technology subscribed for 0.271% shareholding in our Company. The cost paid by CMGE Technology for its Shares in our Company represents the consideration of RMB1,625,000 payable by Yichun Interactive Entertainment for the acquisition of 4.51% equity interest in Beijing Jinshi (which in turn held 6.01% equity interest in Beijing Kaixing).

(5) Translations between Renminbi and Hong Kong dollars were made at the rate of RMB0.8228 to HK$1.0.

(6) Figures were presented on the basis of our enlarged issued capital immediately upon completion of the [REDACTED] and the [REDACTED] (without taking into account our Shares which may be issued pursuant to the exercise of the [REDACTED] and any Shares to be issued upon the exercise of any options which may be granted under the Share Option Scheme).

Background of the [REDACTED] Investors

Guojin Kaixing is a company incorporated in the BVI and is ultimately owned as to 99.93% by Yiu Wai (姚偉) (an Independent Third Party) and 0.07% by Lin Jiaxi (a non-executive Director and the chairman of our Board). Immediately prior to the Reorganisation, Shenzhen Guojin held 10% equity interest in Beijing Kaixing and accordingly Guojin Kaixing subscribed for 10% shareholding in our Company. Shenzhen Guojin is an investment fund established in the PRC on 24 May 2016 in the form of a limited partnership, which was managed by its general partner, namely Guojin Zongheng. Shenzhen Guojin is owned as to (i) 99.93% by Shenzhen Qianhai, which is wholly and beneficially owned by Yiu Wai, and (ii) 0.07% by Guojin Zongheng, which is owned as to 70% by Shenzhen Guojin Investment Consulting Company Limited (深圳國金投資顧問有限公司) and 30% by Shenzhen Guojin Qishou Investment Management Centre (Limited Partnership) (深圳國金棋手投資管理中心(有限合伙)), each of which is in turn wholly and beneficially controlled by Lin Jiaxi.

Hold Virtue is a company incorporated in Hong Kong on 7 October 2015, and an offshore investment holding company indirectly wholly-owned by Shenzhen Houde, which in turn owns approximately 66.03% partnership interest in Chongqing Shuimu. Shenzhen Houde is an investment fund registered as a limited partnership in the PRC, and is principally engaged in equity investments and investment management.

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CMGE Technology is an exempted company incorporated in the Cayman Islands with limited liability whose shares are listed on the Stock Exchange (HKEx stock code: 00302). CMGE Technology is an investment holding company mainly engaged in mobile game publishing, game development and investment business.

CPC Alpha is a company incorporated in Samoa on 26 May 2016, and is wholly-owned by CPC Fund. The general partner of CPC Fund is China Prosperity Capital GP Limited, a company incorporated in the Cayman Islands, which in turn is ultimately controlled by Mr. Sin Hendrick.

Mr. Sin Hendrick has over 16 years of experience in corporate management, finance and investment banking. Mr. Sin is a co-founder, vice chairman and an executive director of CMGE Technology, a company listed on the Stock Exchange (HKEx stock code: 00302) (together with its subsidiaries, the “CMGE Group”) and since January 2011 he has been a director in the CMGE Group which principally engages in game development and game publishing. He has also been a director of CPC Alpha, and a co-founder of CPC Fund.

Special Rights of the [REDACTED] Investors

There were no special rights granted to our Shareholders as at the Latest Practicable Date that will survive after the [REDACTED].

Lock Up Period

None of the [REDACTED] investors are subject to any lock up period from the [REDACTED].

Relationship with the [REDACTED] Investors

To the best of the knowledge, information and belief of our Directors, save as disclosed herein, each of the [REDACTED] Investors does not have any past or present relationship with any other [REDACTED] Investors and each of the [REDACTED] Investors does not have any past or present relationship with our Group or any connected persons of our Company.

Public Float

Save for the Shares to be held by Mr. Sin Hendrick, CPC Alpha and CMGE Technology, which in aggregate amount to [REDACTED] Shares representing approximately [REDACTED]% of our total issued Shares upon [REDACTED], Shares to be held by the [REDACTED] Investors immediately following completion of the [REDACTED] and the [REDACTED] are not considered as part of the public float for the purpose of Rule 8.08 of the Listing Rules.

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COMPLIANCE WITH INTERIM GUIDANCE AND GUIDANCE LETTERS

After reviewing the terms of the [REDACTED], and given that (i) no special rights granted to the [REDACTED] Investors will survive after the [REDACTED] in respect of the [REDACTED]; and (ii) the [REDACTED] were completed more than 28 clear days before the date of submission of the application for the [REDACTED], the Sole Sponsor confirms that the [REDACTED] are in compliance with the Guidance Letters HKEx-GL29-12 (January 2012) (updated in March 2017) and HKEx-GL43-12 (October 2012) (updated in July 2013 and March 2017) issued by the Stock Exchange.

[REDACTED]

Pursuant to the resolutions passed by our Shareholders at the general meeting held on [REDACTED], details of which are set out in Appendix IV to this document, conditional upon the share premium account of our Company being credited as a result of the issue of the [REDACTED] pursuant to the [REDACTED], our Directors were authorised to allot and issue a total of [REDACTED] Shares credited as fully paid at par to the Shareholders whose names appear on the register of members of our Company at close of business on [REDACTED] in proportion to their then respective shareholdings by way of [REDACTED] of the sum of [HK$[REDACTED]] standing to the credit of the share premium account of our Company, and such Shares to be allotted and issued pursuant to the [REDACTED] shall rank pari passu in all respects with the existing issued Shares.

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CORPORATE STRUCTURE

Corporate structure after Reorganisation and before the [REDACTED]

The following chart depicts the shareholding and beneficial ownership structure of our Group immediately prior to the completion of the [REDACTED]

Ms. Shi(1) Mr. Chen(1) Lin Jiaxi(3)

100% Renkai Investment 100% 100% 0.07% (BVI) 100%

Yutang Xiangzhen Guojin Guojin Hold CMGE CPC Individual (4) (5) (6) (7) Mr. Sin Prosperous Technology Alpha (8) Investment Investment Shareholders(2) Kaixing Virtue Hendrick (BVI) (BVI)(BVI) (BVI) (Hong Kong) (Cayman Islands) (Samoa)

38.22% 3.01% 15.69%8.81% 10% 15% 0.27% 8% 1%

Our Company (Cayman Islands) 100% Kaixing Venture Capital (BVI) 100% Noble Future Offshore (Hong Kong) Onshore 100% Beijing Kaiwen Domestic shareholders(9) (PRC) 99% 1%

Beijing Junkai (PRC) 99%

1% Beijing Kaixing (PRC)

100% 100% 100% 100% 100% 72.35% 70% Beijing Huizhou Jinan Beijing Horgos Horgos Guangzhou Wenbo Guangxun Yuezhiyi Qiwen Kaiwen Qilin(10) Kaiqi(11) (PRC) (PRC) (PRC) (PRC) (PRC) (PRC) (PRC) 100% Horgos Kaiqi (PRC)

Notes:

(1) Ms. Shi and Mr. Chen are parties acting in concert with each other. For details, please refer to the section headed “Relationship with Controlling Shareholders — Acting in Concert Confirmation” in this document.

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(2) These Shareholders are:

Relationship Number of Shareholder with our Group Shares Shareholdings Liwei Investment, a company wholly-owned by Li Wei (李巍) Investor [REDACTED] [REDACTED]% Sole Function, a company wholly-owned by Jiang Hongwen (姜洪文) Seed investor [REDACTED] [REDACTED]% Shibei Investment, a company wholly-owned by Zhang Shibei (張式貝) Investor [REDACTED] [REDACTED]% Yuxiu Investment, a company wholly-owned by Yu Xiu (余秀) Seed investor [REDACTED] [REDACTED]%

Each of these individual Shareholders will hold less than 10% of the total issued shares of our Company upon [REDACTED]. As none of such individual Shareholders is a core connected person of our Company, the Shares held by them will be considered as part of the public float upon [REDACTED].

(3) Lin Jiaxi is our non-executive Director and chairman of our Board.

(4) Guojin Kaixing is a company incorporated in the BVI on 22 December 2020, and is ultimately owned by Yiu Wai (姚偉) (an Independent Third Party) as to 99.93% and Lin Jiaxi (a non-executive Director and the chairman of our Board) as to 0.07%.

(5) Hold Virtue is a company incorporated in Hong Kong on 7 October 2015, and is wholly-owned by Hold Virtue International Investment Limited and indirectly wholly-owned by Shenzhen Houde.

(6) CMGE Technology is an exempted company incorporated in the Cayman Islands with limited liability whose shares are listed on the Stock Exchange (HKEx stock code: 00302). Mr. Sin Hendrick is a controlling shareholder and vice chairman of CMGE Technology.

(7) CPC Alpha is a company incorporated in Samoa on 26 May 2016, and is wholly-owned by CPC Fund. The general partner of CPC Fund is China Prosperity Capital GP Limited, a company incorporated in the Cayman Islands, which in turn is ultimately controlled by Mr. Sin Hendrick.

(8) Mr. Sin Hendrick is (i) a controlling shareholder and a vice chairman of CMGE Technology (one of our Shareholders); and (iii) an ultimate controller of CPC Alpha (one of our Shareholders).

(9) These domestic shareholders are the Original KX Shareholders, namely Ms. Shi (0.36%), Beijing Jinshi (0.06%), Shenzhen Guohong (0.08%), Shenzhen Guojin (0.1%), Chongqing Shuimu (0.15%), Jiang Hongwen (姜洪文) (0.09%), Lin Jiaxi (林嘉喜) (0.09%), Yu Xiu (余秀) (0.03%), Zhang Shibei (張式貝) (0.02%), Li Wei (李巍) (0.02%) and Qin Dongyi (覃東宜) (0.01%).

(10) The remaining equity interests in Horgos Qilin were held as to 4.82% by Xia Yun (夏雲) (our cooperating writer whose pseudonym is Huangfuqi (皇甫奇) and an Independent Third Party), 4.82% by Chen Bin (陳彬) (our cooperating writer whose pseudonym is Tiao Wu (跳舞) and an Independent Third Party) and 18.01% by Zhangshu Ruiying Investment Management Center (Limited Partnership) (樟樹市瑞盈投資管理中心(有限合伙)) (an investment fund established as a limited partnership in the PRC and owned (i) as to 36.36% by Luo Jianhua (羅健華), an Independent Third Party; and (ii) as to 4.55% by its general partner, namely, Shenzhen Qianhai Ruixiang Investment Management Co., Ltd (深圳前海瑞翔投資管理有限公司), which is ultimately controlled by Yi Xinwen (易新文), a director of Horgos Qilin, and Zhou Juan (周娟), an Independent Third Party).

(11) The remaining equity interests in Guangzhou Kaiqi were held as to 30% by Liang Xingwen (an Independent Third Party).

(12) Certain percentage figures included in the above chart have been subject to rounding adjustments.

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Corporate structure immediately following the [REDACTED]

The following chart depicts the shareholding and beneficial ownership structure of our Group immediately following the completion of the [REDACTED], assuming that the [REDACTED] is not exercised and without taking into account any Shares to be issued upon the exercise of any options granted under the Share Option Scheme:

Ms. Shi(1) Mr. Chen(1) Lin Jiaxi(3)

100% Renkai Investment 100% 100% 0.07% (BVI) 100%

Yutang Xiangzhen Guojin Guojin Hold CMGE CPC Individual Mr. Sin Public Investment Investment Prosperous Kaixing(4) Virtue(5) Technology(6) Alpha(7) Shareholders(2) Hendrick(8) Shareholders (BVI) (BVI) (BVI) (BVI) (Hong Kong) (Cayman Islands) (Samoa)

[REDACTED]% [REDACTED]% [REDACTED]% [REDACTED]% [REDACTED]% [REDACTED]% [REDACTED]% [REDACTED]% [REDACTED]% [REDACTED]%

Our Company (Cayman Islands)

100% Kaixing Venture Capital (BVI)

100% Noble Future Offshore (Hong Kong) Onshore 100% Beijing Kaiwen (9) (PRC) Domestic shareholders

99% 1%

Beijing Junkai (PRC)

99%

1% Beijing Kaixing (PRC)

100% 100% 100% 100% 100% 72.35% 70% Beijing Huizhou Jinan Beijing Horgos Horgos Guangzhou Wenbo Guangxun Yuezhiyi Qiwen Kaiwen Qilin(10) Kaiqi(11) (PRC) (PRC) (PRC) (PRC) (PRC) (PRC) (PRC)

Horgos Kaiqi (PRC)

Notes:

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(2) These individual Shareholders are:

Relationship Number of Shareholder with our Group shares Shareholdings Liwei Investment, a company wholly-owned by Li Wei (李巍) Investor [REDACTED] [REDACTED]% Sole Function, a company wholly-owned by Jiang Hongwen (姜洪文) Seed Investor [REDACTED] [REDACTED]% Shibei Investment, a company wholly-owned by Zhang Shibei (張式貝) Investor [REDACTED] [REDACTED]% Yuxiu Investment, a company wholly-owned by Yu Xiu (余秀) Seed Investor [REDACTED] [REDACTED]%

(3) Lin Jiaxi is our non-executive Director and chairman of the Board.

(5) Hold Virtue is a company incorporated in Hong Kong on 7 October 2015, and is wholly-owned by Hold Virtue International Investment Limited, which is indirectly wholly-owned by Shenzhen Houde, a limited partnership established in the PRC.

(8) Mr. Sin Hendrick is (i) a controlling shareholder and a vice chairman of CMGE Technology (one of our Shareholders); and (iii) an ultimate controller of 80% shareholding of CPC Alpha (one of our Shareholders).

(9) These domestic shareholders are the Original KX Shareholders, namely Ms. Shi ([REDACTED]%), Beijing Jinshi ([REDACTED]%), Shenzhen Guohong ([REDACTED]%), Shenzhen Guojin ([REDACTED]%), Chongqing Shuimu ([REDACTED]%), Jiang Hongwen (姜洪文) ([REDACTED]%), Lin Jiaxi (林嘉喜) ([REDACTED]%), Yu Xiu (余秀) ([REDACTED]%), Zhang Shibei (張式貝) ([REDACTED]%), Li Wei (李巍) ([REDACTED]%) and Qin Dongyi (覃東宜) ([REDACTED]%).

(10) The remaining equity interests in Horgos Qilin were held as to 4.82% by Xia Yun (our cooperating writer whose pseudonym is Huangfuqi (皇甫奇) and an Independent Third Party), 4.82% by Chen Bin (our cooperating writer whose pseudonym is Tiao Wu (跳舞) and an Independent Third Party) and 18.01% by Zhangshu Ruiying Investment Management Center (Limited Partnership) (樟樹市瑞盈投資管理中心(有限合伙)) (an investment fund established as a limited partnership in the PRC and owned (i) as to 36.36% by Luo Jianhua (羅健華), an Independent Third Party; and (ii) as to 4.55% by its general partner, namely, Shenzhen Qianhai Ruixiang Investment Management Co., Ltd (深圳前海瑞翔投資管理有限公司), which is ultimately controlled by Yi Xinwen (易新文), a director of Horgos Qilin, and Zhou Juan (周娟), an Independent Third Party).

(11) The remaining equity interests in Guangzhou Kaiqi were held as to 30% by Liang Xingwen (an Independent Third Party).

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(12) Certain percentage figures included in the above chart have been subject to rounding adjustments.

PRC REGULATORY REQUIREMENTS

As advised by our PRC Legal Advisors, the Reorganisation, the transfers and disposals of our Group’s onshore subsidiaries have complied with applicable PRC laws and regulations in all material respects, and relevant necessary approvals and certificates from PRC regulatory authorities required to implement the Reorganisation have been obtained.

M&A Rules

According to Article 11 of the Rules on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors （《關於外國投資者併購境內企業的規定》） (the “M&A Rules”), where a domestic company or enterprise, or a domestic natural person, through an overseas company established or controlled by it/him, acquires a domestic company which is related to or connected with it/him, approval from MOFCOM is required. As confirmed by our PRC Legal Advisors, Article 11 of the M&A Rules is not applicable to the Reorganisation, and in particular the transfer of 99% equity interest in Beijing Kaixing to Beijing Junkai is not subject to Article 11 of the M&A Rules since Beijing Kaixing was a foreign-invested enterprise at the time of the transfer, and hence it is not necessary for us to obtain approval from the MOFCOM for the Reorganisation nor from the CSRC for the [REDACTED] and trading of our Shares on the Stock Exchange.

SAFE REGISTRATION IN THE PRC

Circular 37

Pursuant to the Circular 37 promulgated by SAFE and which became effective on 4 July 2014, (a) a PRC resident must register with the local SAFE branch before he or she contributes assets or equity interests to an overseas special purpose vehicle (the “Overseas SPV”) that is directly established or controlled by the PRC resident for the purpose of conducting investment or financing, and (b) following the initial registration, the PRC resident is also required to register with the local SAFE branch for any major change, in respect of the Overseas SPV, including, among other things, a change of Overseas SPV’s PRC resident shareholder(s), the name of the Overseas SPV, terms of operation, or any increase or reduction of the Overseas SPV’s registered capital, share transfer or swap, and merger or division.

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In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be restricted from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Furthermore, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for evasion of foreign exchange controls.

As advised by our PRC Legal Advisor, each of Ms. Shi, Mr. Chen, Jiang Hongwen (姜洪文), Li Wei (李巍), Lin Jiaxi (林嘉喜), Yu Xiu (余秀) and Zhang Shibei (張式貝) has completed the foreign exchange registrations pursuant to Circular 37 in relation to their offshore investments as PRC residents.

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OVERVIEW

We are an online literature IP operation company in the PRC focusing on sourcing and developing online literary works for adaptation into various entertainment formats and licensing literary works to online reading platforms. We aim to connect participants across the value chain of IP operation, devise cultivation plans for maximising the commercial value of literary works, such as the adaptation of literary works into films, TV and web series, animations and PC and mobile games and license our literary works to online reading platforms. According to the F&S Report, we ranked tenth in the online literature IP operation market in the PRC with a market share of 1.5% in terms of revenue in 2020.

As an online literature IP operation company in the PRC, our role is to act as an incubation hub in the online literature ecosystem in the PRC, whereby we source literary works, assess the nature and develop the commercial potential of literary works and work closely with our content adaptation partners for licensing such literary works for adaptations into various entertainment formats, such as films, TV and web series, animations and PC and mobile games. We also license such literary works for publication on online reading platforms which serves as a means to raise readers’ awareness and helps extend the reach and visibility of the literary work IPs to potential content adaptation partners and audiences. It is our goal to identify, maximise and monetise the value of literary works. To achieve our goal, we conduct our IP operations business through (i) licensing online literary works to our cooperating partners for adaptation into other forms of entertainment; and (ii) licensing literary works to online reading platforms. We also invest in the development and production of entertainment products.

The following table sets forth a breakdown of our revenue by amount and percentage of our total revenue for the years indicated below:

For the year ended 31 December 2018 2019 2020 Revenue % Revenue % Revenue % (RMB’000) (RMB’000) (RMB’000)

IP adaptation licensing 41,549 67.5 64,245 81.4 83,255 92.8 Online reading licensing 19,601 31.9 14,252 18.1 6,445 7.2 Others 397 0.6 401 0.5 12 (Note)

Total: 61,547 100.0 78,898 100.0 89,712 100.0

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We derive our revenue through (i) generating fees from licensing our IPs to content adaptation partners; (ii) obtaining licence fees from licensing our literary works to the online reading platforms and (iii) generating returns from our investments in the development and production of entertainment products. During the Track Record Period, our revenue has showed growth from RMB61.5 million for FY2018 to RMB78.9 million for FY2019 (representing a 28.2% increase) and to RMB89.7 million for FY2020 (representing a 13.7% increase). In particular, our revenue generated from our IP adaptation licensing business increased by (i) 54.6% from RMB41.5 million for FY2018 to RMB64.2 million for FY2019; and (ii) 29.6% from RMB64.2 million for FY2019 to RMB83.3 million for FY2020.

Based on our extensive experiences in the online literature IP operation industry in the PRC, we believe we have the foresight, business acumen and astute insights to the latest preferences of readers in the online literature market so as to discover the potentials of a writer or a literary work and develop tailor-made marketing solutions to maximise the value of the writer and the literary work. Our business usually starts by sourcing and identifying literary works with commercial potentials. Our IP operation department, which is overseen by Mr. Zhou Lin (周麟), our deputy general manager, would source literary works mainly through (i) inviting writers to submit draft literary works; and (ii) writers submitting draft literary works to us on their own initiatives. We would communicate with our content adaptation partners to understand whether they have any specific needs for certain genres, themes, storylines or characters of literary works and based on such communications, we would commission writers, particularly phenomenal writers, to produce literary works customised for such needs. Apart from engaging writers to develop literary works, we also identify and acquire IPs with commercial potentials for adaptation into other entertainment formats. As at the Latest Practicable Date, our content library had grown into a literary reserve of more than 2,800 literary works from over 2,200 writers, spanning over 10 genres. As at the Latest Practicable Date, we engaged five platinum writers and 22 phenomenal writers and there were 17 “class S” IPs and 15 “class A” IPs in our IP reserve. Notably, we have cooperated with popular writers such as Tiao Wu (跳舞) and Huangfuqi (皇甫奇). Tiao Wu became a member of China Writers Association (中國作家協會) in 2011 and the chairman of Jiangsu Province Online Writers Association (江蘇省網絡作家協會) in 2016 and ranked top 12 in the Third Chenggua Online Literatures Competition (橙瓜網絡文學獎) in 2018. We entered into contract with him in relation to his work Original World - Tian Yan (源世界之天衍) in 2017. Huangfuqi ranked among top 100 in the Second and Third Chenggua Online Literatures Competition (橙瓜網絡文學獎) in 2017 and 2018. We entered into contract with such writer in related to his work Original World - Kun Lun Yu (源世界之昆侖域) in 2017.

Following the selection of the literary works, we endeavour to cultivate and enhance the value of our literary works and IPs through various means including (i) our editorial team work closely with the writers in the content creation process. We advise the writer on how to further structure or develop the literary work; (ii) our sales and marketing team conduct marketing activities, such as organising thematic marketing campaigns for particular literary genres, to enhance awareness of the literary works and the writers in the community of online readers; and (iii) we cooperate with online reading platforms on which we can make available, promote and recommend the literary works of our cooperating writers to existing and prospective users of such platform such that we can further extend the reach of the literary works and thus their visibility to a wider audience.

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Following our cultivation, we seek to generate revenue from licensing our IPs to our partners for adaptation into other entertainment formats, such as films, TV and web series, PC and mobile games, audio books and animations. We select popular literary works in our content library which we consider to have commercial potentials for adaptation, and enlist them into our IP reserve from time to time. We had a total of 288, 425, 466 and 483 IPs in our IP reserve as at 31 December 2018, 31 December 2019, 31 December 2020 and the Latest Practicable Date, respectively. As at the Latest Practicable Date, we had 17 “class S” IPs and 15 “class A” IPs in our IP reserve. We will then enter into IP adaptation agreement with our content adaptation partners to license IPs in our IP reserve to them the exclusive or non-exclusive right to adapt the relevant literary works into entertainment products, in consideration of which our content adaptation partners will typically pay a fixed sum of upfront licensing fees to us. We had licensed to our content adaptation partners a total of 54, 96, 175 and four IPs for adaptation into entertainment products for FY2018, FY2019, FY2020 and from 1 January 2021 and up to the Latest Practicable Date.

Leveraging our extensive market experience, insight in market trends and audience preferences, we are well-positioned to assist content adaptation partners in optimising the entertainment products and monetising the value of the literary works. Our sales and marketing team is able to devise customised marketing solutions to increase the market awareness of the literary works for our IPs as disclosed above. We have also fostered a strong network of cooperating content adaptation partners which include notable film studios such as Beijing Nicefilm Technology Co.,Ltd (北京耐飛科技有限公司) and Kaiser (China) Culture Co., Ltd. (凱撒（中國）文化股份有限公司), a company listed on the Shenzhen Stock Exchange (SZSE stock code: 002425), TV production companies such as Beijing Yunduan Culture Media Company Limited (北京雲端文化傳媒股份有限公司) and Beijing Butterfly Effects Culture Media Company Limited (北京蝴蝶效應傳媒有限公司) and game developers such as CMGE Technology (which is a shareholder of our Company). During the Track Record Period and up to the Latest Practicable Date, we had entered into IP adaptation agreements with more than 40 content adaptation partners.

Notably, one of the writers we cultivated from his early creation stage, known as Xiaoxiao Xinger (笑笑星兒), created the popular online fiction series titled Female CEO’s Bodyguard (女總裁的貼身高手), which had a total click rate of over one billion on an online reading platform previously. Building upon the high visibility of the fiction series, our Group licensed its adaptation rights to our cooperating partners, adapting the literary work into an online TV series with a total click rate of approximately 670 million on Leshi Video (樂視視頻) as at the Latest Practicable Date.

In addition to the licensing fees generated from our adaptation partners, we also derive revenue from licensing literary works to online reading platforms at a licence fee and/or under a profit sharing arrangement under which we share a stipulated percentage of the profit generated from subscription of literary works provided by our Group. As at the Latest Practicable Date, we were in cooperation with 41 online reading platforms. Our major cooperating online reading platforms include Shuqi Reading (書旗小說) operated by Alibaba Group Holding Limited (阿里巴巴集團控股有限公司); iReader (掌閱) and Migu Reading (咪咕閱讀), which are all leading online reading platforms in the PRC according to the F&S Report. Through such platforms, we can further extend the reach of our literary works and thus increasing their visibility to a wider audience.

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OUR STRENGTHS

One of the top 10 online literary IP operation companies in the PRC

We are one of the top 10 online literary IP operation companies in the PRC. We ranked tenth in the online literature IP operation market in the PRC with a market share of 1.5% in terms of revenue in 2020 according to the F&S Report. During the Track Record Period, our revenue increased from RMB61.5 million for FY2018 to RMB78.9 million for FY2019 (representing a growth of approximately 28.2%) and to RMB89.7 million for FY2020 (representing a growth of approximately 13.7%).

Our proven track record in online literary IP operations are attributable to our ability to identify potential writers and literature works at an early stage, to cooperate with our cooperating writers to develop market-oriented contents and to cater the supply of contents from our cooperating writers to the specific needs of our customers. On the one hand, we would discover and cultivate new literary talents by cooperating with aspiring writers through various means such as providing recommendations on their literary works from our editorial team from the early creation stage and promoting their works on online literature platforms to maximise their visibility. An example would be Sweet Sugar (甜甜糖), the writer of the widely acclaimed work Little Bride: Mr. Jiu, Hug Me (替嫁萌妻：九爺，求抱抱), who entered into a licensing agreement with us in October 2018. We value her literary talent, guide her in the theme selection, provide our advice on the content, and promote her work on various online reading platforms, which contributed to the success of Little Bride: Mr. Jiu, Hug Me (替嫁萌妻：九爺，求抱抱) which ranked 2nd on the popular list of the online reading platform Shuqi Reading (書旗小說) and ranked first on the list of popular completed novels and the list of best-sellers on the online reading platform Dianzhong Book City (點眾書城). On the other hand, based on our communications with our content adaptation partners, we would also contract with writers to produce literary works catering for the specific needs of the relevant content adaptation partners. For instance, we contracted with Tiao Wu (跳舞) on the creation of Original World — Tian Yan (源世界之天衍) in 2017 and licensed the adaptation rights of such work to our content adaptation partner to produce film, TV drama and games. We had licensed to our content adaptation partners a total of 54, 96, 175 and four IPs for FY2018, FY2019, FY2020 and from 1 January 2021 and up to the Latest Practicable Date, respectively.

Over the years since our establishment, our content library included a substantial number of popular online literary works. Notably, an online literary work created by one of our cooperating writers, namely Beautiful Marriage (錦繡良婚), has been awarded the Favourite Capital Youth Online Literature Award (首都青少年最喜歡網絡文學作品) in 2016 by the Beijing Writers Association and the Beijing Internet Information Office (北京市互聯網信息辦公室). Certain of the literary works in our content library were adapted to popular films or mobile games such as Player’s Battlegrounds (吃雞戰場), Chief’s Wife (首席的夜妻) and Door of Revolution (造化之門). In addition to the support from readers, in recognition of our achievement in the industry, our Group received support from the PRC governmental bodies in the form of awards including the grants from Beijing Science Technology Committee (北京市科學技術委員會), Beijing High-tech enterprise service centre (北京高新技術企業服務中心) and Beijing East District Culture Development Centre (北京市東城區文化發展促進中心).

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Strong cooperation with writers and a large pool of original content of literary works

Our cooperating writers and our content library are the core of our operations. As at the Latest Practicable Date, we cooperated with over 2,200 writers and our content library had over 2,800 literary works. We have built and are committed to maintaining strong and long-lasting relationships with our cooperating writers through our brand, our flexibility in cooperation arrangements and our IP operation team:

• Our brand

Leveraging our proven track record in the online literature industry in the PRC, we believe that our established brand name is one of key factors maintaining our existing relationships with our cooperating writers and attracting prospective cooperating writers.

• Our flexibility in cooperation arrangements

With an aim to establishing a long-term relationship with the literary talents, we adopt a flexible cooperation arrangement with our cooperating writers. Our cooperation arrangement can be customised according to the different requirements of the writers as to the term of licence, revenue sharing arrangement, licensing rights or such other terms as the parties consider relevant. Further, instead of entering into a framework arrangement with respect to any literary works created by the writer, we generally enter into licensing agreements with writers with respect to rights and obligations for the particular literary works only. In general, the term of license would be 20 years or longer which is automatically renewable for a further five-year period if the parties have not terminated the contract. We believe such arrangement gives writers a reasonable degree of flexibility, which may appeal to potential writers who do not wish to be subject to extensive and stringent contractual restrictions.

• Our IP operation team

We have an IP operation team that assists our cooperating writers in their literary creation and adaptation process. Our IP operation team provides writers with advice on how to improve the literary and commercial value of their works by updating them on the latest tastes and preferences of readers and synthesising and helping incorporate readers’ feedback. In addition, our IP operation team guides the content adaptation process by driving content discovery and contributing their in-depth understanding of literary works. As at the Latest Practicable Date, we had 23 staff in our IP operation team, among which five had more than five years’ experience in the IP operation industry.

As at the Latest Practicable Date, majority of our cooperating writers had more than five years of business relationship with our Group. To the best information, knowledge and belief of our Directors, we did not have any material dispute with any of our cooperating writers during the Track Record Period and up to the Latest Practicable Date. We believe that such our strong relationship with our cooperating writers enables our Group to create further valuable literary works and strengthen the growth in our IP operations.

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Strong network of content adaptation parties and online reading platforms

We have cooperated with online reading platforms, including the QQ Reading (QQ閱讀), iReader (掌閱), Shuqi Reading (書旗小說) and Migu Reading (咪咕閱讀). Through these platforms, we can promote and recommend the works of our cooperating writers and maximise their visibility and the value of such works. As at the Latest Practicable Date, we were in cooperation with 41 online reading platforms.

Our Group also serves as a channel between writers and our content adaptation partners and as such, our cooperation with the content adaptation partners is also critical to the success of our business. We would assess the nature and commercial potential of a literary work in our content library and implement appropriate deal arrangements with content adaptation partners in order to maximise the title’s reader reach and monetisation potential. We may also engage a writer to create literary works at the request of a content adaptation partners and licence the literary works to such partners for adaptations into other entertainment formats.

During the Track Record Period and up to the Latest Practicable Date, we had cooperated with more than 40 content adaptation partners in a wide range of industries, which adapted the literary works in our IP reserve into TV series, films, PC and mobile games or animations. We entered into licensing arrangements with such partners with respect to the derivative products from the literary works.

One of our Shareholders, CMGE Technology, is a company listed on the Stock Exchange (HKEx stock code: 00302) and a game operator and publisher in the PRC. In 2020, we have licensed our literary work, Original World — Tian Lang Xu (源世界之天狼墟) to CMGE Technology for the development of a PC and mobile game. Given our business relationships with our content adaptation partners and online reading platform, we believe our cooperation with these partners will enable us to strengthen our competitiveness in the online literary IP operations industry in the PRC.

Experienced and dedicated management team with solid industry experience

We have an experienced and dedicated management team with invaluable knowledge and understanding of the online literary IP operation industry in the PRC. Our chief executive officer, Mr. Chen, has over ten years of experience in online reading licensing business and IP adaptation licensing business. Mr. Chen has been able to respond effectively to industry changes and capitalised on emerging market opportunities in the history of our business. In the first few years from the establishment of our Group in 2009, we were established as major content providers to mobile reading platforms. Subsequently, in view of the changes in the competitive landscape of mobile reading platforms in the PRC, our Group set up the Chuangbie Book City in 2014 in an effort to transforming itself from a pure content provider to an online reading platform and generated revenue from subscription fees paid by the online readers directly, instead of relying solely on income generated from the provision of content to third party mobile reading platforms. Following the developments of entertainment industry such as the film or gaming industry in the PRC, since 2016, our Group has been focusing on IP operations, leveraging on our online reading platform and our experience and expertise accumulated in the online literature industry.

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Our Board and senior management team bring together a complementary mix of diverse backgrounds, with our core management team having an average of approximately five years of experience in the IP operations industry. We believe that our management team’s industry experience and vision have led us to our industry-leading position.

OUR BUSINESS STRATEGIES

To strengthen our competitiveness in the growing online literary IP operations industry, we intend to pursue the following strategies:

Enrich our IP reserve with high quality literary works

We consider that high quality literary works will allow our IP adaptation licensing business to thrive as this is expected to attract content adaptation partners with higher calibre and increase the likelihood of creating popular and commercially successful adapted entertainment products.

Based on our experience in the online literary IP operations industry in the PRC and our analysis and understanding of the latest preferences of online literature readers, we plan to acquire licences of “class S” or “class A” IPs of literary works created by platinum writers or phenomenal writers, which are well recognised in the market with a proven track record. As at the Latest Practicable Date, we had 17 “class S” IPs and 15 “class A” IPs in our IP reserve. Please refer to the paragraph headed “Our business model — IP adaptation licensing” for further details on the classification of writers. For our IP adaptation licensing business, we may develop IPs with our cooperating writers or acquire IPs from IP holder or writers. On one hand, we may incur relatively less costs for developing our own IPs with our cooperating writers and obtain complete copyrights to the literary works created, but it generally takes longer to create a literary work. On the other hand, in acquiring IPs, we can benefit from having a shorter timeframe for obtaining an IP and having a track record of the particular literary works as a more objective measure to assess its commercial value, but the costs involved may be higher than developing our own IPs. In our business operation, we would consider, among other factors, the market demands, the availability of particular literary works and the financial position of our Group and determine whether to develop or acquire IPs as appropriate. Whilst the costs of acquiring such literary works may be higher than those for acquiring lesser-known literary works, we may benefit from having a longer life cycle of adapted entertainment products from such works. During the Track Record Period, due to the limitation of our cash flow, we have financial limitation to acquire certain well-known literary works and IPs. We intend to use part of [REDACTED] of the [REDACTED] to acquire more well-known literary works and/or IPs. We believe that IP holders will be attracted to us because of our business relationship with content adaptation partners and our editorial and marketing support.

With a view to enhancing our IP reserve, we also plan to cooperate more frequently with well-known writers with track records of producing popular literary works and commission them to develop IPs specifically for adaptation purposes. We believe that such high quality literary works will generate a larger amount of revenue with a higher profit margin for our IP operations.

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In addition, commercially successful adaptation of literary works from our IP reserve will also contribute positively to our reputation in the market and our collaborative relationship with our content adaptation partners. With a robust relationship with such partners, we will be well-positioned to capture new opportunities for developing new literary works for such content adaptation partners and thus deepen our revenue stream.

Enhance our content library and IP reserve by expanding our pool of writers and devoting further resources to identify, cultivate and promote literary talents and literary works

Writers are the sources of the literary works in our content library and thus a vast pool of promising writers is key to our Group’s business and future growth. With an aim to expanding our pool of writers with high quality literary talents, we intend to devote additional resources in identifying and cultivating aspiring writers through means such as customising licensing agreements with more competitive packages to the writers with growth potentials, expanding our editorial team to give further support to the writers and organising events for attracting talented writers to submit literary works to our Group. As at the Latest Practicable Date, we had cooperated with over 2,200 writers, and we target to expand our pool of writers to include more platinum and phenomenal writers. As at the Latest Practicable Date, we engaged five platinum writers and 22 phenomenal writers. According to the F&S Report, the number of writers in the PRC exceeded 20 million as at 31 December 2020. We believe that we are able to attract writers to cooperate with us as (i) we ranked among the top 10 players in the online literature IP operation market in the PRC in 2020, (ii) we have cooperated with a large number of writers, among which award winning literary works have been created from such cooperation; (iii) our editorial team and sales and marketing team is able to enhance the commercial value of their literary work; and (iv) we adopt a flexible cooperation arrangement with our cooperating writers such that the arrangement are customised to the writers’ requirements. We believe that with further resources devoted in the cultivation of writers, we can attract more literary talents with growth potentials in the market and also deepen our relationship with our cooperating writers, thereby creating further opportunities to generate high quality literary works for our IP operations.

We also endeavour to increase the visibility and popularity of our cooperating writers, as well as the literary works in our content library, in the community of online readers through our marketing efforts so as to improve the commercial value of our literary works. We intend to intensify and diversify our marketing activities to promote and recommend our cooperating writers or literary works through devoting additional resources on the advertising activities and diversifying the distribution channels. Specifically, we plan to extend the advertising campaigns on our literary works in the sci-fi genre or other genres with marketing potentials to a larger number of online reading platforms such as occupying the editors’ recommendation list and “must read” list and displaying such works on the top banner of the website or mobile apps of the online reading platforms with a view to promote the popularity ranking of our literary work on such platforms. We also seek to leverage on the expertise of the design and IT professionals on our IP operations team, which will enable us to create digital visualization of literary works in our IP reserve such that we may communicate more effectively with our content adaptation partners how our literary works may be adapted into other entertainment products such as animation or drama series. We consider that these capabilities strengthen our competitiveness in the market in seeking business opportunities with content adaptation partners.

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Our content adaptation partners are also part of our channels for expanding the coverage of our intellectual properties. We will seek to extend our own and our cooperating writers’ intellectual property across different entertainment media formats to reach more users, and to broaden and deepen our revenue streams. Through increasing our cooperation with our content adaptation partners, we believe that the adaptation of the literary works into films, TV series, PC and mobile games or other formats can bring the literary works to a wider audience and enhance our reputation in the market. We believe that with the combined effect of our marketing activities and the adaptation of the literary works, we will increase the marketability and commercial potential of the literary works for our IP operations.

Selectively pursue strategic alliances and acquisitions

As part of our growth strategies, we plan to selectively pursue acquisitions, joint ventures, investments and partnerships that we believe to be strategic and complementary to our business operations. In particular, we may consider setting up joint ventures with our downstream industry players (i.e. our content adaptation partner), so as to expand our business coverage and broaden our income base. We plan to capture investment opportunities in content adaptations and participate more deeply in the development process of entertainment products. Despite that we did not hold any equity interests in our content adaptation partners or the special purpose companies for developing the entertainment products, we will consider options of equity investments in such entities in the future to deepen our involvement in the product development and broaden our income stream. We intend to further strengthen and optimise the adaptation of our literary content by investing in targets with capabilities in film production, TV and web series production, PC and mobile game development, animation creation or other entertainment production.

Specifically, (i) for films and TV and web series, we plan to strengthen our cooperation with online video platforms, TV drama production companies and screenplay and production studio by allocating part of our capital investments in adapted works or forming joint ventures with such companies; (ii) for PC and mobile games, we intend to enhance our control in the production process by investing in game developers; and (iii) for animations, we will deepen our footprint in the production process of adapted works.

In selecting investment targets, we generally consider the following factors: (i) compatibility with our business strategies; (ii) potential synergies that the target business may bring to our business; (iii) market positioning and track record of content adaptations; (iv) experience of management team; and (v) financial indicators such as valuation, historical operating metrics and financial performance. Our Directors believe that through such acquisitions and/or investments, we will be able to (i) participate in the downstream of the IP operations industry and strengthen our control in content adaptations; (ii) unleash the monetary value of our intellectual property by leveraging our expertise and experience in the IP operations industry; and (iii) diversify our income sources by generating revenue from both the licensing of literary works and the sales of the adapted entertainment products. As at the Latest Practicable Date, we have not identified any specific suitable target for potential acquisitions and/or investments.

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OUR BUSINESS MODEL

We act as an incubation hub in the online literature ecosystem in the PRC, whereby we seek to identify, maximise and monetise the value of literary works. Situated at the centre of the value chain of the online literature industry, we connect the upstream players (i.e. the writers and IP holders) with the downstream players (i.e. the content adaptation partners which develop our literary works into other entertainment products and license our literary works to the online reading platforms). We source and develop online literary works for adaptation into various entertainment formats and license literary works to online reading platforms. Leveraging our experience and knowledge of the industry and our strong network among the industry players:

The following flowchart illustrates our business model:

Produce or license License self-developed IPs, literary works or IPs acquired IPs and literary works

Upstream Our Group Downstream • Writers • Sourcing and developing • Content adaptation

• IP holders online literary works and partners ˏ ˏ IPs for adaptation into • Online reading various entertainment platforms formats • Licensing literary works to online reading platforms

Source specific IPs and Enquire for IPs or content ideas literary works

OUR OPERATION

The following diagram sets forth our operation flows and processes:

Writers’ own Enquiry from content Sourcing of IPs and initiative Initiated by us adaptation partners Initiated by us literary works

Creation of literary Engagement of writers for Acquisition of content works from writers certain of literary works adaptation rights from IP holders

Cultivation of IPs Editorial support and literary works to the literary works

Selection of literary works with content Content Library IP Reserve adaptation potentials or based on enquiry from content adaptation partners

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Stage 1: Sourcing of literary work and writers

Our content library and our cooperating writers

Literary works are the core of our business. We mainly focus on sourcing literary works which are fictional and serialised in nature, meaning that the writers would continue to update the work from time to time and publish subsequent chapters of a story after its first issue. We believe that serialised works encourage readers to routinely return to follow the development of the stories and their characters.

It is our mission to provide our readers with a broad range of quality literary works and to cater to the needs of our content adaptation partners in developing films, animation or other derivative products. As at the Latest Practicable Date, we had over 2,200 cooperating writers in respect of over 2,800 literary works in our content library, which have attracted subscription from various online reading platforms. Works in our library span over 10 genres, including urban and contemporary romance, fantasy, wuxia (stories about the adventures of martial arts heroes), science fiction, crime and suspense, historical fiction. Our vast content library allows us to cater for the constantly evolving interests of our readers and content adaptation partners. It is also our primary goal to select suitable literary works from our content library and cultivate them into self-developed IPs in our IP reserve for future adaptation purposes.

Our content library includes online literature works in China created by some of the most well-known writers. According to the F&S Report, our cooperating writers, Mengru Shenji (夢入神機) is one of the five legendary (五大至尊) online literature authors in China and Yue Guan (月關), Yanyu Jiangnan (煙雨江南) and Tiao Wu (跳舞) are three of the top 12 online writers (十二主神) in China. In addition, Yue Guan (月關) was nominated historical-theme writer of the year in 2018 by the Third Chenggua Online Literatures Competition (橙瓜網絡文學獎) and Tiao Wu (跳舞) was ranked as a platinum-class author in the original online literature in 2019 by China Literature Limited. Our literary work, Dragon Symbol (龍符) created by Mengru Shenji (夢入神機), was ranked 5th of the “Online Literature of the Year” in 2016 by China Online Writers Association (中國網絡作家協會).

We mainly source our literary works through (i) inviting writers to submit draft literary works through; and (ii) writers submitting draft literary works on their own initiatives directly to us, which usually takes us one week to enter into agreement with a writer and one week to review the draft literary works submitted by writers on their own initiatives. We believe that we are able to attract writers to cooperate with us as we ranked among the top 10 players in the online literature IP operation market in the PRC in 2020, we have cooperated with a large number of writers, among which award winning literary works have been created from such cooperation, and our track record and reputation should be known in the community of writers in the online literature industry.

From time to time, based on our assessment of the market trends and interests of readers in the PRC, we invite writers to submit literary works on certain themes (e.g. romance or science fiction) or request popular writers or writers previously cooperated with us to submit further literary works.

At times, we would communicate with our content adaptation partners to understand whether they have any specific needs for certain genres, themes, storylines or characters of literary works and based on such communications, we would commission writers, particularly phenomenal writers, to produce literary works customised for such needs. Usually, we spend about one or two weeks to understand our customers’ needs and several weeks to commission suitable writers.

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Typically, candidates under invitation will then submit a skeleton of the story plot to us but certain writers may submit works-in-progress or finished works on their own initiatives for our assessment. Our editorial team will undergo the following procedures to select the suitable writer or literary work:

For literary works of intermediate-level writers and phenomenal writers:

1. preliminary review by one responsible editor;

2. further review by one chief editor;

3. final review by the general editor; and

4. approval by the deputy general manager responsible for the selection of literary works and our chief executive officer.

For literary works of platinum writers:

1. preliminary review by one responsible editor;

2. further review by two chief editors; and

3. final review and approval by a committee consisting of the general editor, deputy general manager responsible for the selection of literary works and our chief executive officer.

In the selection procedures, the editors involved will evaluate the literary works by considering factors such as the quality of the draft literary work, writer’s capacity to complete the work (if only a work-in-progress is submitted to us) and the adaptation potentials of the literature. We will then enter into contracts with the selected writers for granting us the licensing rights to the specific works.

We believe that our relationship with writers has been a key to our success. As compared to traditional offline publishing, we welcome writers of all calibres, ranging from amateurs to professionals, to create content, both finished works as well as works-in-progress. In particular, we endeavour to discover, attract and cultivate new literary talents and grow together with them since their early ventures into publishing their literary works, and we believe this relationship has created a pool of writers that have become loyal partners in our business and have continued to submit literary works to us. As at the Latest Practicable Date, a majority of our cooperating writers had had business relationship with us for more than five years.

To identify and track potentially successful writers, we categorise writers into three major tiers through analysis of feedbacks from readers as well as professional judgment of our in-house editorial team. Those tiers are based on a number of criteria, including but not limited to the commercial value of a writer’s works, activity levels and fan base.

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The below table summarises our cooperating writer tiers:

Writer’s Tier Description

Intermediate-level Writers which have fulfilled any of the following conditions: (普通作家) (i) having independently completed one novel or more;

(ii) having entered into an engagement for creating a literary work; or

(iii) having been creating online literary work.

Phenomenal Writers which have fulfilled any of the following conditions: (大神作家) (i) being classified as key writers (重點作家) (or core writers (核心作家)) or above on the major online reading platforms, as applicable;

(ii) having no less than one literary work being adapted into films, drama series or games, or no less than two literary works being adapted into animations;

(iii) being awarded county level or city level online literature awards;

(iv) being one of our top five writers in terms of annual income generated from his/her literary works; or

(v) possessing other competitive advantages which we consider unique such as having published numerous literary works

Platinum Writers which have fulfilled any of the following conditions: (白金作家) (i) being classified as phenomenal writers (大神作家) (or head writers (頭部作家)) or above on the major online reading platforms, as applicable;

(ii) having no less than two literary works being adapted into films, drama series or games, or no less than three literary works being adapted into animations; or

(iii) being awarded important online literature awards

As at the Latest Practicable Date, we had five platinum writers and 22 phenomenal writers. The remaining are intermediate level writers.

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We license content from writers only by title (作品約), through which we obtain the licensing rights to a specific work during the term of the contract, rather than all works from a specific writer. To cater for the particular requirements of our Group and the writers in each case, terms of our licensing agreements with the writers are customised and may vary based on our negotiations with the writers. We determine the scope and structure for each agreement based on (i) the popularity of the writer; (ii) monetisation potential of the content in terms of online paid reading; and (iii) other licensing opportunities for the content.

Typical key terms of licensing agreements between writers and us may include the following:

Key terms Description

Licence : The writer grants all licensing rights in a literary work (including any part thereof published before entering into the agreement) to us on an exclusive basis.

We are entitled to amend the literary work, license the literary work on behalf of the writer in any manner or to license the literary work to third parties in full or in part for publication, adaptation or other commercial purposes.

The writer may also be required to achieve certain targets stipulated by us in the agreement regarding daily or monthly minimum in terms of words written for the literary work and the minimum number of words of the entire literary work. For breach of such terms, the writer shall indemnify any loss we suffered as a result of such breach.

Term : Generally 20 years or longer, which is automatically renewable for a further five-year period upon expiry if the parties have not terminated the contract with two months’ prior notice in writing.

Payment : We generally pay a fee to our cooperating writers based on the number of words written for the literary work or other parameters as stipulated in the agreement. Generally, we pay less than RMB30 per thousand words for intermediate-level writers and RMB30 to RMB300 per thousand words for phenomenal writers. For the works of platinum writers, we usually pay a fixed fee for the whole completed work instead of calculating the fees based on the words.

In addition, we may enter into revenue-sharing arrangements under which writers generally receive 50% of the total revenue derived from the publication of the literary work on online reading platforms. We may make the payments for a certain month to the writer on the 15th day of the following month according to the relevant agreement.

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Key terms Description

Indemnity : The writer is obligated to indemnify us for any losses resulting from contravention of their obligations under the licensing contracts with us or copyright infringements arising from the licensing arrangements.

During the Track Record Period, our cooperating writers created over 300 literary works. To ensure continued access to high-quality literary works in the market, we will continue to enter into commercial arrangements with writers. The following are a number of notable writers with which we have entered into licensing agreements:

• Tiao Wu (跳舞): the writer became a member of China Writers Association (中國作家協會) in 2011 and the chairman of Jiangsu Province Online Writers Association (江蘇省網絡作家協會) in 2016 and ranked top 12 in the Third Chenggua Online Literatures Competition (橙瓜網絡文學獎) in 2018. We entered into contract with him in relation to his work Original World - Tian Yan (源世界之天衍) in 2017. Tiao Wu’s literary works have been adapted into several entertainment products, such as Xie Qi Lin Ran (邪氣凜然) being adapted into animation and Rule of Devils (惡魔法則) being adapted into mobile games.

• Huangfuqi (皇甫奇): the writer ranked among top 100 in the Second and Third Chenggua Online Literatures Competition (橙瓜網絡文學獎) in 2017 and 2018. We entered into contract with the writer in related to his work Original World - Kun Lun Yu (源世界之昆侖域) in 2017.

• Yu Feng (禹楓): the writer ranked among top 100 in the Second and Third Chenggua Online Literatures Competition (橙瓜網絡文學獎) in 2017 and 2018. We entered into contract with him in relation to his work Original World - Tian Lang Xu (源世界之天狼墟) in 2017.

• Yuanfen 0 (緣分0): the writer ranked among top 100 in the Second Chenggua Online Literatures Competition (橙瓜網絡文學獎) in 2017. We entered into contract with him in relation to his work Original World — Xia Xing Tian Xia (源世界之俠行天下) in 2017.

Note: The names of writers disclosed above are their respective pseudonyms.

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Our collaborations with the writers have also produced a range of popular literary works such as:

Name Highlights

Beautiful Marriage (錦綉良婚) This work belongs to the genre of romance and cosmopolitan and has been awarded the Favourite Capital Youth Online Literature Award (第二屆首都青少年最喜歡網絡文學作品) in 2016 by the Beijing Writers Association (北京作家協會) and the Beijing Internet Information Office (北京互聯網信息辦工室).

Special Father and Pretty Wife This work belongs to the genre of modern cosmopolitan (特種奶爸俏老婆) and is popular on various online reading platforms and ranked among first on the monthly popular works list of Migu Reading (咪咕閱讀) in 2016.

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Name Highlights

Little Bride: Mr. Jiu, Hug Me This literature belongs to the genre of romance and (替嫁萌妻：九爺，求抱抱) cosmopolitan and previously ranked top 10 on the popular works list of the online reading platform Shuqi Reading (書旗小說).

Our IP reserve

Our IP reserve contains (i) self-developed IPs selected from our content library which we consider to have commercial potential for adaptation; (ii) self-developed IPs of literary works which we commission writers to develop specifically for adaptation purposes; and (iii) acquired IPs, namely those IPs we licensed from IP holders. As such, our IP reserve differs from our content library in that our content library contains all literary works which we engage writers to create and do not include any acquired IPs we licensed from their owners.

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We review our IP reserve periodically to evaluate the commercial value and potentials of IPs in such reserve and when the rights of those IPs would be expired. The following table sets out the movement and number of our self-developed IPs and acquired IPs during the Track Record Period and up to the Latest Practicable Date:

For the the Latest For the year ended 31 December Practicable 2018 2019 2020 Date

Our self-developed IPs Opening balance 19 175 256 291 Number of new IPs selected from our content library 156 81 36 15 Number of IPs expired — — (1) —

Closing balance 175 256 291 306

Our acquired IPs Opening balance 46 113 169 175 Number of newly acquired IPs 67 57 6 2 Number of IPs expired — (1) — —

Closing balance 113 169 175 177

Total closing balance 288 425 466 483

Note: We may remove from our IP reserve the IPs of which all adaptation rights have been licensed to third parties or expired from time to time.

We incurred expenditure of approximately RMB56.0 million, RMB66.5 million and RMB25.8 million on acquisition of IPs for FY2018, FY2019 and FY2020, respectively. As at the Latest Practicable Date, we had 17 “class S” IPs and 15 “class A” IPs in our IP reserve. Based on the expiry dates under the existing licensing arrangements with us, the number of IPs in our IP reserve which will expire amounts to three, 39 and 59 for the year ending 31 December 2021, 2022 and 2023. Please refer to the paragraph headed “Our operation” in this section for details of the general term of such licensing arrangements. We may negotiate with IP holders in advance of the renewal of the IPs upon their expiration.

