Soulgate Inc. - :: HKEX :: HKEXnews ::

The Stock Exchange of Hong Kong Limited and the Securities and Futures Commission take noresponsibility for the contents of this Application Proof, make no representation as to its accuracy orcompleteness and expressly disclaim any liability whatsoever for any loss howsoever arising from orin reliance upon the whole or any part of the contents of this Application Proof.

Application Proof of

Soulgate Inc.(the “Company”)

(A company incorporated in the Cayman Islands with limited liability)

WARNING

The publication of this Application Proof is required by The Stock Exchange of Hong KongLimited (the “Exchange”) and the Securities and Futures Commission (the “Commission”) solelyfor the purpose of providing information to the public in Hong Kong. This Application Proof is indraft form. The information contained in it is incomplete and is subject to change which can bematerial. By viewing this document, you acknowledge, accept and agree with the Company, itssponsors, advisers or members of the underwriting syndicate that:

(a) this document is only for the purpose of providing information about the Company to thepublic in Hong Kong and not for any other purposes. No investment decision should bebased on the information contained in this document;

(b) the publication of this document or supplemental, revised or replacement pages on theExchange’s website does not give rise to any obligation of the Company, its sponsors,advisers or members of the underwriting syndicate to proceed with an offering in HongKong or any other jurisdiction. There is no assurance that the Company will proceed withthe offering;

(c) the contents of this document or supplemental, revised or replacement pages may or maynot be replicated in full or in part in the actual final listing document;

(d) this document is not the final listing document and may be updated or revised by theCompany from time to time in accordance with the Rules Governing the Listing ofSecurities on The Stock Exchange of Hong Kong Limited;

(e) this document does not constitute a prospectus, offering circular, notice, circular, brochureor advertisement offering to sell any securities to the public in any jurisdiction, nor is it aninvitation to the public to make offers to subscribe for or purchase any securities, nor is itcalculated to invite offers by the public to subscribe for or purchase any securities;

(f) this document must not be regarded as an inducement to subscribe for or purchase anysecurities, and no such inducement is intended;

(g) neither the Company nor any of its affiliates, sponsors, advisers or members of theunderwriting syndicate is offering, or is soliciting offers to buy, any securities in anyjurisdiction through the publication of this document;

(h) no application for the securities mentioned in this document should be made by anyperson nor would such application be accepted;

(i) the Company has not and will not register the securities referred to in this document underthe United States Securities Act of 1933, as amended, or any state securities laws of theUnited States;

(j) as there may be legal restrictions on the distribution of this document or dissemination ofany information contained in this document, you agree to inform yourself about andobserve any such restrictions applicable to you; and

(k) the application to which this document relates has not been approved for listing and theExchange and the Commission may accept, return or reject the application for the subjectpublic offering and/or listing.

If an offer or an invitation is made to the public in Hong Kong in due course, prospectiveinvestors are reminded to make their investment decisions solely based on the Company’s prospectusregistered with the Registrar of Companies in Hong Kong, copies of which will be distributed to thepublic during the offer period.

THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE AND THAT THE INFORMATIONMUST 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 in this document, you should obtain independent professional advice.

Soulgate Inc.(A company incorporated in the Cayman Islands with limited liability)

[REDACTED]

Number of [REDACTED] under the [REDACTED] : [REDACTED] (subject to the [REDACTED])Number of [REDACTED] : [REDACTED] (subject to [REDACTED])Number of [REDACTED] : [REDACTED] (subject to [REDACTED] and the

[REDACTED])Maximum [REDACTED] : [REDACTED]

Nominal value : US$0.0001 per [REDACTED][REDACTED] : [REDACTED]

Joint Sponsors, [REDACTED]

(In alphabetical order)

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

A copy of this document, having attached thereto the documents specified in “Documents delivered to the Registrar of Companies and onDisplay” in Appendix V, 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 (Chapter 32 of the Laws of Hong Kong). The Securities and Futures Commission andthe Registrar of Companies in Hong Kong take no responsibility for the contents of this document or any other document referred to above.

The [REDACTED] is expected to be fixed by agreement between the [REDACTED] (for themselves and on behalf of the [REDACTED])and us on or around [REDACTED]. If, for any reason, the [REDACTED] is not agreed by [REDACTED], the [REDACTED] will notproceed and will lapse. The [REDACTED] will be no more than HK$[REDACTED] per [REDACTED] and is currently expected to be noless than HK$[REDACTED] per [REDACTED] unless otherwise announced.

The [REDACTED] may, with our consent, reduce the number of [REDACTED] being [REDACTED] under the [REDACTED] and/orthe indicative [REDACTED] below that stated in this document at any time on or prior to the morning of the last day for lodgingapplications under the [REDACTED]. See “Structure of the [REDACTED]” and “How to apply for [REDACTED]” for furtherdetails.

The obligations of the [REDACTED] under the [REDACTED] are subject to termination by the [REDACTED] (for themselves and onbehalf of the [REDACTED]) if certain grounds arise prior to 8:00 a.m. on the [REDACTED]. See “[REDACTED]” for further details.

Prior to making an [REDACTED] decision, prospective [REDACTED] should consider carefully all of the information set out in thisdocument, including the risk factors set out in “Risk Factors.”

The [REDACTED] have not been and will not be registered under the U.S. Securities Act or any state securities laws of the United Statesand may not be [REDACTED] or sold within or to the United States, or for the account or benefit of U.S. persons (as defined in RegulationS) except in transactions exempt from, or not subject to, the registration requirements of the U.S. Securities Act. The [REDACTED] arebeing [REDACTED] and sold (i) solely to QIBs pursuant to an exemption from registration under Rule 144A of the U.S. Securities Act and(ii) outside the United States in offshore transactions in accordance with Regulation S.

[REDACTED]


IMPORTANT

[REDACTED]


[REDACTED]

[REDACTED]

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CONTENTS

IMPORTANT NOTICE TO PROSPECTIVE [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] by this document pursuant to

the [REDACTED]. This document may not be used for the purpose of making, and does not

constitute, an [REDACTED] or invitation in any other jurisdiction or in any other

circumstance. No action has been taken to permit a [REDACTED] of the [REDACTED] in any

jurisdiction other than Hong Kong and no action has been taken to permit the distribution of

this document in any jurisdiction other than Hong Kong. The distribution of this document for

purposes of a [REDACTED] 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 authorization 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] decision. The [REDACTED] is made solely on the basis of the information

contained and the representations made in this document. We have not authorized anyone to

provide you with information that is different from what is contained in this document. Any

information or representations not contained or made in this document must not be relied on by

you as having been authorized by us, the Joint Sponsors, [REDACTED], any of our or their

respective directors, officers, employees, agents or representatives, or any other parties

involved in the [REDACTED].

Page

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Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Glossary of Technical Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

Forward-looking Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Waivers and Exemptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

Information about this Document and the [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109

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CONTENTS

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Directors and Parties Involved in the [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

Corporate Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116

Industry Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118

History, Development, and Corporate Structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128

Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 142

Contractual Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191

Regulatory Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 212

Relationship with our Controlling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 235

Connected Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 239

Directors and Senior Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 252

Substantial Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261

Share Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262

Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265

Future Plans and Use of [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 302

[REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306

Structure of the [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320

How to Apply for [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 332

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

Appendix II Unaudited Pro Forma Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . II-1

Appendix III Summary of the Constitution of our Company and Cayman Islands CompanyLaw . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . III-1

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

Appendix V Documents Delivered to the Registrar of Companies and on Display . . . . . . . . . V-1

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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. Moreover,

there are risks associated with any [REDACTED]. Some of the risks of [REDACTED] in the

[REDACTED] are set out in the section headed “Risk Factors”. You should read that section

carefully before you decide to [REDACTED] in the [REDACTED].

Our Mission

We aspire to build, together with our users, a “soul”cial metaverse that enables genuine

happiness and a sense of belonging.

Who We Are

The Soul universe

Soul is a leading social network in China in terms of average MAUs and DAUs. We had the

highest daily private message sent per user of the messaging function and the highest average daily

launches per device in 2021 among open-ended mobile social networks in China, according to the

iResearch Report. Soul distinguishes itself from all other social networking platforms in China, with

its focus on virtual identities, extensive UGC, decentralized distribution, open-ended relationships

based on interests graphs and curated user and content recommendation, according to the iResearch

Report.

Soul is a virtual social playground for the young generations of China that defies geographic

and social constraints, where people build and maintain extensive relationship through interests and

virtual identities. It is appearance-agnostic, interest-driven, decentralized and gamified. The Soul app

allows people to socialize and connect in a virtual space, using virtual identities and through a

variety of powerful, open-ended and gamified ways of interactions, and possess digital assets. With

Soul, we aim to empower self-value expression and foster genuine relationships, thereby forming the

building blocks to a social metaverse that is organically self-expanding based on its users’ creativity.

According to the iResearch Report, Soul is the first social networking platform in China where all of

the users interact through virtual identities in the form of avatars.

We have a large and fast-growing user base of young users, who possess strong desire for self-

expression and look for genuine connections and relationship building based on common interests. In

2021, the numbers of our average MAUs and average DAUs were 31.6 million and 9.3 million,

respectively, representing a year-over-year growth of 51.6% and 55.8%, respectively. With our

distinct positioning in the social networking industry, extensive offering of innovative features, and

immersive experience purpose-built for stress-free communications and interactions, Generation Z

constitutes the core of our user base and continues to serve as the driving force of the Soul universe.

In 2021, 74.9% of our average MAUs were Generation Z.

Our users’, or Soulers’ journey starts with creating brand new identities with avatar in the Soul

app to hone the cyber identities they desire. With these virtual identities, Soulers freely create, share,

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SUMMARY

explore and connect with the help of our interest-graph driven recommendation, comprehensive

community functionalities and gamified features. Based on each Souler’s interest-graph, we

accurately recommend to each Souler curated content and other Soulers with similar personalities,

lifestyles and interests, enabling more in-depth interactions and more meaningful connections. Our

wide variety of community functionalities and gamified features also enable and inspire Soulers to

find new ways to interact and co-experience.

Why people need Soul

Identifying, building and maintaining genuine interpersonal connections are universal and

indispensable human needs. We have observed the plaguing unfulfilled needs of young people in

China to communicate, explore new ideas and receive emotional support from others. They may lack

such opportunities from the physical world for the complicated nature of societal links and

constraints of the mundane lives.

Unfortunately, rather than expanding social circles, many social networking platforms in China

today are simplified and diminished continuations of the physical dimension people reside in. While

advancements in technology have brought us closer by eradicating physical barriers, paradoxically,

they have also made us farther apart than ever by perpetuating and amplifying social inequalities and

pressures. While influencers and opinion leaders are given podiums to speak, most people do not get

much attention and are wary of judgment, and are therefore reluctant to create content on social

media.

We created Soul as an innovative solution to address these issues and offer every user,

especially the young generation, the opportunity for self-value expression, stress-free

communications and interactions. We intelligently recommend curated content and people with

similar interest and personalities to each Souler and to help them form genuine relationships in our

social playground.

What makes young people love Soul

We believe several distinct characteristics of Soul have made us a popular virtual social

playground for the young generations of China:

• Virtual identity. According to the iResearch Report, Soul is the first social networking

platform in China where all of the users interact through virtual identities in the form of

avatars. Soul is designed not to display real identities, so our users can fully immerse in the

Soul playground, away from the complex physical social network surrounding them.

Soulers design brand new identities in the form of avatars to portray their cyber

personalities and showcase their talents. We also design our content moderation algorithms

to discourage selfies and self-identifying posts, which help to create a more immersive yet

discreet cyber personal space.

• Interest graph-based. We generate interest graphs for each Souler and travel them to

different “planets” as their residences in the Soul playground, based on their passions to

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SUMMARY

connect with other like-minded Soulers. See “Business—Functions of Soul—Soul Tests:

Profound heuristic self-discovery.” According to the iResearch Report, we are the only

social networking platform in China that provides user recommendation based solely on

interest graph.

• Self-expanding playground. We have designed a variety of fun and immersive creative tools

for Soulers to spontaneously design and expand a social playground, through UGC of many

different forms. Aside from the traditional text, pictures and videos, Soulers can create

avatars, pets, musical pieces, unique and fun Partyrooms, and communicate through various

other forms of innovative features, all of which help to foster the self-sustaining

communities on our platform. Through these rich formats of interaction and expression, the

Soul playground organically evolves as Soulers discover and create more ways to use it.

• Decentralization. We employ a decentralized traffic distribution method to ensure that

content created by every Souler is distributed equally across the community and receives

similar amounts of reach and engagement. This cultivates a welcoming environment where

every Souler has a voice on our app, thus encouraging them to continue engaging with the

community and creating content. In 2021, the post response rate on Soul was over 91%.

• Gamified and immersive experiences. We deliver gamified and immersive experience

underpinned by holistic virtual identities, massive and intensive interactive scenarios

characterized by engaging content, intriguing features and fun party games. We also apply

advanced technology, including augmented reality, to provide heightened sensory adventure

and deliver an immersive experience closer to reality and diverse gamified ways of

interaction. The gamified and immersive experience serves as a stimulus to enhance and

encourage more organic and meaningful interactions among Soulers to form deep

connection. It also stimulates users to stay on the Soul platform. We had a monthly average

3-month user retention rate of 79.1% in 2021. Average daily time spent per DAU on our

mobile app in 2021 was approximately 45.3 minutes.

• Diverse and rich content. Our interest graph-based content and decentralized distribution

philosophy stimulate the rise of diverse categories and topics on our app. Soulers are more

incentivized to interact with one another and socialize through each other’s content in an

immersive manner, creating a self-reinforcing cycle. Each of our users who created content

on average generated 5.8 posts per month in 2021, one of the highest among China’s

mobile social networking platforms, according to the iResearch Report.

• Technology-driven. We have developed and systematically applied a powerful and proprietaryset of technology, which underpins the superior performance of our product. Our Lingxi andNawa engines, both developed in-house, epitomize our technological prowess. Lingxi is asophisticatedly trained and highly tailored smart recommendation system focused on not onlycontent but more importantly the relationship among users, with industry-leading precision,according to the iResearch Report. Nawa engine is a proprietary suite of multimedia

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SUMMARY

technologies, including keypoint detection, avatar creation and 2D and 3D rendering engine,that empower users with superior experience through customized 3D avatars.

• Wholesome. We recognize that a safe, inclusive and wholesome environment is crucial toencouraging genuine interactions and forging in-depth relationship. We deploy strong anti-harassment and anti-phishing mechanisms to combat unwelcomed behaviors on Soul. Our anti-harassment system and content moderation capabilities help us preempt and filter outunpleasant messages.

What Soul has achieved so far

We believe that the following metrics demonstrate the outstanding levels of user growth andengagement we have achieved in the Soul playground:

Fast Growing User Base Strong User Engagement

51.6%YoY Growth (2)

31.6mnMAU (1)

45.3minsper DAU (3)

21.0xAve. daily launches

by DAUs (3)

35.9%% of MAUs whocreated UGC (7)

791.2mnAggregate number

of new posts (8)

9.3mnDAU (3)

55.8% YoY Growth (2)

59.4% at least 15 days (4)

79.1%3-Month user

reten�on rate (5)

87.0%inte her

% of MAUs whoracted with ot

Soulers (9)

157/15Ave. daily posts / profiles

consumed per DAU (3)

1.7mnAve. monthlypaying user (1)

78.1%YoY Growth (2)

56.4%% of DAUs who use

private messaging (3)

65.9Ave. daily private

messagingg (6)

1.7bnAggregate number

of responses (11)

over 91%Post response rate (10)

Highly Interac�ve Community

Ave. daily �me spent

% of DAUs ac�ve for

Notes:(1) Monthly average for the twelve months ended December 31, 2021(2) From the twelve months ended December 31, 2020 to the twelve months ended December 31, 2021(3) Daily average for the twelve months ended December 31, 2021(4) The 2021 average ratio calculated on a daily basis by dividing (i) the number of users who were active on at least 15 days

during the 30-day period ending on such day by (ii) the number of DAUs on such day(5) Monthly average 3-month user retention rate in 2021(6) Average daily 1-to-1 private messages per DAU who used private messaging function in 2021(7) Monthly average number of MAUs who created UGC in a month in 2021 divided by the number of MAUs in the same month(8) Total posts of all users for the twelve months ended December 31, 2021(9) The 2021 average ratio calculated on a monthly basis by dividing (i) the number of Soulers who interacted with other Soulers

at least once in a given month by (ii) the number of MAUs in the same month(10) Total number of posts that received at least one response in 2021 divided by the total number of posts in 2021(11) Total number of responses in 2021 for all posts available

• Growth. In 2019, 2020 and 2021, our average MAUs were 11.5 million, 20.8 million and

31.6 million, representing a year-over-year growth of 80.7% and 51.6%, in 2020 and 2021

respectively. In 2019, 2020 and 2021, our average DAUs were 3.3 million, 5.9 million and


respectively.

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SUMMARY

• Time-spent. Average daily time spent per DAU on our mobile app in 2021 was

approximately 45.3 minutes.

• Stickiness. We had a monthly average 3-month user retention rate of 79.1% in 2021. In

2021, on average 56.4% of our DAUs engaged in private messaging with an average of 65.9

one-to-one messages per day, which is the highest among open-ended mobile social

networking platforms in China in 2021, according to the iResearch Report.

We have also built an engaging and interactive community.

• Posts. In 2021, on average 35.9% of our MAUs created content during a month,

representing one of the highest percentages among mobile social networks in China,

according to the iResearch Report; in 2021, each of our users who created content on

average generated 5.8 posts per month, creating a total of 791.2 million posts in the same

period.

• Messages. On Soul, users created on average 10.4 billion one-to-one messages per month in

2021. We had the highest number of daily private messages sent per user of the messaging

function in 2021 among open-ended mobile social networks in China, according to the

iResearch Report.

• Interactions. In 2021, on average 87.0% of our MAUs interacted with other Soulers during

a month; the post response rate on Soul app was over 91% with an aggregate of 1.7 billion

responses. During the same period, each post received on average 9.2 comments and 15.7

likes; each DAU consumed on average 157 posts and 15 profiles a day on our app.

• Spending. In 2019, 2020 and 2021, our numbers of average monthly paying users were

268.9 thousand, 929.3 thousand and 1.7 million, respectively, and our average monthly

revenues per paying user were RMB21.9, RMB43.5 and RMB60.5, respectively.

Our Financial Performance

We monetize our platform primarily through value-added services, including both virtual items

and membership subscriptions. We had the largest percentage of revenues generated from the sales

of value-added services during the Track Record Period. Soulers can use Soul Coins to purchase

virtual items and privileges including featured avatars, virtual gifts and access to enhanced

recommendation opportunities. Soulers who subscribe to our membership can enjoy a variety of

time-based privileges such as access to members-only virtual items, discounts for virtual items and

enhanced social networking functionalities. We also monetize through our open-platform

capabilities, which enable advertising services in a variety of ways. For example, brands can

advertise on Soul app and offer discounts only available to Soulers or limited-edition products

related to Soul. We started generating revenues from Giftmojis services in the first quarter of 2021,

which allows Soulers to send physical gifts to each other. With a large yet loyal user base, our deep

understanding of user behavior, and the proactive nature of our users, we believe we have massive

monetization potential.

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SUMMARY

We are at the early stage of monetization but have experienced strong growth in revenue. Our

revenue increased by 604.3% from RMB70.7 million in 2019 to RMB498.0 million in 2020, further

increased by 157.3% to RMB1,281.2 million in 2021. We recorded gross margin of 48.6%, 79.9%

and 85.2% in 2019, 2020 and 2021, respectively. We recorded a net loss of RMB1,324.4 million in

2021, compared to a net loss of RMB353.4 million and RMB579.1 million in 2019 and 2020,

respectively.

The following table sets forth the components of our revenue by amounts and percentages of

our total revenue for the periods presented.

Year Ended December 31,

2019 2020 2021

RMB % RMB % RMB %

(in thousands, except for percentage data)

Revenue

Value-added services . . . . . . . . . . . . . . . . . . . . 70,707 100.0 485,247 97.4 1,202,480 93.9

Advertising services . . . . . . . . . . . . . . . . . . . . . — — 12,766 2.6 77,864 6.1

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 831 0.1

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,707 100.0 498,013 100.0 1,281,175 100.0

Our Strengths

We believe our success to date is largely attributable to the following key competitive

strengths:

• Pioneering social networking model fulfilling demands from the growing young generation;

• Immersive and evolving social experience;

• Highly engaged, interactive and sticky user base for in-depth and genuine relationships;

• Open platform with high commercial value;

• Innovative proprietary technologies fueling user engagement and growth; and

• Pioneering and visionary management team dedicated to our users.

Our Strategies

We intend to achieve our mission and further grow our business by pursuing the following

strategies:

• Further expand and retain our user base;

– 6 –


SUMMARY

• Continue to effectively engage our users through product innovation;

• Continue to invest and innovate in technologies and retain talents;

• Continue to develop and invest in social metaverse; and

• Continue to explore monetization potential.

Our Customers and Suppliers

We started generating revenue in 2019 through value-added services. We started offering

advertising services in 2020. Our customers mainly consists of individual users who purchase value-

added services and brands and merchants who advertise on our platform. For each of the years ended

December 31, 2019, 2020 and 2021, our top five customers contributed less than 5% of our total

revenue. See “Business — Customers” for more details.

Our suppliers primarily include providers for technology services, advertising and promotion

services. In 2019, 2020, and 2021, (i) our top five suppliers accounted for 40.9%, 43.1%, and 46.2%

of our total purchases, respectively; and (ii) our largest supplier contributed to 10.4%, 14.2%, and

12.9% of our total purchases, respectively. See “Business — Suppliers” for more details.

Business Sustainability

We are a pioneer in building future social playgrounds in China and we are still at an early

stage of monetization. We incurred net losses and net operating cash outflow throughout the Track

Record Period, as we have been focusing on growing our user base by investing in our brand and

creating new ways for users to interact on the Soul app, rather than seeking immediate financial

returns or profitability, in order to lay a solid foundation for our long-term success.

The following table sets forth certain financial data for the years indicated.


2019 2020 2021

(RMB in thousands, except percentages)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,707 498,013 1,281,175

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,339 398,055 1,091,171

Gross profit margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48.6% 79.9% 85.2%

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (353,433) (579,050) (1,324,444)

Net loss margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (499.9%) (116.3%) (103.4%)

Adjusted loss margin (non-IFRS measure) . . . . . . . . . . . . . . . . . . (413.4%) (93.5%) (78.0%)

– 7 –


SUMMARY

We gradually expand the monetization potential of our platform, narrow loss margins and yield

profit margin as we expect revenue and gross profit growth would outpace the increase in investment

and expenditure. Our future profitability is subject to various factors, including our ability to

effectively monetize our platform and continually grow revenues in a cost-effective way, which will

require us to improve our operational efficiency. Despite our expanding business scale, we may

continue to incur net losses and net operating cash outflow in the foreseeable future.

Our Strong and Robust Historical Growth

We only started to monetize our platform in 2019, and have set a track record of strong

historical growth in our financial and operational performance. Our revenue increased substantially

by 604.3% from RMB70.7 million in 2019 to RMB498.0 million in 2020, further increased by

157.3% to RMB1,281.2 million in 2021.

The robust historical growth is supported by our continuous efforts to grow our user base,

increase user engagement and enhance user-centric monetization. In 2019, 2020 and 2021, our

average MAUs were 11.5 million, 20.8 million and 31.6 million, respectively, and our average DAUs

were 3.3 million, 5.9 million and 9.3 million, during the same periods respectively. In 2019, 2020

and 2021, our numbers of average monthly paying users were 268.9 thousand, 929.3 thousand and

1.7 million, respectively, and our average monthly revenues per paying user were RMB21.9,

RMB43.5 and RMB60.5, respectively.

Our Path to Profitability

We intend to achieve profitability primarily by (i) continuing to expand our user base and

enhance user engagement, (ii) increasing our monetization capabilities, and (iii) improving our

operating leverage.

Continue to expand our user base and enhance user engagement

Our Soulers and their engagement to Soul are the core drivers of our business growth and

financial performance. During the Track Record Period, our user base experienced fast growth and

demonstrated high user stickiness. In 2019, 2020 and 2021, our average MAUs were 11.5 million,

20.8 million and 31.6 million, representing a year-over-year growth of 80.7% and 51.6%, in 2020

and 2021 respectively. In 2019, 2020 and 2021, our average DAUs were 3.3 million, 5.9 million and

9.3 million, representing a growth of 81.0% and 55.8%, in 2020 and 2021 respectively. The increase

in our average MAUs and DAUs has laid a solid foundation for monetization and the growth of our

business during the Track Record Period. Our revenue increased substantially by 604.3% from

RMB70.7 million in 2019 to RMB498.0 million in 2020, further increased by 157.3% to

RMB1,281.2 million in 2021.

– 8 –


SUMMARY

To better capture and capitalize on future growth opportunities, we have strategically focused

on growing our user base and user engagement through continuously improving our immersive user

experience, further cultivating our Souler community and expanding innovative product offerings

and diversified content on the Soul app to pave the way for long-term profitability. We have invested

in technologies to improve the efficiency of user recommendation and content distribution as well as

offer more creative ways for Soulers to interact with each other, further enhancing our user

engagement and improving user retention. Besides the organic user growth based on the word-of-

mouth referrals, to further capture the demand from young generations, we will also continue to

grow our user base through various sales and marketing activities in a cost-effective manner. As our

user base and user engagement continue to grow, we expect to enjoy network effects which will in

turn generate more social interactions and transactions on our platform and attract more users,

advertisers and other business partners to our platform. This will enable us to increase our revenues

through various monetization channels.

Increase our monetization capabilities


2019 2020 2021

Operating metrics:

Average monthly revenues per paying user (ARPPU) . . . . . . . . . . . . . . RMB21.9 RMB43.5 RMB60.5

Paying ratio(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3% 4.5% 5.2%

Note:

(1) Paying ratio is calculated by dividing the number of average monthly paying users by the number of average MAUs.

During the Track Record Period, we mainly generated our revenues from value-added services.

With the rapid growth of our user base, we keep exploring better services to meet the evolving needs

of our users. Our monetization capability is enhanced as evidenced by an increasing paying ratio.

Our paying ratio increased from 2.3% in 2019 to 5.2% in 2021 and our ARPPU increased from

RMB21.9 in 2019 to RMB60.5 in 2021. Leveraging insights into our users’ spending behavior, we

will continue to improve our user experience, thus to convert more users to paying users and to

increase the spending of our paying users. We also plan to explore more ways to capture the

unfulfilled needs of our broad users and help them connect with people with common interests and

establish authentic interpersonal connections on Soul. To further enhance our monetization potential,

we will continue to focus on product innovation, such as launching new immersive and gamified

features and functionalities, enhancing the quality of content on our platform, introducing diverse

categories of virtual items and privileges and providing more innovative channels to facilitate Souler

interactions.

– 9 –


SUMMARY

We will also expand and diversify our revenue streams. Started in 2020, we began to offer

advertising services. We provide display-based mobile advertising services, which allow our

advertising customers to place advertisements on particular areas of our platform in different

formats. Leveraging our open-platform capabilities, we plan to actively promote our advertising

services leveraging our large and quality user base, expanding advertising customer base and

introducing more effective and diverse advertising services. In addition, we keep exploring new

monetization opportunities. For example, we started to generate revenues from Giftmojis services in

the first quarter of 2021, which allow users to send physical gifts to each other.

Leveraging our deep understanding of users’ interests and preferences, we are well positioned

to create more consumption scenarios around users’ evolving demands to encourage users to interact

on Soul in more creative ways and enhance their willingness to purchase our services, which further

increases the sales of value-added services. We believe it would lead to larger user scale, greater user

engagement, higher paying ratio from active users, expanding paying user base, and increased

average spending per user. Our large user base and vibrant community will also attract more high

quality business partners to collaborate with us to explore various monetization opportunities. This

will enable us to increase our revenues through enhanced monetization capabilities.

Improve our operating leverage

We intend to manage our costs and expenses level and improve margin and operating leverage.

Our operating expenses primarily consist of selling and marketing expenses, technology and

development expenses and administrative expenses. Our selling and marketing expenses increased

from RMB204.4 million in 2019 to RMB621.5 million in 2020 and further increased to

RMB1.5 billion in 2021. The increase in selling and marketing expenses were due to our increased

investment in advertising and promotion efforts to enhance our brand awareness and attract a broader

user base that we believe can result in greater profitability in the future. We believe our investment

in brand will benefit us in the long run as more users join, more content will be created, communities

will be formed, enabling more communications and interaction among our users, which will drive the

organic growth of our users. Going forward, we will continue to evaluate and monitor the

effectiveness and efficiency of our branding and marketing activities to further enhance our brand

awareness and attract a broader user base in a sustainable manner. We expect to effectively manage

our selling and marketing expenses as we continue to grow our scale.

We have also made significant investment in our technology capabilities. Our technology and

development expenses increased from RMB97.3 million in 2019 to RMB187.2 million in 2020 and

further increased to RMB414.9 million in 2021. Our administrative expenses increased from

RMB42.9 million in 2019 to RMB88.3 million in 2020 and further increased to RMB203.3 million in

2021.

We have experienced a continuous decrease in selling and marketing expenses, technology and

development expenses and administrative expenses as percentage of our revenue as we recorded a

significant increase in our revenue and benefited from the economies of scale of our platform. Our

– 10 –


SUMMARY

selling and marketing expenses as percentage of our revenue decreased from 289.1% in 2019 to

124.8% in 2020 and further decreased to 118.1% in 2021. We expect our selling and marketing

expenses as a percentage of our revenue to decrease in the near future. Our technology and

development expenses as percentage of our revenue decreased from 137.6% in 2019 to 37.6% in

2020 and further decreased to 32.4% in 2021. Our administrative expenses as percentage of our

revenue decreased from 60.7% in 2019 to 17.7% in 2020 and further decreased to 15.9% in 2021.

Going forward, we expect to further benefit from our operating leverage and economies of scale on

our platform and intend to efficiently manage our costs and expenses and improve our operating

efficiency.

Overall, as we continue to grow in scale, we expect to further benefit from operating leverage

and economy of scale. We are confident that with continued growth of user base and revenue scale

across different monetization channels, we can further achieve profitability.

Working Capital Sufficiency

We believe we possess sufficient working capital, including sufficient cash and liquidity assets,

supplemented by strong fund-raising capability to meet our present requirements and for the next 12

months from the date of this document. In addition, as evidenced by previous rounds of historical

fund-raising activities, we have a good track record in being able to raise money from renowned

[REDACTED] to finance our business. We believe that the [REDACTED] and other potential

external financing sources will provide additional funding to our operation until we achieve

profitability and positive operating cash flow.

RISK FACTORS

There are certain risks involved in our business and industries, our corporate structure, our

business operations in China, [REDACTED] in our Shares, the [REDACTED] and the

[REDACTED], many of which are beyond our control. For example, these risks include, among

others, the following risks related to our business:

• If we fail to retain our existing users or further grow our user base, or if our user

engagement declines, our business and operating results may be materially and adversely

affected.

• We have a limited operating history, and we may not be able to sustain our historical

growth, effectively manage our growth, control our costs and expenses, or implement our

business strategies.

• We incurred significant net losses and generated net operating cash outflows during the

Track Record Period and we may continue to do so in the future.

• Our brand image, business and results of operations may be adversely impacted by user

misconduct and misuse of our products and services.

– 11 –


SUMMARY

• We were penalized in the past for allowing minors to access content prohibited to be

consumed by minors by relevant PRC regulations on our mobile app. Our continued

compliance efforts may prove costly or ineffective, and any regulatory noncompliance or

negative incident in this regard may materially and adversely affect our reputation,

business, financial condition and results of operations.

• Our business is subject to the complex and evolving laws and regulations in the countries

and regions where we operate. Many of these laws and regulations are subject to change

and uncertain interpretation, and could result in claims, changes to our business practices,

monetary penalties, increased cost of operations, or declines in user growth or engagement,

or otherwise harm our business.

• Our business depends on our users continually finding interesting content which in turn

depends on the content generated and contributed by our users. If our users cannot create

quality content at a consistent rate, we may not be able to attract and retain users to remain

competitive.

• Because we collect, store, process and use data, some of which contains sensitive personal

information, we face concerns over the collection, improper use or disclosure of personal

information, which could discourage current and potential users from using our services,

damage our reputation, face regulatory scrutiny, and in turn materially and adversely affect

our business, financial condition and results of operations.

• We cannot guarantee that our monetization strategies will be successfully implemented or

that we will be able to generate sustainable revenue and profits.

SUMMARY OF HISTORICAL FINANCIAL INFORMATION

The following tables set forth summary financial data from our consolidated financial

information for the Track Record Period, extracted from the Accountants’ Report set out in

Appendix I to this document. The summary consolidated financial data set forth below should be

read together with, and is qualified in its entirety by reference to, the consolidated financial

statements in this document, including the related notes. Our consolidated financial information was

prepared in accordance with IFRSs.

– 12 –


SUMMARY

Selected Consolidated Statements of Profit or Loss and Other Comprehensive Income Items

The following table sets forth our consolidated statements of profit or loss and other

comprehensive income, both in absolute amount and as a percentage of our revenue, for the periods

indicated:


2019 2020 2021

RMB % RMB % RMB %

(in thousands, except for percentage data)Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,707 100.0 498,013 100.0 1,281,175 100.0Cost of sales(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36,368) (51.4) (99,958) (20.1) (190,004) (14.8)Other income/(loss), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,388 9.0 (5,723) (1.1) (4,275) (0.3)Selling and marketing expenses(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (204,418) (289.1) (621,487) (124.8) (1,512,918) (118.1)Administrative expenses(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42,928) (60.7) (88,266) (17.7) (203,263) (15.9)Technology and development expenses(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . (97,320) (137.6) (187,220) (37.6) (414,913) (32.4)Impairment loss on trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — (555) (0.0)Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (303,939) (429.9) (504,641) (101.3) (1,044,753) (81.5)Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (278) (0.4) (449) (0.1) (1,803) (0.1)Changes in the carrying amount of redeemable shares and financial

liabilities for redemption obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (49,216) (69.6) (73,960) (14.9) (277,888) (21.7)Loss before taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (353,433) (499.9) (579,050) (116.3) (1,324,444) (103.4)

Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — —Loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (353,433) (499.9) (579,050) (116.3) (1,324,444) (103.4)

Note:

(1) Share-based payments expenses were allocated as follows:

Year Ended

December 31,

2019 2020 2021

(RMB in thousands)

Share-based payments expenses

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,955 7,231 7,855

Selling and marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 746 2,227

Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,482 13,349 9,307

Technology and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,206 17,948 28,427

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,906 39,274 47,816

Adjusted Net Loss (non-IFRS Measure)

To supplement our consolidated financial statements, which are presented in accordance with

IFRSs, we also use adjusted net loss (non-IFRS measure)(defined below) as an additional financial

measure, which is not required by, or presented in accordance with, IFRSs. We believe that the

presentation of this non-IFRS measure facilitates comparisons of operating performance from period

to period and company to company by eliminating potential impacts of items that our management

does not consider to be indicative of our operating performance such as certain non-cash items. We

– 13 –


SUMMARY

believe that this measure provides useful information to [REDACTED] in understanding and

evaluating our consolidated results of operations in the same manner as they help our management.

However, the use of non-IFRS measure has limitations as an analytical tool, and you should not

consider them in isolation from, or as a substitute for the analysis of, our results of operations or

financial conditions as reported under IFRSs. In addition, the non-IFRS financial measure may be

defined differently from similar terms used by other companies.

We define “adjusted net loss (non-IFRS measure)” as loss for the year, adding back (i) changes

in the carrying amount of redeemable shares and financial liabilities for redemption obligations, and

(ii) share-based payments expenses.

For the years ended December 31, 2019, 2020 and 2021, our adjusted net loss (non-IFRS measure)

was RMB292.3 million, RMB465.8 million and RMB998.7 million, respectively.

The following table sets forth the reconciliations of our non-IFRS financial measure for the

fiscal years ended December 31, 2019, 2020 and 2021 to loss for the year, which is the nearest

measure prepared in accordance with IFRSs.


2019 2020 2021

(RMB in thousands)

Reconciliation of adjusted net loss (non-IFRS measure) to loss for

the year:

Loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (353,433) (579,050) (1,324,444)

Add:

Changes in the carrying amount of redeemable shares and financial

liabilities for redemption obligations(1) . . . . . . . . . . . . . . . . . . . . . . . . . 49,216 73,960 277,888

Share-based payments expenses(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,906 39,274 47,816

Adjusted net loss (non-IFRS measure) . . . . . . . . . . . . . . . . . . . . . . . . . (292,311) (465,816) (998,740)

Notes:

(1) Changes in the carrying amount of redeemable shares and financial liabilities for redemption obligation do not directly relate to

our ability to generate revenue from our daily operations, and we do not expect to record any further changes in the carrying

amount of redeemable shares and financial liabilities after the [REDACTED] as: 1) the redemption rights of these financial

instruments would be terminated; and 2) these redeemable shares will be reclassified from liabilities to equity as a result of the

automatic conversion into ordinary shares. The adjustment has been consistently made during the Track Record Period.

(2) Share-based payments expenses are mostly non-cash in nature and do not result in cash outflow, and the adjustment has been

consistently made during the Track Record Period.

Our revenue increased by 604.3% from RMB70.7 million in 2019 to RMB498.0 million in

2020. This increase was primarily due to the increase of revenue from value-added services, driven

by an increase in the number of average monthly paying users as well as average monthly revenue

per paying user. Our revenue increased by 157.3% from RMB498.0 million in 2020 to RMB1,281.2

– 14 –


SUMMARY

million in 2021, primarily due to the increase of revenue from value-added services, driven by an

increase in the number of average monthly paying users as well as average monthly revenue per

paying user.

We recorded losses resulted from changes in the carrying amount of redeemable shares and

financial liabilities for redemption obligations of RMB49.2 million in 2019, RMB74.0 million in

2020 and RMB277.9 million in 2021. The increased losses were primarily due to the increase of the

redemption amount of redeemable shares, as a result of the increase in the number of redeemable

shares [REDACTED]. Our redeemable shares will be reclassified from liabilities to equity as a

result of the automatic conversion into ordinary shares upon [REDACTED]. Changes in the carrying

amount of redeemable shares and financial liabilities for redemption obligations affected our

performance significantly during the Track Record Period and may continue to have adverse effect

on our results of operations until conversion into ordinary shares, after which we do not expect to

recognize any further loss or gain on changes in the carrying amount from redeemable shares.

– 15 –


SUMMARY

Selected Consolidated Statements of Financial Position items

The following table sets forth our selected information from our consolidated statements of

financial position as of the dates indicated:

As of December 31,

2019 2020 2021

(RMB in thousands)

Non-current assets:Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,236 30,769 108,893Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 5,250 11,189

6,413 36,019 120,082

Current assets:Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 11,800 33,196Prepayments, deposits and other receivables . . . . . . . . . . . . . . . . 30,142 50,130 122,845Financial assets at fair value through profit or loss

(“FVTPL”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,029 — —Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 31,860Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,205 626,031 910,357

121,376 687,961 1,098,258

Current liabilities:Other payables and accrued expenses . . . . . . . . . . . . . . . . . . . . . . 49,264 283,129 570,517Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,319 34,516 63,425Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,302 14,471 20,660Redeemable shares and financial liabilities for redemption

obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 688,671 7,386,794 9,723,623

754,556 7,718,910 10,378,225

Net current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (633,180) (7,030,949) (9,279,967)

We recorded net current liabilities of RMB633.2 million, RMB7,030.9 million and

RMB9,280.0 million as of December 31, 2019, 2020 and 2021, respectively. Our current assets as of

December 31, 2019 were primarily attributable to financial assets at FVTPL, cash and cash

equivalents, prepayments, deposits and other receivables. Our current assets as of December 31,

2020 and 2021 were primarily attributable to cash and cash equivalents prepayments, deposits and

other receivables. Our current liabilities as of December 31, 2019, 2020 and 2021 were primarily

attributable to redeemable shares and financial liabilities for redemption obligations and other

payables and accrued expenses.

Upon [REDACTED], the obligation related to the financial liabilities will be released and our

redeemable shares will be reclassified from liabilities to equity as a result of the automatic

conversion into ordinary shares and, after which we do not expect to recognize any further loss or

gain on changes in the carrying amount of redeemable shares and will return to a net asset position

from a net liability position.

– 16 –


SUMMARY

Selected Consolidated Cash Flow Statements Items

The following table sets forth a summary of our cash flows for the periods indicated,

respectively:


2019 2020 2021

(RMB in thousands)

Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (279,122) (238,185) (794,022)

Net cash (used in)/provided by investing activities . . . . . . . . . . . . . . . . . . (51,409) 42,144 (17,463)

Net cash (used in)/provided by financing activities . . . . . . . . . . . . . . . . . . (13,853) 842,306 1,113,633

Net (decrease)/increase in cash and cash equivalents . . . . . . . . . . . . . . . . (344,384) 646,265 302,148

Cash and cash equivalents at the beginning of the year . . . . . . . . . . . . 394,314 41,205 626,031

Effect of foreign currency exchange rate changes . . . . . . . . . . . . . . . . . . . (8,725) (61,439) (17,822)

Cash and cash equivalents at the end of the year . . . . . . . . . . . . . . . . . 41,205 626,031 910,357

During the Track Record Period and up to the Latest Practicable Date, we have financed our

operating and investing activities mainly through cash from historical equity financing activities. As

of December 31, 2019, 2020 and 2021, our cash and cash equivalents were RMB41.2 million,

RMB626.0 million and RMB910.4 million, respectively.

We recorded net operating cash outflow of RMB279.1 million, RMB238.2 million and

RMB794.0 million in 2019, 2020 and 2021, respectively. The increase in the operating cash outflow

in 2021 compared to the operating cash outflow in 2020 is mainly attributable to increased losses

incurred, partially offset by decrease in working capital and increase in non-cash adjustment,

primarily driven by increase in the carrying amount of redeemable shares and financial liabilities for

redemption obligations.

We believe that our liquidity requirements will be satisfied by a combination of the cash

generated from operating activities, the net [REDACTED] received from the [REDACTED], and

other funds raised from the capital markets from time to time. We currently do not have any plans for

material additional external financing.

KEY FINANCIAL RATIOS

The following table sets forth our key financial ratios for the periods indicated:


2019 2020 2021

Revenue growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A 604.3% 157.3%

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48.6% 79.9% 85.2%

Net loss margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (499.9%) (116.3%) (103.4%)

Adjusted net margin (non-IFRS measure)(1) . . . . . . . . . . . . . . . . . . . . . . . . (413.4%) (93.5%) (78.0%)

– 17 –


SUMMARY

Note:

(1) Adjusted net loss (non-IFRS measure) as a percentage of revenue for the years indicated.

KEY OPERATING DATA

The following table sets forth the key operating data for the periods indicated:


2019 2020 2021

Average MAUs (in millions)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5 20.8 31.6

Average DAUs (in millions)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 5.9 9.3

Average monthly paying users (in thousands)(1) . . . . . . . . . . . . . . . . . . . . . 269 929 1,655

Average monthly revenues per paying user (RMB)(1) . . . . . . . . . . . . . . . . . 21.9 43.5 60.5

Note:

(1) For the definitions, see “Glossary of technical terms.”

NO MATERIAL ADVERSE CHANGE

After performing sufficient due diligence work which our Directors consider appropriate and

after due and careful consideration, the Directors confirm that, up to the date of this document, there

has been no material adverse change in our financial or trading position or prospects since

December 31, 2021, which is the end date of the periods reported on in the Accountants’ Report

included in Appendix I to this document, and there is no event since December 31, 2021 that would

materially affect the information as set out in the Accountants’ Report included in Appendix I to this

document.

[REDACTED]

– 18 –


SUMMARY

[REDACTED]

[REDACTED] EXPENSE

Based on the mid-point [REDACTED] of HK$[REDACTED], the total estimated

[REDACTED] expenses in relation to the [REDACTED] is approximately RMB[REDACTED].

[REDACTED] expenses of approximately RMB[REDACTED] were incurred and charged to our

consolidated statements of profit or loss and other comprehensive income during the Track Record

Period. We estimate that we will further incur [REDACTED] expenses of RMB[REDACTED] of

which RMB[REDACTED] will be charged to our consolidated statement of profit or loss and other

comprehensive income for the year ending December 31, 2022. The balance of approximately

RMB[REDACTED], which mainly includes [REDACTED], is expected to be accounted for as a

deduction from equity upon the completion of the [REDACTED].

USE OF [REDACTED]

Assuming an [REDACTED] of HK$[REDACTED] per Share (being the mid-point of the

[REDACTED] of between HK$[REDACTED] and HK$[REDACTED] per Share), we estimate

that we will receive net [REDACTED] of HK$[REDACTED] from the [REDACTED] after

deducting the [REDACTED] and other estimated [REDACTED] expenses paid and payable by

us in connection with the [REDACTED] and assuming that the [REDACTED] is not exercised.

In line with our strategies, we intend to use our [REDACTED] from the [REDACTED] for the

purposes and in the amounts set forth below:

i. Approximately [REDACTED]% (approximately HK$[REDACTED]) of the net

[REDACTED] is expected to be used to improve and upgrade our proprietary

technologies, improve our data analytics capability, and develop our social metaverse.

ii. Approximately [REDACTED]% (approximately HK$[REDACTED]) of the net

[REDACTED] is expected to be used to further expand and retain our user base and

strengthen our brand to promote sustainable and high-quality user growth.

iii. Approximately [REDACTED]% (approximately HK$[REDACTED]) of the net

[REDACTED] is expected to be used to develop innovative products and features to

engage our users and further enhance our monetization potential.

– 19 –


SUMMARY

iv. Approximately [REDACTED]% (approximately HK$[REDACTED]) of the net

[REDACTED] is expected to be used for working capital and general corporate purposes.

See “Future plans and use of [REDACTED]” for further details.

OUR CONTROLLING SHAREHOLDERS

Immediately after the completion of the [REDACTED], Ms. Lu Zhang, our Founder,

Chairwoman of the Board, executive Director and Chief Executive Officer, will be interested in

[48,607,303] Shares through Soulgate Holding Limited (“Soulgate Holding”). Assuming the

Presumptions, immediately after the completion of the [REDACTED], Ms. Lu Zhang’s shareholding

in the Company represents approximately [REDACTED]% of our issued Shares and Ms. Zhang will

control approximately [REDACTED]% of the voting power of our Company through Shares

controlled by her directly and pursuant to the Voting Proxy. For details of the Voting Proxy, please

refer to the section headed “History, Development and Corporate Structure — Voting Proxy” of this

document. As such, each of Ms. Lu Zhang and Soulgate Holding will be a Controlling Shareholder

of our Company after the [REDACTED].

PRE-[REDACTED] INVESTORS

We received multiple series of equity financing from our Pre-[REDACTED] Investors to

support our expanding business operations. See “History, Development, and Corporate Structure—

Pre-[REDACTED] Investment” for details.

CONTRACTUAL ARRANGEMENTS

Due to foreign investment restrictions under PRC laws, our Company is unable to own or hold

any direct equity interest in our Consolidated Affiliated Entities conducting our businesses. Rather,

we control these entities through Contractual Arrangements, through which we are able to derive

substantially all economic benefits enjoyed by the Registered Shareholders from our Consolidated

Affiliated Entities. See “Contractual Arrangements” for details.

The following simplified diagram illustrates the flow of economic benefits from our

Consolidated Affiliated Entities to our Company under the Contractual Arrangements:

Our Company

Shanghai Soul Registered Shareholders(1)

Soulgate Technology and its subsidiaries(2)

Service

fees(4)

Consultation

services(4)

Equity

ownership(3)

Equity 100%

100%

ownership(3)

Control by Shanghai Soul(5)

– 20 –


SUMMARY

Notes:

(1) The current Registered Shareholders of Soulgate Technology are Ms. Lu Zhang (our Director) (as to 83.98%), Beijing Mingjun Equity

Investment Management Co., Ltd.* (北京明雋股權投資管理有限公司) (a PRC investment vehicle of our Pre-[REDACTED] Investor,

Mingjun Capital Limited) (as to 4.87%), Shanghai Jianming Enterprise Management Co., Ltd.* (上海簡鳴企業管理有限公司) (a PRC

investment vehicle of our Pre-[REDACTED] Investor, J&M Capital Limited) (as to 4.78%), Zhuanlian Technology (Shenzhen) Co.,

Ltd. (專聯科技（深圳）有限公司) (a PRC investment vehicle of our Pre-[REDACTED] Investor, Ventek Limited) (as to 3.54%) and

Shanghai Moliang Venture Investment Center (Limited Partnership) (上海魔量創業投資中心（有限合夥）) (a PRC investment vehicle

of our Pre-[REDACTED] Investor, MFUND, L.P.) (as to 2.83%). For details of the Pre-[REDACTED] Investors, see “History,

Development, and Corporate Structure”.

(2) These constitute our Consolidated Affiliated Entities.

(3) “—>” denotes direct legal and beneficial ownership in the equity interests.

(4) “—->” denotes contractual relationship.

(5) “——” denotes the control by the WFOE over the Registered Shareholders and Soulgate Technology through (i) powers of attorney to

exercise all shareholders’ rights in Soulgate Technology, (ii) exclusive options to acquire all or part of the equity interests in Soulgate

Technology and (iii) equity pledges over the equity interests in Soulgate Technology.

[REDACTED]

FUTURE DIVIDENDS

We are a holding company incorporated under the laws of the Cayman Islands. As a result, the

payment and amount of any future dividend will also depend on the availability of dividends

– 21 –


SUMMARY

received from our subsidiaries. PRC laws require that dividends be paid only out of the profit for the

year calculated according to PRC accounting principles, which differ in many aspects from the

generally accepted accounting principles in other jurisdictions, including IFRS. PRC laws also

require foreign-invested enterprises to set aside at least 10% of its after-tax profits, if any, to fund its

statutory reserves, which are not available for distribution as cash dividends. Dividend distribution to

our shareholders is recognized as a liability in the period in which the dividends are approved by our

shareholders or Directors, where appropriate. During the Track Record Period, no dividends have

been paid or declared by us.

RECENT DEVELOPMENTS

Recent Regulatory Development

Cybersecurity and Internet Data Security

PRC regulatory requirements regarding the protection of personal information are constantly

evolving and can be subject to different interpretations or significant changes from time to time,

making the extent of our responsibilities in that regard uncertain. The important PRC laws and

regulations on data protection, data privacy, and/or information security currently in effect that we

are subject to include, among others, the Cyber Security Law (《中華人民共和國網絡安全法》), which

took effect on June 1, 2017; Personal Information Protection Law (《中華人民共和國個人信息保護法》), or the PIPL, which took effect on November 1, 2021; and Data Security Law (《中華人民共和國數據安全法》), which took effect on September 1, 2021. These laws impose on the operators and

administrators of networks, network service providers, and personal information processors various

personal information protection obligations, restrictions on the collection and use of personal

information, and requirements to take steps to prevent personal information from being divulged,

stolen, or tampered with. In particular, PIPL also put forth the requirement of obtaining separate

consent from individuals before sharing their personal information with other third parties, but the

standards of the “separate consent requirement” remain uncertain currently.

We may also be subject to more stringent personal information protection laws, regulations, and

requirements in China in the near future given the recent legislative developments in this field. With

the promulgation of the Opinions on Strictly Combating Illegal Securities Activities in Accordance

with the Law (《關於依法從嚴打擊證券違法活動的意見》) on July 6, 2021 by the General Office of

the CPC Central Committee and the General Office of the State Council of the PRC, or the July 6

Opinion, offshore-listed China-based companies (中概股公司) have been experiencing a heightened

scrutiny over their compliance with laws and regulations regarding data security, cross-border data

transfer and management of confidential information from PRC regulatory authorities. Such laws and

regulations are expected to undergo further changes, which may require increased information

security responsibilities and stronger cross-border information management mechanism and process

from us. The Cybersecurity Review Measures (《網絡安全審查辦法》) that took effect from

February 15, 2022 stipulates that an internet platform operator who possesses more than one million

users’ personal information must report to the Office of Cybersecurity Review for a cyber security

– 22 –


SUMMARY

review in the event of a “foreign” listing (國外上市) and there is no explicit stipulation under the

Cybersecurity Review Measures that a listing in Hong Kong shall be deemed as such “foreign”

listing. The CAC publicly solicited opinions on the Regulations on the Administration of Cyber Data

Security (Draft for Comments) (《網絡數據安全管理條例(徵求意見稿)》), or the Draft Data Security

Regulations, on November 14, 2021, which requires data processors to apply for cyber security

review when, among other conditions, their intended listing in Hong Kong or other data processing

activities affect or may affect national security. However, the Draft Data Security Regulations

provide no further explanation or interpretation of what constitutes “affects or may affect national

security,” and the PRC government authorities may have wide discretion in interpreting this phrase.

As a result, there remains substantial uncertainty as to whether our [REDACTED] in Hong Kong

will be subject to cybersecurity review. As of the Latest Practicable Date, the Draft Data Security

Regulations had not been formally adopted and we had not been informed by CAC of any

requirement to file for approval for this [REDACTED]. It is uncertain when the final regulation will

be issued and take effect, how it will be enacted, interpreted and implemented, and whether or to

what extent it will affect us. If the Draft Data Security Regulations are adopted into law in the future,

we may become subject to enhanced cybersecurity review, or the PRC government authorities may

retroactively apply and implement such draft regulations by conducting a cybersecurity review over

us in connection with this [REDACTED]. To mitigate the potential impact of any such regulatory

changes, we will closely monitor and assess any development in the rule-making process, maintain

ongoing dialog with relevant government authorities as necessary and in due course, we will also

rectify, adjust, and optimize our data practices in a timely manner to keep pace with regulatory

development.

In addition, the Administrative Provisions on Internet Information Service Algorithm

Recommendation (《互聯網信息服務算法推薦管理規定》), or Algorithm Recommendation Provisions,

that took effect on March 1, 2022 implements classification and hierarchical management for

algorithm recommendation service providers based on various criteria, and stipulates that algorithm

recommendation service providers with public opinion attributes or social mobilization capabilities

shall submit the relevant information within ten business days from the date of providing such

services and go through the record-filing formalities. The Algorithm Recommendation Provisions

also require algorithmic recommendation service providers to provide users with options that are not

specific to their personal characteristics, functions to select or delete user labels, and convenient

ways to cancel the algorithmic recommendation services. As of the Latest Practicable Date, we had

taken measures to comply with the Algorithm Recommendation Provisions to the extent applicable to

our business, but we cannot guarantee that our compliance measures will be sufficient.

As for other draft regulations that may be pertinent to us, the CAC publicly solicited opinions

on the Measures for the Security Assessment of Data Cross-border Transfer (Draft for Comments)

(《數據出境安全評估辦法(徵求意見稿)》), or the Draft Security Assessment of Data Transfer, on

October 29, 2021, which requires that any data processor who provides important data collected and

generated during operations within the territory of the PRC or personal information that should be

subject to security assessment to a recipient outside of the territory of the PRC shall receive an

security assessment.

– 23 –


SUMMARY

The interpretation and application of the aforementioned data privacy and information security

laws and regulations and any new related laws and regulations in the future are often uncertain, and

our practice may become inconsistent with them. For detailed information on these new laws and

regulations, see “Regulatory Overview—Regulations on Privacy Protection”. In the case of legal or

regulatory noncompliance in this regard, in addition to the possibility of fines, we could face an

order or rectification guidance requiring that we change our practices, which could have an adverse

effect on our business and results of operations. Complying with new data protection laws and

regulations could also cause us to incur substantial costs or require us to change our business

practices in a manner materially adverse to our business. See also “—Risks Relating to Doing

Business in China—Uncertainties with respect to the PRC legal system could adversely affect us.”

Minor protection

According to the Minors Protection Law (《中華人民共和國未成年人保護法》) latest amended in

October 2020, it is illegal to produce, reproduce, publish, release and disseminate books, newspapers

and periodicals, films, radio and television programs, stage art works, audio-visual products,

electronic publications or network information that promote obscenity, eroticism, violence, cults,

superstitions, gambling, suicide seduction, terrorism, separatism and extremism and other content are

harmful to the physical and mental health of minors.

Overseas Listing

On December 24, 2021, the CSRC released the Provisions of the State Council on the

Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for

Comments)(《國務院關於境內企業境外發行證券和上市的管理規定(草案徵求意見稿)》), or the Draft

Overseas Listing Provisions, which require that, among other things, domestic companies that seek

to offer or list securities overseas, both directly and indirectly, should fulfill the filing procedure and

report relevant information with the CSRC. If a domestic company fails to complete the filing

procedure or conceals any material fact or falsifies any major content in its filing documents, such

domestic company will be subject to administrative penalties such as warnings, fines, suspension of

relevant business or operations, and revocation of licenses and permits, and its controlling

shareholders, actual controllers, directors, supervisors, and senior executives may also be subject to

administrative penalties such as warnings and fines. On the same day, the CSRC also issued the

Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic

Companies (Draft for comments)(《境內企業境外發行證券和上市備案管理辦法(徵求意見稿)》), or the

Draft Filing Measures, which, among others, set forth the standards in determination of an indirect

overseas listing by a domestic company, the responsible filing persons, and the procedures for the

filing. As the Draft Overseas Listing Provisions and the Draft Filing Measures are not adopted and it

remains unclear whether the formal version adopted in the future will have any further material

changes, there remains substantial uncertainties as to how these drafts will be enacted, interpreted, or

implemented and how they will affect our operations and the [REDACTED].

– 24 –


SUMMARY

With the promulgation of the Opinions on Strictly Combating Illegal Securities Activities in

Accordance with the Law (《關於依法從嚴打擊證券違法活動的意見》) on July 6, 2021 by the General

Office of the CPC Central Committee and the General Office of the State Council of the PRC, or the

July 6 Opinion, offshore-listed China-based companies (中概股公司) have been experiencing a

heightened scrutiny over their compliance with laws and regulations regarding data security, cross-

border data transfer and management of confidential information from PRC regulatory authorities.

Such laws and regulations are expected to undergo further changes, which may require increased

information security responsibilities and stronger cross-border information management mechanism

and process from us.

On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law

of the PRC (《中華人民共和國外商投資法》), or FIL, which took effect on January 1, 2020. The State

Council approved the Implementation Rules to the Foreign Investment Law of the PRC (《中華人民共和國外商投資法實施條例》), or the Implementation Regulations, on December 26, 2019, which

took effect on January 1, 2020, and it replaced the trio of then existing laws regulating foreign

investment in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law (《中華人民共和國中外合資經營企業法》), the Sino-foreign Cooperative Joint Venture Enterprise Law (《中華人民共和國中外合作經營企業法》), and the Wholly Foreign-invested Enterprise Law (《中華人民共和國外資企業法》), together with their implementation rules and ancillary regulations. The Supreme People’s

Court of China issued a judicial interpretation on the FIL in December 2019, effective from

January 1, 2020, to ensure fair and efficient implementation of the FIL. The judicial interpretation

clarifies the issues regarding the validity of the investment contract violating the restrictive or

prohibitive requirements in the negative list. According to the judicial interpretation, courts in China

shall not, among other things, support contracted parties to claim foreign investment contracts in

sectors not on the negative list as void by reason of the contracts have not been approved or

registered by administrative authorities. However, since PRC judicial and administrative authorities

have significant discretion in interpreting and implementing statutory and contractual terms, it is

difficult to predict the outcome of a judicial or administrative proceeding, and such unpredictability

towards our contractual rights could adversely affect our business and impede our ability to continue

our operations. The FIL and Implementation Regulations embody an expected PRC regulatory trend

to rationalize its foreign investment regulatory regime in line with prevailing international practice

and the legislative efforts to unify the corporate legal requirements for both foreign and domestic

investments.

IMPACT OF COVID-19 ON OPERATIONS

Although the COVID-19 pandemic has caused general business disruption in China and the rest

of the world, we have experienced an increase in our operational performance, user base and user

engagement since the first half of 2020. In an effort to contain the spread of COVID-19, China took

precautionary measures, such as imposing travel restrictions, quarantining individuals infected with

or suspected of having COVID-19, encouraging employees of enterprises to work remotely, and

canceling public activities, among others. In 2020 and 2021, as people had more disposable time and

attention span at home, they were more likely to start using our app, extend their time-spent and

cultivate more connections.

– 25 –


SUMMARY

We have witnessed growth in our operational performance, user base, user engagement and

willingness to pay since the end of the first half of 2020, when the pandemic had been largely

contained in China. However, the COVID-19 resurgence caused by the Omicron variants since late

March 2022 in multiple regions in China, including Shanghai where our headquarters is located, has

an adverse impact on our operations. Temporary restrictions, quarantines, lockdowns and other

measures were reinstated in various parts of China, and some of our business partners and

advertising customers were temporarily affected by such restrictions. The decline in economic

activities during COVID-19 resurgence has caused our advertising customers to tighten their

advertising budget. In addition, some of our new business development activities had also been

temporarily postponed due to the restrictions. The duration and the development of the pandemic and

its impact on our business are difficult to predict. While we believe the impact on our business due

to the outbreak of COVID-19 was limited, the extent to which the COVID-19 outbreak impacts our

long-term results remains uncertain, and we have continued to closely monitor its impact on us. For

additional details, see “Risk Factors—Risks Relating to Our Business and Industry—The ongoing

outbreak of COVID-19 could adversely affect our business, results of operations and financial

condition.”

– 26 –


DEFINITIONS

In this document, unless the context otherwise requires, the following terms shall have the

following meanings. Certain technical terms are explained in “Glossary of technical terms”.

“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

Association”

the articles of association of our Company conditionally adopted

on [Š] with effect from the [REDACTED], a summary of which is

set out in “Summary of the Constitution of Our Company and

Cayman Islands Company Law” in Appendix III

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

“Audited Financial Statements” the audited consolidated financial statements of our Company for

the Track Record Period, as included in the section headed

“Accountants’ Report” in Appendix I

“Board” the board of Directors

“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

“CAC” the Cyberspace Administration of the PRC

“CAICT” the China Academy of Information and Communications

Technology of MIIT (Telecommunication and Information

Services Consulting Center)

“Cayman Companies Act” the Companies Act, Cap. 22 (As Revised) of the Cayman Islands,

as amended, supplemented or otherwise modified from time to

time

[REDACTED]

– 27 –


DEFINITIONS

[REDACTED]

“China” or “PRC” the People’s Republic of China, and for the purposes of this

document only, except where the context requires otherwise,

references to China or the PRC exclude Hong Kong, the Macao

Special Administrative Region of the People’s Republic of China

and Taiwan

“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

Miscellaneous Provisions)

Ordinance”

the Companies (Winding Up and Miscellaneous Provisions)

Ordinance (Chapter 32 of the Laws of Hong Kong), as amended,

supplemented or otherwise modified from time to time

“Company”, “our Company”, “the

Company”, “we”, “our”, “us”, or

“Soul”

Soulgate Inc., a company with limited liability incorporated in the

Cayman Islands on May 16, 2017, its subsidiaries and its

Consolidated Affiliated Entities

“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

– 28 –


DEFINITIONS

“Consolidated Affiliated Entities” Soulgate Technology and its subsidiaries, the financial results of

which have been consolidated and accounted for as subsidiaries of

our Company by virtue of the Contractual Arrangements

“Contractual Arrangement(s)” the series of contractual arrangements entered into by, among

others, the WFOE, Soulgate Technology and the Registered

Shareholders, as detailed in “Contractual arrangements”

“Controlling Shareholder(s)” has the meaning ascribed to it under the Listing Rules and unless

the context otherwise requires, refers to Ms. Lu Zhang and

Soulgate Holding Limited through which Ms. Lu Zhang holds

interests in our Company

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

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

“EIT” enterprise income taxation

“Extreme Conditions” extreme conditions caused by a super typhoon as announced by

the government of Hong Kong

“FRC” the Financial Reporting Council of Hong Kong

[REDACTED]

“Governmental Authority” any governmental, regulatory, or administrative commission,

board, body, authority, or agency, or any stock exchange, self-

regulatory organization, or other non-governmental regulatory

authority, or any court, judicial body, tribunal, or arbitrator, in

each case whether national, central, federal, provincial, state,

regional, municipal, local, domestic, foreign, or supranational

[REDACTED]

“Group”, “our Group”, “the

Group”, “we”, “us”, or “our”

our Company, its subsidiaries and the Consolidated Affiliated

Entities from time to time, and where the context requires, in

respect of the period prior to our Company becoming the holding

company of its present subsidiaries, such subsidiaries as if they

were subsidiaries of our Company at the relevant time

“HK” or “Hong Kong” the Hong Kong Special Administrative Region of the People’s

Republic of China

– 29 –


DEFINITIONS

[REDACTED]

“Hong Kong Takeovers Code” or

“Takeovers Code”

Code on Takeovers and Mergers and Share Buy-backs issued by

the SFC, as amended, supplemented or otherwise modified from

time to time

[REDACTED]

– 30 –


DEFINITIONS

“ICP License” the value-added telecommunications business operating license for

internet information service

“IFRS” International Financial Reporting Standards, as issued from time to

time by the International Accounting Standards Board

“Image Frame” Image Frame Investment (HK) Limited, which is a shareholder of

our Company and is wholly owned by Tencent

“Independent Third Party(ies)” any entity or person who is not a connected person of our

Company or an associate of such person within the meaning

ascribed to it under the Listing Rules

[REDACTED]

“iResearch” Shanghai iResearch Co., Ltd, China, an industry consultant

“iResearch Report” the report prepared by iResearch

– 31 –


DEFINITIONS

[REDACTED]

“Joint Sponsors” the Joint Sponsors of the [REDACTED] as named in “Directors

and parties involved in the [REDACTED]”

“Latest Practicable Date” June 21, 2022, being the latest practicable date for ascertaining

certain information in this document before its publication

“Laws” all laws, statutes, legislation, ordinances, rules, regulations,

guidelines, opinions, notices, circulars, directives, requests, orders,

judgments, decrees, or rulings of any Governmental Authority

(including the Stock Exchange and the SFC) of all relevant

jurisdictions

[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

“M&A Rules” the Regulations 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》)

“Main Board” the stock exchange (excluding the option market) operated by the

Stock Exchange which is independent from and operates in

parallel with the Growth Enterprise Market of the Stock Exchange

“MCT” Ministry of Culture and Tourism of the PRC (中華人民共和國文化和旅遊部)

“Memorandum” or “Memorandum

of Association”

the memorandum of association of our Company conditionally

adopted on [Š], with effect from the [REDACTED], as amended

from time to time, a summary of which is set out in “Summary of

the constitution of our Company and Cayman Islands company

law” in Appendix III

– 32 –


DEFINITIONS

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

Information Industry of the PRC)

“MOF” the Ministry of Finance of the PRC (中華人民共和國財政部)

“MOFCOM” the Ministry of Commerce of the PRC (中華人民共和國商務部)

“Ms. Zhang” Ms. Lu Zhang (張璐), our founder, chairwoman of the board of

directors, chief executive officer and Controlling Shareholder

“NDRC” National Development and Reform Commission of the PRC (中華人民共和國國家發展和改革委員會)

“Network Culture Operation

License”

the network culture operation license for conducting commercial

internet culture activities

[REDACTED]

“PBOC” People’s Bank of China (中國人民銀行)

“Post-[REDACTED] Share

Incentive Plan”

the post-[REDACTED] share incentive plan conditionally

approved and adopted by our Company on [Š], 2022, the principal

terms of which are set out in “Statutory and General Information

— D. Share Incentive Plans” in Appendix IV

– 33 –


DEFINITIONS

“PRC Legal Adviser” JunHe LLP, our legal adviser on PRC law

“Pre-[REDACTED] Investment(s)” the investments in our Company undertaken by the Pre-

[REDACTED] Investors, the details of which are set out in

“History, Development and Corporate Structure — Pre-

[REDACTED] Investment”

“Pre-[REDACTED] Investor(s)” the investors set out in “History, Development and Corporate

Structure — Pre-[REDACTED] Investment — Information on the

principal Pre-[REDACTED] Investors”

“Pre-[REDACTED] Shareholders’

Agreement”

the fifth amended and restated shareholders agreement dated

October 10, 2021 entered into by, among others, the Company,

Ms. Lu Zhang, Soulgate Holding Limited and the Pre-

[REDACTED] Investors

“Pre-[REDACTED] Share Incentive

Plan”

the share incentive plan approved and adopted by our Company in

2017, and amended from time to time, the principal terms of which

are set out in “Statutory and General Information — Share

Incentive Plans” in Appendix IV

“Preferred Share(s)” Series Angel preferred shares, Series A preferred shares, Series

A-1 preferred shares, Series B preferred shares, Series C preferred

shares, Series D-1 preferred shares, Series D-2 preferred shares,

Series D-3 preferred shares, and Series D-4 preferred shares,

which will be converted to Shares of the Company on a 1:1 basis

immediately prior to the [REDACTED]

“Presumptions” assuming no new Shares are issued under the [REDACTED] or

the Pre-[REDACTED] Share Incentive Plan, each Preferred Share

of the Company is converted to Shares of the Company on a 1:1

basis immediately prior to [REDACTED], and no other changes

are made to the issued share capital of the Company between the

Latest Practicable Date and [REDACTED] other than as disclosed

in this document

[REDACTED]

– 34 –


DEFINITIONS

“QIB” a qualified institutional buyer within the meaning of Rule 144A

“Registered Shareholders” the registered shareholders of the Onshore Holdco; the current

registered shareholders are identified in “Contractual

Arrangements”

“Regulation S” Regulation S under the U.S. Securities Act

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

“Rule 144A” Rule 144A under the U.S. Securities Act

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

“SAIC” the State Administration for Industry and Commerce of the PRC

(中華人民共和國國家工商行政管理總局), which has now been

merged into 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)

“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)

“SCNPC” the Standing Committee of the National People’s Congress of the

PRC (中華人民共和國全國人民代表大會常務委員會)

“Series Angel Preferred Share(s)” the series Angel preferred shares of the Company with par value

of US$0.0001 each

“Series A Preferred Share(s)” the series A preferred shares of the Company with par value of

US$0.0001 each

“Series A-1 Preferred Share(s)” the series A-1 preferred shares of the Company with par value of

US$0.0001 each

“Series B Preferred Share(s)” the series B preferred shares of the Company with par value of

US$0.0001 each

“Series C Preferred Share(s)” the series C preferred shares of the Company with par value of

US$0.0001 each

– 35 –


DEFINITIONS

“Series D-1 Preference Share(s)” the series D-1 preferred shares of the Company with par value of

US$0.0001 each


US$0.0001 each


US$0.0001 each


US$0.0001 each

“SFC” Securities and Futures Commission of Hong Kong

“SFO” or “Securities and Futures

Ordinance”

Securities and Futures Ordinance (Chapter 571 of the Laws of

Hong Kong), as amended, supplemented or otherwise modified

from time to time

“Soulgate Technology”, “Onshore

Holdco”, “variable interest entity”

or “VIE”

Shanghai Soulgate Technology Co., Ltd. (上海任意門科技有限公司), a limited liability company established under the laws of the

PRC on June 17, 2015

“Share(s)” ordinary shares in the share capital of the Company with par value

of US$0.0001 each

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

“Share Incentive Plans” the Pre-[REDACTED] Share Incentive Plan and the Post-

[REDACTED] Share Incentive Plan

[REDACTED]

“State Council” State Council of the PRC (中華人民共和國國務院)

“Stock Exchange” or “Hong Kong

Stock Exchange”

The Stock Exchange of Hong Kong Limited

“subsidiary” or “subsidiaries” has the meaning ascribed to it in section 15 of the Companies

Ordinance

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

– 36 –


DEFINITIONS

“Tencent” Tencent Holdings Limited, a company incorporated in the Cayman

Islands with limited liability, the shares of which are listed on the

Main Board of the Stock Exchange (stock code: 700)

“Tencent Group” Tencent and its subsidiaries, but, for the purpose of this document,

excluding any subsidiaries (and their respective subsidiaries) that

are separately listed on the Stock Exchange or any other stock

exchanges

“Track Record Period” the years ended December 31, 2019, 2020 and 2021

“U.S. Securities Act” the United States Securities Act of 1933, as amended, and the

rules and regulations promulgated thereunder

[REDACTED]

“United States”, “U.S.” or “US” the United States of America, its territories, its possessions and all

areas subject to its jurisdiction

“VAT” value-added tax

“VIE structure” variable interest entity structure and, where the context requires,

the agreements underlying the structure

“Voting Proxy” the proxy and power of attorney dated October 10, 2021 entered

into by Image Frame, as grantor, in favor of Ms. Lu Zhang, in

respect of the voting proxy on the terms detailed, in “History,

Development and Corporate Structure — Voting Proxy”

“WFOE” or “Shanghai Soul” Shanghai Soul Information Technology Co., Ltd. (上海搜爾信息科技有限公司), a limited liability company established under the

laws of the PRC on August 10, 2017 and a wholly-owned

subsidiary of our Company

“%” per cent

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

the date of this document.

The English names of PRC entities, PRC laws or regulations, and 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.

– 37 –


DEFINITIONS

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.

– 38 –


GLOSSARY OF TECHNICAL TERMS

This glossary contains definitions of certain technical terms used in this document in connection

with us and our business. These may not correspond to standard industry definitions, and may not

be comparable to similarly terms adopted by other companies.

“average DAUs” refers to the result of dividing the sum of DAUs in each day of a

given period by the number of days in the given period

“average MAUs” refers to the result of dividing the sum of MAUs in each month of

a given period by the number of months in the given period

“average monthly paying users” refers to the sum of the number of paying users for each month in

a given period divided by the number of months in such period

“average monthly revenues per

paying user”

refers to the result calculated by dividing revenues generated from

paying users in a given period by the sum of the number of paying

users for each month in such period

“DAU” refers to our users, including paying and non-paying users, who

logged into their user accounts on our mobile app at least once in a

given day. Same user account on different devices are treated as

one user and each account as a distinctive user when calculating

our DAUs

“Generation Z” refers to the population born between the years 1990 and 2009

“MAU” refers to our users, including paying and non-paying users, who

logged into their user accounts on our mobile app at least once in a

given month. Same user account on different devices are treated as

one user and each account as a distinctive user when calculating

our MAUs

“Partyroom” refers to Audio Partyroom and 3D Video Partyroom function

“paying users” refers to user accounts who paid for our value-added services at

least once during a given period

“3-month user retention rate” refers to the percentage of users who used the Soul app that is

active at least 15 days during the month who are also active in the

fourth month

“UGC” refers to user-generated content

– 39 –


FORWARD-LOOKING STATEMENTS

Certain statements in this document are forward-looking statements that are, by their nature,

subject to significant risks and uncertainties. Any statements that express, or involve discussions as

to, expectations, beliefs, plans, objectives, assumptions or future events or performance (often, but

not always, through the use of words or phrases such as “will”, “expect”, “anticipate”, “estimate”,

“believe”, “going forward”, “ought to”, “may”, “seek”, “should”, “intend”, “plan”, “projection”,

“could”, “vision”, “goals”, “aim”, “aspire”, “objective”, “target”, “schedules” and “outlook”) are not

historical facts, are forward-looking and may involve estimates and assumptions and are subject to

risks (including but not limited to the risk factors detailed in this document), uncertainties and other

factors some of which are beyond our Company’s control and which are difficult to predict.

Accordingly, these factors could cause actual results or outcomes to differ materially from those

expressed in the forward-looking statements.

Our forward-looking statements have been based on assumptions and factors concerning future

events that may prove to be inaccurate. Those assumptions and factors are based on information currently

available to us about the businesses that we operate. The risks, uncertainties and other factors, many of

which are beyond our control, that could influence actual results include, but are not limited to:

• our mission, goals, strategies and our ability to implement them;

• our future business development and prospects, financial condition and results of operations;

• our expected user growth and business growth;

• expected changes in our revenues, costs or expenses;

• our expectations regarding demand for and market acceptance of our services;

• our expectations regarding our relationships with users and third-party business partners;

• competition in our industry;

• changes to regulatory and operating conditions in the industry and geographical markets in

which we operate; and

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

Since actual results or outcomes could differ materially from those expressed in any forward-

looking statements, we strongly caution [REDACTED] against placing undue reliance on any such

forward-looking statements. Any forward-looking statement speaks only as of the date on which

such statement is made, and, except as required by the Listing Rules, we undertake no obligation to

update any forward-looking statement or statements to reflect events or circumstances after the date

on which such statement is made or to reflect the occurrence of unanticipated events. Statements of

or references to our intentions or those of any of our Directors are made as of the date of this

document. Any such intentions may change in light of future developments.

All forward-looking statements in this document are expressly qualified by reference to this

cautionary statement.

– 40 –


RISK FACTORS

An [REDACTED] in our Shares involves significant risks. You should carefully consider allof the information in this document, including the risks and uncertainties described below, beforemaking an [REDACTED] in our Shares. The following is a description of what we consider to beour 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 [REDACTED] of our Sharescould 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 toexpress a view on the likelihood of any such contingency occurring. The information given is as ofthe Latest Practicable Date unless otherwise stated, will not be updated after the date hereof, andis subject to the cautionary statements in the section titled “Forward-looking Statements” of thisdocument.

Risks Relating to Our Business and Industry

If we fail to retain our existing users or further grow our user base, or if our user engagement declines,

our business and operating results may be materially and adversely affected.

Our ability to maintain and grow our user base while keeping our users highly engaged is

critical to the continued success and growth of our business. Since the launch of our mobile app in

2016, we have been striving to create a trusted community and develop more diversified

functionalities and features to attract new users while keeping our existing users engaged. In 2021,

the numbers of our average MAUs and average DAUs were 31.6 million and 9.3 million,

respectively, representing a year-over-year growth of 51.6% and 55.8%, respectively. To maintain

and improve the level of engagement of our users and expand our user base, we must continue to

innovate our services, respond promptly to evolving user preferences, implement new technologies,

curate interesting content, and stimulate interactions in our community, all of which will require us

to incur substantial costs and expenses. If such costs and expenses fail to effectively translate into

larger user base and improved user engagement, we may not be able to achieve all these goals and

our results of operations may be materially and adversely affected.

If we are not successful in our efforts to retain or grow our user base or maintain or enhance the

engagement level of our users, our monetization opportunities may suffer, which may in turn have a

material and adverse effect on our business, financial condition and results of operations. If we fail

to convert users into paying users, or if the number of our paying users declines, our revenue may

decline and our results of operations may be materially and adversely affected.

In particular, there is no assurance that our community will remain popular within our user

communities. A number of factors could negatively affect user retention, growth and engagement,

such as:

• failure to provide new functionalities and features that are attractive to users;

– 41 –


RISK FACTORS

• changes of service patterns or protocols that are required by, or that we elect to make to

stay compliant with, legislation, regulations or government policies;

• failure to combat spam on or inappropriate or abusive use of our products and services,

which may lead to declined user trust in us, negative publicity about us and our brand or

legal liabilities;

• failure to protect our brand reputation;

• failure of our algorithms in curating content and generating user recommendations;

• failure to address user concerns related to privacy and communication, safety, security or

other factors; and

• failure to successfully compete with existing competitors or new market entrants.

We have a limited operating history, and we may not be able to sustain our historical growth, effectively

manage our growth, control our costs and expenses, or implement our business strategies.

We have experienced rapid growth in our business and operations since our inception in 2016,

which places significant demands on our management, operational and financial resources. However,

as we only have limited operating history and the rapidly evolving market in which we compete, we

may encounter difficulties as we establish and expand our operations, feature and service

development, selling and marketing, technology and general and administrative capabilities.

Many aspects of our business are unique, evolving and relatively unproven. Our business and

prospects depend on the continual development of the industry in which we operate. The market for

our services is rapidly developing and is subject to significant challenges. Our business relies upon

our ability to create a vibrant and interactive community addressing our users’ need for forging

genuine interpersonal connections and to successfully monetize our user base, which would increase

revenue from various sources. Our historical level of significant growth may not be sustainable or

achievable at all in the future. We believe that our continued growth will depend on many factors,

including our ability to further expand our user base, effectively connect our users, enhance the value

of our content, continue to invest and innovate in technologies, strengthen monetization capabilities

and pursue strategic partnerships, acquisitions and investment opportunities. There can be no

assurance that we will achieve any of the above, and our failure to do so may materially and

adversely affect our business and results of operations.

We expect our costs and expenses to continue to increase in absolute amount in the future as we

broaden our user base and increase user engagement, and develop and implement new features and

services that may entail more complexity. In addition, our cost and expenses, such as our selling and

marketing expenses, technology and development expenses, and administrative expenses, have been

increasing rapidly as we expanded our business, and we expect to continue to incur increasing costs

– 42 –


RISK FACTORS

to support our anticipated future growth. We expect to continue to invest in our infrastructure in

order to enable us to provide our services timely and reliably to our users. Continued growth could

also strain our ability to maintain reliable service levels for our users and paying users, develop and

improve our operational, financial, legal and management controls, and enhance our reporting

systems and procedures. If we fail to achieve the necessary level of efficiency in our operation as it

grows, our business, operating results and financial condition could be harmed.

We incurred significant net losses and generated net operating cash outflows during the Track Record

Period and we may continue to do so in the future.

We recorded net losses and negative operating cash flows during the Track Record Period,

including net losses in the amount of RMB353.4 million, RMB579.1 million and RMB1,324.4

million in 2019, 2020 and 2021, respectively, and net operating cash outflows in the amount of

RMB279.1 million, RMB238.2 million and RMB794.0 million in the same period. Our ability to

achieve and sustain profitability and generate net operating cash inflows is affected by various

factors, many of which are beyond our control, such as the continual development of the industry

and markets in which we operate, changes in the macroeconomic and regulatory environment or

competition dynamics and our ability to respond to these changes in a timely and effective manner.

We also expect our costs and expenses to increase on an absolute basis due to our continued

investment in services, technology and development and our continued selling and marketing

initiatives. If we cannot successfully offset our increased costs and expenses with a significant

increase in total revenue, our financial condition and results of operations may be materially and

adversely affected. We have also been rapidly increasing our selling and marketing expenses in

recent periods. It may become increasingly expensive in the future for us to acquire users through

third-party internet platforms, which may in turn contribute to continued fast increase in our selling

and marketing expenses. All of these factors may make us continue to incur net losses and generate

net operating cash outflows in the future.

If we fail to attract and retain quality users or our mobile app fails to effectively recommend suitable

users, our user retention and engagement may decline, and our business and results of operations could

be materially and adversely affected.

The size and engagement level of our user base as well as the quality of the content offered on

our mobile app are critical to our success and are closely linked to the quality of users and the ability

of our mobile app to recommend Soulers suitable for each user based on interest graph. Because we

target user demographics that are looking for profound interpersonal relationships, if our users

cannot find enough quality users who share their interest or are otherwise suitable conversation

partners or content that piques their interest, or if our mobile app fails to recommend Soulers that

meet the needs and interests of our users in sufficient numbers, or at all, our users may spend less

and less time on our mobile app or leave our mobile app all together with their social needs unmet.

In addition, if our existing Soulers produce less content, or their content starts to be less appealing to

other users, or Soulers otherwise become less active on our mobile app for whatever reason, we may

experience a decline in user traffic and engagement. If our user retention and engagement decline as

– 43 –


RISK FACTORS

a result of any of the aforementioned factors, our results of operations and financial condition may

be materially and adversely impacted.

Our brand image, business and results of operations may be adversely impacted by user misconduct and

misuse of our products and services.

Our community allows users to communicate with other users and engage in various social

networking activities. In China, only users who completed account registration using their PRC

mobile phone numbers have access to the full functions of our Soul app. Users with PRC mobile

phone numbers have all completed real-name registration in accordance with PRC law. Since we

have limited control over real-time behavior of our users, our products and services may still be

misused by our users for inappropriate or illegal purposes.

We have implemented control procedures to detect and block illegal or inappropriate content

and illegal or fraudulent activities conducted through the misuse of our services, including

inappropriate user profiles, messages, audio and video content. We may be required by relevant

governmental authorities to report certain misbehaviors for further investigation if such misbehaviors

are subject to regulatory investigation or other governmental proceedings. Despite our detection and

filtering efforts, we may not be able to identify every incident of inappropriate content or illegal or

fraudulent activities, or prevent all such content from being further disseminated or prohibit such

activities from occurring. Much of the video and audio communications in our community are

conducted in real time, we cannot filter all the content generated by our users as they appear.

Therefore, it is possible that users may engage in illegal, obscene or incendiary conversations or

engage in unethical or illegal activities via our products and services.

If user misconduct and misuse of our products and services for inappropriate or illegal purposes

occur in our community, claims may be brought against us for torts, defamation, libel, negligence,

copyright, patent or trademark infringement, other unlawful activities or other claims based on the

nature and content of the information delivered on or otherwise accessed through our community. In

response to allegations of illegal or inappropriate activities conducted through our community,

relevant governmental authorities may intervene and hold us liable for noncompliance with

applicable laws and regulations and subject us to administrative penalties or other sanctions, such as

requiring us to restrict or discontinue some or all of our features and services. In addition, our users

may suffer or allege to have suffered physical, financial or emotional harm caused by contacts

initiated on our products and services. Our business and public perception of our brand may be

materially and adversely affected if we do face civil lawsuits or other liabilities initiated by such

affected users. Defending any actions brought by such affected users could be costly and require

significant time and attention of our management and other resources, which would materially and

adversely affect our business.

– 44 –


RISK FACTORS

Content posted or displayed in our community may be found to be objectionable by regulatory authorities

in China and elsewhere and may subject us to penalties and other severe consequences.

The PRC government has adopted laws and regulations governing internet and wireless access

and the distribution of information over the internet and wireless telecommunications networks. One

of the latest regulations in this regard is the Provisions on Ecological Governance of Network

Information Content (《網絡信息內容生態治理規定》), which was promulgated by the Cyberspace

Administration of China, or CAC, and came into effect on March 1, 2020. Under these laws and

regulations, internet content providers and internet publishers are prohibited from posting or

displaying over the internet or wireless networks content that, among other things, violates the

principle of the PRC constitution, laws and regulations, impairs the national dignity of China or the

public interest, or is obscene, superstitious, fraudulent or defamatory. Furthermore, internet content

providers are also prohibited from displaying content that may be deemed by relevant government

authorities as instigating ethnical hatred and harming ethnical unity, harming the national religious

policy, “socially destabilizing” or leaking “state secrets” of the PRC, and they are required to take

relevant measures to prevent and resist the production and distribution of undesirable information.

Failure to comply with these requirements may result in the revocation of licenses to provide internet

content or other licenses, the closure of the concerned platforms and reputational harm. The operator

may also be held liable for any censored information displayed on or linked to their platform. In

international markets where we operate, we are also subject to local laws, regulations, policies and

government decrees related to online content dissemination and censorship, which we may not be

able to comply with consistently. The liabilities and penalties resulting from such noncompliance

may materially and adversely damage our business and results of operations.

To the extent that PRC regulatory authorities find any content displayed on our platform

objectionable, they may require us to limit, prevent, or eliminate the dissemination of such

information on our platform. The CAC launched the “Clear and Bright” campaign to rectify various

areas of online misconduct in May 2021, in response to which, certain polices were issued and

actions were launched. On June 15, 2021, the CAC launched the “Fan Group Chaos Rectification”

special action, followed by issuance of the Notice on Further Strengthening the Management of

Chaos in Fan Groups (《關於進一步加強”飯圈”亂象治理的通知》) on August 25, 2021. Both of the

special action and notice are intended to modify behavior in the online fan groups for celebrities,

specifically, in features such as celebrity rankings, hot topics, fan communities, and fans interactive

functions, so as to curb verbal abuse, stigmatization, instigation, confrontation, insults, slander,

rumors, malicious marketing and the spread of other harmful information. This notice requested,

among other things, the cancelation of all rankings of celebrities. Furthermore, minors are not

allowed to make virtual gifting or spend money on supporting idols, or act as the organizer or

manager of a fan group. As of the Latest Practicable Date, we had taken measures specified in this

notice to the extent applicable to our business.

We have designed and implemented procedures to moderate content, including maintenance of

a library of keywords to be blocked, in order to comply with applicable laws, regulations, rules and

policies. However, it may not be possible to determine in all cases the types of content that could

– 45 –


RISK FACTORS

result in our liability as a distributor of such content, and our keyword library may not be always

timely updated to capture all violating content, especially in live chats. If any of the content posted

or displayed in our community is deemed by the PRC government or any international regulatory

authority to violate any content restrictions, we may not be able to continue to display such content

and could become subject to penalties, including confiscation of income, fines, suspension of

business and revocation of required licenses, which could materially and adversely affect our


Regulatory authorities in China and elsewhere may conduct various reviews and inspections on

our business operations, especially those related to content distribution, from time to time. If any

noncompliance incidents in our business operations are identified, we may be required to take certain

rectification measures in accordance with applicable laws and regulations, or we may be subject to

other regulatory actions such as administrative penalties. It may be difficult to determine the type of

content or actions that may result in liability and, if we are found to be liable, we may be prevented

from operating our business in relevant jurisdictions. Moreover, complying with relevant regulatory

requirements may result in limitation to our scope of service, reduction in user engagement or loss of

users, diversion of our management team’s attention and increased operational costs and expenses.

The costs of compliance with these regulations may continue to increase as a result of more content

being made available by an increasing number of users, which may adversely affect our results of

operations. Although we have adopted internal procedures to monitor content and to remove

potentially offending content once we become aware of any potential or alleged violation, we may

not be able to identify all the content that may violate relevant laws and regulations or third-party’s

legal rights and interests such as intellectual property rights which may subject us to the

aforementioned legal consequences and potential claims from third parties. Even if we manage to

identify and remove offensive content, we may still be held liable.

We were penalized in the past for allowing minors to access content prohibited to be consumed by minors

by relevant PRC regulations on our mobile app. Our continued compliance efforts may prove costly or

ineffective, and any regulatory noncompliance or negative incident in this regard may materially and

adversely affect our reputation, business, financial condition and results of operations.

According to the Minors Protection Law (《中華人民共和國未成年人保護法》) latest amended in

October 2020, it is illegal to produce, reproduce, publish, release and disseminate books, newspapers

and periodicals, films, radio and television programs, stage art works, audio-visual products,

electronic publications or network information that promote obscenity, eroticism, violence, cults,

superstitions, gambling, suicide seduction, terrorism, separatism and extremism and other content are

harmful to the physical and mental health of minors.

In June 2019, as part of an industry-wide campaign against illegal activities and inappropriate

content on online audio and entertainment platforms, the downloading services of our mobile app were

ordered by relevant governmental authorities to be temporarily suspended by all app stores due to

inadequacies in our measures to protect minors by restricting their access to certain content on our mobile

app. In July 2019, we submitted a report to the relevant governmental authorities with proofs of the

– 46 –


RISK FACTORS

improvements we had made in our minor protection measures, and our mobile app was subsequently

allowed to become available for downloading in all app stores in early September 2019. During such

temporary suspension, we were allowed to maintain normal operations of our mobile app that had been

already installed by our existing users on their mobile devices and were required to adopt enhanced

measures to improve our content moderation and minor protection scheme. During the temporary

suspension, our MAUs, DAUs, growth of MAUs and growth of DAUs decreased. As of the Latest

Practicable Date, no governmental authorities had challenged our remedial measures with respect to

minor protection, and we therefore believe that our remedial measures have been effective so far.

To continue to comply with minor protection laws and regulations in the PRC, we have

implemented various measures since the temporary suspension of our app store downloading services

in June 2019, which include ceasing account registrations for users under the age of 18 based on

their own confirmation, publishing a minor-only version of our mobile app, having dedicated

personnel monitor content viewable in the minor-only version of the mobile app on a 24/7 basis, and

ensuring that minors can only use the minor-only version of our mobile app and be recommended

Soulers who are also minors. Based on our internal testing and minor information we could identify,

in 2021, less than 1% of our average DAUs were users under the age of 18. For more details of the

prevention of access by users under the age of 18, see “Business—Content Moderation, Fraud

Detecting and Prevention of Access by Minors.” These efforts may not be sufficient to prevent

minors from using the non-minor version of our mobile app and accessing prohibited content

thereon, as we currently do not have a way to verify the age of our users in each case. Our continued

regulatory compliance efforts in this regard may not be successful and may be costly, as they may

divert a significant amount of management time and financial resources. If non-compliance with

PRC minor protection laws and regulations occurs again in the future or if the PRC government

undertakes further actions against our mobile app, our users may lose trust in us and our reputation

may be seriously harmed, our mobile app may again be suspended from all app stores for an

indefinite time, and we may be subject to other penalties and heightened regulatory scrutiny in the

PRC, thereby having a material and adverse effect on our business, financial condition and business

prospects.

Our business is subject to the complex and evolving laws and regulations in the countries and regions

where we operate. Many of these laws and regulations are subject to change and uncertain

interpretation, and could result in claims, changes to our business practices, monetary penalties,

increased cost of operations, or declines in user growth or engagement, or otherwise harm our business.

We are subject to a variety of laws and regulations that involve matters important to or may

otherwise impact our business, including, among others, provision of value-added telecommunications

services, internet advertising business, user privacy protection, foreign exchange, taxation, anti-

corruption, anti-bribery, sanctions and similar matters. See also “Regulatory Overview.” The

introduction of new services, expansion of our activities in certain jurisdictions, or other actions that

we may take may subject us to additional laws, regulations, or other government scrutiny.

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RISK FACTORS

The laws and regulations in the countries and regions where we operate are continually

evolving and can be subject to significant change. As a result, the application, interpretation, and

enforcement of these laws and regulations are often uncertain, particularly in the rapidly evolving

industry in which we operate and any new jurisdiction into which we enter. As our mobile app can

be downloaded and used in certain overseas markets, we are also subject to the laws, regulations,

standards, and other obligations in certain countries and regions, in particular on data protection,

data privacy and/or information security. In addition, these laws and regulations may be interpreted

and applied inconsistently by different agencies or authorities and in different jurisdictions, and

inconsistently with our current policies and practices. For example, we face challenges to ensure the

content and communications on our mobile app are in compliance with various local jurisdictions’

regulatory frameworks, many of which could be substantially different from those of China and each

other. Cultural differences may also pose additional challenges to our efforts in content control.

These laws and regulations may be costly to comply with, and such compliance or any associated

inquiries or investigations or any other government actions may delay or impede our development of

new services, result in negative publicity, increase our operating costs, require significant

management time and attention, and subject us to remedies, administrative penalties and even

criminal liabilities that may harm our business, including fines assessed for our current or historical

business operations, or demands or orders that we modify or cease existing business practices.

The promulgation of new laws or regulations, or the new interpretation of existing laws and

regulations, in each case that restrict or otherwise unfavorably impact the ability or manner in which

we provide our services could require us to change certain aspects of our business and operations to

ensure compliance, which could decrease demand for services, reduce revenue, increase costs,

require us to obtain more licenses, permits, approvals or certificates, or subject us to additional

liabilities. To the extent any new or more stringent measures are required to be implemented, our

business, financial condition and results of operations could be adversely affected.

Due to the uncertainties in the regulatory environment of the industry in which we operate,

there can be no assurance that we would be able to maintain our existing approvals, permits and

licenses, obtain any new approvals, permits and licenses, or comply with other regulatory

requirements if required by any future laws or regulations. If we fail to obtain and maintain

approvals, licenses or permits required for our business, or to comply with relevant laws and

regulations, we could be subject to liabilities, fines, penalties and operational disruptions, or we

could be required to modify our business model, which could materially and adversely affect our

business, financial condition and results of operations. See also “—Risks Relating to Our Business

and Industry—Any lack of requisite approvals, licenses or permits applicable to our business may

have a material and adverse impact on our business, financial condition and results of operations.”

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RISK FACTORS

Our business depends on our users continually finding interesting content which in turn depends on the

content generated and contributed by our users. If our users cannot create quality content at a consistent

rate, we may not be able to attract and retain users to remain competitive.

Our success depends on our ability to drive user engagement. To attract and retain users and

compete against our competitors, we must ensure that the content featured in our community is of

high quality and appealing to our users. The content featured in our community is generated by

Soulers for other Soulers to explore and experience. Each Souler has a unique Souler Space where

she or he posts content ranging from text to photos, from audio clips to videos. Soulers may come to

our Soul Square to read other Soulers’ posts and experience their lives through the content they post.

We offer a Recommend tab help users find the content and Soulers they are interested in via a guided

approach. In addition, we provide versatile post editing tools to empower Soulers in expressing

themselves in a more personal and lively manner, thereby generating more interesting content. If our

users cease to contribute content or contribute content at a slower rate, their uploaded content fails to

attract or retain our users, or we fail to adequately support our users in their content creation and

discovery efforts, our user experience may be adversely affected and we may experience a decline in

user traffic and user engagement. If the number of users or the level of user engagement declines, we

may suffer a reduction in revenue.

The mobile social networking industry is an evolving, dynamic and competitive market, and we operate in

an emerging space in this market, which makes it difficult to evaluate our future prospects. Our business,

financial condition and results of operations may be materially and adversely affected if we are unable to

compete effectively.

The market for mobile social networking platforms is constantly evolving, highly dynamic and

competitive, and we operate in an emerging space within this market. The mobile social networking

industry and the specific market where we operate may not develop as expected. Our users, paying

users and business partners may not fully understand the value of our services, and potential new

users, paying users and business partners may have difficulty distinguishing our services from those

of our competitors. Convincing potential users, paying users and business partners of the value of

our services is critical to the growth of our user base and the success of our business.

We launched our mobile app in November 2016, and our relatively short operating history

makes it difficult to assess our future prospects or forecast our future results. You should consider

our business and prospects in light of the risks and challenges we encounter or may encounter in the

developing and rapidly evolving market where we operate. These risks and challenges relate to,

among other things:

• the emergence of alternative business models, changes in rules, regulations, government

policies or general economic conditions;

• our ability to develop and deploy diversified and unique features and services for our users;

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RISK FACTORS

• our ability to hire, retain and motivate talented employees and attract management talents

that are compatible with our business expansion;

• decreasing user spending, decreasing user engagement, increasing competition, and

declining growth of our overall market or industry;

• our ability to increase the number of users;

• our ability to expand into new markets that are amenable to our business model;

• our ability to develop a reliable, scalable, secure, high-performance technology

infrastructure that can efficiently handle increased usage and expanded user base;

• the ability of our users to generate engaging content on our mobile app;

• our ability to develop or implement strategic initiatives to monetize our business;

• our ability to successfully compete with other companies, some of which have substantially

greater resources and market power than us, that are currently in, or may in the future enter,

our industry, or duplicate the features of our services; and

• our ability to defend ourselves against litigation and/or claims relating to regulatory

compliance, intellectual property, privacy or other matters.

If we fail to educate potential users, paying users and business partners about the value of our

services, if the market for our mobile app does not develop as we expect or if we fail to address the

needs of this dynamic market, our business will be harmed. Failure to adequately address these or

other risks and challenges could harm our business and cause our operating results to suffer.

Because we collect, store, process and use data, some of which contains sensitive personal information,

we face concerns over the collection, improper use or disclosure of personal information, which could

discourage current and potential users from using our services, damage our reputation, face regulatory

scrutiny, and in turn materially and adversely affect our business, financial condition and results of

operations.

We are subject to the laws, regulations, guidelines and industry recommendations relating to

the protection of personal information in China. Concerns or claims about our practices with regard

to the collection, storage, processing or use of personal information or other privacy-related matters,

even if unfounded, could damage our reputation and results of operations.

In July 2019, due to certain defects found in our data privacy measures, we received a written

notice from the Special Task Force on Apps（APP專項治理工作組）, requiring us to rectify our data

privacy measures in accordance with the applicable laws and regulations of the PRC, without

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RISK FACTORS

imposing any penalty on us. In August 2019, we submitted a report to show improvements in our

data protection measures and we also updated our data privacy policy accordingly for

implementation throughout our mobile app. We currently adopt a data privacy policy with respect to

how we collect, store, process, transfer and use personal information, and we may only use such data

to provide and improve our services, content and advertising in strict compliance with our privacy

policy. Despite the absence of any material data breach or similar incidents and our continuous

efforts to comply with our privacy policy as well as all applicable data protection laws and

regulations, any failure or perceived failure to comply with these laws, regulations or policy may

result in inquiries and other proceedings or actions against us by governmental authorities or others,

as well as negative publicity and damage to our reputation, each of which could cause us to lose

users and business partners and have an adverse effect on our business and results of operations.

In particular, if we fail to secure our users’ identity or protect their identity-specific data, our

users may be vulnerable to insults, harassment, blackmails or physical injuries, and their family

property and other assets may also be put at risk. As a result, we may be held liable for these

incidents, and our users may feel insecure and cease to use our services. Our reputation may be

seriously harmed and we may be unable to retain existing users and attract new users, which would

in turn have a material adverse effect on our business and results of operations.

Any system failure or compromise of our security that results in unauthorized access to or

release of the data, photo or chat history of our users could significantly limit the adoption of our

services, as well as harm our reputation and brand, result in litigation against us, liquidated and other

damages, regulatory investigations and penalties, and we could be subject to material liability. We

expect to continue spending significant resources to protect against security breaches. The risk that

these types of events could seriously harm our business is likely to increase as we expand the scope

of services we offer and as we increase the size of our user base.

PRC regulatory requirements regarding the protection of personal information are constantly

evolving and can be subject to different interpretations or significant changes from time to time,

making the extent of our responsibilities in that regard uncertain. The important PRC laws and

regulations on data protection, data privacy, and/or information security currently in effect that we

are subject to include, among others, the Cyber Security Law (《中華人民共和國網絡安全法》), which

took effect on June 1, 2017; Personal Information Protection Law (《中華人民共和國個人信息保護法》), or the PIPL, which took effect on November 1, 2021; and Data Security Law (《中華人民共和國數據安全法》), which took effect on September 1, 2021. These laws impose on the operators and

administrators of networks, network service providers, and personal information processors various

personal information protection obligations, restrictions on the collection and use of personal

information, and requirements to take steps to prevent personal information from being divulged,

stolen, or tampered with. In particular, PIPL also put forth the requirement of obtaining separate

consent from individuals before sharing their personal information with other third parties, but the

standards of the “separate consent requirement” remain uncertain currently.

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RISK FACTORS

We may also be subject to more stringent personal information protection laws, regulations, and

requirements in China in the near future given the recent legislative developments in this field. With

the promulgation of the Opinions on Strictly Combating Illegal Securities Activities in Accordance

with the Law (《關於依法從嚴打擊證券違法活動的意見》) on July 6, 2021 by the General Office of the

CPC Central Committee and the General Office of the State Council of the PRC, or the July 6 Opinion,

offshore-listed China-based companies (中概股公司) have been experiencing a heightened scrutiny over

their compliance with laws and regulations regarding data security, cross-border data transfer and

management of confidential information from PRC regulatory authorities. Such laws and regulations

are expected to undergo further changes, which may require increased information security

responsibilities and stronger cross-border information management mechanism and process from us.

The Cybersecurity Review Measures (《網絡安全審查辦法》) that took effect from February 15, 2022

stipulates that an internet platform operator who possesses more than one million users’ personal

information must report to the Office of Cybersecurity Review for a cybersecurity review in the event

of a “foreign” listing (國外上市) and there is no explicit stipulation under the Cybersecurity Review

Measures that a listing in Hong Kong shall be deemed as such “foreign” listing. The CAC publicly

solicited opinions on the Regulations on the Administration of Cyber Data Security (Draft for

Comments) (《網絡數據安全管理條例(徵求意見稿)》), or the Draft Data Security Regulations, on

November 14, 2021, which requires data processors to apply for cyber security review when, among

other conditions, their intended listing in Hong Kong or other data processing activities affect or may

affect national security. However, the Draft Data Security Regulations provide no further explanation

or interpretation of what constitutes “affects or may affect national security,” and the PRC government

authorities may have wide discretion in interpreting this phrase. As a result, there remains substantial

uncertainty as to whether our [REDACTED] in Hong Kong will be subject to cybersecurity review. As

of the Latest Practicable Date, the Draft Data Security Regulations had not been formally adopted and

we had not been informed by CAC of any requirement to file for approval for this [REDACTED]. It is

uncertain when the final regulation will be issued and take effect, how it will be enacted, interpreted

and implemented, and whether or to what extent it will affect us. If the Draft Data Security Regulations

are adopted into law in the future, we may become subject to enhanced cybersecurity review, or the

PRC government authorities may retroactively apply and implement such draft regulations by

conducting a cybersecurity review over us in connection with this [REDACTED]. To mitigate the

potential impact of any such regulatory changes, we will closely monitor and assess any development

in the rule-making process, maintain ongoing dialog with relevant government authorities as necessary

and in due course, we will also rectify, adjust, and optimize our data practices in a timely manner to

keep pace with regulatory development.



that took effect on March 1, 2022 implements classification and hierarchical management for algorithm

recommendation service providers based on various criteria, and stipulates that algorithm


shall submit the relevant information within ten business days from the date of providing such services

and go through the record-filing formalities. The Algorithm Recommendation Provisions also require

algorithmic recommendation service providers to provide users with options that are not specific to

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RISK FACTORS

their personal characteristics, functions to select or delete user labels, and convenient ways to cancel

the algorithmic recommendation services. As of the Latest Practicable Date, we had taken measures to

comply with the Algorithm Recommendation Provisions to the extent applicable to our business, but

we cannot guarantee that our compliance measures will be sufficient.

As for other draft regulations that may be pertinent to us, the CAC publicly solicited opinions

on the Measures for the Security Assessment of Data Cross-border Transfer (Draft for Comments)

(《數據出境安全評估辦法(徵求意見稿)》), or the Draft Security Assessment of Data Transfer, on

October 29, 2021, which requires that any data processor who provides important data collected and

generated during operations within the territory of the PRC or personal information that should be

subject to security assessment to a recipient outside of the territory of the PRC shall receive an

security assessment.

The interpretation and application of the aforementioned data privacy and information security

laws and regulations and any new related laws and regulations in the future are often uncertain, and

our practice may become inconsistent with them. For detailed information on these new laws and

regulations, see “Regulatory Overview—Regulations on Privacy Protection.” In the case of legal or

regulatory noncompliance in this regard, in addition to the possibility of fines, we could face an

order or rectification guidance requiring that we change our practices, which could have an adverse

effect on our business and results of operations. Complying with new data protection laws and

regulations could also cause us to incur substantial costs or require us to change our business

practices in a manner materially adverse to our business. See also “—Risks Relating to Doing

Business in China—Uncertainties with respect to the PRC legal system could adversely affect us.”

Any lack of requisite approvals, licenses or permits applicable to our business may have a material and

adverse impact on our business, financial condition and results of operations.

Our business is subject to supervision and regulation by various governmental authorities in

China, and such governmental authorities mainly include the CAC, the Ministry of Commerce of the

People’s Republic of China, or the MOFCOM, the Ministry of Industry and Information Technology,

or the MIIT, the State Administration for Market Regulation, or the SAMR, the Ministry of Culture

and Tourism, or the MCT, and the corresponding local regulatory authorities. Such governmental

authorities promulgate and enforce laws and regulations that cover a variety of business activities

that relate to our operations, such as provision of internet information, among other things. These

regulations in general regulate the entry into, the permitted scope of, as well as approvals, licenses

and permits for, the relevant business activities.

As of the Latest Practicable Date, we had not obtained certain approvals, licenses and permits that

may be required for some aspects of our business operations, and we cannot assure the scope of our

acquired approvals, licenses and permits is adequate. For example, we cannot assure the authorized

scope of our value-added telecommunications service license concerning the internet information

service, or ICP license, is sufficient for our current business. See also “Regulatory Overview—

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RISK FACTORS

Regulations Relating to Value-added Telecommunications Services”. The authorized scope of our ICP

License, does not contain the scope of “instant information exchange services” and “information

communication platform services”. As informed during a consultation with the China Academy of

Information and Communications Technology of MIIT (Telecommunication and Information Services

Consulting Center), or the CAICT, on June 22, 2022, (i) if the business operation of any other entity

which is not news entity (including any entity where it holds controlling shares) or entity under the

administration of news publicity department (the “Other Entity”) falls within the type of instant

communication tool, there exist substantial obstacles for it to add “instant information exchange

services” and “information communication platform services” to its ICP License (the “Business Scope

Extension”) in practice and no successful precedents have been observed within the past three years;

(ii) if any Other Entity has conducted relevant business operation prior to its completion of the

Business Scope Extension, such entity would not be deemed to be in material violation of relevant laws

and regulations if it has not been subject to any investigation or penalty by any government authorities

of telecommunications services for such business operations; (iii) no investigation has been initiated

and no penalty has been imposed before on any Other Entity for such business operations and it is

expected that there will not be any material change to the regulatory environment in the short term. Our

PRC Legal Adviser is of the view that CAICT is the competent authority to respond to the above

consultation.

As of the Latest Practicable Date, we have not been required to rectify the lack of authorized

business scope of our ICP License or subject to any penalty due to such issue. If any request is raised

requiring us to rectify such issue due to modification of relevant laws and regulations or different

interpretation and implementation thereof in the future, we will to the extent feasible make our best

efforts to rectify such lack of authorized scope of ICP License in a timely manner and avoid material

adverse effect to our business operation to the extent possible.

Based on the above, our PRC Legal Adviser is of the view that the lack of relevant authorized

business scope abovementioned will not have a material adverse effect on our overall business

operation, and under the current regulatory environment, the possibility of us being subject to

material administrative penalties by relevant competent authority due to such lack of relevant

authorized business scope is relatively low. However, if we were found to be in violation of any PRC

laws or regulations due to the insufficient scope of our ICP license, we may be subject to fines,

confiscation of illegal gains, revocation of our license or suspension of our services or other

penalties, any of which could materially and adversely affect our business, financial condition and

results of operations.

In addition, we operate several in-app party games through our mobile app. According to the

Administrative Provisions on Online Publishing Services (《網絡出版服務管理規定》) and the Notice

of the General Administration of Press and Publication, the National Copyright Administration and

the Office of the National Work Group for “Combating Pornography and Illegal Publications” on

Implementing the Provisions of the State Council on “Three Determinations” and the Relevant

Explanations of the State Commission Office for Public Sector Reform and Further Strengthening

the Administration of the Pre-approval of Online Games and Examination and Approval of Imported

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RISK FACTORS

Online Games (《新聞出版總署、國家版權局、全國”掃黃打非”工作小組辦公室關於貫徹落實國務院<”三定”規定>和中央編辦有關解釋，進一步加強網絡遊戲前置審批和進口網絡遊戲審批管理的通知》), the

provision of the contents of online games to the public through the Internet for interactive online use

or other operation services falls within activities of publication of online games which requires an

online publication service license, or Online Publication Service License, with corresponding

business scope, and the pre-approval of the General Administration of Press and Publication. As of

the Latest Practicable Date, we had not been informed by any government authorities requiring us to

obtain such Online Publication Service License or pre-approval or subject to any penalties from the

relevant government authorities for failure to obtain such Online Publication Service License or pre-

approval. If any request is raised requiring us to rectify such issue due to modification of relevant

laws and regulations or different interpretation and implementation thereof in the future, we will to

the extent feasible make our best efforts to rectify in a timely manner and avoid material adverse

effect to our business operation to the extent possible.

Based on the above, and considering that the aggregate revenue contribution of our online

games is relatively low, our PRC Legal Adviser is of the view that the lack of such Online

Publication Service License or pre-approval will not have a material adverse effect on our overall

business operation, and under the current regulatory environment, the possibility of us being subject

to material administrative penalties by relevant competent authority due to the lack of such Online

Publication Service License or pre-approval is relatively low. However, if, in practice, we are

required to obtain such Online Publication Service License and/or pre-approval in the future, we

cannot assure you that we will be able to timely obtain it and we may be prohibited from performing

our business or subject to fines, confiscation of illegal gains, revocation of our licenses or other

penalties, which may materially and adversely affect our business, financial condition and results of

operations.

Also, the users of our mobile app could communicate with each other by posting and sharing

text, audio and/or video. During our consultation with the Shanghai Administration of Culture and

Tourism (Division of administration on radio, television and internet audio-visual program) on

May 6, 2022, it was confirmed that currently it is not required for us to obtain the license for online

transmission of audio-visual program, or Audio-Visual License, with respect to our operation of

mobile app (which is not deemed as being within the scope of internet audio-visual program services

under the applicable laws and regulations). Our PRC Legal Adviser is of the view that Shanghai

Administration of Culture and Tourism (Division of administration on radio, television and internet

audio-visual program) is the competent authority to respond to the above consultation. However,

there is uncertainty as to whether such applicable laws and regulations will be differently interpreted

or implemented in the future, and new rules or regulations promulgated in the future may also

impose additional requirement on us. If it is determined in the future that the Audio-Visual License

is required for the operation of our mobile app, we cannot assure you that we will be able to timely

obtain it, which may materially and adversely affect our business, financial condition and results of

operations.

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RISK FACTORS

As of the Latest Practicable Date, we had not been subject to any material penalties from the

relevant government authorities for failure to obtain any approvals, licenses or permits for our

business operations in the past, including due to the defects in our ICP License or our lack of such

Online Publication Service License or pre-approval. We cannot assure you, however, that the

government authorities will not do so in the future. In addition, we may be required to obtain

additional approvals, licenses or permits or make additional filings, and we cannot assure you that

we will be able to timely obtain, maintain or renew all the required approvals, licenses or permits or

make or renew all the necessary filings in the future. In particular, as part of our continuous efforts

to expand our business scope and explore innovative business models, we cannot guarantee that such

strategies and measures will not be challenged under PRC laws and regulations and if so, relevant

PRC government authorities may issue warnings, order us to rectify our violating operations and

impose fines on us. In the case of serious violations as determined by relevant authorities at their

discretion, they may ban the violating operations, seize our equipment in connection with such

operations, impose a fine or revoke the approval, license, permit and/or filing, which may materially

and adversely affect our business. If we fail to obtain, maintain or renew any of the required

approvals, licenses or permits or make or renew the necessary filings on time or at all, we may be

subject to various penalties, such as confiscation of the revenue that were generated through the

unlicensed activities, the imposition of fines and the discontinuation or restriction of our operations.

Any such penalties may disrupt our business operations and materially and adversely affect our


We currently generate the vast majority of our revenue from value-added services. We may not be able to

continue to grow or eventually achieve profitability from such services.

We generate the vast majority of our revenue through the provision of value-added services. If

we are to grow our revenue from value-added services, we will need to increase either the number of

our paying users and/or average monthly revenue generated per paying user. Our ability to increase

the number of paying users and/or average monthly revenue per paying user depends on, among

other things, our ability to continually roll out more attractive functions and our ability to implement

dynamic and precise pricing. There is no guarantee that we will be able to roll out functions

attractive enough, or implement pricing dynamic and precise enough for our non-paying users or

potential users to start paying for our value-added services. Therefore, we may not be able to grow or

achieve profitability from value-added services.

We cannot guarantee that our monetization strategies will be successfully implemented or that we will be

able to generate sustainable revenue and profits.

We are at the early stage of our business and our monetization model is new and evolving. We

began monetizing our business in 2019. Currently, we generate the vast majority of our revenue from

value-added services. We have also diversified our monetization models by leveraging our growing

and engaged user base to provide advertising services to business customers and offering new

services to our users, such as Giftmojis. Giftmojis is a service that allows Soulers to send physical

gifts to each other. As a testament to the success of such diversification efforts, the revenue

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RISK FACTORS

contribution from our advertising services has been increasing since the first quarter of 2021. As we

continue to develop our business, we are making efforts to convert our users into paying users and

explore new and innovative revenue streams. As a result, our revenue is affected by our ability to

enhance our monetization, grow our user base, and increase user engagement, which in turn depends

on our ability to expand the monetization models and continually maintain and improve user

experience. If we fail to monetize our existing or new services or develop new approaches to

monetization, we may not be able to maintain or increase our revenue or recover any associated costs

and expenses. We monitor market developments and may adjust our monetization strategies

accordingly from time to time, which may result in decreases of our overall revenue or revenue

contributions from some monetization channels. In addition, we may have limited or no experience

with the new revenue streams that we may introduce in the future. If these new revenue streams fail

to engage our users, paying users, or business customers, we may fail to retain or attract enough

users or business customers to generate sufficient revenue to justify our investment, and our business

and results of operations may suffer as a result.

We may not be able to successfully maintain and increase the number of paying users and average

monthly revenue generated per paying user on our mobile app, which may materially and adversely

affect our business operation and financial results.

Our revenue and results of operation depends on our ability to monetize, to convert more users

to paying users and to increase the spending of our paying users. Whether we can increase the

number of paying users and average monthly revenue generated per paying user depends on many

factors, and many of them are out of our control. For example, our users may be unwilling to pay for

our services, we may fail to develop new services that are attractive enough to our existing paying

users for them to pay, our paying users may have less disposable income as they need to meet

financial obligations elsewhere, our paying users may no longer find our existing value-added

services attractive or useful enough to purchase, and overall worsening economic conditions can

lower disposable income for all existing paying users, causing them to spend less on our mobile app.

We expect that our business will continue to be significantly dependent on revenue collected from

paying users in the near future. Any decline in the number of paying users or average monthly

revenue generated per paying user may materially and adversely affect our results of operations.

Our mobile app may be confused with social mobile apps that target the online dating market, potentially

negatively affecting our user attraction and retention.

Our potential users may not fully comprehend the purpose and value of our mobile app, and

there may be a misperception that our mobile app is used solely or mainly as a tool to start romantic

relationships with strangers. If our potential new users, who are looking for genuine, non-romantic

interpersonal relationships, are discouraged from downloading and trying our mobile app, or if users

looking for romantic relationships start explicitly pursuing romantic relationships on our mobile app,

our ability to attract users from our target user demographics may be severely hindered, and some of

our existing users may start spending less time on or even be driven away from our mobile app due

to them being connected with romance-seeking users that go against our goal and philosophy.

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Although our marketing efforts may serve to combat any misconception about our mobile app and

brand, we cannot ensure you that we will be successful in effectively eliminating the negative impact

of any such misconception. If we are not successful in educating the public about the purpose and

target user demographics of our mobile app, our ability to attract and retain users and to maintain

user engagement may be adversely affected.

The success of our business depends in part on our ability to develop and provide our users with new and

innovative features and services.

Our business is growing and becoming more complex, and our ability to engage, retain and

increase our user base and to increase our revenue will depend heavily on our ability to quickly and

successfully develop and launch new and innovative services. The industry in which we operate is

evolving rapidly and users expect to see new features and experience new services offered by us

within a relatively short period of time. Over the years, we have been continually upgrading our

mobile app. Users can enjoy our value-added services by subscribing for our membership services,

express themselves in various means, such as text, pictures, videos, voice and emojis, share their

lives or view the lives of other users, and join the various interest groups on our mobile app. We

have also introduced Giftmojis to our users in the first quarter of 2021 as part of our continuing

efforts to offer more play features. Giftmojis is a service that allows Soulers to send physical gifts to

each other.

We may introduce significant changes to our existing services or develop and introduce new

and unproven services. Developing and integrating new services could also be expensive and time-

consuming, and these efforts may not yield the benefits we expect to achieve at all. If new or

enhanced services fail to engage or entice our users, paying users or business partners, we may fail

to attract or retain users or to generate sufficient revenue, operating margin, or other value to justify

our investments, any of which may seriously harm our business.

If we fail to keep up with technological developments and evolving user expectations, we may fail to

maintain or attract users or generate revenue, and our business and results of operations may be

materially and adversely affected.