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Set out below is the revenue contribution from our self-developed IPs and acquired IPs under the IP adaptation licensing business during the Track Record Period:

For the year ended 31 December 2018 2019 2020 Number Revenue %of Number Revenue %of Number Revenue %of of IPs(3) (RMB’000) total of IPs(3) (RMB’000) total of IPs(3) (RMB’000) total revenue revenue revenue

Our self-developed IPs 20 18,082 43.5 54 24,056 37.4 2 7,358 8.8 Our acquired IPs 8 23,373 56.2 9 26,038 40.5 9 66,038 79.3 Combination of our self-developed and acquired IPs (1) 6 94 0.3 12 14,151 22.1 160(2) 9,859 11.9

Total: 34 41,549 100 75 64,245 100 171 83,255 100

Notes:

(1) Our Company may license several self-developed IPs and acquired IPs together under a same agreement for a lump sum, the revenue generated from which could not be divided for each of the self-developed IPs and acquired IPs licensed under such agreement.

(2) In FY2020, we granted a bundled license of the adaptation rights of 160 IPs to a major online reading platform, namely Customer B (as identified in the section headed “Business — Our Customers” in this document).

(3) The number of IPs disclosed in the table represents the IPs to which the revenue generated in the relevant year was attributable. For the avoidance of doubt, the figures do not represent the number of IPs we licensed to our content adaptation partners for the relevant year and a particular IP may generate revenue in two or more years during the Track Record Period.

(a) Our self-developed IPs

Our cooperation with writers is not limited to releasing their literary works on the online reading platforms, but we also aim to develop their works into popular IPs for adaptation into other entertainment products, such as films, TV and web series, PC and mobile games and animations. We believe that if the literary works are successful on the online reading platforms, they will be popular and successful when they are developed for adaptation into other entertainment products and the readers are most likely to be amongst the consumers of these adaptations.

We will review our content library and IP reserve periodically and select from our content library the literary works which we consider to have commercial potentials for adaptation, and classify them as our self-developed IPs to be developed for adaptation purpose. As at the Latest Practicable Date, we had established a reserve of 306 self-developed IPs. For the selection procedures, we will evaluate the literary work based on a range of criteria, including:

• popularity on online reading platforms. Specifically, we will assess the popularity of the relevant writer, literary genre and literary work, such as the awards granted to the works, reader volume and the number of likes received from readers;

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• latest market trends and reader preferences;

• development and adaptation potentials of the literature;

• general quality of the draft literary work and the writer’s capacity to complete the work if only a work-in-progress is submitted to us; and

• originality of the literature concept.

(b) Our acquired IPs

We also source literary works from IP holders in the market based on our assessment of the market trends, development potentials of the literary works and requirements from our content adaptation partners. During the Track Record Period and up to 31 March 2021, we had entered into IP licensing agreements with more than a hundred of IP holders and we held 177 acquired IPs as at the Latest Practicable Date, through which we have the right to adapt the relevant literary work into various entertainment products and the right to license such literary work to third party.

We typically follow the process below for acquiring IPs of literary works:

1. our IP operation department identifies potential IP targets to acquire based on our assessment of the market trends and prospects through considering the current market preference, the successful precedents in similar genres, the needs of our content adaptation partners, the literary work’s popularity in China, the suitability of its storyline for adaptation as other entertainment products as well as the commercial terms offered by its owner;

2. our editorial team assesses the overall quality of the literary work, by taking into account the genres of the work, the story structure and personality of the characters, the popularity of the writer and the readers’ feedback; and

3. our IP acquisition/decision-making committee, comprising our chief executive officer, namely Mr. Chen and our deputy general manager, namely Mr. Zhou Lin, assesses the future market trends and industrial policy pursuant to several factors, such as the numbers of the vendors of same genre, the number of the adopted entertainment products and the popularity of the formats adopted from similar genre. In addition, they determine whether to acquire the relevant targets after reviewing the assessment report issued by our editorial team and IP operation department.

In determining the licensing fee of the IPs we intend to acquire, we generally consider among others, the following factors:

1. popularity of the writer: we intend to pay higher to the writers with huge fan base and proven record of successful adapted products. For instance, the licensing fee for acquiring IPs from platinum and phenomenal writers are higher than those acquiring from intermediate-level writers;

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2. the genre of the IPs: the market trends may vary from time to time and the currently popular IPs might be pricy. A TV series with high audience rating may bring the IPs of literatures in similar genre popular with high licensing fee during that time;

3. the relationship between the IP holders and us: for licensing IPs from the writers and IP holders who have established a long-term amicable relationship with us, we may obtain a better price than the market price of similar IPs and the market price of similar IPs; and

4. the prevailing market prices of similar IPs: when we negotiate the licensing fee with IP holders, we may refer to the market price of the IPs in same genre and similar length of licensing period, created by writers of similar popular level and IPs with similar fan base.

We target to acquire IPs of literary works with a proven record of popularity and existing stable fan base similar to some of our IPs such as Seven Swordsmen from Tianshan (七劍下天山) of Liang Yusheng (梁羽生), The Four (四大名捕) of Wen Rui’an (溫瑞安) and Tian Ying (天影) of Xiao Ding (蕭鼎). We believe that IP holders license their IPs to us because of our proven track record in IP operations and our sound understanding, relationships and capabilities across the online literature ecosystem.

We will then enter into licensing agreements with the IP holders, whose terms may vary on a case-by-case basis subject to our negotiations with the IP holders. Typical key terms of such licensing agreements may include the following:

Key terms Description

Licence : The IP holder licenses to us the right to publish, adapt and develop various entertainment products (such as films, TV series, online or mobile games or audio books) or other derivative products based upon the original literary work (or any characters, storyline or contents thereof) on an exclusive basis.

We are entitled to license any IP granted by the IP holder under the licensing agreement to third parties without obtaining its prior consent.

Term : Generally five to 20 years, renewable upon negotiation between us and IP holder.

Payment : We generally pay a fixed royalty fee to the IP holder. In certain cases, we may pay to the IP holder a fixed royalty fee and a stipulated percentage (generally ranged from 2% to 6%) of the revenue or profit, as the case may be, generated from any adaptation derived from the IPs licenced under the agreement.

Indemnity : The IP holder is obligated to indemnify us for any losses resulting from contravention of their obligations under the licensing contracts with us or copyright infringements arising from licensing arrangements.

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Stage 2: Cultivation of our literary works

With an aim to enhancing the value of our literary works, we will continue to develop their value primarily through (i) the efforts of our editorial team; and (ii) our sales and marketing solutions which usually takes six months to one year.

Our IP operation team

Our IP operation team plays a significant role in improving the quality of literary works and cooperating with the writers in the continual development of the literary works. As at the Latest Practicable Date, we had 23 staff in our IP operation team, among which five had at least five years of industry experience.

We assist our cooperating writers mainly according to their experience and expertise in particular literary genres. In addition to providing editorial support to the writers, we will provide their suggestions on how to further develop the literary work to attract more readers and how to structure the work to suit the preferences of our content adaptation partners and audience of potential adaptations of the works. They review newly published literary works published online and analyse the latest preferences of readers. They also collect readers’ feedbacks over time on the literary works (such as those posted on the online reading platforms) to provide writers with suggestions on the storyline, language and plot points of their works. We believe these efforts of our IP operation team would substantially enhance the marketability and commercial value of the literary works of our cooperating writers.

Our IP operation team is also capable of facilitating our cooperation with our content adaptation partners. The design and IT professionals on the team enable us to create digital visualisation of literary works in our IP reserve such that we may communicate more effectively with our content adaptation partners how our literary works may be adapted into other entertainment products such as animation or drama series. Further, such professionals may also develop virtual images of characters in the literary works, propose storyboards of drama series or create framework of mobile games to illustrate different possibilities of adaptations. We consider that these capabilities strengthen our competitiveness in the market in seeking business opportunities with content adaptation partners.

Our sales and marketing team

Based on the genre or other particular features of a literary work, our sales and marketing team will devise customised marketing solutions to increase the visibility and awareness of the literary work or its writer in the community of online readers. We may cooperate with online reading platforms to organise thematic marketing campaigns for particular literary genres such as science fictions or romantic fictions. We also display our literary works or IPs on various forums and conferences, such as Beijing TV Programmes Fair (北京電視節目交易會), China Online Literature+ Conference (中國“網絡文學+”大會) and China Digital Entertainment Expo & Conference (ChinaJoy) (中國國際數碼互動娛樂展覧會).

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Further, we may join different activities held by online reading platforms, enter into their editor recommendation list and “must read” list, and display our literature works on the top banner of their websites and mobile apps.

Stage 3: Licensing of IPs and literary works

Literary works in our content library serve as a large and diverse base of source material to license to our partners for adaptation into other entertainment formats, such as films, TV and web series, PC and mobile games, audio books and animations. Following our cultivation, we select popular literary works in our content library which we consider to have commercial potentials for adaptation, and enlist them into our IP reserve from time to time. The existing fan base of the literary works is transferrable to the adapted entertainment products, which makes the audience acquisition process more efficient and effective. Leveraging our extensive market experience, insight in market trends and audience preferences, we are well-positioned to assist content adaptation partners in optimising the entertainment products and monetising the value of the literary works. Accordingly, we have fostered a strong network of cooperating content adaptation partners which include notable film studios such as Beijing Nicefilm Technology Co.,Ltd (北京耐飛科技有限公司) and Kaiser (China) Culture Co., Ltd. (凱撒（中國）文化股份有限公司), a company listed on the Shenzhen Stock Exchange (SZSE stock code: 002425), TV production companies such as Beijing Yunduan Culture Media Company Limited (北京雲端文化傳媒股份有限公司) and Beijing Butterfly Effects Culture Media Company Limited (北京蝴蝶效應傳媒有限公司) and game developers such as CMGE Technology, which is our Shareholder. During the Track Record Period and up to the Latest Practicable Date, we had entered into IP adaptation agreements with more than 40 content adaptation partners.

We enter into IP adaptation agreements with our content adaptation partners to license single IP or several IPs together as required by them. The terms of the agreement may vary according to the negotiations between the parties. Key terms of our typical IP adaptation agreements may include:

Key terms Description

Adaptation right : We generally licence to our content adaptation partner the exclusive or non-exclusive right to adapt the literary work into entertainment products, such as films, TV and web series, PC and mobile games, audio books or animations. The content adaptation partner will own the copyrights to the relevant entertainment products.

Term : Generally two to five years, renewable upon agreement between the parties.

Payment : Our content adaptation partner typically pays us a fixed sum of licensing fees together with, in certain cases, a pre-determined percentage of the revenue or profit, as the case may be, generated from the entertainment products developed under the IP adaptation agreement, which generally ranges from 2% to 5%.

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From time to time, we would communicate with our content adaptation partners to recommend literary works from our IP reserve for adaptation or to understand whether they have any specific need for certain genres, themes, storylines or characters of literary works. At times, based on such communications, we would commission writers, particularly phenomenal writers or platinum writers, to create literary works tailor-made for such needs. Original World - Tian Yan (源世界之天衍)isone of such literary works catering to the needs of one of our major content adaptation partners, which was seeking for a literary work with a cosmopolitan theme. We engaged our platinum writer Tiao Wu (跳舞), who is renowned for creating urban and magical power novels and has a stable and large fan base, to create the literary work and such work was then licensed to our partner to adapt into films, TV series and PC and mobile games.

Key terms of our typical engagements with writers whom we commissioned may include:

Key terms Description

Rights to the : All the rights to the literary work created under this agreement shall literary work belong to our Company and the writer shall not grant any licensing rights of the literary work to any third party or publish the literary work without our prior consent.

Confidentiality : The writer should keep the engagement and literary work confidential unless otherwise agreed between the parties and is not allowed to disclose such information to any third party without our prior consent.

Payment : We pay a fixed writing commission to the writer based on the number of words of the literary work as stipulated in the agreement.

Term : We usually set a deadline for the writer to submit the literary work to us.

In determining the licensing fee of the IPs we grant to our adaptation partners, we generally consider, among others, the following factors:

1. popularity of the IP: the IPs created by the writers with huge fan base and proven record of successful adapted products may be licensed at a higher price, as the fan base could be easily transferred to the fan base of the adapted entertainment products;

2. the genre of the IPs: the popular IPs matching the current market trends may be licensed at a higher price than a less popular one. For instance, an IP in the same genre as current popular TV series or online games may lead a high licensing fee;

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3. the prevailing market prices of similar IPs: when we negotiate the licensing fee with our adaptation partners, we would refer to the market price of the IPs in same genre and similar length, created by writers in similar popular level and IPs with similar fan base; and

4. the nature of IP: generally the licensing fee of our acquired IPs is higher than that of our self-developed IPs, as the cost of our acquired IPs is relatively higher.

We have licensed to our content adaptation partners a total of 54, 96, 175 and four IPs for FY2018, FY2019, FY2020 and from 1 January 2021 and up to the Latest Practicable Date, respectively. Our revenue generated from IP adaptation licensing enjoyed a growth from RMB41.5 million in FY2018 to RMB64.2 million in FY2019 followed by RMB83.3 million in FY2020.

Adaptation of our self-developed IPs

As at 31 December 2018, 2019 and 2020, our self-developed IPs amounted to 175, 256 and 291. We licensed 45, 82 and 120 of our developed IPs to our content adaptation partners for adaptation for FY2018, FY2019 and FY2020, respectively. Based on the estimation of our Directors, it generally takes one to two years for us to develop a literary work for adaptation, calculated from the date on which we engage a writer to create a literary work up to the date when the literary work completed up to the standard for adaptation; around three to 36 months for us to identify suitable adaptation partners and enter into IP adaptation agreements with such partners; and it may take our adaptation partners approximately one year to several years to adapt the IP into an entertainment product.

Set out below are a number of notable examples of adaptation of our self-developed IPs:

Name Highlights

Female CEO’s Bodyguard This work was completed in 2019 and has been adapted (女總裁的貼身高手) into online TV series and obtained a total click rate of approximately 670 million on the online streaming platform of Leshi Video (樂視視頻) as at the Latest Practicable Date. In 2019, an animation adapted based on this literature has been published on the online streaming platform of Kuaikan Animation (快看漫畫) and accumulated over five billion clicks as at the Latest Practicable Date.

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Name Highlights

Player’s Battlegrounds This work was completed in 2018 and adapted to online (吃雞戰場) film in 2019 and has obtained a click rate of approximately 21.0 million on the online streaming platform of Mango TV (芒果TV) as at the Latest Practicable Date. The author of this work is Mr. Zhou Lin (周麟), our deputy general manager, under the pseudo-name of Fei Huo (飛火).

Door of Revolution This work was completed in 2014 and adapted to mobile (造化之門) game and published in 2017, which was awarded the Second “Super Fun” Gold Key (“超好玩”金鑰獎), the Best Online Literature IP Award by TokenSky Media (上方傳媒) and the Most Expected Mobile Game Award by Yoyo Net (悠遊網).

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The following table sets forth certain information of our major self-developed IPs licensed to our content adaptation partners in terms of licensing fees generated exceeding RMB0.5 million singly during the Track Record Period:

Total costs paid to writer up Date of IP to the adaptation 31 December Revenue Literary work Type of adaptation agreement 2020 For the year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000 RMB’000

Work A Films and TV series, PC 15 March 2018 3,180 9,434 nil nil and mobile games, animation and other entertainment products

Work B PC and mobile games 25 November 650 nil 16,038 nil 2019

Work C PC and mobile games 25 March 2020 250 nil nil 6,604

Work D Films and TV series, PC 1 December 32 nil 1,698 nil and mobile games, 2019 animation

Work E Films and TV series 1 March 2020 20 nil nil 755

Work F Films and TV series, PC 12 November 31 nil 755 nil and mobile games 2019

Adaptation of our acquired IPs

As at 31 December 2018, 2019 and 2020, our acquired IPs amounted to 113, 169 and 175. We licensed 9, 14 and 55 of our acquired IPs to our content adaptation partners for adaptation for FY2018, FY2019 and FY2020, respectively. It generally takes 18 to 24 months for us to license our acquired IPs to our partners for adaptation after licensing such IPs from the IP holders.

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Set out below are a number of notable examples of adaptation of our acquired IPs:

Name Highlights

Dragon Symbol (龍符) This work was created by Mengru Shenji (夢入神機), who is a member of China Writers Association (中國作家協會) and the deputy chairman of Zhejiang Province Online Writers Association (浙江省網絡作家協會). This literary work has accumulated an online recommendation rate of approximately 31.3 million and a total click rate of over 280 million on the online reading platforms as at the Latest Practicable Date. Our Group acquired the adaptation rights of this literary work in 2018 and licensed its adaptation rights to our cooperating partners, adapting the literary work into mobile games in the same year.

Wulin Hostel (武林客棧) This work was created by Bu Fei Yan (步非煙), who obtained the doctor’s degree from the Chinese Department in Peking University in 2012 and was awarded Wen Rui’an Shenzhouqixia Awards (溫瑞安神州奇俠文學獎) in 2004 and Huang Yi Wuxia Literature Awards (黃易武俠文學獎) in 2005 and 2006. The TV series Tian Wu Ji (天舞紀) was adapted from her literary works, which broadcast on iQIYI online video platform in 2020 and ranked top 5 on the popularity list of iQIYI in July 2020. Wulin Hostel (武林客棧) was published by Word Affairs Press (世界知識出版社) in 2006 and was republished in 2013 due to its popularity.

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Name Highlights

Tian Ying (天影) This work was created by Xiao Ding (蕭鼎), the writer of another well-known literary work Zhu Xian (誅仙). Tian Ying (天影) has accumulated an online recommendation rate of approximately 14.7 million on the online reading platforms of Qidian (起點中文網) as at the Latest Practicable Date and Xiao Ding (蕭鼎) ranked fourth in the Forbes China Original Literature Billboard (福布斯中國原創文學風雲榜) in 2016 by virtue of Tian Ying (天影). We licensed the adaptation rights of Tian Ying (天影) into film and TV drama to our adaptation partner in 2018 which is under the progress of casting and expected to be released in 2022.

The following table sets forth certain information of our major acquired IPs licensed to our content adaptation partners in terms of licensing fees generated exceeding RMB1 million singly during the Track Record Period:

Acquisition costs under the licensing Date of IP agreement Literary adaptation with IP Revenue work Type of adaptation agreement holders For the year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000 RMB’000

Work A Films and TV series, PC 29 January 20,000 nil nil 28,302(1) and mobile games 2018

(4) Work B PC and mobile games, 19 June 2020 1,000 nil nil 11,321 and animation

Work C PC and mobile games and 1 November 10,000(2 and 3) nil nil 7,547 animation 2020

Work D PC and mobile games 4 June 2019 2,000(4) nil 17,453 nil

Work E Films, PC and mobile 5 December 12,000(2) 7,547 3,774 nil games 2018

Work F(5) PC and mobile games 24 August 2,000(2 and 3) 6,604(5) nil nil 2018

Work G PC and mobile games 1 November 2,000(4) nil nil 1,887 2020

Work H PC and mobile games 1 December 2,750(4) nil nil 2,830 2020

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Work I and PC and mobile games 30 November 1,250 nil nil 3,774 Work J(6) 2020

Work K PC and mobile games 1 December 4,500(2 and 4) nil nil 1,887 2020

Notes:

(1) Although we entered into the IP adaptation agreement in FY2018, we only recognized revenue from such adaptation in FY2020 as the condition for payment (i.e. the completion of script adaptation for the film and TV series) was only fulfilled in FY2020.

(2) For these adaptations, we are entitled to share a stipulated percentage of the profits generated from the adapted entertainment products.

(3) For these adaptations, we expect to record revenue in FY2021.

(4) For these adaptations, we hold full copyrights to the relevant literary works. The adaptation rights to the relevant literary works were only licensed to the content adaptation partners in respect of adaptation to those specified above. Other adaptation rights, such as those in respect of film or drama series, have not been licensed by us to other third parties.

(5) Revenue generated for this acquired IP also include two self-developed IPs that are licensed under the same agreement.

(6) These two acquired IPs are licensed under the same agreement.

We have a strong pipeline of IP operations. We expect that 14 adaptations of our self-developed IPs or acquired IPs will be launched by the end of 2022. As at the Latest Practicable Date, two TV series adaptations had started to select actors and 12 game adaptations are applying for the adaptation partner’s internal project approval.

We plan to continue our collaboration with content adaptation partners to extend our reach to more users across different non-book entertainment media formats, so as to unleash the monetisation value of our IPs and to broaden and deepen our revenue streams. We also plan to actively participate in the production, release and promotion process of such adaptations. Further, we have recently established Guangzhou Kaiqi for our potential participation in game development in the future, and we are exploring into possibilities in developing games with our IPs and literary works.

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Online Reading Licensing

We release literary works in our content library on online reading platforms for the dual purpose of marketing and generating revenue of our Group. On one hand, the online reading platforms enable us to promote and recommend the literary works or our cooperating writers to existing and prospective users of the platform, thereby increasing the visibility of such works and writers. On the other hand, we derive revenue from licensing literary works to such platforms at a licence fee and/or under a revenue sharing arrangement under which we share a stipulated percentage of the revenue generated from subscription of literary works provided by our Group.

We have entered into cooperation agreements with popular online reading platforms pursuant to which their registered users are able to access literary works licensed from us. As at the Latest Practicable Date, we had entered into cooperation agreements with 41 online reading platforms. Our major cooperating online reading platforms include iReader (掌閱), Shuqi Reading (書旗小說) and Migu Reading (咪咕閱讀). The online reading platforms publish our literary works on their mobile app, WAP and PC website. The majority of platform’s active users are on mobile. Our cooperating platforms are leading online reading platforms in China according to the F&S Report. Through such platforms, we can further extend the reach of the literary works and thus their visibility to a wider audience.

Historically, we operated our own online reading platform, namely Chuangbie Book City, which we established in 2014 for conducting our online reading business. However, with a view to streamlining our business and focussing on our IP operations and given that (i) revenue generated from Chuangbie Book City had been consistently falling year by year, which only amounted to 12.7%, 1.3% and 0.1% of our total revenue for FY2018, FY2019 and FY2020; and (ii) we consider that it would require operating costs and human resources to develop and/or maintain Chuangbie Book City to compete effectively with the key online reading platforms in the PRC which dominates the market to a large extent, we transferred Chuangbie Book City, including the domain name and other assets associated with the operation of such platform, to Ms. Shi, one of our Controlling Shareholders and non-executive Director, in November 2020. Please see section headed “History and Corporate Structure — Corporate Reorganisation” in this document for further details.

Terms of the cooperation agreements with our cooperating online reading platforms may vary subject to our negotiations with such platforms. Key terms of our typical cooperation agreements include:

Key terms Description

Publication rights : We licence the online publication rights of our literary works to the platform and allow the platform to compile, edit, copy and publish our literary works (or any part thereof) on the platform.

Term : Generally two to five years, renewable upon agreement between the parties. Upon expiry, the relevant literary work will no longer be available on the platform.

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Key terms Description

Payment : We are entitled to a stipulated percentage of the profit (calculated by the platforms after deducting costs) generated from the readers’ payments for subscribing to our literary works on the platform under the cooperation agreement, which generally range from 50% to 70%. For certain platform which offers free subscription to readers, we may be entitled to a stipulated percentage of the advertisement income (net of tax and operating costs) generated from our literary work licensed to the online reading platform.

Promotion : The platform is usually allowed to promote the relevant literary works in order to enhance their popularity and public awareness, such as bundled sales with other works or free reading trials.

Our cooperating writers continue to update their literary works after releasing them on the platforms, which encourages readers to routinely come back to follow the development of the story and also motivates our cooperating writers to update their works on a timely basis. We may also release literary works that we source from other IP holders on the platforms, as long as we have obtained the relevant online publication rights under the licensing agreement. The platforms may cooperate with us to promote our literary works, such as displaying them on the front page with detailed introduction, placing our works in the appropriate ranking table, bundled sales of our works from third parties. With the features detailed above, publication of our literary works on online reading platforms has been instrumental in establishing and expanding the fan base for such works and growing our IP operations.

Investment in the Development and Production of Entertainment Products

Leveraging on our knowledge of the entertainment industry in the PRC, we entered into co-investment agreements with game developers or media production companies during the Track Record Period, pursuant to which we agreed to co-invest with such parties in the production of online games and films, respectively. Following the launch of such products, we are entitled to share a portion of the net income generated, including sales of online games, income from the launch of the drama series or product placement income, as the case may be, in proportion to our investment amount in the development and production of the relevant entertainment products.

We enter into co-investment agreements with game developer or media production companies, which terms may vary on a case-by-case basis subject to our negotiations with the other parties. Typical key terms of such co-investment agreements may include the following:

Key terms Description

Subject matter : We usually provide the literary works for adaptation into games, drama series, films or other forms of entertainment, as the case may be. Our counter-party in the agreement are generally responsible for the production, publication or promotion of the relevant adaptations.

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Key terms Description

Investment amount : We and the cooperating party agree to invest a stipulated investment amount for the adaptation.

Payment : We are entitled to a portion of the net income generated from the adaptation issued under the agreement based on our investment percentage. Such net income may include the income derived from broadcasting the adapted drama series on television, product placement fees or sponsorship fees for a drama series or sales or subscription fees for online games, net of the applicable costs of production.

Intellectual property : We and the cooperating party generally own interests in the intellectual property in the adaptation based on their respective investment percentage under the co-investment agreement, but despite that, we still hold the intellectual property rights in the relevant literary work after adaptation.

During the Track Record Period and up to the Latest Practicable Date, we co-invested in the development of five online games (contractual investment amount ranged from approximately RMB48,000 to RMB6 million) and the production of three drama series (contractual investment amount ranged from approximately RMB12 million to RMB18 million). The following table sets forth certain information of our major on-going co-investments exceeding RMB10 million made as at the Latest Practicable Date:

Total investment Total Date of amount project Expected investment from our investment launch Profit sharing arrangement and Work Type agreement Group amount Status date other material terms

Work X Drama 8 RMB12 RMB240 Production of First half • We are entitled to a share of series December million million the drama series of 2022 the profits (based on the 2020 has been proportion of our investment commenced and in the project) generated is pending from the publication and regulatory commercial developments of approved for the drama series. Payments of publication such amount shall be made periodically to us after the shooting phase of the drama series has been completed according to a schedule stipulated in the agreement.

• The agreement may be terminated upon mutual agreement by the parties.

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Total investment Total Date of amount project Expected investment from our investment launch Profit sharing arrangement and Work Type agreement Group amount Status date other material terms

Work Y (Note) Drama 16 April RMB18 RMB180 Production is Second • Based on the proportion of series 2021 million million expected to half of the our investment in the project, commence in year 2022 we are entitled to a share of July 2021 (i) the revenue (net of production costs) generated from the drama series including any income from global television broadcast, release of audio-visual products, broadcast on public areas or other channels of release; and (ii) subsidies or sponsorship from the government or other organisations. Payments of such amount shall be made periodically to us after the photography phase of the drama series has been completed according to a schedule stipulated in the agreement.

• In the event that the counter-party in the agreement cannot obtain the permit for publication of the drama series, we are entitled to terminate the agreement and receive a full refund of our investment amount.

Note: In FY2020, we co-invested an amount of RMB12 million with a media production company in the production of a drama series based on one of our literary works, whereby we would be entitled to 15% of the income generated from such drama series based on our investment percentage in the production pursuant to the relevant investment agreement. In FY2021, due to prolonged production time for the drama series, the production of such drama series terminated and we have negotiated and agreed with the media production company for the refund of RMB9 million to us which has been settled as at the Latest Practicable Date. The remaining RMB3 million was transferred into the production of Work Y which was produced by the same production company. Other than this amount, we have also invested an additional amount of RMB15 million to the production of Work Y. The production company intends to commence the production of drama series in July 2021 and we estimate that the production of this drama series is expected to complete in the second half of the year 2022.

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OUR CUSTOMERS

During the Track Record Period, our customers are mainly content adaptation partners who license our intellectual property for adaptations and our cooperating online reading platforms where we release our literary works in consideration for licensing fees.

We have had business relationships with our five largest customers for approximately one to seven years as at 31 December 2020, which include major content adaptation partners and online reading platforms. For the years ended 31 December 2018, 2019 and 2020, revenue from our five largest customers accounted for approximately 70.7%, 82.2% and 82.5%, respectively, of our total revenue, and revenue from our largest customer accounted for approximately 29.1%, 60.4% and 31.5%, respectively, of our total revenue for the same periods. We became acquainted and established solid business relationships with our customers primarily attributable to Mr. Chen’s and Ms. Shi’s over 10 years of industry experience, reputation and influence, as well as our core management team’s continuous efforts to explore cooperation opportunities with content adaptation and online reading platforms.

The following table sets forth certain information of our major customers during the Track Record Period.

Year of Percentage business to total Major business Nature of Relationship relationship Customer Revenue revenue activities of customer Revenue with us with us RMB’000 (%)

Year ended 31 December 2020 1. Customer A 28,302 31.5 Engaged in television IP adaptation Independent Third One programming and licensing Party planning and film distribution.

2. Shenzhen Lanyue 14,151 15.8 Registered owner of IP adaptation The sole registered One operating subsidiaries of licensing shareholder of the CMGE Technology operating entities (HKEx: 0302). Engaged controlled by in research and CMGE Technology development of online through the games and providing contractual internet information arrangements services.

3. Shenzhen Golden 11,321 12.6 Engaged in IP operation, IP adaptation Independent Third One Wing Bird television planning, game licensing Party Information releases and sale of game Technology derivatives Company Limited (深圳金翅鳥信息科技有限公司)

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Year of Percentage business to total Major business Nature of Relationship relationship Customer Revenue revenue activities of customer Revenue with us with us RMB’000 (%)

4. Shanghai Dingji 10,377 11.6 Engaged in computer and IP adaptation Independent Third One Technology data processing licensing Party Company Limited technology, sale of (上海鼎極科技有限 communication equipment 公司) and related products.

5. Customer B 9,861 11.0 A direct wholly-owned IP adaptation Independent Third Seven subsidiary of an A-share licensing Party listed company. Engaged in value-added telecommunications services, radio and TV program production.

Year ended 31 December 2019 1. Kaiser (China) 47,642 60.4 Listed on the Shenzhen IP adaptation Independent Third Four Culture Co., Ltd. Stock Exchange (SZSE licensing Party (凱撒（中國）文化股 stock code: 002425). 份有限公司) Engaged in IP operation, (“Shenzhen research and development Kaiser”) of online games.

2. Linzhuxin 4,905 6.2 Engaged in telecom Online Independent Third Two (Shanghai) Culture business, cultural and Reading Party Media Company artistic activities. licensing Limited (琳竹新(上海)文化傳媒有限公司)

3. Beijing 4,717 6.0 Engaged in providing IP adaptation Independent Third Three Boyichuangwei digital reading products licensing Party Digital Media Co., and value-added services Ltd (博易創為（北 of digital contents. 京）數字傳媒股份有限公司)(“Boyi Chuangwei”)

4. Customer C 3,774 4.8 A direct wholly-owned IP adaptation Independent Third Two subsidiary of an A-share licensing Party listed company. Engaged in new media operation, such as IPTV, internet TV and mobile TV.

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Year of Percentage business to total Major business Nature of Relationship relationship Customer Revenue revenue activities of customer Revenue with us with us RMB’000 (%)

5. Shenzhen Haituo 3,774 4.8 Engaged in animation IP adaptation Independent Third Two Shidai Technology design and software licensing Party Company Limited development. (深圳海拓時代科技有限公司)

Year ended 31 December 2018 1. Customer D 17,925 29.1 Engaged in Internet IP adaptation Independent Third Three cultural activities and IP licensing Party operation.

2. Shenzhen Kaiser 9,528 15.5 Listed on the Shenzhen IP adaptation Independent Third Four Stock Exchange (SZSE licensing Party stock code: 002425). Engaged in IP operation, research and development of online games.

3. Horgos Butterfly 7,547 12.3 A subsidiary of Beijing IP adaptation Independent Third Four Effects Culture Butterfly Effects Culture licensing Party Media Company Media Company Limited Limited (霍爾果斯蝴 (北京蠂效應傳媒有限公蝶效應文化傳媒有限司). Engaged in sales of 公司)(“Horgos electronic publications, Butterfly”) films and television planning, IP operation and animation production.

4. Boyi Chuangwei 4,718 7.7 Engaged in providing Online Independent Third Three digital reading products Reading Party and value-added services licensing of digital contents.

5. Beijing Xinghuo 3,774 6.1 Engaged in film and IP adaptation Independent Third Three Jiayuan Culture television programming, licensing Party Media Company IP operation. Limited (北京星火嘉源文化傳媒有限公司)

Mr. Sin Hendrick, directly or indirectly holding [REDACTED]% interests in our Company immediately after the [REDACTED], is a controlling shareholder of CMGE Technology, whilst Shenzhen Lanyue, our second largest customer in FY2020, is the registered shareholder of CMGE Technology’s operating subsidiaries in the PRC. Save as disclosed, as at the Latest Practicable Date, none of our Directors, their respective associates or any shareholders of our Company (who or which to the knowledge of the Directors owned more than 5% of our Company’s issued share capital) had any interest in any of our five largest customers during the Track Record Period.

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OUR SUPPLIERS

During the Track Record Period, our suppliers were mainly IP holders and writers. We have had business relationships with our five largest suppliers for approximately one to five years as at 31 December 2020, which include IP holders, writers and marketing companies from which we receive promotional services. During the Track Record Period, purchases from our five largest suppliers collectively accounted for approximately 64.0%, 88.4% and 92.9% of our total purchases for the years ended 31 December 2018, 2019 and 2020, respectively, and purchases from our largest supplier accounted for approximately 18.3%, 34.7% and 41.5% of our total purchases for the same periods, respectively.

Year of Percentage business Purchase to total Major business Nature of Relationship relationship Supplier amount purchase activities of supplier Purchase with us with us RMB’000 (%)

Year ended 31 December 2020 1. Horgos Butterfly 12,736 41.5 Engaged in sales of Licensing of Independent Third Four electronic publications, online Party films and television literary planning, IP operation works and animation production.

2. Huizhou Kumi 7,406 24.2 Engaged in TV drama Licensing of Independent Third Four Culture Media production, research and online Party Company Limited operation of online literary (惠州市酷米文化傳 games. works 媒有限公司)

3. Shanghai Qinggua 5,660 18.5 Engaged in network Licensing of Independent Third One Internet Technology technology, online Party Company Limited telecommunications literary (上海青瓜網絡科技 business and animation works 有限公司) design.

4. Shanghai Kala 1,887 6.2 Engaged in the Licensing of Independent Third One Information development and online Party Technology promotion of mobile literary Company Limited games. works (上海咖拉信息科技有限公司)

5. Hangzhou Zuoke 755 2.5 Engaged in internet Licensing of Independent Third Three Culture and information services, online Party Broadcasting production and literary Company Limited distribution of TV series works (杭州作客文化傳媒 and cartoons, sales of 有限公司) electronic publications.

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Year of Percentage business Purchase to total Major business Nature of Relationship relationship Supplier amount purchase activities of supplier Purchase with us with us RMB’000 (%)

Year ended 31 December 2019 1. Guangzhou Branch 24,858 34.7 A branch of Horgos Licensing of Independent Third Three of Horgos Shouwang Shouwang Xingkong online Party Xingkong Culture Culture and Broadcasting literary and Broadcasting Company Limited (霍爾 works Company Limited 果斯守望星空文化傳媒有 (霍爾果斯守望星空限公司), which is 文化傳媒有限公司廣 engaged in copyright 州分公司)(“Horgos operation, technology Shouwang”) development of films and television, animation design.

2. Horgos Butterfly 20,755 29.0 Engaged in sales of Licensing of Independent Third Four electronic publications, online Party films and television literary planning, IP operation works and animation production.

3. Wuhan Fanyu 9,434 13.2 Engaged in copyright Licensing of Independent Third Four Information operation, distribution online Party Technology and sales of electronic literary Company Limited publications. works (武漢泛娛信息技術有限公司)

4. Zhongcai Times 4,717 6.6 Engaged in internet Licensing of Independent Third Two Information cultural activities and online Party Technology information service in the literary (Beijing) Company second type of works Limited (中財時代信 value-added 息技術(北京)有限公 telecommunications 司) business.

5. Shanghai Guangke 3,491 4.9 Engaged in IP operation Licensing of Independent Third Two Information and information online Party Technology technology development. literary Company Limited works (上海光可信息技術有限公司)

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Year of Percentage business Purchase to total Major business Nature of Relationship relationship Supplier amount purchase activities of supplier Purchase with us with us RMB’000 (%)

Year ended 31 December 2018 1. Shenzhen Kaiser 11,681 18.3 Listed on the Shenzhen Licensing of Independent Third Five Stock Exchange (SZSE online Party stock code: 002425). literary Engaged in IP operation, works and research and development corresponding of online games. promotion service 2. Iie Star (Beijing) 9,434 14.7 Engaged in research and Licensing of Independent Third Three Tech. Co., Ltd. (星 development of mobile online Party 際互娛(北京)科技股 games. literary 份有限公司) works

3. Supplier A 9,434 14.7 Engaged in sale of online Licensing of Independent Third Three products, online games online Party and copyright operation. literary works

4. Supplier B 5,660 8.8 Engaged in copyright Licensing of Independent Third Three operation and television online Party planning. literary works

5. Horgos Shouwang 4,811 7.5 A branch of Horgos Licensing of Independent Third Three Shouwang Xingkong online Party Culture and Broadcasting literary Company Limited (霍爾 works and 果斯守望星空文化傳媒有 corresponding 限公司), which is promotion engaged in copyright service operation, technology development of films and television, animation design.

As at the Latest Practicable Date, none of our Directors, their associates or any shareholders of our Company (who or which to the knowledge of the Directors owned more than 5% of our Company’s issued share capital) had any interest in any of our five largest suppliers during the Track Record Period.

Overlapping of major customers and suppliers

During the Track Record Period, some of our major customers were also our suppliers which was mainly due to that some of our content adaptation partner customers procuring our IPs were also our suppliers licensing to us the copyrights of their IPs as IP holders. According to the F&S Report, it is common in the IP operation industry that content adaptation partner would not only adapt the IPs into

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Our Directors confirmed that all of our sales to and purchases from these overlapping customers and suppliers were conducted in the ordinary course of business under normal commercial terms and on arm’s length basis. To the best of the knowledge of our Directors, none of our Company, its subsidiaries, their shareholders, directors, senior management, and any of their respective associates has any other past or present relationships, such as business, employment, family or financing, with these overlapping customers and suppliers (save for being our customers or suppliers) during the Track Record Period. Our Directors are of the view that our Group can be benefited from this customer-supplier relationship with our major customers and suppliers where we can make use of our business relationship to maintain and secure a stable sourcing network while enhancing our source of revenue.

Our Directors confirmed that all of our sales to and purchases from overlapping customers and suppliers were incidental transactions, were not inter-conditional, inter-related or otherwise considered as one transaction.

The table below sets forth the breakdown of the revenue generated from and purchases paid to our overlapping customers and suppliers, which was among either our five largest customers or suppliers during the Track Record Period, for the years indicated:

Year of Year ended 31 December Business Transaction 2018 2019 2020 Relationship Relationship Nature Revenue Purchase Revenue Purchase Revenue Purchase with us with us RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Shenzhen Licensing of IPs 9,528 11,681 47,642 60 nil nil Independent Five Kaiser from us as our (15.5%) (18.3%) (60.4%) (0.1%) Third Party (Note) customer/Licensing literary works to us as supplier

Horgos Licensing of IPs 7,547 4,717 2,528 20,755 nil 12,736 Independent Four Butterfly from us as our (12.3%) (6.6%) (3.2%) (29%) (41.5%) Third Party (Note) customer/Licensing literary works to us as supplier

Note: Our Directors also confirmed that none of the IPs we licensed to such overlapping customers/suppliers was the same as those we licensed from them. Bracketed figures in the table above represent the approximate percentage of the relevant revenue from (or purchases paid to) our overlapping customers and suppliers to the total revenue (or purchases) of our Group during the years indicated, as the case may be.

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COMPETITION

China’s online literature IP operation market was dominated by the top player with a market share of 61.5% and the top five players accounted for 82.9% market share in aggregate, in terms of revenue generated from online literature IP operation in 2020. We compete directly with other IP operators. Our competitors may compete with us in a variety of ways, including obtaining exclusive copyrights for popular literary works, widening cooperation with content adaptation partners, conducting brand promotions and other marketing activities, adopting more aggressive pricing policies, and making acquisitions.

Some of our existing and potential competitors have significantly greater financial, technological and marketing resources, stronger relationships with industry participants and a larger portfolio of IP reserves than we do. For further details of our competitors, see “Industry Overview” in this document.

INTELLECTUAL PROPERTY

Intellectual property is fundamental to our success and competitiveness. Under the relevant agreements with our cooperating writers, we purchase on an exclusive basis the copyright of the literary works created by our cooperating writers either at fixed prices or pursuant to revenue-sharing arrangements, under which the writer receives licensing fees based on sales of the writer’s work. Under the relevant licensing agreements with IP holders, we purchase on an exclusive or non-exclusive basis the copyright of the literary works at fixed prices and/or pursuant to revenue-sharing arrangements, under which the IP holder receives royalties based on revenue of other entertainment formats adapted based on the IP. Our cooperating writers generally license all the property rights of the copyright to us in a term of 20 years. The scope of our license from the IP holders typically covers general copyrights, including subsidiary rights, which allows us to license the copyrighted content to our content adaptation partners for adaptation into other media formats.

In terms of adaptation, our license agreements with content adaptation partners allow them to produce adapted works in a specific manner based on our literary content for a fixed period of time, which typically ranges between two to five years. The licensing agreements generally stipulate the deadline for the completion of producing the adapted products. After the expiration of the license term, the agreements typically provide that the licensees can no longer make further adaptations based on our copyrighted materials, or further operate the existing adapted works.

As at the Latest Practicable Date: (i) we had registered or applied for a total of 55 trademarks with the SAMR, and (ii) we had registered copyrights for seven softwares and 13 copyrights of our IPs with Copyright Protection Centre of China. We require our employees to sign a confidentiality agreement which prohibits the unauthorised disclosure of our trade secrets, confidential information and proprietary technologies subject to the terms and conditions of the employment agreement, and we also require our employees to assign to us any invention related to our business that they develop during the course of employment.

We devote efforts to the promotion of intellectual property awareness in China as well as the protection of our rights through legal campaigns. We are part of the drive to promote the legal consumption of copyrighted materials among Chinese consumers.

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AWARDS AND RECOGNITION

During the Track Record Period, we (or our cooperating writers) received various awards and recognitions for the quality and popularity of our literary works, including the following:

Award/Recognition Award date Awarding institution/authority

High-growth Innovative Enterprise 2019 People’s Government of East District, of East District Government (東 Beijing, the PRC (北京市東城區人民政城區政府高成長型創新企業) 府)

The Favourite Capital Youth Online 2016 Beijing Writers Association (北京作家 Literature Award (首都青少年最協會) and the Beijing Internet 喜歡網絡文學作品) (awarded to Information Office (北京市互聯網信息 our literary work Beautiful 辦公室) Marriage (錦繡良婚))

The Excellent Literature of First 2016 Migu Digital Media Co., Ltd. (咪咕數 China Internet Literature 字傳媒有限公司) Competition (首屆中國互聯網文學聯賽優秀作品獎) (awarded to our literary work Dead Notes (葬魂筆記))

Furthermore, in recognition of our achievement in the industry, our Group received support from the PRC governmental bodies in the form of awards or subsidies including the grants from Beijing Science Technology Committee (北京市科學技術委員會), Beijing High-tech enterprise service centre (北京高新技術企業服務中心) and Beijing East District Culture Development Centre (北京市東城區文化發展促進中心).

EMPLOYEES

As at the Latest Practicable Date, we had 61 full-time employees, the majority of whom were based in Beijing and Guangzhou. The following table sets forth the number our employees by function as at the Latest Practicable Date:

Number of Function employees

IP operation 23 Technology 9 Sales and marketing 16 Finance and administration 11 Legal and compliance 2

Total: 61

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Our success depends on our ability to attract, retain and motivate qualified personnel. As part of our human resources strategy, we offer employees competitive salaries, performance based promotion system and other incentives. As a result, we have successfully attracted and retained our core employees since our inception.

We primarily recruit our employees in China through recruitment agencies, on-campus job fairs and online channels including our corporate website and social networking platforms. We provide frequent and systematic training to our employees to better develop their professional skills and believe our structure and corporate culture have contributed to our ability to recruit and retain qualified employees.

As required under PRC laws and regulations, we participate in various employee benefit plans that are organised by municipal and provincial governments, including housing, pension, medical, unemployment, work-related injury and maternity benefit plans. We are required under PRC laws and regulations to make contributions to the employee benefit plans at specified percentages of the salaries, bonuses and certain allowances of our employees, up to a maximum amount specified by the local government from time to time. Bonuses are generally discretionary and based on the overall performance of our business.

We believe that we maintain a good working relationship with our employees and we had not experienced any material labour disputes or any difficulty in recruiting staff for our operations during the Track Record Period and up to the Latest Practicable Date.

INSURANCE

Consistent with customary industry practice in the PRC, we do not maintain business interruption insurance or key employee insurance for our executive officers. We do not maintain any property insurance policies covering equipment and facilities for losses due to fire, earthquake, flood or any other disaster.

PROPERTIES

As at the Latest Practicable Date, we leased 13 properties for use as office in Beijing, Guangdong Province, Shandong Province and Xinjiang Horgos special economic areas in the PRC with lease expiry dates ranging from 30 June 2021 to 31 December 2023. As at the Latest Practicable Date, we did not own any property. We believe that our leased properties are adequate to meet our needs for the foreseeable future, and that we will be able to obtain adequate properties, principally through leasing of additional properties, to accommodate our future expansions.

Pursuant to the applicable PRC laws and regulations, property lease contracts must be registered with the local branch of the housing and real estate authority. As at the Latest Practicable Date, we had not obtained any lease registration for the 13 properties we leased in the PRC, primarily due to the difficulty of procuring our lessors’ cooperation to register such leases. The registration of such leases will require the cooperation of our lessors. We will take all practicable and reasonable steps

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To the best of our knowledge, all of the landlords are Independent Third Parties. The lessors of three of our leased properties had not provided us with valid title certificates or relevant authorisation documents evidencing their rights to lease the properties to us. As a result, these leases may not be valid, and there are risks that we may not be able to continue to use such properties. As advised by our PRC Legal Advisor, if any third party raises claims against the ownership or leasing rights of such properties, our leases in respect of such properties may be affected. In the event that we are not able to continue to use such properties due to the defective titles of such properties, we believe that we will be able to find comparable properties as alternatives.

OCCUPATIONAL HEALTH, WORK SAFETY AND ENVIRONMENTAL PROTECTION

Due to the nature of our business, we are not subject to significant health, safety or environmental risks. To ensure compliance with applicable laws and regulations, from time to time, our human resources department would, if necessary and after consultation with our legal adviser, adjust our human resources policies to accommodate material changes to relevant labour and safety laws and regulations. During the Track Record Period and up to the Latest Practicable Date, we had not been subject to any fines or other penalties due to non-compliance with health, safety or environmental regulations.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE

We are committed to promoting corporate social responsibility and sustainable development and integrating it into all major aspects of our business operations. Corporate social responsibility is viewed as part of our core growth philosophy that will be pivotal to our ability to create sustainable value for our Shareholders by embracing diversity and public interests. Accordingly, our Board of Directors has adopted a comprehensive policy on environmental, social and corporate governance responsibilities (the “ESG Policy”) in accordance with the Listing Rules, which sets forth our corporate social responsibility objectives and provides guidance on practicing corporate social responsibility in our daily operations.

Under our ESG Policy, we aim to build a sustainable community with our employees, customers and business partners by supporting local initiatives that aim to create effective and lasting benefits to the local community, through various initiatives that may include corporate philanthropy, establishing community partnerships, and mobilising our employees to participate in volunteer work.

In addition, we also endeavor to reduce any negative impacts on the environment through our commitment to energy saving and sustainable development. We will also focus on embracing diversity within our organisation and equal and respectful treatment of all of our employees in their hiring, training, wellness and professional and personal development. While maximising equal career opportunity for everyone, we will also continue to promote work-life balance and create a happy culture in our workplace for all of our employees.

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Although our business operations do not directly produce pollutants that directly affect the environment, we have implemented internal policies to reduce our carbon footprint such as reducing the energy consumption through:

• Installing energy efficient lighting and ensuring lights are switched off when out of use either manually or through automatic sensors;

• Requiring double-sided printing of documents throughout our offices;

• Switching off certain IT equipment or automatic power shutdown for certain systems and devices; and

• Air conditioning controls, with measures including requirements on lowest temperature, regular maintenance of air cooling technologies and optimal timing controls.

Our Board has the collective and overall responsibility for establishing, adopting and reviewing the ESG vision, policy and target of our Group, and evaluating, determining and addressing our ESG-related risks at least once a year. Our Board may assess or engage independent third party(ies) to evaluate the ESG risks and review our existing strategy, target and internal controls. Necessary improvement will then be implemented to mitigate the risks.

LICENSES AND PERMITS

Our PRC Legal Advisor advised us that as of the Latest Practicable Date we had obtained all requisite licenses, approvals and permits from the relevant government authorities that are material for our business operations in China. We will renew all such licenses, approvals, permits, registration and filing from time to time to comply with the relevant laws and regulations.

LEGAL PROCEEDINGS AND COMPLIANCE

Legal proceedings

During the Track Record Period and up to the Latest Practicable Date, we were not involved in any actual or pending legal, arbitration or administrative proceedings (including any bankruptcy or receivership proceedings) that we believe is likely to have a material adverse effect on our business, results of operations, financial condition or reputation.

− 161 − Non-compliance incidents SECTION THE WITH DOCUMENT. CONJUNCTION THIS OF IN COVER AND READ THE CHANGE ON BE TO “WARNING” SUBJECT MUST HEADED AND INFORMATION INCOMPLETE FORM, THE DRAFT THAT IN IS DOCUMENT THIS As advised by our PRC Legal Advisor, our Directors confirm that, save as disclosed below, our Group had conducted our operations and carried out our business in compliance with the relevant laws and regulations in the PRC during the Track Record Period and up to the Latest Practicable Date in all material aspects:

Non-compliance incident Underlying cause(s) Relevant laws and regulations Potential impact on our Group Internal control measures adopted

Failure to make social insurance fund contributions and housing provident fund contributions in full in the PRC in full compliance with the Social Insurance Law and the Housing Provident Fund Regulations

During the Track Record The non-compliance in According to the Social Insurance With respect to the failure to make adequate social We intend to terminate the third party Period and as at the Latest relation to the shortfall in Law, enterprises are obliged to apply insurance, the amount of the unpaid portion of social payment arrangement and our PRC Practicable Date, (i) we payment was due to for social insurance registration with insurance for FY2018, FY2019 and FY2020 were subsidiaries intend to open the housing failed to make adequate inadvertent administrative local social insurance agencies and approximately RMB96,312, RMB239,842, and RMB25,681, provident accounts as and when we establish social insurance and oversight by a former pay premiums on behalf of their respectively. Our PRC Legal Advisor advised us that for the local branch offices where the employees housing provident fund responsible administrative employees by reference to their outstanding social insurance contribution that accumulated are located. Our Directors expect to contribution as required by staff of the applicable PRC actual income. If an enterprise fails during and after the Track Record Period, the late payment complete the above by the end of FY2021. relevant PRC laws and laws and regulations to pay the required premiums on fee equals to 0.05% of the outstanding amount calculated regulations; and (ii) certain relating to social insurance time or in full, the authorities in daily starting from the date the relevant insurance funds We have also adopted or will adopt the of our PRC subsidiaries fund and housing provident charge will demand the enterprise to became payable. If we fail to make such payments within a following on-going measures: failed to open housing fund contributions. settle the overdue amount within a stipulated period, we may be liable to a fine of one to three provident fund accounts stipulated time period and impose a times the outstanding contribution. • we have provided and will continue to which did not fully comply 0.05% overdue fine per day from the provide regular trainings to our with provisions of the date on which the payment is With respect to the failure to make adequate housing employees in relation to social insurance Social Insurance Law of overdue. If the overdue amount is provident fund contribution, the amount of the unpaid fund and housing provident fund the PRC (《中華人民共和 still not settled within the stipulated portion of housing provident fund for FY2018, FY2019 and contributions compliance requirements 國社會保險法》) (the time period, an additional fine in an FY2020 were approximately RMB76,180, RMB170,514 and and the relevant laws and regulations; BUSINESS “Social Insurance Law”) amount of one to three times of the RMB159,989, respectively. Our PRC Legal Advisor advised 6 − 162 − and the Regulations on the overdue amount will be imposed. us that the housing provident fund management centre shall • we have adopted a set of internal Administration of Housing order the company that is overdue in the payment and policies in relation to social insurance Provident Fund of the PRC According to the Housing Provident deposit of, or underpays the housing provident fund, to fund and housing provident fund (《中華人民共和國住房公 Fund Regulations, enterprises must make the payment and deposit within a prescribed time contribution; 積金管理條例》) (the register with the competent limit, failing which the housing provident fund management “Housing Provident Fund managing center for housing funds centre may ask the court to take enforcement measures • the calculation of the social insurance Regulations”). We engaged and open an account in a bank for against such company to collect the outstanding housing fund and housing provident fund would a third party payment agent the deposit of employees’ housing provident fund. be prepared by administrative to make contributions of funds. Employers are required to department and be reviewed by our social insurance and contribute, on behalf of their With respect to the failure to open housing provident fund finance department on a monthly basis housing provident fund employees, to housing funds on time accounts, our PRC Legal Advisor advised that, pursuant to in order to mitigate the risk of material contributions on its behalf and in full. Any employer who fails the relevant PRC laws and regulations, our subsidiaries may non-compliances with relevant laws and because the involved to fully contribute may be ordered to be ordered to rectify the non-compliance within a prescribed regulations; and subsidiaries were not able make up the difference within a time limit. We may be ordered to pay a penalty between to open local deposit stipulated time limit, and the RMB10,000 and RMB50,000 for each of our subsidiaries • after the [REDACTED], we will disclose accounts for the purpose of provident fund administration center that failed to open housing provident fund accounts within a in our annual reports on the outstanding social insurance fund and may apply to the People’s Court for prescribed time limit. amount of the social insurance fund and housing provident fund for mandatory enforcement against those housing provident fund and state certain of its employees, who still fail to comply after the As at 31 December 2020, we made a provision of whether a provision has been made. which was not in expiry of such period. approximately RMB768,521 to cover the shortfall in social compliance with the insurance and housing provident fund contribution during aforesaid regulations. the Track Record Period. We estimate that the As at the Latest Practicable Date, we had not received any shortfall in social insurance notice or demand from any competent authorities ordering fund and housing provident us to make retrospective payments or any differences of the fund contributions payments for the social insurance fund and housing amounted to approximately provident fund contributions. We were also not aware of any RMB172,493, RMB410,357 employee’s complaints or demands for payment of social and RMB185,671 for the insurance or housing provident fund considerations. three years ended 31 December 2018, 2019 and Based on the above, our Directors, as advised by our PRC 2020, respectively. Legal Advisor, are of the view that the non-compliance incidents in relation to social insurance fund and housing provident fund contributions will not have a material adverse impact on our Group’s operations and financial conditions. 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RISK MANAGEMENT

We have devoted ourselves to establishing and maintaining risk management and internal control systems consisting of policies and procedures that we consider to be appropriate for our business operations, and we are dedicated to continuously improving these systems.