We operate in a market characterized by rapidly changing technologies, evolving industry

standards, new service announcements, new improvements to services and application features and

functionalities, and changing user expectations. Accordingly, our performance and the ability to

further monetize our services will depend on our ability to adapt to these rapidly changing

technologies and industry standards, and our ability to continually innovate in response to both

evolving demands of the marketplace and competing services. There may be occasions when we may

not be as responsive as our competitors in adapting our services to changing industry standards and

the needs of our users.

Introducing new technologies into our systems involves numerous technical challenges,

substantial amounts of capital and personnel resources and often takes many months to complete. We

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intend to continue to devote resources to the development of additional technologies and services.

We may not be able to effectively integrate new technologies on a timely basis or at all, which may

decrease user satisfaction with our services. Such technologies, even if integrated, may not function

as expected or may be unable to attract and retain a substantial number of users to use our mobile

app. We also may not be able to protect such technology from being copied by our competitors. Our

failure to keep pace with rapid technological changes may cause us to fail to retain or attract users or

generate revenue, and could have a material and adverse effect on our business and results of

operations.

We generate a portion of our revenue from advertising. If we fail to attract more advertisers or if

advertisers reduce their spending or become less willing to advertise with us, our revenue may be

adversely affected.

Although we currently primarily rely on revenue generated from value-added services, there is

also an increase in revenue generated from advertising services since we started the advertising

services in the third quarter of 2020. We have since actively promoted our advertising services and

will continue to do so in the future. Our advertising revenue is primarily driven by our average

DAUs, which are attractive to advertisers and largely determines the pricing of our advertising

services. Our advertising revenue is also driven by advertising revenue per DAU, which is defined as

total advertising service revenue during a period divided by the average DAUs during the same

period. Our revenue from advertising services also partly depends on the form of advertisements that

we offer, our advertisement loads, the size of our advertising customer base, as well as the continued

development of the online advertising industry in China and advertisers’ willingness to allocate

budgets to online advertising or advertising at all and more importantly, their willingness to allocate

budgets to our mobile app that serves primarily the young generations in China. In addition,

companies that decide to advertise or promote online may utilize more established methods or

channels, such as more established internet portals or other alternatives, over advertising on our

mobile app, due to their concern about user perception or otherwise. If the online advertising market

does not continue to grow, or if we are unable to capture and retain a sufficient share of that market,

our ability to increase our current level of advertising revenue and our business prospects may be


Furthermore, our core and long-term priority of optimizing user experience and satisfaction

may limit our mobile app’s ability to generate revenue from advertising. Our insistence on putting

user experience first may not be in line with the commercial interest of our advertisers, and may not

result in the long-term benefits that we expect, in which case the success of our business and results

of operations could be affected.

Any noncompliance found in the advertisements shown on our mobile app may subject us to penalties

and other administrative actions.

We are responsible for and are obligated to monitor the advertising content shown on our

mobile app to ensure that such content is true and accurate and in full compliance with applicable

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laws and regulations. In addition, where a special government review is required for specific types of

advertisements prior to internet posting, such as advertisements relating to drugs, medical devices,

health-care food, and food for special medical purpose, we are obligated to confirm that such review

has been performed and approval has been obtained. While we have made significant efforts to

ensure that the advertisements shown on our mobile app are in full compliance with applicable PRC

laws and regulations, there can be no assurance that all the content contained in such advertisements

or offers is true and accurate as required by the advertising laws and regulations, especially given the

uncertainty in the interpretation of these PRC laws and regulations. If content found in the

advertisements shown on our mobile app is found to be non-compliant with applicable laws and

regulation, we may be ordered to cease dissemination of the advertisements, we may be ordered to

publish an announcements correcting any misleading information in our advertisements, our

advertising income may be confiscated, we may be subject to a fine that greatly exceeds the

advertising income, and in severe cases, our business license may be revoked and our reputation will

be damaged.

Our business depends on the perception, awareness and influence of our brand within our addressable

user communities. If we become a target for public scrutiny or subject of any negative publicity, our

reputation and brand could be severely damaged, our ability to expand our user base may be impaired,

and our business and results of operations may be materially and adversely affected.

We operate our business under the main brand “Soul.” Our mobile app has received wide

recognition among our target user demographics. A well-recognized brand is crucial to increasing

our user base and, in turn, facilitating our efforts to monetize our services and enhancing our

attractiveness to users, paying users and business partners. From time to time, we conduct various

marketing activities both online and offline to enhance our brand and to guide public perception of

our brand and services. We may need to increase our marketing expenditures in order to create and

maintain brand awareness and brand loyalty, to influence public perception, to retain existing and to

attract new users and business partners as well as to promote our services. However, there can be no

assurance that these activities will be successful or that we will be able to achieve the brand

promotion effect we expect.

Since we operate in a highly competitive industry, brand maintenance and enhancement directly

affect our ability to maintain our market position. We must continually exercise strict quality control

of our mobile app to ensure that our brand image is not tarnished by substandard services. We must

also promote and distinguish our mobile app from mobile apps of our competitors. If for any reason

we are unable to maintain and enhance our brand recognition, or if we incur excessive expenses in

this effort, our business, results of operations and prospect may be materially and adversely affected.

Moreover, as our business expands and grows, we may be exposed to heightened public

scrutiny in markets where we already operate as well as in new markets where we may operate.

There is no assurance that we would not become a target for regulatory or public scrutiny in the

future or that scrutiny and public exposure would not severely damage our reputation as well as our

business and prospects.

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Furthermore, our brand name and our business may be harmed by aggressive marketing and

communication strategies by competitors and third parties. We may be subject to government or

regulatory investigation or third-party claims as a result and we may be required to spend significant

time and incur substantial costs to react to and address these consequences. There is no assurance

that we will be able to effectively refute each of the allegations within a reasonable period of time, or

at all. Additionally, public allegations, directly or indirectly, against us or our business partners, may

be posted online by anyone on an anonymous basis. The availability of information on social media

platforms is virtually immediate, as is its impact. Social media platforms may not necessarily filter

or check the accuracy of information before publishing them and we are often afforded little or no

time to respond. As a result, our reputation may be materially and adversely affected and our ability

to attract and retain users and maintain our market share and our financial condition may suffer.

We face risks associated with the misconduct of our employees, business partners and their employees

and other related personnel.

We rely on our employees to maintain and operate our business and have implemented an

internal code of conduct to guide the actions of our employees. However, we do not have control

over the actions of our employees, and any misbehavior of our employees could materially and

adversely affect our reputation and business. For example, if our employees download pirated

software to their work computers or perform other unauthorized actions on our IT system, we may be

exposed to security breach. Despite the security measures we have implemented, our systems and

procedures and those of our business partners may be vulnerable to security breaches, act of

vandalism, software viruses, misplaced or lost data, programming or human errors or other similar

events caused by our employees, our business partners and their employees and other related

personnel, which may disrupt our delivery of services or expose the identities and confidential

information of our users and others. If an actual or perceived breach of our security occurs, the

market perception of the effectiveness of our security measures could be harmed, we may lose

current and potential users, and we may be exposed to legal and financial risks, including those from

legal claims, regulatory fines and penalties, which in turn could adversely affect our business,

reputation and results of operations.

With respect to employees or ex-employees, we could also in the future face a wide variety of

claims, including discrimination (for example, based on gender, age, race or religious affiliation),

sexual harassment, privacy, labor, employment or tort claims. Often these cases raise complex

factual and legal issues, and the result of any such claims are inherently unpredictable. Claims

against us, whether meritorious or not, could require significant amounts of management time and

corporate resources to defend, could result in significant media coverage and negative publicity, and

could be harmful to our reputation and our brand. If any of these claims were to be determined

adversely to us, or if we were to enter settlement arrangements, we could be exposed to monetary

damages or be forced to change the way in which we operate our business, which could have an

adverse effect on our business, financial condition and results of operations.

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RISK FACTORS

In December 2020, two of our ex-employees, including a former director, previously engaged

in our content screening functions were convicted of maliciously and falsely publishing illegal

content on an online content platform operated by another PRC company during their employment

with us, in their personal capacities, unbeknown to us at the time and without our authorization. It

was reported that the mobile app downloading services of such third-party platform were

subsequently suspended. We were not named as a party to, or found liable for the wrongdoings

committed by the individuals in, the criminal proceeding against the two individuals in their

respective personal capacities. In 2021, such third-party online platform filed a civil lawsuit against

us in connection with such incident to the Pudong New District People’s Court of Shanghai. We had

received such plaintiff’s complaint pursuant to which the plaintiff is seeking compensation for

damages due to alleged unfair competition in the total amount of approximately RMB26.9 million.

As of the Latest Practicable Date, such lawsuit was still on trial and our corresponding properties

have been preserved by the court. Although we plan to defend ourselves rigorously against such

lawsuit, we are not able to predict the outcomes of such lawsuit at this current early stage and our

involvement in such lawsuit or future proceedings relating to this matter could potentially be costly

and time-consuming and subject us to reputational and monetary damages, and there could be no

assurance that regulatory authorities will not take any additional adverse actions against us.

We also work with our business partners in our business operation, and their performance

affects the image of our brand. However, we do not directly supervise them in providing services to

us or our users. Although we generally select business partners with strong reputation and track

record, we may not be able to successfully monitor, maintain and improve the quality of their

services. In the event of any unsatisfactory performance by our business partners and/or their

employees, our business operation may be negatively impacted and our users may experience

disruptions in services or decline in service quality, which may materially and adversely affect our

reputation, our ability to retain and expand our user base, and our business, financial condition and


If we cannot maintain our corporate culture as we grow, our user base may decline, which may

negatively affect our business prospects.

We believe that a critical component of our success is our corporate culture. We are comprised

of a group of team players passionate about connecting strangers together through genuine

interpersonal relationships. Powered by technological innovation, we endeavor to develop a

community where our users can express themselves freely, experience and enjoy the lives of others,

and find meaningful interpersonal relationships with users most suitable for them. Any failure to

preserve our culture could undermine our reputation in the marketplace and negatively impact our

ability to retain existing users and attract new users, which would in turn jeopardize our business

prospects.

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We may need additional capital, and we may be unable to obtain such capital in a timely manner or on

acceptable terms, or at all.

To pursue our business objectives and respond to business opportunities, challenges or

unforeseen circumstances, including to improve our brand awareness, develop new services or

further improve existing services, expand into new markets and acquire complementary businesses

and technologies, we may require additional capital from time to time. However, we may not be able

to obtain additional funds timely on acceptable terms, or at all. Our ability to obtain additional

capital is subject to a variety of uncertainties, including:

• our market position and competitiveness in the industry where we operate;

• our future profitability, overall financial condition, results of operations and cash flows;

• general market conditions for capital raising activities by online social networking and

other internet companies in China; and

• economic, political and other conditions in China and internationally.

If we are unable to obtain additional capital in a timely manner or on acceptable terms, or at all,

our ability to continue to pursue our business objectives and respond to business opportunities,

challenges or unforeseen circumstances could be significantly limited, and our business, results of

operations, financial condition and prospects could be materially and adversely affected. In addition,

our future capital needs and other business reasons could require us to sell additional equity or debt

securities or obtain a credit facility. The sale of additional equity or equity-linked securities could

dilute our shareholders. The incurrence of indebtedness would result in increased debt service

obligations and could result in operating and financing covenants that would restrict our operations

or our ability to pay dividends to our shareholders.

Our mobile app depends on the effective interoperation of our systems with mobile operating systems,

hardware, networks, standards, and particularly the internet infrastructure and telecommunications

networks in China, none of which we control. We also rely on proper operation and maintenance of our

technology systems and infrastructure. Any malfunction, capacity constraint, or operation interruption

may have an adverse impact on our business.

Our mobile app must remain interoperable with popular mobile operating systems, such as iOS

and Android, and related hardware. We have no control over these operating systems or hardware,

and any changes to these systems or hardware that degrade the functionality of our services, or give

preferential treatment to competing mobile apps, could seriously harm usage of our mobile app. We

plan to continue to introduce new services regularly and have experienced that it takes time to

optimize such services to function with these operating systems and hardware, impacting the

popularity of such services, and we expect this trend to continue.

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To deliver high quality services, it is crucial that our services work well with a range of mobile

technologies, systems, networks, regulations, and standards that we do not control. In particular, any

future changes to the iOS or Android operating systems may impact the accessibility, speed,

functionality and other performance aspects of our services, causing various issues in the future from

time to time. In addition, the adoption of any laws or regulations that adversely affect the growth,

popularity or use of the internet could decrease the demand for our services and increase our cost of

doing business.

Our mobile app must also remain interoperable with app stores and related hardware, including

mobile-device cameras, in addition to popular mobile operating systems. The owners and operators

of such operating systems and major app stores have approval authority over our mobile app.

Additionally, mobile devices are manufactured by a wide array of companies. Those companies have

no obligation to test the interoperability of new mobile devices with our mobile app, and may

produce new mobile devices that are incompatible with or not optimal for our mobile app. We have

no control over these operating systems, app stores, or hardware, and any changes to these systems,

app stores, or hardware that diminish the performance of our mobile app, or give preferential

treatment to competing mobile apps which could seriously affect the use of our mobile app on

mobile devices. If our competitors control any operating system and related hardware where our

mobile app runs, they could make our mobile app interoperable with those mobile operating systems

and related hardware more difficult or make their competing offerings more prominent than ours.

Additionally, our competitors that control the standards for the app stores or operating systems could

make our mobile app or certain features and functionalities of our mobile app inaccessible for a

potentially significant period of time. We plan to continue to introduce new features and

functionalities for our mobile app, but our experience indicates that it takes time to optimize new

features and functionalities for these operating systems, hardware, and standards, and such delay in

optimization could impact the popularity of our mobile app.

We may fail to successfully cultivate relationships with key industry participants or develop

new features and functionalities of our mobile app that operate effectively with these technologies,

systems, networks, regulations, or standards adopted by these industry participants. If it becomes

more difficult for our users to access and use our mobile app on their devices, if our users choose not

to access or use our mobile app on their devices, or if our users choose to use mobile apps from our

competitors, our user growth, retention, and engagement could be seriously harmed.

Our business and the continuing performance, reliability and availability of our technology

systems and mobile app also depend on the performance and reliability of China’s internet, mobile,

and other infrastructures that are not under our control. Disruptions in internet infrastructure or the

failure of telecommunications network operators to provide us with the bandwidth needed to provide

our services may interfere with the speed and availability of our services on our mobile app. If our

mobile app is unavailable when users attempt to access them, or if our mobile app does not respond

as quickly as our users expect, users may not return to use our mobile app as often in the future, or at

all, and may use our competitors’ platform or services instead. In addition, we have no control over

the costs of the services provided by China’s telecommunications operators. If mobile internet access

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RISK FACTORS

fees or other charges to internet users increase, user traffic may decrease, which may in turn cause

our revenue to significantly decrease.

Any significant cybersecurity incident or disruption of our information technology systems or those of

third-party partners could materially damage our user relationships and subject us to significant

reputational, financial, legal and operational consequences.

We depend on our information technology systems, as well as those of third parties, to develop

new products and services, operate our platform, host and manage our services, store data, process

transactions, and respond to user inquiries. Any material disruption or slowdown of our systems or

those of third parties whom we depend upon, including a disruption or slowdown caused by our

failure to successfully manage significant increases in user volume, could cause outages or delays in

our services, which could harm our brand and adversely affect our operating results.

We rely on cloud servers maintained by cloud service providers such as Alibaba Cloud Services

to store our data. Problems with our cloud service providers or the telecommunications network

providers with whom they contract could adversely affect the experience of our users. Our cloud

service providers could decide to cease providing us with services without adequate prior notice. In

particular, a majority of our cloud storage is provided by Alibaba Cloud Services, based on a service

contract with one-year terms. We believe the services provided by Alibaba Cloud Services are

standardized and can be replaced by services provided by other similar service providers.

Any change in service levels at our cloud servers or any errors, defects, disruptions, or other

performance problems with our platform could harm our brand and may damage the data of our

users. If changes in technology cause our information systems, or those of third parties whom we

depend upon, to become obsolete, or if our or their information systems are inadequate to handle our

growth, we could lose users and our business and operating results could be adversely affected.

We may, from time to time, be subject to legal proceedings during the course of our business operations.

Our directors, management, shareholders and employees may also from time to time be subject to legal

proceedings, which could adversely affect our reputation and results of operations.

From time to time, we are subject to allegations, and may be party to legal claims and

regulatory proceedings, relating to our business operations and business partners. Such allegations,

claims and proceedings may be brought by third parties, including users, employees, business

partners, governmental or regulatory bodies, competitors or other third parties. The outcome of

litigation is difficult to assess or quantify. Plaintiffs in these types of lawsuits may seek recovery of

very large or indeterminate amounts, and the magnitude of the potential loss relating to such lawsuits

may remain unknown for substantial periods of time. We may incur significant expenses related to

such proceedings, which may negatively affect our operating results if changes to our business

operations are required. There may also be negative publicity associated with litigation that could

decrease user acceptance of our social networking service, regardless of whether the allegations are

valid or whether we are ultimately found liable. In addition, our directors, management, shareholders

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and employees may from time to time be subject to litigation, regulatory investigations, proceedings

and/or negative publicity or otherwise face potential liability and expense in relation to commercial,

labor, employment, securities or other matters, which could adversely affect our reputation and

results of operations. As a result, litigation may adversely affect our business, financial condition,

results of operations or liquidity.

After we become a public company, we may face additional exposure to claims and lawsuits.

These claims could divert management time and attention away from our business and result in

significant costs to investigate and defend, regardless of the merits of the claims. In some instances,

we may elect or be forced to pay substantial damages if we are unsuccessful in our efforts to defend

against these claims, which could harm our business, financial condition and results of operations.

The ongoing outbreak of COVID-19 could adversely affect our business, results of operations and

financial condition.

The ongoing outbreak of COVID-19 has continued to spread across the world and has created

unique global and industry-wide challenges. COVID-19 has resulted in quarantines, travel

restrictions, and the temporary closure of offices and facilities in China and many other countries.

New COVID-19 variants have also emerged across the globe, potentially extending the period where

COVID-19 will negatively impact the global economy.



contained in China. However, we cannot guarantee that such growth trend in our operational

performance will continue as the COVID-19 epidemic drags on. People may spend less time at home

or using mobile apps and more time on outdoor activities going forward due to possibilities such as

availability of effective vaccines and loosening of restrictions on travel and public gatherings. The

increased unemployment and reduced income resulting from COVID-19 could also hinder the

disposable income our users can spend in our mobile app. In addition, we may need to make

adjustments to operation hours, make work-from-home arrangements and even temporarily close our

offices in the event that COVID-19 or any of its variants strikes in a future wave, and we may

experience lower work efficiency and productivity during such period.

Recently, there has been a recurrence of COVID-19 outbreaks in certain provinces of China,

including Shanghai where our headquarters is located, due to the Delta and Omicron variants, which

has an adverse impact on our operations. Temporary restrictions, quarantines, lockdowns and other





temporarily postponed due to the restrictions. The potential downturn brought by and the duration of

the COVID-19 outbreak may be difficult to assess or predict, and any associated negative impact on

us will depend on many factors beyond our control. While we believe the impact on our business due

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long-term results remains uncertain, and we have continued to closely monitor its impact on us. Our

business, results of operations, financial condition and prospects could be adversely affected

directly, as well as indirectly to the extent that the ongoing COVID-19 outbreak harms the Chinese

and global economy in general. To the extent the COVID-19 pandemic adversely affects our business

and financial results, it may also heighten many of the other risks described in this “Risk Factors”

section.

Increasing focus with respect to environmental, social and governance matters may impose additional

costs on us or expose us to additional risks. Failure to comply with the laws and regulations on

environmental, social and governance matters may subject us to penalties and adversely affect our

business, financial condition and results of operation.

The PRC government and public advocacy groups have been increasingly focused on

environment, social and governance, or ESG, issues in recent years, making our business more

sensitive to ESG issues and changes in governmental policies and laws and regulations associated

with environment protection and other ESG-related matters. Investor advocacy groups, certain

institutional investors, investment funds, and other influential investors are also increasingly focused

on ESG practices and in recent years have placed increasing importance on the implications and

social cost of their investments. Regardless of the industry, increased focus from investors and the

PRC government on ESG and similar matters may hinder access to capital, as investors may decide

to reallocate capital or to not commit capital as a result of their assessment of a company’s ESG

practices. Any ESG concern or issue could increase our regulatory compliance costs. If we do not

adapt to or comply with the evolving expectations and standards on ESG matters from

[REDACTED] and the PRC government or are perceived to have not responded appropriately to the

growing concern for ESG issues, regardless of whether there is a legal requirement to do so, we may

suffer from reputational damage and the business, financial condition, and the [REDACTED] of our

Shares could be materially and adversely effected.

Computer and mobile malware, viruses, hacking and phishing attacks, spamming and improper or illegal

use of our mobile app may affect user experience, which could reduce our ability to attract users and

advertisers and materially and adversely affect our business, financial condition and results of

operations.

Computer and mobile malware, viruses, hacking and phishing attacks have become more

prevalent in our industry, have occurred on our mobile app in the past, and may occur again in the

future. Although it is difficult to determine what, if any, direct harm may result from an interruption

or attack, any failure to maintain performance, reliability, security and availability of our mobile app

and technology infrastructure to the satisfaction of our users may seriously harm our reputation and

our ability to retain existing users and attract new users.

In addition, spammers may use our mobile app to send targeted and untargeted spam messages

to users, which may affect user experience. In spamming activities, spammers typically create

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multiple user accounts for the purpose of sending spam messages. Although we attempt to identify

and delete accounts created for spamming purposes, we may not be able to effectively eliminate all

spam messages from our mobile app in a timely fashion. Our actions to combat spam may also

require diversion of significant time and focus of our technology team from improving our mobile

app. As a result, our users may use our mobile app less or stop using them altogether, and result in

continuing operational costs to us.

If the software used by our mobile app and internal systems contains undetected programming errors or

vulnerabilities, our business could be adversely affected.

Our mobile app and internal systems rely on software, including software developed or

maintained internally and/or by third parties. In addition, our mobile app and internal systems

depend on the ability of such software to store, retrieve, process and manage immense amounts of

data. The software on which we rely in the past has contained, and may now or in the future contain,

undetected programming errors, bugs, or vulnerabilities. Some errors may only be discovered after

the code has been released for external or internal use. Errors, vulnerabilities, or other design defects

within the software on which we rely may result in a negative experience for users using our mobile

app, delay introductions of new features or enhancements, result in errors or compromise our ability

to protect the data of our users and/or our intellectual property or lead to reductions in our ability to

provide some or all of our services. In addition, any errors, bugs, vulnerabilities, or defects

discovered in the software on which we rely, and any associated degradations or interruptions of

service, could result in harm to our reputation and loss of users, which could adversely affect our

business, financial condition and operation results.

Our internal systems and mobile app contain open source software, which may pose particular risk to

our proprietary software and mobile app features and functionalities in a manner that negatively affect

our business.

We use open source software in our internal systems and mobile app and will continue to use

open source software in the future. To handle risks in this regard, we have set up an internal system

that monitors any change in the source code of any open source software we use in our operation,

made risk management plan for open source software, and increasingly invested in developing our

proprietary software. Despite these risk management efforts, there is a risk that open source software

licenses could be construed in a manner that imposes unanticipated conditions or restrictions on our

ability to provide our services through the various features and functionalities of our mobile app.

Additionally, we may face claims from third parties claiming ownership of, or demanding release of,

the open source software or derivative works that we developed using such software. These claims

could result in litigation and could require us to make our software source code freely available,

purchase a costly license or cease offering the implicated services unless and until we can re-

engineer them to avoid infringement. This re-engineering process could require significant additional

technology and development resources, and we may not be able to complete it successfully.

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We are dependent on app stores to disseminate our mobile app.

We offer our social networking services through our mobile app. Our mobile app is offered via

smartphone and tablet apps stores operated by third parties, such as the Apple App Store and various

Android app stores, which could suspend or terminate users’ access to our mobile app, increase

access costs or change the terms of access in a way that makes our mobile app less desirable or

harder to access. As such, the promotion, distribution and operation of our mobile app are subject to

such distribution platforms’ standard terms and policies for application developers, which are subject

to the interpretation of, and frequent changes by, these distribution channels. If Apple’s App Store or

any Android app stores interpret or change their standard terms and conditions in a manner that is

detrimental to us, or terminate their existing relationship with us, our business, financial condition

and results of operations may be materially and adversely affected. We have experienced in the past

suspension of our mobile app by app stores due to regulations and government scrutiny on our

business or industry or applicable requirements of such app stores. In the future, it is possible that

compliance requirements of app stores may cause us to suspend our mobile app from such stores. As

a result, our ability to expand our user base may be hindered if potential users experience difficulties

in or are barred from accessing our mobile app. Any such incident may adversely affect our brand

and reputation, business, financial condition and results of operations.

While our mobile app is free to download from third-party app stores, we provide value-added

services comprising a wide variety of additional social features and functions that users pay to use.

We determine the prices at which these value-added services are sold and, in exchange for

facilitating the purchase of these value-added services through our mobile app to users who

download the mobile app from these stores, we pay Apple and other Android app store operators, as

applicable, a certain share of the revenue we receive from these transactions. As the distribution of

our mobile app through app stores increases, we may need to offset any further increase in fees

charged by app stores by decreasing traditional marketing expenditures as a percentage of revenue,

increasing user volume or monetization per user, or by engaging in other efforts to increase revenue

or decrease costs generally, otherwise our business, financial condition and results of operations

could be adversely affected.

We are subject to risks relating to third-party online payment platforms.

Currently, we collect payments for our services from paying users through third-party online

payment systems. In all these online payment transactions, secured transmission of confidential

information such as paying users’ credit card numbers and personal information over public

networks is essential to maintaining users’ trust and confidence on our mobile app.

We do not have control over the security measures of our third-party online payment vendors.

Any security breaches of the online payment systems that we use could expose us to litigation and

possible liability for failing to secure confidential user information and could, among other things,

damage our reputation and the perceived security of all of the online payment systems that we use. If

a well-publicized internet or mobile network security breach were to occur, users may become

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reluctant to pay for our services even if the publicized breach did not involve payment systems or

methods used by us. In addition, there may be billing software errors that would damage user

confidence in these online payment systems. If any of the above were to occur and damage our

reputation or the perceived security of the online payment systems we use, we may lose paying users

and users may be discouraged from purchasing our services, which may have a material adverse

effect on our business.

In addition, there are currently only a limited number of reputable third-party online payment

service providers in China and certain other countries where we operate. Currently, we use Apple

Pay, Alipay and Weixin Pay as our payment service providers. Our contracts with them are highly

standardized and are either on one-year terms or without fixed terms. These third-party payment

platforms have the right to unilaterally terminate their contracts with us. If any of these payment

service providers decides to cease to provide services to us, or significantly increase the percentage

they charge us for using their payment systems for our services, our results of operations may be

materially and adversely affected. However, we view any of these platform services interchangeable

and can be replaced by other similar service providers.

One of our principal shareholders offers products and services that may compete with ours.

Tencent, a principal shareholder of ours, offers products and services that may compete with

ours. For example, the social networking apps and products offered by Tencent Group provide

(i) communication and social services such as Weixin (微信) and QQ which offer instant messaging

services with mainly real-life acquaintances, and connect users with content and services; and

(ii) content apps which focus on content-based social entertainment, both of which overlap with our

services to some extent. As of the Latest Practicable Date, Tencent beneficially owned 49.90% of our

issued and outstanding ordinary shares on an as-converted basis, and will own [REDACTED]% of

our issued and outstanding ordinary shares immediately after the completion of the [REDACTED],

assuming the Presumptions. Internet service providers in China have strong technological

capabilities, and may independently develop more products and services that compete with ours in

the future. If competition between us and our shareholders becomes more intense in the future, we

cannot guarantee that our business and results of operation will continue to grow at the level we are

experiencing now.

Our results of operations are subject to fluctuations due to seasonality.

Our industry generally experiences seasonality, primarily due to variations in young people’s

leisure time. For example, we may attract more users to join our mobile app and spend more time

during summer, winter vacations and other important holidays such as the Spring Festival in China.

Consequently, we may generate more revenue during those periods. Overall, the historical

seasonality of our business has been relatively mild, but seasonality may increase in the future. Due

to our limited operating history, the seasonal trends that we have experienced in the past may not be

indicative of our future operating results. Our financial condition and results of operations for future

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RISK FACTORS

periods may continue to fluctuate. As a result, the [REDACTED] of our Shares may fluctuate from

time to time due to seasonality.

We may not be able to adequately protect our intellectual property, which could cause us to be less

competitive, and third-party infringements of our intellectual property rights may adversely affect our

business.

We believe that our copyrights, trademarks and other intellectual property are essential to our

success. See also “Business—Intellectual Property.” We have devoted considerable time and energy

to the development and improvement of our mobile app and our system infrastructure.

We rely on a combination of copyright and trademarks laws, trade secrets protection and other

contractual restrictions for the protection of the intellectual property used in our business. Effective

intellectual property protection may not be available or may not be sought in every country where

our mobile app is made available, and contractual disputes may affect the use of the intellectual

property governed by private contract. Although our contracts with users and business partners

typically prohibit the unauthorized use of our brands, images and other intellectual property rights,

there can be no assurance that they will always comply with these terms. These agreements may not

effectively prevent disclosure of confidential information and may not provide an adequate remedy

in the event of unauthorized disclosure of confidential information. Although we enter into

confidentiality and intellectual property ownership agreements with our employees, and we also have

in place various relevant internal rules and polices that require compliance from our employees,

these agreements could be breached, the internal rules and policies could be violated, we may be

involved in disputes in respect of these agreements and internal rules and policies for which we may

not have adequate remedies, and our proprietary technology, know-how or other intellectual property

could otherwise become known to third parties. In addition, third parties may independently discover

trade secrets and proprietary information, limiting our ability to assert any trade secret rights against

such parties.

While we actively take steps to protect our proprietary rights, such steps may not be adequate

to prevent the infringement or misappropriation of our intellectual property. We cannot assure our

registered trademarks have covered an adequate scope of our existing and future business operations,

and as of the Latest Practicable Date, we were in the process of registering certain trademarks that

are necessary based on the current scope of our business. However, there can be no assurance that

any of our trademark applications will ultimately proceed to registration or will result in registration

with adequate scope for our business, particularly if such requested trademarks are found to conflict

with the registered trademarks owned by third parties, including our competitors. Some of our

pending applications or registrations may be successfully challenged or invalidated by others. If our

trademark applications are not successful, we may have to use different marks for affected services,

or seek to enter into arrangements with any third parties who may have prior registrations,

applications or rights, which might not be available on commercially reasonable terms, if at all.

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RISK FACTORS

Implementation of intellectual property laws in China has historically been lacking, primarily

because of ambiguities in the laws and difficulties in enforcement. Accordingly, intellectual property

right protection in China may not be as effective as in other jurisdictions that have a more developed

legal framework regulating intellectual property rights. Policing unauthorized use of our proprietary

technology, trademarks and other intellectual property is difficult and expensive, and litigation may

be necessary in the future to enforce our intellectual property rights. Future litigation could result in

substantial costs and diversion of our resources, and could disrupt our business, as well as materially

adversely affect our financial condition and results of operations.

We may be subject to intellectual property infringement claims or other allegations by third parties,

which may materially and adversely affect our business, financial condition and prospects.

We may in the future be subject to intellectual property infringement claims or other allegations

by third party owners or right holders of technology patents, copyrights, trademarks, trade secrets

and website content for services we provide or for information or content displayed on, retrieved

from or linked to, recorded, stored or made accessible on our mobile app, or otherwise distributed to

our users, including in connection with the music, movies and videos played, recorded, stored or

made accessible on our mobile app during user profile display or advertisement display, which may

materially and adversely affect our business, financial condition and prospects.

Generally, companies in the internet-related industries are frequently involved in litigation

based on allegations of infringement of intellectual property rights, unfair competition, invasion of

privacy, defamation and other violations of other parties’ rights. The validity, enforceability and

scope of protection of intellectual property rights in internet-related industries, particularly in China,

are uncertain and still evolving. As we face increasing competition and as litigation becomes a more

common method for resolving commercial disputes in China, we face a higher risk of being the

subject of intellectual property infringement claims or other legal proceedings.

We allow users to upload text, pictures, audio, video and other content to our mobile app and

users to download, share, link to and otherwise access other content on our mobile app. Under

relevant PRC laws and regulations, online service providers, which provide storage space for users to

upload works or links to other services or content, could be held liable for copyright infringement

under various circumstances, including situations where the online service provider knows or should

reasonably have known that the relevant content uploaded or linked to on its platform infringes upon

the copyright of others and the online service provider failed to take necessary actions to prevent

such infringement. We have procedures implemented to reduce the likelihood that content might be

used without proper licenses or third-party consents. However, these procedures may not be effective

in preventing the unauthorized posting or distribution of copyrighted content and we may be

considered failing to take necessary actions against such infringement. Therefore, we may face

liability for copyright or trademark infringement, defamation, unfair competition, libel, negligence,

and other claims based on the nature and content of the materials that are delivered, shared or

otherwise accessed through our mobile app.

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RISK FACTORS

Defending claims is costly and can impose a significant burden on our management and

employees, and there can be no assurance that favorable final outcomes will be obtained in all cases.

Such claims, even if they do not result in liability, may harm our reputation. Any resulting liability

or expenses, or changes required to our mobile app to reduce the risk of future liability, may have a

material adverse effect on our business, financial condition and prospects.

Future strategic alliances, long-term investments and acquisitions may subject us to risks which in turn

may have a material and adverse effect on our business, reputation and results of operations.

We may enter into strategic alliances, including joint ventures or minority equity investments,

with various third parties to further our business purpose from time to time. These alliances could

subject us to a number of risks, including risks associated with sharing proprietary information, non-

performance by the third party and increased expenses in establishing new strategic alliances, any of

which may materially and adversely affect our business. We may have limited ability to monitor or

control the actions of these third parties and, to the extent any of these strategic third parties suffers

negative publicity or harm to their reputation from events relating to their business, we may also

suffer negative publicity or harm to our reputation by virtue of our association with any such third

party.

In addition, if appropriate opportunities arise, we may acquire additional assets, products,

technologies or businesses that are complementary to our existing business. Future acquisitions and

the subsequent integration of new assets and businesses into our own would require significant

attention from our management and could result in a diversion of resources from our existing

business, which in turn could have an adverse effect on our business operations. Acquisitions may

not achieve our goals and could be viewed negatively by users, advertisers, partners or

[REDACTED]. Acquisitions could result in the use of substantial amounts of cash, potentially

dilutive issuances of equity securities, the occurrence of significant goodwill impairment charges,

amortization expenses for other intangible assets and exposure to potential unknown liabilities of the

acquired business. Moreover, the costs of identifying and consummating acquisitions may be

significant. In addition to possible shareholders’ approval, we may also have to obtain approvals and

licenses from relevant governmental authorities for the acquisitions and to comply with any

applicable PRC laws and regulations, which could result in increased delay and costs.

Our operating metrics are subject to inherent challenges in measurement, and real or perceived

inaccuracies in those metrics may materially and adversely affect our business and operating results.

We regularly review metrics, including average DAUs and MAUs, to evaluate growth trends,

measure our performance and make strategic decisions. These metrics are calculated using internal

company data and have not been validated by an independent third party. While these numbers are

based on what we believe to be reasonable estimates for the applicable period of measurement, there

are inherent challenges in measuring usage and user engagement across our large user base. We treat

each account as a separate user for the purposes of calculating the number of our users. Accordingly,

the calculations of our users may not accurately reflect the actual number of people using our mobile

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RISK FACTORS

app. Errors or inaccuracies in our metrics could result in incorrect business decisions and

inefficiencies. For example, if a significant understatement or overstatement of the number of users

were to occur, we may expend resources to implement unnecessary business measures or fail to take

required actions to attract a sufficient number of users to satisfy our growth strategies.

Our measures of operating metrics may differ from estimates published or adopted by third

parties, including but not limited to business partners, market and investment research organizations

(including short-selling research firms), [REDACTED] and media, or from similarly titled metrics

used by our competitors or other companies in the relevant industries due to differences in

methodology and assumptions. If these third parties do not perceive our operating metrics to be

accurate representations of operations, or if we discover material inaccuracies in our operating

metrics, our brand value and reputation may be materially harmed, our users and business partners

may be less willing to allocate their resources or spending to us, and we may face lawsuits or

disputes in relation to the inaccuracies. As a result, our business and operating results may be


Our business is sensitive to economic conditions. A severe or prolonged downturn in the global or

Chinese economy could materially and adversely affect our business, financial condition and results of

operations.

COVID-19 had a severe and negative impact on the Chinese and the global economy. Even

before the outbreak of COVID-19, the global macroeconomic environment was facing numerous

challenges. The growth rate of the Chinese economy has gradually slowed in recent years and the

trend may continue. There is considerable uncertainty over the long-term effects of the monetary and

fiscal policies adopted by the central banks and financial authorities of some of the world’s leading

economies, including the United States and China. Unrest, terrorist threats and the potential for war

in the Middle East and elsewhere may increase market volatility across the globe. There have also

been concerns about the relationship between China and other countries, including the surrounding

Asian countries, which may potentially have economic effects. In particular, there is significant

uncertainty about the future relationship between the United States and China with respect to trade

policies, treaties, government regulations and tariffs. Any further escalation in trade tensions

between China and the U.S. or a trade war, or the perception that such escalation or trade war could

occur, may have negative impact on the economies of not only the two countries concerned, but the

global economy as a whole. There have been further uncertainties related to the U.S. Federal

Reserve’s monetary policies in response to market conditions under the impact of COVID-19 and the

increasing inflation pressure. It is unclear whether these challenges and uncertainties will be

contained or resolved and what effects they may have on the global political and economic

conditions in the long term. Economic conditions in China are sensitive to global economic

conditions, as well as changes in domestic economic and political policies and the expected or

perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global

or Chinese economy may materially and adversely affect our business, results of operations and

financial condition. In addition, continued turbulence in the international markets may adversely

affect our ability to access capital markets to meet liquidity needs.

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RISK FACTORS

Our business depends substantially on the continuing efforts of our executive officers and other key

employees. If we lose their services, our business operations and growth prospects may be materially and

adversely affected.

Our future success depends heavily on the continuing services of our executive officers and

other key employees. In particular, we rely on the expertise, experience and vision of our founder,

chairwoman of the board of directors and chief executive officer, Ms. Lu Zhang, as well as other

members of our senior management team. If one or more of our executive officers or other key

employees were unable or unwilling to continue their services with us or are otherwise subject to any

legal or regulatory liabilities in their personal capacity or otherwise, we might not be able to replace

them easily, in a timely manner, or at all. Competition for qualified talent is intense, there can be no

assurance that we will be able to attract or retain qualified employees. As a result, our business may

be materially and adversely affected, our financial condition and results of operations may be

severely affected, and we may incur additional expenses to recruit, train and retain key personnel.

During the Track Record Period, certain of the members of our management team discontinued their

services with us for personal reason.

Moreover, if any of our executive officers or other key employees joins a competitor or forms a

competing company, we may lose know-how, trade secrets, business partners, user base and market

share. Each of our executive officers and key employees has entered into an employment agreement,

a confidentiality and intellectual property ownership agreement and a non-compete agreement.

However, these agreements may be deemed invalid or unenforceable under PRC laws and other

applicable laws and regulations in other jurisdictions. If any dispute arises between our executive

officers or key employees and us, there can be no assurance that we would be able to enforce these

agreements in China and other jurisdictions, where these executive officers and key employees

reside.

Competition for qualified personnel is often intense. If we are unable to recruit, train and retain

sufficient qualified personnel while controlling our labor costs, our business may be materially and

adversely affected.

Our ability to continue to conduct and expand our operations depends on our ability to attract

and retain a large and growing number of qualified personnel in China and also globally. Our ability

to meet our labor needs, including our ability to find qualified personnel to fill positions that become

vacant, while controlling labor costs, is generally subject to numerous external factors, including the

availability of a sufficient number of qualified persons in the work force of the markets in which we

operate, unemployment levels within those markets, prevailing wage rates, changing demographics,

health and other insurance costs and adoption of new or revised employment and labor laws and

regulations. If we are unable to locate, attract or retain qualified personnel, or manage leadership

transition successfully, the quality of service we provide to users may decrease and our financial

performance may be adversely affected. In addition, if our costs of labor or related costs increase for

other reasons or if new or revised labor laws, rules or regulations or healthcare laws are adopted or

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RISK FACTORS

implemented that further increase our labor costs, our financial performance could be materially and

adversely affected.

We may not have sufficient insurance to cover our business risks, so that any uninsured occurrence of

business disruption may result in substantial costs to us and the diversion of our resources, which could

have an adverse effect on our results of operations and financial condition.

We provide social security insurance including pension insurance, unemployment insurance,

work-related injury insurance, maternity insurance and medical insurance for our employees.

Additionally, we provide supplementary medical insurance for all management. We do not maintain

business-related insurance, nor do we maintain key-man life insurance or any insurance covering

liabilities resulting from misconducts or illegal activities committed by our employees, users or

business partners. We consider this practice to be reasonable in light of the nature of our business,

which is in line with the practices of other companies of similar size in the same industry in China.

In addition, insurance companies in China currently offer limited business-related insurance

products. Any uninsured occurrence of business disruption, litigation or natural disaster, or

significant damages to our uninsured equipment or facilities could disrupt our business operations,

requiring us to incur substantial costs and divert our resources, which could have an adverse effect

on our business, financial condition and results of operations could be materially and adversely

affected.

If we fail to maintain an effective system of internal control over financial reporting, we may be unable

to accurately report our financial results, meet our reporting obligations or prevent fraud.

Our success depends on our ability to effectively utilize our standardized management system,

information systems, resources and internal controls. As we continue to expand, we will need to

modify and improve our financial and managerial controls, reporting systems and procedures and

other internal controls and compliance procedures to meet our evolving business needs. If we are

unable to improve our internal controls, systems and procedures, they may become ineffective and

adversely affect our ability to manage our business and cause errors or information lapses that affect

our business. Our efforts in improving our internal control system may not result in elimination of all

risks. If we are not successful in discovering and eliminating weaknesses in our internal controls, our

ability to effectively manage our business may be affected.

If we fail to meet the challenges presented by our international operations, our business, financial

condition and results of operations may be adversely affected.

We currently have operations in certain countries and regions outside of China. Our limited

experience and infrastructure in such markets, or the lack of a critical mass of users in such markets,

may make it more difficult for us to effectively monetize the user base or user engagement in those

markets, and may increase our costs without a corresponding increase in revenue. We are subject to a

variety of risks and challenges inherent in doing business internationally, including but not limited

to, (i) political, social and economic instability of each foreign jurisdiction where we operate;

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RISK FACTORS

(ii) fluctuations in currency exchange rates; (iii) risks and compliance challenges related to the

continuously evolving and conflicting laws, rules, regulations and their respective enforcement in

foreign jurisdictions, including with respect to privacy, data security, tax, by both our employees and

our business partners, over whom we exert no control; (iv) potential damage to our brand and

reputation due to compliance with local laws, including potential censorship and/or requirements to

provide user information to local authorities; (v) difficulties in staffing and managing global

operations and the increased travel, infrastructure and compliance costs associated with multiple

international locations; and (vi) differing levels of technology development in different countries,

including third-party payment platforms. If we fail to successfully address these risks and

challenges, our business, financial condition and results of operations may be adversely affected.

We have granted and expect to continue to grant share-based awards in the future under our share

incentive plan, which may result in increased share-based payments expenses.

In order to attract and retain qualified employees, provide incentives to our directors and

employees, and promote the success of our business, we adopted a share incentive plan in November

2017, which was amended and restated in March 2020, or the Pre-[REDACTED] Share Incentive

Plan. As of the Latest Practicable Date, the maximum aggregate number of ordinary shares that may

be issued under the Pre-[REDACTED] Share Incentive Plan was 16,147,145, and the number of

underlying Shares pursuant to the outstanding options granted under the Pre-[REDACTED] Share

Incentive Plan amounts to 14,896,373 Shares, excluding options that were forfeited or canceled after

the relevant grant dates. In 2019, 2020 and 2021, we recorded RMB11.9 million, RMB39.3 million

and RMB47.8 million share-based payments expenses, respectively.

We believe the granting of share-based awards is of significant importance to our ability to

attract and retain key personnel and employees, and we will continue to grant share-based awards to

employees in the future. As a result, our expenses associated with share-based payments expenses

may increase, which may have an adverse effect on our results of operations.

Our rights to use our leased properties may be defective and could be challenged by governmental

authorities, property owners or other third parties, which may disrupt our operations and incur

relocation costs.

As of the Latest Practicable Date, we leased premises occupying approximately 12,000 square

meters in China, which are used as office space. Under the PRC laws and regulations, all lease

agreements are required to be registered with the local land and real estate administration bureau. As

of Latest Practicable Date, we had not registered our leased properties with the relevant PRC

government authorities. Although failure to do so does not in itself invalidate the leases, we may be

subject to fines if we fail to rectify such noncompliance within the prescribed time frame after

receiving notice from the relevant PRC government authorities. The penalty ranges from RMB1,000

to RMB10,000 for each unregistered lease, at the discretion of the relevant authority. In the event

that any fine is imposed on us for our failure to register our lease agreements, we may not be able to

recover such losses from the lessors.

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As of the Latest Practicable Date, we were not subject to any actions, claims or investigations

threatened against us with respect to the defects in our leasehold interests. However, if our use of

any leased properties is adversely affected as a result of challenges by governmental authorities,

property owners or other third parties who have rights or interests in such leased properties, we may

be involved in disputes, forced to relocate and incur additional expenses.

We face risks related to natural and other disasters, including severe weather conditions or outbreaks of

health epidemics, and other extraordinary events, which could significantly disrupt our operations.

In addition to the impact of COVID-19, our business could be materially and adversely affected

by natural disasters, other health epidemics or other public safety concerns affecting the PRC, and

particularly Shanghai. Natural disasters may give rise to server interruptions, breakdowns, system

failures, technology platform failures, internet failures or other operation interruptions for us and our

business partners, which could cause the loss or corruption of data or malfunction of software or

hardware as well as adversely affect our ability and the ability of our business partners to conduct

daily operations. Our business could also be adversely affected if employees of ours or our business

partners are affected by health epidemics. In addition, our results of operations could be adversely

affected to the extent that any health epidemic harms the Chinese economy in general.

Our headquarters is located in Shanghai, China, where most of our directors and management

and the majority of our employees currently reside. Most of our system hardware and the back-up

systems supplied by third-party cloud service providers are hosted in facilities located in China.

Consequently, if any natural disasters, health epidemics or other public safety concerns were to

affect China and Shanghai in particular, our operation may experience material disruptions, which

may materially and adversely affect our business, financial condition and results of operations.

Risks Relating to Our Corporate Structure

If the PRC government finds that the agreements that establish the structure for operating some of our

operations in China do not comply with PRC regulations relating to the relevant industries, or if these

regulations or the interpretation of existing regulations change in the future, we could be subject to

severe penalties or be forced to relinquish our interests in those operations.

Foreign ownership in entities that provide internet and other related businesses, including the

value-added telecommunication services and internet culture business, is subject to restrictions under

current PRC laws and regulations, unless certain exceptions are available.

We are a Cayman Islands company and our PRC subsidiary is considered a foreign-invested

enterprise. To ensure compliance with the PRC laws and regulations, we conduct our foreign

investment-restricted business in China through Shanghai Soulgate Technology Co., Ltd., or our

VIE, and our VIE currently holds the value-added telecommunication business license and other

licenses which are necessary for our operation of such restricted business, based on a series of

contractual arrangements by and among Shanghai Soul Information Technology Co., Ltd., or our

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RISK FACTORS

WFOE, our VIE and/or its shareholder(s). These contractual agreements enable us to (i) exercise

effective control over our VIE, (ii) receive substantially all of the economic benefits of our VIE, and

(iii) have an exclusive call option to purchase all or part of the equity interests in our VIE when and

to the extent permitted by PRC law. As a result of these contractual arrangements, we exert control

over our VIE and consolidate financial results of our VIE in our financial statements under IFRS.

See “History, Development, and Corporate Structure” for further details.

In the opinion of our PRC Legal Adviser, (i) the current ownership structure of our VIE and our

WFOE in China is not in violation of mandatory provisions of applicable PRC laws and regulations

currently in effect; and (ii) the agreements under the contractual arrangements among our WFOE,

our VIE and its shareholders governed by PRC law are valid and binding upon each party to such

agreements in accordance with their terms and do not result in violation of any applicable PRC laws

and regulations currently in effect. However, we have been further advised by our PRC Legal

Adviser that there are substantial uncertainties regarding the interpretation and application of current

or future PRC laws and regulations. Thus, the PRC government, regulatory authorities or courts may

ultimately take a view contrary to the opinion of our PRC Legal Adviser. If the PRC government,

regulatory authorities or courts otherwise find that we are in violation of any existing or future PRC

laws or regulations or lack the necessary permits or licenses to operate our business, the relevant

PRC government, regulatory authorities or courts would have broad discretion in dealing with such

violation, including, without limitation:

• revoking the business licenses and/or operating licenses of our PRC entities;

• imposing fines on us;

• confiscating any of our income that they deem to be obtained through illegal operations, or

imposing other requirements with which we or our VIE may not be able to comply;

• discontinuing or placing restrictions or onerous conditions on our operations;

• placing restrictions on our right to collect revenue;

• shutting down our servers or blocking our mobile app;

• requiring us to restructure our ownership structure or operations, including terminating the

contractual arrangements with our VIE and deregistering the equity pledges of our VIE,

which in turn would affect our ability to consolidate, derive economic interests from, or

exert effective control over our VIE and its subsidiaries;

• restricting or prohibiting our use of the [REDACTED] from this [REDACTED] and the

concurrent private placement or other of our financing activities to finance the business and

operations of our VIE and its subsidiaries; or

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• taking other regulatory or enforcement actions that could be harmful to our business.

Any of these events could cause significant disruption to our business operations and severely

damage our reputation, which would in turn have a material adverse effect on our business, financial

condition and results of operations. If occurrences of any of these events results in our inability to

direct the activities of our VIE and its subsidiaries that most significantly impact their economic

performance, and/or our failure to receive the economic benefits and residual returns from our VIE

and its subsidiaries, and we are not able to restructure our ownership structure and operations in a

satisfactory manner, we may not be able to consolidate the financial results of our VIE and its

subsidiaries in our consolidated financial statements in accordance with IFRS.

The contractual arrangements with our VIE and its shareholders may not be as effective as direct

ownership in providing operational control.

We have to rely on the contractual arrangements with our VIE and its shareholders to operate

the business in areas where foreign ownership is restricted, including provision of certain value-

added telecommunication services. For description of these contractual arrangements, see “History,

Development, and Corporate Structure.” These contractual arrangements, however, may not be as

effective as direct ownership in providing us with control over our VIE. For example, our VIE and

its shareholders could breach their contractual arrangements with us by, among other things, failing

to conduct the operations of our VIE in an acceptable manner or taking other actions that are

detrimental to our interests.

If we had direct ownership of our VIE in China, we would be able to exercise our rights as a

shareholder to effect changes in the board of directors of our VIE, which in turn could implement

changes, subject to any applicable fiduciary obligations, at the management and operational level.

However, under the current contractual arrangements, we rely on the performance by our VIE and its

shareholders of their obligations under the contracts to exercise control over our VIE. The

shareholders of our VIE may not act in the best interests of our company or may not perform their

obligations under these contracts. If any dispute relating to these contracts remains unresolved, we

will have to enforce our rights under these contracts through the operations of PRC law and

arbitration, litigation and other legal proceedings and therefore will be subject to uncertainties in the

PRC legal system. See “—Any failure by our VIE or its shareholders to perform their obligations

under our contractual arrangements with them would have a material and adverse effect on our

business.”

Furthermore, if future laws, administrative regulations or provisions mandate further actions to

be taken by companies with respect to existing contractual arrangements, we may face substantial

uncertainties as to whether we can complete such actions in a timely manner, or at all. Failure to take

timely and appropriate measures to cope with any of these or similar regulatory compliance

challenges could materially and adversely affect our current corporate structure and business

operations.

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RISK FACTORS

Any failure by our VIE or its shareholders to perform their obligations under our contractual

arrangements with them would have a material and adverse effect on our business.

If our VIE or its shareholders fail to perform their respective obligations under the contractual

arrangements, we may have to incur substantial costs and expend additional resources to enforce

such arrangements. We may also have to rely on legal remedies under PRC law, including seeking

specific performance or injunctive relief, and contractual remedies, which we cannot assure you will

be sufficient or effective under PRC law. For example, if the shareholders of our VIE were to refuse

to transfer their equity interests in our VIE to us or our designee if we exercise the purchase option

pursuant to these contractual arrangements, or if they were otherwise to act in bad faith toward us,

then we may have to take legal actions to compel them to perform their contractual obligations. In

addition, if any third parties claim any interest in such shareholders’ equity interests in our VIE, our

ability to exercise shareholders’ rights or foreclose the share pledge according to the contractual

arrangements may be impaired. If these or other disputes between the shareholders of our VIE and

third parties were to impair our control over our VIE, our ability to consolidate the financial results

of our VIE would be affected, which would in turn result in a material adverse effect on our

business, operations and financial condition.

All the agreements under our contractual arrangements are governed by PRC law and provide

for the resolution of disputes through arbitration in China. Accordingly, these contracts would be

interpreted in accordance with PRC law and any disputes would be resolved in accordance with PRC

legal procedures. The legal system in the PRC is not as developed as in some other jurisdictions. As

a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual

arrangements. See “Risks Relating to Doing Business in China—Uncertainties with respect to the

PRC legal system could adversely affect us.” Meanwhile, there are very few precedents and little

formal guidance as to how contractual arrangements in the context of a consolidated VIE should be

interpreted or enforced under PRC law. There remain significant uncertainties regarding the ultimate

outcome of such arbitration should legal action become necessary. In addition, under PRC law,

rulings by arbitrators are final, parties cannot appeal the arbitration results in courts, and if the losing

parties fail to carry out the arbitration awards within a prescribed time limit, the prevailing parties

may only enforce the arbitration awards in PRC courts through arbitration award recognition

proceedings, which would require additional expenses and delay. In the event we are unable to

enforce these contractual arrangements, or if we suffer significant delay or other obstacles in the

process of enforcing these contractual arrangements, we may not be able to exert effective control

over our VIE, and our ability to conduct our business may be negatively affected.

The shareholders of our VIE may have actual or potential conflicts of interest with us.

Our founder, chairwoman and chief executive officer, Ms. Lu Zhang, is a shareholder of our

company and holds 83.98% of the equity interest in our VIE. Mingjun Capital Limited, J&M Capital

Limited, Ventek Limited and MFUND, L.P. are also shareholders of our company, and their

respective PRC investment vehicles hold 4.87%, 4.78%, 3.54% and 2.83% of the equity interest in

our VIE, respectively. These shareholders of our VIE may have actual or potential conflicts of

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interest with us. These shareholders may breach, or cause our VIE to breach, or refuse to renew, the

existing contractual arrangements we have with them and our VIE, which would have a material and

adverse effect on our ability to effectively control our VIE and receive economic benefits from it.

For example, the shareholders may be able to cause our agreements with our VIE to be performed in

a manner adverse to us by, among other things, failing to remit payments due under the contractual

arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise any

or all of these shareholders will act in the best interests of our company or such conflicts will be

resolved in our favor.

Currently, we do not have any arrangements to address potential conflicts of interest between

these shareholders and our company, except that we could exercise our purchase option under the

exclusive call option agreements with these shareholders to request them to transfer all of their

equity interests in our VIE to a PRC entity or individual designated by us, to the extent permitted by

PRC law. We cannot assure you that such method, or any other methods that we may explore, will be

effective in resolving the potential conflicts of interest between these shareholders and our company.

In addition, we rely on Ms. Lu Zhang to abide by the laws of the Cayman Islands, which provide that

directors and officers owe a fiduciary duty to the company that requires them to act in good faith and

in what they believe to be the best interests of the company and not to use their position for personal

gains. The shareholders of our VIE have executed powers of attorney to appoint our WFOE to vote

on their behalf and exercise voting rights as shareholders of our VIE. If we cannot resolve any

conflict of interest or dispute between us and the shareholders of our VIE, we would have to rely on

legal proceedings, which could result in disruption of our business and subject us to substantial

uncertainty as to the outcome of any such legal proceedings.

The shareholders of our VIE may be involved in personal disputes with third parties or other

incidents that may have an adverse effect on their respective equity interests in our VIE and the

validity or enforceability of our contractual arrangements with our VIE and its shareholders. For

example, in the event that Ms. Lu Zhang divorces her spouse, the spouse may claim that the equity

interest of our VIE held by such shareholder is part of their community property and should be

divided between such shareholder and her spouse. If such claim is supported by the court, the

relevant equity interest may be obtained by the shareholder’s spouse or another third party who is

not subject to obligations under our contractual arrangements, which could result in a loss of the

effective control over our VIE by us. Similarly, if any of the equity interests of our VIE is inherited

by a third party with whom the current contractual arrangements are not binding, we could lose our

control over our VIE or have to maintain such control by incurring unpredictable costs, which could

cause significant disruption to our business and operations and harm our financial condition and


Although under our current contractual arrangements, (i) Ms. Lu Zhang’s spouse has executed a

spousal consent letter under which the spouse agrees not to assert any rights over the equity interest

in our VIE held by Ms. Lu Zhang, and (ii) our VIE and/or its shareholders cannot assign any of their

respective rights or obligations to any third party without the prior written consent of our WFOE, we

cannot assure you that these undertakings and arrangements will be complied with or effectively

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enforced. In the case any of them is breached or becomes unenforceable and leads to legal

proceedings, it could disrupt our business, distract our management’s attention and subject us to

substantial uncertainties as to the outcome of any such legal proceedings.

Contractual arrangements in relation to our VIE may be subject to scrutiny by the PRC tax authorities

and they may determine that we or our VIE owes additional taxes, which could negatively affect our

financial condition and the value of your investment.

Under applicable PRC laws and regulations, arrangements and transactions among related

parties may be subject to audit or challenge by the PRC tax authorities. We could face material and

adverse tax consequences if the PRC tax authorities determine that the contractual arrangements in

relation to our VIE were not entered into on an arm’s length basis in such a way as to result in an

impermissible reduction in taxes under applicable PRC laws, rules and regulations, and adjust the

taxable income of our VIE in the form of a transfer pricing adjustment. A transfer pricing adjustment

could, among other things, result in a reduction of expense deductions recorded by our VIE for PRC

tax purposes, which could in turn increase its tax liabilities without reducing our PRC subsidiary’s

tax expenses. In addition, the PRC tax authorities may impose late payment fees and other penalties

on our VIE for the adjusted but unpaid taxes according to the applicable regulations. Our financial

position could be materially and adversely affected if our VIE’s tax liabilities increase or if it is

required to pay late payment fees and other penalties.

Substantial uncertainties exist with respect to the interpretation and implementation of the PRC Foreign

Investment Law and how it may impact the viability of our current corporate structure, corporate

governance and business operations.

On March 15, 2019, the National People’s Congress promulgated the Foreign Investment Law

of the PRC (《中華人民共和國外商投資法》), or FIL, which took effect on January 1, 2020. The State

Council approved the Implementation Rules to the Foreign Investment Law of the PRC (《中華人民共和國外商投資法實施條例》), or the Implementation Regulations, on December 26, 2019, which took

effect on January 1, 2020, and it replaced the trio of then existing laws regulating foreign investment

in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law (《中華人民共和國中外合資經營企業法》), the Sino-foreign Cooperative Joint Venture Enterprise Law (《中華人民共和國中外合作經營企業法》), and the Wholly Foreign-invested Enterprise Law (《中華人民共和國外資企業法》),

together with their implementation rules and ancillary regulations. The Supreme People’s Court of

China issued a judicial interpretation on the FIL in December 2019, effective from January 1, 2020,

to ensure fair and efficient implementation of the FIL. The judicial interpretation clarifies the issues

regarding the validity of the investment contract violating the restrictive or prohibitive requirements

in the negative list. According to the judicial interpretation, courts in China shall not, among other

things, support contracted parties to claim foreign investment contracts in sectors not on the negative

list as void by reason of the contracts have not been approved or registered by administrative

authorities. However, since PRC judicial and administrative authorities have significant discretion in

interpreting and implementing statutory and contractual terms, it is difficult to predict the outcome

of a judicial or administrative proceeding, and such unpredictability towards our contractual rights

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could adversely affect our business and impede our ability to continue our operations. The FIL and

Implementation Regulations embody an expected PRC regulatory trend to rationalize its foreign

investment regulatory regime in line with prevailing international practice and the legislative efforts

to unify the corporate legal requirements for both foreign and domestic investments.

The FIL removes all references to the terms of “de facto control” or “contractual control” as

defined in the draft published in 2015 by the MOFCOM. However, the FIL has a catch-all provision

under the definition of “foreign investment” which includes investments made by foreign investors

in China through means stipulated in laws or administrative regulations or other methods prescribed

by the State Council. Therefore, the State Council may in the future promulgate laws and regulations

that deem investments made by foreign investors through contractual arrangements as “foreign

investment,” and our contractual arrangements may be subject to and be deemed to violate the

market entry requirements in China. The “variable interest entity” structure, or VIE structure, has

been adopted by many PRC-based companies, including us, to obtain necessary licenses and permits

in the industries that are currently subject to foreign investment restrictions in China. See

“Contractual Arrangements.”

In addition, the FIL further specifies that foreign investments shall be conducted in line with

the “negative list” to be issued or approved to be issued by the State Council. Among others,

commercial internet information service, online cultural activities (except for music), and the

production of electronic publications conducted through consolidated affiliated entities are subject to

foreign investment restrictions set forth in the negative list. If the then updated “negative list”

requires companies with existing VIE structure like us to take further actions, we will face

uncertainties as to whether any clearance from the relevant governmental authorities can be timely

obtained, or at all. If our control over our VIE through contractual arrangements are deemed as

foreign investment in the future, and any business of our VIE is “restricted” or “prohibited” from

foreign investment under the “negative list” effective at the time, we may be deemed to be in

violation of the FIL, the contractual arrangements that allow us to have control over our VIE may be

deemed as invalid and illegal, and we may be required to unwind such contractual arrangements and/

or restructure our business operations, any of which may have a material adverse effect on our

business operation.

We may lose the ability to use and enjoy assets held by our VIE that are critical to the operation of our

business if our VIE declares bankruptcy or becomes subject to a dissolution or liquidation proceeding.

Our VIE holds certain assets that may be critical to the operation of our business. If the

shareholders of our VIE breach the contractual arrangements and voluntarily liquidate our VIE, or if

our VIE declares bankruptcy and all or part of its assets become subject to liens or rights of third-

party creditors or are otherwise disposed of without our consent, we may be unable to continue some

or all of our business activities, which could materially and adversely affect our business, financial

condition and results of operations. In addition, if our VIE undergoes an involuntary liquidation

proceeding, third-party creditors may claim rights to some or all of its assets, thereby hindering our

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ability to operate our business, which could materially or adversely affect our business, financial

condition and results of operations.

Risks Relating to Doing Business in China

Changes in China’s economic, political or social conditions or government policies could have a material

and adverse effect on our business and results of operations.

Our operations are located in China. Accordingly, our business, prospects, financial condition

and results of operations may be influenced to a significant degree by political, economic and social

conditions in China generally and by continued economic growth in China as a whole.

The Chinese economy differs from the economies of most developed countries in many

respects, including the amount of government involvement, level of development, growth rate,

control of foreign exchange and allocation of resources. Although the Chinese government has

implemented measures emphasizing the utilization of market forces for economic reform, the

reduction of state ownership of productive assets and the establishment of improved corporate

governance in business enterprises, a substantial portion of productive assets in China are still owned

by the government. In addition, the Chinese government continues to play a significant role in

regulating industry development by imposing industrial policies. The Chinese government also

exercises significant control over China’s economic growth through allocating resources, controlling

payment of foreign currency-denominated obligations, setting monetary policy and providing

preferential treatment to particular industries or companies.

While the Chinese economy has experienced significant growth over the past decades, growth

has been uneven, both geographically and among various sectors of the economy. The mobile social

networking industry is highly sensitive to general economic changes. Any adverse changes in

economic conditions in China, in the policies of the Chinese government or in the laws and

regulations in China could have a material adverse effect on the overall economic growth of China.

Such developments could adversely affect our business and operating results, lead to a reduction in

demand for our services and adversely affect our competitive position. The Chinese government has

implemented various measures to encourage economic growth and guide the allocation of resources.

Some of these measures may benefit the overall Chinese economy, but may have a negative effect on

us. For example, our financial condition and results of operations may be adversely affected by

government control over capital investments or changes in tax regulations. The growth rate of the

Chinese economy has gradually slowed since 2010, and the impact of COVID-19 on the global and

Chinese economy since 2020 is severe. Any prolonged slowdown in the global and Chinese economy

may reduce the demand for our services and materially and adversely affect our business and results

of operations.

Uncertainties with respect to the PRC legal system could adversely affect us.

The PRC legal system is a civil law system based on written statutes. Unlike the common law

system, prior court decisions may be cited for reference but have limited precedential value. The

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PRC legal system is evolving rapidly, and the interpretations of many laws, regulations and rules

may contain inconsistencies and enforcement of these laws, regulations and rules involves

uncertainties.

Our WFOE is a foreign-invested enterprise and is subject to laws and regulations applicable to

foreign-invested enterprises, and our WFOE and our VIE and its subsidiaries are also subject to

various Chinese laws and regulations generally applicable to companies incorporated in China.

However, since these laws and regulations are relatively new and the PRC legal system continues to

rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and

enforcement of these laws, regulations and rules involves uncertainties.

From time to time, we may have to resort to administrative and court proceedings to enforce

our legal rights. However, since PRC administrative and court authorities have significant discretion

in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate

the outcome of administrative and court proceedings and the level of protection we enjoy than in

more developed legal systems. Furthermore, the PRC legal system is based in part on government

policies and internal rules, some of which are not published on a timely basis or at all, and which

may have a retroactive effect. As a result, we may not be aware of our violation of any of these

policies and rules until sometime after the violation. In addition, any administrative and court

proceedings in China may be protracted, resulting in substantial costs and diversion of resources and

management attention. Such uncertainties, including uncertainty over the scope and effect of our

contractual, property (including intellectual property) and procedural rights, and any failure to

respond to changes in the regulatory environment in China could materially and adversely affect our

business and impede our ability to continue our operations.

The approval of the China Securities Regulatory Commission or other PRC government authorities may

be required in connection with this [REDACTED] and our future capital raising activities under PRC

law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval.

The M&A Rules require the offshore special purpose vehicle that is controlled by PRC

companies or individuals formed for the purpose of seeking a public listing on an overseas stock

exchange through acquisitions of PRC domestic companies of the aforementioned PRC companies or

individuals using shares of such special purpose vehicle or shares held by its shareholders as a

consideration to obtain CSRC approval prior to the listing and trading of such special purpose

vehicle’s securities on an overseas stock exchange. The interpretation and application of the

regulations remain unclear, and this [REDACTED] may ultimately require approval of the CSRC. If

the CSRC approval is required, it is uncertain whether we can or how long it will take us to obtain

the approval and, even if we obtain such CSRC approval, such CSRC approval could be rescinded.

Any failure to obtain or delay in obtaining the CSRC approval for this [REDACTED] if such

approval is required, or a rescission of such CSRC approval if obtained by us, would subject us to

sanctions imposed by the CSRC or other PRC regulatory authorities, which could include fines and

penalties on our operations in the PRC, restrictions or limitations on our ability to pay dividends

outside of the

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PRC, and other forms of sanctions that may materially and adversely affect our business, financial

condition, and results of operations.

Our PRC Legal Adviser has advised us that, based on its understanding of the PRC laws and

regulations currently in effect, such CSRC approval will not be required for this [REDACTED]

given that we do not constitute the “special purpose vehicle” to which the aforementioned provisions

of the M&A Rules are applicable. However, our PRC Legal Adviser further advised that there is

uncertainty as to how the M&A Rules will be interpreted or implemented, and new rules or

regulations promulgated in the future may impose additional requirement on us. If it is determined

that the CSRC approval is required for this [REDACTED], we may face regulatory actions or other

sanctions from the CSRC or other PRC regulatory authorities.

Recently, the relevant PRC government authorities issued the July 6 Opinion, which called for

the enhanced administration and supervision of offshore-listed China-based companies (中概股公司),

proposed to revise the relevant regulation governing the issuance and listing of shares by such

companies outside of mainland China and clarified the responsibilities of competent domestic

industry regulators and government authorities. As of the Latest Practicable Date, due to the lack of

further clarifications or detailed rules and regulations, there were still uncertainties regarding the

interpretation and implementation of the July 6 Opinion, including those on mainland China-based

companies with a VIE structure. In addition, we cannot guarantee that new rules or regulations

promulgated in the future pursuant to the July 6 Opinion will not impose any additional requirement

on us.

On December 24, 2021, the CSRC released the Provisions of the State Council on the

Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for

Comments)(《國務院關於境內企業境外發行證券和上市的管理規定(草案徵求意見稿)》), or the Draft

Overseas Listing Provisions, which require that, among other things, domestic companies that seek

to offer or list securities overseas, both directly and indirectly, should fulfill the filing procedure and

report relevant information with the CSRC. If a domestic company fails to complete the filing

procedure or conceals any material fact or falsifies any major content in its filing documents, such

domestic company will be subject to administrative penalties such as warnings, fines, suspension of

relevant business or operations, and revocation of licenses and permits, and its controlling

shareholders, actual controllers, directors, supervisors, and senior executives may also be subject to

administrative penalties such as warnings and fines. On the same day, the CSRC also issued the

Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic

Companies (Draft for comments)(《境內企業境外發行證券和上市備案管理辦法(徵求意見稿)》), or the

Draft Filing Measures, which, among others, set forth the standards in determination of an indirect

overseas listing by a domestic company, the responsible filing persons, and the procedures for the

filing. As the Draft Overseas Listing Provisions and the Draft Filing Measures are not adopted and it

remains unclear whether the formal version adopted in the future will have any further material

changes, there remains substantial uncertainties as to how these drafts will be enacted, interpreted, or

implemented and how they will affect our operations and the [REDACTED].

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If it is determined that we are subject to any CSRC approval, filing, other governmental

authorization or requirements for this [REDACTED] or future capital raising activities, we may fail

to obtain such approval or meet such requirements in a timely manner or at all, or completion could

be rescinded. Any failure to obtain or delay in obtaining such approval or completing such

procedures for this [REDACTED] or future capital raising activities, or a rescission of any such

approval obtained by us, would subject us to sanctions by the CSRC or other PRC regulatory

authorities. These regulatory authorities may impose fines and penalties on our operations in the

PRC, limit our ability to pay dividends outside of the PRC, limit our operating privileges in the PRC,

delay or restrict the repatriation of the [REDACTED] from this [REDACTED] or future capital

raising activities into the PRC, or take other actions that could materially and adversely affect our

business, financial condition, results of operations, and prospects, as well as the [REDACTED] of

our Shares.

The CSRC or other PRC regulatory authorities also may take actions requiring us, or making it

advisable for us, to halt this [REDACTED] or future capital raising activities before settlement and

delivery of the shares [REDACTED] hereby. Consequently, if you engage in market trading or other

activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement

and delivery may not occur. In addition, if the CSRC or other regulatory authorities later promulgate

new rules or explanations requiring that we obtain their approvals or accomplish the required filing

or other regulatory procedures for this [REDACTED] or future capital raising activities, we may be

unable to obtain a waiver of such approval requirements, if and when procedures are established to

obtain such a waiver. Any uncertainties or negative publicity regarding such approval, filing or other

requirements could materially and adversely affect our business, prospects, financial condition,

reputation, and the [REDACTED] of the shares.

We may rely on dividends and other distributions on equity paid by our PRC subsidiary to fund any cash

and financing requirements we may have, and any limitation on the ability of our PRC subsidiary to

make payments to us could have a material and adverse effect on our ability to conduct our business.

We are a holding company, and we may rely on dividends and other distributions on equity

paid by our PRC subsidiary for our cash and financing requirements, including the funds necessary

to pay dividends and other cash distributions to our shareholders and service any debt we may incur.

Current PRC regulations permit our PRC subsidiary to pay dividends to us only out of their

accumulated after-tax profits upon satisfaction of relevant statutory conditions and procedures, if

any, determined in accordance with Chinese accounting standards and regulations. In addition, each

of our PRC subsidiary is required to set aside at least 10% of its accumulated profits each year, if

any, to fund certain reserve funds until the total amount set aside reaches 50% of its registered

capital. Such reserve funds cannot be distributed to us as dividends. For a detailed discussion of

applicable PRC regulations governing distribution of dividends, see “Regulatory Overview—

Regulations Relating to Dividend Distributions.” Additionally, if our PRC subsidiary incurs debt on

their own behalf in the future, the instruments governing their debt may restrict their ability to pay

dividends or make other distributions to us. Any limitation on the ability of our PRC subsidiary to

pay dividends or make other distributions to us could materially and adversely limit our ability to

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grow, make investments or acquisitions that could be beneficial to our business, pay dividends, or

otherwise fund and conduct our business.

To address the persistent capital outflow and the Renminbi’s depreciation against the U.S.

dollar in the fourth quarter of 2016, the People’s Bank of China and the State Administration of

Foreign Exchange, or SAFE, have implemented a series of capital control measures in the subsequent

months, including stricter vetting procedures for mainland China-based companies to remit foreign

currency for acquisitions outside of mainland China, dividend payments, and shareholder loan

repayments. For instance, the Circular of the SAFE on Further Promoting the Reform of Foreign

Exchange Management and Improving Authenticity and Compliance Review (《國家外匯管理局關於進一步推進外匯管理改革完善真實合規性審核的通知》), or the SAFE Circular 3, issued on January 26,

2017, provides that the banks shall, when dealing with dividend remittance transactions from

domestic enterprise to its offshore shareholders of more than US$50,000 or its equivalent, review the

relevant board resolutions and other supporting documents of such domestic enterprise based on the

principal of genuine transaction. The PRC government may continue to strengthen its capital controls

and our PRC subsidiary’s dividends and other distributions may be subject to tightened scrutiny in

the future. Any limitation on the ability of our PRC subsidiary to pay dividends or make other

distributions to us could materially and adversely limit our ability to grow, make investments or

acquisitions that could be beneficial to our business, pay dividends, or otherwise fund and conduct

our business.

In addition, the PRC Enterprise Income Tax Law (《中華人民共和國企業所得稅法》) and its

implementation rules provide that a withholding tax at a rate of 10% will be applicable to dividends

payable by Chinese companies to non-PRC-resident enterprises unless reduced under other

exceptions such as treaties or arrangements between the PRC central government and governments of

other countries or regions where the non-PRC resident enterprises are tax resident. See “—If we are

classified as a PRC resident enterprise for PRC income tax purposes, such classification could result

in unfavorable tax consequences to us and our non-PRC shareholders.”

Increases in labor costs and enforcement of stricter labor laws and regulations in China may adversely

affect our business and our profitability.

China’s overall economy and the average wage in China have increased in recent years and are

expected to continue to grow. The average wage level for our employees has also increased in recent

years. We expect that our labor costs, including wages and employee benefits, will continue to

increase. Unless we are able to pass on these increased labor costs to those who pay for our services,

our profitability and results of operations may be materially and adversely affected.

In addition, we have been subject to stricter regulatory requirements in terms of entering into

labor contracts with our employees and paying various statutory employee benefits, including

pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance

and maternity insurance to designated government agencies for the benefit of our employees.

Pursuant to the PRC Labor Contract Law (《中華人民共和國勞動合同法》) and its implementation

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rules, employers are subject to stricter requirements in terms of signing labor contracts, minimum

wages, paying remuneration, determining the term of employee’s probation and unilaterally

terminating labor contracts. In addition, enterprises are forbidden to force laborers to work beyond

the time limit and employers shall pay laborers for overtime work in accordance with the laws and

regulations. In the event that we decide to terminate some of our employees or otherwise change our

employment or labor practices, the PRC Labor Contract Law (《中華人民共和國勞動合同法》) and its

implementation rules may limit our ability to effect those changes in a desirable or cost-effective

manner, which could adversely affect our business and results of operations.

We occasionally engage independent third-party service providers to recruit qualified personnel

for certain operating functions such as customer support and technology maintenance at our request

and settle payment of service fees to such third-party service providers. But we cannot preclude the

possibility that these workers supplied by third-party service providers may be classified as

“dispatched workers” by courts, arbitration tribunals or government agencies. In December 2012, the

PRC Labor Contract Law (《中華人民共和國勞動合同法》) was amended and in January 2014, the

Interim Provisions on Labor Dispatch (《勞務派遣暫行規定》) was promulgated, to impose more

stringent requirements on the use of “dispatched workers.” For example, the number of dispatched

workers may not exceed a certain percentage of the total number of employees and dispatched

workers, and the dispatched workers can only engage in temporary, auxiliary or substitutable work.

However, since the application and interpretation of the PRC Labor Contract Law (《中華人民共和國勞動合同法》) and the Interim Provisions on Labor Dispatch (《勞務派遣暫行規定》) are limited and

uncertain, we cannot assure you our business operation will be deemed to be in full compliance with

them. If we are found to be in violation of any requirements under the PRC Labor Contract Law (《中華人民共和國勞動合同法》), the Interim Provisions on Labor Dispatch (《勞務派遣暫行規定》) or

their related rules and regulations, we may be ordered by the labor authority to rectify the

noncompliance by means such as entering into written employment contracts with such “dispatched

workers,” or be subject to regulatory penalty, other sanction or liability or be subject to labor

disputes.

As the interpretation and implementation of labor-related laws and regulations are still

evolving, we cannot assure you that our employment practices do not and will not violate labor-

related laws and regulations in China, which may subject us to labor disputes or government

investigations. We cannot assure you that we have complied or will be able to comply with all labor-

related law and regulations. If we are deemed to have violated relevant labor laws and regulations,

we could be required to provide additional compensation to our employees and our business,

financial condition and results of operations will be adversely affected.

Our business may be negatively affected by the potential obligations to make additional social insurance

and housing fund contributions.

We are required by PRC labor laws and regulations to pay various statutory employee benefits,

including pensions insurance, medical insurance, work-related injury insurance, unemployment

insurance, maternity insurance and housing fund, to designated government agencies for the benefit

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of our employees. Companies registered and operating in China are required under the PRC Social

Insurance Law (《中華人民共和國社會保險法》) and the Regulations on the Administration of

Housing Funds (《住房公積金管理條例》) to apply for social insurance registration and housing fund

deposit registration within 30 days of their establishment and to pay for their employees different

social insurance including pension insurance, medical insurance, work-related injury insurance,

unemployment insurance and maternity insurance to the extent required by law. During the Track

Record Period, we had not made social insurance and housing fund contributions for some of our

employees in full in accordance with the relevant PRC laws and regulations. In 2019, 2020 and 2021,

the total amount of the unpaid social insurance and housing fund contributions was approximately

RMB1.2 million, RMB0.2 million and nil, respectively. We could be subject to orders by the

competent labor authorities for rectification and failure to comply with the orders may further

subject us to administrative fines. The relevant government agencies may examine whether an

employer has made adequate payments of the requisite statutory employee benefits, and employers

who fail to make adequate payments may be subject to late payment fees, fines and/or other

penalties. We engage third-party human resources agencies to pay social insurance and housing

funds for some of our employees. Any failure to make such contribution by these third-party agents

may directly expose us to penalties imposed by the local authorities and/or legal claims raised by our

employees. As of the Latest Practicable Date, we had not received any notice from the relevant

government authorities or any claim or request from these employees in this regard. However, we

cannot assure you that the relevant government authorities will not require us to pay the outstanding

amount and impose late payment fees or fines on us. If the relevant PRC authorities determine that

we shall make supplemental social insurance and housing fund contributions or that we are subject to

fines and legal sanctions in relation to our failure to make social insurance and housing fund

contributions in full for our employees, our business, financial condition and results of operations

may be adversely affected.

Fluctuations in exchange rates could have a material and adverse effect on our results of operations and

the value of your [REDACTED].

The conversion of Renminbi into foreign currencies, including Hong Kong dollars, is based on

rates set by the People’s Bank of China. The Renminbi has fluctuated against the Hong Kong dollar,

at times significantly and unpredictably. The value of Renminbi against the Hong Kong dollar and

other currencies is affected by changes in China’s political and economic conditions and by China’s

foreign exchange policies, among other things. We cannot assure you that Renminbi will not

appreciate or depreciate significantly in value against the Hong Kong dollar in the future. It is

difficult to predict how market forces or PRC government policy may impact the exchange rate

between Renminbi and Hong Kong dollar in the future.

Any significant appreciation or depreciation of Renminbi may materially and adversely affect

our revenue, earnings and financial position, and the value of, and any dividends payable on, our

Shares in Hong Kong dollars. For example, to the extent that we need to convert the Hong Kong

dollars we receive into Renminbi to pay our operating expenses, appreciation of Renminbi against

the Hong Kong dollar would have an adverse effect on the RMB amount we would receive from the

– 91 –


RISK FACTORS

conversion. Conversely, a significant depreciation of Renminbi against the Hong Kong dollar may

significantly reduce the Hong Kong dollar equivalent of our earnings, which in turn could adversely

affect the [REDACTED] of our Shares.

Very limited hedging options are available in China to reduce our exposure to exchange rate

fluctuations. To date, we have not entered into any hedging transactions in an effort to reduce our

exposure to foreign currency exchange risk. While we may decide to enter into hedging transactions

in the future, the availability and effectiveness of these hedges may be limited and we may not be

able to adequately hedge our exposure or at all. In addition, our currency exchange losses may be

magnified by PRC exchange control regulations that restrict our ability to convert Renminbi into

foreign currency. As a result, fluctuations in exchange rates may have a material adverse effect on

your [REDACTED].

During the Track Record Period, substantially all of our revenue and expenditures were

denominated in Renminbi, while the net [REDACTED] from the [REDACTED] will be in Hong

Kong dollars. Fluctuations in the exchange rate between the Renminbi and the Hong Kong dollar will

affect the relative purchasing power in Renminbi terms of the [REDACTED] from the

[REDACTED]. Fluctuations in the exchange rate may also cause us to incur foreign exchange losses

and affect the relative value of any dividend issued by our subsidiaries. In addition, appreciation or

depreciation in the value of Renminbi relative to Hong Kong dollars would affect our financial

results in Hong Kong dollar terms without giving effect to any underlying change in our business or

results of operations. We recorded exchange differences on translation of financial statements of

foreign operations of RMB19.8 million in adjustment loss, RMB571.7 million in adjustment gain and

RMB196.9 million in adjustment gain in 2019, 2020 and 2021, respectively, as other comprehensive

income or loss in our consolidated statements of profit or loss and comprehensive loss which is

primarily a result of translation of financial statements of the companies within the Group into the

presentation currency of the Group, which is RMB.

PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and

governmental control of currency conversion may delay or prevent us from using the [REDACTED] of

this [REDACTED] to make loans or additional capital contributions to our PRC subsidiary, our VIE

and its subsidiaries, which could materially and adversely affect our liquidity and our ability to fund and

expand our business.

We are an offshore holding company conducting our operations in China through our PRC

subsidiary, our VIE and its subsidiaries. We may make loans to our PRC subsidiary, our VIE and its

subsidiaries subject to the approval from or registration with governmental authorities and limitation

on amount, or we may make additional capital contributions to our wholly foreign-owned

subsidiaries in China.

Any loans to our wholly foreign-owned subsidiaries in China, which are treated as foreign-

invested enterprises, or FIEs, under PRC law, are subject to applicable foreign exchange loan

registrations. In addition, an FIE shall use its capital pursuant to the principle of authenticity and

self-use within its business scope.

– 92 –


RISK FACTORS

SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming

the Administration of Foreign Exchange Settlement of Capital of Foreign-invested Enterprises (《國家外匯管理局關於改革外商投資企業外匯資本金結匯管理方式的通知》), or SAFE Circular 19, effective

from June 2015 and last amended in December 2019. According to SAFE Circular 19, the flow and

use of the RMB capital converted from foreign currency-denominated registered capital of a foreign-

invested company is regulated such that RMB capital may not be used for the issuance of RMB

entrusted loans (unless otherwise permitted in the business license), the repayment of inter-enterprise

loans or the repayment of bank loans that have been transferred to a third party. Although SAFE

Circular 19 allows RMB capital converted from foreign currency-denominated registered capital of a

foreign-invested enterprise to be used for equity investments within China, it also reiterates the

principle that RMB converted from the foreign currency-denominated capital of a foreign-invested

company may not be directly or indirectly used for purposes beyond its business scope. Thus, it is

unclear whether SAFE will permit such capital to be used for equity investments in China in actual

practice. In addition, SAFE promulgated the Notice of the State Administration of Foreign Exchange

on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital

Account (《國家外匯管理局關於改革和規範資本項目結匯管理政策的通知》), or SAFE Circular 16,

effective on June 9, 2016, which reiterates some of the rules set forth in SAFE Circular 19, but

changes the prohibition against using RMB capital converted from foreign currency-denominated

registered capital of a foreign-invested company to issue RMB entrusted loans to a prohibition

against using such relevant capital to issue loans to non-associated enterprises (unless otherwise

permitted in the business license). Violations of SAFE Circular 19 and SAFE Circular 16 could

result in administrative penalties. SAFE Circular 19 and SAFE Circular May 16, significantly limit

our ability to transfer any foreign currency we hold, including the net [REDACTED] from this

[REDACTED] and the concurrent private placement, to our PRC subsidiary, which may adversely

affect our liquidity and our ability to fund and expand our business in China. On October 23, 2019,

the SAFE promulgated the Notice of the State Administration of Foreign Exchange on Further

Promoting the Convenience of Cross-border Trade and Investment (《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》), or the SAFE Circular 28, which, among other things, allows all

foreign-invested companies to use Renminbi converted from foreign currency-denominated capital

for equity investments in China, as long as the equity investment is genuine, does not violate

applicable laws, and complies with the negative list on foreign investment.

In light of the various requirements imposed by PRC regulations on loans to and direct

investment in PRC entities by offshore holding companies, we cannot assure you that we will be able

to complete the necessary government registrations or obtain the necessary government approvals on

a timely basis, or at all, with respect to future loans by us to our PRC subsidiary or our VIE or its

subsidiaries or with respect to future capital contributions by us to our PRC subsidiary. If we fail to

complete such registrations or obtain such approvals, our ability to use the [REDACTED] from our

[REDACTED] and to capitalize or otherwise fund our PRC operations may be negatively affected,

which could materially and adversely affect our liquidity and our ability to fund and expand our

business.

– 93 –


RISK FACTORS

Governmental control of currency conversion may limit our ability to utilize our revenue effectively and

affect the value of your [REDACTED].

The PRC government imposes controls on the convertibility of the RMB into foreign currencies

and, in certain cases, the remittance of currency out of China. We receive substantially all of our

revenue in RMB. Under our current corporate structure, our company in the Cayman Islands may

rely on dividend payments from our PRC subsidiary to fund any cash and financing requirements we

may have. Under existing PRC foreign exchange regulations, payments of current account items,

such as profit distributions and trade and service-related foreign exchange transactions, can be made

in foreign currencies without prior approval from SAFE by complying with certain procedural

requirements. Therefore, our wholly foreign-owned subsidiaries in China are able to pay dividends in

foreign currencies to us without prior approval from SAFE, subject to the condition that the

remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign

exchange regulation. But approval from or registration with appropriate government authorities or

delegated banks is required where RMB is to be converted into foreign currency and remitted out of

China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The

PRC government may also at its discretion restrict access in the future to foreign currencies for

current account transactions. If the foreign exchange control system prevents us from obtaining

sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay

dividends in foreign currencies to our shareholders, including holders of our Shares.

PRC regulations relating to offshore investment activities by PRC residents may limit our PRC

subsidiary’s ability to increase their registered capital or distribute profits to us or otherwise expose us or

our PRC resident beneficial owners to liability and penalties under PRC law.

In July 2014, SAFE promulgated the Circular on Relevant Issues Concerning Foreign Exchange

Control on Domestic Residents’ Offshore Investment and Financing and Roundtrip Investment

Through Special Purpose Vehicle (《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》), or SAFE Circular 37. SAFE Circular 37 requires PRC residents

(including PRC individuals and PRC institutions as well as foreign individuals that are deemed as

PRC residents for foreign exchange administration purposes) to register with SAFE or its local

branches in connection with their direct or indirect offshore investment activities. SAFE Circular 37

further requires amendment to the SAFE registrations in the event of any changes with respect to the

basic information of the offshore special purpose vehicle, such as change of a PRC individual

shareholder, name and operation term, or any significant changes with respect to the offshore special

purpose vehicle, such as increase or decrease of capital contribution, share transfer or exchange, or

mergers or divisions. SAFE Circular 37 is applicable to our shareholders who are PRC residents and

may be applicable to any offshore acquisitions that we make in the future. According to the Notice of

the SAFE on Further Simplifying and Improving Policies for the Foreign Exchange Administration

of Direct Investment (《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》) released

on February 13, 2015 by the SAFE, local banks will examine and handle foreign exchange

registration for overseas direct investment under SAFE Circular 37 starting from June 1, 2015.

– 94 –


RISK FACTORS

We have used our best efforts to notify PRC residents or entities who directly or indirectly hold

shares in our Cayman Islands holding company and who are known to us as being PRC residents or

entities to complete the foreign exchange registrations. We have been notified that Ms. Lu Zhang has

completed her initial SAFE registration as required by SAFE Circular 37. However, we may not be

informed of the identities of all the PRC residents or entities holding direct or indirect interest in our

company, nor can we compel our shareholders or beneficial owners to comply with SAFE

registration requirements. We cannot assure you that all shareholders or beneficial owners of ours

who are PRC residents or entities have complied with, and will in the future make, obtain or update

any applicable registrations or approvals required by, SAFE regulations.

The failure or inability of such shareholders or beneficial owners to comply with SAFE

regulations, or failure by us to amend the foreign exchange registrations, could subject us to fines or

legal sanctions, restrict our cross-border investment activities or investment activities outside of

mainland China, limit our PRC subsidiary’s ability to make distributions or pay dividends to us or

affect our ownership structure. As a result, our business operations and our ability to distribute

profits to you could be materially and adversely affected.

China’s M&A Rules and certain other PRC regulations establish complex procedures for certain

acquisitions of PRC companies by foreign investors, which could make it more difficult for us to pursue

growth through acquisitions in China.

A number of PRC laws and regulations have established procedures and requirements that

could make merger and acquisition activities in China by foreign investors more time consuming and

complex. In addition to the PRC Anti-Monopoly Law (《中華人民共和國反壟斷法》) itself, these

include the Regulations 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》), or the M&A Rules, adopted by six PRC regulatory

agencies in 2006 and last amended in 2009, and the Rules of the Ministry of Commerce on

Implementation of Security Review System of 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》), or the Security

Review Rules, promulgated in 2011. These laws and regulations impose requirements in some

instances that the Ministry of Commerce of the People’s Republic of China, or MOFCOM, be

notified in advance of relevant change-of-control transaction in which a foreign investor takes

control of a PRC domestic enterprise. In addition, the PRC Anti-Monopoly Law (《中華人民共和國反壟斷法》) requires that relevant anti-monopoly enforcement agencies be notified in advance of any

concentration of undertaking if certain thresholds are triggered. Moreover, the Security Review

Rules 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 MOFCOM, and prohibit any attempt to bypass a 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 relevant

regulations to complete such transactions could be time consuming, and any required approval

– 95 –


RISK FACTORS

processes, including approval from MOFCOM, may delay or inhibit our ability to complete such

transactions, which could affect our ability to expand our business or maintain our market share.

It may be difficult for overseas regulators to conduct investigations or collect evidence within China.

Shareholder claims or regulatory investigations that are common in common law jurisdictions

(including securities law class actions and fraud claims) generally are difficult to pursue as a matter

of law or practicality in China. For example, in China, there are significant legal and other obstacles

to providing information needed for regulatory investigations or litigation initiated outside China.

Furthermore, according to Article 177 of the PRC Securities Law (《中華人民共和國證券法》), or

Article 177, which became effective in March 2020, no overseas securities regulator is allowed to

directly conduct investigations or evidence collection activities within the territory of the PRC and

no entities or individuals may provide documents or materials in connection with securities activities

without proper authorization as stipulated under Article 177. While detailed interpretation of or

implementation rules under Article 177 have yet to be promulgated, the inability of an overseas

securities regulator to directly conduct investigations or collect evidence within China may further

increase difficulties faced by you in protecting your interests.

Any failure to comply with PRC regulations regarding the registration requirements for employee share

incentive plans may subject the PRC plan participants or us to fines and other legal or administrative

sanctions.

Pursuant to SAFE Circular 37, PRC residents who participate in share incentive plans in

overseas non-publicly listed companies due to their position as director, senior management or

employees of the PRC subsidiaries of the overseas companies may submit applications to SAFE or

its local branches for the foreign exchange registration. Our directors, executive officers and other

employees who are PRC residents and who have been granted share-based awards may follow SAFE

Circular 37 to apply for the foreign exchange registration before our Company becomes an overseas

listed company. In February 2012, SAFE promulgated the Notices on Issues Concerning the Foreign

Exchange Administration for Domestic Individuals Participating in Stock Incentive Plans of

Overseas Publicly Listed Company (《國家外匯管理局關於境內個人參與境外上市公司股權激勵計劃外匯管理有關問題的通知》), or SAFE Circular 7. Under SAFE Circular 7 and other relevant rules and

regulations, PRC residents who participate in stock incentive plan in an overseas publicly listed

company are required to register with SAFE or its local branches and complete certain other

procedures. Participants of a stock incentive plan who are PRC residents must retain a qualified PRC

agent, which could be a PRC subsidiary of such overseas publicly listed company or another

qualified institution selected by such PRC subsidiary, to conduct the SAFE registration and other

procedures with respect to the stock incentive plan on behalf of its participants. Such participants

must also retain an overseas entrusted institution to handle matters in connection with their exercise

of share-based awards, the purchase and sale of corresponding shares or interests and fund transfers.

In addition, the PRC agent is required to amend the SAFE registration with respect to the stock

incentive plan if there is any material change to the stock incentive plan, the PRC agent or the

overseas entrusted institution or other material changes. We and our PRC employees who have been

– 96 –


RISK FACTORS

granted share-based awards will be subject to SAFE Circular 7 and other relevant rules and

regulations upon the completion of the [REDACTED]. Failure of our PRC share-based award

holders to complete their SAFE registrations may subject these PRC residents to fines and legal

sanctions and may also limit our ability to contribute additional capital into our PRC subsidiary,

limit our PRC subsidiary’s ability to distribute dividends to us, or otherwise materially adversely

affect our business.

In addition, the State Administration of Taxation, or the SAT has issued certain circulars

concerning employee share options and restricted shares. Under these circulars, our employees

working in China who exercise share options or are granted restricted shares will be subject to PRC

individual income tax. Our PRC subsidiary has obligations to file documents related to employee

share options or restricted shares with relevant tax authorities and to withhold individual income

taxes of those employees who exercise their share options. If our employees fail to pay or we fail to

withhold their income taxes according to relevant laws and regulations, we may face sanctions

imposed by the tax authorities or other PRC government authorities.

If we are classified as a PRC resident enterprise for PRC income tax purposes, such classification could

result in unfavorable tax consequences to us and our non-PRC shareholders.

Under the PRC Enterprise Income Tax Law (《中華人民共和國企業所得稅法》) and its

implementation rules, an enterprise established outside of the PRC with its “de facto management

body” within the PRC is considered a PRC resident enterprise and will be subject to the PRC

enterprise income tax on its global income at the rate of 25%. The implementation rules define the

term “de facto management body” as the body that exercises substantial and overall management and

control over the manufacturing and business operations, personnel, accounting, properties, etc. of an

enterprise. In 2009, the SAT issued a circular, known as Circular 82, which provides certain specific

criteria for determining whether the “de facto management body” of a PRC-controlled enterprise that

is incorporated offshore is located in China. Although Circular 82 only applies to offshore

enterprises controlled by PRC enterprises or PRC enterprise groups, but not to those controlled by

PRC individuals or foreigners, the criteria set forth in the circular may reflect the SAT’s general

position on how the “de facto management body” test should be applied in determining the tax

resident status of all offshore enterprises. According to Circular 82, an offshore incorporated

enterprise controlled by a PRC enterprise or a PRC enterprise group will be regarded as a PRC tax

resident by virtue of having its “de facto management body” in China and will be subject to PRC

enterprise income tax on its global income only if all of the following conditions are met: (i) the

primary location of the day-to-day operational senior management and corresponding department

where they perform their duties is in the PRC; (ii) decisions relating to the enterprise’s financial and

human resource matters are made or are subject to approval by organizations or personnel in the

PRC; (iii) the enterprise’s primary assets, accounting books and records, company seals, and board

and shareholder resolutions, are located or maintained in the PRC; and (iv) at least 50% of voting

board members or senior executives habitually reside in the PRC.

– 97 –


RISK FACTORS

We believe that none of our entities outside of China is a PRC resident enterprise for PRC tax

purposes. However, the tax resident status of an enterprise is subject to determination by the PRC tax

authorities and uncertainties remain with respect to the interpretation of the term “de facto

management body.” If the PRC tax authorities determine that we are a PRC resident enterprise for

enterprise income tax purposes, we will be subject to the enterprise income tax on our global income

at the rate of 25% and we will be required to comply with PRC enterprise income tax reporting

obligations. In addition, any dividends or gains realized on the sale or other disposition of our Shares

may be subject to PRC tax, generally at a rate of 10% in the case of non-PRC enterprises or 20% in

the case of non-PRC individuals (which in the case of dividends would be withheld at source by

us)(in each case, subject to the provisions of any applicable tax treaty) if such dividends or gains are

deemed to be from PRC sources. Any PRC tax liability may be reduced under applicable income tax

treaties. However, it is unclear whether non-PRC shareholders of our company would be able to

obtain in practice the benefits of any tax treaties between their country of tax residence and the PRC

in the event that we are treated as a PRC resident enterprise. Any such tax may reduce the returns on

your [REDACTED] in our Shares.

In addition to the uncertainty as to the application of the “resident enterprise” classification, we

cannot assure you that the PRC government will not amend or revise the taxation laws, rules and

regulations to impose stricter tax requirements or higher tax rates. Any of such changes could

materially and adversely affect our financial condition and results of operations.

We may not be able to obtain certain benefits under relevant tax treaty on dividends paid by our PRC

subsidiary to us through our Hong Kong subsidiary.

We are a holding company incorporated under the laws of the Cayman Islands and as such rely

on dividends and other distributions on equity from our PRC subsidiary to satisfy part of our

liquidity requirements. Pursuant to the PRC Enterprise Income Tax Law (《中華人民共和國企業所得稅法》), a withholding tax rate of 10% currently applies to dividends paid by a PRC “resident

enterprise” to a foreign enterprise investor, unless any such foreign investor’s jurisdiction of

incorporation has a tax treaty with China that provides for preferential tax treatment. Pursuant to the

Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the

Avoidance of Double Taxation and Tax Evasion 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》), such withholding tax rate may be lowered to 5% if relevant

requirements under such tax arrangement could be satisfied. See “Financial Information—Taxation.”

In the future, we intend to re-invest all earnings, if any, generated from our PRC subsidiary for the

operation and expansion of our business in China. Should our tax policy change to allow for offshore

distribution of our earnings, we would be subject to a significant withholding tax. We cannot assure

you that our determination regarding our qualification to enjoy the preferential tax treatment will not

be challenged by the relevant tax authority or we will be able to complete the necessary filings with

the relevant tax authority and enjoy the preferential withholding tax rate of 5% under the

arrangement with respect to dividends to be paid by our PRC subsidiary to our Hong Kong

subsidiary.

– 98 –


RISK FACTORS

We face uncertainty with respect to indirect transfers of equity interests in PRC resident enterprises by

their non-PRC holding companies.

In February 2015, SAT issued the Public Notice Regarding Certain Corporate Income Tax

Matters on Indirect Transfer of Properties by Non-Resident Enterprises (關於非居民企業間接轉讓財產企業所得稅若干問題的公告), or SAT Public Notice 7. SAT Public Notice 7 extends its tax jurisdiction

to not only indirect transfers but also transactions involving transfer of other taxable assets, through

the offshore transfer of a foreign intermediate holding company. In addition, SAT Public Notice 7

provides certain criteria on how to assess reasonable commercial purposes and has introduced safe

harbors for internal group restructurings and the purchase and sale of equity through a public

securities market. SAT Public Notice 7 also brings challenges to both the foreign transferor and

transferee (or other person who is obligated to pay for the transfer) of the taxable assets. Where a

non-resident enterprise conducts an “indirect transfer” by transferring the taxable assets indirectly by

disposing of the equity interests of an overseas holding company, the non-resident enterprise being

the transferor, or the transferee, or the PRC entity which directly owned the taxable assets may

report to the relevant tax authority such indirect transfer. Using a “substance over form” principle,

the PRC tax authority may disregard the existence of the overseas holding company if it lacks a

reasonable commercial purpose and was established for the purpose of reducing, avoiding or

deferring PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC

enterprise income tax, and the transferee or other person who is obligated to pay for the transfer is

obligated to withhold the applicable taxes, currently at a rate of 10% for the transfer of equity

interests in a PRC resident enterprise. On October 17, 2017, SAT issued the Announcement of the

State Administration of Taxation on Issues Concerning the Withholding of Non-resident Enterprise

Income Tax at Source (關於非居民企業所得稅源泉扣繳有關問題的公告), or SAT Bulletin 37, which

came into effect on December 1, 2017 and amended on June 15, 2018. The SAT Bulletin 37 further

clarifies the practice and procedure of the withholding of nonresident enterprise income tax.

We face uncertainties on the reporting and consequences of future private equity financing

transactions, share exchanges or other transactions involving the transfer of shares in our company

by [REDACTED] that are non-PRC resident enterprises. The PRC tax authorities may pursue such

non-resident enterprises with respect to a filing or the transferees with respect to withholding

obligation, and request our PRC subsidiary to assist in the filing. As a result, we and non-resident

enterprises in such transactions may become at risk of being subject to filing obligations or being

taxed under SAT Public Notice 7 and SAT Bulletin 37, and may be required to expend valuable

resources to comply with them or to establish that we and our non-resident enterprises should not be

taxed under these regulations, which may have a material adverse effect on our financial condition

and results of operations.

– 99 –


RISK FACTORS

If the custodians or authorized users of controlling non-tangible assets of our company, including our

corporate chops and seals, fail to fulfill their responsibilities, or misappropriate or misuse these assets,

our business and operations could be materially and adversely affected.

Under PRC law, legal documents for corporate transactions are executed using the chops or seal

of the signing entity or with the signature of a legal representative whose designation is registered

and filed with the relevant branch of the Administration for Market Regulation. Although we usually

utilize chops to enter into contracts, the designated legal representatives of our WFOE, our VIE and

its subsidiaries have the apparent authority to enter into contracts on behalf of these entities without

chops and bind the entities. The designated legal representatives of our PRC entities have signed

employment agreements with us or relevant PRC entities under which they agree to abide by various

duties. In order to maintain the physical security of our chops and chops of our PRC entities, we

generally store these items in secured locations accessible only by the authorized personnel in the

administrative department of each of our subsidiaries. Although we monitor such authorized

personnel, there is no assurance such procedures will prevent all instances of abuse or negligence.

Accordingly, if any of our authorized personnel misuse or misappropriate our corporate chops or

seals, we could encounter difficulties in maintaining control over the relevant entities and experience

significant disruption to our operations. If a designated legal representative obtains control of the

chops in an effort to obtain control over our PRC entities, we or our PRC entities would need to pass

a new shareholder or board resolution to designate a new legal representative and we would need to

take legal action to seek the return of the chops, apply for new chops with the relevant authorities, or

otherwise seek legal redress for the violation of the representative’s fiduciary duties to us, which

could involve significant time and resources and divert management attention away from our regular

business. In addition, the affected entities may not be able to recover corporate assets that are sold or

transferred out of our control in the event of such a misappropriation if a transferee relies on the

apparent authority of the representative and acts in good faith.

[REDACTED]

– 100 –


RISK FACTORS

[REDACTED]

– 101 –


RISK FACTORS

[REDACTED]

– 102 –


RISK FACTORS

[REDACTED]

– 103 –


RISK FACTORS

[REDACTED]

– 104 –


WAIVERS AND EXEMPTIONS

In preparation for the [REDACTED], we have sought the following waivers from strict

compliance with the Listing Rules and exemptions from the Companies (Winding Up and

Miscellaneous Provisions) Ordinance.

MANAGEMENT PRESENCE IN HONG KONG

Pursuant to Rule 8.12 of the Listing Rules, an issuer must have a sufficient management

presence in Hong Kong. This will normally mean that at least two of its executive directors must be

ordinarily resident in Hong Kong. We do not have sufficient management presence in Hong Kong for

the purposes of Rule 8.12 of the Listing Rules.

Our Group’s management headquarters, senior management, business operations and assets are

primarily based outside Hong Kong. The Directors consider that the appointment of executive

Directors who will be ordinarily resident in Hong Kong would not be beneficial to, or appropriate

for, our Group and therefore would not be in the best interests of our Company or the Shareholders

as a whole.

Accordingly, we have applied for, and the Stock Exchange [has granted], a waiver from strict

compliance with Rule 8.12 of the Listing Rules. We will ensure that there is an effective channel of

communication between us and the Stock Exchange by way of the following arrangements:

(a) pursuant to Rule 3.05 of the Listing Rules, our Company has appointed and will continue

to maintain two authorized representatives who shall act at all times as the principal

channel of communication with the Stock Exchange. Each of our authorized

representatives will be readily contactable by the Stock Exchange by telephone, facsimile

and/or e-mail to deal promptly with enquiries from the Stock Exchange. Both of our

authorized representatives are authorized to communicate on our behalf with the Stock

Exchange. At present, our two authorized representatives are Mr. Ming Tao, our executive

Director and Chief Technology Officer, and Mr. Gaozheng Zhang, one of our joint

company secretaries;

(b) pursuant to Rule 3.20 of the Listing Rules, each Director will provide their contact

information to the Stock Exchange and to the authorized representatives. This will ensure

that the Stock Exchange and the authorized representatives should have means for

contacting all Directors (including the independent non-executive Directors) promptly at

all times as and when required;

(c) we will ensure that each Director who is not ordinarily resident in Hong Kong possesses

or can apply for valid travel documents to visit Hong Kong and can meet with the Stock

Exchange within a reasonable period;

(d) pursuant to Rule 3A.19 of the Listing Rules, our Company has retained the services of

Guotai Junan Capital Limited as compliance adviser (the “Compliance Adviser”), who

will act as an additional channel of communication with the Stock Exchange. The

Compliance Adviser will provide our Company with professional advice on ongoing

– 105 –



compliance with the Listing Rules. We will ensure that the Compliance Adviser has

prompt access to our Company’s authorized representatives and Directors. In turn, they

will provide the Compliance Adviser 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; and

(e) meetings between the Stock Exchange and the Directors can be arranged through the

authorized representatives or the Compliance Adviser, or directly with the Directors

within a reasonable time frame. We will inform the Stock Exchange as soon as practicable

in respect of any change in the authorized representatives and/or the Compliance Adviser

in accordance with the Listing Rules.

JOINT COMPANY SECRETARIES

Pursuant to Rules 3.28 and 8.17 of the Listing Rules, the company secretary must be an

individual who, by virtue of their academic or professional qualifications or relevant experience, is,

in the opinion of the Stock Exchange, capable of discharging the functions of company secretary.

Pursuant to Note 1 to Rule 3.28 of the Listing Rules, the Stock Exchange considers the

following academic or professional qualifications to be acceptable:

(a) a member of The Hong Kong Chartered Governance Institute (formerly known as The

Hong Kong Institute of Chartered Secretaries);

(b) a solicitor or barrister as defined in the Legal Practitioners Ordinance (Chapter 159 of the

Laws of Hong Kong); and

(c) a certified public accountant as defined in the Professional Accountants Ordinance

(Chapter 50 of the Laws of Hong Kong).

Pursuant to Note 2 to Rule 3.28 of the Listing Rules, in assessing “relevant experience”, the

Stock Exchange will consider the individual’s:

(a) length of employment with the issuer and other issuers and the roles they played;

(b) familiarity with the Listing Rules and other relevant law and regulations including the

Securities and Futures Ordinance, Companies Ordinance, Companies (Winding Up and

Miscellaneous Provisions) Ordinance and the Takeovers Code;

(c) relevant training taken and/or to be taken in addition to the minimum requirement under

Rule 3.29 of the Listing Rules; and

(d) professional qualifications in other jurisdictions.

– 106 –



Our Company appointed Mr. Gaozheng Zhang and Ms. Sau Ling Chan of Tricor Services

Limited as joint company secretaries of our Company on June 29, 2022. Please refer to the section

headed “Directors and senior management—Joint company secretaries” for their biographies.

Ms. Sau Ling Chan is a Chartered Secretary, a Chartered Governance Professional and a fellow

of both The Hong Kong Chartered Governance Institute (formerly known as The Hong Kong

Institute of Chartered Secretaries) and The Chartered Governance Institute (formerly known as “The

Institute of Chartered Secretaries and Administrators”), and therefore meets the qualification

requirements under Rule 3.28 Note 1 of the Listing Rules and is in compliance with Rule 8.17 of the

Listing Rules.

Accordingly, while Mr. Gaozheng Zhang does not possess the academic or professional

qualifications required of a company secretary under Rule 3.28 of the Listing Rules, we have applied

to the Stock Exchange for, and the Stock Exchange [has granted], a waiver from strict compliance

with the requirements under Rules 3.28 and 8.17 of the Listing Rules such that Mr. Gaozheng Zhang

may be appointed as a joint company secretary of our Company.

The waiver [was granted] for a three-year period from the [REDACTED] on the conditions that:

(i) Ms. Sau Ling Chan is appointed as a joint company secretary to assist Mr. Gaozheng Zhang in

discharging his functions as a company secretary and in gaining the relevant experience under Rule

3.28 of the Listing Rules; (ii) the waiver be revoked immediately if Ms. Sau Ling Chan, during the

three-year period, ceases to provide assistance to Mr. Gaozheng Zhang as the joint company secretary;

and (iii) the waiver be revoked if there are material breaches of the Listing Rules by our Company. In

addition, Mr. Gaozheng Zhang will comply with the annual professional training requirement under

Rule 3.29 of the Listing Rules and will enhance his knowledge of the Listing Rules during the three-

year period from the [REDACTED]. Our Company will further ensure that Mr. Gaozheng Zhang has

access to the relevant training and support that would enhance his understanding of the Listing Rules

and the duties of a company secretary of an [REDACTED] on the Stock Exchange. Before the end of

the three-year period, the qualifications and experience of Mr. Gaozheng Zhang and the need for on-

going assistance of Ms. Sau Ling Chan will be further evaluated by our Company. We will liaise with

the Stock Exchange to enable it to assess whether Mr. Gaozheng Zhang, having benefited from the

assistance of Ms. Sau Ling Chan for the preceding three years, have acquired the skills necessary to

carry out the duties of company secretary and the relevant experience within the meaning of Rule 3.28

Note 2 of the Listing Rules so that a further waiver will not be necessary.

CONNECTED TRANSACTIONS

We have entered into certain transactions which will constitute continuing connected

transactions of our Company under the Listing Rules following the completion of the

[REDACTED]. We have applied to the Stock Exchange for, and the Stock Exchange [has granted], a

waiver from strict compliance with (where applicable) (i) the announcement and independent

shareholders’ approval requirements, (ii) the annual cap requirement for the Contractual

– 107 –



Arrangements, and (iii) the requirement of limiting the term of the continuing connected transactions

set out in Chapter 14A of the Listing Rules for the Contractual Arrangements. For further details in

this respect, see the section headed “Connected Transactions”.

– 108 –


INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED]

[REDACTED]

– 109 –



[REDACTED]

– 110 –



[REDACTED]

– 111 –



[REDACTED]

– 112 –


DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED]

DIRECTORS

Name Address Nationality

Executive DirectorsMs. Lu Zhang (張璐) Room 1701, No. 5, Lane 99

Fangli Road, Nanxiang TownJiading DistrictShanghai, PRC

Chinese

Mr. Ming Tao (陶明) Room 407, Building 10, Huaqing JiayuanNo.35, Chengfu RoadHaidian DistrictBeijing, PRC

Chinese

Mr. Gaozheng Zhang (張高政) Room 501, Unit 4, Building 5Longboyuan No.1 CommunityChangping DistrictBeijing, PRC

Chinese

Non-executive DirectorsMr. Ye Yuan (袁野) Room 2703, No. 19, Lane 88

Jiangwancheng RoadYangpu DistrictShanghai, PRC

Chinese

Mr. Di Wu (吳頔) 6/F, Building C4No. 700 Yishan RoadXuhui DistrictShanghai, PRC

Chinese

Ms. Yu Wu (吳昱) 26D, Unit 13, Building 7Hualian City Mountain Forest Garden(Phase 2)Nanshan District, ShenzhenGuangdong, PRC

Chinese

Independent Non-executiveDirectors

Ms. Lili Xu (徐黎黎) Room 301No. 266 Hunan RoadXuhui DistrictShanghai, PRC

Chinese

Mr. Xiaohuang Huang (黃曉煌) Room 1103, Unit 1, Building 7Fangmanting EstateGongshu District, HangzhouZhejiang, PRC

Chinese

– 113 –



Name Address Nationality

Ms. Han Chen (陳晗) No. 201, Block 20, Lane 1077Bei Ai RoadPudong New AreaShanghai, PRC

Chinese

Further information about the directors and other senior management members are set out in the

section headed “Directors and Senior Management” in this document.

PARTIES INVOLVED IN THE [REDACTED]

Joint Sponsors

(in alphabetical order)

China International Capital Corporation

Hong Kong Securities Limited

29/F, One International Finance Centre

1 Harbour View Street

Central, Hong Kong

Merrill Lynch (Asia Pacific) Limited

55/F, Cheung Kong Center

2 Queen’s Road Central

Central, Hong Kong

[REDACTED]

Legal Advisers to our Company As to Hong Kong and U.S. laws

Skadden, Arps, Slate, Meagher & Flom and affiliates

42/F, Edinburgh Tower

The Landmark


Central, Hong Kong

– 114 –



As to PRC law

JunHe LLP

26/F HKRI Centre One

HKRI Taikoo Hui

288 Shimen Road (No. 1)

Shanghai, PRC

As to Cayman Islands law

Maples and Calder (Hong Kong) LLP

26/F Central Plaza,

18 Harbor Road

Wan Chai, Hong Kong

Legal Advisers to the Joint Sponsors

and the [REDACTED]

As to Hong Kong and U.S. laws

Kirkland & Ellis

26/F, Gloucester Tower

The Landmark

15 Queen’s Road Central, Hong Kong

As to PRC law

Han Kun Law Offices

9/F, Office Tower C1

Oriental Plaza

1 East Chang An Avenue

Beijing, PRC

Auditor and Reporting Accountants KPMG

Certified Public Accountants

8th Floor, Prince’s Building

10 Chater Road, Central, Hong Kong

Industry Consultant Shanghai iResearch Co., Ltd, China

3/F, Building H

Xuhui Wanke Center

No.9333 Hu Min Road

Xu Hui District

Shanghai, China

[REDACTED]

– 115 –


CORPORATE INFORMATION

Headquarters 22/F, Tower A, SCG Parkside

868 Yinghua Road

Pudong New Area

Shanghai 201204, PRC

Principal place of business in

Hong Kong

5/F, Manulife Place

348 Kwun Tong Road

Kowloon

Hong Kong

Registered office in the

Cayman Islands

PO Box 309, Ugland House

Grand Cayman, KY1-1104

Cayman Islands

Company website https://www.soulapp.cn

(the information contained on this website does not form part of

this document)

Joint company secretaries Mr. Gaozheng Zhang (張高政)

22/F, Tower A, SCG Parkside

868 Yinghua Road

Pudong New Area


Ms. Sau Ling Chan (陳秀玲)

5/F, Manulife Place

348 Kwun Tong Road

Kowloon

Hong Kong

Authorized representatives Mr. Ming Tao (陶明)


868 Yinghua Road

Pudong New Area


Mr. Gaozheng Zhang (張高政)


868 Yinghua Road

Pudong New Area


Audit committee Ms. Lili Xu (徐黎黎) (chairperson)

Mr. Di Wu (吳頔)

Ms. Han Chen (陳晗)

– 116 –


CORPORATE INFORMATION

Remuneration committee Ms. Han Chen (陳晗) (chairperson)

Mr. Xiaohuang Huang (黃曉煌)

Mr. Ye Yuan (袁野)

Nomination committee Mr. Xiaohuang Huang (黃曉煌) (chairperson)

Ms. Han Chen (陳晗)

Mr. Di Wu (吳頔)

[REDACTED]

Compliance adviser Guotai Junan Capital Limited

27/F, Low Block, Grand Millennium Plaza


Hong Kong

Principal banks Silicon Valley Bank

3003 Tasman Drive Santa Clara

California, USA

China Merchants Bank, Shanghai Jingan Temple Branch

1465 West Beijing Road, Jing’an District

Shanghai, China

– 117 –


INDUSTRY OVERVIEW

The information and statistics set out in this section and other sections of this document were

extracted from different official government publications, available sources from public market

research and other sources from independent suppliers. In addition, we engaged iResearch for

preparing the iResearch Report, an independent industry report in respect of the [REDACTED].

We believe that the sources of the information in this section and other sections of this document

are appropriate sources for such information, and we have taken reasonable care in extracting

and reproducing such information. 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. The information from official government sources has not been independently verified

by us, the Joint Sponsors, or any of our or their respective directors, officers, representatives,

employees, agents or professional advisers, or any other person or party involved in the

[REDACTED], and no representation is given as to the completeness, accuracy, or fairness of

such information. Accordingly, such information should not be unduly relied upon.

OVERVIEW OF THE MOBILE SOCIAL NETWORKING INDUSTRY IN CHINA

China has a massive mobile internet user population of 1,029.0 million as of December 31,

2021, amid the intensified transformation of China’s digital economy and the continuous

development of mobile technologies such as 5G telecommunications. Mobile social networking has

become a crucial part of China’s mobile internet users’ daily lives, with a penetration rate of 94.9%

in terms of user base as of December 31, 2021. China has the world’s largest mobile social

networking market in terms of user base with 976.5 million users as of December 31, 2021, and is

expected to grow to 1,204.1 million users in 2026.

The following charts set forth the market size of China’s mobile social networking industry, by

revenue and total user base, from 2017 to 2026:

China’s Mobile Social Networking Market Size by Revenue, 2017A~2026E

RMB Billions

Source: iResearch

CAGR 2017-2021 2021-2026E

Market Size

Market Size

2017A 2018A 2019A 2020A 2021A 2022E 2023E 2024E 2025E 2026E

412

362

307

256

205

161

131

9874

49

34.3% 20.7%

– 118 –


INDUSTRY OVERVIEW

CAGR 2017-2021 2021-2026E

User Base

720

2017A 2018A 2019A 2020A 2021A 2022E 2023E 2024E 2025E 2026E

770824

932977

1,0301,076

1,1211,165

1,204

7.9% 4.0%

Users

China’s Mobile Social Networking Market Size by Total User Base, 2017A~2026E

Millions

Source: iResearch

Generation Z is a key driving force of the evolution of China’s social network market. They are

also more eager to communicate with people with similar interests, and more prone to expressing

themselves freely. As native mobile internet users growing up in an internet era, Generation Z is also

more accustomed to interacting with people online. Generation Z had a total mobile social

networking user base of 332.5 million as of December 31, 2021, representing a penetration rate of

34.0% of the total China mobile social networking user base. China’s Generation Z mobile social

networking market reached RMB93.0 billion in 2021 and is expected to grow at a CAGR of 24.3%

from 2021 to RMB276.5 billion in 2026, faster than the growth of the overall mobile social

networking market in China. The percentage of revenue in the mobile social networking market

generated by Generation Z is expected to grow from 57.9% in 2021 to 67.1% in 2026.