We have adopted and implemented comprehensive risk management policies in various aspects of our business operations such as financial reporting, information system, internal control, human resources and investment management.

Financial reporting risk management

We have in place a set of accounting policies in connection with our financial reporting risk management, such as financial report management policies, budget management policies, financial statements preparation policies and financial department and staff management policies. We have various procedures in place to implement accounting policies, and our financial department reviews our management accounts based on such procedures. We also provide regular training to our financial department staff to ensure that they understand our accounting policies.

As at the Latest Practicable Date, our finance and administration department consisted of 11 employees. It is headed by our chief financial officer, who has more than 11 years of experience in accounting management.

Information system risk management

We have adopted procedures, such as regular system check, password policy, user authorisation review and approval and data back-up, as well as data recovery test, to safeguard our information assets and ensure the proper management of our operational data. During the Track Record Period and up to the Latest Practicable Date, we did not experience any material information leakage or loss of data.

Compliance risk management

We have designed and adopted strict internal procedures to ensure the compliance of our business operations with the relevant rules and regulations. In accordance with these procedures, our legal and compliance department, which consists of two employees, performs the basic function of reviewing and updating the form of contracts we enter into with our customers and suppliers.

Our legal and compliance department examines the contract terms and reviews all relevant documents for our business operations, including licenses and permits obtained by the counterparties to perform their obligations our business contracts and all the necessary underlying due diligence materials, before we enter into any contract or business arrangements.

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We also have in place detailed internal procedures to ensure that our legal and compliance department reviews our products and services, including upgrades to existing products, for regulatory compliance before they are made available to the general public. Our legal and compliance department is responsible for obtaining any requisite governmental pre-approvals or consents, including preparing and submitting all necessary documents for filing with relevant government authorities within the prescribed regulatory timelines.

Human resources risk management

We provide regular and specialised training tailored to the needs of our employees in different departments. We have in place an employee handbook approved by our management and distributed to all our employees, which contains internal rules and guidelines regarding best commercial practice, work ethics, fraud prevention mechanism, negligence and corruption.

We provide employees with trainings and resources to explain the guidelines contained in the employee handbook. We also have in place an anti-corruption policy to safeguard against any corruption activities. The policy explains potential corruption conducts and our anti-corruption measures. We make our internal reporting channel open and available for our staff to report any corruption acts, and our staff can also make anonymous reports. Our human resources and administrative department liaises with legal and compliance department to investigate the reported incidents and take appropriate measures.

Audit committee experience and qualification and Board oversight

We [have established] an audit committee to monitor the implementation of our risk management policies on an ongoing basis to ensure that our internal control system is effective in identifying, managing and mitigating risks involved in our business operations. The audit committee consists of three Directors, namely Mr. Liu Xin, Ms. Shi Renkai and Hon. Quat Elizabeth (JP). Mr. Liu Xin and Hon. Quat Elizabeth (JP) are independent non-executive Directors and Ms. Shi Renkai is a non-executive Director. Mr. Liu Xin is the chairman of the audit committee. For the professional qualifications and experiences of the members of our Audit Committee, see “Directors and Senior Management — Directors.”

Our legal and compliance department is responsible for reviewing the effectiveness of internal controls and reporting to the audit committee on any issues identified. Members of legal and compliance department hold regular meetings to discuss any internal control issues we face and the corresponding measures to implement toward resolving such issues. The legal and compliance department reports to the audit committee to ensure that any major issues identified thus are channeled to the committee on a timely basis. The audit committee then discusses the issues and reports to our Board if necessary.

Content screening and monitoring

We place strong emphasis on content screening and monitoring to ensure that our literary works do not contain any obscene or pornographic content or any information that may jeopardise the quality of our literary works and that the publication and distribution of our literary content fully comply with the applicable laws and regulations. We require our cooperating writers to represent that their content

− 164 − THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. BUSINESS is not plagiarised from others before posting it on our platform and we require writers with whom we sign licensing agreements to indemnify us against any violations by the writers of their contractual obligations. Our online content screening and monitoring procedures include both a proprietary, automated screening system as well as a set of manual review procedures conducted by our editors who are familiar with the content.

All user-generated literary content and comments are first screened by our automated filtering system, which identifies and flags suspicious content for further action based on a regularly updated repository of keywords, according to the latest laws and regulations in China. All flagged content identified by our first stage automated content screening process is reviewed and confirmed by editors before it can be published on our platform. Content that has been rejected or removed by our content screening and monitoring procedures are sent back to the writers, which can be re-submitted after revisions are made to our satisfaction. Content that passes the automated screening process is still subject to manual review by our editors.

We regularly communicate with the relevant governmental agencies in China to obtain clear guidance on the relevant laws and regulations to ensure compliance. Our editors are provided systematic training in the latest compliance know-how, and we closely supervise the screening and monitoring work performed by our staff.

Investment risk management and treasury policy

Our investment strategy is to invest in or acquire businesses that are complementary to our business, such as businesses that can expand our content library or IP reserve and business that possess adaptation capabilities. We draw up an annual investment plan in accordance with our business strategies with inputs from various business departments. We also set aside an annual investment budget based on our overall financial conditions. Our Board together with our chief financial officer will periodically review our annual investment plan with reference to, among other things, our investment performance, cashflow position, business strategies, changes in market trends, investment risks as well as historical and estimated rates of returns of investments and we may adjust our investment plan as and when appropriate.

Once we have identified a target company for investment, our senior management will present them to our Board for preliminary approval. After obtaining the preliminary approval, our compliance department then prepares and circulates term sheet, which set out the principal investment terms including, among other things, investment amount, percentage of shares to be acquired and preference rights, to the target company. Once the term sheet has been mutually agreed by the target company and us, the department will conduct legal, business, financial and operational due diligence on the target companies, and draft investment agreement will be prepared based on the agreed term sheets. Our senior management will discuss the results of due diligence and the risks involved in the investment in the target companies. Any proposed investment will be submitted to our Board for approval if the investment amount involved exceeds RMB1 million. In addition, our senior management will be responsible for monitoring the performance of each investment on a regular basis and where material risks have been identified with the investments, they will consider taking appropriate actions for addressing the risks, such as exercising any exit or termination rights available. During the Track Record Period, we entered into co-investment agreements with game developers or media production companies, pursuant to which we agreed to co-invest with such

− 165 − THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. BUSINESS parties in the production of IP-based online games, drama series and films respectively. When selecting investment targets and co-investment partners for the development of entertainment products, we follow similar procedures as set out above. We would consider various factors, including but not limited to the track record of the adaptation partners and the entertainment products they developed, the latest market trends for the relevant entertainment product and genre of the IPs involved, the fan base of the relevant IPs as well as the overall feasibility of the product development. In respect of such investments, we would seek approval from our Board and our legal and compliance department would conduct due diligence on the investments. Following our co-investment in the development of the entertainment products, our IP operations department and our legal and compliance department would periodically review the status of the development and usage of our investments and discuss with the adaptation partners on the progress and latest schedule for the development.

With our surplus cash on hand, we make term deposits, which are bank deposits with original maturities over three months. Our finance department, under the supervision of our chief financial officer, is responsible for managing our short-term investment activities. Before making a proposal to invest in wealth management products, our finance department must assess our cash flow and operational needs and capital expenditures. If the cash flow exceeds our operational needs and appropriate short-term investment opportunities are available, the finance department will submit the investment proposal to our senior management for approval.

Ongoing measures to monitor the implementation of risk management policies

Our audit committee, internal audit department and senior management together monitor the implementation of our risk management policies on an ongoing basis to ensure our policies and implementation are effective and sufficient.

INTERNAL CONTROL

In preparation for the [REDACTED], we had engaged in May 2020 an independent internal control adviser to perform an internal control review (the “IC Review”) of our internal control system within the agreed scope which covers areas such as corporate governance, risk assessment, financial systems, project management and information system. During the IC Review, the internal control adviser identified a number of findings in relation to our internal control policies and procedures mainly with respect to internal control monitoring and regulatory compliance policies and systems pursuant to which we have taken the internal control enhancement measures recommended by the internal control adviser, such as enhanced trade receivable and trade payables management policies, strengthened our human resources management and the division of responsibility, stricter anti-corruption and bribery and anti-money laundering practices and adoption of financial reporting and information disclosure procedures. The internal control adviser performed a follow-up review on the enhancement measures taken by us in response to the findings and enhancement recommendations from the internal control adviser. After considering the implementation of the enhancement measures and the result of such follow-up review, our Directors are satisfied that our internal control system is adequate and effective for our current operational environment.

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RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

OUR CONTROLLING SHAREHOLDERS

Immediately after completion of the [REDACTED] and the [REDACTED], assuming that the [REDACTED] is not exercised and no Shares are allotted and issued under the Share Option Scheme, Ms. Shi and Mr. Chen will be interested in and control, indirectly through Yutang Investment, Renkai Investment and Xiangzhen Investment, [REDACTED]% and [REDACTED]% of our issued share capital, respectively. Ms. Shi and Mr. Chen are co-founders of our Group and are our non-executive Director and executive Director, respectively. Mr. Chen and Ms. Shi are parties acting in concert. Yutang Investment and Renkai Investment are investment holding companies wholly owned by Ms. Shi and Xiangzhen Investment is an investment holding company wholly owned by Mr. Chen. As such, Ms. Shi, Mr. Chen, Yutang Investment, Renkai Investment and Xiangzhen Investment are together entitled to exercise or control the exercise of 30% or more of the voting power at general meetings of our Company and are thus regarded as a group of Controlling Shareholders under the Listing Rules, and they are parties acting in concert pursuant to the Acting in Concert Confirmation. Please see the section headed “Directors and Senior Management” for further details of the background of Ms. Shi and Mr. Chen.

ACTING IN CONCERT CONFIRMATION

On 29 March 2021, Yutang Investment, Renkai Investment, Xiangzhen Investment, Ms. Shi and Mr. Chen entered into the Acting in Concert Confirmation, pursuant to which Ms. Shi and Mr. Chen confirmed that they had been acting in concert with each another since they have become the shareholders of Beijing Kaixing and would continue to act in the same manner in our Group after the [REDACTED] until the Acting in Concert Confirmation is terminated in writing. Our Controlling Shareholders also have undertaken that, among other things, (i) they shall continue to collectively exercise their voting rights on the resolutions to be passed at the general meetings of our Company and its subsidiaries; and (ii) they shall continue to act collectively on all major decisions of our Group.

NO COMPETITION AND DELINEATION OF BUSINESS

We are principally engaged in IP operation focusing on sourcing and developing online literary works for adaptation into various entertainment formats. During the Track Record Period, our revenue were primarily derived from licensing IP adaptation rights to our content adaptation partners and licensing literary works for publication on third party online reading platforms.

As at the Latest Practicable Date, Ms. Shi, one of our Controlling Shareholders, held 92% equity interest in, and served as a director of, Beijing Guixin, a company principally engaged in the operation of the Chuangbie Book City. As part of our Reorganisation, with a view to devoting more resources on strengthening our competitiveness in the fast growing IP operations industry, our Group transferred the Chuangbie Book City to Beijing Guixin in November 2020. Please see section headed “History, Reorganisation and Corporate Structure — Corporate Reorganisation” in this document for further details of the transfer. Chuangbie Book City was an online reading platform which we set up in 2014 for writers to publish their literary work and it generated revenue from fees charged on users for subscribing to contents published on the online reading platform. During the Track Record Period and

− 167 − THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. RELATIONSHIP WITH CONTROLLING SHAREHOLDERS rup to the date of transfer, Chuangbie Book City had no material non-compliance with the applicable laws and regulations in the PRC. The Controlling Shareholders confirmed that they currently have no intention to inject the Chuangbie Book City into our Group in future as such business is not our business focus.

Our Directors are of the view that the principal business of our Group is clearly delineated from that of Beijing Guixin and there is no material competition between Beijing Guixin and the principal business of our Group for the following reasons:

• Different target customers. Given that our principal business comprises our IP adaptation licensing segment and our online reading licensing segment, our customers are mainly content adaptation partners who license our intellectual property for adaptations and our cooperating online reading platforms where we license our literary works to online reading platforms return in return for licensing fees. In contrast, with the Chuangbie Book City being an online reading platform, its target customers are the users of the platform, from which it charges subscription fees.

• Different business models and services offered. We are principally engaged in IP operations whereby we source or develop literary work for licensing to our content adaptation partners to adapt into films, TV and web series, animations or other entertainment formats or for license our literary works to online reading platforms. While we focus on IP operations and do not operate an online reading platform, Beijing Guixin primarily operates the Chuangbie Book City, a platform which licenses literary works from third parties or writers for publication and charges subscription fees from users.

Save as disclosed above, none of our Controlling Shareholders and/or Directors was, as at the Latest Practicable Date, interested in any business which competes, or is likely to compete, directly or indirectly with the business of our Group and would otherwise require disclosure under Rule 8.10 of the Listing Rules.

INDEPENDENCE FROM OUR CONTROLLING SHAREHOLDERS

Our Directors consider that our Company is capable of carrying on our business independent from our Controlling Shareholders and their close associates after [REDACTED] for the following reasons:

Management independence

Our management and operational decisions are made by our Board and senior management. Our Board comprises two executive Directors, three non-executive Directors and three independent non-executive Directors. Please see section headed “Directors and Senior Management” in this document for further details. Ms. Shi and Mr. Chen, our Controlling Shareholders, are our non-executive Director and executive Director, respectively.

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Each of our Directors is aware of his/her fiduciary duties as a Director of our Company which require, among other things, that he/she acts for the benefit and in the best interests of our Company and does not allow any conflict between his/her duties as a Director and his/her personal interest. In the event that there is a potential conflict of interest arising out of any transaction to be entered into between our Group and our Directors or their respective associates, the interested Director(s) shall abstain from voting at the relevant board meetings of our Company in respect of such transactions and shall not be counted in the quorum. Although Ms. Shi and Mr. Chen are our Directors, the management and operational decisions are made by all of our executive Directors and senior management, most of whom have served in our Group for a long time and all of whom have substantial experience in the industry in which we are engaged and/or in their respective fields of expertise. Save for Ms. Shi who has served as a director in Beijing Guixin, our Directors and senior management members do not hold any role as a director or member of senior management in any close associates of our Controlling Shareholders.

Our Directors are of the view that our Board and senior management are able to manage our business independently from the Controlling Shareholders and their close associates for the following reasons:

(i) the daily management and operation of our Company is managed by our senior management and overseen by our executive Directors. Our executive Directors and senior management members do not hold any role as director or member of senior management in any close associates of our Controlling Shareholders;

(ii) despite holding the position of director in Beijing Guixin, Ms. Shi is our non-executive Director and therefore is not involved in the daily management and operation of our Company;

(iii) according to the Articles of Association, with respect to any matters of conflict or potential conflict of interest which involve a transaction between our Company and another company or entity to which a Director holds office, such Director shall abstain from voting and shall not be counted towards the quorum for the voting;

(iv) apart from Mr. Chen and Ms. Shi, we have another two non-executive Directors and [appointed] three independent non-executive Directors with a view to promote the interests of our Company and our Shareholders as a whole. Accordingly, our Controlling Shareholders, namely Ms. Shi and Mr. Chen, only constitute two out of eight Directors on our Board. The independent non-executive Directors will be entitled to engage professional advisers at our cost for advice on matters relating to any potential conflict of interest arising out of any transaction to be entered into between our Company and our Directors or their respective associates;

(v) according to the Articles of Association, where a Shareholders’ meeting is held to consider a proposed transaction in which the Controlling Shareholders have a material interest, the Controlling Shareholders shall abstain from voting on the resolutions and shall not be counted towards the quorum for the voting; and

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(vi) our Company has appointed Soochow Securities as our compliance adviser, which will provide advice and guidance to our Company in respect of compliance with the applicable laws and Listing Rules including various requirements relating to Directors’ duties and corporate governance.

Operational independence

We make operational decisions independently. We have established our own organisational structure with independent departments, and each department is assigned to specific areas of responsibilities. We maintain a set of comprehensive internal control measures to facilitate the effective operation of our business. Our operating functions, such as cash and accounting management, invoices and bills, operate independently of our Controlling Shareholders and its associates. We have independent access to suppliers and customers and are not dependent on our Controlling Shareholders and their close associates. We have our own employees to operate our business and can independently manage our human resources. We have obtained the relevant licenses, approvals and permits from the relevant regulatory authorities that are material to our operations in the PRC.

As disclosed above, our Group transferred the Chuangbie Book City, including the domain name and other assets associated with the operation of such platform, to Beijing Guixin in November 2020 as part of our Reorganisation. Following the transfer of such platform to Beijing Guixin, we have continued to license our literary works to such platform and have entered into an online reading licensing agreement with Beijing Guixin on [●] 2021. Please refer to the section headed “Connected Transactions” in this document for further details of such agreement. Taking into account that (i) Chuangbie Book City is only one of the 41 online reading platforms with which we have cooperated with as at the Latest Practicable Date; (ii) revenue generated from Chuangbie Book City had been consistently falling year by year, which only amounted to 12.7%, 1.3% and 0.1% of our total revenue for FY2018, FY2019 and FY2020, respectively; and (iii) the contribution from our online reading licensing business, which generated 31.9%, 18.1% and 7.2% of our total revenue for FY2018, FY2019 and FY2020, respectively, our Group is capable of operating independently from Chuangbie Book City.

Based on the above, our Directors are of the view that we are able to function and operate independently of our Controlling Shareholders and their respective close associates.

Financial independence

We have established an independent accounting and finance department and an independent internal control system. Our accounting and finance functions are independent of our Controlling Shareholders, and we can make financial decisions independently. In addition, we have adequate internal resources to support our daily operations, and we believe we are capable of obtaining financing from Independent Third Parties without relying on any guarantee or security provided by our Controlling Shareholders or their respective close associates.

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During the Track Record Period, there were certain non-trade amounts due to our Controlling Shareholders or their close associates and certain loans of our Group which were guaranteed by one of our Controlling Shareholders. Such amounts and guarantees have been settled and released as at the Latest Practicable Date. Please refer to the paragraphs headed “Indebtedness” and “Related Party Transactions” in the section headed “Financial Information” for further details of such transactions. As at the Latest Practicable Date, there were no other outstanding loans, advances or non-trade balances due to or from our Controlling Shareholders or their respective close associates, nor were there any other outstanding pledges or guarantees provided for our benefit by our Controlling Shareholders or their respective close associates. Based on the above, our Directors are satisfied that we are able to maintain financial dependence from our Controlling Shareholders and their close associates.

NON-COMPETE UNDERTAKING

Our Controlling Shareholders [have executed] the Deed of Non-competition dated [●] in favour of our Company. Pursuant to the Deed of Non-competition, our Controlling Shareholders have jointly and severally, unconditionally and irrevocably undertaken that they will not, and will use their reasonable endeavours to procure that their respective close associates will not, other than through their interests in our Group, directly or indirectly, carry on, engage, invest, participate or otherwise be interested in any business which competes or is likely to compete with the principal business currently carried on by any member of our Group, namely IP adaptation licensing and online reading licensing in the PRC (the “Restricted Business”).

Notwithstanding the foregoing, each Controlling Shareholder and his/her/its close associates may conduct any of the following:

(a) carry on, engage, invest, participate or otherwise be interested in such Restricted Business where the opportunity to carry on, engage, invest, participate or otherwise be interested in such Restricted Business has first been offered or made available to our Company, and our Company, after decision by our independent non-executive Directors and approval by our Board and, where required, Shareholders pursuant to the relevant laws and regulations (including but not limited to the Listing Rules), has declined such opportunity, provided that the principal terms by which any of our Controlling Shareholders or any of their respective close associates subsequently engages, invests, participates or otherwise is interested in such Restricted Business are not more favourable in any material aspect than those offered or made available to our Company;

(b) in aggregate, have interests in shares or other securities representing not more than 10% of a company (other than our Company) conducting any Restricted Business whose shares are listed on the Stock Exchange or any other stock exchange provided that none of the relevant Controlling Shareholder and his/her/its close associates is/are (together or alone) in a position to control the board of directors of such company and that none of the relevant Controlling Shareholder and his/her/its close associates is/are (together or alone) the single largest shareholder of such company; and

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(c) in aggregate, have interests in the shares or other securities of a company (other than our Company) which is listed on the Stock Exchange or any other stock exchange provided that any Restricted Business conducted or engaged in by such company (and assets relating thereto) accounts for less than 5% of that company’s consolidated turnover or consolidated assets, as shown in that company’s latest audited accounts.

Pursuant to the Deed of Non-competition, the deed shall take effect from the date on which the Shares are listed and from which dealings therein are permitted to take place on the Main Board of the Stock Exchanges; and shall be terminated upon the earlier of the day on which (a) our Controlling Shareholders and/or their respective close associates in aggregate cease to hold 30% or more of our Company’s entire issued share capital or otherwise cease to be our Controlling Shareholders; or (b) our Shares cease to be listed and traded on the Stock Exchange.

CORPORATE GOVERNANCE MEASURES

Our Company will adopt the following corporate governance measures to manage the potential conflict of interests between us and our Controlling Shareholders, and to safeguard the interests of our Shareholders:

(a) our independent non-executive Directors will review, at least on an annual basis, compliance with non-compliance undertakings by our Controlling Shareholders under the Deed of Non-competition;

(b) our Controlling Shareholders have undertaken that they will and will procure their subsidiaries and their close associates to provide all information requested by our Company which is necessary for the annual review by our independent non-executive Directors and the enforcement of the Deed of Non-competition;

(c) we will disclose any decisions on matters reviewed by our independent non-executive Directors relating to compliance and enforcement of the Deed of Non-competition either through our annual report or by way of announcement;

(d) we will disclose in the corporate governance report of our annual report on how the terms of the Deed of Non-competition have been complied with and enforced;

(e) in the event that any of our Directors and/or their respective associates has material interest in any matter to be deliberated by our Board in relation to compliance and enforcement of the Deed of Non-competition, he/she may not vote on the resolutions of our Board approving the matter and shall not be counted towards the quorum for the voting pursuant to the applicable provisions in the Articles of Association;

(f) where a Shareholders’ meeting is held for considering proposed transaction in which any of the Controlling Shareholders has a material interest, the Controlling Shareholder(s) shall abstain from voting on the resolutions and shall not be counted in the quorum for the voting;

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(g) any transaction between (or proposed to be made between) our Group and the connected persons will be subject to the requirements under Chapter 14A of the Listing Rules, including, where applicable, the announcement, reporting, annual review, circular (including independent financial advice) and independent Shareholders’ approval requirements and with those conditions imposed by the Stock Exchange for the granting of waiver from strict compliance with relevant requirements under the Listing Rules; and

(h) our Company has appointed Soochow Securities as our compliance adviser, which will provide advice and guidance to our Group in respect of compliance with the applicable laws and Listing Rules including various requirements relating to Directors’ duties and corporate governance.

Our Directors consider that the above corporate governance measures are sufficient to manage any potential conflict of interests between our Controlling Shareholders and their respective associates and out Group to protect the interest of our Shareholders, in particular, the minority Shareholders.

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OVERVIEW

Our Group has entered into certain agreements with persons and entities that will, upon [REDACTED], become our Company’s connected persons (as defined under Chapter 14A of the Listing Rules). Following the [REDACTED], the transactions contemplated under such agreements will continue and constitute continuing connected transactions of our Group under Chapter 14A of the Listing Rules.

CONNECTED PERSONS

In respect of the continuing connected transactions disclosed below in this section, the table below sets forth certain parties who will become our connected persons upon the [REDACTED] and the nature of their relationship with our Group:

Connected person Connected relationship

Ms. Shi a non-executive Director and a Controlling Shareholder

Beijing Guixin a company owned as to 92% by Ms. Shi and hence an associate of Ms. Shi

FULLY-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Online Reading Licensing Framework Agreement

Beijing Guixin acquired Chuangbie Book City from our Group in November 2020. For details, please refer to section headed “History, Reorganisation and Corporate Structure — Corporate Reorganisation” in this document. Chuangbie Book City is an online reading platform for publishing the online literatures that it licenses from the content providers. Before the transfer of Chuangbie Book City, we place our literary works on this platform to generate revenue from the readers and promote our works, and we expect such arrangements to continue after [REDACTED].

To regulate such arrangements after [REDACTED], on [REDACTED], we entered into an online reading licensing framework agreement with Beijing Guixin, pursuant to which we will license our literary works to Beijing Guixin for a term starting from the [REDACTED] and ending on [31 December 2023], subject to renewal upon the mutual consent of both parties (the “Online Reading Licensing Framework Agreement”). The licensing fee payable to us under the agreement will be calculated based on [50]% of the subscription fees paid to Chuangbie Book City in respect of the literary works we licensed to such platform. Such rate was determined with reference to the rates charged under our cooperation arrangements with other third party online reading platforms.

The terms of the Online Reading Licensing Framework Agreement were arrived at after arm’s length negotiations between our Group and Beijing Guixin with reference to the terms of our cooperation with other online reading platforms. The transactions contemplated under the Online Reading Licensing Framework Agreement are conducted on normal commercial terms and in the ordinary and usual course of business of our Group.

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Proposed annual caps

We estimate that the licensing fees to be paid by Beijing Guixin to us for licensing our literary works for the three years ending 31 December 2023 shall not exceed the proposed annual caps as set out in the table below:

For the year ending 31 December 2021 2022 2023 RMB’000 RMB’000 RMB’000

Beijing Guixin 200 200 200

Basis of annual caps

In arriving at the above annual caps, our Directors have considered (i) the percentage of subscription fees payable to our Group as stipulated under the Online Reading Licensing Framework Agreement; and (ii) the number of literary titles we have licensed to Chuangbie Book City and those we expect to license to such platform for the three years ending 31 December 2023.

Listing Rules implications

Since each of the relevant percentage ratios (other than the profit ratio) under the Listing Rules in respect of the Online Reading Licensing Agreement is expected to be less than 0.1%, the Online Reading Licensing Agreement constitutes de minimis transaction which will be exempted from the annual reporting, annual review, announcement and independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules.

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AUTHORISED AND ISSUED SHARE CAPITAL

The following is a description of the authorised share capital of our Company in issue and to be issued as fully paid or credited as fully paid immediately prior to and following the completion of the [REDACTED] and the [REDACTED]

Authorised share capital

HK$

[REDACTED] Shares of [HK$0.01] each [REDACTED]

Issued and to be issued, fully paid or credited as fully paid, immediately upon completion of the [REDACTED] and the [REDACTED]

Assuming the [REDACTED] is not exercised and without taking into account any Shares which may allotted and issued upon the exercise of the [REDACTED] and any options which may be granted under the [REDACTED], the issued share capital of our Company immediately following the completion of the [REDACTED] and the [REDACTED] will be as follows:

HK$

[REDACTED] Shares in issue at the date of this document [REDACTED] [REDACTED] Shares to be issued pursuant to the [REDACTED] [REDACTED] [REDACTED] Shares to be issued pursuant to the [REDACTED] [REDACTED]

[REDACTED] Shares in total [REDACTED]

Assuming the [REDACTED] is exercised in full and without taking into account any Shares to be issued upon the exercise of any options granted under the [REDACTED], the issued share capital of our Company immediately following the completion of the [REDACTED] and the [REDACTED] will be as follows:

HK$

[REDACTED] Shares in total [REDACTED]

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ASSUMPTIONS

The above tables assume that the [REDACTED] becomes unconditional and Shares are issued pursuant to the [REDACTED]. It takes no account of any Shares to be issued upon the exercise of any share options granted under the Share Option Scheme or any Shares which may be issued or repurchased by us under the general mandates granted to our Directors as described below.

MINIMUM PUBLIC FLOAT

Pursuant to Rule 8.08 of the Listing Rules, at least 25% of the total number of issued Shares must at all times be held by the public. The [REDACTED] represent 25% of the total number of Shares upon [REDACTED].

RANKING

The [REDACTED] will rank pari passu in all respects with all Shares currently in issue or to be issued as mentioned in this document, and will qualify and rank equally for all dividends or other distributions declared, made or paid on the Shares on a record date which falls after the date of this document.

SHARE OPTION SCHEME

We have adopted the Share Option Scheme. Please refer to “Appendix IV — Statutory and General Information—Share Option Scheme” for further details.

CIRCUMSTANCES UNDER WHICH GENERAL MEETINGS ARE REQUIRED

Upon the [REDACTED], our Company will only have only one class of Shares, namely ordinary shares, and each ranks pari passu with the other Shares.

Pursuant to the Cayman Companies Act and the terms of our Memorandum of Association and Articles of Association, our Company may from time to time by ordinary resolution of Shareholders (i) increase our capital, (ii) consolidate and divide our capital into shares of larger amount, (iii) divide our shares into several classes, (iv) subdivide our shares into shares of smaller amount, and (v) cancel any shares which have not been taken. In addition, our Company may, subject to the provisions of the Cayman Companies Act, reduce our share capital or capital redemption reserve by our shareholders passing a special resolution. See “Summary of Articles of Association and Cayman Island Companies Law — 2. Articles of Association — 2.1 Shares — (c) Alteration of capital” in Appendix III to this document for further details.

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Pursuant to the Cayman Companies Act and the Memorandum and Articles of Association, all or any of the special rights attached to the Share or any class of Shares may be varied, modified or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued Shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the Shares of that class. Please refer to “Summary of Articles of Association and Cayman Islands Companies Law — 2. Articles of Association — 2.1 Shares — (b) Variation of rights of existing shares or classes of shares” in Appendix III to this document for details.

GENERAL MANDATE TO ISSUE SHARES

Subject to the [REDACTED] becoming unconditional, our Directors have been granted a general unconditional mandate to allot, issue and deal with Shares with an aggregate number of not more than the sum of:

(i) 20% of the aggregate number of the Shares in issue immediately following completion of the [REDACTED] and the [REDACTED] (excluding any Shares which may be issued pursuant to the exercise of the [REDACTED] and any options which may be granted under the Share Option Scheme), and

(ii) the aggregate number of Shares repurchased by us under the general mandate to repurchase the Shares referred to below.

This general mandate to issue Shares will expire at the earliest of:

(i) the conclusion of the next annual general meeting of our Company,

(ii) the date by which the next annual general meeting our Company is required by the Articles of Association, the Cayman Companies Act, or any other applicable Cayman Islands law to be held; or

(iii) the date on which an ordinary resolution is passed by the Shareholders revoking or varying the authority given to our Directors.

Please refer to “Statutory and General Information — A. About our Company — 3. Resolutions of the Shareholders passed on [REDACTED]” in Appendix IV to this document for further details of this general mandate.

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GENERAL MANDATE TO REPURCHASE SHARES

Subject to the [REDACTED] becoming unconditional, our Directors have been granted a general unconditional mandate to exercise all the powers of our Company to repurchase our own securities up to 10% of the aggregate number of our Shares in issue immediately following the completion of the [REDACTED] and the [REDACTED] (excluding any Shares which may be issued pursuant to the exercise of the [REDACTED] and any options which may be granted under the Share Option Scheme).

The repurchase mandate only relates to repurchases made on the Stock Exchange, or on any other stock exchange on which our Shares are listed (and which are recognised by the SFC and the Stock Exchange for this purpose), and which are made in accordance with all applicable laws and/or requirements of the Listing Rules. Please refer to “Statutory and General Information — 5. Repurchase by our Company of our own securities” in Appendix IV to this document.

This general mandate to repurchase Shares will expire at the earliest of:

(i) the conclusion of the next annual general meeting of our Company;

(ii) the date by which the next annual general meeting our Company is required by the Articles of Association, the Cayman Companies Act, or any other applicable Cayman Islands law to be held; or

(iii) the date on which an ordinary resolution is passed by the Shareholders revoking or varying the authority given to our Directors.

Please refer to “Statutory and General Information — A. About our Company — 5. Repurchase by our Company of our own securities” in Appendix IV to this document for further details.

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PERSONS HAVING NOTIFIABLE INTERESTS UNDER THE SFO

So far as our Directors are aware, immediately following the completion of the [REDACTED] and the [REDACTED] (but without taking into account any Shares which may allotted and issued upon the exercise of the [REDACTED] and any options which may be granted under the [REDACTED]), the following persons will have an interest or short position in the Shares or underlying Shares which would fall to be disclosed to our Company and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, or who are, directly or indirectly, interested in 10% or more of the nominal value of any class of share capital carrying rights to vote in all circumstances at general meetings of members of our Group (other than our Company):

Approximate shareholding Number of percentage Name of Shareholder Nature of interest securities held(1) (%)

Yutang Investment Beneficial owner [REDACTED] Shares (L) [REDACTED]% Renkai Investment Interest in a controlled [REDACTED] Shares (L) [REDACTED]% corporation (Note 2) Ms. Shi Interest in a controlled [REDACTED] Shares (L) [REDACTED]% corporation (Note 2) Xiangzhen Investment Beneficial owner [REDACTED] Shares (L) [REDACTED]% Mr. Chen Interest in a controlled [REDACTED] Shares (L) [REDACTED]% corporation (Note 3) Hold Virtue Beneficial owner [REDACTED] Shares (L) [REDACTED]% Guojin Kaixing Beneficial owner [REDACTED] Shares (L) [REDACTED]% Mr. Yiu Wai (姚偉) Interest in a controlled [REDACTED] Shares (L) [REDACTED]% corporation (Note 4) Sole Function Beneficial owner [REDACTED] Shares (L) [REDACTED]% Mr. Jiang Hongwen Interest in a controlled [REDACTED] Shares (L) [REDACTED]% (姜洪文) corporation (Note 5) CPC Alpha Beneficial owner [REDACTED] Shares (L) [REDACTED]% Mr. Sin Hendrick Beneficial owner [REDACTED] Shares (L) [REDACTED]% Interest in a controlled [REDACTED] Shares (L) [REDACTED]% corporation (Note 6) Interest in a controlled [REDACTED] Shares (L) [REDACTED]% corporation (Note 6) Guojin Prosperous Beneficial owner [REDACTED] Shares (L) [REDACTED]% Mr. Lin Jiaxi (林嘉喜) Interest in a controlled [REDACTED] Shares (L) [REDACTED]% corporation (Note 7)

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Notes:

(1) The letters “L” and “S” denote respectively the “long position” and “short person” (as defined under Part XV of the SFO) of the relevant person / entity in such Shares.

(2) Yutang Investment is indirectly wholly owned by Ms. Shi through Renkai Investment and therefore Ms. Shi is deemed to be interested in the Shares held by Yutang Investment for the purpose of the SFO. Ms. Shi is deemed to be interested in the Shares in which Mr. Chen is interested for the purpose of the SFO, as Mr. Chen and Ms. Shi are parties acting in concert with each other. For details, please refer to the section headed “Relationship with Controlling Shareholders — Acting in Concert Confirmation” in this document.

(3) Xiangzhen Investment is wholly owned by Mr. Chen and therefore Mr. Chen is deemed to be interested in the Shares held by Xiangzhen Investment for the purpose of the SFO.

(4) Guojin Kaixing is ultimately owned as to 99.93% by Mr. Yiu Wai and therefore Mr. Yiu Wai is deemed to be interested in the Shares held by Guojin Kaixing for the purpose of the SFO.

(5) Sole Function is wholly owned by Jiang Hongwen and therefore Jiang Hongwen is deemed to be interested in the Shares held by Sole Function for the purpose of the SFO.

(6) Mr. Sin Hendrick is the ultimate controller of CPC Alpha and a controlling shareholder of CMGE Technology and Mr. Sin is deemed to be interested in the Shares held by CPC Alpha and CMGE Technology for the purposes of the SFO.

(7) Mr. Lin Jiaxi is the beneficial owner of the entire issued shares in Guojin Prosperous and Mr. Lin Jiaxi is deemed to be interested in the Shares held by Guojin Prosperous for the purposes of the SFO.

As disclosed in the section headed “Relationship with Controlling Shareholders” above, immediately after completion of the [REDACTED] and the [REDACTED], assuming that the [REDACTED] is not exercised and no Shares are allotted and issued under the Share Option Scheme, our Controlling Shareholders, namely Ms. Shi and Mr. Chen, will be interested in and control, indirectly through Yutang Investment, Renkai Investment and Xiangzhen Investment, [REDACTED]% of our issued share capital in aggregate.

Except as disclosed above, our Directors are not aware of any persons who will, immediately following completion of the [REDACTED] and the [REDACTED] (but without taking into account any Shares which may allotted and issued upon the exercise of the [REDACTED] and any options which may be granted under the Share Option Scheme), have an interest or a short position in the Shares or underlying Shares which would fall to be disclosed to our Company and the Stock Exchange under the provisions of Divisions 2 or 3 of Part XV of the SFO, or, will be, directly or indirectly, interested in 10% or more of issued voting shares in all circumstances at general meetings of any member of our Group (other than our Company). Our Directors are not aware of any arrangement which may at a subsequent date result in a change of control of our Company.

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DIRECTORS AND SENIOR MANAGEMENT

Directors

Our Board consists of eight members, including two executive Directors, three non-executive Directors and three independent non-executive Directors. Our Board is responsible for and has been granted general powers for the management and conduct of our business.

The following table sets forth certain information regarding our Directors:

Relationship with other Date of Date of Directors joining our appointment Responsibilities and senior Name Age Position Group as Director within our Group management

Mr. Chen 47 Executive Director 8 December 14 January Overseeing the Mr. Chen Xiangzhen and chief executive 2009 2021 business operations and Ms. Shi (陳向真) officer of our and strategic and are parties Group corporate acting in development concert of our Group

Mr. Cheng 46 Executive Director, 7 June 2011 14 January Overseeing the N/A Fangdong general manager 2021 general (程方東) and chief legal administrative officer of our function and legal Group compliance of our Group

Mr. Lin Jiaxi 42 Non-executive 14 January 14 January Providing general N/A (林嘉喜) Director and 2021 2021 strategic advice on chairman of our the development of Board our Group

Ms. Shi Renkai 48 Non-executive 8 December 14 January Providing general Mr. Chen (施人愷) Director 2009 2021 strategic advice on and Ms. Shi the development of are parties our Group acting in concert

Mr. Shi Kexin 42 Non-executive 26 May 2021 26 May 2021 Providing general N/A (史可新) Director strategic advice on the development of our Group

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Relationship with other Date of Date of Directors joining our appointment Responsibilities and senior Name Age Position Group as Director within our Group management

Hon. Quat 54 Independent [●][●] Supervising on our None Elizabeth (JP) non-executive Group’s (葛珮帆) Director compliance and corporate governance matters and providing independent judgement to our Board

Mr. Liu Sai Keung 48 Independent [●][●] Supervising on our None Thomas non-executive Group’s (廖世強) Director compliance and corporate governance matters and providing independent judgement to our Board

Mr. Liu Xin 42 Independent [●][●] Supervising on our None (劉昕) non-executive Group’s Director compliance and corporate governance matters and providing independent judgement to our Board

Executive Directors

Mr. Chen Xiangzhen (陳向真), aged 47, is an executive Director and chief executive officer of our Group who is responsible for overseeing the business operations and strategic, and leading corporate development of our Group. Mr. Chen is a co-founder of our Group and one of our Controlling Shareholders. Mr. Chen is also the director of Beijing Kaiwen, Beijing Kaixing, Beijing Junkai and Beijing Qiwen.

Mr. Chen has over ten years of experience in online reading licensing business and IP adaptation licensing business. He established Beijing Kaixing on 8 December 2009 and has been its general manager responsible for its daily management since then. He is also currently a director of Beijing Kaixing Beijing Qiwen. Prior to joining our Group, Mr. Chen worked as deputy general manager of Beijing Zhongrun Internet Information Technology Co., Ltd. (北京中潤互聯信息技術有限公司) (“Beijing Zhongrun”), which principally engages in information technology business, from August 2007 to November 2009.

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Mr. Chen obtained a high school diploma from Anhui Tianchang No.1 High School (安徽天長市第一中學) in July 1990.

Mr. Cheng Fangdong (程方東), aged 46, is an executive Director, the general manager and chief legal officer of our Group who is responsible for overseeing the general administrative function and legal compliance of our Group. Mr. Cheng is also the director of Beijing Wenbo.

Mr. Cheng has over 20 years of experience in legal consultancy and compliance. He joined our Group on 7 June 2011 and has been the deputy general manager of Beijing Kaixing since May 2014. He is also currently a director of Beijing Wenbo. Prior to joining our Group, Mr. Cheng worked at Beijing Palm Universe Information Technology Co., Ltd. (北京手中乾坤信息技術股份有限公司), which principally engages in mobile game development, as the chief legal officer from November 2008 to May 2011. He also worked as the chief legal officer in Beijing Longteng Sunshine Technology Development Co., Ltd. (北京龍騰陽光科技發展有限公司), which principally engages in online service development from May 2005 to November 2008; and legal compliance officer of Zhongshi Economy Film and Television Centre Co., Ltd. (中視經濟影視中心), which principally engages in multimedia broadcasting, from March 2000 to March 2005.

Mr. Cheng obtained a bachelor’s degree in law from China University of Political Science and Law (中國政法大學) in July 1999 and the PRC legal professional qualification in March 2000.

Non-executive Directors

Mr. Lin Jiaxi (林嘉喜), aged 42, is a non-executive Director and the chairman of our Board who is primarily responsible for overseeing the strategic planning of our Group. Mr. Lin has over 20 years of experience in investment consultancy and management. He founded Nanjing Guojin Investment Consultancy Co., Ltd. (南京國金投資顧問有限公司), Shenzhen Guojin Investment Advisor Co., Ltd. (深圳國金投資顧問有限公司) and Guojin Zongheng, which all principally engage in investment consultancy and management, and he has acted as their general manager and director since April 2001, November 2004 and December 2013, respectively. Mr. Lin has also been a director of Beijing Ju Neng Ding Li Technology Co., Ltd. (北京聚能鼎力科技股份有限公司) (NEEQ stock code: 834084), a company which is listed on the National Equities Exchange and Quotations of PRC (“NEEQ”), from June 2018 to August 2018 and an independent non-executive director of Shenzhen Hifuture Information Technology Co., Ltd. (深圳市惠程信息科技股份有限公司) (SZSE stock code: 002168), a company which is listed on the Shenzhen Stock Exchange since November 2020. Since July 2017, Mr. Lin has been a director of Beijing Egret Century Technology Corporation Limited (北京白鷺世紀科技股份有限公司) (NEEQ stock code: 836615) (“Beijing Egret”), a company listed on the NEEQ until November 2017 when it was delisted voluntarily. Beijing Egret was principally engaged in provision of solutions to game development before its delisting.

Mr. Lin enrolled in an undergraduate programme in Environmental Engineering at Southeast University (東南大學) from September 1997 to February 2001 and he started his own business disclosed above before completing the programme. Mr. Lin obtained the PRC fund practising certificate (中國基金從業資格) in March 2018.

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Ms. Shi Renkai (施人愷), aged 48, is a non-executive Director who is primarily responsible for providing general strategic advice on the development of our Group. Ms. Shi is co-founder of our Group and one of our Controlling Shareholders.

Ms. Shi has over ten years of experiences in online reading and IP adaptation licensing business, respectively. She founded Beijing Kaixing with Mr. Chen in December 2009 and acted as its executive director until 15 April 2021. Ms. Shi co-founded Beijing Guixin with Mr. Cheng Fangdong and Mr. Song Qihao in 2018 and has been its executive director then. Prior to joining our Group, Ms. Shi worked as the chief executive officer of Beijing Zhongrun, from August 2007 to November 2009. Ms. Shi also worked as the senior deputy executive officer of Beijing Zhiyun Times Technology Co., Ltd. (北京指雲時代科技有限公司), which principally engages in software product development and system integration, from May 2004 to August 2007. Ms. Shi worked as deputy marketing director of Shenzhen Wangxing Technology Co., Ltd. (深圳市網興科技有限公司), which principally engages in information technology business, from April 2003 to May 2004.

Ms. Shi obtained her executive master of business administration degree from Beijing University of Posts and Telecommunication (北京郵電大學) in July 2013.

Mr. Shi Kexin (史可新), aged 42, is a non-executive Director who is primarily responsible for providing general strategic advice on the development of our Group. He has over 13 years of experience in financial and investment management. He has been working at Shenzhen Hdfund Co., Ltd. (深圳市厚德前海基金管理有限公司), which principally engages in fund management since September 2015, holding his current positions as partner and chief executive officer. He was the chief executive officer of Shenzhen Kaisheng Xincheng Fund Management Co., Ltd. (深圳市凱晟信誠基金管理有限公司) from September 2015 to May 2019. He was also the deputy general manager of the Jiangxi branch of China Power Finance Co., Ltd. (中國電力財務有限公司) from October 2012 to August 2015, which principally engages in financial and investment management. He was the head of operation management department of China Power Finance Co., Ltd. from December 2007 to October 2012. Mr. Shi was a principal staff member of State Grid Corporation of China (國家電網有限公司 previously known as 國家電網公司), which principally engages in the provision of electric utility services, from August 2004 to November 2007.

Mr. Shi obtained his bachelor’s degrees in economics and arts from Peking University (北京大學) in July 2001. He obtained a master degree in international economics, banking and finance from the University of Wales, Cardiff, in July 2003, and a master degree in business administration from the University of Wales, Cardiff, in July 2004. He has been a Chartered Global Management Accountant since September 2018.

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Independent non-executive Directors

Hon. Quat Elizabeth BBS JP (葛珮帆, formerly known as 葛伊莉), aged 54, is an independent non-executive Director. She has more than 13 years of governmental experience in the technology industry.

Hon. Quat Elizabeth has been an independent non-executive director of TUS International Limited, a company which is listed on the Stock Exchange (HKEx stock code: 00872) since January 2017. She has been serving as a Legislative Council member of Hong Kong (“Legco”) for New Territories East since October 2012 and was elected as member of Shatin District Council of Hong Kong in 2007 and 2011, respectively. She was also elected as a member of the Hong Kong Election Committee for the Information Technology Subsector in 2006 and 2011, respectively. She served as deputy chairman of Panel of Information Technology and Broadcasting of Legco for the years 2012 to 2014, 2017 to 2018 and 2019 to 2020 and served as the chairlady for the years 2015 to 2017 and 2018 to 2019, and she is the member of the panel for the year 2020 to 2021. Hon. Quat Elizabeth founded a number of non-profit organisations, including the Internet Professional Association in 1999, the Energy Saving and Environmental Concern Alliance in 2007 and the Smart City Consortium in 2015 to develop Hong Kong as a smart city.

Hon. Quat Elizabeth obtained a master degree of social sciences from the University of Hong Kong in November 2010. Hon. Quat Elizabeth was awarded the Ten Outstanding Young Persons by Junior Chamber International Hong Kong (formerly known as Hong Kong Junior Chamber) in 2001, the Ten Outstanding Young Digi Persons Award by Hong Kong Productivity Council and Hong Kong Junior Chamber in 2001. Hon. Quat Elizabeth was awarded the Justice of the Peace by the Chief Executive of Hong Kong in 2010. She has been awarded the Bronze Bauhinia Star by the Hong Kong SAR Government in 2017 for her outstanding contributions.

Mr. Liu Sai Keung Thomas (廖世強), aged 48, is an independent non-executive Director. Mr. Liu has over 20 years of experience in marketing and finance management.

Mr. Liu is currently an executive director and the chief operating officer of Vcredit Holdings Limited, a company listed on the Stock Exchange (HKEx stock code: 02003) in June 2018 which principally engages in providing online consumer financial services; he has also been the chief operating officer of Vision Credit Financial Technology Co., Ltd. (上海維信薈智金融科技有限公司), an indirect wholly owned subsidiary of Vcredit Holdings Limited, since November 2011. He has been serving as an independent non-executive director of Netdragon Websoft Holdings Limited, a company listed on the Stock Exchange (HKEx stock code: 00777), which principally engages in PC and mobile game development and operation, since October 2007. Mr. Liu worked as the managing director of the strategic business development department of GroupM, which is a division of J.Walkter Thompson-Bridge Advertising Co., Ltd, from August 2007 to May 2009. He also worked as vice president at Star (China) Company Limited, a then subsidiary of 21st Century Fox (Asia) Ltd. (formerly known as the News Corporation) from February 2006 to July 2007. Mr. Liu worked at TOM Group Limited, a company listed on the Stock Exchange (HKEx stock code: 02383), from April 2003 to February 2006, holding his last position as director of corporate development at TOM Online Inc. He worked as an associate of Lehman Brothers Inc. in New York from August 2001 to June 2002.

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Mr. Liu obtained a bachelor’s degree in business administration and a master’s degree in finance (evening program) from the Chinese University of Hong Kong in May 1995 and December 1999, respectively. He further obtained a master’s degree in business administration from the Anderson Graduate School of Management, University of California, Los Angeles in June 2001.

Mr. Liu Xin (劉昕), aged 42, is an independent non-executive Director and has over 18 years of experience in investment consultancy and accounting. He is the independent non-executive Director who has the qualification and experience to meet the requirements under Rule 3.10(2) of the Listing Rules.

Mr. Liu has been the chief operating officer and chief financial officer of Vision Plus HK Management Limited (元璟香港管理有限公司), which principally engages in the venture capital and fund management, since March 2019. He has been an independent non-executive director of K. H. Group Holdings Limited, a company which is listed on the Stock Exchange (HKEx stock code: 01557), since August 2018. Mr. Liu was the chief operating officer of Guangzhou Shoreline Capital Management Co., Ltd. (廣州市鑫海岸投資管理有限公司), which principally engages in investment management, from October 2015 to February 2019. Mr. Liu worked in Shanghai Fosun High Technology (Group) Company Limited (上海復星高科技(集團)有限公司) (a subsidiary of Fosun International Limited, a company listed on the Stock Exchange (HKEx stock code: 00656)), from July 2011 to September 2015 as the executive general manager of Fosun Kinzon Capital (復星昆仲資本). Mr. Liu worked in PriceWaterhouseCoopers for over seven years until June 2011, with his last position as the senior manager of advisory department.

Mr. Liu obtained a bachelor’s degree in accountancy from the Jinan University (暨南大學)in June 2001. He obtained the degree of master of business administration jointly conferred by the Northwestern University and the Hong Kong University of Science and Technology in June 2020. Mr. Liu has been a registered accountant of the Chinese Institute of Certified Public Accountants since December 2004.

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Senior Management

Our senior management is responsible for the day-to-day management of our business. The following table sets out certain information regarding the members of our senior management:

Relationship Date of with other Date of appointment Directors Position in our joining our as our senior Responsibilities and senior Name Age Company Group management within our Group management

Mr. Chen 47 Executive Director 8 December 8 December Overseeing the Mr. Chen Xiangzhen and chief executive 2009 2009 business operations and Ms. Shi (陳向真) officer of our and strategic, and are parties Group corporate acting in development concert of our Group

Mr. Cheng 46 Executive Director, 7 June 2011 7 June 2011 Overseeing the N/A Fangdong general manager general (程方東) and chief legal administrative officer of our function and legal Group compliance of our Group

Mr. Song Qihao 37 chief financial 23 July 2012 23 July 2012 Overall financial N/A (宋其浩) officer management of our Group

Mr. Zhou Lin 32 deputy general 1 January 8 April 2019 Overall operation N/A (周麟) manager 2016 management of our Group

Mr. Chen Xiangzhen (陳向真) is an executive Director and the chief executive officer of our Group. Please refer to the paragraph headed “Executive Directors” in this section for his biographical details.

Mr. Cheng Fangdong (程方東) is an executive Director, the general manager and chief legal officer of our Group. Please refer to the paragraph headed “Executive Directors” in this section for his biographical details.

Mr. Song Qihao (宋其浩), aged 37, is the chief financial officer of our Group who is responsible for the overall financial management of our Group. He has over 11 years of experience in accounting management. He joined our Group as chief financial officer of Beijing Kaixing on 23 July 2012. Prior to joining our Group, Mr. Song worked at Zhongrui Yuehua Accounting Firm (special general partnership enterprise) (中瑞岳華會計師事務所 (特殊普通合夥企業)) as project manager, which principally engages in the provision of accounting and auditing services, from April 2009 to March 2012.