Monetization of Mobile Social Networks in China

Significant Revenue Growth Potentials

The main monetization methods of China’s social networks mainly consist of value-added

services, or VAS, such as virtual items and membership subscriptions, advertising services and

others. Revenues from VAS and advertising contributed 44.0% and 49.0% of the overall mobile

social networking market in China in 2021, respectively. The growth of revenues from VAS is

mainly driven by users’ increasing willingness to pay as mobile social networks continue to upgrade

their feature and content offerings to meet users’ evolving demand and preferences. It is expected

that revenue contribution from VAS will reach 48.6% of the total mobile social networking market in

2026.

Increasing User Willingness to Pay, in Particular Generation Z

China’s mobile social networking users are increasingly willing to pay for mobile content,

especially among Generation Z. Mobile social networking platforms in China usually provide

personalized value-added services and interest-based social experiences, with significant growth

– 119 –


INDUSTRY OVERVIEW

potential in business models such as membership subscriptions and virtual gifting. The average

revenue generated per Generation Z paying user of China’s mobile social networking market has

increased from RMB287 in 2017 to RMB561 in 2021, and is expected to further increase to

RMB1,328 in 2026, while that of all Chinese paying mobile social networking users has also

increased from RMB206 in 2017 to RMB358 in 2021, and is expected to further increase to RMB670

in 2026, according to the iResearch Report.

Market Opportunity — The Emergence of the Metaverse

As technological advancements and myriad inspiring new functions bring about greater online

interactivity, mobile social networks have begun to explore the revolutionary new era of social

metaverse. Players in the mobile social networking industry have made ingenious forays into the

meta space where they enable more encouraging user experience and meaningful connections in

digitally enhanced environments. Early movers in the social metaverse front will develop strong

competitive barriers and are expected to excel in future competitions.

Historical Significance — The Inevitability of the Metaverse

As mobile disrupted PCs, by fundamentally changing how, when and why we use the internet,

so will the metaverse inexorably come to redefine our technology consumption. In many ways, the

metaverse stands in diametric opposition to the paradigm of the mobile internet today: dismantling

siloed applications, disassembling entrenched platforms and distributing centralized traffic. The

evolutionary undeniability of the metaverse rests precisely in such openness and decentralization,

forces that are palpably reshaping the concepts of social interaction, social commerce, hardware and

experiences.

Growth Catalysts — Accelerated Adoption of Technology Coupled by User Behavior Transformation

A wide range of technology, developing for decades, recently picked up momentum in terms of

its adoption. From the hardware side: faster networks, denser chips and better devices. From the

software side: new services on payment and virtual asset management, as well as clearer standards

on software interoperability. Furthermore, the receptiveness of immersive social networking and

online games by Generation Z have rehabilitated the images of virtual identities and digital assets as

speculative and lofty concepts. Then, the world suddenly leapfrogged nearly a decade in the digital

revolution as a result of the COVID-19 pandemic, giving metaverse the escape velocity to reach

mainstream status.

The Social Metaverse

The key building blocks of metaverse are virtual mirror of socialization realm, massive and

intensive interactive scenarios, immersive experience based on existence, co-creation ecosystem, and

long-lasting space.

– 120 –


INDUSTRY OVERVIEW

Virtual mirror of socialization realm. Metaverse is by design a virtual mirror of the real world,

where accessible technology can create true-to-life replicas of subjects and capture users’ manifold

dimensions and transport the precise likeness into the virtual realm. People create, communicate,

socialize and co-experience in this dimension that is free from spatial, gravitational limits and real

life pressure.

Massive and intensive interactive scenarios. Metaverse is an ever expanding universe of users

and user-built content, which together contributed to massive and intensive interactive scenarios.

These ranged from decorating and furnishing virtual houses to hanging out with friends in theme

parks. There are also myriad virtual items, assets and sounds that they can showcase, share and

incorporate into experiences. All kinds of interactions can all occur in the space, giving easy access

to interactions and shared experiences for users from all over the world.

Immersive experience based on existence. Metaverse enables sensory experience closer to

reality and interactions more personable than traditional social media. In metaverse, conversations

aren’t through text or a one-way video call, but are virtually in-person, bringing the nuances of

natural conversation that traditional social media platforms lack. With the continuous advancement

of technology, these experiences will become increasingly engaging and indistinguishable from the

real world.

Co-creation ecosystem. Metaverse offers users the space and resource to freely express

imagination that go beyond content creation. Metaverse users do not simply assume the roles of

observers and players, they are also contributors, engineers and developers of tools, features,

settings, environments and experiences in the metaverse space.

Long-lasting space. Metaverse is also characterized by its continuous nature. It is a persistent

virtual space that continues to exist even when users are not playing. The experience of users in the

metaverse is also continuous. Users’ online identities, experiences, relationships, and assets become

long-lasting both realistically and emotionally.

Monetization Potential of the Social Metaverse — Trillions in Social Commerce, Digital Events and

Hardware

The metaverse, in a manner unprecedented in the history of information technology, converges

the physical with the digital in a way that is persistent, real-time rendered and infinite. The hyper

perception and engagement of users created by such convergence unleashes the power of internet

monetization to its fullest. The interchangeability between one’s physical and virtual identities, as

well as the total sense of presence within the metaverse shared experience, are poised to help the

networks of tomorrow breach the current ceiling of daily user engagement hovering at approximately

eight hours. This categorically longer time spent on the metaverse translates into more lucrative

revenue opportunities. As Generation Z takes center stage in the world of consumption, their

pronounced desire to have everything digitized is turbo-charging the advent of the metaverse. The

emergence of metaverse will also create a new market place for the creator economy to grow.

– 121 –


INDUSTRY OVERVIEW

Monetization in the social networking industry has come in many forms, and new strategies

will likely evolve with the emergence of the metaverse. In-app purchases and creator economy are

expected to deliver a large share of value to metaverse. As users build avatars to express themselves

with and trade digital assets with other users, metaverse can capitalize on such opportunities through

the sale of a wide variety digital assets and fees charged through user transactions. Metaverse

advertising will also be a key contributor to the monetization of metaverse. Though metaverse

advertising is still in its initial stage, global brands have already turned their focus to this brand-new

market niche, eyeing tremendous potential. From inserting ads that appear natively in the metaverse

landscape, such as erecting digital billboards in a metaverse city scape to virtual fitting for clothing

and cosmetics, marketers are pushing the boundaries of how advertisements can be made in

innovative, engaging and cost-effective ways, thereby generating huge monetization opportunities

for metaverses.

OVERVIEW OF THE OPEN-ENDED MOBILE SOCIAL NETWORKING INDUSTRY IN CHINA

Unlike closed-ended social networks, which are predicated on the pre-existing off-line

acquaintance relationships among their users, open-ended social network platforms accommodate

unfettered interactions among their users with algorithm-driven recommendations, UGC, audio/video

communication tools and interest-based communities. Users in open-ended social scenarios can meet

up new people and form new relationship with no geographic and social constraints, fulfilling their

diversified social needs. Among the social networking industry participants, products that are open-

ended (i.e. no need to form a formal “friend” relation on the app in order to talk to each other) are

more suitable for early developments into social metaverses.

Therefore, open-ended social networks allow their users to have more opportunities to interact

with each other, which in turn cultivates more possibilities of diversified relationships. The market

size of China’s open-ended mobile social networking reached RMB50.0 billion in 2021, and is

expected to grow at a CAGR of 32.1% from 2021 to 2026, reaching RMB200.8 billion in 2026,

outpacing that of the overall mobile social networking industry in China.

– 122 –


INDUSTRY OVERVIEW

The below charts set forth the market size of China’s open-ended mobile social networking

industry by revenue from 2017 to 2026:

China’s of China Open-ended Mobile Social Networking Market Size by Revenue, 2017A - 2026E

RMB Billions

Source: iResearch

Market Size

13

2017A 2018A 2019A 2020A 2021A 2022E

Market Size

2023E 2024E 2025E 2026E

2030

34

50

74

103

135

201

169CAGR 2017-2021 2021-2026E

40.8% 32.1%

Key Drivers of Open-ended Mobile Social Networks in China

Growing demand for appearance-agnostic and interest-driven social networking

Generation Z has become the key driver of the user base of China mobile social networks.

According to the user survey conducted by iResearch, Generation Z users have greater and more

diversified demands for online social networking compared to the previous generations. In particular,

the market has witnessed a strong preference of Generation Z users for appearance-agnostic and

interest-driven interactions, which are the key features of open-ended mobile social networks. The

further development of technologies such as smart recommendations also provides a suitable soil for

the further advancement of social networks that are more appearance-agnostic and interest-driven.

Based on these market developments, a small number of industry players have already evolved into

virtual universe-like products that provide holistic and immersive socialization experiences based on

virtual identities and interest graphs. The growing demand for appearance-agnostic and interest-

driven social networking will continue to boost the growth of open-ended mobile social networks.

Growing needs of in-depth genuine relationships

Users, especially Generation Z users, have a strong and evolving desire to interact for genuine

connections and in-depth relationship building outside their social circles. Such needs have become

the important driving force for open-ended social networking platforms to develop social products

and functions that promote genuine interpersonal connections and cultivate welcoming and cohesive

community. Compared to close-ended mobile social networks that serve as an extension to social

– 123 –


INDUSTRY OVERVIEW

relationship developed in real life, open-ended social networks are better poised to deliver a social

experience without constraints of appearance and acquaintances, enabling users to freely express and

build genuine relationships with like-minded people. In addition, open-ended mobile social networks

tend to have more comprehensive suite of products and features purpose-built for in-depth

relationship building, for example, private chat function with more interactive and gamified features,

party-rooms with customizable themes and interaction styles and party games.

Innovations in technologies driving immersive experiences

At present, most open-ended mobile social networking platforms are still dominated by 2D

modules with some platforms exploring 3D designs that create a more immersive experience at the

intersection of digital connection and face-to-face relationships. The emergence of immersive social

network was made possible by the advancement and increased application of cloud computing, big

data, VR virtual reality and other technologies, which enable ultra-low latency audio and video

communication, high definition video and enhanced virtual reality, among others. Users not only

create, share, and interact, with immersive social network users can also explore and interact with 3D

environments and collaborate with others in a virtual space to enjoy a richer, more compelling and

personal way of communicating and co-experience meaningful moments. Such immersive experience

further propels user engagement and drive rapid user growth.

Social metaverse revolutionizes social interaction

Social metaverse is expected to drive the growth of open-ended mobile social networks by

bringing users into a broader digital plain and delivering next level engagement. With the help of

technologies and connective tools, people come together in a new creative space, take on new

identity with digital avatars, participate in more interactive scenarios and build new relationship free

of real-life constraints. Seeing huge potential of metaverse in social interaction, many open-ended

mobile networks in China and around the world have been building the foundational components of

the metaverse over the past few years and many more are expected to join.

Barriers to Entry of the Open-Ended Mobile Social Networking Industry in China

User Base and In-depth Relationships

Large and active user base forms a key competitive barrier for open-ended mobile social

networking platforms. The expansion of user scale brings greater diversity of users across age groups

and interests and more comprehensive content categories and formats. Such diversified mix of users

and content can attract users with a variety of interests, drive user engagement and facilitate the

building of in-depth and genuine relationship, therefore further increase the scale of the active user

base, forming a virtuous cycle.

– 124 –


INDUSTRY OVERVIEW

Creative and Evolving Functionalities

Creative and constantly evolving functionalities are important to the continued success of the

open-ended mobile social networking platforms. Users, in particular Generation Z, are more likely to

be attracted by innovative and fun functionalities, which help elevate user experience and increase

user engagement. An open-ended mobile social networking platform’s ability to leverage cutting-

edge technologies, such as big-data analytics to stay abreast of industry trends and develop a deeper

understanding of users’ needs is becoming growingly important. Platforms that can constantly

promulgate innovative functionalities that cater to such evolving user preferences and needs are more

likely to be favored by users.

Technological Capabilities — Big Data, Extended Reality, 3D Avatars, and Content Moderation

Cutting-edge technologies such as big data analysis, recommendation algorithm and extended

reality have been redefining the way social networking platforms compete, and how they enhance

user experience and cater to users diversified and evolving social needs. Established players in the

industry have leveraged big data, and advanced recommendation algorithms to connect users and

distribute a diverse array of content. The emergence and increased adoption of extended reality and

3D avatars are also expected to drive the technological transformation of the open-ended mobile

social networking industry. In addition, technologies including machine learning and big data

analytics also play a crucial role in content moderation. Powerful content moderation technology can

effectively identify risky and sensitive information to ensure user experience and safety, encourage

genuine interaction and promote community values. As technological capabilities form an important

bedrock of the open-ended mobile social networking industry, established players with leading

technology capacity will be best positioned to develop and maintain competitive advantages.

Competitive Landscape of the Open-Ended Mobile Social Networking Industry in China

Soul had the largest number of average daily private messages sent per user of the private

message feature and highest average daily launches per device in 2021 in the open-ended mobile

social networking industry in China. The following charts set forth Soul’s industry position within

the open-ended mobile social networking industry in China, in terms of average DAUs, average

MAUs and average daily launches in 2021, among major players in the industry.

Soul Company A(1) Company B(2) Company C(3) Company D(4) Company E(5)

Average MAUs (in

million) . . . . . . . . . . . . . . . 31.6 103.5 35.7 23.7 16.4 14.5

Average DAUs (in

million) . . . . . . . . . . . . . . . 9.3 33.4 9.9 7.0 3.9 3.3

Soul Company E(5) Company F(6) Company G(7) Company D(4)

Average daily launches per device . . . . . . . . 29.9 23.4 13.5 13.2 11.8

– 125 –


INDUSTRY OVERVIEW

Notes:

(1) Company A is a leading location-based mobile social networking platform in China.

(2) Company B is a social networking platform with many interest communities and forums for users with similar interests to

interact. It is originated from PC-based social networking platform.

(3) Company C is a mobile social networking platform targeting young generations and offer matched up profiles based on user’s

geolocation, interests and other information.

(4) Company D is an interest-driven social networking platform for users to record information, create content and communicate

on topics related to film, books, music and recent events, among others. It is originated from PC-based social networking

platform.

(5) Company E is a leading player-centric mobile social networking platform in China.

(6) Company F is a mobile social networking platform providing online social board games that allow users to meet new friends

while playing games.

(7) Company G a mobile social networking platform focusing on interest groups and contents, especially known for entertainment

topics.

As metaverse gradually enters the mainstream realm and continues to prove its promised

potential, many open-ended mobile social networking platforms are investing in feature design and

technologies to leap beyond the traditional media roots to embrace the advantages metaverse can

bring. Soul is one of the first social networks in China with a vision and roadmap to building a social

metaverse. Soul’s core characteristics also align with the several specific features of the social

metaverse. Soul is the first social networking platform in China where all users interact through

virtual identities via avatars, according to the iResearch Report. In terms of interactive features and

user experience, users of the Soul app can enjoy immersive experience through massive interactive

and hyper-real scenarios underpinned by diversified features and advanced technologies. Soul also

fosters a co-creation system where users use rich multi-media content creation tools to design and

trade avatars, formulate new ways of interaction and develop unique syntax and subcultures.

SOURCE OF INFORMATION

We commissioned iResearch to conduct market research concerning the social network industry

in China. We believe that iResearch has specialized research capabilities and experience in this

industry in China. Except as otherwise noted, all of the data and forecasts contained in this section

are derived from the iResearch Report.

The iResearch Report

iResearch is an independent market intelligence provider that provides market research,

information and advice to companies in various industries, including the social network industry. We

have agreed to pay a commission fee of RMB510 thousand for the iResearch Report. The iResearch

Report was compiled using both primary and secondary research conducted in China. The primary

research involved expert interviews and company interviews. The secondary research utilized

– 126 –


INDUSTRY OVERVIEW

information and statistics published by government departments, industry associations, publications

and studies by industry experts, public company annual and quarterly reports, iResearch’s other

research reports, online resources and data from iResearch’s research database.

iResearch’s projection on the size of each of the related markets in China takes into

consideration various factors, including (i) historical market size data, (ii) the public filings of, and

other publicly available information regarding, social networking platforms, and those companies’

projections of the related industries from iResearch’s interviews or communications with them,

(iii) the projections of other industry experts, and (iv) iResearch’s views and estimates of industry

developments. iResearch has prepared the iResearch Report on the assumptions that (i) the social,

economic and political environments of China will remain stable during the forecast period, which

ensures a sustainable and steady development of China’s mobile internet industry, (ii) the data

quoted from authoritative agencies remains unchanged, (iii) related key industry drivers remain

relevant and applicable in the forecast period, and (iv) there will be no subversive changes to the

related industries. The reliability of the iResearch Report may be affected by the accuracy of the

foregoing assumptions and factors.

Directors’ Confirmation

Our Directors have confirmed, after making reasonable inquiries and exercising reasonable

care, that there is no adverse change in the market information since the date of publication of the

iResearch Report, which may qualify, contradict or impact the information in this Industry Overview

section.

– 127 –


HISTORY, DEVELOPMENT, AND CORPORATE STRUCTURE

OVERVIEW

We have operated our business in China under the business name “Soul” through our domestic

operating entity, Shanghai Soulgate Technology Co., Ltd., since its inception in 2015. We

incorporated our Company, Soulgate Inc., under the laws of Cayman Islands in May 2017. We

launched our mobile app in November 2016, through which we have operated a leading social

network and pioneered the building of a virtual social playground in China. Our mission is to build a

“soul”cial metaverse together with our users and enable socialization in a virtual society with

genuine happiness and a sense of belonging. Since our inception, we have been led by our

chairwoman, executive Director, chief executive officer and founder, Ms. Lu Zhang, who has deep

insights and understanding of online social products and years of experience in data-driven

businesses. For details about the experience and background of Ms. Lu Zhang, please refer to the

section headed “Directors and Senior Management” of this document.

KEY BUSINESS MILESTONES

The following is a summary of our key business development milestones:

Timeline Event

2015 We set up Shanghai Soulgate Technology Co., Ltd. (上海任意門科技有限公司), our domesticoperating entity in the PRC, and commenced business operation.

2016 We launched our mobile app — “Soul”.

2017 We developed and implemented our proprietary recommendation algorithm and advancedinterest graph depiction system for the planets (星球) feature of our mobile app, making dataanalytics the driving force behind our platform; we introduced gamified features in our mobileapp.

2018 Soul’s DAU exceeded 1 million.

2019 We started to monetize our business through value-added services.

2020 We began monetization through advertising services, and introduced the Audio Partyroomfeature in our mobile app.

2021 Soul’s DAU exceeded 10 million, and we introduced and started to generate revenue from theGiftmojis services.

2022 We introduced the 3D Video Partyroom feature in our mobile app.

OUR MAJOR SUBSIDIARIES AND OPERATING ENTITIES

The principal business activities and date and jurisdiction of establishment of each member of

our Group that made a material contribution to our results of operation during the Track Record

Period are shown below:

Name Principal business activities Date and jurisdiction of establishment

Shanghai Soulgate Technology Co.,Ltd.

Social networking relatedservices

June 17, 2015, PRC

Shanghai Soul InformationTechnology Co., Ltd.

Investment holding; technologydevelopment and consultingservices

August 10, 2017, PRC

– 128 –



SHAREHOLDING OF OUR COMPANY

Major shareholding changes

Our Company was incorporated as an exempted company with limited liability in the Cayman

Islands on May 16, 2017 with an authorized share capital of US$50,000 that was divided into

500,000,000 shares with a par value of US$0.0001 each. During 2017-2021, our Company underwent

seven rounds of Pre-[REDACTED] Investments. For details, see “— Pre-[REDACTED]

Investment” for further information about the Pre-[REDACTED] Investments.

On the date of incorporation of our Company, 1 founding ordinary share was transferred from

the initial subscriber (a corporate service agent), and 53,435,079 ordinary shares were issued and

allotted, to Soulgate Holding Limited.

On June 14, 2017, a total of 1,648 ordinary shares held by J&M Capital Limited and Mingjun

Capital Limited respectively were transferred, and 3,698 ordinary shares were issued and allotted to,

Soulgate Holding Limited. As at June 14, 2017, Soulgate Holding Limited held 53,440,426 ordinary

shares of our Company.

Throughout 2017 to 2020, our Company issued various rounds of Preferred Shares in connection

with a range of financing agreements under the Pre-[REDACTED] Investments. On May 14, 2020,

2,812,654 ordinary shares were further issued and allotted to Soulgate Holding Limited as a result of

exercise of options under the Pre-[REDACTED] Share Incentive Plan. On the same date, a total of

2,608,556 ordinary shares held by Soulgate Holding Limited were repurchased by our Company.

On May 10, 2021, our Company increased its authorized share capital by US$50,000, following

which our Company’s authorized share capital became US$100,000 divided into 1,000,000,000 shares

with a par value of US$0.0001 each. 5,037,221 ordinary shares were also transferred to Image Frame

from Soulgate Holding Limited. As of such date, Soulgate Holding Limited owned 48,607,303

ordinary shares of our Company. Subsequently, 35,814,050 out of the 48,607,303 ordinary shares held

by Soulgate Holding Limited that were re-designated and re-classified as Class B Ordinary Shares on a

one-for-one basis. The rest of our issued and unissued ordinary shares in authorized share capital were

re-designated and re-classified as Class A Ordinary Shares on a one-for-one basis, while all of our

issued Preferred Shares in authorized share capital were re-designated and re-classified as Class A

Ordinary Shares on a one-for-one basis (collectively, the “Prior Share Conversions”).

On October 10, 2021, all of the Prior Share Conversions were reversed in their entirety. Upon

such reversal and as of the date of this document, our authorized share capital is US$100,000 divided

into 1,000,000,000 shares with a par value of US$0.0001 each, comprising of (i) 881,426,495

ordinary shares; (ii) 1,381,243 Series Angel Preferred Shares, (iii) 3,434,218 Series A Preferred

Shares, (iv) 3,063,528 Series A-1 Preferred Shares, (v) 4,628,215 Series B Preferred Shares,

(vi) 11,626,467 Series C Preferred Shares, (vii) 4,043,262 Series D-1 Preferred Shares,

(viii) 24,594,961 Series D-2 Preferred Shares, (ix) 47,169,068 Series D-3 Preferred Shares, and

(x) 18,632,543 Series D-4 Preferred Shares.

See “— Pre-[REDACTED] Investment” for further information about the Pre-[REDACTED]

Investments.

– 129 –



Shareholding summary

The table below sets out a summary of the shareholding structure of our Company as of the date

of this document and immediately prior to the [REDACTED], and the shareholding structure of our

Company immediately following the completion of the [REDACTED] (assuming the Presumptions):

Shareholder(1) Type of shares Number

Voting

percentage as of

the date of this

document and

immediately

before the

[REDACTED](2)

Shareholding

percentage as

of the date of

this document

and

immediately

before the

[REDACTED]

Shareholding

percentage

immediately

following the

completion of the

[REDACTED]

(assuming the

Presumptions)

Voting percentage

immediately

following the

completion of the

[REDACTED]

(assuming the

Presumptions)

Soulgate

Holding

Limited

Ordinary Shares 48,607,303 49.90% 28.50% [REDACTED]% [REDACTED]%

Image Frame

Investment

(HK) Limited

Series D-1

Preferred Shares

4,043,262 28.50% 49.90% [REDACTED]% [REDACTED]%

Series D-2 Preferred

Shares

24,594,961


Shares

47,169,068


Shares

9,297,639

miHoYo

Limited


Shares


Genesis Capital

I LP

Series B Preferred

Shares


Series C Preferred

Shares

6,975,880

Morningside

China TMT

Fund IV, L.P.

Series Angel

Preferred Shares

363,119 3.77% 3.77% [REDACTED]% [REDACTED]%

Series A Preferred

Shares

1,561,008

Series A-1 Preferred

Shares

2,475,578

Series B Preferred

Shares

970,954

– 130 –




Voting

percentage as of

the date of this

document and

immediately

before the

[REDACTED](2)

Shareholding

percentage as

of the date of

this document

and

immediately

before the

[REDACTED]

Shareholding

percentage

immediately

following the

completion of the

[REDACTED]

(assuming the

Presumptions)

Voting percentage

immediately

following the

completion of the

[REDACTED]

(assuming the

Presumptions)

Series C Preferred

Shares

1,056,952

MFUND, L.P. Series Angel

Preferred Shares


Series A Preferred

Shares

1,717,109

Series A-1 Preferred

Shares

340,392

Series B Preferred

Shares

178,008

GGV Capital VI

L.P.

Series C Preferred

Shares


J&M Capital

Limited


Mingjun Capital

Limited


Apoletto Asia

Ltd

Series B Preferred

Shares


VENTEK

LIMITED


Morningside

China TMT

Fund IV Co-

Investment, L.P.

Series Angel

Preferred Shares


Series A PreferredShares

156,101

Series A-1Preferred Shares

247,558

Series B PreferredShares

97,096

Series C PreferredShares

105,695

– 131 –




Voting

percentage as of

the date of this

document and

immediately

before the

[REDACTED](2)

Shareholding

percentage as

of the date of

this document

and

immediately

before the

[REDACTED]

Shareholding

percentage

immediately

following the

completion of the

[REDACTED]

(assuming the

Presumptions)

Voting

percentage

immediately

following the

completion of the

[REDACTED]

(assuming the

Presumptions)

Lighthouse

International

Growth Fund L.P.

Series C Preferred

Shares


Lighthouse

Capital

International Inc.

Series B Preferred

Shares


GGV Capital VI

Entrepreneurs

Fund L.P.

Series C Preferred

Shares


Total 170,550,963 100.0% 100.0% [REDACTED]% [REDACTED]%

Notes:

(1) Each of the shareholders have entered into the Pre-[REDACTED] Shareholders’ Agreement, pursuant to which the

shareholders have been granted certain special rights in relation to our Company; the Pre-[REDACTED] Shareholders’

Agreement (together with the special rights granted thereunder) will terminate prior to or upon completion of the

[REDACTED].

(2) On October 10, 2021, Image Frame, as grantor, entered into the Voting Proxy in favor of Ms. Lu Zhang, our chief executive

officer and founder, pursuant to which Image Frame granted a voting proxy in favor of Ms. Lu Zhang to vote the equivalent of

36,500,000 ordinary shares (on an as-converted basis) held by Image Frame. For further details, see “— Voting Proxy”.

PRE-[REDACTED] INVESTMENT

Overview

We have entered into seven rounds of Pre-[REDACTED] Investments since our incorporation.

The table below sets out a summary of the financing rounds.

Round 1(1) Round 2 Round 3 Round 4 Round 5 Round 6(2) Round 7

Date of agreements October 28,

2016

September 5,

2017

November 10,

2017

April 16,

2018

December 7,

2018

May 14,

2020

July 6,

2021

Date of completion January 6,

2017

October 26,

2017

November 15,

2021

April 18,

2018

December 27,

2018

August 31,

2020

August 20,

2021

– 132 –



Round 1(1) Round 2 Round 3 Round 4 Round 5 Round 6(2) Round 7

Total number of

shares under the

investment

agreement

3,309,177

Series

Angel

Preferred

Shares

12,195,122

Series A

Preferred

Shares

10,878,780

Series A-1

Preferred

Shares and

1,595,704

Series Angel

Preferred

Shares

16,435,085

Series B

Preferred

Shares

13,254,173

Series C

Preferred

Shares

4,043,262

Series D-1

Preferred

Shares and

24,594,961

Series D-2

Preferred

Shares

18,632,543

Series D-4

Preferred

Shares

Cost per Share paid

by investors

US$0.064

per Series

Angel

Preferred

Share

US$0.12 per

Series A

Preferred

Share

US$0.40 per

Series A-1

Preferred

Share and

US$0.069 per

Series Angel

Preferred

Share

US$1.58

per Series

B

Preferred

Share

US$4.30 per

Series C

Preferred

Share

US$3.71

per Series

D-1

Preferred

Share and

US$4.88

per Series

D-2

Preferred

Share

US$9.52

per Series

D-4

Preferred

Share

Issuance

consideration

US$0.2

million

US$1.5

million

US$4.5

million

US$26.0

million

US$57.0

million

US$135.0

million

US$177.4

million

Discount to the

[REDACTED]

(based on the

mid-point of the

[REDACTED])

[REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Use of

[REDACTED]

from the Pre-

[REDACTED]

Investments

The proceeds from the Pre-[REDACTED] Investments were used for the development and

operations of our Group and general working capital purposes. As of the Latest Practicable

Date, we had utilized approximately 75% of these [REDACTED].

Benefits of the Pre-

[REDACTED]

Investors

Our directors were of the view that our Company would benefit from the additional capital and

knowledge and expertise brought by the Pre-[REDACTED] Investors, particularly in their

strategic investments in the industry where we operate. Our Company would also benefit from

the Pre-[REDACTED] Investors’ commitment to our Company, with their investment in our

Company demonstrating their confidence in our business and serving as an endorsement of our

Group’s performance, business development and prospects.

Notes:

(1) Round 1 investment was made in respect of Shanghai Soulgate Technology Co., Ltd. before our Company was incorporated.

– 133 –



(2) On May 10, 2021, Image Frame and certain of the shareholders of our Company entered into a share transfer agreement,

pursuant to which Image Frame acquired an aggregate amount of 47,169,068 ordinary shares and preferred shares from such

shareholders, which were re-designated and re-classified as Series D-3 Preferred Shares.

The consideration for each of the Pre-[REDACTED] Investments set out above was determined

based on arm’s length negotiations between our Company and the Pre-[REDACTED] Investors after

taking into account the timing of the subscription and the illiquidity of the shares as a private

company when the Pre-[REDACTED] Investments were entered into.

Rights of the Pre-[REDACTED] Investors

The Pre-[REDACTED] Investors have been granted certain special rights, including but not

limited to information and registration rights, pre-emptive rights, redemption rights, grants of put

option, information and inspection rights and drag-along rights for certain Pre-[REDACTED]

Investors. The special rights will terminate prior to or upon completion of the [REDACTED]. The

redemption rights granted to the Pre-[REDACTED] Investors were terminated prior to the first

submission of the [REDACTED] application by our Company to the Stock Exchange for the purpose

of the [REDACTED], and all other special rights shall be automatically terminated upon the

completion of the [REDACTED], in compliance with Guidance Letter HKEx-GL43-12 issued by the

Stock Exchange.

[REDACTED]

Information on the principal Pre-[REDACTED] Investors

We set out below a description of our principal Pre-[REDACTED] Investors, being private

equity funds or corporations that have made meaningful investments in our Company and each

holding more than 2% of our total issued share capital as of the date of this document (on a fully-

converted basis).

– 134 –



Image Frame Investment (HK) Limited is a private limited company incorporated under the

laws of Hong Kong. The sole member of Image Frame Investment (HK) Limited is Tencent Holdings

Limited, a company incorporated in the Cayman Islands with limited liability and the issued shares

of which are listed on the Stock Exchange (SEHK: 700).

miHoYo Limited is a private limited company incorporated under the laws of Hong Kong. It is

a leading mobile gaming company in China, whose major products include the worldwide

phenomenon Genshin Impact (原神). miHoYo Limited is controlled by a group of three individuals

independent from us, including Mr. Wei Liu, Mr. Yuhao Luo and Mr. Haoyu Cai.

Genesis Capital I LP is a Cayman Islands limited partnership. Genesis Capital I LP is managed

by Genesis Capital Ltd, its general partner, which is wholly-owned by Yuan Capital Ltd. Yuan

Capital Ltd is wholly-owned by Mr. Zhijian Peng, an individual independent from us.

Morningside China TMT Fund IV, L.P., or Morningside Fund IV, and Morningside China TMT

Fund IV Co-Investment, L.P., or Morningside Fund IV Co-Investment, are both controlled by

Morningside China TMT GP IV, L.P., their general partner. Morningside China TMT GP IV, L.P., in

turn, is controlled by TMT General Partner Ltd., its general partner. Each of Liu Qin, Shi Jianming

and Morningside Venture (VII) Investments Limited is entitled to exercise or control the exercise of

one-third of the voting power of all issued shares in TMT General Partner Ltd. at its general meeting.

Morningside Venture (VII) Investments Limited is indirectly 100% held through a series of 100%

owned holding companies by the Landmark Trust Switzerland SA as trustee of a discretionary trust

established by Mdm. Chan Tan Ching Fen for the benefit of certain members of her family and other

charitable objects.

To the best knowledge of our Directors, each of the Pre-[REDACTED] Investors, including

those holding less than 2% of our total issued share capital as of the date of this document (on a

fully-converted basis), other than Image Frame, are Independent Third Parties.

Compliance with Stock Exchange guidance

On the basis that: (i) the consideration for the Pre-[REDACTED] Investments was settled more

than 28 clear days before [REDACTED] to the Stock Exchange in relation to the [REDACTED];

and (ii) no special rights to the Pre-[REDACTED] Investors will exist after the [REDACTED], the

Joint Sponsors have confirmed that the Pre-[REDACTED] Investments are in compliance with the

Guidance Letter HKEX-GL29-12 issued by the Stock Exchange in January 2012 (and last updated in

March 2017), the Guidance Letter HKEX-GL43-12 issued by the Stock Exchange in October 2012

(and last updated in March 2017) and the Guidance Letter HKEX-GL44-12 issued by the Stock

Exchange in October 2012 and as updated in March 2017.

– 135 –



VOTING PROXY

On October 10, 2021, Image Frame, as grantor, entered into the Voting Proxy in favor of

Ms. Lu Zhang, our chairwoman, executive Director, chief executive officer and founder. Pursuant to

the Voting Proxy, Image Frame has granted a voting proxy in favor of Ms. Lu Zhang in respect of,

and Ms. Lu Zhang is entitled to the voting rights attached to a number of preferred shares equivalent

to 36,500,000 ordinary shares (on an as-converted basis) held by Image Frame. The sole purpose of

the Voting Proxy is to allow Ms. Lu Zhang to continue to have voting control over our Company and

its business operations despite not having the majority of our Company’s voting rights after

Tencent’s participation (through Image Frame) in the Pre-[REDACTED] Investments. The Voting

Proxy will continue until the earliest occurrence of the following events: (i) the fifth

(5th) anniversary of October 10, 2021, (ii) Ms. Lu Zhang voluntarily resigns from her positions at our

Company as a Director and an executive officer, and continues to serve as neither for a period of 20

consecutive business days thereafter, (iii) Ms. Lu Zhang is permanently incapable of acting as a

Director and an executive officer of our Company as a result of legal judgment or physical or mental

incapacity, and (iv) Ms. Lu Zhang beneficially owns less than 24,303,651 ordinary shares (subject to

subsequent adjustment for share subdivisions, share dividends, reverse share subdivisions, re-

capitalizations and the like) of our Company, while Tencent and its affiliates (which shall always

exclude our Company) collectively beneficially own more than 42,552,465 Shares (subject to

subsequent adjustment for share subdivisions, share dividends, reverse share subdivisions, re-

capitalizations and the like) of our Company.

Immediately after the completion of the [REDACTED] (assuming the Presumptions), Ms. Lu

Zhang will control approximately [REDACTED]% of the voting power of our Company pursuant to

Shares controlled by her directly and the Voting Proxy; Image Frame will control approximately

[REDACTED]% of the voting power of our Company, pursuant to Shares controlled by it directly

and the Voting Proxy. Accordingly, Image Frame will not be deemed a controlling shareholder as

defined under the Listing Rules upon [REDACTED].

PRE-[REDACTED] SHARE INCENTIVE PLAN

In November 2017, our Company adopted the Pre-[REDACTED] Share Incentive Plan. In

April 2018, the board of Directors approved the increase of shares reserved for issuance under the

Pre-[REDACTED] Share Incentive Plan to 18,959,799 shares. During the year ended December 31,

2020, 2,812,654 share options were exercised and the underlying shares were issued, resulting in the

decrease of number of shares reserved for issuance under the Pre-[REDACTED] Incentive Plan to

16,147,145.

The Company expects to issue the 16,147,145 Shares underlying the Pre-[REDACTED] Share

Incentive Plan and pursuant to the share awards granted thereunder to a trust before the

[REDACTED]. See “Statutory and general information — Share Incentive Plans” in Appendix IV

for further details of the principal terms of the plan and grants of share awards thereunder.

– 136 –



PROPOSED LISTING IN THE UNITED STATES

On May 10, 2021, we filed a registration statement on Form F-1 (the “F-1 Registration

Statement”) with the U.S. Securities and Exchange Commission (the “SEC”) in relation to our

proposed initial public offering in the United States (the “Proposed U.S. Listing”). In view of the

market conditions, we withdrew our F-1 Registration Statement on June 9, 2022 and terminated our

Proposed U.S. Listing process as we consider that [REDACTED].

– 137 –


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– 138 –


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– 139 –



Contractual arrangements

On May 16, 2022, the WFOE entered into various agreements which constitute the Contractual

Arrangements with the VIE and/or its Registered Shareholders (as applicable), under which we are

able to exercise effective control over the VIE, and all economic benefits arising from the businesses

of the VIE and its subsidiaries (collectively, the “Consolidated Affiliated Entities”) could be

transferred to the WFOE to the extent permitted under PRC Laws by means of services fees payable

by the VIE to the WFOE. See “Contractual Arrangements” for details.

PRC REGULATORY REQUIREMENTS

The Regulations 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》), or the M&A Rules, jointly issued by MOFCOM, the SASAC,

the STA, the CSRC, the SAIC (currently known as the SAMR) and the SAFE on August 8, 2006,

effective as of September 8, 2006 and amended on June 22, 2009 with immediate effect, require that

the offshore special purpose vehicle that is controlled by PRC companies or individuals formed for

the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC

domestic companies of the aforementioned PRC companies or individuals using shares of such

special purpose vehicle or shares held by its shareholders as a consideration to obtain CSRC

approval prior to the listing and trading of such special purpose vehicle’s securities on an overseas

stock exchange.

Our PRC Legal Adviser has advised us that, based on its understanding of the PRC laws and

regulations currently in effect, such CSRC approval will not be required for this [REDACTED]

given that we do not constitute the “special purpose vehicle” to which the aforementioned provisions

of the M&A Rules are applicable. However, our PRC Legal Adviser further advised that there is

uncertainty as to how the M&A Rules will be interpreted or implemented, and new rules or

regulations promulgated in the future may impose additional requirement on us.

SAFE REGISTRATION

Pursuant to the Circular of the SAFE on Foreign Exchange Administration of Overseas

Investment, Financing and Round-trip Investments Conducted by Domestic Residents through

Special Purpose Vehicles (《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》) (the “SAFE Circular 37”), promulgated by SAFE and become effective on

July 4, 2014, 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 indirectly controlled by the PRC resident for the purpose of conducting investment or

financing. Pursuant to SAFE Circular 37, failure to comply with such registration procedure may

result in penalties.

Pursuant to the Circular of the SAFE on Further Simplification and Improvement in Foreign

Exchange Administration on Direct Investment (《關於進一步簡化和改進直接投資外匯管理政策的通知》) (the “SAFE Circular 13”) that is promulgated by the SAFE and effective on June 1, 2015, the

– 140 –



power to accept SAFE registration was delegated from local SAFE to local banks where the assets or

interests in the domestic entity are located.

As advised by our PRC Legal Adviser, Ms. Lu Zhang has completed her initial SAFE

registration as required by SAFE Circular 37.

– 141 –


BUSINESS

Our Mission

We aspire to build, together with our users, a “soul”cial metaverse that enables genuine

happiness and a sense of belonging.

Who We Are

The Soul universe







Report.








According to the iResearch Report, Soul is the first social networking platform in China where all of

the users interact through virtual identities in the form of avatars.

We have a large and fast-growing user base of young users, who possess strong desire for self-

expression and look for genuine connections and relationship building based on common interests. In

2021, the numbers of our average MAUs and average DAUs were 31.6 million and 9.3 million,

respectively, representing a year-over-year growth of 51.6% and 55.8%, respectively. With our

distinct positioning in the social networking industry, extensive offering of innovative features, and

immersive experience purpose-built for stress-free communications and interactions, Generation Z

constitutes the core of our user base and continues to serve as the driving force of the Soul universe.

In 2021, 74.9% of our average MAUs were Generation Z.

Our users’ or Soulers’ journey starts with creating brand new identities with avatar in the Soul

app to hone the cyber identities they desire. With these virtual identities, Soulers freely create, share,

explore and connect with the help of our interest-graph driven recommendation, comprehensive

community functionalities and gamified features. Based on each Souler’s interest-graph, we

accurately recommend to each Souler curated content and other Soulers with similar personalities,

lifestyles and interests, enabling more in-depth interactions and more meaningful connections. Our

wide variety of community functionalities and gamified features also enable and inspire Soulers to

find new ways to interact and co-experience.

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BUSINESS

Why people need Soul

Identifying, building and maintaining genuine interpersonal connections are universal and

indispensable human needs. We have observed the plaguing unfulfilled needs of young people in

China to communicate, explore new ideas and receive emotional support from others. They may lack

such opportunities from the physical world for the complicated nature of societal links and

constraints of the mundane lives.

Unfortunately, rather than expanding social circles, many social networking platforms in China

today are simplified and diminished continuations of the physical dimension people reside in. While

advancements in technology have brought us closer by eradicating physical barriers, paradoxically,

they have also made us farther apart than ever by perpetuating and amplifying social inequalities and

pressures. While influencers and opinion leaders are given podiums to speak, most people do not get

much attention and are wary of judgment, and are therefore reluctant to create content on social

media.

We created Soul as an innovative solution to address these issues and offer every user,

especially the young generation, the opportunity for self-value expression, stress-free

communications and interactions. We intelligently recommend curated content and people with

similar interest and personalities to each Souler and to help them form genuine relationships in our

social playground.

What makes young people love Soul

We believe several distinct characteristics of Soul have made us a popular virtual social

playground for the young generations of China:

• Virtual identity. According to the iResearch Report, Soul is the first social networking

platform in China where all of the users interact through virtual identities in the form of

avatars. Soul is designed not to display real identities, so our users can fully immerse in the

Soul playground, away from the complex physical social network surrounding them.

Soulers design brand new identities in the form of avatars to portray their cyber

personalities and showcase their talents. We also design our content moderation algorithms

to discourage selfies and self-identifying posts, which help to create a more immersive yet

discreet cyber personal space.

• Interest graph-based. We generate interest graphs for each Souler and travel them to

different “planets” as their residences in the Soul playground, based on their passions to

connect with other like-minded Soulers. See “— Functions of Soul — Soul Tests: Profound

heuristic self-discovery.” According to the iResearch Report, we are the only social

networking platform in China that provides user recommendation based solely on interest

graph.

• Self-expanding playground. We have designed a variety of fun and immersive creative tools

for Soulers to spontaneously design and expand a social playground, through UGC of many

– 143 –


BUSINESS

different forms. Aside from the traditional text, pictures and videos, Soulers can create

avatars, pets, musical pieces, unique and fun Partyrooms, and communicate through various

other forms of innovative features, all of which help to foster the self-sustaining

communities on our platform. Through these rich formats of interaction and expression, the

Soul playground organically evolves as Soulers discover and create more ways to use it.

• Decentralization. We employ a decentralized traffic distribution method to ensure that

content created by every Souler is distributed equally across the community and receives

similar amounts of reach and engagement. This cultivates a welcoming environment where

every Souler has a voice on our app, thus encouraging them to continue engaging with the

community and creating content. In 2021, the post response rate on Soul was over 91%.

• Gamified and immersive experiences. We deliver gamified and immersive experience

underpinned by holistic virtual identities, massive and intensive interactive scenarios

characterized by engaging content, intriguing features and fun party games. We also apply

advanced technology, including augmented reality, to provide heightened sensory adventure

and deliver an immersive experience closer to reality and diverse gamified ways of

interaction. The gamified and immersive experience serves as a stimulus to enhance and

encourage more organic and meaningful interactions among Soulers to form deep

connection. It also stimulates users to stay on the Soul platform. We had a monthly average

3-month user retention rate of 79.1% in 2021. Average daily time spent per DAU on our

mobile app in 2021 was approximately 45.3 minutes.

• Diverse and rich content. Our interest graph-based content and decentralized distribution

philosophy stimulate the rise of diverse categories and topics on our app. Soulers are more

incentivized to interact with one another and socialize through each other’s content in an

immersive manner, creating a self-reinforcing cycle. Each of our users who created content

on average generated 5.8 posts per month in 2021, one of the highest among China’s

mobile social networking platforms, according to the iResearch Report.

• Technology-driven. We have developed and systematically applied a powerful and

proprietary set of technology, which underpins the superior performance of our product.

Our Lingxi and Nawa engines, both developed in-house, epitomize our technological

prowess. Lingxi is a sophisticatedly trained and highly tailored smart recommendation

system focused on not only content but more importantly the relationship among users, with

industry-leading precision, according to the iResearch Report. Nawa engine is a proprietary

suite of multimedia technologies, including keypoint detection, avatar creation and 2D and

3D rendering engine, that empower users with superior experience through customized 3D

avatars.

• Wholesome. We recognize that a safe, inclusive and wholesome environment is crucial to

encouraging genuine interactions and forging in-depth relationship. We deploy strong anti-

harassment and anti-phishing mechanisms to combat unwelcomed behaviors on Soul. Our

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BUSINESS

anti-harassment system and content moderation capabilities help us preempt and filter out

unpleasant messages.

What Soul has achieved so far

We believe that the following metrics demonstrate the outstanding levels of user growth and

engagement we have achieved in the Soul playground:

Fast Growing User Base Strong User Engagement

51.6%YoY Growth (2)

31.6mnMAU (1)

45.3minsper DAU (3)

21.0xAve. daily launches

by DAUs (3)

35.9%% of MAUs whocreated UGC (7)

791.2mnAggregate number

of new posts (8)

9.3mnDAU (3)

55.8% YoY Growth (2)

59.4% at least 15 days (4)

79.1%3-Month user

reten�on rate (5)

87.0%inte her

% of MAUs whoracted with ot

Soulers (9)

157/15Ave. daily posts / profiles

consumed per DAU (3)

1.7mnAve. monthlypaying user (1)

78.1%YoY Growth (2)

56.4%% of DAUs who use

private messaging (3)

65.9Ave. daily private

messagingg (6)

1.7bnAggregate number

of responses (11)

over 91%Post response rate (10)

Highly Interac�ve Community

Ave. daily �me spent

% of DAUs ac�ve for

Notes:

(1) Monthly average for the twelve months ended December 31, 2021

(2) From the twelve months ended December 31, 2020 to the twelve months ended December 31, 2021

(3) Daily average for the twelve months ended December 31, 2021

(4) The 2021 average ratio calculated on a daily basis by dividing (i) the number of users who were active on at least 15 days

during the 30-day period ending on such day by (ii) the number of DAUs on such day

(5) Monthly average 3-month user retention rate in 2021

(6) Average daily 1-to-1 private messages per DAU who used private messaging function in 2021

(7) Monthly average number of MAUs who created UGC in a month in 2021 divided by the number of MAUs in the same month

(8) Total posts of all users for the twelve months ended December 31, 2021

(9) The 2021 average ratio calculated on a monthly basis by dividing (i) the number of Soulers who interacted with other Soulers

at least once in a given month by (ii) the number of MAUs in the same month

(10) Total number of posts that received at least one response in 2021 divided by the total number of posts in 2021

(11) Total number of responses in 2021 for all posts available

• Growth. In 2019, 2020 and 2021, our average MAUs were 11.5 million, 20.8 million and


respectively. In 2019, 2020 and 2021, our average DAUs were 3.3 million, 5.9 million and


respectively.

• Time-spent. Average daily time spent per DAU on our mobile app in 2021 was

approximately 45.3 minutes.

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BUSINESS

• Stickiness. We had a monthly average 3-month user retention rate of 79.1% in 2021. In

2021, on average 56.4% of our DAUs engaged in private messaging with an average of 65.9

one-to-one messages per day, which is the highest among open-ended mobile social

networking platforms in China in 2021, according to the iResearch Report.

We have also built an engaging and interactive community.

• Posts. In 2021, on average 35.9% of our MAUs created content during a month,

representing one of the highest percentages among mobile social networks in China,

according to the iResearch Report; in 2021, each of our users who created content on

average generated 5.8 posts per month, creating a total of 791.2 million posts in the same

period.

• Messages. On Soul, users created on average 10.4 billion one-to-one messages per month in

2021. We had the highest number of daily private messages sent per user of the messaging

function in 2021 among open-ended mobile social networks in China, according to the

iResearch Report.

• Interactions. In 2021, on average 87.0% of our MAUs interacted with other Soulers during

a month; the post response rate on Soul app was over 91%, with an aggregate of 1.7 billion

responses. During the same period, each post received on average 9.2 comments and 15.7

likes; each DAU consumed on average 157 posts and 15 profiles a day on our app.

• Spending. In 2019, 2020 and 2021, our numbers of average monthly paying users were

268.9 thousand, 929.3 thousand and 1.7 million, respectively, and our average monthly

revenues per paying user were RMB21.9, RMB43.5 and RMB60.5, respectively.

Our Financial Performance


and membership subscriptions. We had the largest percentage of revenues generated from the sales

of value-added services during the Track Record Period. Soulers can use Soul Coins to purchase


recommendation opportunities. Soulers who subscribe to our membership can enjoy a variety of

time-based privileges such as access to members-only virtual items, discounts for virtual items and

enhanced social networking functionalities. We also monetize through our open-platform

capabilities, which enable advertising services in a variety of ways. For example, brands can

advertise on Soul app and offer discounts only available to Soulers or limited-edition products

related to Soul. We started generating revenues from Giftmojis services in the first quarter of 2021,

which allows Soulers to send physical gifts to each other. With a large yet loyal user base, our deep

understanding of user behavior, and the proactive nature of our users, we believe we have massive

monetization potential.

We are at the early stage of monetization but have experienced strong growth in revenue. Our

revenue increased by 604.3% from RMB70.7 million in 2019 to RMB498.0 million in 2020, further

increased by 157.3% to RMB1,281.2 million in 2021. We recorded gross margin of 48.6%, 79.9%

and 85.2% in 2019, 2020 and 2021, respectively. We recorded a net loss of RMB1,324.4 million

– 146 –


BUSINESS

in 2021, compared to a net loss of RMB353.4 million and RMB579.1 million in 2019 and 2020,

respectively.

Our Strengths

We believe our success to date is largely attributable to the following key competitive

strengths:

Pioneering social networking model fulfilling demands from the growing young generation

We are a pioneer in building a virtual social playground in China, according to the iResearch

Report. Since 2015, we were founded on our belief in people’s needs to genuinely socialize based on

interest with virtual identities, and strive to build a social network that eliminates unnecessary

physical hurdles, such as appearance, popularity and acquaintances, enabling users to interact more

comfortably and effortlessly. We focus on creating a social playground that is self-expanding

through UGC and interactions.

Virtual Identity. According to the iResearch Report, Soul is the first social networking platform

in China where all of the users interact through virtual identities in the form of avatars. Soul is an

appearance-agnostics social networking platform where relationships are built upon interest graphs.

Hence all Soulers are required to design brand-new virtual identities in the form of avatars to portray

their cyber personalities and showcase their talents. Virtual identities release users from social

constraints to freely express, connect and bond with other users.

Interest graph-based recommendation systems. According to the iResearch Report, we are the

only social networking platform in China that provides user recommendation based solely on interest

graph. The effective user recommendation for Soulers is empowered by our proprietary matching and

decentralizing algorithms. They interact with other like-minded Soulers based on topics that fit their

interests and lifestyles. We also encourage Soulers to create interest tags to better attract other

Soulers with similar interests. Thus, Soulers are more inclined to express and share their lives on our

mobile app while engaging in-depth interactions with other Soulers.

Our distinct product and feature design propel intensive user interactions. In 2021, on average

87.0% of our MAUs interacted with other Soulers during a month. During the same period, our users

visited Soul 21 times each day on average, proofing the value of our continuous investment in new

ways for Soulers to socialize. In addition, we believe our large and engaging user base brought by

our first-mover advantage also best equips us to capture the market opportunities that emerge with

metaverses. Soul is one of the first social networks in China with a vision and roadmap to building a

social metaverse, with collaborative content creation and the pure virtual social network, according

to the iResearch Report.

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BUSINESS

Immersive and evolving social experience

The various immersive and gamified features of Soul provide Soulers a believable and

intriguing playground to form genuine relationships. The immersive experiences of Soul are derived

from:

• Ever-expanding co-experience. The distinct ways that Soulers interact with each other has

created an array of subcultures, subgroups, syntax and community rules that are unique and

specific to the Soul app, spontaneously formed by the massive amount of Souler

interactions and communications. This feature allows the Soul app to be ever-expanding

through the large amount of UGC and interactions. In 2021, on average 35.9% of our

MAUs created content during a month, representing one of the highest percentages among

mobile social networks in China, according to the iResearch Report. Our users who created

content generated a total of 791.2 million posts in 2021. During the same period, the post

response rate on Soul was over 91%, with an aggregate of approximately 1.7 billion

responses. We have also initiated commerce among Soulers through our avatar

marketplace, with the help of Soul Coin. See “— Functions of Soul — Avatar: Liberating

new virtual identity.”

• Gamified ways of interaction: With gamified ways of interaction, we are able to create an

immersive yet discreet cyber personal space. For example, Bomb Cat is our original light

party game title, where users play in groups of five, that have redefined online card

playing, delivering a thrilling experience through rich functionalities. In private chats, we

have designed “chat letters”, which are a line of letters at the top of a chat window; as two

Soulers hold more lines of conversations, the letters will light up one by one to spell out

“Soulmate”. These innovative ways of gamified interactions have helped us capture the

attention of the young generations in China. In 2021, 74.9% of our average MAUs were

Generation Z.

• Evolution to 3D experience: We are committed to constantly elevating the immersive

experience we deliver to users with ever-evolving features underpinned by proprietary

technologies. For example, we promulgated 3D Video Partyroom, video matching and Soul

camera applying AR technology to generate pictures and video streams by combining 3D

avatars with Soulers’ physical backgrounds. The blend of visual and sound technologies

enables virtual sensory experience and stimulate immersive interactions between users and

their surroundings. In particular, the breakthrough we achieved in key point detection,

facial expression recognition and rendering enabled by our proprietary Nawa engine has

further elevated the expressiveness of the 3D avatars. Our 3D avatars not only possess rich

communication functionalities that combine eye-contact, head motion, facial expression and

voice editing but also carry great aesthetical value. We believe immersive experience

powered by our 3D technology will further empower the in-depth connections among users,

spur more user interactions, and increase user stickiness.

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Highly engaged, interactive and sticky user base for in-depth and genuine relationships

We have built a fast growing and highly engaged user base with a strong sense of belonging,

which continues to support our growth and monetization. In 2021, the numbers of our average MAUs

and average DAUs were 31.6 million and 9.3 million, respectively, representing a year-over-year

growth of 51.6% and 55.8%, respectively.

Soulers are keen to immerse in the Soul app for self-expression and social interactions. In 2021,

on average 56.4% of our DAUs engaged in private messaging with an average of 65.9 one-to-one

messages per day, creating a monthly average of 10.4 billion one-to-one messages on our mobile

app. Soul is now a leading social network in China with the highest number of daily private

messages sent per users of the messaging function among open-ended mobile social networks in

China in 2021, according to the iResearch Report.

Our decentralized content distribution approach encourages Soulers to generate and interact

with diverse content feeds. We enable each Souler to have a voice on our mobile app, providing each

of them with equal opportunities to receive quality engagement and interact with content created by

other Soulers. Through recognition by others, Soulers feel more inclined to create and share content.

With the support from our powerful multi-media posting tools, Soulers are actively involved in

content creation and engagement to enrich the virtual co-experience on Soul. In 2021, on average

35.9% of our MAUs created content during a month, aggregating to 791.2 million new posts on Soul

Square. In the same period, these posts in total received 1.7 billion responses.

Throughout the years, we have accumulated a large user base who have found genuine and

long-lasting relationships with other Soulers on our platform. In 2021, on average 33.2% of our

DAUs engaged in “in-depth communication,” which refers to conversations with more than 20

rounds. User of Soul had engaged in an aggregate of over 861.6 million in-depth communication as

of the Latest Practicable Date.

Open platform with high commercial value

We have established a two-pronged monetization approach through both in-app value-added

services and our open-platform capabilities. With a large yet loyal user base, our deep understanding

of user behavior, and the proactive nature of our users, we believe we have massive monetization

potential. We started generating revenues by providing value-added services in 2019 and providing

advertising services in the third quarter of 2020.

The foundation of our monetization is to focus on creating more interactive scenarios to enrich

the co-experience on Soul. We design gamified features for Soulers that enhance user experiences

and seamlessly integrate with our social networking functions, forming a cohesive community on the

Soul app. Our value-added services are built upon our philosophy of promoting genuine

interpersonal connections and created in a manner that does not disrupt user experience. Soulers can

use Soul Coins to purchase virtual items and privileges including featured avatars, virtual gifts and

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access to enhanced recommendation opportunities. We also provide membership subscriptions for

Soulers who wish to unlock limited-edition virtual items and access other exclusive functionalities to

further enhance their self-expression. We had the largest percentage of our revenues generated from

the sales of value-added services during the Track Record Period. As a result of the significant

revenue contribution of value-added services, we enjoyed high gross margin of 48.6%, 79.9% and

85.2% in 2019, 2020 and 2021, respectively.

Our open-platform capabilities allow us to collaborate with reputable business partners and

brand partners in a variety of ways. We offer advertising services to brands that wish to enhance

their brand awareness and recognition among young generations. For example, brands can advertise

on Soul app and offer discounts only available to Soulers or limited-edition products related to Soul.

Our Giftmojis function allows Soulers to send each other physical gifts of brands that are especially

popular among Generation Z. See “— Functions of Soul — Private messaging.” As frequent users of

new online and social media channels, people of the young generations are more receptive to trying

new forms of shopping and purchasing new products through online channels. Our mobile app also

serves as a channel for them to more easily discover brands and products that fit their specific gifting

needs.

Most of our value-added services are purchased using Soul Coins, the credits used on Soul. In

2020 and 2021, the percentage of average monthly paying users among MAUs increased from 4.5%

to 5.2%, and our average monthly revenue per paying user increased from RMB43.5 to RMB60.5. As

a result, our revenue increased by 157.3% from RMB498.0 million in 2020 to RMB1,281.2 million

in 2021.

Innovative proprietary technologies fueling user engagement and growth

We leverage our innovative proprietary technologies to immerse and engage Soulers in the Soul

app. Lingxi is a sophisticatedly trained and highly tailored smart recommendation system focused on

not only content but more importantly the relationship among users, with industry-leading precision,

according to the iResearch Report. Such advancements in content recognition and user labeling

enable us to intelligently curate desired content and relationships for Soulers. Our deep and diverse

data foundation, empowered by our sophisticated algorithm, create dynamic user interest graph and

to form one-to-one, one-to-many and many-to-many relationships. We are able to discern not only

the interests of users, but also their behavioral tendencies, such as if they are more willing to chat

with other Soulers at different times and settings.

Our 3D avatar technologies are vital to Souler’s virtual identities. Nawa engine is a proprietary

suite of multimedia technologies, including keypoint detection, avatar creation and 2D and 3D

rendering engine, that empower users with superior experience through customized 3D avatars. Our

proprietary facial recognition and tracking technologies allows Soulers to “wear” 3D avatar when

making videos, or even video-chat with other Soulers in real time, and enjoy a low-latency

experience. We have received the computer software registration for Nawa engine from the National

Copyright Administration and have obtained five design patents, with one pending design patent.

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We have also developed a robust content moderation system to create a safe social experience

in a wholesome environment. Our powerful content moderation technology allows us to monitor the

massive UGC on Soul. Most content are filtered and monitored automatically by our proprietary data

analytics system in real-time. Our content moderation technology utilizes image recognition, voice

recognition, and data analytics technologies to preemptively and proactively filter out illegal or

inappropriate content.

We have invested heavily in our technology and development effort. In 2021, our technology

and development expense represented 32.4% of our revenue. With more and more insights into user

behavior and interactions, and more fun and creative features that users can seamlessly enjoy, we are

able to constantly refine our proprietary content and user recommendation algorithms, which in turn

allows us to promote user interactions and recommend content in a more intelligent and precise

fashion. This creates a self-reinforcing cycle that continues to drive organic user growth.

Pioneering and visionary management team dedicated to our users

We are led by an entrepreneurial management team dedicated to building a new kind of social

networking platform for the young generations in China. With deep insights and understanding of

online social products and years of experience in data-driven businesses, our chief executive

officer and Founder, Ms. Lu Zhang, identified the underserved social needs in China and

developed the initial product prototype independently in 2015. As a female leader in the

technology, media and telecom, or TMT, sector, her distinctive perspectives on business

operations and product design give us a unique competitive edge, enabling the Soul app to become

an inclusive and warm social networking platform, friendly and attractive to a wide spectrum of

audience. Prior to founding Soul, Ms. Zhang was the chief executive officer of Innext China, an

enterprise consultancy, from which she accumulated invaluable insights into data analytics and

corporate expansion strategies in the internet space.

Our dedicated and passionate management team has extensive industry knowledge. Members of

the management team are cultural advocates themselves, helping Soul to stay abreast of the latest

social networking trends among the young generations.

Our Strategies

We intend to achieve our mission and further grow our business by pursuing the following

strategies:

Further expand and retain our user base

We believe we are uniquely positioned to capture the needs for immersive and virtual social

experience of young generations and there is significant potential for us to expand our user base. We

intend to increase our market share by further expanding our presence among the young generations

in China. Our strong user growth has been mainly driven by our continued improvement of our

product offerings and user experience and strong network effects. We will continue to enforce

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organic user growth by leveraging established word-of-mouth marketing. To supplement our organic

user growth, we will also acquire new users by effectively leveraging various marketing channels,

including advertising on major mobile apps and mobile app stores. We have established a team

dedicated to user growth and retention, and we will continue to optimize its operational efficiency.

Continue to effectively engage our users through product innovation

We strive to help every Souler find truly immersive co-experiences with people with common

interests and establish authentic interpersonal connections. We will continue to enhance our

technologies, gamified features and decentralized distribution. We will also continue to launch new

features and functionalities to help users expand their connections and communicate with each other

in new ways. For example, we recently launched 3D Video Partyroom, which provides an innovative

channel to further enhance Souler interactions. Our Soul Interest Group, Audio Partyroom and 3D

Video Partyroom are designed for users to build in-depth connections in a group setting and based on

their genuine interests. Moreover, we will continue our efforts in optimizing data analytics

technologies and big-data analytical capabilities to better recommend content and engage our users.

To further fulfil the needs of Soulers to share, explore and expand the Soul playground, we plan

to continue to promote UGC on our mobile app. We intend to enrich our posting functionalities, so

that Soulers can post content in more categories and richer media formats with greater ease. We also

intend to create new ways for Soulers to discover and react to posts, further fostering a warm and

welcoming community. In addition, we plan to enhance our interest tag and gravity tag features to

help Soulers find trendy topics and like-minded Soulers more easily.

Continue to invest and innovate in technologies and retain talents

Technology is vital to our success. We will continue to strengthen our proprietary technologies

and improve our data analytics capabilities to improve user experience, particularly in the areas of

user recommendation, content distribution, extended reality (XR) and the continuous upgrade of our

Lingxi and Nawa engines. We will also continue to invest in and improve our content moderation

efficiency, mainly by strengthening our image, voice and text recognition, as well as other

automation capabilities. Furthermore, we will leverage the massive user behavior and interaction

insights available on our mobile app to refine our technologies. To facilitate our technologies and

development, we also intend to retain and attract the best talents in the industry.

Our current avatar system allows users to create and personalize their unique identities through

3D facial avatars. Such technology is imbedded in a variety of features and interactive scenarios

including 3D Video Partyroom, video matching and Soul camera. Going forward, we will continue to

invest in intelligent avatar design that tracks both Soulers’ facial expression and body movements,

together with the enhanced visual and acoustic effects to deliver a more immersive experience. We

are also committed to creating a virtual space through technological means where users can interact,

generate and consume content, play games and showcase virtual assets under their virtual identities.

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Continue to develop and invest in social metaverse

We will continue to invest in the development of Soul social metaverse.

We believe investment in technology is key to the development of our social metaverse. We

will continuously improve our proprietary Nawa engine to support more immersive user interaction

experience. For example, we intend to launch customized full-body avatars adopting 3D modeling

technology. We will also explore and invest in the integrated application of extended reality (XR)

technology. In the meanwhile, we will continue our efforts in researching and promulgating

metaverse content creation tools to enhance content production.

We plan to explore and construct an experience-to-earn (E2E) ecosystem by rewarding daily

user activities on the Soul platform. We intend to incentivize user activities including but not limited

to content creation, communication, event organization and reward users with virtual items and other

digital assets. We believe the E2E ecosystem will complement our business model and the Soul

economy system, unlocking significant growth potential.

Continue to explore monetization potential

We plan to increase our revenues generated through value-added services by creating more

engaging and gamified features in our Soul app for Soulers to interact with each other. We also plan

to collaborate with brand partners that are attractive to young generations to explore new and

innovative monetization methods. Leveraging our open-platform capabilities, we plan to continue

exploring new ways and introduce new functions and expand our advertising services.

We will also strengthen our monetization potential through the construction of Soul social

metaverse, especially further expanding the virtual economy. We plan to incubate new growth

catalysts by producing, expanding and commercializing virtual assets of Soul metaverse. We also

intend to upgrade our brand by collaborating with high-quality IPs and creating innovative

monetization methods.

Functions of Soul

Our philosophy for forging genuine interpersonal connections

The Soul playground is formed with virtual yet genuine interpersonal connections, rich content

rooted in but transcending mundane life events, and decentralized yet vibrant communities. We

design our algorithm to discourage selfies and self-identifying posts; we downplay location-based

service to make sure Soulers’ interactions stem from authentic interests and personalities; we alter

our recommendation algorithms to promote every Souler’s posts equally so all users can receive

similar levels of engagement and interactions. Most importantly, we created a social playground of

fun, deep, genuine and inclusive spaces and experiences to host and celebrate authentic human

interactions.

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We believe the Soul virtual playground enables Soulers to freely engage with new friends and

share their ideas by breaking free of the constraints of offline connections.

Soul Tests: Profound heuristic self-discovery

The ultimate goal of the Soul app is to let Soulers discover people with whom they can form

genuine connections and relationships. We believe that the first step to discover others is to discover

oneself.

When Soulers first sign up, they can choose to take a series of carefully-authored and tailored

“Soul Tests,” which are inspired by the Myers-Briggs Type Indicator assessments. The tests are

ever-evolving, containing questions assigned based on our analysis of user behavior and past

correlations of user activities and their test answers. Answering these questions is a self-discovery

process as we guide Soulers to review and introspect about their minds and lives. We also ask

scenario-based questions to gauge each Souler’s personality and outlook. Soulers can also choose to

take more advanced Soul Tests later on to learn more about themselves and enrich their user profiles.

After taking the Soul Tests, each Souler is travelled to a “planet.” The planet system is an

integral part of our Soul experience. Each planet represents a Souler group; Soulers who “live” on

the same planet share similar traits and personalities that we have identified from their Soul Test

results. Using our deep understanding of user psychology and behavior, we have established 30

“planets” as of the date of this document, such as “Pragmatist,” “Artist,” and “Thinker.” After the

initial Soul Test, Soulers are dispersed onto one of five planets. As they choose to take more Soul

Tests, they will be assigned to one of our 25 more granularly defined planets.

Soulers can attach “gravity tags” and voice clips to their profiles to enrich their self-

description. Gravity tags can be anything that describes a Souler, including past experiences,

interests, world views and professions. Soulers can select from our pre-existing labels or create their

own labels to best describe themselves. These labels work in tandem with the Soul Tests and the

planet system to help Soulers better discover themselves and attract other like-minded Soulers. Voice

clips are soundbites originally created by Soulers and pinned to their profiles to bring a sense of

proximity to visitors drawn to their profiles.

Avatar: Liberating new virtual identity

At the core of our product design is appearance-agnosticism. Soulers create a brand-new

identity to break free from the constraints of the physical world, be it their appearance or social

status. A new identity is a key facet of the Soul experience that helps Soulers express without

pressure. Soulers create their new identities through our avatar editor. We offer a wide variety of

facial features as well as virtual apparels and accessories, and we roll out new features regularly.

On the Soul app, avatars are not merely a replacement for profile pictures, but rather valuable

social digital assets that Soulers possess and invested in, both financially and emotionally as they

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accompany and represent Souler in comprehensive social settings. In order to take advantage of this

opportunity to further enable Soulers to express themselves, we have initiated an avatar marketplace,

where skilled and creative Soulers can make highly bespoke and quality avatars for other Soulers,

using the native avatar builder on Soul. Soulers can purchase, with Soul Coins, these customized

avatars, and the Soulers who made them can receive compensations from us.

Avatar Builder

Free + PremiumPurchase with Soul Coins

A Wide Selection of Facial Features, Apparels &

Accessories

3D avatar

Although Soul is an appearance-agnostic app, we do recognize the power of visual esthetics and

“face-to-face” conversations in creating an immersive and intimate experience. The 3D avatar helps

camera-shy users remain immersed in this virtual social network without revealing their identities,

with an array of features to liberate Soulers from their physical world.

3D avatar gives users the opportunities to express themselves through their facial without

revealing their identities. Soulers can choose from a series of interactive animations that overlay a

person’s face or their environment. They can be virtual faces, animated characters, or other fun

filters. Our virtual faces can track and adapt to the actual facial expressions of the person in real

time. Soulers also have a variety of artistic filters at their disposal to apply to a picture or video.

Soulers can choose a filter when she or he is recording and preview the effect in real time. After a

Souler takes a picture or records a video, she or he can also use our other editing tools, including

text, drawing pen, stickers, filters and voice filters in order to add a more personal touch.

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More Customizable Lenses

“Hold” for Video and “Tap” for Photo

Soul Lenses that Track and Adapt Facial Expressions

Change Filters

Immersive and innovative interaction features

Expression and socialization through music

We have seamlessly integrated a wide range of music features. Soulers can share music of their

choice and create music related posts in the Soul Square. While listening to a song, Soulers can

interact with others of similar music tastes by exchanging comments.

Our users can also participate in each other’s creation process by singing duets or mixing

soundtracks such as guitar accompaniment or beatboxing, which stimulates interactions and enhance

their experiences as both content creators and the audience. We also provide voice-enhancement

tools to further gamify the co-production experience. The co-produced music content further

augments our UGC, spurs more interactions, and inspires more content creation in a way that is

native to our platform and community. Soulers can also create playlists specifically curated for their

Audio Partyroom, and communicate and interact with music in the background, further enhance the

immersive co-experience.

We use algorithm and multi-dimensional data insights to curate and promote high quality user-

generated music content through our radio station feature, which can be put on continuously

playback while Soulers continue to browse through the rest of the platform. Furthermore, because of

the highly open nature of our app, Soulers can enter other Souler’s cyber personal space at any given

point as well as send each other private messages.

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Giftmojis

Giftmojis is a function that allows Soulers to send physical gifts to each other in the same way

they send each other emojis — through their private chat boxes.

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Notification of Gifting a Virtual item

User ID

Notification of Receiving a Giftmoji

Notification of Recipient Redeeming the Giftmoji

Send Virtual GiftsSend Giftmojis

Senders can select products from a curated list of pre-selected gifts offered on our mobile app

and receivers can choose to redeem them or not after opening the mystery boxes. Giftmojis offer an

element of surprise and unknown, much like those of offline gifts. We offer a wide selection of gifts

that are popular among the young generations, ranging from popular snacks, beauty products to

lifestyle products. The redemption process is seamlessly completed within our mobile app and

enabled by our vendor partners. We developed Giftmojis to connect the virtual elements and physical

elements of the Soul app, hence deepening human connections. The interactions between virtual and

physical world enabled by Giftmojis make the Soul experience more compelling and concrete, and

also consolidate the relationships between Soulers.

Diverse, rich and authentic content

Our Soul app consists of rich and fun content generated by Soulers. Each Souler has a unique

Soul Space where she or he can express themselves in rich media formats. The Soul Space is

viewable by other Soulers, serving as a window into each Souler’s cyber personality.

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Rich media posts in a varietyof formats: text, image, sound

bites and video stories

UGC Hashtags

Following, followers, views

SSR High-quality UGC CreatorStatus Label

Send VirtualGifts or

GiftomojisSoul Pets

Add Souler

Gravity Tags

Audio Signature Card

Soulers are offered a variety of powerful and creative tools to post content and interact with

each other. Our versatile post editing tools empower Soulers to express themselves in a more

personal and lively manner, as well as to invite other Soulers to co-experience. Posts can be texts,

pictures, music, videos, voice clips or any combinations of the above. Soulers can share their

thoughts, emotions and life events, or express themselves artistically through our multi-media

posting functions.

We continue to roll out new features on Soul to make content creation and self-expression

easier. To better reflect the prevailing youth culture, we have developed easy-to-use emoji and

meme-creating tools, where Soulers can type and doodle on top of our pre-made templates. We also

developed a vote feature where Soulers can initiate votes with texts or pictures.

Soul Square: Curated discovery journey

We think the Soul Square feature is the manifestation of immersive co-experience essence of

Soul. Whenever a Souler opens up the app, she or he is met with the Soul Square. The Soul Square is

the ultimate meeting place, where Soulers can view and engage with the posts of other Soulers. A

Souler can tap into a post to go directly to the poster’s Souler Space, to view more of her or his life

and chat with her or him.

With our massive user base, our Soul playground is more vibrant than ever. To better help our

Soulers navigate, we have designed several methods to curate Soulers with content and experiences

that they may be interested in. In the Recommend tab, we push posts by other Soulers that we think

she or he may like, based on a Souler’s interest and personality profile, using our proprietary

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matching and decentralizing algorithms. By tapping the Followed tab, one can view posts by Soulers

that she or he follows.

Soul Super Real

Soul Super Real, or SSR, is a label that we give to average Soulers who are exceptional in their

respective content categories app, usually those who have certain numbers of followers and likes,

and whose posts are an exemplar of the authentic and warm community that we wish to foster. We

designed the SSR status to encourage more interactions among Soulers and to promote higher quality

contents, in fields such as music, sports, lifestyle and culinary delights. As of December 31, 2021,

there were 4,928 Soulers with the SSR status, all of whom were users of the Soul app.

One-on-one interaction

Clean and Concise Layout forExisting Conversations

Basic Souler Information andIce Breaker Suggestions

Displayed for NewConversations

At the core of our philosophy is our wish to offer people opportunities to form, cultivate and

maintain authentic long-term connections based on interest and personality. Soulers can discover

other Soulers from Soul Square or through the help of our recommendation system. At the tap of a

button, they can meet other Soulers with similar or fitting interest and personality, through one-on-

one text, voice or video chats. They can also share with each other pieces of music that they like or

suitable to express their emotions at the moment. In video mode, Soulers’ faces are overlaid by lens

of their choice to preserve their anonymity. In the chat interface, we also display algorithm-driven

suggested topics for each Souler, based on their interests, personality, and past behavior, to facilitate

their

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communications. Soulers can tap into our rich repository of lively free and premium emojis to spruce

up their conversation.

We recommend Soulers with the help of our proprietary technology, leveraging our unique user

behavior and user interaction insights. Based on such insights, we use algorithms to enable

diversified content and user recommendation that help users find relevant and interesting content and

people. Because we believe in a future metaverse of genuine and authentic human relations, we think

the success of recommendations is best gauged by the volume of interactions and the depth of

connections. We consistently support Soulers’ efforts and willingness in maintaining deep and long-

term connections with each other on Soul.

Companionship, on demand

Our Souler recommendation technology enjoys increasing values. As our user base grows, and

as we recommend more Soulers, we gain more interaction insights and more candidates, which

improves our recommendation success rate. Our deep and diverse data foundation, together with our

sophisticated algorithm create dynamic user interest graph and to form one-to-one, one-to-many and

many-to-many relationships.

We help Soulers express their true selves more conveniently through diverse forms of

communication such as text, audio, and video, and interact with other Soulers to build in-depth

relationships.

Soul Bell is saved for Soulers who wish to find new experiences a bit closer to home. A Souler

can choose to turn on or off their Soul Bell. If two Soulers whose Soul Bells are both turned on come

across each other within a certain distance, and the Soul app thinks the two Soulers fit each other’s

interest graphs, their Soul Bells will ring and they can start chatting with each other.

Audio Partyroom

An overarching theme of the Soul app is the celebration of a warm and welcoming community

with genuine interpersonal connections realized by decentralized social networking. We believe one

of the best ways of achieving this goal is to enable interactive group activities rather than one-on-one

(chats) or multi-on-one interactions. To realize this goal, we created a new feature called the Audio

Partyroom.

Audio Partyroom is a sandbox interactive feature. Soulers can join or create new “rooms,”

where multiple Soulers can interact with each other through text, voice, virtual gifts, and a variety of

other functions. Each Audio Partyroom has a name given by its creator, indicating the room’s theme.

We designed Audio Partyroom to be as open-ended as possible, not dictating or suggesting any

specific use. The flexibility and the capability of hosting group interactions have unlocked unlimited

possibilities, such as music-sharing rooms, board game rooms, region-themed rooms, and dialect-

themed rooms, to name just a few.

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We believe Audio Partyroom extends the Soul experience to a new level, as we have seen the

rise of subcultures, subgroups, syntax and community rules that are unique and specific to the Soul

app, spontaneously formed by the massive amount of Souler interactions and communications.

Soulers have created a unique self-contained universe of human interactions as they live through the

experiences of Audio Partyroom together. Certain featured Audio Partyrooms are addressed as

following:

Study Rooms. Given Soul’s young user profile, many Soulers are college or graduate students

or in the process of studying for certificate exams. “Study rooms” have emerged on the app, where

Soulers study together. Some of these rooms are for general purposes, while others are for a specific

exam. These room are usually quiet but offer a sense of camaraderie. Soulers use these rooms as

virtual libraries to connect with and support one another who share a common goal.

Couple’s Quarrel Simulation Room. A rather unique and peculiar kind of Audio Partyroom is

the couple’s quarrel simulation room. In this room, two Soulers mimic a couple’s quarrel through

voice chat. Other Soulers in the room take turns to be the “couple” in the room. We think this type of

Audio Partyroom shows the complex and whimsical social needs of the young generations, and our

Soul app’s versatility in providing a social playground for them.

Karaoke Rooms. Karaoke singing is a popular way of enjoying music together as a group.

Soulers can have a karaoke party in our virtual singing rooms, challenge each other in online sing-

offs and request songs for other users to sing live. Karaoke Rooms are not a singular type of rooms,

but rather a function that every Audio Partyroom is equipped with. Soulers can initiate a karaoke

session in any Audio Partyroom and sing along with other Soulers in the same room.

3D Video Partyroom

Our 3D Video Partyroom features highly interactive video chat through a combination of 3D

avatars, gamified features and special effects, which make communication and interaction stress-free

and fun. Soulers can create themed rooms, decorate their rooms with fancy virtual backgrounds, put

on their favorite avatars, and invite Soulers to chat, send out gifts and have fun. We do not allow

users to trade virtual items, including virtual gifts, among themselves or exchange them for legal

currency. Soulers can also choose and join 3D Video Partyroom with themes they like. Popular

themes of 3D Video Partyroom include debate, singing, and instrument playing. Through debates,

Soulers express their thoughts, seek resonance through the exchange of ideas and make friends with

like-minded Soulers. Music lovers gather in 3D Video Partyroom to sing, play music and share

musical knowledge. The combination of our proprietary avatar rendering system, live-streaming

feature and 3D avatars enable an appearance-agnostic and immersive digital environment that

intersects and supplements the physical realm through real-time virtual interaction. We also apply

advanced technologies, including multi-channel real time chat, or RTC, to enable smooth real-time

interaction among Soulers.

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Create and Choose Avatarsto Use

Switch between Video andAudio Chat

3D Avatars

Buy and Send Gi�s

Decorate VirtualBackgrounds

Room Themes

Choose and JoinPartyrooms

Create a Partyroom andInvite Other Users to Join

Users in the Room SingingTogether with Avatars on

Send Chats in the Room

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Souler Interest Group

We promulgate the Souler Interest Group as a chat-message version of our flagship Partyroom

feature. Soulers unite and connect with each other by creating and participate in interest-based

chatting groups when they feel like communicating through text, emoticons, voice recordings,

pictures and video messages. Souler Interest Group covers an extensive range of subjects, including

topics where Soulers contribute knowledge, experience and insights, topics based on interests and

hobbies, such as trending games and popular movies, and groups created for casual chats to simply

express, share and bond.

We allow interest group creators to decide the size of each group, from 100 to 500 users,

depending on whether they prefer a more interactive and diverse community or a close and intimate

circle. Souler Interest Groups can be created by Soulers after selecting group category, group name,

group profile and other information. Soulers can join a group by making in-app search, browsing in

Soul Square or through invitation.

Gamified Interactions

We strive to make the Soul app fun and gamified, and continually roll out various features for

Soulers to interact with one another in novel ways.

Soulmate and Soulmate Space. To celebrate high-quality content and deep relationships that

have been formed on the Soul app, we designed the Soulmate label for users who have formed

special connections with each other. If two users have extensive interactions, they will appear on

each other’s Soul Space as their Soulmates. Soulmates can also build a Soulmate Space, which is

similar to a Soul Space, but only Soulmates can post on them, showing their common interests and

topics and share them with other Soulers.

Anonymous pia play and bar talk. Anonymous pia play is a text and audio-based role-playing

that requires the player to embody a fictional character, flesh out the story and complete system-

assigned tasks during the process. The story can begin in a fantasy world with element of wonder

and escape or in simple everyday setting. Users can quickly get into their roles and interact with the

other player. As Soulers immerse in the characters and build their stories together, they get to know

more about each other and share the fun and laughter as the story unveils. Anonymous bar talk

facilitates thrilling encounters as players ask and answer truth questions that are fun, philosophical or

spicy. As participants of anonymous pia play and bar talk engage in more rounds of communication,

they can choose to reveal their identity.

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Bar TalkAnonymous Pia Play

RequiredInterac�on to

RevealIden�ty

Two Character inthe Play with

Different Tasks

Preview ofthe Story

Play “Scissors,Paper, Rock” to

Start

Game Ques�ons toFacilitate

Conversa�on

HiddenIden�ty

Chat window. We have installed an array of functions in the chat window to better encourage

and stimulate communications. Believing that young generations have different preferred ways of

communicating, we offer a variety of chat functions to our users, including pictures, videos, emojis,

voice messages and voice calls. Our Chat Letter feature is a line of letters that appear on the top of

every chat window. As two Soulers hold more lines of conversations, the letters will light up one by

one to spell out “Soulmate”. This game-like feature has helped us to encourage more Soulers to chat,

hence better cultivating interpersonal connections. We have also added a wide range of gamified

ways of light interacting, such as tickling (“戳一下”), patting (“摸摸頭”), and avatar creation for

friends.

Soul pets. We developed the Soul pet function where each Souler can adopt a virtual pet in their

Soul Space. Much like in the real world, Soulers can socialize with each other with their pets. They

can “walk” their pets together, visit others’ pets, or let their pets “travel” and meet other pet friends.

Soulers can also purchase virtual items such as food and apparels for their pets. The Soul pet adds a

more vivid layer to our gamified universe, and offers another way for Soulers to meet and connect

with others.

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My Pet

Friend’s Pet

Mall

Toggle for Pet Accessories andPet Planet Decora�ons

Pet PlanetAc�vity:

Visit Log ofOther Users

Nearby:Check out

Pets Nearby

Mall: Purchase Pet Accessories and Pet PlanetDecora�ons in Soul Coins

Bag: Virtual Item Storage

The wide variety of gamified and immersive features available on the Soul app also stimulates

other spontaneous interaction methods among Soulers. For example, as our lens function becomes

more comprehensive and complex, a group of self-proclaimed “lens consultants” emerged, who

sometimes receive virtual gifts in return for their help to other Soulers to create lens that are most

suited to their personalities.

As we expand the functions of Soul, we have also recognized the young generations unique

ways of socializing through party games. We have developed party games, such as Bomb Cat and

Werewolf, to offer Soulers more ways to co-experience the Soul universe. Bomb Cat is an easy-to-

pick-up casual game for small groups of people. Players take turns to draw and use function and

special action cards to avoid bomb cards, frame opponents and strive to survive to see the victory.

Werewolf is a classic social deduction/bluff game in which players attempt to uncover each other’s

hidden identity and team allegiance, and make reductions based on evidence and logic. Players get to

enjoy tense moments, experience strategic, skilful play and teamwork together.

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WerewolfBomb Cat

3D AvatarUsed Across the Soul App Mul�ple Game

Modes

Create a Room or JoinRooms Created by

Others

Earn Virtual Items through“Hun�ng Games” to

Enhance User Experience

More ChallengingGame Modes

Special Cards;Could be

Obtained byCheck-in or

Purchase

IndividualMode: 5

Players Drawand Play

Cards One byOne

Team Mode: 2 Players perTeam; PK between 3

Teams

Mul�ple Ways to ObtainVirtual Rewards

Membership Subscription

Users can enjoy our value-added services by subscribing our membership services. Soulers who

subscribe to our membership can enjoy a variety of time-based privileges such as access to members-

only virtual items, discounts for virtual items and enhanced social networking functionalities. In

addition, Soulers who pay for our membership packages can gain exclusive access to a variety of

lens, chat backgrounds and other virtual features. They are also able to see who have visited their

Soul Space, save their chat history to the cloud, set special alert sounds for specific Soulers, and

enjoy many other play features and experiences. Membership privileges are available to users over

the membership period ranging from one month to one year.

Soul Coin

Soul Coins are the credits used on our mobile app to exchange for virtual items, which Soulers

can purchase. Soul Coins provide Soulers the options to purchase a variety of virtual items and

privileges that further enhance their experience in the Soul app, including featured avatars, virtual

gifts and access to enhanced recommendation opportunities. Starting in 2021, we have initiated

commerce among Soulers which enable Soulers to purchase through Soul Coins. For example,

Soulers can purchase highly bespoke and quality avatars made by skilled and creative Soulers, using

the native avatar builder on Soul, with Soul Coins. When a user makes purchases using the Soul

Coin, they are directly transacting with our platform. We do not allow users to trade virtual items,

including Soul Coin, among themselves or exchange them for legal currency.

Business Sustainability

We are a pioneer in building future social playgrounds in China and we are still at an early

stage of monetization. We incurred net losses and net operating cash outflow throughout the Track

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Record Period, as we have been focusing on growing our user base by investing in our brand and

creating new ways for users to interact on the Soul app, rather than seeking immediate financial

returns or profitability, in order to lay a solid foundation for our long-term success.

The following table sets forth certain financial data for the years indicated.


2019 2020 2021

(RMB in thousands, except percentages)

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,707 498,013 1,281,175

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,339 398,055 1,091,171

Gross profit margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48.6% 79.9% 85.2%

Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (353,433) (579,050) (1,324,444)

Net loss margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (499.9%) (116.3%) (103.4%)

Adjusted loss margin (non-IFRS measure) . . . . . . . . . . . . . . . . . . . . (413.4%) (93.5%) (78.0%)

We gradually expand the monetization potential of our platform, narrow loss margins and yield

profit margin as we expect revenue and gross profit growth would outpace the increase in investment

and expenditure. Our future profitability is subject to various factors, including our ability to

effectively monetize our platform and continually grow revenues in a cost-effective way, which will

require us to improve our operational efficiency. Despite our expanding business scale, we may

continue to incur net losses and net operating cash outflow in the foreseeable future.

Our Strong and Robust Historical Growth

We only started to monetize our platform in 2019, and have set a track record of strong

historical growth in our financial and operational performance. Our revenue increased substantially

by 604.3% from RMB70.7 million in 2019 to RMB498.0 million in 2020, further increased by

157.3% to RMB1,281.2 million in 2021.

The robust historical growth is supported by our continuous efforts to grow our user base,

increase user engagement and enhance user-centric monetization. In 2019, 2020 and 2021, our

average MAUs were 11.5 million, 20.8 million and 31.6 million, respectively, and our average DAUs

were 3.3 million, 5.9 million and 9.3 million, during the same periods respectively. In 2019, 2020

and 2021, our numbers of average monthly paying users were 268.9 thousand, 929.3 thousand and

1.7 million, respectively, and our average monthly revenues per paying user were RMB21.9,

RMB43.5 and RMB60.5, respectively.

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Our Path to Profitability

We intend to achieve profitability primarily by (i) continuing to expand our user base and

enhance user engagement, (ii) increasing our monetization capabilities, and (iii) improving our

operating leverage.

Continue to expand our user base and enhance user engagement

Our Soulers and their engagement to Soul are the core drivers of our business growth and

financial performance. During the Track Record Period, our user base experienced fast growth and

demonstrated high user stickiness. In 2019, 2020 and 2021, our average MAUs were 11.5 million,

20.8 million and 31.6 million, representing a year-over-year growth of 80.7% and 51.6%, in 2020

and 2021 respectively. In 2019, 2020 and 2021, our average DAUs were 3.3 million, 5.9 million and

9.3 million, representing a growth of 81.0% and 55.8%, in 2020 and 2021 respectively. The increase

in our average MAUs and DAUs has laid a solid foundation for monetization and the growth of our

business during the Track Record Period. Our revenue increased substantially by 604.3% from

RMB70.7 million in 2019 to RMB498.0 million in 2020, further increased by 157.3% to

RMB1,281.2 million in 2021.

To better capture and capitalize on future growth opportunities, we have strategically focused

on growing our user base and user engagement through continuously improving our immersive user

experience, further cultivating our Souler community and expanding innovative product offerings

and diversified content on the Soul app to pave the way for long-term profitability. We have invested

in technologies to improve the efficiency of user recommendation and content distribution as well as

offer more creative ways for Soulers to interact with each other, further enhancing our user

engagement and improving user retention. Besides the organic user growth based on the word-of-

mouth referrals, to further capture the demand from young generations, we will also continue to

grow our user base through various sales and marketing activities in a cost-effective manner. As our

user base and user engagement continue to grow, we expect to enjoy network effects which will in

turn generate more social interactions and transactions on our platform and attract more users,

advertisers and other business partners to our platform. This will enable us to increase our revenues

through various monetization channels.

Increase our monetization capabilities


2019 2020 2021

Operating metrics:

Average monthly revenues per paying user (ARPPU) . . . . . . . . . . . . . . RMB21.9 RMB43.5 RMB60.5

Paying ratio(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.3% 4.5% 5.2%

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Note:

(1) Paying ratio is calculated by dividing the number of average monthly paying users by the number of average MAUs.

During the Track Record Period, we mainly generated our revenues from value-added services.

With the rapid growth of our user base, we keep exploring better services to meet the evolving needs

of our users. Our monetization capability is enhanced as evidenced by an increasing paying ratio.

Our paying ratio increased from 2.3% in 2019 to 5.2% in 2021 and our ARPPU increased from

RMB21.9 in 2019 to RMB60.5 in 2021. Leveraging insights into our users’ spending behavior, we

will continue to improve our user experience, thus to convert more users to paying users and to

increase the spending of our paying users. We also plan to explore more ways to capture the

unfulfilled needs of our broad users and help them connect with people with common interests and

establish authentic interpersonal connections on Soul. To further enhance our monetization potential,

we will continue to focus on product innovation, such as launching new immersive and gamified

features and functionalities, enhancing the quality of content on our platform, introducing diverse

categories of virtual items and privileges and providing more innovative channels to facilitate Souler

interactions.

We will also expand and diversify our revenue streams. Started in 2020, we began to offer

advertising services. We provide display-based mobile advertising services, which allow our

advertising customers to place advertisements on particular areas of our platform in different

formats. Leveraging our open-platform capabilities, we plan to actively promote our advertising

services, through leveraging our large and quality user base, expanding advertising customer base

and introducing more effective and diverse advertising services. In addition, we keep exploring new

monetization opportunities. For example, we started to generate revenues from Giftmojis services in

the first quarter of 2021, which allow users to send physical gifts to each other.

Leveraging our deep understanding of users’ interests and preferences, we are well positioned

to create more consumption scenarios around users’ evolving demands to encourage users to interact

on Soul in more creative ways and enhance their willingness to purchase our services, which further

increases the sales of value-added services. We believe it would lead to larger user scale, greater user

engagement, higher paying ratio from active users, expanding paying user base, and increased

average spending per user. Our large user base and vibrant community will also attract more high

quality business partners to collaborate with us with various monetization opportunities. This will

enable us to increase our revenues through enhanced monetization capabilities.

Improve our operating leverage

We intend to manage our costs and expenses level and improve margin and operating leverage.

Our operating expenses primarily consist of selling and marketing expenses, technology and

development expenses and administrative expenses. Our selling and marketing expenses increased

from RMB204.4 million in 2019 to RMB621.5 million in 2020 and further increased to RMB1.5

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billion in 2021. The increase in selling and marketing expenses were due to our increased investment

in advertising and promotion efforts to enhance our brand awareness and attract a broader user base

that we believe can result in greater profitability in the future. We believe our investment in brand

will benefit us in the long run as more users join, more content will be created, communities will be

formed, enabling more communications and interaction among our users, which will drive the

organic growth of our users. Going forward, we will continue to evaluate and monitor the

effectiveness and efficiency of our branding and marketing activities to further enhance our brand

awareness and attract a broader user base in a sustainable manner. We expect to effectively manage

our selling and marketing expenses as we continue to grow our scale.

We have also made significant investment in our technology capabilities. Our technology and

development expenses increased from RMB97.3 million in 2019 to RMB187.2 million in 2020 and

further increased to RMB414.9 million in 2021. Our administrative expenses increased from

RMB42.9 million in 2019 to RMB88.3 million in 2020 and further increased to RMB203.3 million in

2021.

We have experienced a continuous decrease in selling and marketing expenses, technology and

development expenses and administrative expenses as percentage of our revenue as we recorded a

significant increase in our revenue and benefited from the economies of scale of our platform. Our

selling and marketing expenses as percentage of our revenue decreased from 289.1% in 2019 to

124.8% in 2020 and further decreased to 118.1% in 2021. We expect our selling and marketing

expenses as a percentage of our revenue to decrease in the near future. Our technology and

development expenses as percentage of our revenue decreased from 137.6% in 2019 to 37.6% in

2020 and further decreased to 32.4% in 2021. Our administrative expenses as percentage of our

revenue decreased from 60.7% in 2019 to 17.7% in 2020 and further decreased to 15.9% in 2021.

Going forward, we expect to further benefit from our operating leverage and economies of scale on

our platform and intend to efficiently manage our costs and expenses and improve our operating

efficiency.

Overall, as we continue to grow in scale, we expect to further benefit from operating leverage

and economy of scale. We are confident that with continued growth of user base and revenue scale

across different monetization channels, we can further achieve profitability.

Working Capital Sufficiency

We believe we possess sufficient working capital, including sufficient cash and liquidity assets,

supplemented by strong fund-raising capability to meet our present requirements and for the next 12

months from the date of this document. In addition, as evidenced by previous rounds of historical

fund-raising activities, we have a good track record in being able to raise money from renowned

[REDACTED] to finance our business. We believe that the [REDACTED] and other potential

external financing sources will provide additional funding to our operation until we achieve

profitability and positive operating cash flow.

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Marketing

We believe that our genuine, fun and immersive user experience has led to loyal users and a

strong word-of-mouth effect that attracts new users to our app. Our brand Soul is widely recognized

by young people in China. We received a series of awards and accolades that recognize our

popularity among the young generations in China, including:

Award Award Year Issued by

List of Top Business Growth Companies 2020 Harvard Business Review

2020 Excellent Marketing Partner Award 2020 Baidu

2020 Most Innovating and Inspiring Internet Company 2020 Tencent

App with the Highest Potential in 2020 2020 Xiaomi

Industry Innovation Award 2021 People’s Daily

Online Brand with Most Investment Value of the Year 2021 TopDigital

Most Influential Brand in New Entertainment 2020 36Kr

Company with Most Investment Value 2020 iiMedia

2021 Annual Geek Part Award 2021 Geek Park

2021 Annual “King of New Economy” — Annual Hardcore

Company 2021 36Kr

2022 Jinmi Award 2022 Xiaomi

As a supplement to word-of-mouth marketing, we promote our Soul app through advertisements

strategically placed in popular entertainment mobile apps, app stores and sponsorships for internet

TV shows and variety shows. We sometimes collaborate with brand partners to host ad hoc offline

campaigns to further increase our app awareness among the young generations. We have also used

offline events to further promote our brand recognition and reinforce our brand image. We debuted

an art exhibition in Shanghai titled “Soul Planet Wandering Project — Soul Wonderland,” which

displayed works created by famous international contemporary artists.

Leveraging our unique user insights and young user profile, we have gathered intelligence on

the behavior of young generations in China to compile billboards of hot topics and buzzwords

periodically. We hope these insights can help research institutions and others in the industry to better

understand young generations’ needs and behavior patterns on social platforms. We also use these

insights as a window into our unique services, as well as to attract more users and business partners,

and to expand the monetization channel.

Our Technologies

Big data

We build big data analysis framework to improve operating efficiencies and user satisfaction.

We utilize our insights, such as how strangers behave and interact with each other, to build a

comprehensive interest profiles for our users by assigning interest tags to them. We also use user

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behavior to understand and build tendency profiles for users which include their preferred ways of

interacting with other Soulers, such as if they prefer to privately chat with other Soulers or use

Partyroom. Combined with our data analytics capability, these interest and behavioral profiles allow

us to personalize user interfaces and recommend content to our users. Internal operational teams may

also gain insights with visual representation from sampled data to track their performances. All of

our data are processed to remove identifying information, transformed, and stored on our big data

clusters.

Our big data analysis is crucial to our ability to monitor our content moderation efforts.

Through our years of operations, we have accumulated immense data on typical behaviors of

malicious, fraud and unusual user accounts. See “— Content Moderation, Fraud Detecting and

Prevention of Access by Minors.”

Our app is built upon the idea of gathering people with similar interests. We have therefore

focused on the development of our user intelligence systems. We utilize machine learning

technologies to empower our content and user recommendation systems, based on the immense and

unique stranger interaction data that we have access to due to the nature of our app. In addition, we

leverage our speech and image recognition algorithms to facilitate our understanding of user

behavior on Soul. We have historically focused on users’ self labels, such as interests and Soul

Tests, to gain insights on users. We have now shifted our focus to comprehensively assess, in

addition to self-labels, users’ behavior and the meanings behind their posts to gain a better

understanding of our users. We also leverage data analytics technologies for our content moderation

and fraud detection. See “— Content Moderation, Fraud Detecting and Prevention of Access by

Minors.”

Avatar

Nawa Engine

Because of the importance of virtual identities, avatars, especially 3D avatar systems, is a key

area of interest in our R&D activities. We have developed Nawa, a proprietary suite of multimedia

technologies, including key point detection, avatar creating and 2D/3D rendering engine. For

example, our proprietary face recognition, tracking, reconstruction and key point detection system

can accurately detect and locate faces and analyze facial expressions. With our proprietary ultra-low

latency system, its face tracking system also takes up approximately 300MB less memory than most

third-party software on the market. We have received the computer software registration for Nawa

engine from the National Copyright Administration and have obtained five design patents, with one

pending design patent.

We have also achieved breakthroughs including stable point detection, dynamic skeleton

engine, and 3D rendering engine within five megabits, one of the lightest in the industry according to

the iResearch Report. Nawa also boasts comprehensive computer graphics algorithm and computer

vision algorithm capabilities with dozens of filters and special effects algorithms, which is widely

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applied in business scenarios such as virtual image construction of 2D/3D avatar, video matching

and content creation, continuingly providing robust and solid technical upgrades for the construction

of a future social metaverse.

3D avatar

Because Soulers more often use the 3D avatar function in live video chats, as opposed to pre-

recorded videos, we put a special focus on making our 3D avatar function more natural and

smoother. We have developed the following proprietary technologies to enhance our 3D avatar

function:

• Rim light technology: Our proprietary rim light technology captures the natural light in the

physical background of a user when using the 3D avatar function, and creates lighting and

shadows around the 3D avatar to mimic real-life objects’ behaviors in the environment a

level of technological sophistication unmatched by other social network platforms in China

with similar virtual face functions, according to the iResearch Report.

• Undetectable facial expression prediction technology: because of the limitation of the angle

between human faces and mobile phone cameras, many micro facial expressions cannot be

captured during live 3D avatar video chat sessions. To combat such problem, we have

trained a proprietary algorithm to predict undetectable facial expressions based on user

behavior.

• Eyeball action technology: because eyeballs are smaller compared to other facial features, it

is usually difficult to assign multiple detection and movement points to them. We have

trained a proprietary algorithm to connected the movement of avatar faces and eyeballs to

create a more natural eyeball movement.

Infrastructure

Our infrastructure supports ultra-high real-time and daily interactions of ten million users,

boasts system accesses of nearly one million times per second, produces and processes nearly one

hundred billion pieces of data each day, all of which are kept in the same day in real-time data

warehouse. It also applies elastic computing capability to continuously improve resource utilization,

and is capable to provide more than 10 million data per second for any query on reliance of

separation of hot and cold data and a wide range of query engine optimization technologies.

Service reliability

Users generate texts, pictures, audio and videos on our mobile app. We handle large amounts of

these user activities and interactions daily on our app. In 2021, our average DAUs was 9.3 million.

We have built reliable infrastructure that can host the vast data our users generate. We also upgrade

our infrastructure regularly in order to improve our service reliability.

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Technology and development team

As of March 31, 2022, our technology and development team consisted of 416 employees,

representing 21.6% of our total headcount. Many of our technology and development staff have

backgrounds from top-tier technology companies such as Google. Our technology and development

team is responsible for the development, maintenance and upgrades of our infrastructure and

technologies. They are also responsible for the implementation of new functionalities and features on

the Soul app. Being a crucial foundation of our community culture, our content moderation system

needs regular and urgent updates to ensure that it is agile and flexible for all possible scenarios. Our

technology and development team has established dedicated protocols and procedures for quick

responses to emergencies that may affect our content moderation system.

Content Moderation, Fraud Detecting and Prevention of Access by Minors

We recognize that safety is important to our Soulers, especially when they wish to form

genuine connections. Thus, we have developed strong and accurate anti-harassment and anti-

phishing mechanisms to combat unwelcomed behaviors on the Soul app.

Our anti-harassment system and content moderation capabilities help us filter out unpleasant

and harassment messages, particularly for female users, to create a more pleasant experience on our

mobile app and retain our user base. Utilizing our strong anti-phishing capabilities, we monitor

abnormal account behavior and content to minimize risk of fraud and other criminal activities. To

spread awareness among our users, we display a series of conspicuous slogans to educate our Soulers

on commonly seen phishing methods when they first sign up.

Our powerful content moderation system features multi-way cross-review mechanism that

ensures accurate review and distribution within a second. The mechanism combines data analytics

models with different characteristics to achieve recall rate up to 99% and low leakage rate in 2021

and up to the Latest Practicable Date, on par with the most advanced the comparable data analytics

capacity for the same business data in the industry.

Our industry-leading millisecond-level, real-time decision-making engine for risk controls are

equipped with thousands of risk control rules and algorithm models, as well as tens of millions of

illegal conduct libraries and characteristics in its filter. It relies on big data and algorithmic

capabilities to build up advanced, complete risk control protection system and middleware

capabilities to provide security for consistent growth of users, monetization and protection of station-

wide ecosystem.

Content moderation

We are committed to complying with relevant laws and regulations on online content. We have

invested significant resources in developing advanced content moderation technologies, policies and

procedures. As of March 31, 2022, we had a dedicated team of approximately 1,200 employees and

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outsourced third-party professionals to review and handle content in our app for compliance with

applicable laws and regulations.

We maintain content management and review procedures to monitor all UGC, including content

uploaded to Soul Square and Souler Space and real-time content such as voice chats and video chats

in private messaging, to promptly identify content that may be deemed inappropriate, in violation of

laws, regulations and government policies or infringing upon third-party rights.

We have implemented a four-layer content moderation mechanism, consisting of an algorithm-

driven screening mechanism plus a three-layer manual review system for our content moderation

efforts. In the first layer, our automated screening system automatically flags and screens out content

that involves inappropriate or illegal audio, video or texts. Once the content is processed by the

automated screening mechanism, our system extracts the selected suspicious content and sends to our

manual content moderation team for a three-layer review, done by three teams with various focuses,

to ensure that the content on our mobile app complies with the relevant laws and regulations. In

addition, we apply the three-layer manual review to all content generated by user accounts that are

labeled as high-risk by our monitoring system.

In addition, we have implemented various reporting procedures for all users so that the content

moderation team may re-examine the one-minute video clip around the point when the report button

is pressed. For Partyroom, we have also established “patrol” teams that selectively monitor each

room’s chat content to make sure that no inappropriate topics are being raised. When any

inappropriate or illegal content is identified, we promptly remove the content. Further actions may

also be taken to hold relevant users accountable.

Utilizing our content moderation capabilities, we not only monitor UGC to comply with

relevant law and regulations, but also filter out content not welcomed by other Soulers or

unbecoming of the community ethos of the Soul app.

Fraud Detection

Our proprietary fraud detection system is agile and ever-evolving, backed by our continued

effort of studying and combating fraudulent activities in our app. With the help of our proprietary

fraud detecting tools, we have established a three-phase fraudulent account detection protocol,

utilizing both intelligent screening and manual monitoring.

Our fraud screening capabilities mainly focus on detecting spam accounts set up for fraudulent

purposes. After years of operations, we have accumulated vast data on typical fraud account

activities and developed an array of proprietary fraud detecting tools designed specifically for the

Soul app. Leveraging our technologies, we have created a series of anti-fraud detection strategies

that are specific to the Soul app. We have also created prediction models using our large amount of

user insights based on normal (or non-fraudulent) account behavior. Lastly, we have built content

detecting models that targets the common fraudulent scripts on the Soul app.

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The first phase of our fraud detection protocol starts before an account is set up. Our intelligent

screening tools can detect fraudulent intention based on typical internet environments and device

information of fraudulent activities. After an account is set up, our system is able to detect abnormal

user behavior, such as posting repetitive spam content similar to those posted by other accounts

within a short period. In the third phase, we monitor the actual content posted by each account. Once

an account shows signs that fit our detecting models, we are able to take actions such as blocking the

content or banning the account. In each phase, we also use manual monitoring to ensure accuracy in

fraud detection. After we successfully detected fraudulent accounts and behavior we feed these

fraudulent accounts’ behaviors and environment information back into our models to further improve

our detecting capabilities.

Prevention of Access by Minors

Since the second half of 2019, we prohibited minor users under 18 to register with our mobile

app. This user policy is expressly and repeatedly stated in our user terms and conditions, new-user

registration page, welcoming screen, home page banner, and chatting interface. Each of our newly

registered user in China is subject to an algorithm-driven screening process as a measure to prevent

access by minors. We also continuously monitor minor usage of our platform. For example, we adopt

screening mechanisms to detect minor users and actively encourage users to report minor users. Once

a user is determined to be under age, the relevant account will be identified and blocked by our

mobile app. For legacy users who are under 18, we have developed a teenager mode which filters out

content that is not suitable or prohibited by relevant laws and regulations. In teenager mode, minor

users can only interact and see content posted by other minor users. We have also established a

dedicated team to manually monitor content posted in teenager mode to make sure that only those

appropriate for minor users are being shared.

Data Privacy and Protection

We are committed to protecting the information and privacy of our users. We have developed a

company- wide policy on data security to preserve individual personal information and privacy. We

strictly comply with laws and regulations and do not sell our users’ personal data for any purpose.

We gain access to personal and behavioral data, including, among others name, email address,

mobile number, ID through our app. For our users’ information, our user privacy policies clearly

describe our data use practices and how privacy works on our platform. Specially, we provide users

with prior notice and obtain their consent/acknowledgment as to what data are being collected and

undertake to manage and use the data collected in accordance with applicable laws before they use

our products and services. We encrypt and store the data on third-party cloud servers, which are

protected by advanced anti-hacking measures and firewalls. We collect user information in

accordance with applicable laws and regulations, as well as our own privacy policies which are

issued and amended from time to time on the Soul app and confirmed by our users, and we do not

use any data for any purpose other than those specified in the data privacy policy with our users.

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Our network configuration is secured at multiple layers to protect our databases from

unauthorized access. To prevent unauthorized access to our system, we utilize a system of firewalls

and maintain a demilitarized zone to separate our external-facing services from our internal systems.

To minimize the risk of data loss, we conduct regular data backup and data recovery tests. We have

data disaster recovery procedures in place.

We deploy a variety of technical solutions to prevent and detect risks and vulnerabilities in user

privacy and data security, such as encryption, firewall, vulnerability scanning and log audit. For

instance, we classify user information according to applicable laws and regulations and de-identify

and encrypt relevant confidential personal information and take other technological measures to

ensure the secure processing, storage, transmission and usage of relevant data. We have a team of

professionals who are dedicated to the ongoing review and monitoring of data security practices. We

maintain data access logs that record all attempted and successful access to our data and conduct

automated monitoring and routine manual verification of large data requests. We also have clear and

strict authorization and authentication procedures and policies in place. All our personnel are

required to strictly follow our detailed internal rules, policies and protocols to ensure the privacy of

our data. Our employees only have access authorized by us to data which is directly relevant and

necessary to their job responsibilities for limited purposes. Our PRC Legal Adviser is of the view

that we are in compliance with the currently effective PRC laws and regulations on cybersecurity,

data security and personal data protection in all material aspects.

Customers

We started generating revenue in 2019 through value-added services. We started offering

advertising services in 2020. Our customers mainly consists of individual users who purchase value-

added services and brands and merchants who advertise on our platform. For each of the years ended

December 31, 2019, 2020 and 2021, our top five customers contributed less than 5% of our total

revenue.

None of our Directors, their associates or any of our current Shareholders (who, to the

knowledge of our Directors, own more than 5% of our share capital) has any interest in any of our

five largest customers during the Track Record Period that is required to be disclosed under the

Listing Rules.

Suppliers

Our suppliers primarily include providers for technology services, advertising and promotion

services. In 2019, 2020, and 2021, (i) our top five suppliers accounted for 40.9%, 43.1%, and 46.2%

of our total purchases, respectively; and (ii) our largest supplier contributed to 10.4%, 14.2%, and

12.9% of our total purchases, respectively.

All of our five largest suppliers are independent third parties. None of our Directors, their

associates or any of our current Shareholders (who, to the knowledge of our Directors, own more

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than 5% of our share capital) has any interest in any of our five largest suppliers during the Track

Record Period that is required to be disclosed under the Listing Rules. The tables below set forth the

details of our five largest suppliers in terms of percentage of total purchases during the Track Record

Period.

We believe we have sufficient alternative suppliers for our business that can provide us with

substitutes of comparable quality and prices. During the Track Record Period, we did not experience

any disruption to our business as a result of any significant shortage or delay in supply.

Supplier A is within the same group as certain of our major customers in 2020 and 2021.

During the Track Record Period, purchases from Supplier A accounted for 10.4%, 7.3% and 7.0% of

our total purchases in 2019, 2020 and 2021, respectively, and such major customers in aggregate

contributed less than 3% of our total revenue in each of 2019, 2020 and 2021. Our Directors

confirmed that negotiations of the terms of our purchases from and sales to these supplier and

customers were conducted separately and as a result, the purchases and sales were neither connected

with nor conditional upon each other. Our transactions with these supplier and customers were

conducted on normal commercial terms after arm’s length negotiations, in line with market practice.

Year ended December 31, 2019

Rank Suppliers

Years of

Relationship

Services or products

provided to us

Business profiles

and backgrounds

% of total

purchases

1 Supplier A Since 2019 Technology services Server, database and deviceterminal provider

10.4%

2 Supplier B 2019-2020 Advertising and promotionservices

Information and advertisingservice provider

9.9%

3 Supplier C 2018-2019 Advertising and promotionservices


8.3%

4 Supplier D Since 2015 Advertising and promotionservices


7.6%

5 Supplier E Since 2018 Advertising and promotionservices


4.6%


Rank Suppliers

Years of

Relationship


provided to us

Business profiles

and backgrounds

% of total

purchases

1 Supplier F Since 2019 Advertising and promotionservices

Information and advertisingservice provider 14.2%

2 Supplier E Since 2018 Advertising and promotionservices


3 Supplier A Since 2019 Technology services Server, database and deviceterminal provider 7.3%

4 Supplier G Since 2019 Payment platform Third-party payment platform 7.0%

5 Supplier H Since 2020 Advertising and promotionservices


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Rank Suppliers

Years of

Relationship


provided to us

Business profiles

and backgrounds

% of total

purchases

1 Supplier F Since 2019 Advertising and promotion

services

Information and advertising

service provider 12.9%

2 Supplier I Since 2020 Advertising and promotion

service



3 Supplier E Since 2018 Advertising and promotion

services



4 Supplier A Since 2019 Technology services Server, database and device

terminal provider 7.0%

5 Supplier J Since 2020 Advertising and promotion

services



Relationship between Our Group and Tencent

Tencent (through Image Frame) initially invested in our Group in May 2020. Since May 2020

to the Latest Practicable Date, Tencent (through Image Frame) had always been a strategic investor

with no participation in the day-to-day management or business operations of our Group. Ms. Lu

Zhang as the founder, chairwoman and chief executive officer of our Group has been responsible for

the financial and business performance of our Group. Ms. Lu Zhang also has control over our Board

throughout the Track Record Period and has exerted substantial influence on the management of our

Group. On October 10, 2021, Image Frame (a wholly owned subsidiary of Tencent) entered into the

Voting Proxy, pursuant to which Image Frame granted a voting proxy in favor of Ms. Lu Zhang in

respect of, and Ms. Lu Zhang is entitled to, the voting rights attached to a number of preferred shares

equivalent to 36,500,000 ordinary shares (on an as-converted basis) held by Image Frame.

Immediately after the completion of the [REDACTED] (assuming the Presumptions), Ms. Lu Zhang

will control approximately [REDACTED]% of the voting power of our Company pursuant to Shares

controlled by her directly and the Voting Proxy; Image Frame will control approximately

[REDACTED]% of the voting power of our Company, pursuant to Shares controlled by it directly

and the Voting Proxy. Image Frame will not be deemed a controlling shareholder as defined under

the Listing Rules upon [REDACTED]. For details of the Voting Proxy, please refer to “History,

Development and Corporate Structure — Pre-[REDACTED] Investments — Voting Proxy”.

During the Track Record Period, our Group had various business relationships with Tencent

Group, such as (i) the use of Weixin Pay; (ii) the use of Tencent’s services to acquire users; (iii) the

receipts of advertising income from Tencent; (iv) the use of music features of QQ music; and (v) the

use of Tencent’s SMS services. For details of the relevant transactions entered into between our

Group and Tencent Group, please refer to “Connected Transactions”.

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Business delineation from Tencent Group

We are of the view that there is a clear delineation between our Group’s business and the

business of Tencent Group for the following reasons:

(a) Distinctions in functions and hence usage purposes between our Soul app and Tencent Apps

Our Soul app users are not required to disclose their real identities, locations, ages or

appearances. Instead, our app users create virtual identities, in the form of avatars to portray cyber

personalities. Our Soul app promotes open-ended relationships (i.e. no need to form a “friend”

relationship on our app in order to talk to other app users) and connects app users through generating

interest graphs for each of our app users, and recommending to each app user curated content and

other app users with similar personalities, lifestyles and interests, which enable more in-depth

interactions and connections among our app users. Our Soul app is appearance-agnostic, interest-

driven, decentralized and gamified.

On the other hand, the social networking apps and products offered by Tencent Group can be

broadly divided into two categories, namely (i) communication and social services (i.e. Weixin

(微信) and QQ) which offer instant messaging services with mainly real-life acquaintances, and

connect users with content and services ; and (ii) content apps which focus on content-based social

entertainment (e.g. WeSing (全民K歌) (an app offered by Tencent Music Entertainment Group, a

company in which Tencent holds approximately 49.06% equity interest as of December 31, 2021). In

view of the distinctions between the functions of our Soul app and the above-mentioned apps offered

by Tencent Group, our Group believes that users would use our Soul app and the apps offered by

Tencent Group for different purposes.

(b) Differences in business and revenue model between our Group and Tencent Group

Our Soul app generated substantially all of the revenue from value-added services such as

virtual items (such as virtual identity features e.g. new facial avatars and virtual ornaments) and

membership subscriptions and/or privileges, which accounted for 93.9% of our Group’s revenue for

the financial year ended December 31, 2021, whereas the abovementioned apps offered by Tencent

Group generated revenue from a combination of value-added services, advertisements and other

business models.

(c) Absence of material direct competition with Tencent Group

We believe we distinguish ourselves from most of the social networks in China, and our Group

does not have any direct competitors in China. As illustrated above, there are distinct differences

between the functions and hence usage purposes between the Soul app and the apps offered by

Tencent Group, as well as marked differences between the business and revenue models between our

Group and Tencent Group. As a result, our Group does not directly compete with Tencent Group for

app users nor customers. To the best of our knowledge, information and belief, none of

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our peer companies are associates of Tencent. As such, we are of the view that our Group does not

have any material direct competition with Tencent Group and that our business is clearly delineated

from Tencent Group.

No significant reliance on Tencent Group

Our Group entered into a number of transactions with Tencent Group during the Track Record

Period and expects to continue to conduct certain transactions with Tencent Group as detailed in the

section headed “Connected Transactions” of this document. Nevertheless, we are of the view that our

Group does not and will not significantly rely on Tencent for the following reasons:

(a) Weixin Pay. During the financial year ended December 31, 2021, 6.3% of the payment

channel costs of our Group was paid to Weixin Pay, while 90.3% and 2.5% of the payment channel

costs of our Group were paid to Apple Pay and Alipay. Having considered that our Group also uses

other payment channels such as Apple Pay and Alipay, we are of the view that our Group does not

rely on Weixin Pay to operate our Soul app.

(b) User acquisition. During the financial year ended December 31, 2021, the costs of

purchasing Tencent Group’s user acquisition services, which helped distribute advertisements of our

Soul app on different internet platforms, accounted for 5.6% of our Group’s total advertising

expenses. Given that our Group does not expect to make changes to our marketing strategies to

increase our user acquisition through Tencent Group, going forward, we expect that our transactions

with Tencent Group on user acquisition will increase in absolute amount as we increase our overall

spending on selling and marketing. We expect our relevant user acquisition costs as percentage of

total advertising expenses would remain more or less the same in the near future.

(c) Advertising business. During the financial year ended December 31, 2021, 5.4% of the

advertising revenue of our Group was contributed by Tencent Group, which helped advertisers

distribute advertisements on our platform. The Company expects its advertising customer base to

further diversify, and as a result the Company is not dependent on the advertising revenue

contribution of Tencent Group and does not expect the advertising revenue from Tencent Group to

materially increase as a proportion of its overall advertising revenue.