Mr. Song obtained a diploma in electronic and information engineering from Hankou University (漢口學院) (formerly known as Central China Normal University Hankou Branch (華中師範大學漢口分校)) in June 2006. He is currently studying a master’s degree in economics and finance at University of International Business and Economics (對外經濟貿易大學) since September 2018.

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Mr. Zhou Lin (周麟), aged 32, is the deputy general manager of our Group who is responsible for the overall operation management of our Group. He has over nine years of experience in media and IP operation industry. Mr. Zhou is also a director of Guangzhou Kaiqi, Horgos Kaiwen and Horgos Qilin. He joined our Group on 1 January 2016 as manager of the IP Strategic Development of Beijing Kaixing and was promoted as the deputy general manager on 8 April 2019. Prior to joining our Group, Mr. Zhou worked as deputy general manager of Maanshan Shangwen Internet Technology Co., Ltd. (馬鞍山尚文網絡科技有限公司), which principally engages in providing online related technology consulting services, from November 2013 to November 2015. He worked as content director of Dongguan Yongzheng Electronic Books Technology Co., Ltd. (東莞市永正電子圖書科技有限公司), which principally engages in the provision of electronic reading services, from August 2011 to November 2013. Mr. Zhou is the author of Player’s Battlegrounds (吃雞戰場), a notable example of adaptation of our self-developed IPs.

Ms. Zhou obtained a diploma in mining electromechanics from Jiangxi Vocational College of Industry and Engineering (江西工業工程職業技術學院) in July 2011. He further obtained a bachelor’s degree in PRC law from Jiangxi University of Finance and Economics (江西財經大學) in December 2011 after completing a higher education self taught examination.

COMPANY SECRETARY

Mr. Chan Fung Man (陳峰民), aged 39, is the company secretary of our Company. Mr. Chan has over 14 years of experience in accounting and auditing.

Mr. Chan has been serving as a director of Top League CPA Company Limited, a company which principally engages in providing auditing services to private companies, and Top League Corporate Services Company Limited, a company which principally engages in providing company secretary services to both private and public companies, since July 2020 and May 2020, respectively. He worked as chief financial officer and project manager at Beyond Korea Limited (寶安韓國有限公司) from April 2017 to September 2019. Mr. Chan worked as the company secretary of Dining Concepts Holdings Limited, a company listed on the GEM of the Stock Exchange (HKEx stock code: 08056) from August 2016 to February 2017. He also worked as the company secretary of U Banquet Group Holding Limited, a company listed on the Main Board from August 2013 to October 2015. Mr. Chan worked as a deputy manager at Crowe (HK) CPA Limited from March 2007 to April 2012. He worked as an audit assistant at T.C. Ng & Company CPA Limited from May 2006 to March 2007.

Mr. Chan obtained a bachelor’s degree in accounting from the Hong Kong Polytechnic University in December 2005. He was admitted as a member of the Hong Kong Institute of Certified Public Accountants in July 2009 and obtained a practice certificate in July 2013. Mr. Chan was further admitted as a fellow member of the Hong Kong Institute of Certified Public Accountants in October 2010.

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BOARD DIVERSITY

We [have adopted] a board diversity policy which sets out the approach to achieve and maintain an appropriate balance of diversity perspectives of our Board that are relevant to the Company’s development. Pursuant to our board diversity policy, selection of Board candidates will be based on a range of diversity perspectives, including but not limited to gender, age, cultural and educational background, professional qualifications, skills, knowledge and industry experience.

The ultimate decision will be based on merit and contribution that the selected candidates will bring to the Board.

Our Board, comprising members of both genders, have a balanced mix of experiences and background, including but not limited to experiences in IP operation, information technology, accountancy, legal consultancy, investment consultancy and management, general corporate management, governmental work, and venture capital and fund management. Our Board members obtained degrees in various majors including business administration, accountancy, PRC law, computer science and mathematics. We have three independent non-executive Directors with different industry backgrounds. Moreover, our Board members has a wide range of age, ranging from 42 years old to 54 years old.

Our nomination committee is delegated by our Board to be responsible for compliance with relevant codes governing board diversity under the Corporate Governance Code. After the [REDACTED], our nomination committee will review the board diversity policy from time to time to ensure its effectiveness and we will disclose in our corporate governance report a summary of the board diversity policy and the related objectives we have set and the progress on achieving the objectives on an annual basis.

REMUNERATION OF DIRECTORS AND SENIOR MANAGEMENT

The aggregate amount of salaries, discretionary bonuses, allowances, benefits in kinds and contribution to retirement schemes paid to our Directors in respect of each of FY2018, FY2019 and FY2020 were approximately RMB0.3 million, RMB0.7 million and RMB0.7 million, respectively. Details of the arrangement for remuneration are set out in Note 8 to the Accountants’ Report in Appendix I to this document. For information on our Directors’ service contracts and their remuneration, please see the section headed “Statutory and General Information — C. Further Information about Directors — 8. Directors” in Appendix IV to this document for details. Our Directors and senior management receive compensation in the form of salaries, benefits in kind and/or discretionary bonuses relating to the performance of our Group. We also reimburse them for expenses which are necessarily and reasonably incurred for providing services forums or executing their functions in relation to our operations. We regularly review and determine the remuneration and compensation packages of our Directors and senior management.

After the [REDACTED], our Board will review and determine the remuneration and compensation packages of the Directors and senior management which will receive recommendations from our remuneration committee after taking into account salaries paid by comparable companies, time commitment and responsibilities of our Directors and the performance of our Group.

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During the Track Record Period, no remuneration was paid by us to, or received by, our Directors as an inducement to join or upon joining us. No compensation was paid to, or is receivable by, our Directors or past Directors for the Track Record Period for the loss of office as director of any member of our Group or of any other office in connection with the management of the affairs of any member of our Group. None of our Directors waived any emoluments during the Track Record Period.

BOARD COMMITTEES

Audit Committee

We [established] an audit committee with written terms of reference in compliance with Rule 3.21 and the Corporate Governance Code and Corporate Governance Report as set out in Appendix 14 to the Listing Rules on [●] 2021 with effect upon the [REDACTED]. The primary duties of the audit committee include ensuring that an effective financial reporting, internal control and risk management systems are in place and compliance of the Listing Rules, controlling the completeness of our Company’s financial statements, selecting external auditors and assessing their independence and qualifications, and ensuring the effective communication between our internal and external auditors.

The audit committee initially comprises three members, namely Mr. Liu Xin, Ms. Shi Renkai and Hon. Quat Elizabeth (JP). Mr. Liu Xin is the chairman of the audit committee.

Remuneration Committee

We [established] a remuneration committee with written terms of reference in compliance with Rule 3.25 and the Corporate Governance Code and Corporate Governance Report as set out in Appendix 14 to the Listing Rules on [●] 2021 with effect upon the [REDACTED]. The primary duties of the remuneration committee include assisting our Board in determining the remuneration policy for and structure of our Directors and senior management, reviewing incentive schemes and service contracts of our Directors, and ensuring the execution of the remuneration packages of the executive Directors and senior management.

The remuneration committee initially comprises three members, namely Mr. Liu Sai Keung Thomas, Mr. Liu Xin and Mr. Shi Kexin. Mr. Liu Sai Keung Thomas is the chairman of the remuneration committee.

Nomination Committee

We [established] a nomination committee with written terms of reference in compliance with paragraph A.5.1 of Appendix 14 to the Listing Rules on [●] 2021 with effect upon the [REDACTED]. The primary duties of the nomination committee include assisting our Board in identifying suitable candidates for our Directors and making recommendations to our Board, assessing the structure and composition of our Board, preparing, making recommendations to and supervising the execution of the nomination policy of our Company.

The nomination committee initially comprises three members, namely Mr. Lin Jiaxi, Mr. Liu Xin and Mr. Liu Sai Keung Thomas. Mr. Lin Jiaxi is the chairman of the nomination committee.

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COMPLIANCE ADVISER

Our Company has appointed Soochow Securities, in accordance with Rule 3A.19 of the Listing Rules, as our compliance adviser for the period commencing on the [REDACTED] and ending on the date on which our Company complies with Rule 13.46 of the Listing Rules in respect of its financial results for the first full financial year commencing after the [REDACTED]. Pursuant to 3A.23 of the Listing Rules, the compliance adviser will provide advice to us in the following circumstances:

(i) before the publication of any regulatory announcement, circular or financial report;

(ii) where a transaction, which might be a notifiable or connected transaction, is contemplated, including share issues and share repurchases;

(iii) where we propose to use the [REDACTED] from the [REDACTED] in a manner different from that detailed in this document or if our business activities, developments or results materially deviate from any forecast, estimate or other information in this document; and

(iv) where the Stock Exchange makes any inquiry to us regarding unusual movements in the price and/or trading volume of our Shares.

The term of appointment will commence on the [REDACTED] and end on the date on which we distribute the annual report of our financial results for the first full financial year commencing after the [REDACTED] and such appointment may be subject to extension by mutual agreement.

OTHER INFORMATION IN RELATION TO OUR DIRECTORS AND SENIOR MANAGEMENT

Save as disclosed above, (i) each of our Directors has confirmed that there are no other matters relating to his appointment as a Director that need to be brought to the attention of our Shareholders and there is no other information in relation to his appointment which is required to be disclosed pursuant to Rule 13.51(2) of the Listing Rules; (ii) none of our Directors and senior management hold any other positions within our Group; (iii) none of our Directors and senior management has been a director of any public company the securities of which are listed on any securities market in Hong Kong or overseas in the three years immediately preceding the date of this document; and (iv) none of our Directors and senior management is related to other Directors and senior management save as disclosed above.

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You should read the following discussion and analysis of our Group’s financial information in conjunction with the combined financial statements included in the Accountants’ Report and the notes thereto included in Appendix I to this document and the selected historical financial information and operating data included elsewhere in this document. The combined financial statements have been prepared in accordance with IFRS. Any discrepancies in any table or elsewhere in this document between the totals shown and the sums of amounts are due to rounding adjustments.

Our historical results do not necessarily indicate results expected for any future periods. The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ from those anticipated in these forward-looking statements. For additional information regarding these risks and uncertainties, please refer to the section headed “Risk Factors” in this document.

OVERVIEW

We are an IP operation company in the PRC focusing on sourcing and developing online literary works for adaptation into various entertainment formats. We aim to connect participants across the value chain of IP operation and devise tailor-made solutions for maximising the value of literary works, such as the adaptation of literary works into films, TV and web series, animations and PC and mobile games and licensing of literary works to the online reading platforms. According to the F&S Report, we ranked tenth in the online literature IP operation market in the PRC with a market share of 1.5% in terms of revenue in 2020.

During the Track Record Period, we experienced rapid growth in our business. Our revenue increased by 28.2% from RMB61.5 million for FY2018 to RMB78.9 million for FY2019, and increased by 13.7% from RMB78.9 million for FY2019 to RMB89.7 million for FY2020. Our net profit also increased significantly by 146.7% from RMB10.3 million for FY2018 to RMB25.4 million for FY2019, and remained relatively stable at RMB24.9 million for FY2020.

BASIS OF PRESENTATION

Our Company was incorporated as an exempted company with limited liability in the Cayman Islands on 14 January 2021. Pursuant to the Reorganisation as more fully elaborated in the section headed “History, Reorganisation and Corporate Structure - Reorganisation” in this document, our Company became the holding company of the companies now comprising our Group after a series of transaction for the purpose of the Reorganisation.

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Upon completion of the Reorganisation, the Company will become the holding company of the companies now comprising the Group. The Reorganisation mainly involves interspersing the Company, Kaixing Venture Capital, Noble Future, Beijing Kaiwen and Beijing Junkai, which are newly formed entities with no substantive operations, between Beijing Kaixing and the shareholders as new holding companies of the operating subsidiaries. There would be no change in the economic substance of the ownership, the business and operation of the business before and after the Reorganisation. Accordingly, the historical financial information has been prepared and presented as a continuation of the financial information of the business with the assets and liabilities recognised and measured at their historical carrying amounts in the financial statements of Beijing Kaixing prior to the Reorganisation.

The combined statements of financial position of our Group as at 31 December 2018, 2019 and 2020, the combined statements of profit or loss and other comprehensive income, the combined statements of changes in equity and the combined cash flow statements of our Group for the Track Record Period have been prepared as if the current group structure had been in existence throughout the Track Record Period, or since their respective dates of incorporation/establishment, where there is a shorter period. Inter-company transactions, balances and unrealised gains/losses arising from intra-group transactions are eliminated on combination.

PRINCIPAL FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our results of operations have been and will continue to be affected by a number of factors, including those set out below:

General online literature IP operation industry and market conditions in the PRC

Our business and operating results are affected by general factors affecting the online literature IP operation industry in the PRC, which include:

• The PRC’s overall economic growth and level of per capita disposable income;

• Growth of mobile internet usage and penetration rate;

• Governmental policies and initiatives affecting the online literature industry;

• Awareness and enforcement of intellectual property protection in the PRC; and

• Development of pan-entertainment industries in the PRC and relevant governmental policies.

Unfavourable changes in any of these general industry conditions could negatively affect demand for our services and negatively and materially affect our results of operations.

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Scope and quality of our content library and effective control of our costs of sales

Our literary works are pivotal to the success of our business. We need to source, develop and cultivate a wide range of high quality literary content in order to attract content adaptation partners for licensing such literary content, create popular and commercially successful adapted products and expand the reader base of our literary works on online reading platforms. During the Track Record Period, we derived a majority of our revenues from monetising our literary content. As at the Latest Practicable Date, our content library has grown into an IP reserves of more than 2,800 literary works from over 2,200 writers, spanning over 10 genres.

The major component of our cost of sales is the amortisation of our intangible assets, which mainly include copyrights of literary works, which varies directly with our cost for sourcing or acquiring literary works. We recognise copyrights of literary works and measure them initially at cost, which primarily represent the fees paid by our Group for engaging the writers to develop the relevant literary works or the costs we incurred for acquiring the literary works from IP holders. We then amortise such intangible assets on a straight-line basis over their expected useful lives and thus the amortisation of such intangible assets would decrease as our cost for acquiring IPs decreases. For FY2018, FY2019 and FY2020, (i) our cost for acquiring IPs was approximately RMB56.0 million, RMB66.5 million and RMB25.8 million, respectively; and (ii) the amortisation of our copyrights of literary works amounted to RMB30.5 million, RMB35.4 million and RMB45.3 million, representing 49.6%, 44.8% and 50.5% respectively, of our total revenue during the same periods.

Our ability to effectively control our cost for sourcing or acquiring literary works, especially by enhancing our bargaining power with popular writers or other IP holders of literary works, has affected and will continue to affect our profitability significantly. We expect our cost for sourcing or acquiring literary works to increase as we expand our content library. However, given our devoted cultivation efforts and expanding content monetisation capabilities, we believe we have the ability to control the overall percentage of revenues that we will pay to writers and other IP holders.

Our ability to increase revenues from our IP operation

Our IP adaptation licensing is an important part of our content monetisation and revenue generation strategy. We derived a significant portion of our revenue from our IP adaptation licensing business, which primarily involve licensing our online literary works to our content adaptation partners for adaptation into various other forms of entertainments, such as films, drama series, PC and mobile games or animations. Our IP adaptation licensing business may be affected by a number of factors, including (i) the number of IPs in our IP reserve; (ii) the market awareness of us which will in turn stimulate the demand for source materials from our content adaptation partners or the entertainment industry; and (iii) the popularity of our literary works. All of the above would affect our bargaining power and contractual arrangements with our content adaptation partners, such as film and drama production companies. Further, following the [REDACTED], our Directors believe that our [REDACTED] status would enhance the market awareness of our Group and strengthen our bargaining power in our negotiations with our customers.

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We also generated revenue from our online reading licensing business during the Track Record Period through which we obtain fees from licensing literary works to third party online reading platforms. Our online reading licensing business may be affected by a number of factors, including (i) the popularity of our literary works; (ii) our bargaining power and deal arrangements with writers, IP holders and third party online reading platforms; and (iii) the total number of our cooperating online reading platforms.

Going forward, we will seek to enhance the visibility and popularity of our literary works and our cooperating writers through our marketing efforts and to promote our self-developed or acquired literary works across the entertainment industry. We will also seek to gain greater bargaining power with our cooperating partners by leveraging our content library and our expertise in intellectual property development and management.

Relationship with the upstream and downstream players

As an IP operation company in the PRC, our role is to act as an incubation hub in the online literature ecosystem in the PRC, whereby we source literary works from writers, assess the nature and develop the commercial potential of literary works, implement appropriate deal arrangements with our content adaptation partners for licensing such literary works for adaptations into various entertainment formats, such as films, TV series, animations and PC and mobile games and/or release the literary works on online reading platforms for subscription. Situated at the centre of the value chain of the online literature industry, we connect the upstream players (i.e. the writers and IP holders) with the downstream players (i.e. content adaptation partners which develop literary works into other entertainment products) through our IP operation.

With a view to expand our pool of writers, extend our cooperation network and deepen our relationship with both the upstream and downstream players, we plan to devote additional resources in identifying, cultivating and promoting aspiring writers by customising licensing agreements with better revenue sharing packages and offering more editorial support to the writers, and attract more content adaptation partners by promoting our literary works and IPs. Leveraging on our experience and knowledge of the industry and our strong network among the industry players, we believe we will be well-positioned to capture new opportunities for developing new literary works and implement appropriate deal arrangements with our content development partners for adaptation into various entertainment formats or commercial media products, thereby deepening our revenue stream.

Preferential tax treatments available to our Group

During the Track Record Period, our Group has been granted certain tax preferences and governmental subsidies. For instance, Horgos Kaiwen, Horgos Qilin and Horgos Kaiqi, as entities established in the Xinjiang Horgos special economic areas, had been or are (as the case may be) entitled to a full exemption on PRC Corporate Income Tax for a period of five years from the tax year in which revenue was first generated (the “Preferential Tax Treatment”). Following the expiry of the Preferential Tax Treatment for Horgos Kaiwen in 2021, it shall continue to enjoy partial tax exemption pursuant to other tax benefit policies resulting in a reduced net tax rate applicable to its taxable profits. Please refer to paragraphs headed “Description of Selected Components of Combined Statements of Profit or Loss and Other Comprehensive Income — Our Company — Income Tax” in this section for details. These governmental subsidies and preferential tax treatments have brought

− 196 − THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. FINANCIAL INFORMATION positive impacts to our Group’s profitability. However, preferential tax treatments enjoyed by certain of our subsidiaries are non-recurring in nature, and the government agencies may decide to reduce, eliminate or cancel such subsidies and tax preferences at any time, in which case our results of operations may be adversely affected. The effective tax rate for our Group was 13.5%, 7.1% and 3.8% for FY2018, FY2019 and FY2020, respectively.

CRITICAL ACCOUNTING POLICIES, JUDGMENTS, AND ESTIMATION

We have identified certain accounting policies that are significant to the preparation of our combined financial statements. Some of our accounting policies involve subjective assumptions and estimates, as well as complex judgment relating to accounting items. We set out below certain accounting policies and estimates that we believe are material to an understanding of our financial information, and, in addition, information on those accounting policies applied in preparing our financial information that we believe are most dependent on judgments and estimation.

For details of the significant accounting policies, judgments, and estimation, see the Accountants’ Report in Appendix I to this document.

Revenue recognition

Revenue is recognised when control over a product or service is transferred to the customer at the amount of promised consideration to which our Group is expected to be entitled, excluding those amounts collected on behalf of third parties. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

Revenue from IP adaptation licensing

We generate revenues from licensing the rights of adaptation of online literary works obtained from IP holders to online game companies, television producers, movie studios, and other copyright dealers for agreed periods. The revenue from licensing agreements is recognised when all the following criteria are met: persuasive evidence of an arrangement exists; the content has been delivered or is available for immediate and unconditional delivery and our Group has no further obligations; the price to the customer is fixed or determinable; and collectability is probable. Revenue is recognised at a point in time at the beginning of the licensing agreement to the extent of the fixed and non-refundable amount received/receivable with no future obligations. Any amount of revenue which is contingent upon future events (for example future revenue generated by using the copyright) is recognised when the contingency is resolved.

Revenue from online reading licensing

We generate revenues from releasing and licensing online literature contents to third-party reading platforms. We evaluated and determined we are not the primary obligor in the service rendered to the end users. Depending on the terms of respective agreements, revenue is recognised either at the time of providing online literature contents to third-party reading platforms when our

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Group does not have further obligation after providing the contents to third-party reading platforms to the extent of the fixed and non-refundable amount, or over the period of the agreement under which our Group needs to provide continuous services to third-party reading platforms based on the portion of the sharing of revenues that derived from third-party reading platforms.

Other revenue

Our other revenues are primarily shared revenue received from our investments in online game, drama series and film as a non-executive producer, with a share of legal rights (i.e. copyrights). Such income is recognised when the investors’ right to receive payment has been established, it is probable that the economic benefits associated with the investment income will flow to our Group and the amount can be measured reliably.

Intangible assets (other than goodwill)

Intangible assets that are acquired by our Group are stated at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses. Expenditure on internally generated goodwill and brands is recognised as an expense in the period in which it is incurred.

Amortisation of intangible assets with finite useful lives is charged to profit or loss using the straight-line method based on the assets’ estimated useful lives. The following intangible assets with finite useful lives are amortised from the date they are available for use and their estimated useful lives are as follows:

Copyright of online literary work Shorter of the expected economic life and license and games period, 2-8 years Software 10 years

Both the period and method of amortisation are reviewed annually.

Intangible assets are not amortised while their useful lives are assessed to be indefinite. Any conclusion that the useful life of an intangible asset is indefinite is reviewed annually to determine whether events and circumstances continue to support the indefinite useful life assessment for that asset. If they do not, the change in the useful life assessment from indefinite to finite is accounted for prospectively from the date of change and in accordance with the policy for amortisation of intangible assets with finite lives as set out above.

Leased assets

At inception of a contract, our Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where our Group has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use.

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Where the contract contains lease component(s) and non-lease component(s), our Group has elected not to separate non-lease components and accounts for each lease component and any associated non-lease components as a single lease component for all leases. At the lease commencement date, our Group recognises a right-of-use asset and a lease liability, except for short-term leases that have a lease term of 12 months or less and leases of low-value assets. When our Group enters into a lease in respect of a low-value asset, our Group decides whether to capitalise the lease on a lease-by-lease basis. The lease payments associated with those leases which are not capitalised are recognised as an expense on a systematic basis over the lease term.

Right-of-use assets

The right-of-use asset recognised when a lease is capitalised is initially measured at cost, which comprises the initial amount of the lease liability plus any lease payments made at or before the commencement date, and any initial direct costs incurred. Where applicable, the cost of the right-of-use assets also includes an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, discounted to their present value, less any lease incentives received. The right-of-use asset is subsequently stated at cost less accumulated depreciation and impairment losses.

Lease liabilities

Where the lease is capitalised, the lease liability is initially recognised at the present value of the lease payments payable over the lease term, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, using a relevant incremental borrowing rate. After initial recognition, the lease liability is measured at amortised cost and interest expense is calculated using the effective interest method. Variable lease payments that do not depend on an index or rate are not included in the measurement of the lease liability and hence are charged to profit or loss in the accounting period in which they are incurred.

Adoption of IFRS 16

IFRS 16 “Leases” was published in January 2016 with an effective date of 1 January 2019. We have adopted a full retrospective application of IFRS 16, which we have applied on a consistent basis throughout the Track Record Period. For a description of our accounting policy on leases, please see paragraph headed “ — Leases” in this section.

As at 31 December 2018, 2019 and 2020, we recorded right-of-use assets of RMB2.7 million, RMB1.5 million and RMB1.4 million, respectively, and lease liabilities of RMB1.7 million, RMB1.7 million and RMB2.0 million, respectively in our combined statements of financial position.

For FY2018, FY2019 and FY2020, we recorded depreciation of right-of-use assets of RMB1.3 million, RMB1.1 million and RMB0.7 million, respectively, and finance costs on lease liabilities of RMB0.1 million, RMB0.1 million and RMB0.1 million, respectively, in our combined statements of profit or loss and other comprehensive income.

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Based on the foregoing, the adoption of IFRS 16 did not have any significant impact on our financial position as at 31 December 2018, 2019 and 2020 or our results of operations during the Track Record Period.

Income tax

Income tax for the period comprises current tax and movements in deferred tax assets and liabilities. Current tax and movements in deferred tax assets and liabilities are recognised in profit or loss except to the extent that they relate to business combinations, items recognised in other comprehensive income or directly in equity, in which case the relevant amounts of tax are recognised in other comprehensive income or directly in equity, respectively.

Current tax is the expected tax payable on the taxable income for the period, using tax rates enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable in respect of previous periods.

Deferred tax assets and liabilities arise from deductible and taxable temporary differences respectively, being the differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax bases. Deferred tax assets also arise from unused tax losses and unused tax credits.

Expected credit loss

We measure loss allowances for trade receivables at an amount equal to lifetime ECLs, which is calculated using a provision matrix. As our Group’s historical credit loss experience does not indicate significantly different loss patterns for different customer segments, the loss allowance based on past due status is not further distinguished between our Group’s different customer bases.

Expected loss rates are based on actual loss experience over the recent past years. These rates are adjusted to reflect differences between economic conditions during the year over which the historic data has been collected, current conditions and our Group’s view of economic conditions over the expected lives of the receivables.

Although there were no significant changes in the Group’s industry, customer base, credit risk of customers, credit policy, economic conditions and the Group’s view of economic conditions over the expected lives of trade receivables during the years ended 31 December 2018, 2019 and 2020, our Group adjusted upward the expected loss rates applied during the year ended 31 December 2019 and 2020 after taking into consideration the impact of COVID-19 pandemic.

Please refer to the paragraph headed “Quantitative and qualitative disclosures about financial risks — Credit risk” below for further details of the expected loss rates on our trade receivables.

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COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

The following table sets out a summary of our combined statements of profit or loss and other comprehensive income during the periods indicated:

For the year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Revenue 61,547 78,898 89,712 Cost of sales (38,409) (40,036) (49,240)

Gross profit 23,138 38,862 40,472 Other net expenses (1) (189) (13) [REDACTED] [REDACTED] [REDACTED] [REDACTED] Administrative expenses (11,109) (11,199) (11,033)

Profit from operations 12,028 27,474 26,014 Finance costs (139) (172) (128)

Profit before taxation 11,889 27,302 25,886 Income tax (1,610) (1,946) (990)

Profit and total comprehensive income for the year 10,279 25,356 24,896

Attributable to: Equity shareholders of the Company 8,805 21,368 24,678 Non-controlling interests 1,474 3,988 218

Profit and total comprehensive income for the year 10,279 25,356 24,896

Earnings per share Basic and diluted N/A N/A N/A

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DESCRIPTION OF SELECTED COMPONENTS OF COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Revenue

During the Track Record Period, we generated revenues primarily through (i) IP adaptation licensing; and (ii) online reading licensing. We also generated other revenues from our investments in the development and production of online games, drama series and films. The following table sets out a breakdown of our revenue by type of goods or services for the years indicated:

For the year ended 31 December 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

IP adaptation licensing 41,549 67.5 64,245 81.4 83,255 92.8 Online reading licensing 19,601 31.9 14,252 18.1 6,445 7.2 Others (Note) 397 0.6 401 0.5 12 (Note)

Total 61,547 100.0 78,898 100.0 89,712 100.0

Note: Our other revenues are primarily our investment income in the development and production of online games, drama series and films. Such revenue represented approximately 0.01% of our total revenue for FY2020.

Revenue from IP adaptation licensing

We generate revenue from our IP adaptation licensing business through licensing IPs in our IP reserve, including (i) self-developed IPs selected from our content library which we consider to have commercial potentials for adaptation; (ii) self-developed IPs of literary works which we commissioned writers to develop specifically for content adaptation purposes; and (iii) acquired IPs we licensed from their owners, to our cooperating partners for adaptation into other forms of entertainments, such as films, TV and web series, animations and PC and mobile games. Please see the section headed “Business — Our Business Model — IP Adaptation Licensing” in this document for further details.

We enter into IP adaptation agreements with our content adaptation partners, which may vary according to the negotiations between the parties, to license our IPs for adaptation. We have licensed to our content adaptation partners and generated revenue from 34, 75 and 171 IPs in FY2018, FY2019 and FY2020, respectively. We generally choose to receive a fixed sum of licensing fees together with, in certain cases, a pre-determined percentage of the revenue or profit, as the case may be, generated from the entertainment products developed under the IP adaptation agreement. For FY2018, FY2019 and FY2020, our revenue from our IP adaptation licensing amounted to RMB41.5 million, RMB64.2 million and RMB83.3 million, respectively, representing approximately 67.5%, 81.4% and 92.8%, respectively, of our total revenue during the same periods.

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Revenue from online reading licensing

We generate revenues from our online reading licensing business through releasing and licensing our literary works to online reading platforms for subscription. We licence the online publication rights of our literary works to popular online reading platforms and allow the platforms to compile, edit, copy and publish our literary works (or any part thereof) on the platform. Please see section headed “Business — Our Business Model — Online Reading Licensing” in this document for further details.

We enter into cooperation agreements with our cooperating online reading platforms pursuant to which their registered users are able to access literary works licensed from us. As at the Latest Practicable Date, we have entered into cooperation agreements with 41 online reading platforms, including our major cooperating online reading platforms, namely iReader (掌閱) and Migu Reading (咪咕閱讀). We typically license our literary works to such platforms at a licence fee and/or under a revenue or profit sharing arrangement under which we share a stipulated percentage of the revenue or profit generated from the readers’ payments for subscribing to our literary works on the platform. In FY2018, FY2019 and FY2020, our revenue from our online reading licensing business amounted to RMB19.6 million, RMB14.3 million and RMB6.4 million, respectively, representing approximately 31.9%, 18.1% and 7.2%, respectively, of our total revenue during the same periods.

Revenue from others

We also generated revenues from our return on investments in the development and production of online games, drama series and films.

During the Track Record Period, we entered into co-investment agreements with game developers or media production companies, pursuant to which we agreed to co-invest with such parties in the production of online games, drama series and films respectively. We would also license the adaptation rights in literary works for the production of the relevant games, drama series or films. Following the publication of such adaptations, we are entitled to share a portion of the net income generated, including sales of online games, income from publishing the drama series or product placement income, as the case may be, in proportion to our investment amount in the development of the relevant adaptation.

For FY2018, FY2019 and FY2020, our other revenues amounted to RMB0.4 million, RMB0.4 million and RMB12,000, respectively, representing approximately 0.6%, 0.5% and 0.01%, respectively, of our total revenue during the same periods.

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Cost of sales

During the Track Record Period, our cost of sales consisted of (i) amortisation of intangible assets (mainly our IPs); (ii) staff costs for our IP operations and editorial staff; and (iii) marketing costs. For FY2018, FY2019 and FY2020, our cost of sales was RMB38.4 million, RMB40.0 million and RMB49.2 million, respectively, representing approximately 62.4%, 50.7% and 54.9%, respectively, of our total revenue during the same periods.

The following table below sets out a breakdown of our cost of sales for the years indicated:

For the year ended 31 December 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Amortisation of intangible assets 31,232 81.3 36,550 91.3 46,507 94.4 Staff costs 1,734 4.5 3,069 7.7 2,717 5.5 Marketing costs 5,443 14.2 417 1.0 16 (Note)

Total 38,409 100.0 40,036 100.0 49,240 100.0

Note: Marketing costs represented 0.03% of our cost of sales for FY2020.

Amortisation of intangible assets primarily represents amortisation of the copyrights of literary works and games. We recognise copyrights of literary work and measure them initially at cost, which primarily represent (i) the fees and/or royalties paid by our Group to writers; (ii) writing commissions paid by our Group to writers for creating tailor-made literary content; or (iii) royalty fees and/or other fees paid by our Group to IP holders for the acquisition of literary works.

We amortise copyrights of literary works and games on a straight-line basis over their useful economic lives of two to eight years determined based on the estimation of the management of our Group taking into account the relevant writer, genre of the literary work, and type of IP as well as the term of licence.

Staff costs primarily comprise (i) wages, salaries and bonuses and (ii) social security insurance and housing provident fund contributions, for our IP operations and editorial staff.

Marketing costs represent the marketing costs incurred in connection with our online reading business.

Gross profit and gross profit margin

Our gross profit represents our revenue less our cost of sales. Our gross profit margin represents our gross profit as a percentage of our revenue. For FY2018, FY2019 and FY2020, our gross profit was RMB23.1 million, RMB38.9 million and RMB40.5 million, respectively, and our gross profit margin was 37.6%, 49.3% and 45.1% for the respective periods.

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The following table below sets out our gross profit and gross profit margin for the years indicated:

For the year ended 31 December 2018 2019 2020 Gross Gross Gross Gross profit Gross profit Gross profit Profit margin Profit margin Profit margin RMB’000 % RMB’000 % RMB’000 %

Gross profit (Note) 23,138 37.6 38,862 49.3 40,472 45.1

Note: We do not present our gross profit by type of good or services as our cost of sales cannot be accurately allocated to IP adaption licensing, online reading licensing and others. In particular, our IPs (which were recognised as our intangible assets) may be used for both IP adaption licensing or online reading licensing and as such their amortisation, as part of our cost of sales, could not be allocated between these two businesses in a meaningful manner.

Other net expenses

During the Track Record Period, our other net expenses consisted of (i) government grants; (ii) interest income; and (iii) others. For FY2018, FY2019 and FY2020, we recorded other net expenses of RMB1,000, RMB189,000 and RMB13,000, respectively.

The table below sets out a breakdown of our other net expenses for the years indicated:

For the year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Government grants(1) 100 — — Interest income(2) 12 3 11 Others(3) (113) (192) (24)

Total (1) (189) (13)

Notes:

(1) Represents subsidies from local government received by Huizhou Guangxun as a “high and new technology enterprise” in FY2018 which was one-off in nature.

(2) Consists of interest income on bank deposits.

(3) Primarily consists of promotion expenses and business development and exhibition expenses.

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Administrative expenses

During the Track Record Period, our administrative expenses primarily consisted of (i) staff costs for our administrative and management personnel; (ii) rental expenses; (iii) depreciation and amortisation; (iv) professional service fees for legal and consultancy services; (v) impairment losses; and (vi) others, which primarily consisted of office expenses, travel expenses, entertainment fees, tax and other charges, and other miscellaneous expenses. For FY2018, FY2019 and FY2020, our administrative expenses was RMB11.1 million, RMB11.2 million and RMB11.0 million, respectively, representing approximately 18.0%, 14.2% and 12.3%, respectively, of our total revenue during the same years.

The table below sets out a breakdown of our administrative expenses for the years indicated:

For the year ended 31 December 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Staff costs(1) 4,207 37.9 5,179 46.2 3,720 33.7 Rental expenses 177 1.6 230 2.1 359 3.3 Depreciation and amortisation(2) 1,624 14.6 1,536 13.7 979 8.9 Professional service fees 505 4.5 181 1.6 567 5.1 Impairment losses(3) 3,391 30.5 3,299 29.5 4,527 41.0 Others(4) 1,205 10.8 774 6.9 881 8.0

Total 11,109 100.0 11,199 100.0 11,033 100.0

Notes:

(1) Consists of (i) wages, salaries and bonuses; and (ii) social security insurance and housing provident fund contributions for our administrative and management personnel.

(2) Represents the depreciation expenses for property, plant and equipment and amortisation for software.

(3) Represents impairment losses recognised or reversal of trade receivables, intangible assets and prepayments.

(4) Primarily consists of office expenses, travel expenses, entertainment fees, tax and other charges, and other miscellaneous expenses.

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Finance costs

During the Track Record Period, our finance costs consisted of interest expenses on loans from a shareholder of our Group and lease liabilities. For FY2018, FY2019 and FY2020, our finance costs was approximately RMB0.1 million, RMB0.2 million and RMB0.1 million, respectively.

The table below sets out a breakdown of our finance costs for the years indicated:

For the year ended 31 December 2018 2019 2020 RMB’000 % RMB’000 % RMB’000 %

Interest expenses on: Loans from a shareholder of the Company 15 10.8 91 52.9 34 26.6 Lease liabilities 124 89.2 81 47.1 94 73.4

Total 139 100.0 172 100.0 128 100.0

Income tax

For FY2018, FY2019 and FY2020, our income tax was RMB1.6 million, RMB1.9 million and RMB1.0 million, respectively.

In accordance with the PRC Enterprise Income Tax Law, the income tax rate generally applicable to our subsidiaries in the PRC is 25%. Please see note 7 to our historical financial information set forth in Appendix I to this document for further details of the preferential income tax treatments we received during the Track Record Period.

Huizhou Guangxun was certified as a “small and micro-sized enterprise” and enjoyed the preferential rate of 10% and 5% of its enterprise income tax in 2018 and 2019, respectively. Also, entities newly established in Horgos, Xinjiang during the years from 2010 to 2020 can enjoy full exemption on enterprise income tax for five years starting from the tax year in which revenue was first generated.

Pursuant to the laws of the Cayman Islands and the BVI, neither our Company nor our subsidiary incorporated in the BVI is subject to any income tax in the Cayman Islands or the BVI. No provision for Hong Kong profits tax has been made as we had no estimated assessable profits which are subject to Hong Kong profits tax during the Track Record Period.

The effective tax rate for our Group was 13.5%, 7.1% and 3.8% for FY2018, FY2019 and FY2020, respectively.

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The following table sets out a reconciliation between the income tax calculated at the statutory income tax applicable to our profit before tax and our actual income tax for the years indicated:

For the year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Profit before taxation 11,889 27,302 25,886

Expected tax on profit before taxation, calculated at the rates applicable to profits in the jurisdictions concerned 2,972 6,826 6,472 Tax effect of temporary differences not recognised (1) 4,410 6,615 3,713 Tax effect of non-deductible expenses 26 36 902 Tax effect on PRC concession (2) (5,624) (11,259) (9,901) Tax effect of unused tax losses not recognised 191 159 81 Additional deduction of R&D expenses (365) (431) (277)

Income tax 1,610 1,946 990

Notes:

1. The tax effect of temporary differences not recognised primarily arose from the shorter estimated economic useful lives of our intangible assets adopted for the preparation of our financial statements than those for the calculation of statutory income tax applicable to us, which resulted in an increase in amortisation charges on our intangible assets (based on a straight-line basis) and impairment loss recognised on our intangible assets and thus a lower level of profit before taxation in our financial statements.

2. In accordance with the Notice on Preferential Enterprise Income Tax Policies for the Two Special Economic Development Zones in Kashgar, Horgos, Xinjiang, entities newly established in the Xinjiang Horgos special economic areas during the years from 2010 to 2020 can enjoy full exemption on PRC Corporate Income Tax for five years starting from the tax year in which revenue was first generated (“Preferential Tax Treatment”). We have established subsidiaries in the Xinjiang Horgos special economic areas to carry on IP adaptation licensing business in 2015, 2016 and 2019, respectively, and accordingly, these subsidiaries are entitled to full exemption on PRC Corporate Income Tax from the calendar year of their respective establishments to the calendar year of 2020, 2021 and 2024.

Historically, Horgos Kaiwen, one of our subsidiaries established in Xinjiang Horgos special economic areas, enjoyed full exemption on PRC Corporate Income Tax from the calendar year of its establishment (i.e. 2015) up to the calendar year of 2020. Horgos Kaiwen is principally engaged in IP adaptation licensing and it made material revenue contribution to our Group during Track Record Period. As at 31 December 2020, Horgos Kaiwen was the holder of more than 50 IPs and it would continue to conduct the IP adaptation licensing business after the expiry of the Preferential Tax Treatment as disclosed above. Notwithstanding, Horgos Kaiwen shall continue to enjoy partial tax exemption pursuant to the tax benefit policies set out in Preferential Fiscal and Tax Policies for Investment Promotion in Horgos Economic Development Zone《霍爾果斯經濟開發區招商引資財稅優惠政策 ( (霍特管辦發[2013]55號”)》) promulgated by Management Committee of Horgos Economic Development Zone (霍爾果斯經濟開發區管理委員會). Pursuant to this policy, the portion of taxes levied and retained by the local government shall be reimbursed to the eligible company for another five years. Based on the standard tax rate of 25%, and taking into account of the above tax benefit policies, Horgos Kaiwen is expected to receive a reimbursement equivalent to 10% of taxable profit, resulting in an expected net tax rate of 15% applicable to Horgos Kaiwen’s taxable profit from 2021 onwards.

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As at the Latest Practicable Date, we have paid all relevant taxes that were due and we are not aware of any tax dispute or unresolved tax issue.

REVIEW OF HISTORICAL RESULTS OF OPERATIONS

FY2020 compared to FY2019

Revenue

Our revenue increased by 13.7% from RMB78.9 million for FY2019 to RMB89.7 million for FY2020.

IP adaption licensing

Our revenue generated from our IP adaptation licensing business increased by 29.6% from RMB64.2 million for FY2019 to RMB83.3 million for FY2020. Such increase was primarily attributable to (i) the revenue of RMB28.3 million generated from the licensing of Tian Ying (天影) to our content adaptation partner for adaptation into film and TV drama; and (ii) the increase in the number of IPs which we licensed to our content adaptation partners and generated revenue from 75 for FY2019 to 171 for FY2020, which was due to the fact that we granted a bundled license of the adaptation rights of 160 IPs to a major online reading platform, namely Customer B (as identified in the section headed “Business” in this document) during FY2020.

Online reading licensing

Our revenue generated from our online reading business decreased by 54.8% from RMB14.3 million for FY2019 to RMB6.4 million for FY2020. Such decrease was primarily attributable to the overall decline in paid subscriptions on our cooperating online reading platforms as a result of the increasing availability of free literary content on the online reading platforms, leading to a decrease in the readers’ payment for subscribing our literary works on our cooperating online reading platforms and thus our shared revenue from such platforms.

Others

Our revenue generated from others decreased by 97.0% from RMB0.4 million for FY2019 to RMB12,000 for FY2020. Such decrease was primarily attributable to the fact that there was no publication of new games we co-invested during FY2020.

Cost of sales

Our cost of sales increased by 23.0% from RMB40.0 million for FY2019 to RMB49.2 million for FY2020. Such increase was primarily attributable to the increase in amortisation expenses for intangible assets. Such increase in amortisation expense was due to the fact that we incurred more expenditure to acquire IPs during the second half of FY2019 as compared to the first half of FY2019, which resulted in an amortisation of the relevant IPs for less than half a year for FY2019 (but an amortisation for a full year for FY2020).

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Gross profit and gross profit margin

As a result of the above, our gross profit increased by 4.1% from RMB38.9 million for FY2019 to RMB40.5 million for FY2020. Our gross profit margin decreased from 49.3% for FY2019 to 45.1% for FY2020.

Other net expenses

Our other net expenses decreased by 93.1% from RM189,000 for FY2019 to RMB13,000 for FY2020. Such decrease was primarily attributable to a decrease in client hospitality activities in view of the social distancing restrictions during COVID-19 pandemic.

Administrative expenses

Our administrative expenses decreased by 1.5% from RMB11.2 million for FY2019 to RMB11.0 million for FY2020. The decrease in our administrative expenses was primarily attributable to a decrease in staff costs due to the departure of certain employees and the COVID-19 related social insurance concessions, which was partially offset by an increase in impairment loss from RMB3.3 million for FY2019 to RMB4.5 million for FY2020.

Finance costs

Our finance costs decreased by 25.6% from RMB0.2 million for FY2019 to RMB0.1 million for FY2020, primarily due to the decrease in interest expenses resulting from the reduction in the outstanding loan balance due from a shareholder in our Group.

Income tax

Our income tax decreased by 49.1% from RMB1.9 million for FY2019 to RMB1.0 million for FY2020, primarily attributable to (i) the tax concession we received in respect of the income generated by our subsidiaries established in Horgos. We have established such subsidiaries to carry on IP adaptation licensing business in 2015, 2016 and 2019, respectively, and accordingly, these subsidiaries are entitled to full exemption on PRC Corporate Income Tax from the calendar year of their respective establishments to the calendar year of 2020, 2021 and 2024; and (ii) a decrease in the tax effect of temporary differences not recognised arising from the difference in the economic useful lives of intangible assets used in the calculation of income tax from these used for preparation of our financial statement.

Profit for the year

As a result of the foregoing, our profit for the year remained relatively stable at approximately RMB25.4 million for FY2019 and RMB24.9 million for FY2020.

FY2019 compared to FY2018

Revenue

Our revenue increased by 28.2% from RMB61.5 million for FY2018 to RMB78.9 million for FY2019.

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IP adaptation licensing

Our revenue generated from our IP adaptation licensing business increased by 54.6% from RMB41.5 million for FY2018 to RMB64.2 million for FY2019. Such increase was primarily attributable to the fact the we licensed the adaptation rights of a number of major literary works to Kaiser (China) Culture Co., Ltd. (凱撒(中國)文化股份有限公司), one of our content adaptation partners, including Original World - Xia Xing Tian Xia (源世界之俠行天下) and Dao Yuan Fu Tu (道緣浮圖), at a total licensing fee of approximately RMB33.5 million.

Online reading licensing

Our revenue generated from our online reading business decreased by 27.3% from RMB19.6 million for FY2018 to RMB14.3 million for FY2019. Such decrease was primarily attributable to the overall decline in paid subscriptions on our cooperating online reading platforms as a result of the increasing availability of free literary content on the online reading platforms, leading to a decrease in the readers’ payment for subscribing our literary works on our cooperating online reading platforms and thus our shared revenue from such platforms.

Others

Our revenue generated from others remained relatively stable at approximately RMB0.4 million for FY2018 and FY2019.

Cost of sales

Our cost of sales increased by 4.2% from RMB38.4 million for FY2018 to RMB40.0 million for FY2019. Such increase was primarily attributable to the increase in amortisation expenses for intangible assets as a result of the increase in the number of our IPs.

Gross profit and gross profit margin

As a result of the above, our gross profit increased by 68.0% from RMB23.1 million for FY2018 to RMB38.9 million for FY2019. Our gross profit margin increased from 37.6% for FY2018 to 49.3% for FY2019.

Other net expenses

Our other net expenses increased from RMB1,000 for FY2018 to RMB0.2 million for FY2019, primarily due to the government grants we received in the amount of RMB0.1 million in FY2018 which offset most of our other expenses for that year, whilst no such grants were available to us for FY2019.

Administrative expenses

Our administrative expenses remained relatively stable at approximately RMB11.1 million and RMB11.2 million for FY2018 and FY2019, respectively.

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Finance costs

Our finance costs increased by 23.7% from RMB0.1 million for FY2018 to RMB0.2 million for FY2019, primarily due to the increase in the total amount of loans received from a shareholder in our Group and thus the relevant interest expenses.

Income tax

Our income tax increased by 20.9% from RMB1.6 million for FY2018 to RMB1.9 million for FY2019, primarily attributable to the increase in our taxable profit from RMB11.9 million for FY2018 to RMB27.3 million for FY2019, which was partially offset by the increase in PRC tax concession received by our Group, as we have established a new subsidiary in the Xinjiang Horgos special economic areas in September 2019, which was entitled to full exemption on PRC Corporate Income Tax.

Profit for the year

As a result of the foregoing, our profit for the year increased by 146.7% from RMB10.3 million for FY2018 to RMB25.4 million for FY2019.

LIQUIDITY AND CAPITAL RESOURCES

During the Track Record Period, our principal source of cash was generated from our business operations.

As at 31 December 2018, 31 December 2019 and 31 December 2020, we had cash at bank and on hand of RMB1.1 million, RMB1.2 million and RMB9.9 million, respectively.

Going forward, we believe our liquidity requirements will be satisfied by using funds from a combination of internally generated cash and net [REDACTED] from the [REDACTED], and other funds raised from the capital markets from time to time.

Cash flows

The following table is a condensed summary of our combined statements of cash flows and analysis of balances of cash and cash equivalents for the years indicated:

For the year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Net cash generated from operating activities 54,964 71,216 60,631 Net cash used in investing activities (65,145) (70,306) (49,286) Net cash generated from/(used in) financing activities 6,208 (523) (2,707) Net (decrease) increase in cash and cash equivalents (3,973) 387 8,638 Cash and cash equivalents at beginning of the year 4,829 856 1,243 Cash and cash equivalents at end of the year 856 1,243 9,881

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Net cash generated from (used in) operating activities

Net cash generated from or used in operating activities primarily comprise our profit for the period adjusted by (i) non-cash items, such as depreciation and amortisation; and (ii) changes in working capital, such as increase or decrease in trade receivables, increase or decrease in prepayments, deposits and other receivables, and increase or decrease trade and other payables.

Net cash generated from operating activities for FY2020 was RMB60.6 million, which was primarily attributable to our profit before taxation of RMB25.9 million, as adjusted by (i) non-cash items, which primarily comprised depreciation of property, plant and equipment of RMB0.2 million, depreciation of right-of-use-assets of RMB0.7 million, amortisation of copyright of online literary work of RMB45.3 million, amortisation of copyright of games of RMB1.2 million, recognition of impairment losses on intangible assets of RMB3.1 million and impairment losses recognised on prepayment and other receivables of RMB2.4 million; and (ii) changes in working capital, which primarily comprised an increase in trade receivables of RMB9.1 million and a decrease in trade payables of RMB7.1 million, partially offset by an increase in other payables and accrued expenses of RMB0.9 million.

Net cash generated from operating activities for FY2019 was RMB71.2 million, which was primarily attributable to our profit before taxation of RMB27.3 million, as adjusted by (i) non-cash items, which primarily comprised depreciation of property, plant and equipment of RMB0.4 million, depreciation of right-of-use assets of RMB1.1 million, amortisation of copyright of online literary work of RMB35.4 million, amortisation of copyright of games of RMB1.2 million, recognition of impairment losses on trade receivables of RMB2.2 million; and (ii) changes in working capital, which primarily comprised a decrease in trade payables of RMB2.5 million and a decrease in other payables and accrued expenses of RMB0.4 million, partially offset by a decrease in trade receivables of RMB6.1 million.

Net cash used in operating activities for FY2018 was RMB55.0 million, which was primarily attributable to our profit before taxation of RMB11.9 million, as adjusted by (i) non-cash items, which primarily comprised depreciation of property, plant and equipment of RMB0.4 million, depreciation of right-of-use assets of RMB1.3 million, amortisation of copyright of online literary work of RMB30.5 million, amortisation of copyright of games of RMB0.7 million, recognition of impairment losses on trade receivables of RMB1.2 million and recognition of impairment losses on intangible assets of RMB2.2 million; and (ii) changes in working capital, which primarily comprised an increase in trade payables of RMB12.7 million and an increase in other payables and accrued expenses of RMB0.6 million, partially offset by a decrease of trade receivables of RMB1.7 million.

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Net cash used in investing activities

Net cash used in investing activities for FY2020 was RMB49.3 million, which was primarily attributable to (i) the payment for purchases of intangible assets of RMB30.5 million; and (ii) the payments for co-investments in drama series, films and online games of RMB19.0 million.

Net cash used in investing activities for FY2019 was RMB70.3 million, which was primarily attributable to the payment for purchases of intangible assets of RMB74.7 million, partially offset by the repayment of loans from third parties of RMB5.1 million.

Net cash used in investing activities for FY2018 was RMB65.1 million, which was primarily attributable to (i) payments for purchase of intangible assets of RMB60.4 million and (ii) advances to third parties of RMB15 million, partially offset by repayment of advances from third parties of RMB10.5 million.

Net cash generated from (used in) financing activities

Net cash used in financing activities for FY2020 was RMB2.7 million, which was primarily attributable to repayment of loans to a shareholder in our Group of RMB6.2 million, partially offset by the proceeds from loans from a shareholder in our Group of RMB4.6 million.

Net cash used in financing activities for FY2019 was RMB0.5 million, which was primarily attributable to repayment of loans to a shareholder in our Group of RMB4.6 million, partially offset by proceeds from loans from a shareholder of the Company of RMB4.4 million.

Net cash generated from financing activities for FY2018 was RMB6.2 million, which was primarily attributable to (i) proceeds from loans from a shareholder in our Group of RMB1.9 million; and (ii) deemed cash contribution our Controlling Shareholders of RMB5.6 million, partially offset by the capital element of lease rentals paid of RMB1.2 million.

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DESCRIPTION OF SELECTED ITEMS OF THE COMBINED STATEMENT OF FINANCIAL POSITION

The following table sets out a summary of our combined statements of financial position as at the dates indicated:

As at 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Non-current assets Property, plant and equipment 3,931 2,350 2,013 Intangible assets 80,969 118,050 98,959 Other non-current assets 1,283 1,000 1,000

86,183 121,400 101,972 Current assets Trade receivables 28,999 20,626 30,704 Prepayments, deposits and other receivables 9,704 4,822 22,061 Tax recoverable 3,043 3,706 2,569 Cash at bank and on hand 1,088 1,243 9,881

42,834 30,397 65,215 Current liabilities Bank loan — — 100 Trade payables 27,618 25,126 18,026 Other payables and accrued expenses 6,654 6,787 4,756 Lease liabilities 101 476 1,112 Current taxation 3,050 3,075 2,861

37,423 35,464 26,855

Net current assets/(liabilities) 5,411 (5,067) 38,360 Total assets less current liabilities 91,594 116,333 140,332 Non-current liabilities Lease liabilities 1,645 1,249 872 NET ASSETS 89,949 115,084 139,460

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As at 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

CAPITAL AND RESERVES Share capital — — — Reserves 84,717 105,864 131,728

Total equity attributable to equity shareholders of the Company 84,717 105,864 131,728 Non-controlling interests 5,232 9,220 7,732

TOTAL EQUITY 89,949 115,084 139,460

Property, Plant and Equipment

During the Track Record Period, our property, plant and equipment consists of (i) leasehold improvements; (ii) office equipment and others; and (iii) right-of-use assets. As at 31 December 2018, 31 December 2019 and 31 December 2020, the carrying amount of our property, plant and equipment was RMB3.9 million, RMB2.4 million and RMB2.0 million, respectively. Please see Note 11 to the Accountants’ Report as set out in Appendix I to this document for further details on our property, plant and equipment.

Right-of-use assets

The carrying amounts of our right-of-use assets represent leases entered into by our Group for office premises in the PRC. The right-of-use assets are recognised when a lease is capitalised and measured initially at costs, which represents the initial amount of the lease liability plus any lease payments made at or before the commencement date, and any initial direct costs incurred. Such assets are depreciated on a straight-line basis over the term of the lease. Lease contracts were entered into for fixed term which typically run for an initial period of up to six years.

The table below sets out the movements of our right-of-use assets as at the dates indicated:

At 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

As at 1 January 4,076 2,659 1,522 Additions — — 642 Disposals (2,103) (1,362) — Depreciation (1,417) (1,137) (749) Written back on disposal 2,103 1,362 —

Total 2,659 1,522 1,415

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Intangible assets

During the Track Record Period, our intangible assets consisted of (i) copyright of online literary work; (ii) copyright of games; and (iii) software which we purchased for financial management. We recognise copyrights of online literary work and measure them initially at cost, which primarily represent (i) the fees and/or royalties paid by our Group to writers; (ii) writing commission paid by our Group to the writers for creating tailor-made literary content; or (iii) royalty fees and/or and/or other fees paid by our Group to IP holders for the acquisition of literary works. During the Track Record Period, the games that we have invested in were adapted from literary works in which we hold adaptation rights. When development of the relevant games commenced, the carrying value of the relevant literary works would be re-classified as the value of the copyrights of such games. Accordingly, we measure copyrights of games at the carrying value of the relevant literary works adapted plus any investment we made in the development of the relevant games. We amortise such intangible assets on a straight-line basis over their useful economic lives of two to eight years determined based on the estimation of the management of our Group, taking into account the relevant writer, genre of the literary work, and type of IP as well as the term of licence. Intangible assets are subject to amortisation and reviewed for impairment periodically or whenever events or changes in circumstances indicated that the carrying amount may not be recoverable. When a decline in the carrying amount of the intangible assets has occurred, the carrying amount is reduced to the recoverable amount. The recoverable amount is the greater of the fair value less costs of disposal and value in use.

For software, we recognise and measure such intangible assets initially at cost or estimated fair value of intangible assets acquired. We amortise such intangible assets on a straight-line basis over their estimated useful lives, generally for ten years.

The following table sets out a breakdown of our intangible assets as at the dates indicated:

At 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

80,969 118,050 98,959

Our intangible assets increased by 45.8% from RMB81.0 million as at 31 December 2018 to RMB118.1 million as at 31 December 2019, which was primarily attributable to the increase in the number of our IPs, through our development or acquisition, from 295 as at 31 December 2018 to 426 as at 31 December 2019 as a result of the development and expansion of our IP adaptation licensing business. Our intangible assets decreased by 16.17% from RMB118.1 million as at 31 December 2019 to RMB99.0 million as at 31 December 2020, which was primarily attributable to the increase in amortisation from RMB36.6 million to RMB46.5 million and to a lesser extent, the increase in

− 217 − THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. FINANCIAL INFORMATION impairment loss from RMB1.1 million to RMB3.1 million. Such increase was primarily due to the fact that we incurred more expenditure to acquire IPs during the second half of FY2019 as compared to the first half of FY2019, which resulted in an amortisation of the relevant IPs for less than half a year for FY2019, but an amortisation for a full year for FY2020.

Trade receivables

Trade receivables primarily represent the outstanding amount of licensing fees due from our customers for licensing of our literary works.

The following table sets out a breakdown of our trade receivables as of the dates indicated:

At 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Trade receivables 35,193 29,055 35,743 Less: loss allowance (6,194) (8,429) (5,039)

Total 28,999 20,626 30,704

Our trade receivables decreased by 28.9% from RMB29.0 million as at 31 December 2018 to RMB20.6 million as at 31 December 2019, primarily due to the settlement of a number of substantial trade receivables from our customers during FY2019, including RMB28.0 million from Kaiser (China) Culture Co., Ltd. (凱撒（中國）文化股份有限公司), RMB9.6 million from Horgos Butterfly Effects Culture Media Company Limited (霍爾果斯蝴蝶效應文化傳媒有限公司) and RMB5.0 million from Beijing Boyichuangwei Digital Media Co., Ltd (博易創為（北京）數字傳媒股份有限公司).

Our trade receivables increased by 48.9% from RMB20.6 million as at 31 December 2019 to RMB30.7 million as at 31 December 2020, primarily due to the growing revenue of our Group.

We determine the likelihood and amount of our loss allowances based on our evaluation of the possibility of recovery and aging analysis of the relevant account receivables and our management’s judgment, including the customer’s past history of making payments when due and current ability to pay. Please refer to the paragraph headed “Credit Risk — Trade receivables” for details of our expected loss rates.

Our loss allowance on trade receivables increased by 36.1% from RMB6.2 million as at 31 December 2018 to RMB8.4 million as at 31 December 2019, primarily due to upward adjustment of the expected loss rate applied in FY2019. Our loss allowance on trade receivables decreased by 40.2% from RMB8.4 million as at 31 December 2019 to RMB5.0 million as at 31 December 2020, primarily due to our improving efforts in collecting receivables, reversal of impairment loss recognised of RMB1.0 million due to the settlement of trade receivables due from three customers, respectively.

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Out of our trade receivables of RMB30.7 million as at 31 December 2020, approximately RMB17.9 million (representing 58.3% of the total amount) was settled as at 30 April 2021.

Our Group’s trade receivables are due within nil to 120 days from the date of billing. The following table sets out the ageing analysis of our trade receivables that are not individually nor collectively considered to be impaired as at the dates indicated:

At 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Within 6 months 22,027 9,633 17,410 6 to 12 months 6,336 7,357 12,901 1 to 2 years 288 3,603 197 2 to 3 years 18 33 188 Over 3 years 330 — 8

Total 28,999 20,626 30,704

The following table sets out the trade receivables turnover days as at the dates indicated:

At 31 December 2018 2019 2020

Trade receivables turnover days(Note) 180.6 114.8 104.4

Note: Calculated using the average of the beginning and ending trade receivables balances (net of loss allowances) of the period, divided by revenue for the period, and multiplied by the number of days in the period.

Our trade receivables turnover days decreased from 180.6 days as at 31 December 2018 to 114.8 days as at 31 December 2019, primarily due to the settlement of a number of substantial trade receivables from our customers during FY2019, including RMB28.0 million from Kaiser (China) Culture Co., Ltd. (凱撒（中國）文化股份有限公司), RMB9.6 million from Horgos Butterfly Effects Culture Media Company Limited (霍爾果斯蝴蝶效應文化傳媒有限公司) and RMB5.0 million from Beijing Boyichuangwei Digital Media Co., Ltd (博易創為（北京）數字傳媒股份有限公司).

Our trade receivables turnover days decreased from 114.8 days as at 31 December 2019 to 104.4 days as at 31 December 2020, primarily due to quicker repayment from customers in general.

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Prepayments, deposits and other receivables

At 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Prepayments and/or deposits: Prepayments under co-investment arrangements for drama series — — 16,600 Prepayments for costs incurred in connection with the proposed initial [REDACTED] of the Company’s shares — — 773 Others 603 407 381

603 407 17,754

Other receivables in connection with: Advances to third parties 8,600 4,240 4,000 Others 501 175 307

9,101 4,415 4,307

9,704 4,822 22,061

Our prepayments, deposits and other receivables decreased by 50.3% from RMB9.7 million as at 31 December 2018 to RMB4.8 million as at 31 December 2019, primarily due to a decrease in advances to third parties as a result of loan repayments from third parties. During the Track Record Period, our advances to third parties primarily comprised an advance of RMB4 million to a previous customer of our Group for its capital needs for production of drama series as well as advances of RMB2 million and RMB1 million to our supplier and a media production company for their short term capital needs, respectively. Such advances were short term and non-interest bearing in nature.

Our prepayments, deposits and other receivables increased by 357.5% from RMB4.8 million as at 31 December 2019 to RMB22.1 million as at 31 December 2020, primarily due to the prepayments under co-investment arrangements for drama series of RMB16.6 million made in FY2020 in connection with an investment we made with respect to the production of two drama series. Under the relevant co-investment agreements, we have agreed to prepay a stipulated investment amount for the production of the two drama series and we will be entitled to a share of the net income from the publication of the drama series in proportion to our investment amount. Please refer to the section headed “Business — Our Business Model — Co-investment in Production of Entertainment Products” for further details of such co-investment agreements.

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Trade payables

Our trade payables primarily consist of (i) the amounts payable for acquisition of adaptation rights; (ii) the amounts payable to IP holders or writers under relevant licensing and/or revenue-sharing arrangements; and (iii) the amounts payable for promotion.

The following table sets out a breakdown of our trade payables as at the dates indicated:

At 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Payables for promotion activities 1,480 744 744 Payables for acquisitions of adaptation rights of online literary works 24,889 23,343 16,244 Others 1,249 1,039 1,038

Total 27,618 25,126 18,026

Our trade payables decreased by 9.0% from RMB27.6 million as at 31 December 2018 to RMB25.1 million as at 31 December 2019 primarily due to (i) the decrease in our total spending on IP acquisitions in FY2019; and (ii) the settlement of trade payables in the amount of approximately RMB12.1 million due to three suppliers for IP acquisitions during FY2019. Our trade payables further decreased by 28.3% from RMB25.1 million as at 31 December 2019 to RMB18.0 million as at 31 December 2020 primarily due to (i) the decrease in our total spending on IP acquisitions in FY2020; and (ii) the settlement of trade payables in the amount of approximately RMB6.3 million due to three suppliers for IP acquisitions during FY2020.

The following table sets out the ageing analysis of our trade payables as at the dates indicated, based on the invoice date:

At 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Within 6 months 23,169 810 4 6 to 12 months 1,249 20,121 2 1 to 2 years 2,800 1,045 13,825 2 to 3 years — 2,750 1,045 Over 3 years 400 400 3,150

Total 27,618 25,126 18,026

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Among our outstanding trade payables as at 31 December 2020, RMB3.2 million had an age of over three years and a large portion of such trade payables (i.e. RMB2.8 million) were attributable to the acquisition of a major IP, namely Tian Ying (天影), at the consideration of approximately RMB20 million. As a large proportion of the relevant trade payables have been already settled, the relevant IP supplier has allowed us to settle the outstanding amount at a later stage, in view of our on-going business relationships with such supplier or its affiliates.

Out of our trade payables of RMB18.0 million as at 31 December 2020, approximately RMB10.0 million (representing 55.5% of the total amount) was settled as at 30 April 2021.

The following table sets out the trade payables turnover days as at the dates indicated:

At 31 December 2018 2019 2020

Trade payables turnover days(1) 201.9 240.4 159.9

Note:

(1) Calculated using the average of the beginning and ending trade payables balances (net of loss allowances) of the period, divided by cost of sales for the period, and multiplied by the number of days in the period

Our trade payable turnover days increased from 201.9 days as at 31 December 2018 to 240.4 days as at 31 December 2019, primarily due to the substantial increase in the average trade payables for FY2019 as compared to that for FY2018 resulting from the lower level of trade payables at the beginning of FY2018 due to the relatively small amount of IPs acquired during the previous year.

Our trade payable turnover days decreased from 240.4 days as at 31 December 2019 to 159.9 days as at 31 December 2020, primarily due to the substantial decrease in the average trade payable resulting from (i) the decrease in the amount of IP acquisition by our Group in FY2020; and (ii) the settlement of trade payables in the amount of approximately RMB6.3 million due to three suppliers for IP acquisitions during FY2020.

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Other payables and accrued expenses

As at 31 December 2018, 31 December 2019 and 31 December 2020, our other payables and accrued expenses was RMB6.7 million, RMB6.8 million and RMB4.8 million, respectively. The following table sets out a breakdown of our other payables and accrued expenses as at the dates indicated:

At 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Loans from a shareholder of the Company 1,870 1,670 — Interest payables to a shareholder of the Company 15 106 — Payables for staff related costs 1,404 1,288 1,466 Payables for other taxes (Note) 1,339 1,083 3,107 Others 26 40 183 Contract liabilities 2,000 2,600 —

Total 6,654 6,787 4,756

Note: Such other taxes include, among other things, value-added tax, stamp duty and urban maintenance construction tax.

Our other payables and accrued expenses increased by 2.0% from RMB6.7 million as at 31 December 2018 to RMB6.8 million as at 31 December 2019, primarily due to (i) increase in interest payables with respect to loans from a shareholder in our Group; and (ii) increase in contract liabilities as a result of early payment received from one of our content adaptation partners.

Our other payables and accrued expenses decreased by 29.9% from RMB6.8 million as at 31 December 2019 to RMB4.8 million as at 31 December 2020, primarily due to (i) repayment of the loans from a shareholder of the Company; and (ii) decrease in contract liabilities as we received no early payment from our customers in FY2020.

All of the other payables and accrued expenses are expected to be settled or recognised as income within one year or are repayable on demand.

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Net current assets/(liabilities)

The following table sets out details of our current assets and current liabilities, and net current assets/(liabilities) as at the dates indicated:

As at As at 31 December 30 April 2018 2019 2020 2021 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)

Current assets Trade receivables 28,999 20,626 30,704 21,224 Prepayments, deposits and other receivables 9,704 4,822 22,061 40,985 Tax recoverable 3,043 3,706 2,569 2,603 Cash at bank and on hand 1,088 1,243 9,881 3,090

42,834 30,397 65,215 67,902 Current liabilities Bank loan — — 100 100 Trade payables 27,618 25,126 18,026 8,396 Other payables and accrued expenses 6,654 6,787 4,756 748 Lease liabilities 101 476 1,112 1,293 Current taxation 3,050 3,075 2,861 5,630

37,423 35,464 26,855 16,167

Net current assets/(liabilities) 5,411 (5,067) 38,360 51,735

Our net current assets represent the difference between our current assets and our current liabilities.

As at 31 December 2018, we had net current assets of RMB5.4 million, consisting of current assets of RMB42.8 million and current liabilities of RMB37.4 million.

As at 31 December 2019, we had net current liabilities of RMB5.1 million, consisting of current assets of RMB30.4 million and current liabilities of RMB35.5 million, and represented decline from our net current assets of RMB5.4 million as at 31 December 2018. This was primarily attributable to (i) a decrease in trade receivables as a result of the settlement of a number of substantial trade receivables during FY2019; (ii) a decrease in our prepayment, deposits and other receivables mainly due a repayment of advances by third parties, which was partially offset by a decrease in trade payables as a result of a decrease in payables for acquisitions of adaptation rights of online literary works.

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As at 31 December 2020, we had net current assets of RMB38.4 million, consisting of current assets of RMB65.2 million and current liabilities of RMB26.9 million, and represented a significant increase by 857.1% from our net current liabilities of RMB5.1 million as at 31 December 2019. This was primarily attributable to (i) an increase in trade receivables, which corresponded to the general improvement in revenue recognised; (ii) an increase in prepayment, deposits and other receivables as a result of the increase in prepayments under co-investment arrangements for drama series of RMB16.6 million made in FY2020, in connection with an investment we made with respect to the production of two drama series; (iii) an increase in cash at bank and on hand; (iv) a decrease in trade payables as a result of a decrease in payables for acquisition of adaptation rights of online literary works; and (v) a decrease in other payables and accrued expenses primarily as a result of the repayment of the loans from a Shareholder.

As at 30 April 2021, being the latest practicable date for determining our net current assets, we had net current assets of RMB51.7 million, consisting of current assets of RMB67.9 million and current liabilities of RMB16.2 million, and represented an increase by 34.9% from our net current assets of RMB38.4 million as at 31 December 2020. This was primarily attributable to the increase in prepayment, deposits and other receivables resulting from the prepayments of RMB14.5 million and RMB4.5 million made by our Group for its respective investments in the production of two films and the decrease in trade payables due to quicker payments to our customers during the four months ended 30 April 2021.

WORKING CAPITAL

Taking into account the financial resources available to our Group, including cash flow from our business operations and the estimated net [REDACTED] from the [REDACTED], our Directors are of the view that we will have sufficient working capital to meet our present requirements and for the next 12 months from the date of this document. Our Directors confirm that our Group had no material default in payment of trade payables and bank borrowings and/or breaches of finance covenants during the Trade Record Period.

INDEBTEDNESS

During the Track Record Period, our indebtedness consisted primarily of a bank loan, loans from a Shareholder and lease liabilities.

The following table sets out a breakdown of our indebtedness as at the dates indicated:

At At 31 December 30 April 2018 2019 2020 2021 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)

Bank loan — — 100 100 Loans from a shareholder of the Company 1,870 1,670 — — Lease liabilities 1,746 1,725 1,984 1,936

Total 3,616 3,395 2,084 2,036

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As at 30 April 2021, being the latest practicable date for the purpose of this indebtedness statement, our total indebtedness amounted to RMB2.0 million.

The following table sets out the interest rates per annum on our other loans as at the dates indicated:

At At 31 December 30 April 2018 2019 2020 2021

Fixed rate borrowings Bank loan N/A N/A 4.05% 4.05% Loans from a shareholder of the Company 4.65% 4.65% N/A N/A Lease liabilities 4.75% 4.75% 4.75% 4.75%

Lease Liabilities

The following table sets out a breakdown of our lease liabilities as at the dates indicated:

At At 31 December 30 April 2018 2019 2020 2021 RMB’000 RMB’000 RMB’000 RMB’000 (unaudited)

Lease liabilities Current 101 476 1,112 1,293 Non-current 1,645 1,249 872 643

Total 1,746 1,725 1,984 1,936

As at 30 April 2021, being the latest practicable date for the purpose of this indebtedness statement, we did not have any banking facilities, any unutilised banking facilities or any other debt securities issued and outstanding or authorised or otherwise created but unissued, bank overdrafts, loans, or other similar indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgages, charges, hire purchases commitments, guarantees, or other material contingent liabilities. We do not have plans to materially change our borrowing levels.

OFF-BALANCE SHEET ARRANGEMENTS

As at 30 April 2021, being the latest practicable date for the purpose of the indebtedness statement, we did not have any off-balance sheet arrangements.

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CONTINGENT LIABILITIES

As at 31 December 2018, 31 December 2019 and 31 December 2020, we did not have any material contingent liabilities, guarantees or any litigations or claims, pending or threatened against us that is likely to have a material and adverse effect on our business, financial condition or results of operations.

CAPITAL EXPENDITURES

In FY2018, FY2019 and FY2020, our capital expenditure was RMB60.7 million, RMB74.7 million and RMB31.2 million, respectively. Our capital expenditures during the Track Record Period primarily consisted of expenditures on purchase of property, plant and equipment and purchase of intangible assets.

The following table sets out a breakdown of our capital expenditures for the years indicated:

For the year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Capital expenditures for: Property, plant and equipment 230 — 642 Intangible assets 60,427 74,696 30,537

Total 60,657 74,696 31,179

We expect to incur capital expenditure of approximately RMB32.0 million and RMB42.1 million for the year ending 31 December 2021 and 2022, respectively, which are primarily related to the acquisition of IPs.

CAPITAL COMMITMENTS

During the Track Record Period, we did not have any other capital commitments.

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SUMMARY OF KEY FINANCIAL RATIOS

The following table sets out certain key financial ratios as at or for the years indicated:

For the year ended 31 December 2018 2019 2020 %%%

Net profit margin(1) 16.7 32.1 27.8 Return on equity(2) 11.4 22.0 17.9 Return on total assets(3) 8.0 16.7 14.9

As at 31 December 2018 2019 2020

Current ratio/quick ratio(4) 1.1 0.9 2.4 Gearing ratio(5) 0.02 0.01 0.001

Note:

(1) Net profit margin is the profit for the year divided by the revenue for the same year.

(2) Return on equity ratio is profit for the year divided by total equity as at the end of the year.

(3) Return on total assets ratio is profit for the year divided by total assets as at the end of the year.

(4) Current ratio is total current assets as at the end of the year divided by total current liabilities as at the end of the year. Quick ratio is current assets (net of inventories) divided by total current liabilities as at the end of the year. As we do not have any inventories, the quick ratio is the same as the current ratio for our Group.

(5) Gearing ratio is interest-bearing bank loan as at the end of the year divided by total equity as at the end of the year.

Net profit margin

Our net profit margin increased from 16.7% in FY2018 to 32.1% in FY2019, and decreased to 27.8% to FY2020. The increase in net profit margin from FY2018 to FY2019 was attributable to the substantial increase in our revenue from our IP adaptation licensing, which was primarily attributable to (i) the improvement of our gross profit margin as a result of the license of adaptation rights of a number of major literary works to our content adaptation partners, including Original World — Xia Xing Tian Xia (源世界之俠行天下) and Dao Yuan Fu Tu (道緣浮圖); and (ii) the administrative expenses remained stable to FY2019 as compared to that of FY2018. The decrease in net profit margin from FY2019 to FY2020 was primarily attributable to the [REDACTED] we incurred in FY2020. Please refer to paragraph headed “Review of Historical Results of Operations” in this section for further details.

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Return on equity

Our return on equity increased from 11.4% in FY2018 to 22.0% in FY2019, and decreased to 17.9% in FY2020. The fluctuations in return on equity were in line with fluctuations in our net profit during the Track Record Period. Please refer to paragraph headed “Review of Historical Results of Operations” in this section for further details.

Return on total assets

Our return on total assets increased from 8.0% in FY2018 to 16.7% in FY2019, and decreased to 14.9% to FY2020. The fluctuations in return on total assets were in line with fluctuations in our net profit during the Track Record Period. Please refer to paragraph headed “Review of Historical Results of Operations” in this section for further details.

Current ratio/quick ratio

As at 31 December 2018, 31 December 2019 and 31 December 2020, our current ratio/quick ratio was 1.1, 0.9 and 2.4, respectively. Please refer to paragraph headed “Description of selected items of the statement of financial position” in this section for further details of changes in our current assets and current liabilities over the Track Record Period.

Gearing ratio

As at 31 December 2018, 31 December 2019 and 31 December 2020, our gearing ratio was 0.02, 0.01 and 0.001, respectively. The primary driver of changes to our indebtedness during the Track Record Period was the loans we borrowed from a shareholder of our Group and the bank loan we obtained during the Track Record Period. Please refer to paragraph headed “Description of Selected Items of the statement of financial position” in this section for further details of changes in our indebtedness over the Track Record Period.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT FINANCIAL RISKS

We are exposed to various types of financial and market risks in the ordinary course of our business, including interest rate risk, credit risk, and liquidity risk. We manage and monitor these exposures to ensure appropriate measures are implemented on a timely and effective manner. Our exposure to these financial risks is described below.

Interest rate risk

Our exposure to interest rate risk arises primarily from interest-bearing borrowings. Borrowings issued at variable rates and at fixed rates expose our Group to cash flow interest rate risk and fair value interest rate risk respectively.

We had no bank borrowings as at 31 December 2018 and 2019 and we had an outstanding balance of bank loan of RMB100,000 as at 31 December 2020.

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Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to our Group. Our Group’s credit risk is primarily attributable to trade receivables and prepayments, deposits and other receivables. Our Group’s exposure to credit risk arising from cash at bank is limited because the counterparties are banks with good credit standing, for which our Group considers to have low credit risk. Our Group does not provide any guarantees which would expose the Group to credit risk.

Trade receivables

We have established a credit risk management policy under which individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates.

The following tables sets out information about our exposure to credit risk and ECLs for trade receivables as at the dates indicated:

At 31 December 2018 Gross Expected carrying Loss loss rate amount allowance % RMB’000 RMB’000

Current (not past due) 1 18,689 188 Less than 6 months past due 11 5,099 565 More than 6 months but less than 12 months past due 32 8,143 2,589 More than 12 months but less than 24 months past due 40 103 41 More than 24 months but less than 36 months past due 89 3,159 2,811 35,193 6,194

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At 31 December 2019 Gross Expected carrying Loss loss rate amount allowance % RMB’000 RMB’000

Current (not past due) 1 8,306 100 Less than 6 months past due 3 8,149 261 More than 6 months but less than 12 months past due 10 1,252 129 More than 12 months but less than 24 months past due 59 8,246 4,853 More than 24 months but less than 36 months past due 75 63 47 More than 36 months 100 3,039 3,039 29,055 8,429

At 31 December 2020 Gross Expected carrying Loss loss rate amount allowance % RMB’000 RMB’000

Current (not past due) 1 13,927 207 Less than 6 months past due 4 17,018 596 More than 6 months but less than 12 months past due 11 206 22 More than 12 months but less than 24 months past due 45 169 76 More than 24 months but less than 36 months past due 80 1,424 1,139 More than 36 months 100 2,999 2,999 35,743 5,039

Expected loss rates are based on actual loss experience over the recent past years. These rates are adjusted to reflect differences between economic conditions during the period over which the historic data has been collected, current conditions and our Group’s view of economic conditions over the expected lives of the receivables. Although there was no significant change in our Group’s industry, customer base, credit risk of customers, credit policy, economic conditions and our Group’s view of economic conditions over the expected lives of trade receivables during the Track Record Period, our Group adjusted upward the expected loss rates applied during the FY2019 and FY2020 for the sake of prudence, to reflect the uncertainty that the outbreak of COVID-19 may bring to the future overall global and China economic conditions which may impact the ability of our customers to settle their payables to our Group in the future.

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Liquidity risk

Our Group’s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term.

The following table sets out the maturity profile of our Group’s non-derivative financial liabilities as at the dates indicated, based on contractual undiscounted cash flows payments:

At 31 December 2018 Contractual undiscounted cash outflow Within 1 year or on Carrying demand Total amount RMB’000 RMB’000 RMB’000

Trade payables 27,618 27,618 27,618 Other payables and accrued expenses 6,760 6,760 6,654

34,378 34,378 34,272

At 31 December 2019 Contractual undiscounted cash outflow Within 1 year or on Carrying demand Total amount RMB’000 RMB’000 RMB’000

Trade payables 25,126 25,126 25,126 Other payables and accrued expenses 6,927 6,927 6,787

32,053 32,053 31,913

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At 31 December 2020 Contractual undiscounted cash outflow Within 1 year or on Carrying demand Total amount RMB’000 RMB’000 RMB’000

Trade payables 18,026 18,026 18,026 Other payables and accrued expenses 4,756 4,756 4,756 Bank loan 103 103 100

22,885 22,885 22,882

DIVIDEND AND DIVIDEND POLICY

During the Track Record Period, no dividend had been paid or declared by our Company and other entities comprising our Group. We do not have a pre-determined dividend payout ratio for the time being to distribute dividend immediately after the [REDACTED]. Under our current policy, our Board will consider to recommend a payment of dividends in the future after taking into account our operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions, capital expenditure and future development requirements, shareholders’ interests and such other conditions and other factors which they may deem relevant at such time. Any declaration and payment as well as the amount of the dividend will be subject to the Articles of Association, the Cayman Companies Law and any applicable laws and regulations. Any future declarations of dividend may or may not reflect our historical declarations of dividend and will be at the absolute discretion of our Directors.

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RELATED PARTY TRANSACTIONS

The following table sets out a breakdown of the nature and total amount of transactions that our Group had with material related parties during the years indicated:

For the year ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Loans received from a shareholder of the Company 1,870 4,400 4,578 Loans repaid to a shareholder of the Company — (4,600) (6,248) Interest expenses on loans from a shareholder of the Company 15 91 34

The loans disclosed above were unsecured and granted to our Group by Mr. Chen, one of our Controlling Shareholders and our executive Director and have been settled in full as at 31 December 2020. Our Directors confirm that the abovementioned transactions with related parties were conducted on an arm’s length basis, and would not distort our results of operations during the Track Record Period or make our historical results not reflective of our future performance. Please refer to Note 22 to the Accountants’ Report as set out in Appendix I to this document for further details with respect to the related party transactions and balances.

The following table sets out the outstanding balances of the transactions that our Group had with material related parties as at the dates indicated below:

At 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Loans from a shareholder of the Company 1,870 1,670 — Interest payables to a shareholder of the Company 15 106 —

Total 1,885 1,776 —

DISCLOSURE UNDER RULES 13.13 TO 13.19 OF THE LISTING RULES

Our Directors have confirmed that, as at the Latest Practicable Date, there were no circumstances that would give rise to a disclosure requirement under Rules 13.13 to 13.19 of the Listing Rules.

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[REDACTED]

We expect to incur a total of approximately RMB[REDACTED] million of [REDACTED] in connection with the [REDACTED], representing approximately [REDACTED]% of the gross [REDACTED] from the [REDACTED] (assuming an [REDACTED] of HK$[REDACTED] per Share, being the mid-point of the indicative [REDACTED] range and assuming that the [REDACTED] is not exercised). During the Track Record Period, we incurred [REDACTED] of approximately RMB[REDACTED] million, all of which was charged to our combined statements of profit or loss. We expect to further incur [REDACTED] and other [REDACTED] of approximately RMB[REDACTED] million upon the completion of the [REDACTED], out of which approximately RMB[REDACTED] million is expected to be charged to our combined statement of profit or loss and approximately RMB[REDACTED] million is expected to be deducted from the share premium. The [REDACTED] above are the best estimate as at the Latest Practicable Date and for reference only. The actual amount may differ from this estimate.

[REDACTED]

Please refer to “Appendix II — [REDACTED]” to this document for our [REDACTED].

RECENT DEVELOPMENT

Following the Track Record Period and up to the Latest Practicable Date, we acquired two IPs and the number of our self-developed IPs increased from 291 to 306. We entered into four licensing agreements with our content adaptation partners, as at the Latest Practicable Date in respect of the licensing of adaptation rights to adapt the literary works into PC and mobile games, TV series, films and animations, whereby the contracted license fees amounted to RMB39 million in total. As at the Latest Practicable Date, two TV series adaptations had started casting and 12 game adaptations are applying for the adaptation partner’s internal project approval.

The impact of the COVID-19 Outbreak on our operations

Since early 2020, the outbreak of COVID-19 pandemic has materially and adversely affected the global economy as well as the economy in the PRC. The PRC Government and other governments around the world have implemented strict measures to contain such outbreak.

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Notwithstanding the above, we do not expect the COVID-19 pandemic would have a significant financial impact on our Group primarily because we do not operate in the industries which are severely affected by the pandemic. Despite the impact of COVID-19 on the economy in the PRC, our revenue for FY2020 grew by 13.7% and our gross profit increased by 4.1%, as compared to our revenue and gross profit for FY2019, respectively. Our Directors believe that this was primarily due to the fact that the pandemic did not materially affect our ability to license literary works for adaptation or to release literary works to online reading platforms and that we had continued our efforts to promote and recommend our literary works during the pandemic, in particular, to our content adaptation partners in the gaming and animation industry. According to the F&S Report, with the gradual recovery from COVID-19, the PRC’s online literature market will maintain its further growth.

No material adverse change

After due and careful consideration, our Directors confirm that, up to the date of this document, there has been no material adverse change in our financial or trading position since 31 December 2020 (being the date to which our combined financial statements set forth in Appendix I to this document are prepared), and there had been no event since 31 December 2020 which would materially affect the information shown in the Accountant’s Report set forth in Appendix I to this document.

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FUTURE PLANS

For a detailed discussion of our future plans and business strategies, please refer to the paragraph headed “Business — Business Strategies” in this document.

[REDACTED]

The aggregate net [REDACTED] that we expect to receive from the [REDACTED] (after deducting [REDACTED] fees and estimated [REDACTED] in connection with the [REDACTED]), assuming an [REDACTED] of HK$[REDACTED] per Share) being the mid-point of the indicative range of the[REDACTED] of HK$[REDACTED] to HK$[REDACTED] per Share and the [REDACTED] is not exercised, will be approximately HK$[REDACTED] million. To be in line with our strategies, we intend to use our [REDACTED] from the [REDACTED] for the purposes and in the amounts set out below:

1. approximately [REDACTED]%, or HK$[REDACTED] million (equivalent to approximately RMB[REDACTED] million), is expected to be used to enhance our IP reserve by expanding the breadth of our literary genres, especially our coverage of long-tail and niche literature genre, cooperating more frequently with well-known writers and IP holders with track records of producing popular literary works and IPs, acquiring licences of literary works and IPs with a proven record of popularity or a substantial existing fan base. According to the F&S Report, whilst the costs of acquiring such literary works and IPs may be higher than those for acquiring lesser-known literary works and IPs, we may benefit from having a longer life cycle of adapted products from such works and a lower level of marketing expenses or other expenses for cultivating such literary works. Yet during the Track Record Period, we had cash flow or other financial limitations to acquire certain well-known literary works or IPs. As disclosed in the section headed “Business” in this document, we would identify IPs for acquisition in our ordinary course of business but we have not identified any specific targets to be acquired with the [REDACTED] from the [REDACTED].

According to the F&S Report, it is an industry norm to categorise the IPs pursuant to the popularity of the IPs or the writers of the literary works, and the IPs under “class S” are generally created by platinum writers and the IPs under “class A” are generally created by phenomenal writers. Please refer to the section headed “Business — Our business model — IP adaptation licensing” of this document for further details on the classification of writers. With the [REDACTED] of the [REDACTED], we intend to acquire a total of 14 “class S” and “class A” IPs in the coming three years. We believe that such high quality literary work and IP will generate a larger amount of revenue with a higher profit margin for our IP operations.

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The chart below sets out the details of the IPs we intend to acquire:

For the year ending 31 December 2021 2022 2023

Number of “class S” IP Two Three Two Number of “class A” IP Two Two Three Genre Fantasy, Fantasy, Fantasy, xianxia xianxia xianxia (仙俠) (仙俠) (仙俠) (depicting (depicting (depicting mythical mythical mythical heroes), and heroes), and heroes), and romance romance romance Expected adaptation formats TV series, TV series, TV series, films, PC films, PC films, PC and mobile and mobile and mobile games and games and games and animations animations animations

We determine the number of “class S” IPs and “class A” IPs to be acquired based on (i) the lower availability of “class S” IPs in the market and thus the longer time to identify and acquire “class S” IPs as compared to “class A” IPs; and (ii) according to the F&S Report, the price for acquiring a “class S” IP is generally more than RMB10 million and that for acquiring a “class A” IP is in the range of RMB5 million to RMB10 million. Based on our historical experience and the latest market trends according to the F&S Report, we expect that the target genres listed above, namely fantasy, xianxia (仙俠) and romance, are among the most popular genres for the adopted entertainment products in the PRC. As at the Latest Practicable Date, we had 17 “class S” IPs and 15 “class A” IPs in our IP reserve.

2. approximately [REDACTED]%, or HK$[REDACTED] million (equivalent to approximately RMB[REDACTED] million), is expected to be used to enhance our content library and IP reserve by expanding our pool of writers and strengthening our editorial capabilities to give further support to the writers.

We target to expand our pool of writers to include more platinum and phenomenal writers. As at 31 March 2021, we had five platinum writers and 22 phenomenal writers.

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The chart below sets out the number of additional writers we intend to engage for the years indicated:

For the year ending 31 December 2022 2023 2024 2025 2026

Number of platinum writers 56788 Number of phenomenal writers 40 45 50 55 60

We determine the above with reference to (i) the historical proportion of different tiers of writers in our pool of writers; and (ii) the market range for the cost (per thousand words) of engaging such tiers of writers according to the F&S Report:

Platinum writers more than RMB500 Phenomenal writers RMB30 to RMB 500

We also plan to recruit a chief editor who has more than three years of work experience in the online literature industry and more than one year of management experience leading a team of more than two persons. The prospective chief editor should have graduated with a university degree or above and should have a network of writers. For the responsible editors, we target to recruit personnel with more than one year of work experience, who graduated with a university degree or above and should be familiar with popular online literary works.

Meanwhile, we intend to recruit one chief editor and two responsible editors to provide additional support to our cooperating writers in their creation of high quality literary works and approximately RMB[REDACTED] million out of the [REDACTED] of the [REDACTED] is expected be used to pay the salary for the newly recruited editors for the years of 2022 to 2026. We expect that the average monthly salary of the newly recruited chief editor is approximately RMB[REDACTED], and the average monthly salary of each of the newly recruited responsible editor is approximately RMB[REDACTED].

3. approximately [REDACTED]%, or HK$[REDACTED] million (equivalent to approximately RMB[REDACTED] million), is expected to be used to fund our potential investments in, acquisitions of or joint ventures with, companies downstream along the value chain (i.e. our content adaptation partner), so as to expand our business coverage and broaden our income base.

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We intend to focus on targets which meet the following criteria:

(i) for a media production company, the target should possess a production team having more than three years of experience in producing online drama series. The core team members should have more than five years of work experience in the production of film or drama series and the producer should possess more than eight years of industry experience. The target should have launched one to four online films and drama series, which have generated no less than RMB1 million each. We expect that the genres of products created by the target should align with the genres of IPs in our IP reserve; and

(ii) for a game production company, the target should possess a stable and established development team, with team members possessing more than three years of industry experience. The target should have launched one to two games which have generated not less than RMB10 million each. We expect that the genres of products created by the target should align with the genres of IPs in our IP reserve.

4. the remaining amount of approximately [REDACTED]%, or HK$[REDACTED] million (equivalent to approximately RMB[REDACTED] million) is expected to be used for working capital and general corporate purposes.

If the [REDACTED] is fixed at HK$[REDACTED] per [REDACTED], being the high end of the [REDACTED] range stated in this document and assuming no exercise of the [REDACTED], the net [REDACTED] will be increased by approximately HK$[REDACTED] million. If the [REDACTED] is fixed at HK$[REDACTED] per [REDACTED], being the low end of the [REDACTED] range stated in this document and assuming no exercise of the [REDACTED], the net [REDACTED] will be reduced by approximately HK$[REDACTED] million. To the extent our [REDACTED] are either more or less than expected, we will adjust our allocation of the [REDACTED] for the above purposes on a pro rata basis.

The additional net [REDACTED] that we would receive if the [REDACTED] were exercised in full would be (i) HK$[REDACTED] million (assuming an [REDACTED] of HK$[REDACTED] per [REDACTED], being the high-end of the [REDACTED] range stated in this document), (ii) HK$[REDACTED] million (assuming an [REDACTED] of HK$[REDACTED] per [REDACTED], being the mid-point of the [REDACTED] range stated in this document). Additional [REDACTED] received due to the exercise of any [REDACTED] will be used for the above purpose accordingly on a pro rata basis in the event that the [REDACTED] is exercised.

If any part of our plan does not proceed as planned for reasons such as changes in government policies that would render any of our plans not viable, or the occurrence of force majeure events, our Directors will carefully evaluate the situation and may reallocate the [REDACTED] from the [REDACTED].

To the extent that the [REDACTED] of the [REDACTED] are not immediately used for the purposes described above, and to the extent permitted by the relevant laws and regulations, we will only apply such unused [REDACTED] in short-term deposits with licensed banks or financial institutions in Hong Kong or the PRC.

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REASONS FOR THE [REDACTED]

Our Directors believe that the [REDACTED] will enhance our corporate profile and the [REDACTED] from the [REDACTED] to be received by our Group will strengthen our financial position and will enhance our ability to implement our business plans set out in the paragraph headed “Business — Business Strategies” in this document. Our Directors consider that the [REDACTED] is beneficial to our Company for the following reasons:

• the [REDACTED] could provide us with a compelling and balanced fundraising platform in line with our business expansion. On one hand, the [REDACTED] will enhance the capital base of our Group and provide our Group with additional working capital to support our future development, especially to implement the future plans and business developments set forth in “Business — Our Strategies;” on the other hand, compared with debt financing, equity financing is interest-free, which will effectively reduce our interest expenses and financing costs to some extent while supporting our future development through building a more balanced capital structure. Furthermore, the ability to obtain bank financing is generally easier with a listed entity as compared to a private entity and our Directors believe that a [REDACTED] status will allow us to gain leverage in obtaining bank financing and with relatively more favorable terms;

• our Directors consider that rewarding, motivating and retaining members of our senior management team and our staff have always been critical to our success. Therefore, the [REDACTED] is considered to be one of the channels through which our employees would be able to share our success and achievement and be committed to the performance and continual success of our Group. We [have adopted] the Share Option Scheme with the aim to recognise, reward and incentivise the contribution of, among others, our directors, senior management and other staff of our Group to the growth and development of our Group and/or the [REDACTED];

• a [REDACTED] status will strengthen our Group’s profile, awareness and reputation in the market, and thereby to attract more strategic investors. Following the [REDACTED], we also believe that our [REDACTED] status will enhance market awareness of our Group, attract more writers or content adaptation partners to cooperate with us and strengthen our bargaining power in our negotiations with our customers or in our acquisition of IPs;

• the [REDACTED] will enhance our Group’s operational efficiency and corporate governance through compliance with rigorous disclosure requirements which we believe would lead to improvement in our corporate governance and internal control systems; and

• the [REDACTED] will broaden our shareholder base and enhance the liquidity of our Shares which will be freely traded on the Stock Exchange as compared to the limited liquidity of our Shares as a private company.

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− 285 − THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX I ACCOUNTANTS’ REPORT

The following is the text of a report set out on pages I-1 to I-55, received from the Company’s reporting accountants, KPMG, Certified Public Accountants, Hong Kong, for the purpose of incorporation in this document.

ACCOUNTANTS’ REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE DIRECTORS OF KAIXING CULTURE HOLDING CO., LTD AND SOOCHOW SECURITIES INTERNATIONAL CAPITAL LIMITED

INTRODUCTION

We report on the historical financial information of Kaixing Culture Holding Co., Ltd (the “Company”) and its subsidiaries (together, the “Group”) set out on pages I-4 to I-55, which comprises the combined statements of financial position of the Group as at 31 December 2018, 2019 and 2020 and the combined statements of profit or loss and other comprehensive income, the combined statements of changes in equity and the combined cash flow statements for each of the years ended 31 December 2018, 2019 and 2020 (the “Track Record Period”), and a summary of significant accounting policies and other explanatory information (together, the “Historical Financial Information”). The Historical Financial Information set out on pages I-4 to I-55 forms an integral part of this report, which has been prepared for inclusion in the document of the Company dated [REDACTED] (the “Document”) in connection with the initial [REDACTED].

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 1 to the Historical Financial Information, and for such internal control as the directors of the Company determine is necessary to enable the preparation of the Historical Financial Information that is free from material misstatement, whether due to fraud or error.

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 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.

− I-1 − THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX I ACCOUNTANTS’ REPORT

REPORTING ACCOUNTANTS’ RESPONSIBILITY (CONTINUED)

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 1 to the Historical Financial Information in order to design procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Our work also included evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the Historical Financial Information.

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

OPINION

In our opinion, the Historical Financial Information gives, for the purpose of the accountants’ report, a true and fair view of the Group’s financial position as at 31 December 2018, 2019 and 2020 and of the Group’s financial performance and cash flows for the Track Record Period in accordance with the basis of preparation and presentation set out in Note 1 to the Historical Financial Information.

REPORT ON MATTERS UNDER THE RULES GOVERNING THE LISTING OF SECURITIES ON THE STOCK EXCHANGE OF HONG KONG LIMITED AND THE COMPANIES (WINDING UP AND MISCELLANEOUS PROVISIONS) ORDINANCE

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying Financial Statements as defined on page I-4 have been made.

Dividends

We refer to Note 20(d) to the Historical Financial Information which states that no dividends have been paid by the Company in respect of the Track Record Period.

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No statutory financial statements for the Company

No statutory financial statements have been prepared for the Company since its incorporation.

[●]

Certified Public Accountants 8th Floor, Prince’s Building 10 Chater Road Central, Hong Kong

[●]

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HISTORICAL FINANCIAL INFORMATION

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

The combined financial statements of the Group for the Track Record Period, on which the Historical Financial Information is based, were audited by KPMG Huazhen LLP in accordance with Hong Kong Standards on Auditing issued by the HKICPA (the “Underlying Financial Statements”).

Combined statements of profit or loss and other comprehensive income (Expressed in Renminbi (“RMB”))

Years ended 31 December Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

Revenue 4 61,547 78,898 89,712 Cost of sales (38,409) (40,036) (49,240)

Gross profit 23,138 38,862 40,472 Other net expenses 5 (1) (189) (13) [REDACTED] [REDACTED] [REDACTED] [REDACTED] Administrative expenses (11,109) (11,199) (11,033)

Profit from operations 12,028 27,474 26,014 Finance costs 6(a) (139) (172) (128)

Profit before taxation 6 11,889 27,302 25,886 Income tax 7 (1,610) (1,946) (990)

Profit and total comprehensive income for the year 10,279 25,356 24,896

Attributable to: Equity shareholders of the Company 8,805 21,368 24,678 Non-controlling interests 1,474 3,988 218

Profit and total comprehensive income for the year 10,279 25,356 24,896

Earnings per share 10 Basic and diluted N/A N/A N/A

The accompanying notes form part of the Historical Financial Information.

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Combined statements of financial position (Expressed in RMB)

At 31 December Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

Non-current assets Property, plant and equipment 11 3,931 2,350 2,013 Intangible assets 12 80,969 118,050 98,959 Other non-current assets 1,283 1,000 1,000 ------86,183 121,400 101,972

Current assets Trade receivables 13 28,999 20,626 30,704 Prepayments, deposits and other receivables 14 9,704 4,822 22,061 Tax recoverable 3,043 3,706 2,569 Cash at bank and on hand 15 1,088 1,243 9,881 ------42,834 30,397 65,215

Current liabilities Bank loan — — 100 Trade payables 16 27,618 25,126 18,026 Other payables and accrued expenses 17 6,654 6,787 4,756 Lease liabilities 18 101 476 1,112 Current taxation 19(a) 3,050 3,075 2,861 ------37,423 35,464 26,855

Net current assets/(liabilities) 5,411 (5,067) 38,360 ------Total assets less current liabilities 91,594 116,333 140,332

Non-current liabilities Lease liabilities 18 1,645 1,249 872 ------NET ASSETS 89,949 115,084 139,460

CAPITAL AND RESERVES 20 Share capital — — — Reserves 84,717 105,864 131,728 ------Total equity attributable to equity shareholders of the Company 84,717 105,864 131,728 Non-controlling interests 5,232 9,220 7,732

TOTAL EQUITY 89,949 115,084 139,460

The accompanying notes form part of the Historical Financial Information.

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Combined statements of changes in equity (Expressed in RMB)

Attributable to equity shareholders of the Company Non- Share Other Retained controlling Total capital reserves profits Total interests equity RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 20(c))

At 1 January 2018 — 44,071 26,194 70,265 3,758 74,023

Changes in equity for the year ended 31 December 2018: Profit and total comprehensive income for the year — — 8,805 8,805 1,474 10,279 Deemed contribution from the Controlling Shareholder — 5,647 — 5,647 — 5,647

At 31 December 2018 and 1 January 2019 — 49,718 34,999 84,717 5,232 89,949

Changes in equity for the year ended 31 December 2019: Profit and total comprehensive income for the year — — 21,368 21,368 3,988 25,356 Deemed distribution to the Controlling Shareholder — (221) — (221) — (221)

At 31 December 2019 and 1 January 2020 — 49,497 56,367 105,864 9,220 115,084

Changes in equity for the year ended 31 December 2019: Profit and total comprehensive income for the year — — 24,678 24,678 218 24,896 Contribution from the Controlling Shareholder — — 1,625 1,625 — 1,625 Acquisition of non-controlling interests of a subsidiary — — 81 81 (1,706) (1,625) Deemed distribution to the Controlling Shareholder — (520) — (520) — (520)

At 31 December 2020 — 48,977 82,751 131,728 7,732 139,460

The accompanying notes form part of the Historical Financial Information.

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Combined cash flow statements (Expressed in RMB)

Years ended 31 December Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

Operating activities Profit before taxation 11,889 27,302 25,886 Adjustments for: Depreciation 6(c) 1,623 1,535 978 Amortisation 6(c) 31,233 36,551 46,508 Recognition/(reversal) of impairment losses on trade receivables 6(c) 1,216 2,235 (993) Recognition of impairment losses on intangible assets 6(c) 2,175 1,064 3,120 Impairment losses recognised on prepayment, deposits and other receivables 6(c) — — 2,400 Interest expenses 6(a) 139 172 128 Interest income 5 (12) (3) (11) Changes in working capital: (Increase)/decrease in restricted deposits (232) 232 — (Increase)/decrease in prepayments, deposits and other receivables (5,012) 805 (879) Decrease/(increase) in trade receivables 1,689 6,138 (9,085) Increase/(decrease) in trade payables 12,734 (2,492) (7,100) Increase/(decrease) in other payables and accrued expenses 610 (402) 883

Cash generated from operations 58,052 73,137 61,835

Income tax paid 19(a) (3,088) (1,921) (1,204)

Net cash generated from operating activities 54,964 71,216 60,631 ------Investing activities Payments for purchase of property, plant and equipment (230) — — Payments for purchase of intangible assets (60,427) (74,696) (30,537) Advances to third parties (15,000) (740) — Repayment of advances to third parties 10,500 5,100 240 Payments for co-investments in drama series, films and online games — — (19,000) Proceeds from disposal of property, plant, equipment — 27 — Interest received 12 3 11

Net cash used in investing activities (65,145) (70,306) (49,286) ------

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Years ended 31 December Note 2018 2019 2020 RMB’000 RMB’000 RMB’000

Financing activities Proceeds from loans from a shareholder of the Company 15(b) 1,870 4,400 4,578 Repayment of loans to a shareholder of the Company 15(b) — (4,600) (6,248) Proceeds from new bank loans — — 100 Deemed cash contribution from/(distribution to) the Controlling Shareholder (Note) 5,647 (221) (520) Capital element of lease rentals paid 15(b) (1,185) (98) (416) Interest element of lease rentals paid 15(b) (124) (4) (61) Interest paid to a shareholder of the Company — — (140)

Net cash generated from/(used in) financing activities 6,208 (523) (2,707) ------Net (decrease)/increase in cash and cash equivalents (3,973) 387 8,638

Cash and cash equivalents at the beginning of the year 15(a) 4,829 856 1,243

Cash and cash equivalents at the end of the year 15(a) 856 1,243 9,881

Note: Deemed cash contribution from/(distribution to) the Controlling Shareholder represents the changes in cash and cash equivalents that are attributable to the [REDACTED] Business during the Track Record Period. Further details of the basis of preparation of the Historical Financial Information are set out in Note 1.

The accompanying notes form part of the Historical Financial Information.

− I-8 − THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX I ACCOUNTANTS’ REPORT

NOTES TO THE HISTORICAL FINANCIAL INFORMATION (Expressed in RMB unless otherwise indicated)

1 BASIS OF PREPARATION AND PRESENTATION OF THE HISTORICAL FINANCIAL INFORMATION

Kaixing Culture Holding Co., Ltd (the “Company”) was established in the Cayman Islands on 14 January 2021, as an exempted company with limited liability under the Companies Act, Cap.22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands.

The Company is an investment holding company and has not carried out any business operations since the date of its incorporation save for the group reorganisation mentioned below (the “Reorganisation”). The Company and companies which will become the Company’s subsidiaries after the Reorganisation (together, the “Group”) are principally engaged in sourcing and developing online literary works for adaptation into various entertainment formats and operating as an internet content provider for online reading platforms (collectively the “[REDACTED] Business”). The companies comprising the Group are controlled by Ms. Shi and Mr. Chen (collectively the “Controlling Shareholders”).

Prior to the incorporation of the Company and completion of the Reorganisation as described below, the [REDACTED] Business was carried out by Beijing Kaixing Culture Media Limited (“Beijing Kaixing”) and its subsidiaries (collectively the “Operating Subsidiaries”). Apart from the [REDACTED] Business, the Group is also engaged in operating an online reading platform (known as Chuangbie Book City) for publishing the online literatures licensed from the content providers (the “[REDACTED] Business”). The directors of the Company have determined that the Group will be focusing on and devoting resources on strengthening its competitiveness in the fast growing IP operations industry and transferred the Chuangbie Book City operations to a company wholly owned by Ms. Shi in November 2020. The directors of the Company considered that the [REDACTED] Business is objectively distinguishable from the [REDACTED] Business.

To rationalise the corporate structure in preparation of the [REDACTED] of the Company’s shares on the Main Board of the Stock Exchange, the Group is undergoing the Reorganisation as detailed in the section headed History, Reorganisation and Corporate Structure in the Document.

For the purpose of this report, the historical financial information of the [REDACTED] Business has been excluded since the beginning of the Track Record Period as if the Group had never operated the [REDACTED] Business. Cash flows in connection with the operations of the [REDACTED] Business and the disposal of the [REDACTED] Business are reflected as capital distributions to or capital contributions from the Controlling Shareholder, as appropriate.

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Transactions and balances which are directly attributable to the [REDACTED] Business were included in the Historical Financial Information based on specific identification except for those set out below, for which allocations were made based on the most relevant allocation bases in the views of the directors of the Company:

• Personnel costs and other operating expenses have been principally allocated either based on headcount to the extent a separate group of personnel could be specifically identified and attributed to the [REDACTED] Business, or otherwise allocated based on contract sales; and

• Income tax was included in the Historical Financial Information based upon the aggregated profit before taxation of the [REDACTED] Business and the effective income tax rate for the [REDACTED] Business.

Upon completion of the Reorganisation, the Company will become the holding company of the companies now comprising the Group. The ongoing Reorganisation mainly involves interspersing the Company and intermediate holding companies which are newly formed entities with no substantive operations, between Beijing Kaixing and its shareholders as new holding companies of the Operating Subsidiaries. There would be no change in the economic substance of the ownership, the business and operation of the [REDACTED] Business before and after the Reorganisation. Accordingly, the Historical Financial Information has been prepared and presented as a continuation of the financial information of the [REDACTED] Business with the assets and liabilities recognised and measured at their historical carrying amounts in the financial statements of Beijing Kaixing prior to the Reorganisation.