(d) QQ Music. Our Group does not pay or receive funds for our collaboration with QQ music,

which enables our Soul app users to share music and create music related posts with a range of music

features.

(e) SMS services. In April and May 2021, our Group used Tencent Group’s SMS services to

send text messages to users . The costs of such services which accounted for 1.2% of our Group’s

total information services fee for the relevant period. Our Group has not used such services from

Tencent since June 2021.

Taking into account the fact (i) that our transactions with Tencent have been insignificant to

our Group’s total revenue and expenses; (ii) that our Group’s volume and amount of transactions

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with Tencent in the near future are not expected to materially increase relative to the size of our

Group’s business; and (iii) that any transactions with Tencent Group will be on normal commercial

terms in our Group’s ordinary course of business on fair and reasonable terms, we are of the view

that our Group has been and will be capable of carrying out our business independently of Tencent

Group and we do not expect our transactions with Tencent Group will give rise to any potential

reliance issue.

Competition

Although the sector that we operate in is new and evolving, we currently compete with

established internet companies in a variety of sectors, including social network and social media

companies.

We believe that our ability to compete effectively depends on many factors, including our

ability to attract more users and retain current users, our ability to offer new features on the Soul

app, our ability to become and stay profitable, our user experience, our technological capabilities,

our marketing and selling efforts and the strength and reputation of our brand.

Furthermore, as our business continues to grow rapidly, we face significant competition for

highly skilled personnel, including management and engineers. The success of our growth strategy

depends in part on our ability to retain existing personnel and attract additional highly skilled

employees.

Environmental, Social and Governance Initiatives

We believe our continued growth rests on promoting and integrating social values into our

mobile app. With the aspiration to alleviate senses of loneliness and promote senses of resonation by

connecting individuals, we endeavor to utilize our network to offer public welfare resources to

everyone in the communities we serve. Since the inception of our operations, we have established

various social initiatives to comprehensively improve our corporate governance and benefit society.

In order to cultivate a more inclusive culture on our mobile app and within our Company, we

have undertaken several initiatives aimed at supporting and raising awareness of individuals living

with disabilities. For example, we proactively create employment opportunities in our content

moderation team for people with hearing impairments. In 2020, we also collaborated with World of

Art Brut Culture (WABC) to launch “Mismatched Socks Day,” when people consciously wear

mismatched socks to raise awareness and show support for those with autism, brain paralysis and

Down syndrome, as well as their families. Soulers are able to design patterns on virtual socks, which

later became ornaments for virtual Christmas trees in their personal Christmas cards on Soul. Soulers

can also share the Christmas cards on Soul and other social platforms, starting conversations about

the event. Additionally we call for our users to take simple actions such as wearing mismatched

socks and posting pictures of them on the day of the event to encourage more people to join.

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We have also initiated campaigns on our mobile app to protect Soulers from fraud activities.

We have set up a dedicated official Soul account that periodically posts educational materials on

typical internet fraud and push the content in Soul Square. We also provide users with anti-fraud tips

that are easily accessible in private chat windows.

We are dedicated to exploring the beauty of traditional Chinese culture to create potential

relation between traditional and modern elements, between national customs and stylish practices are

our aspiration. We aim to help those young fans of traditional Chinese culture find their soulmates

on Soul with various initiatives, including the Yuan Project, to hold crossover concert introducing

traditional Chinese culture with joint efforts from the Soul Museum and Henan Museum, and

working with the intangible cultural heritage protection team from Tsinghua University to promote

Guangdong-style embroidery.

We have also worked jointly with pet charity Furry Animal Save on the topic of caring for stray

animals on our platform to convey the positive value of Soul.

Intellectual Property

We regard our trademarks, copyrights, patents, domain names, know-how, proprietary

technologies, and similar intellectual property as critical to our success, and we rely on copyright,

trademark and patent laws and confidentiality, invention assignment and non-compete agreements

with our employees and others to protect our proprietary rights. As of the Latest Practicable Date, we

owned 58 computer software copyrights and maintained 97 trademark registrations inside China. We

had 92 trademark applications as of the Latest Practicable Date. As of the Latest Practicable Date,

we had 21 patents granted in China and 23 patent applications pending. As of the Latest Practicable

Date, we had registered 10 domain names. Our registered domain names include, without limitation,

soulapp.cn.

We seek to protect our technology and associated intellectual property rights through a

combination of patent, copyright and trademark laws, as well as license agreements and other

contractual protections. In addition, we enter into employment agreements with confidentiality

arrangements with our employees, and cooperation agreements with confidentiality arrangements

with business partners to protect our proprietary rights. The agreements we enter into with our

employees also provide that all patents, software, inventions, developments, works of authorship and

trade secrets created by them during the course of their employment with us are our property.

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Employees

The following table sets forth the numbers of our employees categorized by function as of

March 31, 2022:

Function Number of Employees % of Total

Technology and development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 412 21.6%

Mobile app operations and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213 11.1%

Sales and marketing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137 7.2%

General and administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,148 60.1%

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,910 100.0%

As of March 31, 2022, our employees were all based in China. We believe we offer our

employees competitive compensation packages and an environment that encourages self-

development and, as a result, have generally been able to attract and retain qualified personnel and

maintain a stable core management team. In addition, we invest significant resource in the

recruitment of employees to support our fast growth of business operations. We provide new hire

training to our employees and periodic on-the-job training to enhance the skills and knowledge of

our employees. We also use third-party professional services for part of our manual content

moderation work.

None of our employees is represented by a labor union. We have not experienced any material

labor disputes or strikes that may have a material and adverse effect on our business, financial

condition or results of operations.

As required by laws and regulations in China, we participate in various employee social

security plans that are organized by municipal and provincial governments including, among other

things, pension, medical insurance, unemployment insurance, maternity insurance, on-the-job injury

insurance and housing fund plans through a PRC government-mandated benefit contribution plan.

We are required under PRC law to make contributions to 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.

We typically enter into standard employment agreements and confidentiality agreements or

clauses with our employees. These contracts include a standard non-compete covenant that prohibits

the employee from competing with us, directly or indirectly, during her or his employment and for

two years after termination of her or his employment.

Facilities

Our headquarters is located in Shanghai, China, where we lease and occupy approximately

6,000 square meters as office space. We also have offices in Beijing and Nanjing, where we lease

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and occupy approximately 1,900 square meters and approximately 4,500 square meters as office

space, respectively. Our leased properties in the PRC are primarily used as offices. We believe that

our existing facilities are generally adequate in meeting our current needs, but we may seek

additional space as needed to accommodate future growth. Please also refer to “Risk Factors —

Risks Relating to Our Business and Industry — Our rights to use our leased properties may be

defective and could be challenged by governmental authorities, property owners or other third

parties, which may disrupt our operations and incur relocation costs.”

As of December 31, 2021, none of the properties leased by us had a carrying amount of 15% or

more of our total assets. According to Chapter 5 of the Hong Kong Listing Rules and section 6(2) of

the Companies (Exemption of Companies and Prospectuses from Compliance with Provisions)

Notice, this document is exempt from the requirements of section 342(1)(b) of the Companies

(Winding up and Miscellaneous Provisions) Ordinance to include all interests in land or buildings in

a valuation report as described under paragraph 34(2) of the Third Schedule to the Companies

(Winding up and Miscellaneous Provisions) Ordinance.

Health, Work Safety, Social and Environmental Matters

We do not operate any production facilities. We are not subject to significant health, work

safety, social or environmental risks. To ensure compliance with applicable laws and regulations,

from time to time, our human resources department would, if necessary, adjust our human resources

policies to accommodate material changes to relevant labor and work safety laws and regulations.

During the Track Record Period and up to the Latest Practicable Date, we have not been subject

to any fines or other penalties due to non-compliance in relation to health, work safety, social or

environmental regulations or any accident or claim for personal or property damage made by our

employees, that has materially and adversely affected our business, financial condition or results of

operations.

Insurance

We provide social security insurance including pension insurance, unemployment insurance,

work-related injury insurance, maternity insurance and medical insurance for our employees.

Additionally, we provide supplementary medical insurance for all management. However, we do not

maintain any liability insurance or property insurance policies covering our fixed assets, such as

equipment, furniture and office facilities. Consistent with customary industry in China, we do not

maintain business interruption insurance, nor do we maintain product liability insurance or key-man

life insurance. See “Risk Factors — Risks Relating to Our Business and Industry — We may not

have sufficient insurance to cover our business risks, so that any uninsured occurrence of business

disruption may result in substantial costs to us and the diversion of our resources, which could have

an adverse effect on our results of operations and financial condition.”

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Legal Proceedings and Non-compliance

From time to time we may become involved in legal proceedings or be subject to claims arising

in the ordinary course of our business. As of the Latest Practicable Date, we were not a party to any

legal proceedings that, if determined adversely to us, would individually or taken together have a

material adverse effect on our business, results of operations, financial condition or cash flows.

Regardless of the outcome, litigation and other legal proceedings can have an adverse impact on us

because of defense and settlement costs, diversion of management resources, reputation damage and

other factors.

During the Track Record Period and up to the Latest Practicable Date, we had not been and

were not involved in any material non-compliance incidents that have led to fines, enforcement

actions, or other penalties that could, individually or in the aggregate, have a material adverse effect

on our business, financial condition, and results of operations.

Licenses and Regulatory Approvals

As of the Latest Practicable Date, except as disclosed in “Risk factors — Any lack of requisite

approvals, licenses or permits applicable to our business may have a material and adverse impact on

our business, financial condition and results of operation,” we had obtained all requisite licenses and

regulatory approvals that are material to our business operations and such licenses and regulatory

approvals were valid and remain in effect as of the Latest Practicable Date. Our PRC Legal Adviser

is of the view that, as of the Latest Practicable Date, except as disclosed in “Risk factors — Any lack

of requisite approvals, licenses or permits applicable to our business may have a material and

adverse impact on our business, financial condition and results of operation,” we had obtained all

requisite licenses and regulatory approvals that are material to our business operations and such

licenses and regulatory approvals were valid and remain in effect as of the Latest Practicable Date.

The following table sets out a list of material licenses and permits currently held by us:

License/Permit Holder Issuing Authority Grant Date

Expiration

Date

Business License Soulgate Technology

Administration forMarket Regulation of

China (Shanghai)Pilot Free Trade

Zone Jan 21, 2022 /

Value-addedTelecommunicationsBusiness OperatingLicense (regarding

online data processingand transaction

processing and internetinformation services) Soulgate Technology

ShanghaiCommunicationsAdministration Nov 13, 2020 Apr 2, 2023

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BUSINESS

License/Permit Holder Issuing Authority Grant Date

Expiration

Date

Value-addedTelecommunicationsBusiness OperatingLicense (regarding

information services(excluding internet

information services)) Soulgate Technology MIIT Sep 16, 2020 Sep 16, 2025

Network CultureOperation License Soulgate Technology

ShanghaiAdministration of

Culture and Tourism Mar 7, 2022 Mar 9, 2023

Filing Certificate ofGraded Protection ofInformation System

Security Soulgate TechnologyShanghai PublicSecurity Bureau Sep 29, 2018 /

Risk Management and Internal Control

We are committed 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. 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 reporting management policy, budget management policy, treasury

management policy, financial statements preparation policy and finance department and staff

management policy. We have various procedures and IT systems in place to implement our

accounting policies, and our finance department reviews our management accounts based on such

procedures. We also provide regular training to our finance department employees to ensure that they

understand our financial management and accounting policies and implement them in our daily

operations.

Information system risk management

Certain types of data that we gain access to may be considered to be personal information under

the applicable laws and regulations. Sufficient protection of data is critical to our success. We have

implemented relevant internal procedures and controls to ensure the security of our IT infrastructure,

that any data that we gain access to is protected and that leakage and loss of such data is avoided.

During the Track Record Period and up to the Latest Practicable Date, we had not experience any

material system failure in our IT infrastructure, or any material leakage or loss of data.

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Our IT system security department are responsible for ensuring the security of our IT

infrastructure and ensuring that the usage, maintenance and protection of data are in compliance with

our internal rules and the applicable laws and regulations. We provide regular trainings to our

information technology teams.

Compliance and intellectual property risk management

We have designed and adopted strict internal procedures to ensure the compliance of our

business operations with the relevant rules and regulations, as well as the protection of our

intellectual property rights.

In accordance with these procedures, our in-house legal department performs the basic function

of reviewing and updating the form of contracts we enter into with our customers and suppliers. Our

legal department as well as business operation teams examine the contract terms and reviews all

relevant documents for our business operations, including licenses and permits obtained by the

counterparties or us to perform contractual obligations and all the necessary underlying due diligence

materials, before we enter into any contract or business arrangements.

We also have in place detailed internal procedures to ensure that our in-house legal department

reviews our products and services, including upgrades to existing products, for regulatory

compliance before they are made available to the general public. Our in-house legal department is

responsible for obtaining any requisite governmental pre-approvals or consent, including preparing

and submitting all necessary documents for filing with relevant government authorities within the

prescribed regulatory timelines and ensuring all necessary application, renewals or filings for

trademark, copyright and patent registration have been timely made to the competent authorities.

Human resources risk management

We provide regular and specialized training tailored to the needs of our employees in different

departments. Our human resource department regularly organizes internal training sessions

conducted by senior employees or outside consultants on topics of interest. Our human resource

department schedules online trainings, reviews the content of the trainings, follows up with

employees to evaluate the impact of such training and rewards lecturers for positive feedback.

Through these trainings, we ensure that our staff’s skill sets remain up-to-date, enabling them to

better discover and meet users’ needs.

We have in place internal policies approved by our management and have distributed them to

all our employees. The handbook contains internal rules and guidelines regarding work ethics, fraud

prevention mechanisms, negligence and corruption. We provide employees with regular training, as

well as resources to explain the guidelines contained in the employee handbook.

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Internal Control Risk Management

We have designed and adopted strict internal procedures to ensure the compliance of our

business operations with the relevant rules and regulations. We maintain internal procedures to

ensure that we have obtained all material requisite licenses, permits and approvals for our business

operation, and conduct regular reviews to monitor the status and effectiveness of those licenses and

approvals. Relevant business departments work with related functional departments to obtain

requisite governmental approvals or consents, including preparing and submitting all necessary

documents for filing with relevant government authorities within the prescribed regulatory timelines.

To comply with the rapidly evolving laws and regulations in the internet industry, we have

professional teams in the Group to enforce our strict internal procedures, which include without

limitation monitoring laws and regulations updated from time to time and conducting relevant

researches and studies; monitoring notices, instructions and requirements issued by the regulatory

authorities and communicating with relevant authorities to obtain further instructions when

necessary; collecting external professional opinions on any new laws and regulations; issuing

appropriate plans of compliance for our product and ensuring the implementation of such plans;

carry out supervision, inspection and feedback on the implementation.

Investment risk management

We source investment projects in accordance with our investment strategy, which is established

in line with our business strategies with inputs from various business departments. We also

rigorously assess the risks and potential of the investment projects before investment and on an

ongoing basis. We conduct thorough pre-investment due diligence to assess the risks and potential of

the investment projects and require investment decisions concerning long term investment projects to

go through multiple levels of pre-investment approval.

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BACKGROUND

Foreign investment activities in the PRC are mainly governed by the Catalog of Encouraging

Industries for Foreign Investment (2020 Edition) (鼓勵外商投資產業目錄 (2020年版)) (the “2020

Encouraging Catalog”) and the Special Administrative Measures (Negative List) for Foreign

Investment Access (2021 Edition) (外商投資准入特別管理措施(負面清單) (2021年版)) (the “2021

Negative List”), which have been promulgated and amended from time to time jointly by the

MOFCOM and the NDRC. The 2020 Encouraging Catalog sets forth the industries in which foreign

investment is encouraged, while the 2021 Negative List sets forth the industries in which foreign

investment is restricted or prohibited. We are primarily engaged in the provision of internet

information, distribution of UGC and sales of advertisement (the “Principal Business”) and is

considered to be engaged in the provision of value-added telecommunications services and internet

cultural business. Save as otherwise disclosed in this document, Soulgate Technology holds the

relevant licenses required for carrying out the above services and operating the aforementioned

businesses. Pursuant to applicable PRC laws and regulations, foreign investors are not allowed to

hold more than 50% of the equity interests in an enterprise providing value-added

telecommunications services business (except for ecommerce, domestic multi-party communications,

storage-forwarding and call centers), and foreign investors are prohibited from holding equity

interests in an enterprise carrying out “internet cultural business (excluding music)”.

Accordingly, we cannot acquire equity interests in Soulgate Technology, which, along with

other Consolidated Affiliated Entities, (i) conducts our Principal Business and the platform support

services which operate through, are closely related to and interdependent on the operation of our

mobile app, and (ii) holds the assets and certain licenses, approvals and permits required for the

operation of our Principal Business. For further details on the limitations on foreign ownership

applicable to us and the licensing and approval requirements applicable to our Principal Business

under PRC laws and regulations, please refer to “Regulatory Overview”.

As a result of the foregoing and in preparation for the [REDACTED], we, through the WFOE,

entered into a series of contractual arrangements with the VIE and/or its Registered Shareholders (as

applicable) to assert management control over the operations of our Principal Business conducted

through the Consolidated Affiliated Entities, and to enjoy all economic benefits of the Consolidated

Affiliated Entities. The agreements underlying such contractual arrangements with the VIE and/or its

Registered Shareholders (as applicable) include: (i) the Exclusive Business Cooperation Agreement,

(ii) the Exclusive Purchase Option Agreement, (iii) the Loan Agreement, and (iv) the Equity Pledge

Agreement (each term as defined below); moreover, each of the Registered Shareholders of the VIE

had also executed an irrevocable Power of Attorney (as defined below) appointing the WFOE (or

other applicable party designated by the WFOE) as her/its proxy to exercise on her/its behalf of

shareholder rights in the VIE and the spouse of Ms. Lu Zhang had also executed a spousal consent

letter (such contractual arrangements collectively, the “Contractual Arrangements”). Accordingly,

the term ‘ownership’ or the relevant concept, as applied to our Company in this document, refers to

an economic interest in the assets or businesses through the Contractual Arrangements without

holding any equity interest in our Consolidated Affiliated Entities. The Contractual Arrangements,

– 191 –



through which we are able to exercise control over and derive the economic benefits from our

Consolidated Affiliated Entities, have been narrowly tailored to achieve our business purpose and

minimize the potential for conflict with relevant PRC laws.

Pursuant to the Contractual Arrangements, all substantial and material business decisions of the

Consolidated Affiliated Entities will be instructed and supervised by our Group, through the WFOE,

and all risks arising from the business of the Consolidated Affiliated Entities are also effectively

borne by our Group as a result of the Consolidated Affiliated Entities being treated as wholly-owned

subsidiaries of our Company. Accordingly, our Directors consider that it is fair and reasonable for

the WFOE to be entitled to all economic benefits generated by the business operated by the

Consolidated Affiliated Entities through the Contractual Arrangements as a whole. In addition, our

Directors are of the view that the Contractual Arrangements and the transactions contemplated

thereunder are fundamental to our Group’s legal structure and business operations and would allow

and ensure sound and effective operation of our Company and our Principal Business in compliance

with applicable PRC laws and regulations. Accordingly, our Directors consider that such

transactions, which have been and shall be entered into on normal commercial terms, are fair and

reasonable, or advantageous, so far as our Group is concerned and are in the best interest of our

Company and Shareholders as a whole. Our Directors also believe that our Group’s structure

whereby the financial results of the Consolidated Affiliated Entities are consolidated into our

Company’s financial statements as subsidiaries, and the flow of economic benefit of their businesses

to our Group pursuant to the Contractual Arrangements, would also be in the best interest of our

Company.

PRC LAWS RESTRICTING FOREIGN OWNERSHIP OF THE RELEVANT BUSINESSES

A summary of our businesses that are subject to foreign investment restriction or prohibition are set out

below:

Prohibited business Internet culture business

The Interim Administrative Provisions on Internet Culture (《互聯網文化管理暫行規定》), promulgated by the Ministry of Culture, or the MOC (which

is the predecessor of the PRC Ministry of Culture and Tourism, or the

MCT), on May 10, 2003 and amended with immediate effect on

December 15, 2017 (the “Internet Culture Provisions”) provides that

internet culture activities are classified into non-commercial internet cultural

activities and commercial internet cultural activities. Under the Internet

Culture Provisions, internet culture activities include: (i) the production,

reproduction, importation, distribution, or streaming of internet culture

products (such as online music, online game, online program, online series,

online performance, online cartoon, etc.); (ii) the dissemination of culture

products via internet; and (iii) the exhibitions, competitions, and other

similar activities concerning internet culture products. To conduct

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commercial internet culture activities, the Network Culture Operation

License is a prerequisite. See “Regulatory Overview – Regulations Relating

to Online Cultural Activities” for details of limitations on foreign ownership

in PRC companies conducting commercial internet culture activities.

According to the Investment Restrictions and other applicable PRC Laws,

foreign investors are prohibited from holding equity interest in an enterprise

carrying out internet cultural business (except for music). Our Soul app

allows its users to publish and share text, audio and video content (including

those relating to online performance) with each other and operates in-app

party games, all of which are integral to the app and constitute internet

cultural activities. As informed during the consultation with Shanghai

Administration of Culture and Tourism in June 2022, considering our

operation of the aforementioned internet cultural business, foreign investors

are prohibited from holding any equity interest in the enterprise of us which

carries out such business. Our PRC Legal Adviser is of the view that

Shanghai Administration of Culture and Tourism is the competent authority

to respond to the above consultation. Due to such prohibition, our internet

culture services are conducted by, and the Network Culture Operation

License is held by, Soulgate Technology.

Restricted business Value-added telecommunications services

Pursuant to the 2021 Negative List, provision of value-added

telecommunications services (except for ecommerce, domestic multi-party

communications, storage-forwarding and call centers) falls within the

‘restricted’ category. As such, the ultimate shareholding percentage of a

foreign investor in companies engaged in value-added telecommunications

services (except for ecommerce, domestic multi-party communications,

storage-forwarding and call centers) shall not exceed 50%. Moreover,

pursuant to the Administrative Measures on Internet Information Services

(《互聯網信息服務管理辦法》) and Telecommunications Regulations of the

PRC (《中華人民共和國電信條例》), a provider of ‘operational internet

information services’ (namely services involving the provision of

information or website-design services through the internet to internet-users

for a fee) is required to obtain an ICP license. See “Regulatory Overview—

Regulations Relating to Foreign Investment” for details of limitations on

foreign ownership in PRC companies conducting value-added

telecommunications services.

Since our value-added telecommunications services involve the provision of

internet information, distribution of content and sales of internet

advertisement, which are sub-categories of value-added telecommunications

business, for which a value-added telecommunications services license is

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required, our value-added telecommunications services are subject to foreign

ownership restrictions. Therefore, our internet information services are

conducted by, and value-added telecommunication licenses are held by,

Soulgate Technology.

Soulgate Technology operates a mixture of prohibited and restricted businesses which are closely

related to and interdependent on the operation of our mobile app. In particular, the Principal Business

involves providing/sharing internet multimedia content and distributing UGC in different forms through

the online platforms, interactive chatrooms, Partyrooms and other in-app functions via our Soul app,

which: (a) falls within the scope of commercial internet cultural activities and requires a network culture

operation license to operate (which is a “prohibited business”); and (b) is fully integrated into and cannot

be delineated from the business of providing internet information services under an ICP Licence (which

is a “restricted business”), and is therefore forming the integral parts of the operation of our Soul app. In

addition, as informed during the consultation with Shanghai Administration of Culture and Tourism in

June 2022, considering our operation of the internet cultural business activities, foreign investors are

prohibited from holding any equity interest in an enterprise which carries out such business. Based on the

foregoing, we believe that to maintain the business operations and effectiveness of the licences and

permits held by Soulgate Technology, this company must be controlled by our Company through the

Contractual Arrangements. Furthermore, since Soulgate Technology operates both “prohibited business”

and “restricted businesses” under the 2021 Negative List, we are unable to set up any alternative structure

that would allow us to partially hold equity interests in and control the economic benefits of Soulgate

Technology other than through the Contractual Arrangements. In particular, the businesses carried on by

Soulgate Technology that require an ICP Licence cannot be separated from the businesses that require a

network culture operation license due to the reasons set out above. For each of the three years ended

December 31, 2019, 2020 and 2021, the revenue of Soulgate Technology represented 100% of our

Group’s total revenues (after taking into account intra-group elimination).

In addition, the wholly-owned subsidiaries of Soulgate Technology operate certain non-restricted

businesses (i.e. business that are not subject to any foreign ownership restrictions pursuant to the

Negative List). Shanghai Huxingren Information Technology Co., Ltd. and Nanjing Huxingren

Technology Co., Ltd. conduct content moderation operations, and Shanghai Soul Information Technology

Co., Ltd. specializes in the technology research and development (R&D) of our Soul app (the “Non-

restricted Businesses”). The content moderation function and technology R&D are integral parts of our

provision of internet information and are therefore fully integrated into, and are inseparable from, our

Principal Business as we strive to comply with relevant content moderation requirements and maintain

the R&D function for our Soul app. Notwithstanding that the Non-restricted Businesses do not currently

fall into any foreign-prohibited or foreign-restricted business category, the revenue contribution of the

Non-restricted Businesses under the Contractual Arrangements to our Group amounted to less than 0.5%

for the three years ended December 31, 2021, with the remaining revenue contribution under the

Contractual Arrangements arising from the prohibited and restricted businesses. We will (and will have

measures in place to) ensure the Non-restricted Businesses under the Contractual Arrangements will

remain immaterial after the [REDACTED] and its annual revenue contribution relative to our Group will

be below 5%.

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Based on the above reasons, we are of the view that the Contractual Arrangements are narrowly

tailored, as they are used to enable our Group to conduct businesses in industries that are subject to

foreign investment restrictions in China.

Circumstances in which we will unwind the Contractual Arrangements

We will unwind and terminate the Contractual Arrangements as soon as practicable in respect

of the Principal Business, to the extent permissible, and we will directly hold the maximum

percentage of ownership interest permissible under the relevant PRC laws. In this event the WFOE

will exercise its rights under the Exclusive Purchase Option Agreement to unwind and terminate the

Contractual Arrangements to the extent permissible and we will directly operate the Principal

Business without using the Contractual Arrangements.


The following simplified diagram illustrates the flow of economic benefits from our

Consolidated Affiliated Entities to our Group under the Contractual Arrangements:

Our Company

Shanghai Soul Registered Shareholders(1)

Soulgate Technology and its subsidiaries(2)

Service

100%

100%

fees(4)

Consultation

services(4)

Equity

ownership(3)

Equity

ownership(3)

Control by Shanghai Soul(5)

Notes:

(1) The current Registered Shareholders of Soulgate Technology are Ms. Lu Zhang (our Director) (as to 83.98%), Beijing

Mingjun Equity Investment Management Co., Ltd.* (北京明雋股權投資管理有限公司) (a PRC investment vehicle of our Pre-

[REDACTED] Investor, Mingjun Capital Limited) (as to 4.87%), Shanghai Jianming Enterprise Management Co., Ltd.* (上

海簡鳴企業管理有限公司) (a PRC investment vehicle of our Pre-[REDACTED] Investor, J&M Capital Limited) (as to

4.78%), Zhuanlian Technology (Shenzhen) Co., Ltd. (專聯科技（深圳）有限公司) (a PRC investment vehicle of our Pre-

[REDACTED] Investor, Ventek Limited) (as to 3.54%) and Shanghai Moliang Venture Investment Center (Limited

Partnership) (上海魔量創業投資中心（有限合夥）) (a PRC investment vehicle of our Pre-[REDACTED] Investor, MFUND,

L.P.) (as to 2.83%). For details of the Pre-[REDACTED] Investors, see “History, Development, and Corporate Structure”.

(2) These constitute our Consolidated Affiliated Entities.

(3) “—>” denotes direct legal and beneficial ownership in the equity interests.

(4) “--->” denotes contractual relationship.

(5) “----” denotes the control by the WFOE over the Registered Shareholders and Soulgate Technology through (i) powers of

attorney to exercise all shareholders’ rights in Soulgate Technology, (ii) exclusive options to acquire all or part of the equity

interests in Soulgate Technology and (iii) equity pledges over the equity interests in Soulgate Technology.

– 195 –



Summary of the material terms of the Contractual Arrangements

Exclusive Business Cooperation Agreement

The WFOE and the VIE entered into an exclusive business cooperation agreement on May 16,

2022 (the “Exclusive Business Cooperation Agreement”), pursuant to which the VIE agreed to

engage the WFOE as the exclusive provider to the VIE of, among other things, technical support,

business support, and other related consultation services, which include, but are not limited to:

(i) permitting the VIE to use all software and technology legally owned by the WFOE that

are necessary and relevant to the VIE’s principal businesses;

(ii) development, maintenance and update services of software necessary to the VIE’s

principal businesses;

(iii) design, installation and daily management, maintenance and update of computer network

system, hardware equipment and data room;

(iv) development and testing of new products;

(v) technical support and professional training for relevant personnel of the VIE;

(vi) assistance on consultation, collection and research of technological and market

information (save and except for market research that is prohibited for wholly foreign

owned enterprises);

(vii) management related consulting services;

(viii) leasing of equipment and assets; and

(ix) other relevant technical and consultation services as requested from time to time to the

extent permitted under PRC laws.

Without the WFOE’s prior written consent, the VIE shall not receive services which are

identical or similar to the services covered by the Exclusive Business Cooperation Agreement from

any third party.

Pursuant to the Exclusive Business Cooperation Agreement and subject to compliance with

applicable PRC laws, the VIE shall pay to the WFOE a service fee that equals to 100% of the income

of the VIE deducting such amounts as required for costs and expenses and as approved by the WFOE

in any given year. The WFOE is also entitled to adjust the service fee payable by the VIE based on

the specific technical services provided from time to time as separately agreed between the parties,

and the business conditions of the VIE or such other factors (as applicable). Unless otherwise agreed

– 196 –



upon, the service fee shall be payable by the VIE within 15 working days after receiving the relevant

payment notice sent out by the WFOE, following its approval of such audited financial statements of

the VIE audited and certified by an independent certified accountants approved by the WFOE and

provided within three months from the end of each calendar year for the applicable services

provided.

In the event that the above payment would lead to the VIE experiencing any difficulties in its

operations, the WFOE shall have the right to delay the payment and/or adjust the amount or payment

method of service fee in writing, and the VIE shall unconditionally accept such requests of the

WFOE.

The WFOE has the exclusive rights and interest to all intellectual properties developed in

connection with the performance of the Exclusive Business Cooperation Agreement by the VIE and/

or by the WFOE.

The WFOE is granted (exercisable by itself or any third party designated by it (“Designated

Person(s)”)) an irrevocable, unconditional and exclusive option to purchase, to the extent permitted

by PRC laws and regulations, all or part of the assets of the VIE at the minimum purchase price

permitted under PRC laws.

The Exclusive Business Cooperation Agreement shall remain effective unless otherwise

terminated in accordance with the terms of such agreement or as required under the PRC laws. The

Exclusive Business Cooperation Agreement may be terminated by the WFOE by giving the VIE 30

days’ prior written notice of termination. Unless otherwise provided under PRC laws, the VIE is not

contractually entitled to terminate the Exclusive Business Cooperation Agreement.

Our Directors consider that the above arrangement will ensure the economic benefits generated

from the operations of the Consolidated Affiliated Entities to flow to the WFOE and hence, our

Group as a whole. As of the Latest Practicable Date, the WFOE has deployed appropriate facilities

and personnel to oversee the operation and management of the Consolidated Affiliated Entities, drive

the key business decision-making processes and provide overall business advice and consulting

services as required to be provided to the Consolidated Affiliated Entities pursuant to the Exclusive

Business Cooperation Agreement, whilst the Consolidated Affiliated Entities are mainly responsible

for the operations of the mobile app, and to hold all operating assets for the purpose of operating the

Principal Business to ensure compliance with relevant PRC laws and regulations with respect to

(i) the restriction on foreign investment in an entity operating mobile app, and (ii) the conditions of

the relevant ICP and operating licenses granted to the Consolidated Affiliated Entities. Our Company

believes that such allocation of resources would allow a proper discharge of the respective

responsibilities of the WFOE and the Consolidated Affiliated Entities under the Contractual

Arrangements and also ensure sound and effective operation of our Group in compliance with the

Contractual Arrangements and applicable laws and regulations.

– 197 –



Exclusive Purchase Option Agreement

The WFOE, the VIE and its Registered Shareholders entered into an exclusive purchase option

agreement on May 16, 2022 (the “Exclusive Purchase Option Agreement”), pursuant to which the

WFOE is granted (exercisable by itself or any Designated Person) an exclusive, irrevocable and

unconditional option to purchase, to the extent permitted by PRC laws, the equity interests in the

VIE, entirely or partially, at the minimum purchase price permitted under applicable laws, unless

where applicable PRC laws and regulations require valuation of the equity interests or other

restrictions, the parties shall make adjustments to comply with the requirements of applicable PRC

laws and regulations.

The Registered Shareholders covenanted that unless with the prior written consent by the

WFOE, the Registered Shareholders shall not sell, transfer, pledge, or otherwise dispose of all or any

part of their equity interests in the VIE.

The WFOE (by itself or any Designated Person) may exercise such option with written notice,

fully or partially, at any time and for unlimited times, subject to the applicable PRC laws and

regulations.

The Exclusive Purchase Option Agreement shall remain effective until all the equity interests in

the VIE held by the Registered Shareholders have been transferred to the WFOE and/or its

Designated Person(s) and the relevant registration/filing for such transfers has been completed,

unless and until the WFOE, at its sole discretion, gives the Registered Shareholders a 30 days’ prior

written notice of termination. Termination of the Exclusive Purchase Option Agreement by the

WFOE will not give rise to any liability on the part of the WFOE on account of such termination.

In addition, the Registered Shareholders have agreed to return any proceeds they will receive in

the event that the purchase option to acquire the equity interests in the VIE is exercised to the WFOE

(or its Designated Person(s)).

Pursuant to the Exclusive Purchase Option Agreement, the VIE and its Registered Shareholders

have undertaken to perform certain acts or refrain from performing certain other acts, including but

not limited to the following matters: not to supplement, modify or amend its constitutional

documents, alter the registered capital or otherwise change the shareholding structure of the VIE

without the prior written approval from the WFOE;

(x) prudently and effectively operate and manage the business and matters of the VIE, and to

ensure its existence, in accordance with the good financial and business standards and

practice;

(xi) not to perform any act and/or omission which might adversely affect the VIE’s assets,

business and liability without the prior written approval from the WFOE; not to sell,

transfer, pledge or otherwise dispose of the legal or beneficial interest in any assets,

– 198 –



business, or income of the VIE or allow any other encumbrances to be created thereon


(xii) not to incur, take up, guarantee or allow any indebtedness without the prior written

approval from the WFOE (save for certain indebtedness in the ordinary or daily course

of business);

(xiii) to operate the business of the VIE in the ordinary course of business in order to maintain

its asset value, and not to perform any act or omission which adversely affects its

business or asset value;

(xiv) not to enter into any material contracts with an amount of over RMB100,000 (other than

those entered in the ordinary course of business) without the prior written approval from

the WFOE;

(xv) not to provide any loan or guarantee to any third party without the prior written approval

from the WFOE;

(xvi) to provide all operating and financial information of the VIE to the WFOE upon request;

(xvii) the VIE shall purchase and maintain such insurance with insurers acceptable by the

WFOE, with insurance coverage in line with insurance generally maintained by

companies within the same region, engaging in similar business and owning similar

properties or assets as the VIE;

(xviii) not to engage in any mergers or acquisitions or make [REDACTED] in any entities


(xix) immediately inform the WFOE of any litigations, arbitrations or administrative

proceedings related to the assets, business or income of the VIE;

(xx) execute all necessary or appropriate documents, take all necessary or appropriate actions

and submit all necessary or appropriate defenses against any charges or claims in order

to maintain the VIE’s ownership of all of its assets;

(xxi) not to distribute any dividend in any form to any Registered Shareholder without the

prior written approval from the WFOE and to distribute all relevant distributable profits

to the Registered Shareholders immediately if so requested by the WFOE;

(xxii) unless required by the PRC laws, the VIE shall not be dissolved or liquidated without the

written consent of the WFOE; and

– 199 –



(xxiii) in the event that foreign [REDACTED] in the business conducted by the VIE is allowed

by the PRC laws, the Registered Shareholders shall unconditionally and immediately

transfer their equity interests in the VIE to the WFOE or any Designated Person.

The Registered Shareholders have further undertaken to perform certain acts or refrain from

performing certain other acts, including but not limited to the following matters:

(i) save for the equity pledge created under the Equity Pledge Agreement, not to sell,

transfer, pledge or otherwise dispose of any of their legal and beneficial equity interests

held in the VIE without the prior written approval from the WFOE;

(ii) to procure the shareholders’ meeting of the VIE not to approve any sale, transfer, pledge

or other disposition of any legal and beneficial equity interests in the VIE (except in

favor of the WFOE or its Designated Person(s)) without the prior written approval from

the WFOE and to procure the shareholders’ meeting of the VIE to approve the relevant

transfer(s) of equity interests pursuant to the Exclusive Purchase Option Agreement;

(iii) not to approve at the shareholders’ meeting of the VIE any mergers or acquisitions or

[REDACTED] in any entities by the VIE, without the prior written approval from the

WFOE;

(iv) to immediately inform the WFOE of any litigations, arbitrations or administrative

proceedings related to her/its equity interests in the VIE;

(v) to execute all necessary or appropriate documents, take all necessary or appropriate

actions and submit all necessary or appropriate defenses against any charges or claims in

order to safeguard the equity interests held by her/it;

(vi) not to perform any act and/or omission that may have any significant impact on the

VIE’s assets, business and liabilities without the prior written consent of the WFOE;

(vii) at the request of the WFOE, to agree and appoint any person designated by the WFOE as

the director, general manager and/or other senior management of the VIE; to replace

such directors, general managers and/or members of the senior management at any time

according to the request of the WFOE, and appoint the person newly designated by the

WFOE as the director, general manager and/or senior management of the VIE; to

actively assist in all matters concerning the appointment and change of such personnel;

(viii) to the extent permitted by PRC laws, to unconditionally and immediately transfer all or

part of the equity interests owned by her/it/them in the VIE to the WFOE and/or its

Designated Person(s) at any time upon the request of the WFOE, and waive any of her/

its/their pre-emptive right over the equity interests so transferred, and to actively assist

in handling all matters related to such transfer(s);

– 200 –



(ix) if any Registered Shareholder receives any profits, distributions, dividends or dividend

income from the VIE with the written approval from the WFOE, such Registered

Shareholder shall, so long as permitted under PRC laws, forthwith transfer such benefits

received at nil consideration to the WFOE or its Designated Person(s);

(x) to strictly comply with the terms of any other agreements jointly or severally entered into

among the WFOE, the Registered Shareholders and/or the VIE and earnestly fulfill their

respective obligations under such agreements and not to take, or omit to take, any actions

which may affect the validity and enforceability of these agreements;

(xi) in case of liquidation (including bankruptcy) of the VIE for any reason, all liquidated

assets (if any) obtained by the Registered Shareholders shall be timely given to the

WFOE or its Designated Person(s) at nil consideration to the extent permitted under the

PRC laws;

(xii) agree and guarantee to sign an irrevocable power of attorney satisfactory to the WFOE

and authorize all rights of the VIE’s shareholders to the WFOE or its Designated

Person(s); and

(xiii) agree and guarantee that when an equity transfer pursuant to the Exclusive Purchase

Option Agreement is made to the WFOE and/or its Designated Person(s), other

shareholders of the VIE shall waive any pre-emptive right in respect of such equity

transfer.

Equity Pledge Agreement

The WFOE, the VIE and its Registered Shareholders entered into an equity pledge agreement

on May 16, 2022 (the “Equity Pledge Agreement”), pursuant to which each of the Registered

Shareholders agreed to pledge all of their respective equity interests in the VIE to the WFOE to

secure performance of all their obligations and the obligations of the VIE under the agreements

underlying the Contractual Arrangements (as applicable). If any Registered Shareholder breaches or

fails to fulfill the obligations under any of the agreements underlying the Contractual Arrangements

(as applicable), the WFOE, as the pledgee, will be entitled to foreclose the pledged equity interests.

In addition, pursuant to the Equity Pledge Agreement, except for the performance of the applicable

agreements underlying the Contractual Arrangements, each Registered Shareholder has undertaken to

the WFOE, among other things, not to transfer her/its equity interests in the VIE and not to create or

allow the existence of any guarantee or other encumbrance thereon without the WFOE’s prior written

consent.

Moreover, if the VIE declares any dividend during the term of the pledge, the WFOE is entitled

to receive all such dividends arising from the pledged equity interests, if any. It is also agreed that in

the event that the relevant Registered Shareholders subscribed or acquired additional equity interests

in the VIE, then such additional equity interests acquired or subscribed by the relevant Registered

Shareholder shall also be pledged in favor of the WFOE pursuant to the Equity Pledge Agreement.

– 201 –



The Equity Pledge Agreement shall terminate when the relevant Registered Shareholders and

the VIE have fulfilled and performed all obligations under the agreements underlying the Contractual

Arrangements.

Powers of Attorney

On May 16, 2022, each Registered Shareholder executed an irrevocable power of attorney (each

a “Power of Attorney” and collectively, the “Powers of Attorney”) appointing the WFOE or its

Designated Person(s) (including applicable director of the WFOE’s direct or indirect offshore parent,

its successor and any liquidator in replacement of such director but not including any non-

independent Designated Person or any Designated Person who might cause a conflict of interest) as

proxy of the relevant Registered Shareholder to exercise all of their respective shareholders’ rights in

the VIE.

Pursuant to the Powers of Attorney, the shareholders’ rights exercisable by the proxy include,

but not limited to, the rights to (i) convene and attend shareholders’ meetings and execute any

shareholders’ resolution of the VIE, (ii) exercise all shareholders’ rights in accordance with

applicable laws and the articles of association of the VIE, including but not limited to the exercise of

voting rights in shareholders’ meetings, sell, transfer, pledge or otherwise dispose of all or part of

the equity interests held in the VIE, (iii) to elect and appoint the legal representative, chairman,

directors, supervisors, general manager and other senior management of the VIE, and (iv) to sign

written resolutions and minutes of meetings in the name and on behalf of such shareholder and file

any applicable documents to the relevant companies registry.

Under each Power of Attorney, each Registered Shareholder irrevocably confirmed that the

power of attorney shall remain in full force and effect during the term which the relevant Registered

Shareholder remains as a shareholder of the VIE. The proxy shall have the right to re-designate the

power of attorney to any other individuals or entities without requiring prior notice to or consent

from the relevant Registered Shareholder.

Each Registered Shareholder also confirmed, undertook and warranted under the relevant

Power of Attorney that her/its successors, guardians, and any other persons who may be entitled to

assume rights and benefits in her/its equity interests in the VIE upon her/its death, bankruptcy,

incapacity (in respect of individuals), transfer of ownership, insolvency (in respect of legal persons),

or any other circumstances that may affect her/its exercise of the shareholders’ rights in respect of

the VIE shall be deemed to be signatories of the relevant Power of Attorney and assume all rights

and obligations under such Power of Attorney if any of such circumstances occur. In addition, each

Registered Shareholder undertook not to carry out any act that may breach the Exclusive Purchase

Option Agreement, the Equity Pledge Agreement, and the Power of Attorney or contravene the

purpose or intention of such documents, or to perform any act or omission that may lead to any

conflict of interest of the WFOE and the VIE (or its subsidiaries).

– 202 –



Loan Agreement

On May 16, 2022, the WFOE and Ms. Lu Zhang entered into a loan agreement (the “Loan

Agreement”) pursuant to which the WFOE agreed to grant a loan in the amount of RMB3.6106

million to Ms. Lu Zhang, as a shareholder of the VIE solely for the capitalization of the VIE in order

to develop its businesses. The loans must not be used for any other purposes without the WFOE’s

prior written consent.

Pursuant to the Loan Agreement, Ms. Lu Zhang can only repay such loan by transferring all her

equity interests in the VIE to the WFOE or its Designated Person(s) pursuant to right of the WFOE

to purchase Ms. Lu Zhang’s equity interests under the Exclusive Purchase Option Agreement. In the

event that the price of such transfer is equal to or less than the amount of the principal, the loan will

be interest free. If the price of such transfer is higher than the amount of the principal, then the

excess amount will be paid to the WFOE as the loan interest.

The term of the loan is for ten years since May 8, 2020. Unless otherwise agreed by the parties

in writing, the term of the loan shall be automatically extended for an additional 10 years at the

expiry of the original term for an unlimited number of times.

The loan must be repaid immediately under the Loan Agreement under certain circumstances,

including, among others, (i) if Ms. Lu Zhang demises or ceases to be of full capacity, (ii) if Ms. Lu

Zhang ceases to be employed by or to hold equity interests in the WFOE, the VIE or their associates,

(iii) if Ms. Lu Zhang involves in any criminal activities, or (iv) if the WFOE is permitted under the

applicable PRC laws to directly hold equity interests in the VIE while the VIE is able to conduct its

businesses legally, and the WFOE has decided to exercise the exclusive purchase option under the

Exclusive Purchase Option Agreement.

Other aspects of the Contractual Arrangements

Confirmation from the spouse of the Registered Shareholders

The spouse of Ms. Lu Zhang signed a spousal consent letter (the “Spousal Consent”) on

May 16, 2022, pursuant to which the signing spouse unconditionally and irrevocably agreed that

Ms. Lu Zhang’s equity interests in the VIE is a personal asset of Ms. Lu Zhang and the signing

spouse will not obtain any ownership in such equity interests. Further, with respect to the Exclusive

Purchase Option Agreement, the Equity Pledge Agreement, the Loan Agreement and the Power of

Attorney (collectively, the “Transaction Documents”), the spouse of Ms. Lu Zhang unconditionally

and irrevocably agreed that (1) he has no objection regarding Ms. Lu Zhang’s signing and execution

of such Transaction Documents (as amended from time to time); and (2) he will subject himself to

the Transaction Documents in the event that he acquires any of the equity interests in the VIE held

by Ms. Lu Zhang by any means.

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Dispute resolution

Each of the agreements underlying the Contractual Arrangements stipulate that in the event of

any dispute arising out of or in relation to the agreements underlying the Contractual Arrangements,

the parties shall first negotiate in good faith to resolve such dispute. If the parties fail to reach an

agreement on the resolution of such dispute within 30 days, any party may submit such dispute to the

China International Economic and Trade Arbitration Commission for arbitration in accordance with

the then effective arbitration rules. The arbitration shall be conducted in Shanghai, the language of

arbitration shall be Chinese, and the results of the arbitration shall be final and binding on all

relevant parties.

In addition, pursuant to the dispute resolution clause, the arbitral tribunal may award remedies

over the equity interests or assets of the relevant Consolidated Affiliated Entity or injunctive relief,

including prohibition order or order the winding up of the relevant Consolidated Affiliated Entity,

and the courts of the PRC (being the place of incorporation of the relevant Consolidated Affiliated

Entity and the place where our Company’s and the relevant Consolidated Affiliated Entity’s

principal assets are located), Hong Kong and the Cayman Islands (being the place of incorporation of

our Company) shall have jurisdiction to grant and/or enforce the arbitral award and to grant interim

remedies.

Succession

Each of the agreements underlying the Contractual Arrangements (as applicable) is binding on

the successors of the Registered Shareholders, save that the Loan Agreement is only binding on

Ms. Lu Zhang, not her successors.

Conflicts of interest

Although Ms. Lu Zhang (as a Registered Shareholder of the VIE) is also our director and

officer, we have implemented measures to protect against the potential conflicts of interest between

our Company and the Registered Shareholder. Under the relevant irrevocable Power of Attorney, the

Designated Person of the WFOE appointed as attorneys-in-fact by Ms. Lu Zhang (as a Registered

Shareholder of the VIE) includes applicable director of the WFOE’s direct or indirect offshore

parent, its successor and any liquidator in replacement of such director but does not include any non-

independent Designated Person or any Designated Person who might cause a conflict of interest.

Loss sharing

Neither the agreements constituting the Contractual Arrangements nor PRC laws provide or

require that our Company or the WFOE be obligated to share the losses of our Consolidated

Affiliated Entities or provide financial support to our Consolidated Affiliated Entity. Further, each of

our Consolidated Affiliated Entities is a separate legal entity and shall be solely liable for its own

debts and losses with assets and properties owned by it.

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Despite the foregoing, given that our Group conducts its businesses in the PRC through our

Consolidated Affiliated Entities which hold the requisite PRC licenses and approvals, and that our

Consolidated Affiliated Entities’ financial condition and results of operations are consolidated into

our Company’s financial statements under the applicable accounting principles, our business,

financial condition and results of operations would be adversely affected if our Consolidated

Affiliated Entities suffer losses. Therefore, the provisions in the Contractual Arrangements are

tailored so as to limit, to the greatest extent possible, the potential adverse effect on the WFOE and

our Company resulting from any loss suffered by our Consolidated Affiliated Entities.

Liquidation

Pursuant to the Exclusive Purchase Option Agreement, in the event of a dissolution or

liquidation, all of the liquidation income of the VIE shall be given to the WFOE or its designee as a

gift after such dissolution or liquidation pursuant to PRC laws.

Operations in compliance with the Contractual Arrangements

Our Group will adopt the following measures to ensure legal and regulatory compliance and to

ensure the sound and effective operation of our Group (including the Consolidated Affiliated

Entities) and the implementation of the Contractual Arrangements upon [REDACTED]:

(i) as part of the internal control measures, major issues arising from implementation of the

Contractual Arrangements will be submitted to our Board, if necessary, for review and

discussion on an occurrence basis;

(ii) our Board will review the overall performance of and compliance with the Contractual

Arrangements once a year;

(iii) our Company will disclose the overall performance of and compliance with the

Contractual Arrangements in our annual reports; and

(iv) if necessary, legal advisers and, or other professionals will be retained to assist our Group

to deal with specific issues arising from the Contractual Arrangements and to ensure that

the operation and implementation of the Contractual Arrangements as a whole will comply

with applicable laws and regulations.

To ensure that the Registered Shareholders and the Consolidated Affiliated Entities will comply

with the Contractual Arrangements, we have decided to further introduce the following measures:

(i) the three independent non-executive Directors will continue to play an independent role in

our Board by reviewing the effective implementation of the procedures and controls

referred to above and compliance with our Contractual Arrangements;

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(ii) going forward, Ms. Lu Zhang, being our executive Director and a Registered Shareholder,

shall abstain from voting on any resolutions at any board meeting or shareholders’

meeting of our Company or the relevant Consolidated Affiliated Entity (as the case may

be) in which he/she may have conflict of interest; and

(iii) in the event of the occurrence of a conflict of interests (where the WFOE has the sole

absolute discretion to determine whether such conflict arises), the relevant Registered

Shareholder shall take appropriate measures upon the consent of the WFOE and its

designee to eliminate such conflicts, failing which the WFOE may exercise, to the extent

permitted under PRC laws, the option under the Exclusive Purchase Option Agreement.

We also believe that Ms. Lu Zhang, being an executive Director of our Company, will uphold

her fiduciary duties in acting in the best interests of our Company and our Shareholders as a whole

and will also uphold good governance practices to ensure that the Contractual Arrangements will be

implemented and operated in accordance with our Group’s policies and the terms of the Contractual

Arrangements, which our Directors considered that such terms and arrangements are fair and

reasonable and in the best interest of our Company and its shareholders as a whole.

Insurance

There are certain risks involved in our operations, in particular, those relating to our corporate

structure and the Contractual Arrangements. A detailed discussion of material risks relating to our

Contractual Arrangements is set forth in the section headed “Risk Factors — Risks Relating to Our

Corporate Structure”. We have determined that the costs of insurance for the risks associated with

business liability or disruption and the difficulties associated with acquiring such insurance on

commercially reasonable terms make it impractical for us to have such insurance. Accordingly, as of

the Latest Practicable Date, the Company did not purchase any insurance to cover the risks relating

to the Contractual Arrangements. For further details, please refer to the section headed “Risk Factors

— Risks relating to Our Business and Industry — We may not have sufficient insurance to cover our

business risks, so that any uninsured occurrence of business disruption may result in substantial costs

to us and the diversion of our resources, which could have an adverse effect on our results of

operations and financial condition” in this document.

EFFECT OF THE CONTRACTUAL ARRANGEMENTS

We believe that the Contractual Arrangements provide a mechanism that enables us to exercise

effective control over the VIE, is narrowly tailored to achieve our business purposes and to protect

and safeguard the interests of our Company and our future [REDACTED] in the event of any

dispute between us and the Registered Shareholders on the following basis:

(i) under the Powers of Attorney, the Registered Shareholders have irrevocably granted the

WFOE or its Designated Person(s) (including applicable director of the WFOE’s direct or

indirect offshore parent, its successor and any liquidator in replacement of such director

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but not including any non-independent Designated Person or any Designated Person who

might cause a conflict of interest) as proxy of the relevant Registered Shareholder to

exercise all of their respective shareholders’ rights in the VIE. These provisions provide

the WFOE with the powers to determine or change the composition of the board of

directors and management team of the VIE at any time, which in turn provides the WFOE

with the power to control the VIE without the need for any further action or cooperation

from the Registered Shareholders and thereby conferring the management control of the

VIE on our Company and our legally-owned subsidiaries;

(ii) under the Exclusive Purchase Option Agreement, each of the Registered Shareholders has

granted the WFOE (exercisable by itself or any Designated Person) an irrevocable option

to purchase from the Registered Shareholders all or part of the equity interests in the VIE

at the minimum purchase price permitted under applicable laws, unless where applicable

PRC laws and regulations require valuation of the equity interest or other restrictions, in

which case the parties shall make adjustments to comply with the requirements of

applicable PRC laws and regulations. These provisions enable the WFOE to unilaterally

appoint members of our Group or an authorized director of a member of our Group (whom

shall own fiduciary duties to our Group and shall act in the best interests of our Group) to

act as nominee shareholders of its choice to take over the equity interests in the VIE at

any time and thereby ensuring that our Group will continue to maintain our interest in the

VIE upon the exercise of the purchase option pursuant to the Exclusive Purchase Option

Agreement;

(iii) under the Equity Pledge Agreement, the Registered Shareholders shall pledge their equity

interests in the VIE to the WFOE. The registered pledges effectively prevent the

Registered Shareholders from impeding the WFOE’s control over the VIE by transferring

their equity interests in the VIE to bona fide third parties without the WFOE’s knowledge

or approval; and

(iv) the arrangements under the Exclusive Business Cooperation Agreement will ensure that

all economic benefits generated from the operations of the VIE will flow to the WFOE

whilst ensuring compliance with applicable PRC laws and regulations and allowing the

VIE to continue to maintain and renew the relevant operating licenses and permits as

required by relevant PRC government authorities and to operate those services and

businesses which are restricted or prohibited to be conducted by foreign investors or

foreign owned or invested entities. Hence, it is in the best interest of our Company and

our Group as a whole. The delineation of the assets and staffing between (a) the WFOE,

which shall be responsible for driving key business decision-making processes and

provide overall business advices and consulting services, and (b) the VIE and other

Consolidated Affiliated Entities, which shall be responsible for the operations of the

Principal Business and the holding of relevant intellectual properties in compliance with

relevant PRC laws and regulations and the conditions of the relevant licenses granted to

the VIE, would allow a proper discharge of the respective responsibilities of the WFOE

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and the Consolidated Affiliated Entities under the Contractual Arrangements, and ensure

effective operation of our Company and our Principal Business’ compliance with the

Contractual Arrangements and applicable laws and regulations.

Our confirmation

Our Directors confirm that, as of the Latest Practicable Date, we had not encountered any

interference or encumbrance from any PRC governing bodies in operating its businesses through our

Consolidated Affiliated Entities under the Contractual Arrangements.

LEGALITY OF THE CONTRACTUAL ARRANGEMENTS

Our PRC Legal Adviser is of the opinion that:

(a) each of the WFOE and the VIE is a limited liability company established in accordance

with and validly existing under the PRC laws and has the power to execute and perform

the applicable agreements under the Contractual Arrangements;

(b) each of the agreements under the Contractual Arrangements among the WFOE, the VIE

and its Registered Shareholders governed by PRC law is not in violation of any provisions

of applicable PRC laws and regulations;

(c) parties to each of the agreements under the Contractual Arrangements are entitled to

execute the agreements and perform their respective obligations thereunder;

(d) each of the agreements under the Contractual Arrangements is valid and binding on the

parties thereto and none of them would violate the provisions of the laws of the PRC;

(e) none of the agreements under the Contractual Arrangements violates any provisions of the

currently effective articles of association of the VIE or the WFOE, and the execution and

performance of the agreements under the Contractual Arrangements does not violate any

provisions of the currently effective articles of association of the VIE or the WFOE;

(f) each of the agreements under the Contractual Arrangements is valid, legal and binding

under the PRC laws and, save as described below, enforceable against the relevant party

to such agreements in accordance with their respective terms;

(g) no approval from the relevant PRC regulatory authorities are required for entering into

and the performance of the agreements under the Contractual Arrangements under the

PRC laws, except that: (a) any applicable transfer, lease or license of asset (including

intellectual property) pursuant to the Exclusive Business Cooperation Agreement is

subject to the approval of, registration and/or filing with (as the case maybe) the relevant

PRC regulatory authorities respectively; (b) any sale or transfer of equity interests in the

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VIE pursuant to the Exclusive Purchase Option Agreement is subject to the approval of,

registration and/or filing with (as the case maybe) the relevant PRC regulatory authorities

respectively; (c) any share pledge contemplated under the Equity Pledge Agreement is

subject to the approval of, registration and/or filing with (as the case maybe) the relevant

PRC regulatory authorities respectively; and (d) the arbitration award and/or remedies

provided under the dispute resolution provisions of the agreements under the Contractual

Arrangements shall be recognized by the PRC courts before compulsory enforcement;

(h) the Contractual Arrangements are not in violation of applicable and explicit PRC laws and

regulations currently in effect, except that it is provided under the agreements of the

Contractual Arrangements that the courts with jurisdiction (including those of the PRC,

Hong Kong and the Cayman Islands) may award remedies over the equity interests and/or

assets of the applicable Consolidated Affiliated Entity and injunctive relief (including

prohibition order and/or winding up of the applicable Consolidated Affiliated Entity) in

support of the arbitration, while under PRC laws, an arbitral body has no power to grant

injunctive relief and may not directly issue a provisional or final liquidation order for the

purpose of protecting assets of or equity interests in the applicable Consolidated Affiliated

Entity in case of disputes and interim remedies or enforcement orders granted by overseas

courts such as those of Hong Kong and the Cayman Islands may not be recognizable or

enforceable under the current PRC laws.

Our PRC Legal Adviser is of the view that the use of the Contractual Arrangements does not

constitute a breach of the explicit and relevant PRC laws and regulations currently in effect.

However, our PRC Legal Adviser also advised us that there are substantial uncertainties regarding

the interpretation and application of current and future PRC laws and regulations and accordingly,

there can be no assurance that the PRC regulatory authorities will not in the future take a view that is

contrary to or otherwise different from the above opinion. See “Risk Factors — Risks Relating to

Our Corporate Structure”. In the event that such contrary view is taken by the relevant authority, the

relevant authority may regulate the Contractual Arrangements and require the agreements under the

Contractual Arrangements to be amended and the Company may be subject to measures taken by the

relevant PRC regulatory authorities. For details of such measures, please see “Risk Factors — Risks

Relating to Our Corporate Structure”.