The combined statements of financial position of the Group as at 31 December 2018, 2019 and 2020, the combined statements of profit or loss and other comprehensive income, the combined statements of changes in equity and the combined cash flow statements of the Group for the Track Record Period have been prepared as if the current group structure had been in existence throughout the Track Record Period, or since their respective dates of incorporation/establishment, where there is a shorter period. Inter-company transactions, balances and unrealised gains/losses arising from intra-group transactions are eliminated on combination.

The directors of the Company believe the basis of preparation and presentation described above results in the Historical Financial Information reflecting the assets and liabilities associated with the [REDACTED] Business and costs and expenses that would be necessary for the [REDACTED] Business to operate as a stand-alone group. However, since the [REDACTED] Business did not operate as a stand-alone group during the Track Record Period, the Historical Financial Information may not be indicative of the [REDACTED] Business’s future performance and do not necessarily reflect what its results of operations, financial position, and cash flows would have been had the [REDACTED] Business operated as a stand-alone group during the Track Record Period.

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As at the date of this report, the Company has direct or indirect interests in the following subsidiaries:

Proportion of ownership interest Place and date of Particulars of Particulars of Held by Held by Name of establishment/ registered paid-up the the statutory Company name incorporation capital capital Company subsidiary Principal activities auditor

Kaixing Venture The British Virgin (Note (iii)) (Note (iii)) 100% — Investment holding N/A Capital Limited Islands (the “BVI”) 20 January 2021

Noble Future Limited Hong Kong HK$1 HK$1 — 100% Investment holding N/A 8 January 2021

Beijing Kaiwen The PRC RMB500,000 RMB0 — 100% Investment holding N/A Technology 3 February 2021 Development Co., Ltd. 北京愷文科技發展有限公司 (Notes (i))

Beijing Junkai The PRC RMB1,000,000 RMB0 — 99% Investment holding N/A Enterprise 8 February 2021 Management Co., Ltd. 北京駿愷企業管理有限公司 (Notes (i))

Beijing Kaixing 北京 The PRC RMB28,000,000 RMB28,000,000 — 100% licensing and releasing N/A 愷興文化傳媒有限 8 December 2009 literary works to third 公司 (Notes (i) party online reading and (ii)) platforms for subscription or carrying on IP adaptation licensing business

Beijing Wenbo The PRC RMB1,000,000 RMB1,000,000 — 100% licensing and releasing N/A Internet Books 9 October 2011 literary works to third Co., Ltd. 北京文博 party online reading 互聯圖書有限公司 platforms for subscription (Notes (i) and (ii))

Huizhou Guangxun The PRC RMB10,000,000 RMB1,000,000 — 100% licensing and releasing N/A Network 11 December 2012 literary works to third Technology Co. party online reading Ltd. 惠州市廣訊網 platforms for subscription 絡科技有限公司 (Notes (i) and (ii))

Jinan Yuezhiyi The PRC RMB1,000,000 RMB1,000,000 — 100% licensing and releasing N/A Culture Media 9 June 2014 literary works to third Co., Ltd. 濟南悅之 party online reading 翼文化傳媒有限公 platforms for subscription 司 (Notes (i) and (ii))

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Beijing Qiwen The PRC RMB5,000,000 RMB2,500,000 — 100% licensing and releasing N/A Network 2 July 2014 literary works to third Technology Co., party on line reading Ltd. 北京奇文網絡 platforms for subscription 科技有限公司 and carrying on IP (Notes (i) and (ii)) adaptation licensing business

Horgos Kaiwen The PRC RMB1,000,000 RMB1,000,000 — 100% carrying on IP adaptation N/A Culture Media 10 December 2015 licensing business Co., Ltd. 霍爾果斯愷文文化傳媒有限公司 (Notes (i) and (ii))

Horgos Qilin Culture The PRC RMB1,219,512 RMB1,219,512 — 72.35% carrying on IP adaptation N/A Media Co. Ltd. 霍 22 June 2016 licensing business 爾果斯麒麟文化傳媒有限公司 (Notes (i) and (ii))

Horgos Kaiqi Culture The PRC RMB1,000,000 RMB0 — 100% carrying on IP adaptation N/A Media Co. Ltd. 霍 11 September 2019 licensing business 爾果斯愷琪文化傳媒有限公司 (Notes (i) and (ii))

Guangzhou Kaiqi The PRC RMB1,000,000 RMB0 — 70% carrying on IP adaptation N/A Technology Co., 11 January 2021 licensing business Ltd. 廣州愷琪科技有限公司 (Notes (i) and (ii))

(i) The official name of these entities are in Chinese. The English translations are for identification only.

(ii) These entities were registered as limited liability companies under the laws and regulations in the PRC.

(iii) As at the date of this report, the issued share capital is 1 share.

As at the date of this report, no audited statutory financial statements have been prepared for the Company and its group of entities.

All companies that will comprise the Group have adopted 31 December as their financial year end date.

The Historical Financial Information has been prepared in accordance with all applicable International Financial Reporting Standards (“IFRSs”) which collective term includes all applicable individual International Financial Reporting Standards, International Accounting Standards (“IASs”) and Interpretations issued by the International Accounting Standards Board (the “IASB”). Further details of the significant accounting policies adopted by the Group are set out in Note 2.

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The IASB has issued a number of new and revised IFRSs. For the purpose of preparing this Historical Financial Information, the Group has consistently applied all applicable new and revised IFRSs, including IFRS 9, Financial instrument, IFRS 15, Revenue from contracts with customers and IFRS 16, Leases, except for any new and revised standards or interpretations that are not yet effective for the accounting period beginning on 1 January 2020. The new and revised accounting standards and interpretations issued but not yet effective for the accounting period beginning on 1 January 2020 are set out in Note 23.

The Historical Financial Information also complies with the applicable disclosure provisions of the Rules Governing the [REDACTED] of Securities on The Stock Exchange of Hong Kong Limited.

The accounting policies set out below have been applied consistently to all periods presented in the Historical Financial Information.

2 SIGNIFICANT ACCOUNTING POLICIES

(a) Basis of measurement

The Historical Financial Information is presented in RMB, rounded to the nearest thousand. The measurement basis used in the preparation of the Historical Financial Information is the historical cost basis.

(b) Use of estimates and judgements

The preparation of Historical Financial Information in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods.

Judgements made by management in the application of IFRSs that have significant effect on the Historical Financial Information and major sources of estimation uncertainty are discussed in Note 3.

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. When assessing whether the Group has power, only substantive rights (held by the Group and other parties) are considered.

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An investment in a subsidiary is included into the Historical Financial Information from the date that control commences until the date that control ceases. Intra-group balances, transactions and cash flows and any unrealised profits arising from intra-group transactions are eliminated in full in preparing the Historical Financial Information. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised gains but only to the extent that there is no evidence of impairment.

Non-controlling interests represent the equity in a subsidiary not attributable directly or indirectly to the Company, and in respect of which the Group has not agreed any additional terms with the holders of those interests which would result in the Group as a whole having a contractual obligation in respect of those interests that meets the definition of a financial liability. For each business combination, the Group can elect to measure any non-controlling interests either at fair value or at the non-controlling interests’ proportionate share of the subsidiary’s net identifiable assets.

Non-controlling interests are presented in the combined statement of financial position within equity, separately from equity attributable to the equity shareholders of the Company. Non-controlling interests in the results of the Group are presented on the face of the combined statement of profit or loss and other comprehensive income as an allocation of the total profit or loss and total comprehensive income for the year between non-controlling interests and the equity shareholders of the Company.

Changes in the Group’s interests in a subsidiary that do not result in a loss of control are accounted for as equity transactions, whereby adjustments are made to the amounts of controlling and non-controlling interests within combined equity to reflect the change in relative interests, but no adjustments are made to goodwill and no gain or loss is recognised.

When the Group loses control of a subsidiary, it is accounted for as a disposal of the entire interest in that subsidiary, with a resulting gain or loss being recognised in profit or loss. Any interest retained in that former subsidiary at the date when control is lost is recognised at fair value and this amount is regarded as the fair value on initial recognition of a financial asset or, when appropriate, the cost on initial recognition of an investment in an associate or joint venture.

[In the Company’s statement of financial position, an investment in a subsidiary is stated at cost less impairment losses (see Note 2(g)(ii).]

(d) Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses (see Note 2(g)(ii)).

Gains or losses arising from the retirement or disposal of an item of property, plant and equipment are determined as the difference between the net disposal proceeds and the carrying amount of the item and are recognised in profit or loss on the date of retirement or disposal.

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Depreciation is calculated to write off the cost of items of property, plant and equipment, less their estimated residual values, if any, using the straight-line method over their estimated useful lives as follows:

Estimated useful lives

- Leasehold improvements 2 - 6 years - Office equipment and others 5 years - Right-of-use assets Over the term of lease

Where parts of an item of property, plant and equipment have different useful lives, the cost of the item is allocated on a reasonable basis between the parts and each part is depreciated separately. Both the useful life of an asset and its residual value, if any, are reviewed annually.

(e) Intangible assets (other than goodwill)

Intangible assets that are acquired by the Group are stated at cost less accumulated amortisation (where the estimated useful life is finite) and impairment losses (see Note 2(g)(ii)). Expenditure on internally generated goodwill and brands is recognised as an expense in the period in which it is incurred.

- Copyright of online literary work and games shorter of the expected economic life and license period, 2-8 years - Software 10 years

Both the period and method of amortisation are reviewed annually.

Expenditure incurred on projects to develop new products is capitalised only when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the project and the ability to measure reliably the expenditure during the development. Product development expenditure which does not meet these criteria is expensed when incurred.

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(f) Leased assets

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Control is conveyed where the Group has both the right to direct the use of the identified asset and to obtain substantially all of the economic benefits from that use.

As a lessee

Where the contract contains lease component(s) and non-lease component(s), the Group has elected not to separate non-lease components and accounts for each lease component and any associated non-lease components as a single lease component for all leases.

At the lease commencement date, the Group recognises a right-of-use asset and a lease liability, except for short-term leases that have a lease term of 12 months or less and leases of low-value assets. When the Group enters into a lease in respect of a low-value asset, the Group decides whether to capitalise the lease on a lease-by-lease basis. The lease payments associated with those leases which are not capitalised are recognised as an expense on a systematic basis over the lease term.

The lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, or there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, or there is a change arising from the reassessment of whether the Group will be reasonably certain to exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The lease liability is also remeasured when there is a change in the scope of a lease or the consideration for a lease that is not originally provided for in the lease contract (“lease modification”) that is not accounted for as a separate lease. In this case the lease liability is remeasured based on the revised lease payments and lease term using a revised discount rate at the effective date of the modification.

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In the combined statement of financial position, the current portion of long-term lease liabilities is determined as the present value of contractual payments that are due to be settled within twelve months after the reporting period.

(g) Credit losses and impairment of assets

(i) Credit loss from financial instruments and contract assets

The Group recognises a loss allowance for expected credit losses (“ECLs”) on financial assets measured at amortised cost (including cash and cash equivalents and trade and other receivables) and contract assets.

Measurement of ECLs

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all expected cash shortfalls (i.e. the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive).

The expected cash shortfalls of trade and other receivables and contract assets are discounted using the effective interest rate determined at initial recognition or an approximation thereof where the effect of discounting is material.

The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

In measuring ECLs, the Group takes into account reasonable and supportable information that is available without undue cost or effort. This includes information about past events, current conditions and forecasts of future economic conditions.

ECLs are measured on either of the following bases:

— 12-month ECLs: these are losses that are expected to result from possible default events within the 12 months after the reporting date; and

— lifetime ECLs: these are losses that are expected to result from all possible default events over the expected lives of the items to which the ECL model applies.

Loss allowances for trade receivables and contract assets are always measured at an amount equal to lifetime ECLs. ECLs on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience, adjusted for factors that are specific to the debtors and an assessment of both the current and forecast general economic conditions at the reporting date.

For all other financial instruments, the Group recognises a loss allowance equal to 12-month ECLs unless there has been a significant increase in credit risk of the financial instrument since initial recognition, in which case the loss allowance is measured at an amount equal to lifetime ECLs.

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Significant increases in credit risk

In assessing whether the credit risk of a financial instrument has increased significantly since initial recognition, the Group compares the risk of default occurring on the financial instrument assessed at the reporting date with that assessed at the date of initial recognition. In making this reassessment, the Group considers that a default event occurs when the borrower is unlikely to pay its credit obligation to the Group in full, without resource by the Group to action such as realising security (if any is held). The Group considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward-looking information that is available without undue cost or effort.

In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:

— failure to make payments on their contractually due dates;

— an actual or expected significant deterioration in a financial instrument’s external or internal credit rating (if available);

— an actual or expected significant deterioration in the operating results of the debtor; and

— existing or forecast changes in the market, economic or legal environment that have a significant adverse effect on the debtor’s ability to meet its obligation to the Group.

Depending on the nature of the financial instruments, the assessment of a significant increase in credit risk is performed on either an individual basis or a collective basis. When the assessment is performed on a collective basis, the financial instruments are grouped based on shared credit risk characteristics, such as past due status and credit risk ratings.

ECLs are remeasured at each reporting date to reflect changes in the financial instrument’s credit risk since initial recognition. Any change in the ECL amount is recognised as an impairment gain or loss in profit or loss. The Group recognises an impairment gain or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account.

Basis of calculation of interest income

Interest income recognised in accordance with Note 2(p)(iv) is calculated based on the gross carrying amount of the financial asset unless the financial asset is credit-impaired, in which case interest income is calculated based on the amortised cost (i.e. the gross carrying amount less loss allowance) of the financial asset.

At each reporting date, the Group assesses whether a financial asset is credit-impaired. A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

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Evidence that a financial asset is credit-impaired includes the following observable events:

— significant financial difficulties of the debtor;

— a breach of contract, such as a default or past due event;

— it becoming probable that the borrower will enter into bankruptcy or other financial reorganisation; or

— significant changes in the market, economic or legal environment that have an adverse effect on the debtor.

Write-off policy

The gross carrying amount of a financial asset or contract 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 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.

Subsequent recoveries of an asset that was previously written off are recognised as a reversal of impairment in profit or loss in the period in which the recovery occurs.

(ii) Impairment of other assets

Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or, an impairment loss previously recognised no longer exists or may have decreased:

— property, plant and equipment; and

— intangible assets.

If any such indication exists, the asset’s recoverable amount is estimated.

— Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

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— Recognition of impairment losses

An impairment loss is recognised in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated to reduce the carrying amount of the assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs of disposal (if measurable) or value in use (if determinable).

— Reversals of impairment losses

An impairment loss is reversed if there has been a favourable change in the estimates used to determine the recoverable amount.

A reversal of an impairment loss is limited to the asset’s carrying amount that would have been determined had no impairment loss been recognised in prior periods. Reversals of impairment losses are credited to profit or loss in the period in which the reversals are recognised.

(h) Contract assets and contract liabilities

A contract asset is recognised when the Group recognises revenue (see Note 2(p) before being unconditionally entitled to the consideration under the payment terms set out in the contract. Contract assets are assessed for ECLs in accordance with the policy set out in Note 2(g)(i) and are reclassified to receivables when the right to the consideration has become unconditional (see Note 2(i)).

A contract liability is recognised when the customer pays consideration before the Group recognises the related revenue (see Note 2(p)). A contract liability would also be recognised if the Group has an unconditional right to receive consideration before the Group recognises the related revenue. In such cases, a corresponding receivable would also be recognised (see Note 2(i)).

For a single contract with the customer, either a net contract asset or a net contract liability is presented. For multiple contracts, contract assets and contract liabilities of unrelated contracts are not presented on a net basis.

When the contract includes a significant financing component, the contract balance includes interest accrued under the effective interest method (see Note 2(p)).

(i) Trade and other receivables

A receivable is recognised when the Group has an unconditional right to receive consideration. A right to receive consideration is unconditional if only the passage of time is required before payment of that consideration is due. If revenue has been recognised before the Group has an unconditional right to receive consideration, the amount is presented as a contract asset(see Note 2(h)).

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Receivables are stated at amortised cost using the effective interest method less allowance for credit losses (see Note 2(g)(i)).

(j) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and on hand, demand deposits with banks and other financial institutions, and short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value. Cash and cash equivalents are assessed for ECL in accordance with the policy set out in Note 2(g).

(k) Trade and other payables

Trade and other payables are initially recognised at fair value. Trade and other payables are subsequently stated at amortised cost using the effective interest method unless the effect of discounting would be immaterial, in which case they are stated at cost.

(l) Interest-bearing borrowings

Interest-bearing borrowings are measured initially at fair value less transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost using the effective interest method. Interest expense is recognised in accordance with the group’s accounting policy for borrowing costs (see Note 2(r)).

(m) Employee benefits

(i) Short-term employee benefits and contributions to defined contribution retirement plans

Salaries, annual bonuses, paid annual leave, contributions to defined contribution retirement plans and the cost of non-monetary benefits are accrued in the period in which the associated services are rendered by employees. Where payment or settlement is deferred and the effect would be material, these amounts are stated at their present values.

(ii) Termination benefits

Termination benefits are recognised at the earlier of when the Group can no longer withdraw the offer of those benefits and when it recognises restructuring costs involving the payment of termination benefits.

(n) Income tax

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Apart from certain limited exceptions, all deferred tax liabilities, and all deferred tax assets to the extent that it is probable that future taxable profits will be available against which the asset can be utilised, are recognised. Future taxable profits that may support the recognition of deferred tax assets arising from deductible temporary differences include those that will arise from the reversal of existing taxable temporary differences, provided those differences relate to the same taxation authority and the same taxable entity, and are expected to reverse either in the same period as the expected reversal of the deductible temporary difference or in periods into which a tax loss arising from the deferred tax asset can be carried back or forward. The same criteria are adopted when determining whether existing taxable temporary differences support the recognition of deferred tax assets arising from unused tax losses and credits, that is, those differences are taken into account if they relate to the same taxation authority and the same taxable entity, and are expected to reverse in a period, or periods, in which the tax loss or credit can be utilised.

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary differences arising from the initial recognition of assets or liabilities that affect neither accounting nor taxable profit (provided they are not part of a business combination), and temporary differences relating to investments in subsidiaries to the extent that, in the case of taxable differences, the Group controls the timing of the reversal and it is probable that the differences will not reverse in the foreseeable future, or in the case of deductible differences, unless it is probable that they will reverse in the future.

The amount of deferred tax recognised is measured based on the expected manner of realisation or settlement of the carrying amount of the assets and liabilities, using tax rates enacted or substantively enacted at the end of the reporting period. Deferred tax assets and liabilities are not discounted.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow the related tax benefit to be utilised. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

Current tax balances and deferred tax balances, and movements therein, are presented separately from each other and are not offset. Current tax assets are offset against current tax liabilities, and deferred tax assets against deferred tax liabilities, if the Group has the legally enforceable right to set off current tax assets against current tax liabilities and the following additional conditions are met:

— in the case of current tax assets and liabilities, the Group intends either to settle on a net basis, or to realises the asset and settle the liability simultaneously; or

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— in the case of deferred tax assets and liabilities, if they relate to income tax levied by the same taxation authority on either:

— the same taxable entity; or

— different taxable entities, which, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered, intend to realise the current tax assets and settle the current tax liabilities on a net basis or realise and settle simultaneously.

(o) Provisions and contingent liabilities

Provisions are recognised when the Group has a legal or constructive obligation arising as a result of a past event, it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made. Where the time value of money is material, provisions are stated at the present value of the expenditure expected to settle the obligation.

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, whose existence 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.

(p) Revenue and other income

Income is classified by the Group as revenue when it arises from the sale of goods or the provision of services in the ordinary course of the Group’s business.

Revenue is recognised when control over a product or service is transferred to the customer at the amount of promised consideration to which the Group is expected to be entitled, excluding those amounts collected on behalf of third parties. Revenue excludes value added tax or other sales taxes and is after deduction of any trade discounts.

Further details of the Group’s revenue and other income recognition policies are as follows:

(i) Revenue from licensing right of adaptation of online literary works

The Group generates revenues from licensing right of adaptation of online literary works obtained from writers/suppliers to online game companies, television producers, movie studios, and other copyright dealers for agreed periods. The revenue from licensing agreements is recognised when all the following criteria are met: persuasive evidence of an arrangement exists; the content has been delivered or is available for immediate and unconditional delivery and the Group has no further obligations; the price to the customer is fixed or determinable; and collectability is probable. Revenue is recognised at a point in time at the beginning of the licensing agreement to the extent of the fixed and non-refundable amount received/receivable with no future obligations. Any amount of revenue which is contingent upon future events (for example future revenue generated by using the copyright) is recognised when the contingency is resolved.

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(ii) Revenue from online paid reading

The Group generates revenues from sale of online literature contents to users through third-party reading platforms. The Group evaluated and determined it is not the primary obligor in the service rendered to the end users. Depends on the terms of respective agreement, revenue is recognised either at the time of providing online literature contents to third-party reading platforms when the Group does not have further obligation after providing the contents to third-party reading platforms to the extent of the fixed and non-refundable amount or over the period of the agreement under which the Group needs to provide continuous services to third-party reading platforms based on the portion of the sharing of revenues that derived from third-party reading platforms.

(iii) Other revenue

Shared revenue received from investments in online game, drama series and film as a non-executive producer with share of legal rights (i.e. copyrights) are recognised when the investors’ right to receive payment has been established, it is probable that the economic benefits associated with the investment income will flow to the Group and the amount can be measured reliably.

(iv) Interest income

Interest income is recognised as it accrues using the effective interest method. For financial assets measured at amortised cost that are not credit-impaired, the effective interest rate is applied to the gross carrying amount of the asset. For credit-impaired financial assets, the effective interest rate is applied to the amortised cost (i.e. gross carrying amount net of loss allowance) of the asset (see Note 2(g)(i)).

(v) Government grants

Government grants are recognised in the statement of financial position initially when there is reasonable assurance that they will be received and that the Group will comply with the conditions attaching to them. Grants that compensate the Group for expenses incurred are recognised as other income in profit or loss on a systematic basis in the same periods in which the expenses are incurred. Grants that compensate the Group for the cost of an asset are deducted from the carrying amount of the asset and consequently are effectively recognised in profit or loss over the useful life of the asset by way of reduced depreciation expense.

(q) Translation of foreign currencies

Foreign currency transactions during the period are translated at the foreign exchange rates ruling at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rates ruling at the end of the reporting period. Exchange gains and losses are recognised in profit or loss.

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Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the foreign exchange rates ruling at the transaction dates. The transaction date is the date on which the Group initially recognises such non-monetary assets or liabilities.

The results of foreign operations are translated into RMB, the Group’s presentation currency, at the exchange rates approximating the foreign exchange rates ruling at the dates of the transactions. Statement of financial position items are translated into RMB at the closing foreign exchange rates at the end of the reporting period. The resulting exchange differences are recognised in other comprehensive income and accumulated separately in equity in the exchange reserve.

(r) Borrowing costs

Borrowing costs are expensed in the period in which they are incurred.

(s) Related parties

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

(i) has control or joint control over the Group;

(ii) has significant influence over the Group; or

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

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

(i) The entity and the Group are members of the same group.

(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 party.

(v) The entity is a post-employment benefit plan for the benefit of employees of either the Group or an entity related to the 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 the key management personnel of the entity (or of a parent of the entity).

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

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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.

3 ACCOUNTING JUDGEMENT AND ESTIMATES

Key sources of estimation uncertainty are as follows:

(a) Expected credit losses for receivables

The credit losses for trade and other receivables are based on assumptions about the expected loss rates. The Group uses judgement in making these assumptions and selecting the inputs to the impairment calculation, based on the Group’s past history, existing market conditions as well as forward looking estimates at the end of each reporting period. For details of the key assumptions and inputs used, see Note 21(a). Changes in these assumptions and estimates could materially affect the result of the assessment and the Group may make additional loss allowances in future periods.

(b) Useful lives and amortisation charges of intangible assets

The Group’s management determines the estimated useful lives and related amortisation charges for the Group’s intangible assets with reference to the estimated periods that the Group intends to derive future economic benefits from the use of these assets. Management will revise the amortisation charges where useful lives are different to that of previously estimated, or it will write-off or write-down technically obsolete or non-strategic assets that have been abandoned or sold.

Actual economic lives may differ from estimated useful lives. Periodic review could result in a change in depreciable lives and therefore amortisation expense in future periods.

If circumstances indicated that the carrying amount of copyrights of online literary works may not be recoverable, the copyrights of online literary works may be considered “impaired”, and an impairment loss may be recognised in accordance with accounting policy for impairment of intangible assets as described in Note 2(g)(ii). Copyrights of online literary works are tested for impairment periodically or whenever the events or changes in circumstances indicate that their recorded carrying amounts may not be recoverable. When such a decline has occurred, the carrying amount is reduced to the recoverable amount. The recoverable amount is the greater of the fair value less costs of disposal and value in use. In determining the value in use, expected future cash flows generated by the copyrights of online literary works are discounted to their present value, which requires significant judgement relating to the level of revenue to be generated over the life cycle of the copyrights of online literary works. The Group uses all readily available information in determining an amount that is a reasonable approximation of the recoverable amount, including estimates based on reasonable and supportable assumptions and projections of the level of revenue to be generated over the life cycle of the copyright of online literary works. Changes in these estimates could have a significant impact on the recoverable amount of copyrights of online literary works and could result in additional impairment charge or reversal of impairment in future periods.

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4 REVENUE

The Group is principally engaged in sourcing and developing online literary works for adaptation into various entertainment formats and operating as an internet content provider for online reading platforms. The Group manages its business as a whole by the most senior executive management for the purposes of resource allocation and performance assessment. The Group has one operating segment. The Group’s chief operating decision maker is the chief executive officer of the Group who reviews the Group’s results of operating in assessing performance of and making decisions about allocations to this segment.

(i) Revenue from contracts with customers

Years ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Disaggregated by type of goods or services IP adaptation licensing 41,549 64,245 83,255 Online reading licensing 19,601 14,252 6,445 Others 397 401 12

61,547 78,898 89,712

Years ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Disaggregated by timing of revenue recognition Point in time 61,547 78,898 89,712

(ii) Geographic information

The Group generated all revenue in the PRC and its non-current assets are substantially located in the PRC, accordingly, no analysis of geographic information is presented.

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(iii) Information about major customers

During the Track Record Period, the Group’s customers with whom transactions have exceeded 10% of the Group’s revenue in the respective years are as below.

Years ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Customer A 17,925 * * Customer B 9,528 47,642 * Customer C 7,547 * * Customer D * * 28,302 Customer E * * 14,151 Customer F * * 11,321 Customer G * * 10,377 Customer H * * 9,861

* Transactions with this customer did not exceed 10% of the Group’s revenue in the respective year. Details of credit risks of the Group are set out in Note 21(a).

5 OTHER NET EXPENSES

Years ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Government grants 100 — — Interest income 12 3 11 Others (113) (192) (24)

(1) (189) (13)

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6 PROFIT BEFORE TAXATION

Profit before taxation is arrived at after charging/(crediting):

(a) Finance costs

Years ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Interest expenses on: - loans from a shareholder of the Company 15 91 34 - lease liabilities 124 81 94

139 172 128

(b) Staff costs

Years ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Salaries, wages and other benefits 5,377 7,581 6,367 Contributions to defined contribution retirement plans 564 667 70

5,941 8,248 6,437

The employees of the subsidiaries of the Group established in the PRC (other than Hong Kong) participate in defined contribution retirement benefit plans managed by the local government authorities. Employees of these subsidiaries are entitled to retirement benefits, calculated based on a percentage of the average salaries level in the PRC (other than Hong Kong), from the above mentioned retirement plans at their normal retirement age.

The Group has no further material obligation for payment of other retirement benefits beyond the above contributions.

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Years ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Amortisation charge (Note 12): - Copyright of online literary work 30,539 35,361 45,318 - Copyright of games 693 1,189 1,189 - Software 1 1 1

Depreciation charge (Note 11): - owned property, plant and equipment 367 413 229 - right-of-use assets 1,256 1,122 749

Impairment losses recognised on intangible assets (Note 12) 2,175 1,064 3,120 Impairment losses recognised/(reversed) on trade receivables (Note 13) 1,216 2,235 (993) Impairment losses recognised on prepayment and other receivables — — 2,400

[REDACTED] [REDACTED] [REDACTED] [REDACTED]

7 INCOME TAX IN THE COMBINED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

(a) Taxation in the combined statements of profit or loss and other comprehensive income represents:

Years ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Current taxation (Note 19(a)) Provision for the year 1,610 1,946 990

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(b) Reconciliations between tax expenses and accounting profits at applicable tax rates:

Years ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Profit before taxation 11,889 27,302 25,886

Expected tax on profit before taxation, calculated at the rates applicable to profits in the jurisdictions concerned (Notes (i), (ii) and (iii)) 2,972 6,826 6,472 Tax effect of non-deductible expenses 26 36 902 Tax effect on PRC concession (Note (iv)) (5,624) (11,259) (9,901) Tax effect of unused tax losses not recognised 191 159 81 Additional deduction of R&D expenses (365) (431) (277) Tax effect of temporary differences not recognised 4,410 6,615 3,713

Income tax 1,610 1,946 990

Notes:

(i) The Company is not subject to any income tax pursuant to the rules and regulations of the Cayman Islands.

(ii) No provision for Hong Kong Profits Tax has been made, as the subsidiary of the Group incorporated in Hong Kong did not have assessable profits which are subject to Hong Kong Profits Tax during the Track Record Period.

(iii) The subsidiaries of the Group established in the PRC (excluding Hong Kong) are subject to PRC Corporate Income Tax rate of 25% during the Track Record Period.

(iv) In accordance with the income tax rules and regulations in the PRC, entities newly established in the Xinjiang Horgos special economic areas during the tax years from 2010 to 2020 can enjoy full exemption on PRC Corporate Income Tax for five years starting from the year in which revenue was first generated. The Group has established subsidiaries in the Xinjiang Horgos special economic areas in 2015, 2016 and 2019, and accordingly, these subsidiaries are entitled to full exemption on PRC Corporate Income Tax from the calendar year of their respective establishments to the calendar year of 2020, 2021 and 2024.

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8 DIRECTORS’ EMOLUMENTS

Details of emoluments of directors are as follows:

Year ended 31 December 2018 Salaries, allowances and Retirement Directors’ benefits in Discretionary scheme fees kind bonuses contributions Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Executive directors Mr. Cheng Fangdong — 130 — 7 137 Mr. Chen Xiangzhen — 111 — 17 128

Non-executive director Ms. Shi Renkai — 60 — 7 67

— 301 — 31 332

Year ended 31 December 2019 Salaries, allowances and Retirement Directors’ benefits in Discretionary scheme fees kind bonuses contributions Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Executive directors Mr. Cheng Fangdong — 259 — 22 281 Mr. Chen Xiangzhen — 197 — 16 213

Non-executive director Ms. Shi Renkai — 193 — 21 214

— 649 — 59 708

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Year ended 31 December 2020 Salaries, allowances and Retirement Directors’ benefits in Discretionary scheme fees kind bonuses contributions Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Executive directors Mr. Cheng Fangdong — 265 — 5 270 Mr. Chen Xiangzhen — 205 — 4 209

Non-executive director Ms. Shi Renkai — 196 — 5 201

— 666 — 14 680

On 14 January 2021, Mr. Chen Xiangzhen and Mr. Cheng Fangdong were appointed as executive directors of the Company, and Mr. Lin Jiaxi and Ms. Shi Renkai were appointed as non-executive directors of the Company. On 26 May 2021, Mr. Shi Kexin was appointed as a non-executive director of the Company. On [●], Hon. Quat Elizabeth (JP), Mr. Liu Sai Keung Thomas and Mr. Liu Xin were appointed as independent non-executive directors of the Company.

During the Track Record Period, no emoluments were paid by the Group to the directors as an inducement to join or upon joining the Group or as compensation for loss of office.

9 INDIVIDUALS WITH HIGHEST EMOLUMENTS

During the Track Record Period, of the five individuals with the highest emoluments, one is a director whose emoluments is disclosed in Note 8 for the year ended 31 December 2018, while there was no director among the five individuals with the highest emoluments for the year ended 31 December 2019 and 2020. The aggregate of the emoluments in respect of the remaining highest individuals during the Track Record Period are as follows:

Years ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Salaries allowances and benefits in kind 699 1,664 1,646 Retirement scheme contributions 86 117 30

785 1,781 1,676

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The emoluments of the individuals who are amongst the five highest paid individuals of the Group are within the following band:

Years ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Nil to HK$1,000,000 4 5 5

During the Track Record Period, no emoluments were paid by the Group to these individuals as an inducement to join or upon joining the Group or as compensation for loss of office.

10 EARNINGS PER SHARE

No earnings per share information is presented as its inclusion, for the purpose of this report, is not considered meaningful due to the Reorganisation and the preparation of the financial performance for the Track Record Period using the basis of preparation as disclosed in Note 1 above.

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11 PROPERTY, PLANT AND EQUIPMENT

(a) Reconciliation of carrying amount Office Leasehold equipment Right-of- improvements and others use assets Total RMB’000 RMB’000 RMB’000 RMB’000

Cost: At 1 January 2018 1,339 572 6,733 8,644 Additions 149 81 — 230 Disposals — — (2,103) (2,103)

At 31 December 2018 and 1 January 2019 1,488 653 4,630 6,771 Disposals (494) (51) (1,362) (1,907)

At 31 December 2019 and 1 January 2020 994 602 3,268 4,864 Additions — — 642 642

At 31 December 2020 994 602 3,910 5,506 ------Accumulated depreciation: At 1 January 2018 (135) (320) (2,657) (3,112) Charge for the year (345) (69) (1,417) (1,831) Written back on disposals — — 2,103 2,103

At 31 December 2018 and 1 January 2019 (480) (389) (1,971) (2,840) Charge for the year (344) (73) (1,137) (1,554) Written back on disposals 494 24 1,362 1,880

At 31 December 2019 and 1 January 2020 (330) (438) (1,746) (2,514) Charge for the year (165) (65) (749) (979)

At 31 December 2020 (495) (503) (2,495) (3,493) ------Carrying amount: At 31 December 2020 499 99 1,415 2,013

At 31 December 2019 664 164 1,522 2,350

At 31 December 2018 1,008 264 2,659 3,931

Property, plant and equipment of the Group are located in the PRC.

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(b) Right-of-use assets

The analysis of the net book value of right-of-use assets by class of underlying asset is as follows:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Other properties leased for own use, carried at depreciated cost 2,659 1,522 1,415

The Group has obtained the right to use office premises through tenancy agreements. The leases typically run for an initial period of up to 6 years.

The analysis of expense items in relation to leases recognised in profit or loss is as follows:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Depreciation charge of right-of-use assets by class of underlying asset: - Office premises (Note 6(c)) 1,256 1,122 749

Interest on lease liabilities (Note 6(a)) 124 81 94 Expense relating to short-term leases 36 126 240 Expense relating to leases of low-value assets, excluding short-term leases of low-value assets 46 31 62

Detail of cash outflow for leases from financing activities is set out in Note 15(b).

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12 INTANGIBLE ASSETS

Copyright of online literary Copyright work of games Software Total RMB’000 RMB’000 RMB’000 RMB’000 Cost: At 1 January 2018 100,643 8,000 11 108,654 Addition 59,182 1,245 — 60,427 Transfer (out)/in (Note) (9,434) 9,434 — —

At 31 December 2018 and 1 January 2019 150,391 18,679 11 169,081 Addition 71,149 3,547 — 74,696

At 31 December 2019 and 1 January 2020 221,540 22,226 11 243,777 Addition 28,650 1,887 — 30,537 Transfer (out)/in (Note) (4,717) 4,717 — —

At 31 December 2020 245,473 28,830 11 274,314 ------Accumulated amortisation and impairment: At 1 January 2018 (51,399) (3,302) (3) (54,704) Amortisation (30,539) (693) (1) (31,233) Impairment loss (2,175) — — (2,175) Transfer out/(in) (Note) 639 (639) — —

At 31 December 2018 and 1 January 2019 (83,474) (4,634) (4) (88,112) Amortisation (35,361) (1,189) (1) (36,551) Impairment loss (1,017) (47) — (1,064)

At 31 December 2019 and 1 January 2020 (119,852) (5,870) (5) (125,727) Amortisation (45,318) (1,189) (1) (46,508) Impairment loss (3,120) — — (3,120) Transfer out/(in) (Note) 131 (131) — —

At 31 December 2020 (168,159) (7,190) (6) (175,355) ------Net book value:

At 31 December 2020 77,314 21,640 5 98,959

At 31 December 2019 101,688 16,356 6 118,050

At 31 December 2018 66,917 14,045 7 80,969

Note: Copyrights of online literary work are transferred to Copyright of games when the Group invests them into the development of games.

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13 TRADE RECEIVABLES

At 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Trade receivables 35,193 29,055 35,743 Less: loss allowance (Note 21(a)) (6,194) (8,429) (5,039)

28,999 20,626 30,704

Aging analysis

The aging analysis of trade receivables, based on the date revenue is recognised and net of loss allowance, of the Group are as follows:

At 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Within 6 months 22,027 9,633 17,410 6 to 12 months 6,336 7,357 12,901 1 to 2 years 288 3,603 197 2 to 3 years 18 33 188 Over 3 years 330 — 8

28,999 20,626 30,704

Further details on the Group’s credit policy and credit risk are set out in Note 21(a).

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14 PREPAYMENTS, DEPOSITS AND OTHER RECEIVABLES

At 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Other receivables in connection with - advences to third parties 8,600 4,240 4,000 - others 501 175 307

9,101 4,415 4,307

Prepayments under co-investment arrangements for drama series — — 16,600 Prepayments for costs incurred in connection with the [REDACTED] of the Company’s shares — — [REDACTED] Others 603 407 [REDACTED]

603 407 17,754 ------9,704 4,822 22,061

All of the prepayments, deposits and other receivables are expected to be recovered or recognised as expenses within one year.

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15 CASH AT BANK AND ON HAND

(a) Cash at bank and on hand in the combined statements of financial position comprise:

At 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Cash on hand 6 — — Cash at bank 1,082 1,243 9,881

Cash at bank and on hand included in the combined statements of financial position 1,088 1,243 9,881 Less: restricted deposits (232) — —

Cash and cash equivalents included in the combined cash flow statements 856 1,243 9,881

The Group’s operations in the PRC (excluding Hong Kong) conducted its business in RMB. RMB is not a freely convertible currency and the remittance of funds out of the PRC (excluding Hong Kong) is subject to the exchange restrictions imposed by the PRC government.

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(b) Reconciliations of liabilities arising from financing activities

The tables below detail changes in the Group’s liabilities from financing activities, including both cash and non-cash changes. Liabilities arising from financing activities are liabilities for which cash flows were, or future cash flows will be, classified in the Group’s combined cash flow statements as cash flows from financing activities.

Loans from a shareholder of the Interest Lease Bank loan Company payable liabilities Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 17) (Note 17) (Note 18)

At 1 January 2018 — — — 2,931 2,931 ------

Changes from financing cash flows: Proceeds from loans from a shareholder of the Company — 1,870 — — 1,870 Capital element of lease rentals paid — — — (1,185) (1,185) Interest element of lease rentals paid — — — (124) (124)

Total changes from financing cash flows — 1,870 — (1,309) 561 ------

Other changes Interest expenses (Note 6(a)) — — 15 124 139

Total other changes — — 15 124 139 ------

At 31 December 2018 — 1,870 15 1,746 3,631

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Loans from a shareholder of the Interest Lease Bank loan Company payable liabilities Total RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 (Note 17) (Note 17) (Note 18)

At 1 January 2019 — 1,870 15 1,746 3,631 ------

Changes from financing cash flows: Proceeds from loans from a shareholder of the Company — 4,400 — — 4,400 Repayment of loans from a shareholder of the Company — (4,600) — — (4,600) Capital element of lease rentals paid — — — (98) (98) Interest element of lease rentals paid — — — (4) (4)

Total changes from financing cash flows — (200) — (102) (302) ------

Interest expenses (Note 6(a)) — — 91 81 172

Total other changes — — 91 81 172 ------

At 31 December 2019 and 1 January 2020 — 1,670 106 1,725 3,501

Changes from financing cash flows: Proceeds from loans from bank and a shareholder of the Company 100 4,578 — — 4,678 Repayment of loans from a shareholder of the Company — (6,248) — — (6,248) Interest paid — — (140) — (140) Capital element of lease rentals paid — — — (416) (416) Interest element of lease rentals paid — — — (61) (61)

Total changes from financing cash flows 100 (1,670) (140) (477) (2,187) ------

Other changes Net increase in lease liabilities — — — 642 642 Interest expenses (Note 6(a)) — — 34 94 128

Total other changes — — 34 736 770 ------

At 31 December 2020 100 — — 1,984 2,084

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16 TRADE PAYABLES

At 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Payables for promotion activities 1,480 744 744 Payables for acquisitions of rights of online literary works 24,889 23,343 16,244 Others 1,249 1,039 1,038

27,618 25,126 18,026

All of the trade payables are expected to be settled within one year or are repayable on demand.

The aging analysis of trade payables, based on the transaction date, are as follows:

At 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Within 6 months 23,169 810 4 6 to 12 months 1,249 20,121 2 1 to 2 years 2,800 1,045 13,825 2 to 3 years — 2,750 1,045 Over 3 years 400 400 3,150

27,618 25,126 18,026

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17 OTHER PAYABLES AND ACCRUED EXPENSES

At 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

4,654 4,187 4,756 Contract liabilities 2,000 2,600 —

6,654 6,787 4,756

All of the other payables and accrued expenses are expected to be settled or recognised as income within one year or are repayable on demand.

18 LEASE LIABILITIES

The following tables show the remaining contractual maturities of the Group’s lease liabilities as at the end of each reporting year:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Within 1 year 101 476 1,112 ------

After 1 year but within 2 years 453 418 437 After 2 years but within 5 years 1,192 831 435

1,645 1,249 872 ------

1,746 1,725 1,984

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19 INCOME TAX IN THE COMBINED STATEMENTS OF FINANCIAL POSITION

(a) Current taxation in the combined statements of financial position represent:

Years ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Net balance of income tax payable at 1 January 3,813 3,050 3,075 Provision for the year 2,325 1,946 990 Income tax paid (3,088) (1,921) (1,204)

Net balance of income tax payable at 31 December 3,050 3,075 2,861

Representing Tax payable 3,050 3,075 2,861

(b) Deferred tax assets not recognised

In accordance with the accounting policy set out in Note 2(m), certain subsidiaries of the Group have not recognised deferred tax assets in respect of cumulative tax losses of RMB3,446,000, RMB3,331,000 and RMB5,170,000 at 31 December 2018, 2019 and 2020, respectively, as it is not probable that future taxable profits against which the losses can be utilised will be available in the relevant entities. The cumulative tax losses comprised tax losses arose from various years, and each year’s tax loss can only be carried forward for five years.

20 CAPITAL, RESERVES AND DIVIDENDS

(a) Movements in components of equity

The reconciliations between the opening and closing balances of each component of the Group’s combined equity during the Track Record Period are set out in the combined statements of changes in equity.

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Details of the changes of the Company’s individual component of equity are set out below:

[●]

(b) Share capital

[●]

Other reserves mainly comprised (i) the paid-in capital and capital reserves of a PRC subsidiary of the Group, namely Beijing Kaixing; and (ii) accumulated deemed contributions from the Controlling Shareholder arising from the [REDACTED] Business. Further details of the basis of preparation of the Historical Financial Information are set out in Note 1.

(d) Dividends

No dividends were paid by the companies comprising the Group during the Track Record Period. The Company did not declare and pay any dividends since its incorporation.

(e) Capital management

The Group’s primary objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders, by pricing products and services commensurately with the level of risk and by securing access to finance at a reasonable cost.

The Group actively and regularly reviews and manages its capital structure to maintain a balance between the higher shareholders returns that might be possible with higher levels of borrowings and the advantages and security afforded by a sound capital position, and makes adjustments to the capital structure in light of changes in economic conditions.

Company nor any of its subsidiaries are subject to externally imposed capital requirements.

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21 FINANCIAL RISK MANAGEMENT AND FAIR VALUES OF FINANCIAL INSTRUMENTS

Exposure to credit, liquidity and interest rate arises in the normal course of the Group’s business. The Group is not exposed to significant currency risk.

The Group’s exposure to these risks and the financial risk management policies and practices used by the Group to manage these risks are described below.

(a) Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in a financial loss to the Group. The Group’s credit risk is primarily attributable to trade receivables and prepayments, deposits and other receivables. The Group’s exposure to credit risk arising from cash at bank is limited because the counterparties are banks with good credit standing, for which the Group considers to have low credit risk. The Group does not provide any guarantees which would expose the Group to credit risk.

Trade receivables

The Group has established a credit risk management policy under which individual credit evaluations are performed on all customers requiring credit over a certain amount. These evaluations focus on the customer’s past history of making payments when due and current ability to pay, and take into account information specific to the customer as well as pertaining to the economic environment in which the customer operates. Trade receivables are due within 0 to 120 days from the date of billing. Normally, the Group does not obtain collateral from customers.

The Group has no significant concentration of credit risk in industries or countries in which the customers operate. Significant concentrations of credit risk primarily arise when the Group has significant exposure to individual customers. At 31 December 2018, 2019 and 2020, 23%, 37% and 31% of the total trade receivables were due from the Group’s largest customer respectively, and 62%, 66% and 81% of the total trade receivables were due from the Group’s five largest customers respectively.

The Group measures loss allowances for trade receivables at an amount equal to lifetime ECLs, which is calculated using a provision matrix. As the Group’s historical credit loss experience does not indicate significantly different loss patterns for different customer segments, the loss allowance based on past due status is not further distinguished between the Group’s different customer bases.

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The following tables provide information about the Group’s exposure to credit risk and ECLs for trade receivables at 31 December 2018, 2019 and 2020:

At 31 December 2018 Gross Expected carrying Loss loss rate amount allowance % RMB’000 RMB’000

Current (not past due) 1% 18,689 188 Less than 6 months past due 11% 5,099 565 More than 6 months but less than 12 months past due 32% 8,143 2,589 More than 12 months but less than 24 months past due 40% 103 41 More than 24 months but less than 36 months past due 89% 3,159 2,811

35,193 6,194

At 31 December 2019 Gross Expected carrying Loss loss rate amount Allowance % RMB’000 RMB’000

Current (not past due) 1% 8,306 100 Less than 6 months past due 3% 8,149 261 More than 6 months but less than 12 months past due 10% 1,252 129 More than 12 months but less than 24 months past due 59% 8,246 4,853 More than 24 months but less than 36 months past due 75% 63 47 More than 36 months 100% 3,039 3,039

29,055 8,429

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At 31 December 2020 Gross Expected carrying Loss loss rate amount allowance % RMB’000 RMB’000

Current (not past due) 1% 13,927 207 Less than 6 months past due 4% 17,018 596 More than 6 months but less than 12 months past due 11% 206 22 More than 12 months but less than 24 months past due 45% 169 76 More than 24 months but less than 36 months past due 80% 1,424 1,139 More than 36 months 100% 2,999 2,999

35,743 5,039

Expected loss rates are based on actual loss experience over the recent past years. These rates are adjusted to reflect differences between economic conditions during the year over which the historic data has been collected, current conditions and the Group’s view of economic conditions over the expected lives of the receivables.

Although there was no significant changes in the Group’s industry, customer base, credit risk of customers, credit policy, economic conditions and the Group’s view of economic conditions over the expected lives of trade receivables during the years ended 31 December 2018, 2019 and 2020, the Group adjusted upward the expected loss rates applied during the year ended 31 December 2019 and 2020 after taking into consideration the impact of COVID-19 pandemic.

Movements in the loss allowance account in respect of trade receivables during the Track Record Period are as follows:

2018 2019 2020 RMB’000 RMB’000 RMB’000

Balance at 1 January 4,978 6,194 8,429 Impairment losses recognised/(reversed) during the year 1,216 2,235 (993) Write-off of impairment losses — — (2,397)

Balance at 31 December 6,194 8,429 5,039

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(b) Liquidity risk

The treasury function is centrally managed by the Group, which includes the short-term investment of cash surpluses and the raising of funds to cover expected cash demands. The Group’s policy is to regularly monitor its liquidity requirements and its compliance with lending covenants, to ensure that it maintains sufficient reserves of cash and adequate committed lines of funding from major financial institutions to meet its liquidity requirements in the short and longer term.

The following tables show the remaining contractual maturities at the end of each reporting year of the Group’s financial liabilities, which are based on contractual undiscounted cash flows (including interest payments computed using contractual rates or, if floating, based on rates current at the end of each reporting year) and the earliest dates the Group can be required to pay:

At 31 December 2018 Contractual undiscounted cash outflow Within 1 Over 1 Over 2 year or year but years but on within 2 within 5 Carrying demand years years Total amount RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Trade payables 27,618 — — 27,618 27,618 Other payables and accrued expenses 6,760 — — 6,760 6,654

34,378 — — 34,378 34,272

At 31 December 2019 Contractual undiscounted cash outflow Within 1 Over 1 Over 2 year or year but years but on within 2 within 5 Carrying demand years years Total amount RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Trade payables 25,126 — — 25,126 25,126 Other payables and accrued expenses 6,927 — — 6,927 6,787

32,053 — — 32,053 31,913

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At 31 December 2020 Contractual undiscounted cash outflow Within 1 Over 1 Over 2 year or year but years but on within 2 within 5 Carrying demand years years Total amount RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Trade payables 18,026 — — 18,026 18,026 Other payables and accrued expenses 4,756 — — 4,756 4,756 Bank loan 103 — — 103 100

22,885 — — 22,885 22,882

The Group’s interest rate risk arises primarily from interest-bearing borrowings. Borrowings issued at variable rates and at fixed rates expose the Group to cash flow interest rate risk and fair value interest rate risk respectively.

Interest rate profile

The following tables detail the interest rate profile of the Group’s total borrowings at the end of each reporting year:

At 31 December At 31 December At 31 December 2018 2019 2020 Effective Effective Effective interest interest interest rate rate rate % RMB’000 % RMB’000 % RMB’000

Fixed rate borrowings: - Bank loan N/A — N/A — 4.05% 100 - Loans from a shareholder of the Company 4.65% 1,870 4.65% 1,670 N/A — - Lease liabilities 4.75% 1,746 4.75% 1,725 4.75% 1,984

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(d) Fair value measurement

Fair value of financial instruments carried at other than fair value

The carrying amounts of the Group’s financial instruments carried at cost or amortised cost are not materially different from their fair values at 31 December 2018, 2019 and 2020.

22 MATERIAL RELATED PARTY TRANSACTIONS

(a) Names and relationships of the related parties that had material transactions with the Group during the Track Record Period and balances with the Group at the end of each reporting year

Name of related party Relationship

Mr Chen Xiangzhen (陳向真) Controlling Shareholder of the Company

(b) Transactions with related parties during the Track Record Period:

Years ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

The above transactions will not continue after the [REDACTED] of the Company’s shares.

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At 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Loans from a shareholder of the Company 1,870 1,670 — Interest payables to a shareholder of the Company 15 106 —

Total 1,885 1,776 —

The loans from and paid to related parties are unsecured, bear interest at 4.65% per annum.

(d) Key management personnel remuneration

Remuneration for key management personnel of the Group, including amounts paid to the Company’s directors as disclosed in Note 8 and certain of the highest paid employees as disclosed in Note 9 during the Track Record Period, is as follows:

Years ended 31 December 2018 2019 2020 RMB’000 RMB’000 RMB’000

Short-term employee benefits 1,140 2,562 2,556 Contributions to defined contribution retirement plans 138 195 50

1,278 2,757 2,606

Total remuneration is included in “staff costs” (see Note 6(b)).

− I-53 − THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX I ACCOUNTANTS’ REPORT

23 POSSIBLE IMPACT OF AMENDMENTS, NEW STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR THE ACCOUNTING YEAR BEGINNING ON 1 JANUARY 2020

Up to the date of issue of these financial statements, the IASB has issued a number of amendments, and a new standard which are not yet effective for the accounting year beginning on 1 January 2020 and which have not been adopted in the Historical Financial Information. These include the following.

Effective for accounting periods beginning on or after

Amendments to IFRS 16, Covid-19-Related Rent Concessions 1 June 2020

Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, Interest Rate Benchmark Reform — Phase 2 1 January 2021

Annual Improvements to IFRS Standards 2018-2020 1 January 2022

Amendments to IFRS 3, Reference to the Conceptual Framework 1 January 2022

Amendments to IAS 16, Property, Plant and Equipment: Proceeds before Intended Use 1 January 2022

Amendments to IAS 37, Onerous Contracts — Cost of Fulfilling a Contract 1 January 2022

Amendments to IAS 1, Classification of Liabilities as Current or Non-current 1 January 2023

IFRS 17, Insurance contracts 1 January 2023

Amendments to IAS 1 and IFRS Practice Statement 2, Disclosure of Accounting Policies 1 January 2023

Amendments to IAS 8, Definition of Accounting Estimates 1 January 2023

Amendments to IAS 12, Deferred Tax related to Assets and Liabilities arising from a Single Transaction 1 January 2023

Amendments to IFRS 10 and IAS 28, Sale or contribution of assets between an investor and its associate or joint venture To be determined

Amendments to IFRS 4, Extension of the temporary exemption from applying IFRS 9 To be determined

The Group is in the process of making an assessment of what the impact of these developments is expected to be in the period of initial application. So far it has concluded that the adoption of them is unlikely to have a significant impact on the Historical Financial Information.

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24 IMMEDIATE AND ULTIMATE CONTROLLING PARTIES

The directors of the Company consider the immediate controlling parties of the Group at 31 December 2020 to be Ms. Shi and Beijing Jinshi, and ultimate controlling parties of the Group at 31 December 2020 to be Ms. Shi and Mr. Chen.

25 IMPACTS OF COVID-19 PANDEMIC

The COVID-19 pandemic since early 2020 continues to bring uncertainties to the Group’s operating environment and may impact the Group’s operations and financial position.

Despite of the easing of the COVID-19 pandemic in Mainland China, the Group continues to closely monitor the possible impact of the COVID-19 pandemic has on the Group’s businesses and keep contingency measures in place and under review in the case where the COVID-19 pandemic rebounds. The directors of the Company confirm that these contingency measures include but not limited to increasing monitoring of the business environment of the Group’s customers and improving the Group’s cash management by expediting debtor settlements and negotiating with suppliers on extension of payment terms.

The exact timing of the cessation of the COVID-19 pandemic is still uncertain. Nonetheless, the directors of the Company is optimistic that the COVID-19 pandemic will eventually be under full control.

26 NON-ADJUSTING EVENTS AFTER THE REPORTING PERIOD

[●]

SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company and its subsidiaries comprising the Group in respect of any year subsequent to 31 December 2020.

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− II-5 − THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX III SUMMARY OF ARTICLES OF ASSOCIATION AND CAYMAN ISLANDS COMPANIES LAW

Set out below is a summary of certain provisions of the Memorandum and Articles of Association of the Company and of certain aspects of the company laws of the Cayman Islands.

The Company was incorporated in the Cayman Islands as an exempted company with limited liability on 14 January 2021 under the Cayman Companies Act. The Company’s constitutional documents consist of its Memorandum and Articles of Association.

1. MEMORANDUM OF ASSOCIATION

1.1 The Memorandum provides, inter alia, that the liability of members of the Company is limited and that the objects for which the Company is established are unrestricted (and therefore include acting as an investment company), and that the Company shall have and be capable of exercising any and all of the powers at any time or from time to time exercisable by a natural person or body corporate whether as principal, agent, contractor or otherwise and, since the Company is an exempted company, that the Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of the business of the Company carried on outside the Cayman Islands.

1.2 By special resolution the Company may alter the Memorandum with respect to any objects, powers or other matters specified in it.

2. ARTICLES OF ASSOCIATION

The Articles were conditionally adopted on [●]. A summary of certain provisions of the Articles is set out below.

2.1 Shares

(a) Classes of shares

The share capital of the Company consists of ordinary shares.

(b) Variation of rights of existing shares or classes of shares

Subject to the Cayman Companies Act, if at any time the share capital of the Company is divided into different classes of shares, all or any of the special rights attached to any class of shares may (unless otherwise provided for by the terms of issue of the shares of that class) be varied, modified or abrogated either with the consent in writing of the holders of not less than three-fourths in nominal value of the issued shares of that class or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of that class. The provisions of the Articles relating to general meetings shall mutatis mutandis apply to every such separate general meeting, provided that the necessary quorum (other than at an adjourned meeting) shall be not less than two persons together holding (or, in the case of a shareholder being a corporation, by its duly authorised representative) or representing by proxy not less than one-third in nominal value of the issued shares of that class. Every holder of shares of the class shall be entitled on a poll to one vote for every such share held by him, and any holder of shares of the class present in person or by proxy may demand a poll.

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Any special rights conferred upon the holders of any shares or class of shares shall not, unless otherwise expressly provided in the rights attaching to the terms of issue of such shares, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

The Company may, by an ordinary resolution of its members: (a) increase its share capital by the creation of new shares of such amount as it thinks expedient; (b) consolidate or divide all or any of its share capital into shares of larger or smaller amount than its existing shares; (c) divide its unissued shares into several classes and attach to such shares any preferential, deferred, qualified or special rights, privileges or conditions; (d) subdivide its shares or any of them into shares of an amount smaller than that fixed by the Memorandum; (e) cancel any shares which, at the date of the resolution, have not been taken or agreed to be taken by any person and diminish the amount of its share capital by the amount of the shares so cancelled; (f) make provision for the allotment and issue of shares which do not carry any voting rights; (g) change the currency of denomination of its share capital; and (h) reduce its share premium account in any manner authorised and subject to any conditions prescribed by law.

(d) Transfer of shares

Subject to the Cayman Companies Act and the requirements of the Stock Exchange, all transfers of shares shall be effected by an instrument of transfer in the usual or common form or in such other form as the Board may approve and may be under hand or, if the transferor or transferee is a Clearing House (as defined in the Articles) or its nominee(s), under hand or by machine imprinted signature, or by such other manner of execution as the Board may approve from time to time.

Execution of the instrument of transfer shall be by or on behalf of the transferor and the transferee, provided that the Board may dispense with the execution of the instrument of transfer by the transferor or transferee or accept mechanically executed transfers. The transferor shall be deemed to remain the holder of a share until the name of the transferee is entered in the register of members of the Company in respect of that share.

The Board may, in its absolute discretion, at any time and from time to time remove any share on the principal register to any branch register or any share on any branch register to the principal register or any other branch register.

Unless the Board otherwise agrees, no shares on the principal register shall be removed to any branch register nor shall shares on any branch register be removed to the principal register or any other branch register. All removals and other documents of title shall be lodged for registration and registered, in the case of shares on any branch register, at the relevant registration office and, in the case of shares on the principal register, at the place at which the principal register is located.

The Board may, in its absolute discretion, decline to register a transfer of any share (not being a fully paid up share) to a person of whom it does not approve or on which the Company has a lien. It may also decline to register a transfer of any share issued under any share option scheme upon which a restriction on transfer subsists or a transfer of any share to more than four joint holders.

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The Board may decline to recognise any instrument of transfer unless a certain fee, up to such maximum sum as the Stock Exchange may determine to be payable, is paid to the Company, the instrument of transfer is properly stamped (if applicable), is in respect of only one class of share and is lodged at the relevant registration office or the place at which the principal register is located accompanied by the relevant share certificate(s) and such other evidence as the Board may reasonably require is provided to show the right of the transferor to make the transfer (and if the instrument of transfer is executed by some other person on his behalf, the authority of that person so to do).

The register of members may, subject to the Listing Rules, be closed at such time or for such period not exceeding in the whole 30 days in each year as the Board may determine (or such longer period as the members of the Company may by ordinary resolution determine, provided that such period shall not be extended beyond 60 days in any year).

Fully paid shares shall be free from any restriction on transfer (except when permitted by the Stock Exchange) and shall also be free from all liens.

(e) Power of the Company to purchase its own shares

The Company may purchase its own shares subject to certain restrictions and the Board may only exercise this power on behalf of the Company subject to any applicable requirement imposed from time to time by the Articles or any code, rules or regulations issued from time to time by the Stock Exchange and/or the Securities and Futures Commission of Hong Kong.

Where the Company purchases for redemption a redeemable share, purchases not made through the market or by tender shall be limited to a maximum price and, if purchases are by tender, tenders shall be available to all members alike.

(f) Power of any subsidiary of the Company to own shares in the Company

There are no provisions in the Articles relating to the ownership of shares in the Company by a subsidiary.

(g) Calls on shares and forfeiture of shares

The Board may, from time to time, make such calls as it thinks fit upon the members in respect of any monies unpaid on the shares held by them respectively (whether on account of the nominal value of the shares or by way of premium) and not by the conditions of allotment of such shares made payable at fixed times. A call may be made payable either in one sum or by instalments. If the sum payable in respect of any call or instalment is not paid on or before the day appointed for payment thereof, the person or persons from whom the sum is due shall pay interest on the same at such rate not exceeding 20 per cent per annum as the Board shall fix from the day appointed for payment to the time of actual payment, but the Board may waive payment of such interest wholly or in part. The Board may, if it thinks fit, receive from any member willing to advance the same, either in money or money’s worth, all or any part of the money uncalled and unpaid or instalments payable upon any shares held by him, and in respect of all or any of the monies so advanced the Company may pay interest at such rate (if any) not exceeding 20 per cent per annum as the Board may decide.

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If a member fails to pay any call or instalment of a call on the day appointed for payment, the Board may, for so long as any part of the call or instalment remains unpaid, serve not less than 14 days’ notice on the member requiring payment of so much of the call or instalment as is unpaid, together with any interest which may have accrued and which may still accrue up to the date of actual payment. The notice shall name a further day (not earlier than the expiration of 14 days from the date of the notice) on or before which the payment required by the notice is to be made, and shall also name the place where payment is to be made. The notice shall also state that, in the event of non-payment at or before the appointed time, the shares in respect of which the call was made will be liable to be forfeited.

If the requirements of any such notice are not complied with, any share in respect of which the notice has been given may at any time thereafter, before the payment required by the notice has been made, be forfeited by a resolution of the Board to that effect. Such forfeiture will include all dividends and bonuses declared in respect of the forfeited share and not actually paid before the forfeiture.

A person whose shares have been forfeited shall cease to be a member in respect of the forfeited shares but shall, nevertheless, remain liable to pay to the Company all monies which, as at the date of forfeiture, were payable by him to the Company in respect of the shares together with (if the Board shall in its discretion so require) interest thereon from the date of forfeiture until payment at such rate not exceeding 20 per cent per annum as the Board may prescribe.

2.2 Directors

(a) Appointment, retirement and removal

At any time or from time to time, the Board shall have the power to appoint any person as a Director either to fill a casual vacancy on the Board or as an additional Director to the existing Board subject to any maximum number of Directors, if any, as may be determined by the members in general meeting. Any Director so appointed to fill a casual vacancy shall hold office only until the first general meeting of the Company after his appointment and be subject to re-election at such meeting. Any Director so appointed as an addition to the existing Board shall hold office only until the first annual general meeting of the Company after his appointment and be eligible for re-election at such meeting. Any Director so appointed by the Board shall not be taken into account in determining the Directors or the number of Directors who are to retire by rotation at an annual general meeting.

At each annual general meeting, one-third of the Directors for the time being shall retire from office by rotation. However, if the number of Directors is not a multiple of three, then the number nearest to but not less than one-third shall be the number of retiring Directors. Every Director (including those appointed for a specific term) shall be subject to retirement by rotation at least once every three years. The Directors to retire in each year shall be those who have been in office longest since their last re-election or appointment but, as between persons who became or were last re-elected Directors on the same day, those to retire shall (unless they otherwise agree among themselves) be determined by lot.

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No person, other than a retiring Director, shall, unless recommended by the Board for election, be eligible for election to the office of Director at any general meeting, unless notice in writing of the intention to propose that person for election as a Director and notice in writing by that person of his willingness to be elected has been lodged at the head office or at the registration office of the Company. The period for lodgment of such notices shall commence no earlier than the day after despatch of the notice of the relevant meeting and end no later than seven days before the date of such meeting and the minimum length of the period during which such notices may be lodged must be at least seven days.

A Director is not required to hold any shares in the Company by way of qualification nor is there any specified upper or lower age limit for Directors either for accession to or retirement from the Board.

A Director may be removed by an ordinary resolution of the Company before the expiration of his term of office (but without prejudice to any claim which such Director may have for damages for any breach of any contract between him and the Company) and the Company may by ordinary resolution appoint another in his place. Any Director so appointed shall be subject to the retirement by rotation provisions. The number of Directors shall not be less than two.

The office of a Director shall be vacated if he:

(i) resigns;

(ii) dies;

(iii) is declared to be of unsound mind and the Board resolves that his office be vacated;

(iv) becomes bankrupt or has a receiving order made against him or suspends payment or compounds with his creditors generally;

(v) he is prohibited from being or ceases to be a director by operation of law;

(vi) without special leave, is absent from meetings of the Board for six consecutive months, and the Board resolves that his office is vacated;

(vii) has been required by the stock exchange of the Relevant Territory (as defined in the Articles) to cease to be a Director; or

(viii)is removed from office by the requisite majority of the Directors or otherwise pursuant to the Articles.

From time to time the Board may appoint one or more of its body to be managing director, joint managing director or deputy managing director or to hold any other employment or executive office with the Company for such period and upon such terms as the Board may determine, and the Board may revoke or terminate any of such appointments. The Board may also delegate any of its powers to committees consisting of such Director(s) or other person(s) as the Board thinks fit, and from time

− III-5 − THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX III SUMMARY OF ARTICLES OF ASSOCIATION AND CAYMAN ISLANDS COMPANIES LAW to time it may also revoke such delegation or revoke the appointment of and discharge any such committees either wholly or in part, and either as to persons or purposes, but every committee so formed shall, in the exercise of the powers so delegated, conform to any regulations that may from time to time be imposed upon it by the Board.

(b) Power to allot and issue shares and warrants

Subject to the provisions of the Cayman Companies Act, the Memorandum and Articles and without prejudice to any special rights conferred on the holders of any shares or class of shares, any share may be issued with or have attached to it such rights, or such restrictions, whether with regard to dividend, voting, return of capital or otherwise, as the Company may by ordinary resolution determine (or, in the absence of any such determination or so far as the same may not make specific provision, as the Board may determine). Any share may be issued on terms that, upon the happening of a specified event or upon a given date and either at the option of the Company or the holder of the share, it is liable to be redeemed.

The Board may issue warrants to subscribe for any class of shares or other securities of the Company on such terms as it may from time to time determine.

Where warrants are issued to bearer, no certificate in respect of such warrants shall be issued to replace one that has been lost unless the Board is satisfied beyond reasonable doubt that the original certificate has been destroyed and the Company has received an indemnity in such form as the Board thinks fit with regard to the issue of any such replacement certificate.

Subject to the provisions of the Cayman Companies Act, the Articles and, where applicable, the rules of any stock exchange of the Relevant Territory and without prejudice to any special rights or restrictions for the time being attached to any shares or any class of shares, all unissued shares in the Company shall be at the disposal of the Board, which may offer, allot, grant options over or otherwise dispose of them to such persons, at such times, for such consideration and on such terms and conditions as it in its absolute discretion thinks fit, provided that no shares shall be issued at a discount.

Neither the Company nor the Board shall be obliged, when making or granting any allotment of, offer of, option over or disposal of shares, to make, or make available, any such allotment, offer, option or shares to members or others whose registered addresses are in any particular territory or territories where, in the absence of a registration statement or other special formalities, this is or may, in the opinion of the Board, be unlawful or impracticable. However, no member affected as a result of the foregoing shall be, or be deemed to be, a separate class of members for any purpose whatsoever.

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While there are no specific provisions in the Articles relating to the disposal of the assets of the Company or any of its subsidiaries, the Board may exercise all powers and do all acts and things which may be exercised or done or approved by the Company and which are not required by the Articles or the Cayman Companies Act to be exercised or done by the Company in general meeting, but if such power or act is regulated by the Company in general meeting, such regulation shall not invalidate any prior act of the Board which would have been valid if such regulation had not been made.

(d) Borrowing powers

The Board may exercise all the powers of the Company to raise or borrow money, to mortgage or charge all or any part of the undertaking, property and uncalled capital of the Company and, subject to the Cayman Companies Act, to issue debentures, debenture stock, bonds and other securities of the Company, whether outright or as collateral security for any debt, liability or obligation of the Company or of any third party.

(e) Remuneration

The Directors shall be entitled to receive, as ordinary remuneration for their services, such sums as shall from time to time be determined by the Board or the Company in general meeting, as the case may be, such sum (unless otherwise directed by the resolution by which it is determined) to be divided among the Directors in such proportions and in such manner as they may agree or, failing agreement, either equally or, in the case of any Director holding office for only a portion of the period in respect of which the remuneration is payable, pro rata. The Directors shall also be entitled to be repaid all expenses reasonably incurred by them in attending any Board meetings, committee meetings or general meetings or otherwise in connection with the discharge of their duties as Directors. Such remuneration shall be in addition to any other remuneration to which a Director who holds any salaried employment or office in the Company may be entitled by reason of such employment or office.

Any Director who, at the request of the Company, performs services which in the opinion of the Board go beyond the ordinary duties of a Director may be paid such special or extra remuneration as the Board may determine, in addition to or in substitution for any ordinary remuneration as a Director. An executive Director appointed to be a managing director, joint managing director, deputy managing director or other executive officer shall receive such remuneration and such other benefits and allowances as the Board may from time to time decide. Such remuneration shall be in addition to his ordinary remuneration as a Director.

The Board may establish, either on its own or jointly in concurrence or agreement with subsidiaries of the Company or companies with which the Company is associated in business, or may make contributions out of the Company’s monies to, any schemes or funds for providing pensions, sickness or compassionate allowances, life assurance or other benefits for employees (which expression as used in this and the following paragraph shall include any Director or former Director who may hold or have held any executive office or any office of profit with the Company or any of its subsidiaries) and former employees of the Company and their dependents or any class or classes of such persons.

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The Board may also pay, enter into agreements to pay or make grants of revocable or irrevocable, whether or not subject to any terms or conditions, pensions or other benefits to employees and former employees and their dependents, or to any of such persons, including pensions or benefits additional to those, if any, to which such employees or former employees or their dependents are or may become entitled under any such scheme or fund as mentioned above. Such pension or benefit may, if deemed desirable by the Board, be granted to an employee either before and in anticipation of, or upon or at any time after, his actual retirement.

(f) Compensation or payments for loss of office

Payments to any present Director or past Director of any sum by way of compensation for loss of office or as consideration for or in connection with his retirement from office (not being a payment to which the Director is contractually or statutorily entitled) must be approved by the Company in general meeting.

(g) Loans and provision of security for loans to Directors

The Company shall not directly or indirectly make a loan to a Director or a director of any holding company of the Company or any of their respective close associates, enter into any guarantee or provide any security in connection with a loan made by any person to a Director or a director of any holding company of the Company or any of their respective close associates, or, if any one or more Directors hold(s) (jointly or severally or directly or indirectly) a controlling interest in another company, make a loan to that other company or enter into any guarantee or provide any security in connection with a loan made by any person to that other company.

(h) Disclosure of interest in contracts with the Company or any of its subsidiaries

With the exception of the office of auditor of the Company, a Director may hold any other office or place of profit with the Company in conjunction with his office of Director for such period and upon such terms as the Board may determine, and may be paid such extra remuneration for that other office or place of profit, in whatever form, in addition to any remuneration provided for by or pursuant to any other Articles. A Director may be or become a director, officer or member of any other company in which the Company may be interested, and shall not be liable to account to the Company or the members for any remuneration or other benefits received by him as a director, officer or member of such other company. The Board may also cause the voting power conferred by the shares in any other company held or owned by the Company to be exercised in such manner in all respects as it thinks fit, including the exercise in favour of any resolution appointing the Directors or any of them to be directors or officers of such other company.

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No Director or intended Director shall be disqualified by his office from contracting with the Company, nor shall any such contract or any other contract or arrangement in which any Director is in any way interested be liable to be avoided, nor shall any Director so contracting or being so interested be liable to account to the Company for any profit realised by any such contract or arrangement by reason only of such Director holding that office or the fiduciary relationship established by it. A Director who is, in any way, materially interested in a contract or arrangement or proposed contract or arrangement with the Company shall declare the nature of his interest at the earliest meeting of the Board at which he may practically do so.

There is no power to freeze or otherwise impair any of the rights attaching to any share by reason that the person or persons who are interested directly or indirectly in that share have failed to disclose their interests to the Company.

A Director shall not vote or be counted in the quorum on any resolution of the Board in respect of any contract or arrangement or proposal in which he or any of his close associate(s) has/have a material interest, and if he shall do so his vote shall not be counted nor shall he be counted in the quorum for that resolution, but this prohibition shall not apply to any of the following matters:

(i) the giving of any security or indemnity to the Director or his close associate(s) in respect of money lent or obligations incurred or undertaken by him or any of them at the request of or for the benefit of the Company or any of its subsidiaries;

(ii) the giving of any security or indemnity to a third party in respect of a debt or obligation of the Company or any of its subsidiaries for which the Director or his close associate(s) has/have himself/themselves assumed responsibility in whole or in part whether alone or jointly under a guarantee or indemnity or by the giving of security;

(iii) any proposal concerning an offer of shares, debentures or other securities of or by the Company or any other company which the Company may promote or be interested in for subscription or purchase, where the Director or his close associate(s) is/are or is/are to be interested as a participant in the underwriting or sub- underwriting of the offer;

(iv) any proposal or arrangement concerning the benefit of employees of the Company or any of its subsidiaries, including the adoption, modification or operation of either: (i) any employees’ share scheme or any share incentive or share option scheme under which the Director or his close associate(s) may benefit; or (ii) any of a pension fund or retirement, death or disability benefits scheme which relates to Directors, their close associates and employees of the Company or any of its subsidiaries and does not provide in respect of any Director or his close associate(s) any privilege or advantage not generally accorded to the class of persons to which such scheme or fund relates; and

(v) any contract or arrangement in which the Director or his close associate(s) is/are interested in the same manner as other holders of shares, debentures or other securities of the Company by virtue only of his/their interest in those shares, debentures or other securities.

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2.3 Proceedings of the Board

The Board may meet anywhere in the world for the despatch of business and may adjourn and otherwise regulate its meetings as it thinks fit. Questions arising at any meeting shall be determined by a majority of votes. In the case of an equality of votes, the chairman of the meeting shall have a second or casting vote.

2.4 Alterations to the constitutional documents and the Company’s name

To the extent that the same is permissible under the Cayman Islands laws and subject to the Articles, the Memorandum and Articles of the Company may only be altered or amended, and the name of the Company may only be changed, with the sanction of a special resolution of the Company.

2.5 Meetings of members

(a) Special and ordinary resolutions

A special resolution of the Company must be passed by a majority of not less than three-fourths of the votes cast by such members as, being entitled so to do, vote in person or by proxy or, in the case of members which are corporations, by their duly authorised representatives or by proxy at a general meeting of which notice specifying the intention to propose the resolution as a special resolution has been duly given.

Under the Cayman Companies Act, a copy of any special resolution must be forwarded to the Registrar of Companies in the Cayman Islands within 15 days of being passed.

An ordinary resolution, by contrast, is a resolution passed by a simple majority of the votes of such members of the Company as, being entitled to do so, vote in person or, in the case of members which are corporations, by their duly authorised representatives or by proxy at a general meeting of which notice has been duly given.

A resolution in writing signed by or on behalf of all members shall be treated as an ordinary resolution duly passed at a general meeting of the Company duly convened and held, and where relevant as a special resolution so passed.

(b) Voting rights and right to demand a poll

Subject to any special rights, restrictions or privileges as to voting for the time being attached to any class or classes of shares at any general meeting: (a) on a poll every member present in person or by proxy or, in the case of a member being a corporation, by its duly authorised representative shall have one vote for every share which is fully paid or credited as fully paid registered in his name in the register of members of the Company, provided that no amount paid up or credited as paid up on a share in advance of calls or instalments is treated for this purpose as paid up on the share; and (b) on a show of hands every member who is present in person (or, in the case of a member being a

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At any general meeting a resolution put to the vote of the meeting is to be decided by poll save that the chairman of the meeting may, pursuant to the Listing Rules, allow a resolution to be voted on by a show of hands. Where a show of hands is allowed, before or on the declaration of the result of the show of hands, a poll may be demanded by (in each case by members present in person or by proxy or by a duly authorised corporate representative):

(i) at least two members;

(ii) any member or members representing not less than one-tenth of the total voting rights of all the members having the right to vote at the meeting; or

(iii) a member or members holding shares in the Company conferring a right to vote at the meeting on which an aggregate sum has been paid equal to not less than one-tenth of the total sum paid up on all the shares conferring that right.

Should a Clearing House or its nominee(s) be a member of the Company, such person or persons may be authorised as it thinks fit to act as its representative(s) at any meeting of the Company or at any meeting of any class of members of the Company provided that, if more than one person is so authorised, the authorisation shall specify the number and class of shares in respect of which each such person is so authorised. A person authorised in accordance with this provision shall be deemed to have been duly authorised without further evidence of the facts and be entitled to exercise the same rights and powers on behalf of the Clearing House or its nominee(s) as if such person were an individual member including the right to vote individually on a show of hands.

Where the Company has knowledge that any member is, under the Listing Rules, required to abstain from voting on any particular resolution or restricted to voting only for or only against any particular resolution, any votes cast by or on behalf of such member in contravention of such requirement or restriction shall not be counted.

The Company must hold an annual general meeting each year other than the year of the Company’s adoption of the Articles. Such meeting must be held not more than 15 months after the holding of the last preceding annual general meeting, or such longer period as may be authorised by the Stock Exchange at such time and place as may be determined by the Board.

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(d) Notices of meetings and business to be conducted

An annual general meeting of the Company shall be called by at least 21 days’ (and not less than 20 clear business days’) notice in writing, and any other general meeting of the Company shall be called by at least 14 days’ (and not less than 10 clear business days’) notice in writing. The notice shall be exclusive of the day on which it is served or deemed to be served and of the day for which it is given, and must specify the time, place and agenda of the meeting and particulars of the resolution(s) to be considered at that meeting and, in the case of special business, the general nature of that business.

Except where otherwise expressly stated, any notice or document (including a share certificate) to be given or issued under the Articles shall be in writing, and may be served by the Company on any member personally, by post to such member’s registered address or (in the case of a notice) by advertisement in the newspapers. Any member whose registered address is outside Hong Kong may notify the Company in writing of an address in Hong Kong which shall be deemed to be his registered address for this purpose. Subject to the Cayman Companies Act and the Listing Rules, a notice or document may also be served or delivered by the Company to any member by electronic means.

Although a meeting of the Company may be called by shorter notice than as specified above, such meeting may be deemed to have been duly called if it is so agreed:

(i) in the case of an annual general meeting, by all members of the Company entitled to attend and vote thereat; and

(ii) in the case of any other meeting, by a majority in number of the members having a right to attend and vote at the meeting holding not less than 95 per cent of the total voting rights in the Company.

All business transacted at an extraordinary general meeting shall be deemed special business. All business shall also be deemed special business where it is transacted at an annual general meeting, with the exception of certain routine matters which shall be deemed ordinary business.

(e) Quorum for meetings and separate class meetings

No business shall be transacted at any general meeting unless a quorum is present when the meeting proceeds to business, and continues to be present until the conclusion of the meeting.

The quorum for a general meeting shall be two members present in person (or in the case of a member being a corporation, by its duly authorised representative) or by proxy and entitled to vote. In respect of a separate class meeting (other than an adjourned meeting) convened to sanction the modification of class rights, the necessary quorum shall be two persons holding or representing by proxy not less than one-third in nominal value of the issued shares of that class.

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(f) Proxies

Any member of the Company entitled to attend and vote at a meeting of the Company is entitled to appoint another person as his proxy to attend and vote instead of him. A member who is the holder of two or more shares may appoint more than one proxy to represent him and vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not be a member of the Company and shall be entitled to exercise the same powers on behalf of a member who is an individual and for whom he acts as proxy as such member could exercise. In addition, a proxy shall be entitled to exercise the same powers on behalf of a member which is a corporation and for which he acts as proxy as such member could exercise if it were an individual member. On a poll or on a show of hands, votes may be given either personally (or, in the case of a member being a corporation, by its duly authorised representative) or by proxy.

The instrument appointing a proxy shall be in writing under the hand of the appointor or of his attorney duly authorised in writing, or if the appointor is a corporation, either under seal or under the hand of a duly authorised officer or attorney. Every instrument of proxy, whether for a specified meeting or otherwise, shall be in such form as the Board may from time to time approve, provided that it shall not preclude the use of the two-way form. Any form issued to a member for appointing a proxy to attend and vote at an extraordinary general meeting or at an annual general meeting at which any business is to be transacted shall be such as to enable the member, according to his intentions, to instruct the proxy to vote in favour of or against (or, in default of instructions, to exercise his discretion in respect of) each resolution dealing with any such business.

(g) Members’ requisition for meetings

Extraordinary general meetings shall be convened on the requisition of one or more members holding, as at the date of deposit of the requisition, not less than one-tenth of the paid up capital of the Company having the right of voting at general meetings. Such requisition shall be made in writing to the Board or the secretary of the Company for the purpose of requiring an extraordinary general meeting to be called by the Board for the transaction of any business specified in such requisition. Such meeting shall be held within two months after the deposit of such requisition. If within 21 days of such deposit, the Board fails to proceed to convene such meeting, the requisitionist(s) himself (themselves) may do so in the same manner, and all reasonable expenses incurred by the requisitionist(s) as a result of the failure of the Board shall be reimbursed to the requisitionist(s) by the Company.

2.6 Accounts and audit

The Board shall cause proper books of account to be kept of the sums of money received and expended by the Company, and of the assets and liabilities of the Company and of all other matters required by the Cayman Companies Act (which include all sales and purchases of goods by the Company) necessary to give a true and fair view of the state of the Company’s affairs and to show and explain its transactions.

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The books of accounts of the Company shall be kept at the head office of the Company or at such other place or places as the Board decides and shall always be open to inspection by any Director. No member (other than a Director) shall have any right to inspect any account, book or document of the Company except as conferred by the Cayman Companies Act or ordered by a court of competent jurisdiction or authorised by the Board or the Company in general meeting.

The Board shall from time to time cause to be prepared and laid before the Company at its annual general meeting balance sheets and profit and loss accounts (including every document required by law to be annexed thereto), together with a copy of the Directors’ report and a copy of the auditors’ report, not less than 21 days before the date of the annual general meeting. Copies of these documents shall be sent to every person entitled to receive notices of general meetings of the Company under the provisions of the Articles together with the notice of annual general meeting, not less than 21 days before the date of the meeting.

Subject to the rules of the stock exchange of the Relevant Territory, the Company may send summarised financial statements to shareholders who have, in accordance with the rules of the stock exchange of the Relevant Territory, consented and elected to receive summarised financial statements instead of the full financial statements. The summarised financial statements must be accompanied by any other documents as may be required under the rules of the stock exchange of the Relevant Territory, and must be sent to those shareholders that have consented and elected to receive the summarised financial statements not less than 21 days before the general meeting.

The Company shall appoint auditor(s) to hold office until the conclusion of the next annual general meeting on such terms and with such duties as may be agreed with the Board. The auditors’ remuneration shall be fixed by the Company in general meeting or by the Board if authority is so delegated by the members. The members may, at any general meeting convened and held in accordance with the Articles, remove the auditors by special resolution at any time before the expiration of the term of office and shall, by ordinary resolution, at that meeting appoint new auditors in its place for the remainder of the term.

The auditors shall audit the financial statements of the Company in accordance with generally accepted accounting principles of Hong Kong, the International Accounting Standards or such other standards as may be permitted by the Stock Exchange.

2.7 Dividends and other methods of distribution

The Company in general meeting may declare dividends in any currency to be paid to the members but no dividend shall be declared in excess of the amount recommended by the Board.

Except in so far as the rights attaching to, or the terms of issue of, any share may otherwise provide:

(a) all dividends shall be declared and paid according to the amounts paid up on the shares in respect of which the dividend is paid, although no amount paid up on a share in advance of calls shall for this purpose be treated as paid up on the share;

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(b) all dividends shall be apportioned and paid pro rata in accordance with the amount paid up on the shares during any portion(s) of the period in respect of which the dividend is paid; and

(c) the Board may deduct from any dividend or other monies payable to any member all sums of money (if any) presently payable by him to the Company on account of calls, instalments or otherwise.

Where the Board or the Company in general meeting has resolved that a dividend should be paid or declared, the Board may resolve:

(i) that such dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up, provided that the members entitled to such dividend will be entitled to elect to receive such dividend (or part thereof) in cash in lieu of such allotment; or

(ii) that the members entitled to such dividend will be entitled to elect to receive an allotment of shares credited as fully paid up in lieu of the whole or such part of the dividend as the Board may think fit.

Upon the recommendation of the Board, the Company may by ordinary resolution in respect of any one particular dividend of the Company determine that it may be satisfied wholly in the form of an allotment of shares credited as fully paid up without offering any right to members to elect to receive such dividend in cash in lieu of such allotment.

Any dividend, bonus or other sum payable in cash to the holder of shares may be paid by cheque or warrant sent through the post. Every such cheque or warrant shall be made payable to the order of the person to whom it is sent and shall be sent at the holder’s or joint holders’ risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a good discharge to the Company. Any one of two or more joint holders may give effectual receipts for any dividends or other monies payable or property distributable in respect of the shares held by such joint holders.

Whenever the Board or the Company in general meeting has resolved that a dividend be paid or declared, the Board may further resolve that such dividend be satisfied wholly or in part by the distribution of specific assets of any kind.

The Board may, if it thinks fit, receive from any member willing to advance the same, and either in money or money’s worth, all or any part of the money uncalled and unpaid or instalments payable upon any shares held by him, and in respect of all or any of the monies so advanced may pay interest at such rate (if any) not exceeding 20 per cent per annum, as the Board may decide, but a payment in advance of a call shall not entitle the member to receive any dividend or to exercise any other rights or privileges as a member in respect of the share or the due portion of the shares upon which payment has been advanced by such member before it is called up.

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All dividends, bonuses or other distributions unclaimed for one year after having been declared may be invested or otherwise used by the Board for the benefit of the Company until claimed and the Company shall not be constituted a trustee in respect thereof. All dividends, bonuses or other distributions unclaimed for six years after having been declared may be forfeited by the Board and, upon such forfeiture, shall revert to the Company.

No dividend or other monies payable by the Company on or in respect of any share shall bear interest against the Company.

The Company may exercise the power to cease sending cheques for dividend entitlements or dividend warrants by post if such cheques or warrants remain uncashed on two consecutive occasions or after the first occasion on which such a cheque or warrant is returned undelivered.

2.8 Inspection of corporate records

For so long as any part of the share capital of the Company is [REDACTED] on the Stock Exchange, any member may inspect any register of members of the Company maintained in Hong Kong (except when the register of members is closed) without charge and require the provision to him of copies or extracts of such register in all respects as if the Company were incorporated under and were subject to the Hong Kong Companies Ordinance.

2.9 Rights of minorities in relation to fraud or oppression

There are no provisions in the Articles concerning the rights of minority members in relation to fraud or oppression. However, certain remedies may be available to members of the Company under the Cayman Islands laws, as summarised in paragraph 3.6 of this Appendix.

2.10 Procedures on liquidation

A resolution that the Company be wound up by the court or be wound up voluntarily shall be a special resolution.

Subject to any special rights, privileges or restrictions as to the distribution of available surplus assets on liquidation for the time being attached to any class or classes of shares:

(a) if the Company is wound up and the assets available for distribution among the members of the Company are more than sufficient to repay the whole of the capital paid up at the commencement of the winding up, then the excess shall be distributed pari passu among such members in proportion to the amount paid up on the shares held by them respectively; and

(b) if the Company is wound up and the assets available for distribution among the members as such are insufficient to repay the whole of the paid-up capital, such assets shall be distributed so that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid up on the shares held by them, respectively.

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If the Company is wound up (whether the liquidation is voluntary or compelled by the court), the liquidator may, with the sanction of a special resolution and any other sanction required by the Cayman Companies Act, divide among the members in specie or kind the whole or any part of the assets of the Company, whether the assets consist of property of one kind or different kinds, and the liquidator may, for such purpose, set such value as he deems fair upon any one or more class or classes of property to be so divided and may determine how such division shall be carried out as between the members or different classes of members and the members within each class. The liquidator may, with the like sanction, vest any part of the assets in trustees upon such trusts for the benefit of members as the liquidator thinks fit, provided that no member shall be compelled to accept any shares or other property upon which there is a liability.

2.11 Subscription rights reserve

Provided that it is not prohibited by and is otherwise in compliance with the Cayman Companies Act, if warrants to subscribe for shares have been issued by the Company and the Company does any act or engages in any transaction which would result in the subscription price of such warrants being reduced below the par value of the shares to be issued on the exercise of such warrants, a subscription rights reserve shall be established and applied in paying up the difference between the subscription price and the par value of such shares.

3. COMPANY LAWS OF THE CAYMAN ISLANDS

The Company was incorporated in the Cayman Islands as an exempted company on 14 January 2021 subject to the Cayman Companies Act. Certain provisions of the company laws of the Cayman Islands are set out below but this section does not purport to contain all applicable qualifications and exceptions or to be a complete review of all matters of the company laws of the Cayman Islands, which may differ from equivalent provisions in jurisdictions with which interested parties may be more familiar.

3.1 Company operations

An exempted company such as the Company must conduct its operations mainly outside the Cayman Islands. An exempted company is also required to file an annual return each year with the Registrar of Companies of the Cayman Islands and pay a fee which is based on the amount of its authorised share capital.

3.2 Share capital

Under the Cayman Companies Act, a Cayman Islands company may issue ordinary, preference or redeemable shares or any combination thereof. Where a company issues shares at a premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the premiums on those shares shall be transferred to an account, to be called the share premium account. At the option of a company, these provisions may not apply to premiums on shares of that company allotted pursuant to

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(a) paying distributions or dividends to members;

(b) paying up unissued shares of the company to be issued to members as fully paid bonus shares;

(d) writing-off the preliminary expenses of the company; and

(e) writing-off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company.

Notwithstanding the foregoing, no distribution or dividend may be paid to members out of the share premium account unless, immediately following the date on which the distribution or dividend is proposed to be paid, the company will be able to pay its debts as they fall due in the ordinary course of business.

Subject to confirmation by the court, a company limited by shares or a company limited by guarantee and having a share capital may, if authorised to do so by its articles of association, by special resolution reduce its share capital in any way.

3.3 Financial assistance to purchase shares of a company or its holding company

There are no statutory prohibitions in the Cayman Islands on the granting of financial assistance by a company to another person for the purchase of, or subscription for, its own, its holding company’s or a subsidiary’s shares. Therefore, a company may provide financial assistance provided the directors of the company, when proposing to grant such financial assistance, discharge their duties of care and act in good faith, for a proper purpose and in the interests of the company. Such assistance should be on an arm’s-length basis.

3.4 Purchase of shares and warrants by a company and its subsidiaries

A company limited by shares or a company limited by guarantee and having a share capital may, if so authorised by its articles of association, issue shares which are to be redeemed or are liable to be redeemed at the option of the company or a member and, for the avoidance of doubt, it shall be lawful for the rights attaching to any shares to be varied, subject to the provisions of the company’s articles of association, so as to provide that such shares are to be or are liable to be so redeemed. In addition, such a company may, if authorised to do so by its articles of association, purchase its own shares, including any redeemable shares; an ordinary resolution of the company approving the manner and terms of the purchase will be required if the articles of association do not authorise the manner and terms of such purchase. A company may not redeem or purchase its shares unless they are fully

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Shares that have been purchased or redeemed by a company or surrendered to the company shall not be treated as cancelled but shall be classified as treasury shares if held in compliance with the requirements of Section 37A(1) of the Cayman Companies Act. Any such shares shall continue to be classified as treasury shares until such shares are either cancelled or transferred pursuant to the Cayman Companies Act.

A Cayman Islands company may be able to purchase its own warrants subject to and in accordance with the terms and conditions of the relevant warrant instrument or certificate. Thus there is no requirement under the Cayman Islands laws that a company’s memorandum or articles of association contain a specific provision enabling such purchases. The directors of a company may under the general power contained in its memorandum of association be able to buy, sell and deal in personal property of all kinds.

A subsidiary may hold shares in its holding company and, in certain circumstances, may acquire such shares.

3.5 Dividends and distributions

Subject to a solvency test, as prescribed in the Cayman Companies Act, and the provisions, if any, of the company’s memorandum and articles of association, a company may pay dividends and distributions out of its share premium account. In addition, based upon English case law which is likely to be persuasive in the Cayman Islands, dividends may be paid out of profits.

For so long as a company holds treasury shares, no dividend may be declared or paid, and no other distribution (whether in cash or otherwise) of the company’s assets (including any distribution of assets to members on a winding up) may be made, in respect of a treasury share.

3.6 Protection of minorities and shareholders’ suits

It can be expected that the Cayman Islands courts will ordinarily follow English case law precedents (particularly the rule in the case of Foss vs. Harbottle and the exceptions to that rule) which permit a minority member to commence a representative action against or derivative actions in the name of the company to challenge acts which are ultra vires, illegal, fraudulent (and performed by those in control of the Company) against the minority, or represent an irregularity in the passing of a resolution which requires a qualified (or special) majority which has not been obtained.

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Where a company (not being a bank) is one which has a share capital divided into shares, the court may, on the application of members holding not less than one-fifth of the shares of the company in issue, appoint an inspector to examine the affairs of the company and, at the direction of the court, to report on such affairs. In addition, any member of a company may petition the court, which may make a winding up order if the court is of the opinion that it is just and equitable that the company should be wound up.

In general, claims against a company by its members must be based on the general laws of contract or tort applicable in the Cayman Islands or be based on potential violation of their individual rights as members as established by a company’s memorandum and articles of association.

3.7 Disposal of assets

There are no specific restrictions on the power of directors to dispose of assets of a company, however, the directors are expected to exercise certain duties of care, diligence and skill to the standard that a reasonably prudent person would exercise in comparable circumstances, in addition to fiduciary duties to act in good faith, for proper purpose and in the best interests of the company under English common law (which the Cayman Islands courts will ordinarily follow).

3.8 Accounting and auditing requirements

A company must cause proper records of accounts to be kept with respect to: (i) all sums of money received and expended by it; (ii) all sales and purchases of goods by it; and (iii) its assets and liabilities.

Proper books of account shall not be deemed to be kept if there are not kept such books as are necessary to give a true and fair view of the state of the company’s affairs and to explain its transactions.

If a company keeps its books of account at any place other than at its registered office or any other place within the Cayman Islands, it shall, upon service of an order or notice by the Tax Information Authority pursuant to the Tax Information Authority Act (2020 Revision) of the Cayman Islands, make available, in electronic form or any other medium, at its registered office copies of its books of account, or any part or parts thereof, as are specified in such order or notice.

3.9 Exchange control

There are no exchange control regulations or currency restrictions in effect in the Cayman Islands.

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3.10 Taxation

[Pursuant to section 6 of the Tax Concessions Act (2018 Revision) of the Cayman Islands, the Company has obtained an undertaking from the Governor-in-Cabinet that:

(a) no law which is enacted in the Cayman Islands imposing any tax to be levied on profits or income or gains or appreciations shall apply to the Company or its operations; and

(b) no tax be levied on profits, income, gains or appreciations or which is in the nature of estate duty or inheritance tax shall be payable by the Company:

(i) on or in respect of the shares, debentures or other obligations of the Company; or

(ii) by way of withholding in whole or in part of any relevant payment as defined in section 6(3) of the Tax Concessions Act (2018 Revision).

The undertaking for the Company is for a period of 20 years from [-].]

The Cayman Islands currently levy no taxes on individuals or corporations based upon profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes likely to be material to the Company levied by the Government of the Cayman Islands save for certain stamp duties which may be applicable, from time to time, on certain instruments.

3.11 Stamp duty on transfers

No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands companies save for those which hold interests in land in the Cayman Islands.

3.12 Loans to directors

There is no express provision prohibiting the making of loans by a company to any of its directors. However, the company’s articles of association may provide for the prohibition of such loans under specific circumstances.

3.13 Inspection of corporate records

The members of a company have no general right to inspect or obtain copies of the register of members or corporate records of the company. They will, however, have such rights as may be set out in the company’s articles of association.

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3.14 Register of members

A Cayman Islands exempted company may maintain its principal register of members and any branch registers in any country or territory, whether within or outside the Cayman Islands, as the company may determine from time to time. There is no requirement for an exempted company to make any returns of members to the Registrar of Companies in the Cayman Islands. The names and addresses of the members are, accordingly, not a matter of public record and are not available for public inspection. However, an exempted company shall make available at its registered office, in electronic form or any other medium, such register of members, including any branch register of member, as may be required of it upon service of an order or notice by the Tax Information Authority pursuant to the Tax Information Authority Act (2020 Revision) of the Cayman Islands.

3.15 Register of directors and officers

Pursuant to the Cayman Companies Act, the Company is required to maintain at its registered office a register of directors, alternate directors and officers. The Registrar of Companies shall make available the list of the names of the current directors of the Company (and, where applicable, the current alternate directors of the Company) for inspection by any person upon payment of a fee by such person. A copy of the register of directors and officers must be filed with the Registrar of Companies in the Cayman Islands, and any change must be notified to the Registrar of Companies within 30 days of any change in such directors or officers, including a change of the name of such directors or officers.

3.16 Winding up

A Cayman Islands company may be wound up by: (i) an order of the court; (ii) voluntarily by its members; or (iii) under the supervision of the court.

The court has authority to order winding up in a number of specified circumstances including where, in the opinion of the court, it is just and equitable that such company be so wound up.

A voluntary winding up of a company (other than a limited duration company, for which specific rules apply) occurs where the company resolves by special resolution that it be wound up voluntarily or where the company in general meeting resolves that it be wound up voluntarily because it is unable to pay its debt as they fall due. In the case of a voluntary winding up, the company is obliged to cease to carry on its business from the commencement of its winding up except so far as it may be beneficial for its winding up. Upon appointment of a voluntary liquidator, all the powers of the directors cease, except so far as the company in general meeting or the liquidator sanctions their continuance.

In the case of a members’ voluntary winding up of a company, one or more liquidators are appointed for the purpose of winding up the affairs of the company and distributing its assets.

As soon as the affairs of a company are fully wound up, the liquidator must make a report and an account of the winding up, showing how the winding up has been conducted and the property of the company disposed of, and call a general meeting of the company for the purposes of laying before it the account and giving an explanation of that account.

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When a resolution has been passed by a company to wind up voluntarily, the liquidator or any contributory or creditor may apply to the court for an order for the continuation of the winding up under the supervision of the court, on the grounds that: (i) the company is or is likely to become insolvent; or (ii) the supervision of the court will facilitate a more effective, economic or expeditious liquidation of the company in the interests of the contributories and creditors. A supervision order takes effect for all purposes as if it was an order that the company be wound up by the court except that a commenced voluntary winding up and the prior actions of the voluntary liquidator shall be valid and binding upon the company and its official liquidator.

For the purpose of conducting the proceedings in winding up a company and assisting the court, one or more persons may be appointed to be called an official liquidator(s).The court may appoint to such office such person or persons, either provisionally or otherwise, as it thinks fit, and if more than one person is appointed to such office, the court shall declare whether any act required or authorised to be done by the official liquidator is to be done by all or any one or more of such persons. The court may also determine whether any and what security is to be given by an official liquidator on his appointment; if no official liquidator is appointed, or during any vacancy in such office, all the property of the company shall be in the custody of the court.

3.17 Reconstructions

Reconstructions and amalgamations may be approved by a majority in number representing 75 per cent in value of the members or creditors, depending on the circumstances, as are present at a meeting called for such purpose and thereafter sanctioned by the courts. Whilst a dissenting member has the right to express to the court his view that the transaction for which approval is being sought would not provide the members with a fair value for their shares, the courts are unlikely to disapprove the transaction on that ground alone in the absence of evidence of fraud or bad faith on behalf of management, and if the transaction were approved and consummated, the dissenting member would have no rights comparable to the appraisal rights (that is, the right to receive payment in cash for the judicially determined value of their shares) ordinarily available, for example, to dissenting members of a United States corporation.

3.18 Take-overs

Where an offer is made by a company for the shares of another company and, within four months of the offer, the holders of not less than 90 per cent of the shares which are the subject of the offer accept, the offeror may, at any time within two months after the expiration of that four-month period, by notice require the dissenting members to transfer their shares on the terms of the offer. A dissenting member may apply to the Cayman Islands courts within one month of the notice objecting to the transfer. The burden is on the dissenting member to show that the court should exercise its discretion, which it will be unlikely to do unless there is evidence of fraud or bad faith or collusion as between the offeror and the holders of the shares who have accepted the offer as a means of unfairly forcing out minority members.

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3.19 Indemnification

The Cayman Islands laws do not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, save to the extent any such provision may be held by the court to be contrary to public policy, for example, where a provision purports to provide indemnification against the consequences of committing a crime.

3.20 Economic Substance

The Cayman Islands enacted the International Tax Co-operation (Economic Substance) Act (2020 Revision), which became effective on 1 January 2019, together with the Guidance Notes published by the Cayman Islands Tax Information Authority from time to time. The Company is required to comply with the economic substance requirements from 1 July 2019 and make an annual report in the Cayman Islands as to whether or not it is carrying on any relevant activities and if it is, it must satisfy an economic substance test.

4. GENERAL

Harney Westwood & Riegels, the Company’s legal adviser on Cayman Islands law, have sent to the Company a letter of advice summarising certain aspects of the Cayman Companies Act. This letter, together with a copy of the Cayman Companies Act, is available for inspection as referred to in the paragraph headed “Documents available for inspection” in Appendix V. Any person wishing to have a detailed summary of the Cayman Companies Act or advice on the differences between it and the laws of any jurisdiction with which he is more familiar is recommended to seek independent legal advice.

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A. ABOUT OUR COMPANY

1. Incorporation of our Company

Our Company was incorporated in the Cayman Islands as an exempted company with limited liability under the Cayman Companies Act on 14 January 2021.

Our Company was registered in Hong Kong under Part 16 of the Companies Ordinance as a non-Hong Kong company on 11 June 2021 and our principal place of business in Hong Kong for the purpose of registration under Part 16 of the Companies Ordinance is at 27/F, Alexandra House, 18 Chater Road, Central, Hong Kong. In compliance with the requirements of the Companies Ordinance, Mr. Chan Fung Man at Flat F, 6/F, Tower 1C, 23 Sung On Street, Upper East, Hung Hom, Kowloon, Hong Kong has been appointed as the authorised representative for the acceptance of service of process and any notice required to be served on our Company in Hong Kong.

Since our Company was incorporated in the Cayman Islands, our Group’s operation is subject to the relevant laws and regulations of the Cayman Islands as well as our Company’s constitution which comprises the Memorandum and the Articles of Association. A summary of certain parts of our Company’s constitution and certain relevant aspects of Cayman Companies Act is set out in Appendix III to this document.

2. Changes in the share capital of our Company

At the date of incorporation, the authorised share capital of our Company was HKD380,000.00, divided into 38,000,000 Shares with a par value of HK$0.01 each.

The following sets forth the changes in the share capital of our Company during the two years immediately preceding the date of this document:

(a) on the date of incorporation, one Share, credited as fully paid, was allotted and issued to the initial subscriber for HK$0.01 and was fully paid-up, which was transferred to Yutang Investment on the same day;

(b) on the date of incorporation, further 37,999,999 Shares of par value of HK$0.01 each, credited as fully paid, were allotted and issued, among which 14,905,119 Shares were allotted and issued to Yutang Investment, 5,700,000 Shares were allotted and issued to Hold Virtue, 3,800,000 Shares were allotted and issued to Guojin Kaixing, 3,420,000 Shares were allotted and issued to Sole Function, 3,347,800 Shares were allotted and issued to Guojin Prosperous, 3,040,000 Shares were allotted and issued to CPC Alpha, 1,141,900 Shares were allotted and issued to Xiangzhen Investment, 1,140,000 Shares were allotted and issued to Yuxiu Investment, 714,400 Shares were allotted and issued to Shibei Investment, 687,800 Shares were allotted and issued to Liwei Investment and 102,980 Shares were allotted and issued to CMGE Technology; and

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(c) on [REDACTED], our Shareholders resolved to increase the authorised share capital of our Company from HK$380,000 divided into 38,000,000 Shares to HK$[REDACTED] divided into [REDACTED] Shares by the creation of an additional of [REDACTED] Shares, each ranking pari passu with our Shares then in issue in all respects.

Except as disclosed above and in “3. Resolutions of the Shareholders passed on [REDACTED]” below, there has been no alteration in the share capital of our Company since its incorporation.

Our Company has no founder shares, management shares or deferred shares.

3. Resolutions of the Shareholders passed on [REDACTED]

At a general meeting of the Company held on [REDACTED], the Shareholders of our Company adopted, among other things, the following resolutions:

(a) the authorised share capital of our Company be increased from HK$380,000 divided into 38,000,000 Shares to HK$[REDACTED] divided into [REDACTED] Shares by the creation of an additional of [REDACTED] Shares, each ranking pari passu with our Shares then in issue in all respects;

(b) the Memorandum of Association and Articles of Association were conditionally approved and adopted with effect from the [REDACTED];

(c) conditional on (i) the Listing Committee of the Stock Exchange granting [REDACTED] of, and permission to [REDACTED], the Shares in issue and to be issued as mentioned in this document, (ii) the [REDACTED] having been determined, (iii) the [REDACTED] being executed by the parties thereto and delivered on or before the dates as mentioned in this document, and (iv) the obligations of the [REDACTED] under the [REDACTED] becoming unconditional and not being terminated in accordance with the terms of the respective [REDACTED] or otherwise, in each case on or before the date falling 30 days after the date of this document:

(1) the terms and conditions of the [REDACTED] were approved and our Directors were authorised to (i) allot and issue the [REDACTED] pursuant to the [REDACTED], (ii) finalise the structure of the [REDACTED], and (iii) do all things and execute all documents in connection with or incidental to the [REDACTED] with such amendments or modifications (if any) as our Directors may consider necessary or appropriate;

(2) [the [REDACTED] was approved and our Directors were authorised to allot and issue such number of Shares as may be required to be allotted and issued pursuant to the exercise of the [REDACTED] to rank pari passu with the then existing Shares in all respects;]

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(3) [the rules of the Share Option Scheme, the principal terms of which are set out in “Other Information—Share Option Scheme” of this Appendix, were approved and adopted and our Directors were authorised to approve any amendments to the rules of the Share Option Scheme as may be acceptable or not objected to by the Stock Exchange, and at our Directors’ absolute discretion to grant options to subscribe for Shares thereunder and to allot, issue and deal with the Shares pursuant to the exercise of options which may be granted under the Share Option Scheme and to take all such steps as may be necessary, desirable or expedient to implement the Share Option Scheme;]

(4) conditional on the share premium account of our Company being credited as a result of the [REDACTED], the Directors were authorised to capitalise [REDACTED] standing to the credit of the share premium account of our Company by applying such sum in paying up in full at par [REDACTED] Shares for allotment and issue to holders of Shares whose names appear on the register of members of our Company at the close of business on the day immediately before the date of the [REDACTED] (or as they may direct) in proportion (as nearly as possible without involving fractions so that no fraction of a share shall be allotted and issued) to their then existing shareholdings in our Company and so that the Shares to be allotted and issued pursuant to this resolution should rank pari passu in all respects with the then existing issued Shares and our Directors were authorised to give effect to such capitalisation and to allot and issue Shares pursuant thereto;

(5) a general unconditional mandate was given to our Directors to exercise all powers of our Company to allot, issue and deal with, otherwise than by way of rights issue, scrip dividend schemes or similar arrangements providing for allotment of Shares in lieu of the whole or in part of any dividend in accordance with the Articles of Association, or under the [REDACTED] or the [REDACTED], or pursuant to the exercise of the [REDACTED] [and any options which may be granted under the Share Option Scheme], Shares with an aggregate nominal amount not exceeding the sum of (i) 20% of the aggregate number of the share capital of our Company in issue immediately following completion of the [REDACTED] and the [REDACTED], and (ii) the aggregate nominal amount of the share capital of our Company which may be repurchased by our Company pursuant to the authority granted to our Directors as referred to in sub-paragraph (6) below;

(6) a general unconditional mandate (the “Repurchase Mandate”) was given to our Directors to exercise all powers of our Company to repurchase Shares on the Stock Exchange or other stock exchange on which the securities of our Company may be listed and recognized by the SFC and the Stock Exchange for this purpose, with an aggregate nominal amount of not exceeding 10% of the aggregate number of the share capital of our Company in issue immediately following the completion of the [REDACTED] and the [REDACTED];

(7) the extension of the general mandate to allot, issue and deal with Shares pursuant to sub-paragraph (5) above to include the aggregate nominal amount of Shares which may be repurchased pursuant to sub-paragraph (6) above; and

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(8) each of the general mandates referred to in sub-paragraphs (5), (6) and (7) above will remain in effect until whichever is the earliest of;

(i) the conclusion of the next annual general meeting of our Company;

(ii) the expiration of the period within which the next annual general meeting of our Company is required by the Articles of Association, the Cayman Companies Act or any applicable Cayman Islands laws to be held;

(iii) the passing of an ordinary resolution by our Shareholders in general meeting varying, revoking or renewing the mandate.

4. Group reorganisation and changes in the share capital of other members of our Group

The companies comprising our Group underwent the Reorganisation to rationalise our Group’s structure in preparation for the [REDACTED] of the Shares on the Stock Exchange, details of which are set out in the section headed “History, Reorganisation and Corporate Structure — Corporate Reorganisation”.

Except as disclosed in the section headed “History, Reorganisation and Corporate Structure”, no other alterations in the share capital of other members of our Company took place within the two years immediately preceding the date of this document.

5. Repurchase by our Company of our own securities

This paragraph includes the information required by the Stock Exchange to be included in this document concerning the repurchase by our Company of our own securities.

(a) Shareholders’ approval

All proposed repurchases of securities (which must be fully paid up in the case of shares for the purpose of Rule 10.06(1)(b)(i) of the Listing Rules) by a company listed on the Stock Exchange must be approved in advance by an ordinary resolution of the shareholders, either by way of general mandate or by specific approval.

Pursuant to a resolution passed by the Shareholders on [REDACTED], the Repurchase Mandate was given to our Directors authorising any repurchase by our Company of Shares on the Stock Exchange or any other stock exchange on which the securities of our Company may be [REDACTED] and which is recognized by the SFC and the Stock Exchange for this purpose, of up to 10% of the aggregate value of the share capital of our Company in issue immediately following completion of the [REDACTED] and the [REDACTED] but excluding any Shares that may be allotted and issued pursuant to the exercise of the [REDACTED], such mandate to expire at the conclusion of the next annual general meeting of our Company, or the date by which the next annual general meeting our Company is required by the Articles of Association, the Cayman Companies Act, or any other applicable Cayman Islands law to be held, or the passing of an ordinary resolution by the Shareholders revoking or varying the authority given to our Directors, whichever occurs first.

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(b) Source of funds

Repurchases must be paid out of funds legally available for the purpose in accordance with the Memorandum, the Articles of Association and the laws of the Cayman Islands. A listed company may not repurchase its own securities on the Stock Exchange for a consideration other than cash or for settlement otherwise than in accordance with the trading rules of the Stock Exchange. Under the Cayman Islands laws, any repurchases by our Company may be made out of profits of our Company, out of our Company’s share premium account or out of the proceeds of a fresh issue of shares made for the purpose of the repurchase or, if so authorised by the Articles of Association and subject to the provisions of the Cayman Companies Act, out of capital. Any premium payable on a redemption or purchase over the par value of our shares to be purchased must be provided for out of either or both of the profits of our Company or the share premium account of our Company or, if authorised by the Articles of Association and subject to the provisions of the Cayman Companies Act, out of capital.

Our Directors believe that it is in the best interest of our Company and the Shareholders for our Directors to have general authority from the Shareholders to enable our Company to repurchase Shares in the market. Such repurchases may, depending on market conditions and funding arrangements at the time, lead to an enhancement of the net asset value per Share and/or earnings per Share and will only be made if our Directors believe that such repurchases will benefit our Company and the Shareholders.

(d) Funding of repurchases

In repurchasing securities, our Company may only apply funds legally available for such purpose in accordance with the Memorandum, the Articles of Association, the Listing Rules and the applicable laws of the Cayman Islands.

On the basis of the current financial position of our Group as disclosed in this document and taking into account the current working capital position of our Group, our Directors consider that, if the Repurchase Mandate were to be exercised in full, it might have a material adverse effect on the working capital and/or the gearing position of our Group as compared with the position disclosed in this document. However, our Directors do not propose to exercise the Repurchase Mandate to such an extent as would, in the circumstances, have a material adverse effect on the working capital requirements of our Group or the gearing levels which in the opinion of our Directors are from time to time appropriate for our Group.

(e) Share Capital

The exercise in full of the Repurchase Mandate, on the basis of [REDACTED] Shares in issue immediately after the [REDACTED], would result in up to [REDACTED] Shares being repurchased by our Company during the period in which the Repurchase Mandate remains in force.

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(f) General

None of our Directors nor, to the best of their knowledge having made all reasonable enquiries, any of their associates currently intend to sell any Shares to our Company or our subsidiaries.

Our Directors have undertaken to the Stock Exchange that, so far as the same may be applicable, they will exercise the Repurchase Mandate in accordance with the Listing Rules, the Memorandum and Articles of Association and the applicable laws of the Cayman Islands.

If, as a result of a securities repurchase, a Shareholder’s proportionate interest in the voting rights of our Company is increased, such increase will be treated as an acquisition for the purpose of the Takeovers Code. As a result, a Shareholder, a group of Shareholders acting in concert (within the meaning under the Takeover Code), depending on the level of increase of such Shareholders’ interest, could obtain or consolidate control of our Company and may become obliged under Rule 26 of the Takeovers Code to make a mandatory offer unless a whitewash waiver is obtained.

Our Directors will not exercise the Repurchase Mandate if the repurchase would result in the number of Shares which are in the hands of the public falling below 25% of the total number of Shares in issue (or such other percentage as may be prescribed as the minimum public shareholding under the Listing Rules).

No connected person of our Company has notified us that he has a present intention to sell Shares to our Company, or has undertaken not to do so if the Repurchase Mandate is exercised.

B. FURTHER INFORMATION ABOUT OUR BUSINESS

6. Summary of material contracts

The following contracts (not being contracts entered into in the ordinary course of business of our Group) have been entered into by members of our Group within the two years preceding the date of this document and are or may be material:

(a) the business and assets transfer agreement dated 26 November 2020 entered into between Beijing Kaixing as transferor and Beijing Guixin as transferee, pursuant to which Beijing Kaixing agreed to transfer the business and assets of Chuangbie Book City to Beijing Guixin at the consideration of RMB27,000 assessed by an independent valuer;

(b) the equity increment agreement dated 22 January 2021 (the “Equity Increment Agreement”) entered into amongst Beijing Kaixing, the existing shareholders of Beijing Kaixing as at the date of the Equity Increment Agreement (being Ms. Shi, Chongqing Shuimu, Shenzhen Guojin, Jiang Hongwen, Lin Jiaxi, Shenzhen Guohong, Beijing Jinshi, Yu Xiu, Zhang Shibei, Li Wei and Qin Dongyi) and Sin Hendrick, pursuant to which Sin Hendrick agreed to make contribution of RMB630,000.98 to Beijing Kaixing, among witch RMB282,828 will be contributed as registered capital and the remaining funds will be allocated to the capital reserve, and main consideration for 1% equity interest in Beijing Kaixing;

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(c) the sale and purchase agreement dated 4 March 2021 (the “SPA”) entered into between Song Qihao as vendor and Kaixing Venture Capital as purchaser, pursuant to which Song Qihao agreed to transfer all of his share interests in Noble Future to Kaixing Venture Capital in consideration of Kaixing Venture Capital procuring the Company to credit all of the nil paid shares of the Company of a par value of HK$0.01 each held by its shareholders as at the date of the SPA as set out in the SPA;

(d) the equity transfer agreement dated 15 April 2021 entered into between Yu Xiu as transferor and Beijing Junkai as transferee, pursuant to which Yu Xiu agreed to transfer equity interests of Beijing Kaixing in the amount of RMB840,000 to Beijing Junkai;

(e) the equity transfer agreement dated 15 April 2021 entered into between Beijing Jinshi as transferor and Beijing Junkai as transferee, pursuant to which Beijing Jinshi agreed to transfer equity interests of Beijing Kaixing in the amount of RMB1,682,848 to Beijing Junkai;

(f) the equity transfer agreement dated 15 April 2021 entered into between Jiang Hongwen as transferor and Beijing Junkai as transferee, pursuant to which Jiang Hongwen agreed to transfer equity interests of Beijing Kaixing in the amount of RMB2,520,025 to Beijing Junkai;

(g) the equity transfer agreement dated 15 April 2021 entered into between Zhang Shibei as transferor and Beijing Junkai as transferee, pursuant to which Zhang Shibei agreed to transfer equity interests of Beijing Kaixing in the amount of RMB526,181 to Beijing Junkai;

(h) the equity transfer agreement dated 15 April 2021 entered into between Ms. Shi as transferor and Beijing Junkai as transferee, pursuant to which Ms. Shi agreed to transfer equity interests of Beijing Kaixing in the amount of RMB10,036,453 to Beijing Junkai;

(i) the equity transfer agreement dated 15 April 2021 entered into between Li Wei as transferor and Beijing Junkai as transferee, pursuant to which Li Wei agreed to transfer equity interests of Beijing Kaixing in the amount of RMB508,037 to Beijing Junkai.

(j) the equity transfer agreement dated 15 April 2021 entered into between Lin Jiaxi as transferor and Beijing Junkai as transferee, pursuant to which Lin Jiaxi agreed to transfer equity interests of Beijing Kaixing in the amount of RMB2,467,987 to Beijing Junkai.

(k) the equity transfer agreement dated 15 April 2021 entered into between Shenzhen Guojin as transferor and Beijing Junkai as transferee, pursuant to which Shenzhen Guojin agreed to transfer equity interests of Beijing Kaixing in the amount of RMB2,799,748 to Beijing Junkai.

(l) the equity transfer agreement dated 15 April 2021 entered into between Shenzhen Guohong as transferor and Beijing Junkai as transferee, pursuant to which Shenzhen Guohong agreed to transfer equity interests of Beijing Kaixing in the amount of RMB2,240,000 to Beijing Junkai.

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(m) the equity transfer agreement dated 15 April 2021 entered into between Qin Dongyi as transferor and Beijing Junkai as transferee, pursuant to which Qin Dongyi agreed to transfer equity interests of Beijing Kaixing in the amount of RMB178,721 to Beijing Junkai.

(n) the equity transfer agreement dated 15 April 2021 entered into between Chongqing Shuimu as transferor and Beijing Junkai as transferee, pursuant to which Chongqing Shuimu agreed to transfer equity interests of Beijing Kaixing in the amount of RMB4,200,000 to Beijing Junkai.

(o) the equity transfer agreement dated 15 April 2021 entered into between Sin Hendrick as transferor and Noble Future as transferee, pursuant to which Sin Hendrick agreed to transfer equity interests of Beijing Kaixing at the consideration of RMB630,000.98 to Noble Future.

(p) the Deed of Indemnity;

(q) the Deed of Non-competition; and

(r) the [REDACTED].

7. Intellectual property rights of our Group

The following sets out certain information about our intellectual property rights which we consider to be material in relation to our business.

(a) Trademarks

(i) Trademarks registered in China

As at the Latest Practicable Date, we were the registered and beneficial owner of the following trademarks in China which we consider to be or may be material to our business:

Registered Registered No. Trademark Owner Number Class Expiry Date

16 9 41 38 1. Beijing Kaixing 24956785 42 13 September 2028 28 35 25 18

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Registered Registered No. Trademark Owner Number Class Expiry Date

19 41 2. Beijing Kaixing 23472988 27 May 2028 28 25

28 19 3. Beijing Kaixing 23472987 21 13 July 2028 41 24

9 28 18 4. Beijing Kaixing 22439185 25 20 March 2028 41 16 42

18 42 25 41 5. Beijing Kaixing 22439183 38 6 February 2028 16 28 9 35

28 6. Beijing Kaixing 22439182 38 6 February 2028 42

35 38 28 7. Beijing Kaixing 22439180 25 6 February 2028 18 42 16

8. Beijing Kaixing 21202403 18 6 November 2027

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(ii) Trademarks registered in Hong Kong

As at the Latest Practicable Date, we were the registered and beneficial owner of the following trademark in Hong Kong.

Registered Registration Registration Expiration Trademark Owner Class Number Date Date

Beijing 41 31 December 30 December 305495266 Kaixing 42 2020 2030

(b) Software copyright

The following tables set forth the software copyrights we had registered or applied for in the PRC as the Latest Practicable Date which we consider to be material to our business:

Registration Development No. Software copyright Version Number Completion Date

1. Original World Reading Software V1.0.0 2018SR666686 2018-07-17 (源世界閱讀軟件)

2. 靈武至尊 V1.0 2021SR0642112 2019-06-15

3. 七葉重華 V1.0 2021SR0642111 2019-06-15

4. 玄天戰神遊戲軟件 V1.0 2021SR0623843 2019-06-15

5. 十界主宰遊戲軟件 V1.0 2021SR0623842 2019-06-15

6. 超凡神兵 V1.0 2021SR0161780 2020-12-14

7. 望古神話•日隕之歌 V1.0 2021SR0158737 2020-12-11

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As at the Latest Practicable Date, we owned the following domain names which we consider to be or may be material to our business:

Registered No. Domain Name Owner Expiry Date

1. kxread.com Beijing Kaixing 2021-09-24

2. yuanshijie.cn Beijing Kaixing 2022-06-22

3. kxculture.com Beijing Kaixing 2024-03-09

(d) Copyrights

As at the Latest Practicable Date, we owned the following copyrights which we consider to be or may be material to our business:

No. Name Author Applicant Publication Date

1. 《捕蟬》吳帆（天天） Beijing Kaixing Not published yet

2. 《吃雞戰場》周麟（飛火） Beijing Kaixing 25 November 2018

3. 《西遊記之天篷元帥》馮李歡 Beijing Kaixing 10 August 2016 （萌漫蝸牛）

4. 《西遊記之天蓬縱橫》呂永餘（天蟾子） Beijing Kaixing 24 July 2017

5. 《鴻蒙金榜》陳桂華（雲霆飛） Beijing Kaixing 30 July 2017

6. 《大掌事》作者1：何盟盟 Beijing Kaixing 26 September （寒秋蟬）作者2： 2016 時阿菊（萌漫蝸牛）

7. 《天才方程式》高恩博（啪幾下） Beijing Kaixing 20 November 2017

8. 《主播公寓》張燕（小小）李莉 Beijing Kaixing 2 June 2017 （小小）

9. 《近身戰兵》劉彬（成鵬） Beijing Kaixing 1 November 2017

10. 《源世界之天狼墟》禹春喜（禹楓） Beijing Kaixing 9 October 2018

11. 《源世界之俠行天下》陸彥超（緣分0） Beijing Kaixing 13 June 2019

− IV-11 − THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX IV STATUTORY AND GENERAL INFORMATION

No. Name Author Applicant Publication Date

12. 《源世界之天衍》陳彬（跳舞） Beijing Kaixing 25 December 2017

13. 《源世界之昆侖域》夏雲（皇甫奇） Beijing Kaixing 8 August 2017

Save as disclosed above, there are no other intellectual or industrial property rights which are material in relation to our Group’s business.

C. FURTHER INFORMATION ABOUT DIRECTORS

8. Directors

(a) Particulars of Directors’ service contracts

Executive Directors

Each of the executive Directors has entered into a service contract with our Company for a term of three years commencing from the [REDACTED], which may be terminated by not less than two months’ notice in writing served by either party on the other. The current basic annual salaries of the executive Directors are as follows:

Name Annual Salary (RMB)

Mr. Chen [400,000] Mr. Cheng Fangdong [400,000]

Non-executive Directors

Each of the non-executive Directors has entered into a letter of appointment with our Company for an initial term of three years commencing from the [REDACTED], which may be terminated by not less than one month’s notice in writing served by either party on the other. Except for the directors’ fees, none of the non-executive Directors is expected to receive any other remuneration for holding their office as a Director. The current basic annual salaries of our non-executive Directors are as follows:

Name Annual Salary (RMB)

Mr. Lin Jiaxi [360,000] Mr. Shi Kexin [360,000] Mr. Shi Renkai [360,000]

− IV-12 − THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX IV STATUTORY AND GENERAL INFORMATION

Independent non-executive Directors

Each of the independent non-executive Directors has entered into a letter of appointment with our Company for an initial term of three years, which may be terminated by not less than one month’s notice in writing served by either party on the other. Except for Directors’ fees, none of the INEDs is expected to receive any other remuneration for holding their office as an independent non-executive Director. The current basic annual salaries of our independent non-executive Directors are as follows:

Name Annual Salary (RMB)

Hon. Quat Elizabeth (JP) [200,000] Mr. Liu Sai Keung Thomas [200,000] Mr. Liu Xin [200,000]

None of our Directors has or is proposed to have a service contract with our Company or any of our subsidiaries other than contracts expiring or determinable by the employer within one year without the payment of compensation (other than statutory compensation).

(b) Remuneration of Directors

(i) The aggregate amount of salaries, bonuses, allowances, benefits in kind, equity-settled share sward scheme expense and retirement benefits scheme contributions we paid to our Directors in respect of FY2018, FY2019 and FY2020 were approximately RMB0.3 million, RMB0.7 million and RMB0.7 million, respectively. Information on the remuneration of our Directors during the Track Record Period is set out in Note 8 to the Accountants’ Report included in Appendix I to this document.

(ii) Under the arrangements currently in force, the aggregate remuneration (excluding discretionary bonus) payable by our Group to and benefits in kind receivable by our Directors (including the independent non-executive Directors) in their respective capacity as Directors for the year ending 31 December 2021 are expected to be approximately RMB400,000.

(iii) During the Track Record Period, no remuneration was paid to our Directors as an inducement to join or upon joining our Group. No compensation was paid to, or receivable by, our Directors or any past directors of any member of our Group, during Track Record Period for the loss of office as a director of any member of our Group or of any other office in connection with the management of the affairs of any member of our Group.

(iv) There had been no arrangements under which a Director waived or agreed to waive any emoluments for any part of the Track Record Period.

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(c) Interests and short positions of Directors and chief executive in the Shares, underlying Shares or debentures of our Company and its associated corporations following the [REDACTED]

Immediately following completion of the [REDACTED] and the [REDACTED] (but without taking into account any Shares which may allotted and issued upon the exercise of the [REDACTED] [and any options which may be granted under the Share Option Scheme]), the interests and short positions of our Directors and our chief executive in the Shares, underlying shares and debentures of our Company and any associated corporations (within the meaning of Part XV of the SFO) which will have to be notified to our Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions in which they are taken or deemed to have under such provisions of the SFO) or which will be required, pursuant to section 352 of the SFO, to be entered in the register referred to therein, or which will be required to notified to our Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers contained in the Listing Rules, will be as follows:

Approximate shareholding Capacity / nature of Number of Shares in percentage Name of Director interest our Company(1) (%)

Ms. Shi Interest in a controlled [REDACTED] Shares (L) [REDACTED]% corporation (2) Mr. Chen (3) Interest in a controlled [REDACTED] Shares (L) [REDACTED]% corporation (3) Mr. Lin Jiaxi (4) Interest in a controlled [REDACTED] Shares (L) [REDACTED]% corporation (4)

Notes:

(1) The letter “L” denotes the “long position” (as defined under Part XV of the SFO) of the relevant person / entity in such Shares.

(2) Ms. Shi is the beneficial owner of the entire issued shares in Yutang Investment and Ms. Shi is deemed to be interested in the Shares held by Yutang Investment for the purposes of the SFO. Ms. Shi is deemed to be interested in the Shares in which Mr. Chen is interested for the purpose of the SFO, as Mr. Chen and Ms. Shi are parties acting in concert. For details, please refer to the section headed “Relationship with Controlling Shareholders — Acting in Concert Confirmation” in this document.

(3) Mr. Chen is the beneficial owner of the entire issued shares in Xiangzhen Investment and Mr. Chen is deemed to be interested in the Shares held by Xiangzhen Investment for the purposes of the SFO.

(4) Mr. Lin Jiaxi is the beneficial owner of the entire issued shares in Guojin Prosperous and Mr. Lin is deemed to be interested in the Shares held by Guojin Prosperous for the purposes of the SFO.

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9. Disclaimers

Except as disclosed in this document:

(a) none of our Directors has any interest or short position in any of the shares, underlying shares or debentures of our Company or any associated corporations within the meaning of Part XV of the SFO, which will have to be notified to our Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interests and short positions which any of them is deemed to have under such provisions of the SFO) or which will be required, pursuant to section 352 of the SFO, to be entered in the register referred to therein or which will be required to be notified to our Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers, in each case once the Shares are listed;

(b) none of our Directors nor the experts listed in the section headed “— E. Other Information — 5. Consent of Experts” below has been interested in the promotion of, or has any direct or indirect interest in any assets which have been, within the two years immediately preceding the date of this document, acquired or disposed of by or leased to our Company or any of its subsidiaries, or are proposed to be acquired or disposed of by or leased to our Company or any other member of our Group nor will any Director apply for the [REDACTED] either in his own name or in the name of a nominee;

(c) none of our Directors nor any of the experts listed in the section headed “— E. Other Information — 5. Consent of Experts” below is materially interested in any contract or arrangement subsisting at the date of this document which is significant in relation to business of our Group; and

(d) save in connection with the [REDACTED], none of the parties listed in the paragraph 14 below:

(i) is interested legally or beneficially in any securities of any member of our Group; or

(ii) has any right (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of our Group.

(e) save as disclosed in this document, none of our Directors, their respective close associates (as defined under the Listing Rules) or Shareholders who are interested in more than 5% of the issued share capital of our Company has any interests in the five largest customers or the five largest suppliers of our Group during the Track Record Period; and

(f) none of the Directors has been or is interested in the promotion of, or in the property proposed to be acquired by, our Company, and no sum has been paid or agreed to be paid to any of them in cash or shares or otherwise by any person either to include him to become, or to qualify him as, a Director, or otherwise for services rendered by him in connection with the promotion or formation of our Company.

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D. SHARE OPTION SCHEME

1. Purpose of the Share Option Scheme

The purpose of the Share Option Scheme is to provide an incentive or reward for the Grantees (as defined below) for their contribution or potential contribution to our Company and/or any of its subsidiaries.

2. Participants of the Share Option Scheme and the basis of determining the eligibility of the participants

Our Board may, subject to and in accordance with the provisions of the Share Option Scheme and the Listing Rules, at its discretion grant options to any full-time or part-time employees, consultants or potential employees, consultants, executives or officers (including executive, non-executive Directors and independent non-executive Directors) of our Company or any of its subsidiaries, and any suppliers, clients, consultants, agents and advisers who, in the sole opinion of the Board has contributed or will contribute to our Group (collectively, the “Eligible Participants”) and whom the Board may in its absolute discretion select and subject to such conditions as it may think fit.

3. Status of the Share Option Scheme

(a) Conditions of the Share Option Scheme

This Share Option Scheme shall take effect subject to and is conditional upon:

(a) the passing of the necessary resolutions by the Board and the Shareholders to approve and adopt the rules of the Share Option Scheme;

(b) the Listing Committee granting the [REDACTED] of, and permission to [REDACTED] in, the Shares to be issued pursuant to the exercise of the options which may be granted under the Share Option Scheme;

(c) the obligations of the [REDACTED] under the [REDACTED] becoming unconditional (including, if relevant, following the waiver(s) of any conditions by the Sole [REDACTED], acting for and on behalf of the [REDACTED] and not being terminated in accordance with their terms or otherwise; and

(d) the commencement of [REDACTED] in the Shares on the Stock Exchange, (the “Conditions”).

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(b) Life of the Share Option Scheme

The Share Option Scheme shall be valid and effective during the a period commencing on the date on which this Scheme was conditionally adopted by an ordinary resolution of the Shareholders and ending on the tenth anniversary of the [REDACTED] (both dates inclusive) (the “Scheme Period”) after which no further options will be granted but the provisions of the Share Option Scheme shall in all other respects remain in full force and effect to the extent necessary to give effect to the exercise of any options granted prior thereto or otherwise as may be required in accordance with the provisions of the Share Option Scheme and options granted prior thereto but not yet exercised shall continue to be valid and exercisable in accordance with the Share Option Scheme.

4. Grant of options

(a) Making of offer

An offer shall be made to an Eligible Participant by an offer document in such form as the Board may from time to time determine, requiring the participant to undertake to hold the option on the terms on which it is to be granted and to be bound by the previsions of the Share Option Scheme (the “Offer Document”).

(b) Acceptance of offer

An option shall be deemed to have been granted (subject to certain restrictions in the Share Option Scheme), and accepted by the Eligible Participant (the “Grantee”) and to have taken effect upon the issue of an option certificate after the duplicate Offer Document constituting acceptance of the option duly signed by the Grantee, together with a remittance in favour of our Company of HK$1.00 to the Company by way of consideration for the grant thereof, is received by our Company on or before the on or before the last day for acceptance set out in the Offer Document above. The remittance is not in any circumstances be refundable and shall be deemed as part payment of the Exercise Price (as defined below). Upon acceptance, the option is granted as from the date on which it was offered to the Grantee (the “Offer Date”).

(i). Our Board shall not grant any option after any price sensitive development has occurred or a price sensitive matter has been the subject of a decision, until such price sensitive information has been announced pursuant to the relevant requirements of the Listing Rules inside information has come to the knowledge of our Company until such inside information has been announced pursuant to the requirements of the Listing Rules. In particular, no option shall be granted during the period of one month immediately preceding the earlier of:

1) the date of our Board meeting (as such date is first notified to the Stock Exchange in accordance with the Listing Rules) for the approval of our Company’s results for any year, half-year, quarterly or any other interim period (whether or not required under the Listing Rules); and

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2) the deadline for our Company to publish an announcement of (i) its results for any year or half-year period in accordance with the Listing Rules, or (ii) its results for any quarterly or any other interim period where the Company has elected to publish them, whether or not required under the Listing Rules,

and ending on the actual date of the results announcement for such year, half year, quarterly or interim period (as the case may be). The period during which no option may be granted will cover any period of delay in the publication of a results announcement.

(ii). For so long as the shares are [REDACTED] on the Stock Exchange, no option may be granted to a Director on any day on which financial results of our Company are published and:

1) during the period of 60 days immediately preceding the publication date of the annual results or, if shorter, the period from the end of the relevant financial year up to the publication date of the results; and

2) during the period of 30 days immediately preceding the publication date of the quarterly results (if any) and half-year results or, if shorter, the period from the end of the relevant quarterly or half-year period up to the publication date of the results.

(d) Grant to connected persons

Any grant of options to a connected person shall be subject to the approval by all independent non-executive Directors (and in the event that our Board offers to grant options to an independent non-executive Director, the vote of such independent non-executive director shall not be counted for the purposes of approving such grant).

(e) Grant to Substantial Shareholders and independent non-executive Director

Without prejudice to the paragraph headed 4(c) above, any grant of options to a Substantial Shareholder, or an independent non-executive Director (or any of their respective associates) shall be subject to, in addition to the approval of the independent non-executive Directors as referred to under paragraph (d) above, the issue of a circular by our Company to its shareholders and the approval of the Shareholders in general meeting if the Shares issued and to be issued upon exercise of all options already granted and proposed to be granted to him (whether exercised, cancelled or outstanding) under the Share Option Scheme or any other schemes in the 12-month period up to and including the Offer Date:

(i). representing in aggregate over 0.1%, or such other percentage as may from time to time be provided under the Listing Rules, of the Shares in issue on the Offer Date; and

(ii). having an aggregate value, based on the official closing price of the Shares as stated in the daily quotation sheets of the Stock Exchange on the Offer Date, in excess of HK$5,000,000 or such other sum as may from time to time be permitted under the Listing Rules.

− IV-18 − THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX IV STATUTORY AND GENERAL INFORMATION

(f) Proceedings in general meeting to approve the grant of option

At the general meeting to approve the proposed grant of options under the paragraph headed “— C. Further Information about Directors and Substantial Shareholders — 4. Grant of options — (e) Grant to Substantial Shareholders and independent non-executive Directors” in this Appendix above, all connected persons of our Company must abstain from voting. At such general meeting, the vote to approve the grant of such options must be taken on a poll in accordance with the Articles and the relevant provisions of the Listing Rules.

(g) Performance target

Our Board has the discretion to require a particular Grantee to achieve certain performance targets specified at the time of grant before any option granted under the Share Option Scheme can be exercised. There are no specific performance targets stipulated under the terms of the Share Option Scheme and our Board currently has no intention to set any specific performance targets on the exercise of any options granted or to be granted under the Share Option Scheme.

5. Exercise Price

The price per Share at which a Grantee may subscribe for Shares upon exercise of an option (the “Exercise Price”) shall, subject to any adjustment pursuant to the paragraph headed “— C. Further Information about Directors and Substantial Shareholders — 7. Capital restructuring” in this Appendix below, be determined by our Board in its sole discretion but in any event shall be at least the highest of:

(i) the official closing price of the Shares as stated in the Stock Exchange’s daily quotations sheets on the Offer Date;

(ii) the average of the official closing prices of the Shares as stated in the Stock Exchange’s daily quotation sheets for the five Business Days immediately preceding the Offer Date; and

(iii) the nominal value of a Share; provided that for the purpose of determining the Exercise Price under the paragraph headed “— C. Further Information about Directors and Substantial Shareholders — 5. Exercise Price — (ii)” in this Appendix above where the Shares have been [REDACTED] on the Stock Exchange for less than five Business Days preceding the [REDACTED], the issue price of the Shares in connection with such [REDACTED] shall be deemed to be the [REDACTED] of the Shares for each Business Day falling within the period before the [REDACTED] of the Shares on the Stock Exchange.

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6. Maximum number of Shares available for subscription

(a) Scheme Limit

Subject to the paragraphs headed “— (b) Renewal of Scheme limit” and “— (c) Grant of options beyond Scheme Limit” in this Appendix below, the maximum number of Shares in respect of which options may be granted under the Share Option Scheme, and any other share option schemes of our Company shall not in aggregate exceed the number of Shares that shall represent 10% of the total number of Shares in issue immediately upon completion of the [REDACTED] (assuming that the [REDACTED] is not exercised and without taking into account Shares that may be allotted and issued upon exercise of options granted under the Share Option Scheme) (the “Scheme Limit”) which is expected to be [REDACTED]. For the purpose of calculating the Scheme Limit, options which have lapsed in accordance with the terms of the relevant scheme shall not be counted.

(b) Renewal of Scheme Limit

Our Company may seek approval by our Shareholders in general meeting for increasing the Scheme Limit provided that the total number of Shares in respect of which options may be granted under the Share Option Scheme and any other schemes of our Company under the Scheme Limit as increased from time to time must not exceed 10% of the total number of Shares in issue as at the date of the shareholders’ approval. Options previously granted under the Share Option Scheme, whether outstanding, cancelled, lapsed in accordance with its applicable rules or already exercised, will not be counted for the purpose of calculating the limit as renewed.

For the purpose of seeking the approval of our Shareholders under this the paragraph headed 6(b), a circular containing the information required under Rule 17.02(2) of the Listing Rules and the disclaimer required under Rule 17.02(4) of the Listing Rules must be sent to our Shareholders.

Our Company may seek separate approval by our Shareholders in general meeting for granting options beyond the Scheme Limit provided that the options in excess of the Scheme Limit are granted only to Eligible Participants who are specifically identified by the Board before such approval is sought.

For the purpose of seeking the approval of our Shareholders under the paragraph headed “— C. Further Information about Directors and Substantial Shareholders — 6. Maximum number of Shares available for subscription — (c) Grant of options beyond Scheme Limit” in this Appendix, our Company must send a circular to our Shareholders containing a generic description of the specified Eligible Participants who may be granted such options, the number and terms of the options to be granted, the purpose of granting such options to the Grantees with an explanation as to how the terms of options serve such purpose and the information required under Rule 17.02(2)(d) of the Listing Rules and the disclaimer as required under Rule 17.02(4) of the Listing Rules.

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(d) Maximum number of Shares issued pursuant to the Share Option Scheme

Notwithstanding anything to the contrary in the Share Option Scheme, the maximum limit on the number of Shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Share Option Scheme and any other schemes of our Company must not in aggregate exceed such number of Shares as shall represent 30% of the Shares in issue from time to time. No options may be granted under any schemes of our Company or subsidiaries if such grant will result in this 30% limit being exceeded.

(e) Grantee’s maximum holding

Unless approved by our Shareholders in general meeting in the manner prescribed in the Listing Rules, our Board shall not grant options to any Grantee if the acceptance of those options would result in the total number of Shares issued and to be issued to that Grantee on exercise of his options during any 12 month period up to the Offer Date exceed 1% of the total Shares then in issue.

Where any further grant of options to a Grantee, if exercised in full, would result in the total number of Shares already issued or to be issued upon exercise of all options granted and to be granted to such Grantee (including exercised, cancelled and outstanding options) in any 12-month period up to and including the date of such further grant exceed 1% of the total number of Shares in issue, such further grant must be separately approved by our Shareholders in general meeting with such Grantee and his close associates abstaining from voting. Our Company must send a circular to our Shareholders and the circular must disclose the identity of the Grantee, the number and terms of the options to be granted and options previously granted to such Grantee and the information required under Rule 17.02(2) of the Listing Rules and the disclaimer required under Rule 17.02(4) of the Listing Rules. The number and terms (including the Exercise Price) of the options to be granted to such Grantee must be fixed before the Shareholders’ approval. The date of the meeting of the Board for proposing such further grant of option should be taken as the date of grant for the purpose of calculating the Exercise Price.

(f) Adjustment

The number of Shares subject to the Share Option Scheme shall be adjusted in such manner as our Company’s independent financial advisor shall certify to the Board to be appropriate, fair and reasonable in accordance with the paragraph headed “— C. Further Information about Directors and Substantial Shareholders — 7. Capital restructuring” in this Appendix but in any event shall not result in the number of Shares which may be issued upon exercise of all outstanding options granted and yet to be exercised under the Share Option Scheme and the other schemes exceed the limit set out in the paragraph headed “— C. Further Information about Directors and Substantial Shareholders — 6. Maximum number of Shares available for subscription — (d) Maximum number of Shares issued pursuant to the Share Option Scheme” in this Appendix.

− IV-21 − THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATION MUST BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT. APPENDIX IV STATUTORY AND GENERAL INFORMATION

7. Capital restructuring

(a) Adjustment of options

In the event of any capitalisation issue, rights issue, open offer (if there is a price dilutive element), sub-division or consolidation of Shares, or reduction of capital of our Company in accordance with applicable laws and regulatory requirements, such corresponding alterations (if any) shall be made (except on an issue of securities of our Company as consideration in a transaction which shall not be regarded as a circumstance requiring alteration or adjustment) in:

(i) the number of Shares subject to any outstanding option;

(ii) the Exercise Price; and/or

(iii) the number of Shares subject to the Share Option Scheme, as the approved independent financial adviser shall at the request of our Company or any Grantee, certify in writing either generally or as regards any particular Grantee, to be in their opinion fair and reasonable provided that any such alterations shall be made on the basis that a Grantee shall have as near as possible the same proportion of the equity capital of our Company (as interpreted in accordance with the supplementary guidance attached to the letter from the Stock Exchange dated 5 September 2005 to all the issuers relating to share option scheme) as that to which the Grantee was previously entitled to subscribe had he exercised all the options held by him immediately before such adjustments and the aggregate Exercise Price payable by a Grantee on the full exercise of any option shall remain as nearly as possible the same as (but shall not be greater than) it was before such event, but not so that the effect would be to enable any Share to be issued to a Grantee at less than its nominal value, provided that no adjustment to the Exercise Price and number of Shares should be made to the advantage of the Eligible Participants without specific prior approval of our Shareholders.

(b) Independent financial advisor confirmation

In respect of any adjustments required by the above the paragraph headed 7(a), other than any made on a capitalisation issue, the approved independent financial advisor shall certify in writing to the Board that the adjustments satisfy the requirements set out in Rule 17.03(13) of the Listing Rules and the note thereto and the supplementary guidance attached to the letter from the Stock Exchange dated 5 September 2005 to all issuers relating to share option scheme and/or such other requirement prescribed under the Listing Rules from time to time.

8. Cancellation of options

Any cancellation of options granted but not exercised must be approved in writing by the Grantees of the relevant options. For the avoidance of doubt, such approval is not required in the event any option is cancelled pursuant to the paragraph headed “— C. Further Information about Directors and Substantial Shareholders — 9. Assignment of options” in this Appendix. Where our Company cancels options, the grant of new options to the same Grantee may only be made under the Share Option Scheme within the limits set out in the paragraphs headed “— C. Further Information about Directors and Substantial Shareholders — 6. Maximum number of shares available for subscription

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— (a) Scheme Limit”, “— C. Further Information about Directors and Substantial Shareholders — 6. Maximum number of shares available for subscription — (b) Renewal of Scheme Limit” and “— C. Further Information about Directors and Substantial Shareholders — 6. Maximum number of shares available for subscription — (c) Grant of options beyond Scheme Limit” in this Appendix.

9. Assignment of options

An option is personal to the Grantee and shall not be transferable or assignable. No Grantee shall sell, transfer, charge, mortgage, encumber or create any interest (legal or beneficial) in favour of any third party over or in relation to any option held by him or attempt to do so (except that the Grantee may nominate a nominee, in whose name the Shares issued pursuant to the Share Option Scheme may be registered).

10. Rights attached to the Shares

The Shares to be allotted upon exercise of an option will be subject to all the provisions of the Articles and will rank pari passu with the fully paid Shares in issue on the date of issue.

Accordingly, the Shares will entitle the holders to have the same voting, dividend, transfer and other rights, and to participate in all dividends or other distributions paid or made on or after the date on which the allottee is registered as a member (the “Registration Date”) other than any dividends or other distributions previously declared or recommended or resolved to be paid or made with respect to a record date which is before the Registration Date.

A Share issued upon the exercise of an option shall not carry any voting rights until completion of registration of the Grantee or his nominee as the holder of the Share on the register of members of our Company.

Shares issued on the exercise of an option shall not rank for any rights attaching to Shares by reference to a record date preceding the date of allotment.

11. Exercise of options

Unless otherwise provided in the respective Grantee’s Offer Document, an option may be exercised by a Grantee at any time or times during the period notified by our Board during which the Grantee may exercise his option(s) (the “Option Period”) provided that:

a. in the event of the Grantee ceasing to be an Eligible Participant for any reason other than his death, ill-health, injury, disability or the termination of his relationship with our Company and/or any of its subsidiaries on one or more of the grounds specified in the paragraph headed “— C. Further Information about Directors and Substantial Shareholders — 12. Lapse of options — (v)” below in this appendix, the Grantee may exercise the option up to his entitlement at the date of cessation of being an Eligible Participant (to the extent not already exercised) within the period of one month (or such longer period as our Board

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may determine) following the date of such cessation (which date shall be, in relation to a Grantee who is an Eligible Participant by reason of his employment with our Company or any of its subsidiaries, the last actual working day with our Company or the relevant subsidiary whether salary is paid in lieu of notice or not);

b. in the case of a Grantee ceasing to be an Eligible Participant by reason of death, ill-health, injury or disability (all evidenced to the satisfaction of our Board) and none of the events which would be a ground for termination of his relationship with our Company and/or any of its subsidiaries under the paragraph headed “— C. Further Information about Directors and Substantial Shareholders — 12. Lapse of options — (v)” has occurred, the Grantee or the personal representative(s) of the Grantee shall be entitled within a period of 12 months (or such longer period as our Board may determine) from the date of cessation of being an Eligible Participant or death to exercise his option in full (to the extent not already exercised);

c. if a general offer (whether by way of take-over offer, share repurchase offer or scheme of arrangement or otherwise in like manner) is made to all the holders of Shares (or all such holders other than the offeror and/or any person controlled by our offeror and/or any person acting in association or in concert with the offeror), the Company shall use its best endeavours to procure that such offer is extended to all the Grantees (on the same terms mutatis mutandis, and assuming that they shall become, by the exercise in full of the options granted to them as shareholders of our Company). If such offer, having been approved in accordance with applicable laws and regulatory requirements, becomes, or is declared unconditional, the Grantee (or his legal personal representative(s)) shall be entitled to exercise his option in full (to the extent not already exercised) at any time within 14 days after the date on which such general offer becomes or is declared unconditional;

d. if a compromise or arrangement between our Company and the Shareholders and/or creditors is proposed for the purposes of or in connection with a scheme for the reconstruction of our Company or its amalgamation with any other company or companies pursuant to the Cayman Companies Act, our Company shall give notice thereof to all the Grantees (together with a notice of the existence of the provisions of this paragraph) on the same day as it despatches to Shareholders and/or creditors of our Company a notice summoning the meeting to consider such a compromise or arrangement, and thereupon each Grantee shall be entitled to exercise all or any of his options in whole or in part at any time prior to noon (Hong Kong time) on the Business Day immediately preceding the date of the general meeting directed to be convened by the relevant court for the purposes of considering such compromise or arrangement and if there is more than one meeting for such purpose, the date of the first meeting. With effect from the date of such meeting, the rights of all Grantees to exercise their respective options shall forthwith be suspended. Upon such compromise or arrangement becoming effective, all options shall, to the extent that they have not been exercised, lapse and determine. Our Board shall endeavour to procure that the Shares issued as a result of the exercise of options in such circumstances shall for the purposes of such compromise or arrangement form part of the issued share capital of our Company on the effective date thereof and that such Shares shall in all respects be subject to such compromise or arrangement. If for any reason such compromise or arrangement is not approved by the relevant court (whether upon the terms presented to

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the relevant court or upon any other terms as may be approved by such court), the rights of the Grantees to exercise their respective options shall with effect from the date of the making of the order by the relevant court be restored in full as if such compromise or arrangement had not been proposed by our Company and no claim shall lie against our Company or any of its officers for any loss or damage sustained by any Grantee as a result of the aforesaid suspension;

e. in the event a notice is given by our Company to its shareholders to convene a general meeting for the purposes of considering, and if thought fit, approving a resolution to voluntarily wind-up our Company, our Company shall on the same date as or soon after it despatches such notice to each member of our Company give notice thereof to all Grantees and thereupon, each Grantee (or in the case of the death of the Grantee, his personal representative(s)) shall be entitled to exercise all or any of his options (to the extent not already lapsed or exercised) at any time not later than two Business Days prior to the proposed general meeting of our Company by giving notice in writing to our Company, accompanied by a remittance for the full amount of the aggregate Exercise Price for the Shares in respect of which the notice is given whereupon our Company shall as soon as possible and, in any event, no later than the Business Day immediately prior to the date of the proposed general meeting referred to above, allot and issue the relevant Shares to the Grantee credited as fully paid;

f. in the event that the Grantee cease to be an employee but becomes, or continues to be, a consultant, professional, customer, supplier, agent, partner or adviser of or contractor to our Group, the option shall be exercised within three months following the date of such cessation or such longer period as our Board may determine.

12. Lapse of options

An option shall lapse automatically and not be exercisable (to the extent not already exercised) on the earliest of:

(i). the expiry of the Option Period;

(ii). the expiry of the periods referred to in the paragraphs headed “— C. Further Information about Directors and Substantial Shareholders — 11. Exercise of options”;

(iii). the date on which the scheme of arrangement of our Company referred to in the paragraph headed 11(d) above becomes effective;

(iv). the date of the commencement of the winding-up of our Company in respect of the situation contemplated in the paragraph headed “— C. Further Information about Directors and Substantial Shareholders — 11. Exercise of options”;

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(v). the date on which the Grantee ceases to be an Eligible Participant by reason of his resignation or dismissal, or by reason of the termination of his relationship with our Company and/or any of its subsidiaries on any one or more of the grounds that he has been guilty of serious misconduct or has been convicted of any criminal offence involving his integrity or honesty or in relation to an employee or consultant of our Company and/or any of its subsidiaries (if so determined by our Board) on any other ground on which an employer would be entitled to unilaterally terminate his employment or service at common law or pursuant to any applicable laws or under the Grantee’s service contract with our Company or the relevant subsidiary. A resolution of our Board or the board of directors of the relevant subsidiary to the effect that the relationship of the Grantee has or has not been terminated on one or more of the grounds specified in this paragraph shall be conclusive;

(vi). the date that is thirty (30) days after the date on which a Grantee is terminated by our Company and/or any of its subsidiaries by reasons other than termination of employment on grounds under the paragraph headed “— C. Further Information about Directors and Substantial Shareholders — 12. Lapse of options — (v)” to this Appendix;

(vii).the date on which a Grantee commits a breach of the paragraph headed “— C. Further Information about Directors and Substantial Shareholders — 9. Assignment of options” above or the options are cancelled in accordance with the paragraph headed “— C. Further Information about Directors and Substantial Shareholders — 8. Cancellation of options” above; or

(viii).the occurrence of such event or expiry of such period as may have been specifically provided for in the Offer Document, if any.

13. Alteration of the Share Option Scheme

The terms and conditions of the Share Option Scheme and the regulations for the administration and operation of the Share Option Scheme may be altered in any respect by resolution of our Board except that:

a. any alteration to the advantage of the Grantees or the Eligible Participants (as the case may be), in respect of matters contained in Listing Rule 17.03, including without limitation, the definitions of “Eligible Participant”, “Expiry Date”, “Grantee” and “Option Period” contained in the Share Option Scheme; or

b. any material alteration to the terms and conditions of the Share Option Scheme or any change to the terms of options granted (except any alterations which take effect automatically under the terms of the Share Option Scheme), or any change to the authority of the Board in respect of alteration of the Share Option Scheme, must be made with the prior approval of the Shareholders in general meeting at which any persons to whom or for whose benefit the Shares may be issued under the Share Option Scheme and their respective associates shall abstain from voting provided that the amended terms of the Share Option Scheme or the options shall remain in compliance with Chapter 17 of the Listing Rules and no alteration shall operate to affect adversely the terms of issue of any option granted or agreed to be granted prior to such alteration or to reduce the proportion

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of the equity capital to which any person was entitled pursuant to such option prior to such alteration except with:

(i). the consent in writing of the Grantees holding in aggregate options which if exercised in full on the date immediately preceding that on which such consent is obtained would entitle them to the issue of three-fourths in nominal value of all Shares which would fall to be issued upon the exercise of all options outstanding on that date; or

(ii). the sanction of a special resolution.

Written notice of any alterations made in accordance with this paragraph shall be given to all Grantees.

14. Termination

We may by ordinary resolution in general meeting or our Board may at any time resolve to terminate the operation of the Share Option Scheme and in such event no further option shall be offered or granted but the provisions of the Share Option Scheme shall remain in full force to the extent necessary to give effect to the exercise of any option granted prior to the termination or otherwise as may be required in accordance with the provisions of the Share Option Scheme.

Options granted prior to such termination but not yet exercised at the time of termination shall continue to be valid and exercisable in accordance with the Share Option Scheme.

As at the Latest Practicable Date, no option had been granted by our Company under the Share Option Scheme.

E. OTHER INFORMATION

1. Preliminary expenses

The preliminary expenses of our Company are estimated to be approximately USD4,000 and are payable by our Company.

2. Promoters

Our Company has no promoter for the purpose of the Listing Rules.

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3. Application for [REDACTED] of Shares

The Sole Sponsor has made an application on our behalf to the Listing Committee for the [REDACTED] of, and permission to [REDACTED], the Shares in issue and to be issued as mentioned in this document and any Shares which may be issued upon the exercise of any options [which may be granted under the Share Option Scheme], being up to 10% of the Shares in issue on the [REDACTED], on the Stock Exchange. All necessary arrangements have been made to enable the securities to be admitted into [REDACTED].

The total sponsor’s fee amounts to HKD[4,300,000] and is payable by our Company.

The Sole Sponsor satisfies the independent criteria applicable to sponsor as set out in Rule 3A.07 of the Listing Rules.

4. Qualifications of experts

The qualifications of the experts who have given opinions and/or whose names are included in this document are as follows

Name Qualification

Soochow Securities International Licensed corporation under the SFO to carry out type 6 Capital Limited (advising on corporate finance) regulated activities

Harney Westwood & Riegels Cayman Islands attorneys-at-law

KPMG Certified public accountants and Public Interest Entity Auditor registered in accordance with the Financial Reporting Council Ordinance (Chapter 588 of the Laws of Hong Kong)

Frost & Sullivan Industry consultant

Jingtian & Gongcheng PRC Legal Advisor

5. Consents of experts

Each of the above named experts has given and has not withdrawn its written consent to the issue of this document with copies of its reports, letters and/or opinions (as the case may be) and the references to its names or summaries of opinions included herein in the form and context in which they respectively appear.

6. Binding Effect

This document shall have the effect, if an application is made in pursuance of it, of rendering all persons concerned bound by all of the provisions (other than the penal provisions) of sections 44A and 44B of the Companies (Winding Up and Miscellaneous Provision) Ordinance so far as applicable.

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7. Miscellaneous

(a) Except as disclosed in this document, within two years preceding the date of this document:

(i) no share or loan capital of our Company or of any of our subsidiaries has been issued, agreed to be issued or is proposed to be issued fully or partly paid either for cash or for a consideration other than cash;

(ii) no share or loan capital of our Company or any of our subsidiaries is under option or is agreed conditionally or unconditionally to be put under option;

(iii) no commissions, discounts, brokerages or other special terms have been granted in connection with the issue or sale of any share or loan capital of our Company or any of our subsidiaries; and

(iv) no commission has been paid or payable for subscribing or agreeing to subscribe, or procuring or agreeing to procure the subscriptions, for any shares in our Company or any of our subsidiaries.

(b) save as disclosed in this document, there are no founder, management or deferred shares nor any debentures in our Company or any of our subsidiaries;

(c) there has not been any interruption in the business of our Group which may have or has had a material adverse effect on the financial position of our Group in the 12 months immediately preceding the date of this document;

(d) the [REDACTED] of our Company will be maintained in the Cayman Islands by [REDACTED] and a [REDACTED] of our Company will be maintained in Hong Kong by our [REDACTED], in [REDACTED]. Unless our Directors otherwise agree, all transfer and other documents of title of Shares must be lodged for registration with and registered by our [REDACTED] and may not be lodged in the Cayman Islands;

(e) no company within our Group is presently listed on any stock exchange or traded on any trading system;

(f) our Directors have been advised that under Cayman Islands law the use of a Chinese name by our Company in conjunction with our English name does not contravene Cayman Islands law;

(g) save as disclosed in this document, our Company has no outstanding convertible debt securities or debentures;

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(h) there is no arrangement under which future dividends are waived or agreed to be waived; and

(i) there is no restriction affecting the remittance of profits or repatriation of capital by us into Hong Kong from outside Hong Kong.

8. Bilingual Document

The English language and Chinese language versions of this document are being published separately, in reliance upon the exemption provided under section 4 of the Companies Ordinance (Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 32L of the Laws of Hong Kong).

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DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES

The documents attached to the copy of this document delivered to the Registrar of Companies in Hong Kong for registration were, among other documents:

(a) a copy of the [REDACTED];

(b) the written consents referred to under “Other Information — Consents of Experts” in Appendix IV to this document; and

(c) copies of the material contracts referred to in “Further Information about Our Business — Summary of Material Contracts” in Appendix IV to this document.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the offices of Howse Williams at 27th Floor, Alexandra House, 18 Chater Road, Central, Hong Kong during normal business hours up to and including the date which is 14 days from the date of this document

(a) our Memorandum and the Articles of Association;

(b) the Accountants’ Report and the report on the [REDACTED] of our Group prepared by KPMG, the texts of which are set out in Appendices I and II to this document;

(d) the letter of advice prepared by Harney Westwood & Riegels, our legal adviser on Cayman Islands law, in relation to certain aspects of the Cayman Companies Law referred to in Appendix III to this document;

(e) the legal opinions prepared by Jingtian & Gongcheng, our legal advisor on PRC law, in relation to certain aspects of our Group and our property interests in the PRC and the summary of PRC laws and regulations relation to our business set out in this document;

(f) the Cayman Companies Law;

(g) the industry report prepared by Frost & Sullivan;

(h) the written consents referred to in “Other Information — Consents of Experts” in Appendix IV to this document;

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(i) the material contracts referred to in the section headed “B. Further Information about Our Business— 6. Summary of Material Contracts” in Appendix IV to this document and

(j) the service contracts and the letters of appointment with our Directors referred to in the section headed “C. Further Information about Directors — 8. Directors — (a) Particulars of Directors’ service contracts” in Appendix IV to this document.

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