In June 2022, consultations with Shanghai Administration of Culture and Tourism and CAICT

have been conducted by our PRC Legal Adviser. As informed during the consultation with Shanghai

Administration of Culture and Tourism, the contractual arrangements are currently permitted and

related information (such as, the overall control structure of our Group) shall be reported to Shanghai

Administration of Culture and Tourism, which has already been completed by our Group. As

informed during the consultation with CAICT, government authorities of telecommunications

services are not responsible for determining the legality of the contractual arrangements while in

common practice they will not interfere with such arrangements. Our PRC Legal Adviser is of the

view that Shanghai Administration of Culture and Tourism and CAICT are the competent authorities

to respond to the above consultations.

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During the Track Record Period and as of the Latest Practicable Date, our Contractual

Arrangements have not been challenged or subject to any penalty imposed by relevant PRC

regulatory authorities due to violation of any relevant PRC laws or regulations.

Based on the above analysis and advice from our PRC Legal Adviser, the Directors are of the

view that the adoption of the Contractual Arrangements is unlikely to be deemed ineffective or

invalid under the applicable PRC laws and regulations. See “Risk Factors — Risks Relating to Our

Corporate Structure”.

ACCOUNTING ASPECTS OF THE CONTRACTUAL ARRANGEMENTS

Under the Exclusive Business Cooperation Agreement, it was agreed that, in consideration of

the services provided by the WFOE, the VIE will pay services fees to the WFOE. The service fees,

subject to the WFOE’s adjustment, are equal to 100% of the income of the VIE deducting such

amounts as required for costs and expenses and as approved by the WFOE in any given year. In the

event that the payment of such service fees would lead to the VIE experiencing any difficulties in its

operations, the WFOE shall have the right to delay the payment and/or adjust the amount or payment

method of service fee in writing. Accordingly, the WFOE has the ability, at its sole discretion, to

extract all of the economic benefit of the VIE through the Exclusive Business Cooperation

Agreement.

Under the Exclusive Purchase Option Agreement, the WFOE has absolute contractual control

over the distribution of dividends to the Registered Shareholders as the WFOE’s prior written

approval is required before any such distribution can be made. In the event that the Registered

Shareholders receive any profit distribution or dividend from the VIE, the Registered Shareholders

shall, so long as permitted under PRC law, forthwith transfer such benefits received at nil

consideration to the WFOE or its Designated Person. In addition, there is also similar arrangement

pursuant to the Equity Pledge Agreement as such stipulation under the Exclusive Purchase Option

Agreement with respect to distribution of dividends.

As a result of these Contractual Arrangements, our Company has obtained control of the VIE

through the WFOE and, at our Company’s sole discretion, can receive substantially all of the

economic interest returns generated by the VIE. Accordingly, we treat the Consolidated Affiliated

Entities as consolidated affiliated entities under IFRS and have consolidated their results of

operations, assets and liabilities, and cash flows are consolidated into our Company’s financial

statements. The basis of consolidating the results of the Onshore Holdco(s) is disclosed in Note 2(c)

to the Accountants’ Report set out in Appendix I to this document.

DEVELOPMENT IN PRC LEGISLATION ON FOREIGN INVESTMENT

Background of the Foreign Investment Law

On March 15, 2019, the National People’s Congress approved the Foreign Investment Law

(《外商投資法》) which became effective on January 1, 2020. On December 26, 2019, the State

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Council promulgated the Implementation Regulations on the Foreign Investment Law (《外商投資法實施條例》), which came into effect on January 1, 2020. The Foreign Investment Law replaced the

Law on Sino- Foreign Equity Joint Ventures (《中外合資經營企業法》), the Law on Sino-Foreign

Contractual Joint Ventures (《中外合作經營企業法》) and the Law on Foreign-Capital Enterprises

(《外資企業法》) to become the legal foundation for foreign investment in the PRC. The Foreign

Investment Law stipulates certain forms of foreign investment, but does not explicitly stipulate

contractual arrangements as a form of foreign investment. The Implementation Regulations on the

Foreign Investment Law are also silent on whether foreign investment includes contractual

arrangements.

Impact and consequences of the Foreign Investment Law

Conducting operations through contractual arrangements has been adopted by many PRC-based

companies, including our Group. As advised by our PRC Legal Adviser, even though the Foreign

Investment Law does not explicitly classify contractual arrangements as a form of foreign

investment, there is no assurance that foreign investment via contractual arrangement would not be

interpreted as a type of indirect foreign investment activities under the definition in the future.

Moreover, the Foreign Investment Law stipulates that foreign investment includes “foreign

investors invest in China through any other methods under laws, administrative regulations or

provisions prescribed by the State Council” without elaboration on the meaning of “other methods”.

The Implementation Regulations on the Foreign Investment Law is also silent on whether foreign

investment includes contractual arrangements. There are possibilities that future laws, administrative

regulations or provisions prescribed by the State Council may regard contractual arrangements as a

form of foreign investment, at which time it will be uncertain whether the Contractual Arrangements

will be deemed to be in violation of the foreign investment access requirements and how the

Contractual Arrangements will be handled. Therefore, there is no guarantee that the contractual

arrangements and relevant businesses will not be materially and adversely affected in the future due

to changes in PRC laws. See “Risk factors — Risks Relating to Our Corporate Structure —

Substantial uncertainties exist with respect to the interpretation and implementation of the PRC

Foreign Investment Law and how it may impact the viability of our current corporate structure,

corporate governance and business operations”.

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REGULATORY OVERVIEW

REGULATORY OVERVIEW

This section sets forth a summary of the main laws, rules and regulations that may affect our

business activities in China.

Regulations Relating to Value-added Telecommunications Services

On September 25, 2000, the State Council issued the PRC Regulations on Telecommunications

(《中華人民共和國電信條例》), or the Telecommunications Regulations, as last amended on

February 6, 2016, to regulate telecommunications activities in China. The Telecommunications

Regulations divided the telecommunications services into two categories, namely “infrastructure

telecommunications services” and “value-added telecommunications services.” Pursuant to the

Telecommunications Regulations, operators of value-added telecommunications services, or VATS,

must first obtain a Value-added Telecommunications Business Operating License, or VATS License,

from the MIIT or its provincial level counterparts. On July 3, 2017, the MIIT promulgated the

Administrative Measures on Telecommunications Business Operating Licenses (《電信業務經營許可管理辦法》), which set forth more specific provisions regarding the types of licenses required to

operate VATS, the qualifications and procedures for obtaining such licenses and the administration

and supervision of such licenses.

The Classified Catalog of Telecommunications Services (2015 Version) (《電信業務分類目錄（2015年版）》), or the 2015 MIIT Catalog, defines information services as “the information

services provided for users through public communications networks or internet by means of

information gathering, development, processing and the construction of the information platform”.

Moreover, information services continue to be classified as a category of value-added

telecommunications services, or VATS, and are clarified to include instant information exchange

services and information communication platform services under the 2015 MIIT Catalog.

According to the Q&A appendix of the guideline relating to application of VATS license

promulgated on January 15, 2021, regarding the question on whether the Internet News Information

Service License (互聯網新聞信息服務許可證) is required for applying VATS license to provide instant

information exchange services and information communication platform services, the definition of

“news information” under the Administrative Measures for Internet News Information Services (《互聯網新聞信息服務管理規定》) is directly referred. According to the Administrative Measures for

Internet News Information Services, news information includes the reports and comments on

political, economic, military, diplomatic and other social and public affairs, and the reports and

comments on relevant social emergencies. As of the Latest Practicable Date, we had not been

informed by any government authorities in notices or other forms that the operation of our mobile

app is deemed as providing internet news information services under the Administrative Measures

for Internet News Information Services. Therefore, from our understanding, our business operation

shall not be categorized as providing internet news information services.

In addition, although it is stipulated under the Administrative Measures for Internet News

Information Services that Other Entities could apply for the Internet News Information Service

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REGULATORY OVERVIEW

License which is ultimately subject to the decision of CAC, according to the list of entities granted

with the Internet News Information Service License published on the website of the CAC on April

11, 2022, as of March 31, 2022, it is shown that no Other Entities have obtained the Internet News

Information Service License under the type of instant communication tool (which we understand

directly corresponds to our business operation).

The Administrative Measures on Internet Information Services (《互聯網信息服務管理辦法》),

or the IIS Measures, promulgated by the PRC State Council and as last amended on January 8, 2011,

sets forth more specific rules on the provision of internet information services. According to the IIS

Measures, any company that engages in the provision of commercial internet information services

must obtain a sub-category VATS License for internet information services, or the ICP License, from

the relevant government authorities before providing any commercial internet information services

within the PRC. Pursuant to the above-mentioned regulations, “commercial internet information

services” generally refer to provision of specific information content, web page construction and

other services through the internet for profit making purpose. According to the IIS Measures,

internet information service providers cannot produce, duplicate, publish or disseminate information

that (i) is against any fundamental principles set out in the Constitution Law of China; (ii) endangers

the national security, leaks the national secrets, incites to overthrow the national power, or

undermines the national unity; (iii) damages the national honor or interests; (iv) incites the ethnic

hatred and ethnic discrimination or undermines the solidarity among all ethnic groups;

(v) undermines the national policies on religions and advocates religious cults and feudal

superstition; (vi) disseminates rumors to disrupt the social order and undermines the social stability;

(vii) disseminates the obscene materials, advocates gambling, violence, killing and terrorism, or

instigates others to commit crimes; (viii) humiliates or defames others or infringes the legitimate

rights and interests of others; and (ix) is otherwise prohibited by laws and regulations.

In addition to the Telecommunications Regulations and the other regulations discussed above,

the provision of commercial internet information services on mobile internet apps is 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》), which was promulgated by the CAC on June 28, 2016 and came into effect

on August 1, 2016. The providers of mobile internet applications are subject to requirements under

these provisions, including acquiring the qualifications and complying with other requirements

provided by laws and regulations and being responsible for information security. Furthermore, on

December 15, 2019, the CAC promulgated the Provisions on Ecological Governance of Network

Information Content (《網絡信息內容生態治理規定》), or the Network Ecological Governance

Provisions, which took effect on March 1, 2020. The Network Ecological Governance Provisions

provide the requirements for content producers of network information, service platforms for

network information and users of network information. Among others, the Network Ecological

Governance Provisions classify network information into three categories: “encouraged category,”

“prohibited category” and “prevented and resisted category.” The content producers of network

information are encouraged to produce, copy and publish network information in the encouraged

category, prohibited from producing, copying or publishing network information in the prohibited

category, and shall take measures to prevent and resist the production, reproduction and publication

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REGULATORY OVERVIEW

of undesirable information in the prevented and resisted category. In addition, service platforms for

network information shall strengthen management of information content, and upon discovery of any

prohibited information or prevented and resisted information, they shall immediately take measures

in accordance with applicable laws, keep relevant records and report the same to competent

governmental authorities. A service platform for network information shall compile an annual report

on the ecological governance of network information, which contains information on the ecological

governance of network information, performance of the person in charge of ecological governance of

network information and social evaluation, etc.

Regulations Relating to Real-Name Registration System

Pursuant to the Cybersecurity Law of the PRC (《中華人民共和國網絡安全法》), or the

Cybersecurity Law, promulgated by the Standing Committee of the National People’s Congress, or

the SCNPC, on November 7, 2016 and came into effect on June 1, 2017, network operators

providing information publication services and instant communication services shall require their

users to provide real identity information when signing agreements or confirming the provision of

services with such users.

Pursuant to 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》), mobile Internet application providers are obligated to

conduct identity authentication of registered users based on their mobile telephone number and other

information, in accordance with the principle “a real name backstage, and a freely-chosen name on

stage.”

Regulations Relating to Online Cultural Activities

The Ministry of Culture, or the MOC, promulgated the Provisional Measures on Administration

of Internet Culture (《互聯網文化管理暫行規定》), which was recently amended on December 15,

2017, and the Notice on Issues Relating to Implementing the Newly Revised Provisional Measures

on Administration of Internet Culture (《關於實施新修訂<互聯網文化管理暫行規定>的通知》)

promulgated by the MOC on March 18, 2011, which apply to entities that engage in activities related

to “online cultural products.” “Online cultural products” are classified as cultural products

developed, published and disseminated through the internet which mainly include: (i) online cultural

products particularly developed for publishing through the internet, such as, among other things,

online music entertainment, online games, online shows (programs), online performances, online

artworks and online cartoons; and (ii) online cultural products converted from music entertainment,

games, shows (programs), performance, artworks and cartoons, and copied to the internet for

spreading. Pursuant to such legislation, entities are required to obtain the Network Culture Operation

License (網絡文化經營許可證) from the applicable provincial culture administrative department if

they intend to commercially engage in any of the following types of activities:

• production, duplication, import, release or broadcasting of online cultural products;

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REGULATORY OVERVIEW

• publication of online cultural products on the internet or transmission thereof to computers,

fixed-line or mobile phones, television sets or game consoles for the purpose of browsing,

reading, reviewing, using or downloading such products by online users; or

• exhibitions or contests related to online cultural products.

On August 12, 2013, the MOC issued the Notice of the Ministry of Culture on Implementing

the Administrative Measures for Content Self-Review by Internet Culture Business Entities (《文化部關於實施<網絡文化經營單位內容自審管理辦法>的通知》), which requires internet culture business

entities to review the content of products and services to be provided prior to providing such content

and services to the public. The content management system of an internet culture business entity is

required to specify the responsibilities, standards and processes for content moderation as well as

accountability measures, and is required to be filed with the provincial culture administrative

department.

On May 14, 2019, the General Office of Ministry of Culture and Tourism promulgated the

Notice on Adjustments on the Scope of Approval in relation to the Network Culture Operation

License and Further Regulating the Approval Work, or the Notice on Adjustment of Approval

regarding the Network Culture Operation License (《關於調整<網絡文化經營許可證>審批範圍進一步規範審批工作的通知》), according to which live broadcast in relation to chatting, e-commerce,

education, training, sports, traveling, etc. shall not be deemed as a network performance which has

been adjusted as a specific item in the business scope under Notice on Adjustment of Approval

regarding the Network Culture Operation License.

According to the Special Management Measures (Negative List) for the Access of Foreign

Investment (2021 Version) (《外商投資准入特別管理措施(負面清單)(2021年版)》), or the 2021

Negative List and other related laws and regulations, foreign investment is prohibited in the online

cultural business (excluding music).

Regulations on Internet Security

Internet information in China is regulated and restricted from a national security standpoint.

The SCNPC, has enacted the Decisions on Maintaining Internet Security (《全國人民代表大會常務委員會關於維護互聯網安全的決定》) on December 28, 2000, amended on August 27, 2009, which may

subject violators to criminal punishment in China for any effort to: (i) sell shoddy products or give

false publicity to commodities or services; (ii) jeopardize others’ business credibility and commodity

reputation; (iii) infringe on others’ intellectual property rights; (iv) fabricate and spread false

information which effects the exchange of securities or other information which disrupts financial

order; or (v) establish pornographic websites, provide services for connecting pornographic websites,

or spread pornographic books and periodicals, movies, audiovisuals or pictures. The Ministry of

Public Security of the PRC has promulgated the Administration Measures on the Security Protection

of Computer Information Network with International Connections (《計算機信息網絡國際聯網安全保護管理辦法》) on December 16, 1997 and the State Council of the PRC has amended it on January 8,

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2011. As indicated in the Administration Measures on the Security Protection of Computer

Information Network with International Connections, no individual shall use the internet to endanger

state security, divulge state secrets, infringe on legitimate rights and interests of others or engage in

illegal criminal activities. If an internet information service provider violates these measures, the

Ministry of Public Security and the local security bureaus may administer a warning, confiscate its

illegal gains or impose a fine, and in severe cases, revoke its operating license and shut down its

websites.

On November 7, 2016, the SCNPC promulgated the Cybersecurity Law, which became

effective on June 1, 2017. The Cybersecurity Law requires network operators to comply with laws

and regulations and fulfill their obligations to safeguard security of the network when conducting

business and providing services. The Cybersecurity Law further requires network operators to take

all necessary measures in accordance with applicable laws, regulations and compulsory national

requirements to safeguard the safe and stable operation of the networks, respond to network security

incidents effectively, prevent illegal and criminal activities, and maintain the integrity,

confidentiality and usability of network data.

On June 10, 2021, the SCNPC promulgated the PRC Data Security Law (《中華人民共和國數據安全法》), which took effect in September 2021. The PRC Data Security Law imposes data security

and privacy obligations on entities and individuals carrying out data activities. The PRC Data

Security Law also provides for a national security review procedure for data activities that affect or

may affect national security and imposes export restrictions on certain data and information.

On December 28, 2021, the CAC and other relevant PRC regulatory authorities jointly revised

and promulgated the Measures for Cybersecurity Review (《網絡安全審查辦法》), or the

Cybersecurity Review Measures, which came into effect on February 15, 2022. The Cybersecurity

Review Measures requires that an internet platform operator who possesses more than one million

users’ personal information must report to the Office of Cybersecurity Review for a cyber security

review in the event of a “foreign” listing (國外上市).



that took effect on March 1, 2022 implements classification and hierarchical management for

algorithm recommendation service providers based on various criteria, and stipulates that algorithm


shall submit the relevant information within ten business days from the date of providing such

services and go through the record-filing formalities. The Algorithm Recommendation Provisions

also require algorithmic recommendation service providers to provide users with options that are not

specific to their personal characteristics, functions to select or delete user labels, and convenient

ways to cancel the algorithmic recommendation services.

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Regulations on Privacy Protection

On August 20, 2021, the SCNPC promulgated the Law of Personal Information Protection of

PRC, or the Personal Information Protection Law (《中華人民共和國個人信息保護法》), which

became effective on November 1, 2021. The Personal Information Protection Law specifically

specified the rules for handling sensitive personal information, which means personal information

that, once leaked or illegally used, may easily cause harm to the dignity of natural persons or grave

harm to personal or property security, including information on biometric characteristics, financial

accounts, individual location tracking, etc., as well as the personal information of minors under the

age of 14. Personal information handlers shall bear responsibility for their personal information

handling activities, and adopt the necessary measures to safeguard the security of the personal

information they handle. Otherwise, the personal information handlers will be ordered to correct or

suspend or terminate the provision of services, confiscation of illegal income, fines or other

penalties.

In December 2011, the MIIT issued Several Provisions on Regulating the Market Order of

Internet Information Services (《規範互聯網信息服務市場秩序若干規定》), which provides that an

internet information service provider may not collect any user’s personal information or provide any

such information to third parties without such user’s consent. Pursuant to the Several Provisions on

Regulating the Market Order of Internet Information Services, internet information service providers

are required to, among others, (i) expressly inform the users of the method, content and purpose of

the collection and processing of such users’ personal information and may only collect such

information necessary for the provision of its services; and (ii) properly maintain the users’ personal

information, and in case of any leak or possible leak of a user’s personal information, internet

information service providers must take immediate remedial measures and, in severe circumstances,

make an immediate report to the telecommunications regulatory authority.

Pursuant to the Decision on Strengthening the Protection of Online Information (《關於加強網絡信息保護的決定》), issued by the SCNPC in December 2012, and the Order for the Protection of

Telecommunication and Internet User Personal Information (《電信和互聯網用戶個人信息保護規定》), issued by the MIIT in July 2013, any collection and use of any user personal information must

be subject to the consent of the user, and abide by the applicable law, rationality and necessity of the

business and fall within the specified purposes, methods and scopes in the applicable law.

In addition, pursuant to Cybersecurity Law, “personal information” refers to all kinds of

information recorded by electronic means or otherwise that can be used to independently identify or

be combined with other information to identify individuals’ identities, including but not limited to:

individuals’ names, dates of birth, ID numbers, biologically identified personal information,

addresses and telephone numbers, etc. The Cybersecurity Law also provides that: (i) to collect and

use personal information, network operators shall follow the principles of legitimacy, rightfulness

and necessity, disclose 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; (ii) network operators shall neither gather personal information unrelated to the services

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they provide, nor gather or use personal information in violation of the provisions of laws and

administrative regulations or the scopes of consent given by the persons whose data is gathered; and

shall dispose of personal information they have saved in accordance with the provisions of laws and

administrative regulations and agreements reached with users; and (iii) network operators shall not

divulge, tamper with or damage the personal information they have collected, and shall not provide

the personal information to others without the consent of the persons whose data is collected.

However, there will be an exception to the rules if the information has been processed and cannot be

recovered, making it impossible to match such information with specific persons.

On January 23, 2019, Office of the Central Cyberspace Affairs Commission, the MIIT, the

MPS, and the SAMR jointly issued the Notice on Special Governance of Illegal Collection and Use

of Personal Information via Apps (《關於開展App違法違規收集使用個人信息專項治理的公告》),

which restates the requirement of legal collection and use of personal information, encourages APP

operators to conduct security certifications, and encourages search engines and APP stores to clearly

mark and recommend those certified APPs.

On November 28, 2019, the CAC, MIIT, the MPS and SAMR jointly issued the Measures to

Identify Illegal Collection and Usage of Personal Information by APPs (《App違法違規收集使用個人信息行為認定方法》), which provides guidance for the regulatory authorities to identify the illegal

collection and use of personal information through mobile apps, and for the app operators to conduct

self-examination and self-correction.

According to the Law of the PRC on the Protection of Minors (《中華人民共和國未成年人保護法》), which took effect on June 1, 2021, information processors must follow the principles of legality,

legitimacy and necessity when processing personal information of minors via internet, and must

obtain consent from minors’ parents or other guardians when processing personal information of

minors under the age of 14. In addition, internet service providers must promptly alert upon the

discovery of publishing private information by minors via the internet and take necessary protective

measures.

On August 22, 2019, the CAC issued the Regulation on Cyber Protection of Children’s

Personal Information (《兒童個人信息網絡保護規定》), effective on October 1, 2019. Network

operators are required to establish special policies and user agreements to protect children’s personal

information, and to appoint special personnel in charge of protecting children’s personal information.

Network operators who collect, use, transfer or disclose personal information of children are

required to, in a prominent and clear way, notify and obtain consent from children’s guardians.

On May 28, 2020, the National People’s Congress of the PRC issued the PRC Civil Code (《中華人民共和國民法典》), which became effective on January 1, 2021. The PRC Civil Code stipulates

that the personal information of a natural person shall be protected by the law. Any organization or

individual shall legally obtain the personal information of others when necessary and ensure the

safety of such personal information, and shall not illegally collect, use, process or transmit the

personal information of others, or illegally buy or sell, provide or make public the personal

information of others.

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Regulations Relating to Internet Advertising Business

On October 27, 1994, the SCNPC, promulgated the Advertising Law of the PRC (《中華人民共和國廣告法》)(the “Advertising Law”), which was latest amended on April 29, 2021. The

Advertising Law requires that advertisers, advertising operators, and advertisement publishers shall

abide by the laws and administrative regulations, and by the principles of fairness and good faith

while engaging in advertising activities.

On July 4, 2016, the State Administration for Industry and Commerce, or the SAIC, issued the

Interim Measures for the Administration of Internet Advertising (《互聯網廣告管理暫行辦法》), or

the Internet Advertising Interim Measures, to regulate internet advertising activities, which became

effective on September 1, 2016, defining internet advertising as any commercial advertising that

directly or indirectly promotes goods or services through websites, webpages, internet applications

and other internet media in the forms of words, picture, audio, video or others, including promotion

through emails, texts, images, video with embedded links and paid-for search results. The Internet

Advertising Interim Measures specifically set out the following requirements: (i) advertisements

must be identifiable and marked with the word “advertisement” enabling consumers to distinguish

them from non-advertisement information; (ii) sponsored search results must be clearly distinguished

from organic search results; (iii) it is forbidden to send advertisements or advertisement links by

email without the recipient’s permission or induce Internet users to click on an advertisement in a

deceptive manner; (iv) no advertisement of any medical treatment, medicines, food for special

medical purpose, medical apparatuses, pesticides, veterinary medicines, dietary supplement or other

special commodities or services subject to examination by an advertising examination authority as

stipulated by laws and regulations may be published unless the advertisement has passed such

examination; (v) the following internet advertising activities are prohibited: providing or using any

applications or hardware to intercept, filter, cover, fast forward or otherwise restrict any authorized

advertisement of other persons; using network pathways, network equipment or applications to

disrupt the normal data transmission of advertisements, alter or block authorized advertisements of

other persons or load advertisements without authorization; or using fraudulent statistical data,

transmission effect or matrices relating to online marketing performance to induce incorrect

quotations, seek undue interests or harm the interests of others; (vi) internet advertisement publishers

are required to verify relevant supporting documents and check the content of the advertisement and

are prohibited from publishing any advertisement with unverified content or without all the

necessary qualifications; and (vii) internet information service providers that are not involved in

internet advertising business activities but simply provide information services are required to block

any attempt to publish an illegal advisement that they are aware of or should reasonably be aware of

through their information services.

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Regulations Relating to Foreign Investment

Encouraging Catalog and Negative List of Foreign Investment

Investment activities in the PRC by foreign investors are principally governed by the Catalog of

Industries for Encouraging Foreign Investment, or the Encouraging Catalog (《鼓勵外商投資產業目錄》), and the Special Management Measures (Negative List) for the Access of Foreign Investment (《外商投資准入特別管理措施(負面清單)》), or the Negative List, which were promulgated and are

amended from time to time by the MOFCOM and NDRC. The Encouraging Catalog and the Negative

List layout the basic framework for foreign investment in the PRC, classifying businesses into three

categories with regard to foreign investment: “encouraged”, “restricted” and “prohibited”. Industries

not listed in the Encouraging Catalog and the Negative List are generally deemed as falling into a

fourth category “permitted”. The NDRC and MOFCOM promulgated the Catalog of Industries for

Encouraging Foreign Investment (2020 Version)(《鼓勵外商投資產業目錄(2020年版)》), or the 2020

Encouraging Catalog, on December 27, 2020, and the 2021 Negative List, on December 27, 2021, to

replace the previous encouraging catalog and negative list thereunder. According to the 2021

Negative List, the provision of value-added telecommunications services falls in the restricted

industries and the percentage of foreign ownership cannot exceed 50% (except for e-commerce,

domestic multi-party communication, store-and-forward and call center) and the internet cultural

business (excluding music) falls in the prohibited industries.

Foreign Investment Law and its Implementation Rules

On March 15, 2019, the National People’s Congress of the PRC promulgated the Foreign

Investment Law of the PRC (《中華人民共和國外商投資法》), or the Foreign Investment Law, which

came into effect on January 1, 2020 and replaced the trio of old rules regulating foreign investment

in China, namely, the Sino-foreign Equity Joint Venture Enterprise Law (《中華人民共和國中外合資經營企業法》), the Sino-foreign Cooperative Joint Venture Enterprise Law (《中華人民共和國中外合作經營企業法》) and the Wholly Foreign-Invested Enterprise Law (《中華人民共和國外資企業法》),

together with their implementation rules and ancillary regulations. The Foreign Investment Law does

not comment on the concept of “de facto control” or contractual arrangements with VIEs, however, it

has a catch-all provision under the definition of “foreign investment” to include investments made by

foreign investors in China through means stipulated by laws or administrative regulations or other

methods prescribed by the State Council. Furthermore, the Foreign Investment Law provides that

foreign invested enterprises established according to the Sino-foreign Equity Joint Venture

Enterprise Law, the Sino-foreign Cooperative Joint Venture Enterprise Law and the Wholly Foreign-

Invested Enterprise Law regulating foreign investment may maintain their structure and corporate

governance within five years after the implementation of the Foreign Investment Law, which means

that foreign invested enterprises may be required to adjust the structure and corporate governance in

accordance with the current PRC Company Law (《中華人民共和國公司法》) and other laws and

regulations governing the corporate governance.

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The Foreign Investment Law stipulates that China implements the management system of pre-

establishment national treatment plus a negative list to foreign investment and the government

generally will not expropriate foreign investment, except under special circumstances, in which case

it will provide fair and reasonable compensation to foreign investors. Foreign investors are barred

from investing in prohibited industries on the negative list and must comply with the specified

requirements when investing in restricted industries on that list. When a license is required to enter a

certain industry, the foreign investor must apply for one, and the government must treat the

application the same as one by a domestic enterprise, except where laws or regulations provide

otherwise. In addition, foreign investors or foreign invested enterprises are required to file

information reports and foreign investment shall be subject to the national security review.

On December 26, 2019, the State Council promulgated the Implementation Rules to the Foreign

Investment Law (《中華人民共和國外商投資法實施條例》), which became effective on January 1,

2020. The Implementation Rules to the Foreign Investment Law further clarifies that the state

encourages and promotes foreign investment, protects the lawful rights and interests of foreign

investors, regulates foreign investment administration, continues to optimize foreign investment

environment, and advances a higher-level opening. Competent investment department and commerce

department of the State Council shall be responsible for proposing the negative list for the State

Council’s approval.

On December 30, 2019, MOFCOM and the SAMR, jointly promulgated the Measures for

Information Reporting on Foreign Investment (《外商投資信息報告辦法》), which became effective

on January 1, 2020. Pursuant to the Measures for Information Reporting on Foreign Investment,

where a foreign investor carries out investment activities in the PRC directly or indirectly, the

foreign investor or the foreign-invested enterprise shall submit the investment information to the

competent commerce department.

Foreign Investment in Telecommunications Business

Foreign direct investment in telecommunications companies in China is governed by the

Regulations for the Administration of Foreign-Invested Telecommunications Enterprises (《外商投資電信企業管理規定》), which was promulgated by the State Council on December 11, 2001 and

amended on September 10, 2008 and February 6, 2016. According to the Regulations for the

Administration of Foreign-Invested Telecommunications Enterprises, a main foreign investor who

invests in a foreign-invested value-added telecommunications enterprise operating the value-added

telecommunications business in China must demonstrate a good track record and experience in

operating a value- added telecommunications business. In July 2006, the Ministry of Information

Industry, or the MII, released its Notice on Strengthening the Administration of Foreign Investment

in and Operation of Value-added Telecommunications Business (《關於加強外商投資經營增值電信業務管理的通知》), or the “MII Notice”, pursuant to which, domestic telecommunications enterprises

are prohibited to rent, transfer or sell a telecommunications business operation license to foreign

investors in any form, or provide any resources, premises, facilities and other assistance in any form

to foreign investors for their illegal operation of any telecommunications business in China. In

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addition, under the MII Notice, the internet domain names and registered trademarks used by a

foreign-invested value-added telecommunication service operator shall be legally owned by that

operator (or its shareholders). The State Council recently revised the Regulations for the

Administration of Foreign Invested Telecommunications Enterprises (《外商投資電信企業管理規定》)

which took effect from May 1, 2022 (the “2022 FITE Regulations”). The 2022 FITE Regulations,

among others, no longer requires the main foreign investor who invests in an enterprise operating

value-added telecommunications business in the PRC to possess prior experience in operating value-

added telecommunications business and a proven track record of business operations. The 2022 FITE

Regulations prescribes that foreign investors are not allowed to hold more than 50% of the equity

interests of a company engaged in value-added telecommunications business, except as otherwise

stipulated by the state, and that a foreign-invested enterprise must be approved by the MIIT to

engage in value-added telecommunications business. However, as of the Latest Practicable Date, no

applicable PRC laws, regulations or rules had provided a clear guidance or interpretation regarding

the foregoing amendment in the 2022 FITE Regulations and the interpretation and enforcement of

the foregoing amendment in the 2022 FITE Regulations remains uncertain in practice.

Regulations Relating to Intellectual Property in the PRC

Copyright and Software Registration

Pursuant to the Copyright Law of the PRC (《中華人民共和國著作權法》), and its related

Implementing Regulations (《中華人民共和國著作權法實施條例》) issued by the State Council on

August 2, 2002 and last amended on January 30, 2013 and became effective on March 1, 2013,

copyrights include personal rights such as the right of publication and that of attribution as well as

property rights such as the right of production and that of distribution. Reproducing, distributing,

performing, projecting, broadcasting or compiling a work or communicating the same to the public

via an information network without permission from the owner of the copyright therein, unless

otherwise provided for in the Copyright Law of the PRC, shall constitute infringements of

copyrights. The infringer shall, according to the circumstances of the case, undertake to cease the

infringement, take remedial action, offer an apology, and pay damages, etc. On November 11, 2020,

the SCNPC adopted the amendment to the Copyright Law of the PRC, or the 2020 Copyright Law,

which took effect on June 1, 2021. The 2020 Copyright Law further strengthens copyright

protection. For example, by: (i) raising maximum statutory compensation from RMB500,000 to

RMB5,000,000; (ii) labeling “audiovisual works” as a new type of work to substitute

“cinematographic works and works created by a process analogous to cinematography”; and

(ii) refining evidential rules on the amount of compensation for copyright infringement.

The Copyright Law of the PRC labels computer software as a type of work. In order to further

strengthen computer software protection and implement the Regulations on Computer Software

Protection (《計算機軟件保護條例》), last amended on January 30, 2013, the National Copyright

Administration issued the Measures for the Registration of Computer Software Copyright (《計算機軟件著作權登記辦法》) on February 20, 2002, which specify detailed procedures and requirements

with respect to the registration of software copyrights.

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Trademark

Pursuant to the Trademark Law of the PRC (《中華人民共和國商標法》), as most recently

amended in 2019, the right to exclusive use of a registered trademark shall be limited to trademarks

which have been approved for registration and to goods for which the use of such trademark has

been approved. The period of validity of a registered trademark shall be ten years, counted from the

day the registration is approved. According to the Trademark Law of the PRC, using a trademark that

is identical to or similar to a registered trademark in connection with the same or similar goods

without the authorization of the owner of the registered trademark constitutes an infringement of the

exclusive right to use a registered trademark. The infringer shall, in accordance with the regulations,

undertake to cease the infringement, take remedial action, and pay damages, etc.

On April 29, 2014, the State Council issued the amended Implementing Regulations of the

Trademark Law of the PRC (《中華人民共和國商標法實施條例》), or the 2014 Trademark Regulation,

which specified the requirements of applying for trademark registration and renewal.

Patent

Pursuant to the Patent Law of the PRC (《中華人民共和國專利法》), after the grant of the patent

right for an invention or utility model, except where otherwise provided for in the Patent Law, no

entity or individual may, without the authorization of the patent owner, exploit the patent, that is,

make, use, offer to sell, sell or import the patented product, or use the patented process, or use, offer

to sell, sell or import any product which is a direct result of the use of the patented process, for

production or business purposes. After a patent right is granted for a design, no entity or individual

shall, without the permission of the patent owner, exploit the patent, that is, for production or

business purposes, manufacture, offer to sell, sell, or import any product containing the patented

design. Once the infringement of patent is confirmed, the infringer shall, in accordance with the

regulations, undertake to cease the infringement, take remedial action, and pay damages, etc. On

October 17, 2020, the SCNPC adopted the amendment to the Patent Law, or the 2020 Patent Law,

which took effect on June 1, 2021. The 2020 Patent Law further strengthens patent protection. For

example, (i) the design patent term extends from 10 years to 15 years, and rights holders can also

now claim part of an entire product design; (ii) an invention will not lose its novelty in the event that

it is firstly published for public interest under a national “state of emergency” or under

“extraordinary circumstances” within 6 months after application date of such invention; and (iii) the

maximum statutory damages increase from RMB1,000,000 to RMB5,000,000.

Domain Name

Pursuant to the Measures for the Administration of Internet Domain Names of China (《中國互聯網絡域名管理辦法》) promulgated in November 2004 and came into effect in December 2004, or

the 2004 Domain Names Measures, and the Measures for the Administration of Internet Domain

names (《互聯網域名管理辦法》) promulgated in August 2017 and came into effect in November

2017, which replaced the 2004 Domain Names Measures, “domain name” shall refer to the character

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mark of hierarchical structure, which identifies and locates a computer on the internet and

corresponds to the internet protocol (IP) address of that computer. The principle of “first come, first

serve” is followed for the domain name registration service. After completing the domain name

registration, the applicant becomes the holder of the domain name registered by him/it. Any

organization or individual may file an application for settlement with the domain names dispute

resolution institution or file a lawsuit in the people’s court in accordance with the law, if such

organization or individual consider its/his legal rights and interests to be infringed by domain names

registered or used by others.

Regulations Relating to Labor Protection in the PRC

According to the Labor Law of the PRC (《中華人民共和國勞動法》), or the Labor Law, which

was promulgated by the SCNPC in July 1994, came into effect on January 1, 1995, and most recently

amended in December 2018, an employer shall develop and improve its rules and regulations to

safeguard the rights of its workers. An employer shall develop and improve its labor safety and

health system, stringently implement national protocols and standards on labor safety and health,

conduct labor safety and health education for workers, guard against labor accidents and reduce

occupational hazards.

The Labor Contract Law of the PRC (《中華人民共和國勞動合同法》), which was promulgated

by the SCNPC on June 29, 2007, came into effect on January 1, 2008, and most recently amended in

December 2012, and the Implementation Regulations on Labor Contract Law (《中華人民共和國勞動合同法實施條例》), promulgated and became effective on September 18, 2008, regulate both parties

to a labor contract, namely the employer and the employee, and contain specific provisions involving

the terms of the labor contract. It is stipulated by the Labor Contract Law and the Implementation

Regulations on Labor Contract Law that a labor contract must be made in writing. An employer and

an employee may enter into a fixed-term labor contract, an un-fixed term labor contract, or a labor

contract that concludes upon the completion of certain work assignments, after reaching an

agreement upon due negotiations. An employer may legally terminate a labor contract and dismiss its

employees after reaching an agreement upon due negotiations with the employee or by fulfilling the

statutory conditions. Labor contracts concluded prior to the enactment of the Labor Contract Law

and subsisting within the validity period thereof shall continue to be honored. With respect to a

circumstance where a labor relationship has already been established but no formal contract has been

made, a written labor contract shall be entered into within one month from the effective date of the

Labor Contract Law. In addition, the Labor Contract Law also imposes requirements on the use of

dispatched workers. Dispatched workers are entitled to equal pay with fulltime employees for equal

work. Employers are only allowed to use dispatched workers for temporary, auxiliary or substitutive

positions. The Interim Provisions on Labor Dispatching (《勞務派遣暫行規定》), issued by the

Ministry of Human Resources and Social Security of the People’s Republic of China, on January 24,

2014 and came into effect on March 1, 2014, requires the number of dispatched workers to not

exceed 10% of the total number of employees and dispatched workers.

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Enterprises in China are required by PRC laws and regulations to participate in certain

employee benefit plans, including social insurance funds, namely a pension plan, a medical insurance

plan, an unemployment insurance plan, a work-related injury insurance plan and a maternity

insurance plan, and a housing provident fund, and contribute to the plans or funds in amounts equal

to certain percentages of salaries, including bonuses and allowances, of the employees as specified

by the local government from time to time at locations where they operate their businesses or where

they are located. According to the Social Insurance Law of the PRC (《中華人民共和國社會保險法》),

which was implemented on July 1, 2011 and amended on December 29, 2018, an employer that fails

to make social insurance contributions may be ordered to rectify the non-compliance and pay the

required contributions within a stipulated deadline and be subject to a late fee of up to 0.05% per

day, as the case may be. If the employer still fails to rectify the failure to make social insurance

contributions within the stipulated deadline, it may be subject to a fine ranging from one to three

times the amount overdue. According to the Regulations on Management of Housing Fund (《住房公積金管理條例》), an enterprise that fails to make housing fund contributions may be ordered to

rectify the noncompliance and pay the required contributions within a stipulated deadline; otherwise,

an application may be made to a local court for compulsory enforcement.

Regulations Relating to Leasing

Pursuant to the Law on Administration of Urban Real Estate of the PRC (《中華人民共和國城市房地產管理法》) promulgated by the SCNPC on July 5, 1994 and last amended on August 26, 2019

and took effect on January 1, 2020, when leasing premises, the lessor and lessee are required to enter

into a written lease contract, containing such provisions as the leasing term, use of the premises,

rental prices, rental and repair liabilities, and other rights and obligations of both parties. In addition,

pursuant to the Law on Administration of Urban Real Estate of the PRC and the Administrative

Measures on Leasing of Commodity Housing (《商品房屋租賃管理辦法》), promulgated by the

Ministry of Housing and Urban-Rural Development on December 1, 2010 and became effective on

February 1, 2011, both lessor and lessee are required to register the lease within 30 days from

execution of the property lease contract with the real estate administration department. If the lessor

and lessee fail to go through the registration procedures, both lessor and lessee may be subject to

fines.

According to the PRC Civil Code, the lessee may sublease the leased premises to a third party,

subject to the consent of the lessor. Where the lessee subleases the premises, the lease contract

between the lessee and the lessor remains valid. The lessor is entitled to terminate the lease contract

if the lessee subleases the premises without the consent of the lessor. If the lessor transfers the

premises, the lease contract between the lessee and the lessor will still remain valid. In addition,

where the mortgaged property has been leased and the possession thereof has been transferred before

the creation of mortgage, the previously established leasehold interest will not be affected by the

subsequent mortgage.

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Regulations Relating to Tax in the PRC

Enterprise Income Tax

On March 16, 2007, the SCNPC promulgated the Enterprise Income Tax Law of the PRC (《中華人民共和國企業所得稅法》) which was last amended on December 29, 2018, and the State Council

enacted the Regulations for the Implementation of the Law on Enterprise Income Tax (《中華人民共和國企業所得稅法實施條例》) which were last amended on April 23, 2019 (collectively, the “EIT

Law”). According to the EIT Law, taxpayers consist of resident enterprises and non-resident

enterprises. Resident enterprises are defined as enterprises that are established in China in

accordance with PRC laws, or that are established in accordance with the laws of foreign countries

but whose actual or de facto control is administered from within the PRC. Non-resident enterprises

are defined as enterprises that are set up in accordance with the laws of foreign countries and whose

actual administration is conducted outside the PRC, but have established institutions or premises in

the PRC, or have no such established institutions or premises but have income generated from inside

the PRC. Under the EIT Law and relevant implementing regulations, a uniform corporate income tax

rate of 25% is applicable. However, if non-resident enterprises have not formed establishments or

premises in the PRC, or if they have formed establishment institutions or premises in the PRC but

there is no actual relationship between the relevant income derived in the PRC and the established

institutions or premises set up by them, the enterprise income tax is, in that case, set at the rate of

10% for their income sourced from inside the PRC. The Notice on Issues about the Determination of

Chinese-Controlled Enterprises Registered Abroad as Resident Enterprises on the Basis of Their

Body of Actual 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》) issued by the State Taxation Administration (the “SAT”), or the Circular 82, on

April 22, 2009 and effective on January 1, 2008 and partially repealed on December 29, 2017 and

became effective on the same date, sets up a more specific definition of “actual or de facto control”

standard.

Value-Added Tax

According to the Interim Regulation of the PRC on Value Added Tax (the “VAT”)(《中華人民共和國增值稅暫行條例》), issued by the State Council on December 13, 1993 and last revised on

November 19, 2017, and the Detailed Rules for the Implementation of the Interim Regulation of the

PRC on Value Added Tax (《中華人民共和國增值稅暫行條例實施細則》) issued by the Ministry of

Finance, or the MOF, on December 25, 1993 and last revised on October 28, 2011, entities and

individuals selling goods in the PRC or providing processing services, repair services and

importation services should be subject to VAT, and the payable tax amount shall be calculated by

deducting input tax for the current period from output tax for the current period. According to the

Notice of Taxation on Implementing the Pilot Program of Replacing Business Tax with VAT in an

All-round Manner issued jointly by the MOF and SAT (《財政部、國家稅務總局關於全面推開營業稅改征增值稅試點的通知》) on March 23, 2016 and partly amended by the MOF, SAT and the General

Administration of Customs on March 20, 2019 and became effective on April 1, 2019, the

countrywide pilot practice of levying VAT in lieu of business tax, or the Pilot Practice, has been

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carried out since May 1, 2016. According to the specific regulatory documents for the Pilot Practice,

including the Implementation Measures for the Pilot Practice of Levying VAT in lieu of Business

Tax (《營業稅改征增值稅試點實施辦法》), the VAT rates vary from 17%, 11%, 6%, 3% to 0% for

taxpayers incurring taxable activities. According to the Notice of the MOF and SAT on Adjusting the

Value-added Tax Rate (《財政部、國家稅務總局關於調整增值稅稅率的通知》) effective on May 1,

2018, the VAT tax rates on sales, imported goods that were previously subject to 17% and 11% are

now adjusted to 16% and 10%, respectively. According to the Announcement of the Ministry of

Finance, the SAT and the General Administration of Customs on Relevant Policies for Deepening the

Value-Added Tax Reform (《關於深化增值稅改革有關政策的公告》) promulgated on March 20, 2019

and came into effect on April 1, 2019, the VAT tax rates on sales, imported goods that were

previously subject to 16% and 10% are now adjusted to 13% and 9%, respectively. Our services are

subject to VAT at the rate of 6% in accordance with such VAT regulations.

Dividend Withholding Tax

Pursuant to the Enterprise Income Tax Law and its implementation rules, if a non-resident

enterprise has not set up an organization or establishment in the PRC, or has set up an organization

or establishment but the income derived has no actual connection with such organization or

establishment, it will be subject to a withholding tax on its PRC-sourced income at a rate of 10%.

Pursuant to the Arrangement between Mainland China and the Hong Kong Special Administrative

Region for the Avoidance of Double Taxation and Tax Evasion on Income (《內地和香港特別行政區關於對所得避免雙重征稅和防止偷漏稅的安排》), the withholding tax rate in respect to the payment of

dividends by a PRC enterprise to a Hong Kong enterprise is reduced to 5% from a standard rate of

10% if the Hong Kong enterprise directly holds at least 25% of the PRC enterprise.

Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the

Application of the Dividend Clauses of Tax Agreements (《國家稅務總局關於執行稅收協定股息條款有關問題的通知》), or SAT Circular 81, 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. Furthermore, the Circular of SAT on Promulgation of the Administrative Measures for

Non-Resident Taxpayer to Enjoy Treatments under Tax Treaties (《國家稅務總局關於發布<非居民納稅人享受稅收協定待遇管理辦法>的公告》), or SAT Circular 60, which became effective in November

2015, require that non-resident enterprises which satisfy the criteria for entitlement to tax treaty

benefits may, at the time of tax declaration or withholding declaration through a withholding agent,

enjoy the tax treaty benefits, and be subject to ongoing administration by the tax authorities. In the

case where the non-resident enterprises do not apply to the withholding agent to claim the tax treaty

benefits, or the materials and the information stated in the relevant reports and statements provided

to the withholding agent do not satisfy the criteria for entitlement to tax treaty benefits, the

withholding agent should withhold tax pursuant to the provisions of the PRC tax laws. The SAT

issued the Circular of SAT on Promulgation of the Administrative Measures on Non-resident

Taxpayers Enjoying Treaty Benefits (《國家稅務總局關於發布<非居民納稅人享受協定待遇管理辦法>的公告》), or the SAT Circular 35, on October 14, 2019, which became effective on January 1, 2020.

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The SAT Circular 35 further simplified the procedures for enjoying treaty benefits and replaced the

SAT Circular 60. According to the SAT Circular 35, no approvals from the tax authorities are

required for a non-resident taxpayer to enjoy treaty benefits, and where a non-resident taxpayer self-

assesses and concludes that it satisfies the criteria for claiming treaty benefits, it may enjoy treaty

benefits at the time of tax declaration or at the time of withholding through the withholding agent,

but it shall gather and retain the relevant materials as required for future inspection, and accept

follow-up administration by the tax authorities. There are also other conditions for enjoying the

reduced withholding tax rate according to other relevant tax rules and regulations. According to the

Circular on Several Issues regarding the “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》), or Circular 9, which was issued on February 3, 2018 by

the SAT, effective as of April 1, 2018, when determining the applicant’s status of the “beneficial

owner” regarding tax treatments in connection with dividends, interests or royalties in the tax

treaties, several factors, including without limitation, whether the applicant is obligated to pay more

than 50% of its income in twelve months to residents in third country or region, whether the business

operated by the applicant constitutes the actual business activities, and whether the counterparty

country or region to the tax treaties does not levy any tax or grant tax exemption on relevant incomes

or levy tax at an extremely low rate, will be taken into account, and it will be analyzed according to

the actual circumstances of the specific cases. This circular further provides that applicants who

intend to prove his or her status of the “beneficial owner” shall submit the relevant documents to the

relevant tax bureau according to the Circular of SAT on Promulgation of the Administrative

Measures for Non-Resident Enterprises to Enjoy Treatments under Tax Treaties.

Income Tax for Share Transfers

According to the Circular of SAT Regarding Certain Corporate Income Tax Matters on Indirect

Transfer of Properties by Non-Resident Enterprises (《國家稅務總局關于非居民企業間接轉讓財產企業所得稅若幹問題的公告》), or SAT Public Notice 7, promulgated by the SAT in February 2015, if a

non-resident enterprise transfers the equity interests of a PRC resident enterprise indirectly by

transfer of the equity interests of an offshore holding company (other than a purchase and sale of

shares in a public securities market) without a reasonable commercial purpose, the PRC tax

authorities have the power to reassess the nature of the transaction and the indirect equity transfer

will be treated as a direct transfer. As a result, the gain derived from such transfer, which means the

equity transfer price less the cost of equity, will be subject to PRC withholding tax at a rate of up to

10%. In October 2017, SAT issued the Announcement of the SAT on Issues Concerning the

Withholding of Non-resident Enterprise Income Tax at Source (《國家稅務總局關于非居民企業所得稅源泉扣繳有關問題的公告》), or the SAT Bulletin 37, which, among others, repealed certain rules

stipulated in SAT Bulletin 7 and became effective on December 1, 2017. The SAT Bulletin 37

further details and clarifies the tax withholding methods in respect of income of non-resident

enterprises.

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Regulations Relating to Dividend Distributions

The principal regulations governing distribution of dividends of wholly foreign-owned

enterprise, or WFOE, include the PRC Company Law, the Foreign Investment Law and the

Implementation Rules of the Foreign Investment Law. Under these regulations, WFOEs in China

may pay dividends only out of their accumulated profits, if any, determined in accordance with the

PRC accounting standards and regulations. In addition, WFOE in the PRC are required to allocate at

least 10% of their accumulated profits each year, if any, to fund certain reserve funds unless these

reserves have reached 50% of the registered capital of the enterprises. These reserves are not

distributable as cash dividends.

Regulations Relating to Foreign Exchange

Foreign Currency Exchange

The principal regulations governing foreign currency exchange in China are the PRC Foreign

Exchange Administration Regulations (《中華人民共和國外匯管理條例》), or the Foreign Exchange

Administration Regulations, which were promulgated by the State Council on January 29, 1996 and

last amended on August 5, 2008. Under the Foreign Exchange Administration Regulations, Renminbi

is generally freely convertible for payments of current account items, such as trade and service-

related foreign exchange transactions and dividend payments, but not freely convertible for capital

account items, such as direct investment, loan or investment in securities outside China, unless prior

approval of State Administration of Foreign Exchange, or the SAFE, or its local counterparts has

been obtained.

On February 13, 2015, SAFE promulgated the Notice on Further Simplifying and Improving the

Direct Investment-related Foreign Exchange Administration Policies (《國家外匯管理局關于進一步簡化和改進直接投資外匯管理政策的通知》), or SAFE Notice 13, according to which, entities and

individuals may apply for such foreign exchange registrations from qualified banks. The qualified

banks, under the supervision of SAFE, may directly review the applications and conduct the

registration.

On March 30, 2015, SAFE promulgated the Circular on Reforming the Management Approach

regarding the Settlement of Foreign Capital of Foreign-invested Enterprise (《國家外匯管理局關于改革外商投資企業外匯資本金結匯管理方式的通知》), or Circular 19, which came into effect on June 1,

2015. According to Circular 19, the foreign exchange capital of foreign-invested enterprises shall be

subject to the Discretionary Foreign Exchange Settlement, which means that the foreign exchange

capital in the capital account of a foreign-invested enterprise for which the rights and interests of

monetary contribution have 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, and if a foreign-invested enterprise needs to

make further payment from such account, it still needs to provide supporting documents and proceed

with the review process with the banks. Furthermore, Circular 19 stipulates that the use of capital by

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foreign-invested enterprises shall follow the principles of authenticity and self-use within the

business scopes of enterprises. The capital of a foreign-invested enterprise and capital in Renminbi

obtained by the foreign-invested enterprise from foreign exchange settlement shall not be used for

the following purposes: (i) directly or indirectly used for payments beyond the business scopes of the

enterprises or payments as prohibited by relevant laws and regulations; (ii) directly or indirectly used

for investment in securities unless otherwise provided by the relevant laws and regulations;

(iii) directly or indirectly used for granting entrust loans in Renminbi (unless permitted by the scope

of business), repaying inter-enterprise borrowings (including advances by the third-party) or

repaying the bank loans in Renminbi that have been sub-lent to third parties; or (iv) directly or

indirectly used for expenses related to the purchase of real estate that is not for self-use (except for

the foreign-invested real estate enterprises).

The Circular on Reforming and Standardizing the Foreign Exchange Settlement Management

Policy of Capital Account (《國家外匯管理局關於改革和規範資本項目結匯管理政策的通知》), or

Circular 16, was promulgated by SAFE on June 9, 2016 and became effective on the same date.

Pursuant to Circular 16, enterprises registered in the PRC may also convert their foreign debts from

foreign currency to Renminbi on a self-discretionary basis. 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, while such

converted Renminbi shall not be provided as loans to its non-affiliated entities.

On January 26, 2017, SAFE promulgated the Circular on Further Improving Reform of Foreign

Exchange Administration and Optimizing Genuineness and Compliance Verification (《國家外匯管理局關于進一步推進外匯管理改革完善真實合規性審核的通知》), or Circular 3, which stipulates several

capital control measures with respect to the outbound remittance of profit equivalent to more than

US$50,000 from domestic entities to offshore entities, including (i) under the principle of genuine

transaction, banks shall check board resolutions regarding profit distribution, the original version of

tax filing records and audited financial statements; and (ii) domestic entities shall hold income to

account for previous years’ losses before remitting the profits. Moreover, pursuant to Circular 3,

domestic entities shall make detailed explanations of the sources of capital and utilization

arrangements, and provide board resolutions, contracts and other proof when completing the

registration procedures in connection with an outbound investment.

In October 2019, the SAFE promulgated the Notice for Further Advancing the Facilitation of

Cross-border Trade and Investment (《國家外匯管理局關于進一步促進跨境貿易投資便利化的通知》),

or the SAFE Circular 28, which, among other things, allows all FIEs to use Renminbi converted from

foreign currency denominated capital for equity investments in China, as long as the equity

investment is genuine, does not violate applicable laws, and complies with the negative list on

foreign investment. The Circular Regarding Further Optimizing the Cross-border RMB Policy to

Support the Stabilization of Foreign Trade and Foreign Investment (《關于進一步優化跨境人民幣政策支持穩外貿穩外資的通知》) jointly promulgated by the People’s Bank of China, NDRC, MOFCOM,

the State-owned Assets Supervision and Administration Commission of the State Council, the China

Banking and Insurance Regulatory Commission and SAFE on December 31, 2020 and took effect on

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February 4, 2021 allows the non-investment foreign-invested enterprises make domestic

reinvestment with RMB capital in accordance with the law on the premise that they comply with

prevailing regulations and the invested projects in China are authentic and compliant. In addition, if

a foreign-invested enterprise uses RMB income under capital accounts to conduct domestic

reinvestment, the invested enterprise is not required to open a special deposit account for RMB

capital.

Regulations Relating to Foreign Exchange Registration Of Overseas Investment and Share Incentive

Plan by PRC Residents

Circular on Relevant Issues Concerning Foreign Exchange Control on Domestic Residents’

Offshore Investment and Financing and Roundtrip Investment Through Special Purpose Vehicles (《國家外匯管理局關于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》), or Circular

37, issued by SAFE and effective in July 2014, regulates foreign exchange matters in relation to the use

of special purpose vehicles, or SPVs, by PRC residents or entities to seek offshore investment and

financing and conduct round trip investment in China. Under Circular 37, a SPV refers to an offshore

entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of

seeking offshore financing or making offshore investment, using legitimate domestic or offshore assets or

interests, while “round trip investment” refers to the direct investment in China by PRC residents or

entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control

rights and management rights. Circular 37 requires that, before making contribution into a SPV, PRC

residents or entities are required to complete foreign exchange registration with SAFE or its local branch.

Circular 37 further provides that holders of option or share-based awards granted by a non-listed SPV can

exercise the options or share-based awards to become a shareholder of such non-listed SPV, subject to

registration with SAFE or its local branch.

PRC residents or entities who have contributed legitimate domestic or offshore interests or

assets to SPVs but have yet to obtain SAFE registration before the implementation of the Circular 37

shall register their ownership interests or control in such SPVs with SAFE or its local branch. An

amendment to the registration is required if there is a material change in the registered SPV, such as

any change of basic information (including change of such PRC resident’s name and operation term),

increases or decreases in investment amounts, transfers or exchanges of shares, or mergers or

divisions. Failure to comply with the registration procedures set forth in Circular 37, or making

misrepresentation or failure to disclose controllers of foreign-invested enterprise that is established

through round-trip investment, may result in restrictions on the foreign exchange activities of the

relevant foreign-invested enterprises, including payment of dividends and other distributions, such as

proceeds from any reduction in capital, share transfer or liquidation, to its offshore parent or

affiliate, and the capital inflow from the offshore parent, and may also subject relevant PRC

residents or entities to penalties under PRC foreign exchange administration regulations.

Pursuant to the Notice on Issues Concerning the Foreign Exchange Administration for

Domestic Individuals Participation in Equity Incentive Plans of Overseas Listed Companies (《國家外匯管理局關於境內個人參與境外上市公司股權激勵計劃外匯管理有關問題的通知》) promulgated by

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SAFE on February 15, 2012, or the SAFE Circular 7, PRC residents who are granted shares or share

options by companies listed on overseas stock exchanges under share incentive plans are required to

(i) register with SAFE or its local branches, (ii) retain a qualified PRC agent, which may be a PRC

subsidiary of the overseas listed company or another qualified institution selected by the PRC

subsidiary, to conduct SAFE registration and other procedures with respect to the share incentive

plans on behalf of the participants, and (iii) retain an overseas institution to handle matters in

connection with their exercise of share options, purchase and sale of shares or interests and funds

transfers.

Regulations Relating to Overseas Listing and M&A

On December 24, 2021, the CSRC released the Draft Overseas Listing Provisions, which

require that, among other things, domestic companies that seek to offer or list securities overseas,

both directly and indirectly, should fulfill the filing procedure and report relevant information with

the CSRC. If a domestic company fails to complete the filing procedure or conceals any material fact

or falsifies any major content in its filing documents, such domestic company will be subject to

administrative penalties such as warnings, fines, suspension of relevant business or operations, and

revocation of licenses and permits, and its controlling shareholders, actual controllers, directors,

supervisors, and senior executives may also be subject to administrative penalties such as warnings

and fines. On the same day, the CSRC also issued the Draft Filing Measures, which, among others,

set forth the standards in determination of an indirect overseas listing by a domestic company, the

responsible filing persons, and the procedures for the filing. The period for which the CSRC solicits

comments on these two drafts ended on January 23, 2022.

On August 8, 2006, six PRC governmental and regulatory agencies, including the MOFCOM

and the CSRC, jointly promulgated the Regulations on Mergers and Acquisitions of Domestic

Enterprises by Foreign Investors (《關於外國投資者並購境內企業的規定》), or the M&A Rules, a

regulation with respect to the mergers and acquisitions of domestic enterprises by foreign investors

that became effective on September 8, 2006 and revised on June 22, 2009. Foreign investors shall

comply with the M&A rules when they purchase equity interests of a domestic company or subscribe

for the increased capital of a domestic company, and thus changing the nature of the domestic

company into a foreign-invested enterprise; or when the foreign investors establish a foreign-

invested enterprise in the PRC for the purpose of purchasing the assets of a domestic company and

operating the asset; or when the foreign investors purchase the asset of a domestic company,

establish a foreign-invested enterprise by injecting such assets, and operate the assets. The M&A

rules, among other things, purport to require that the offshore special purpose vehicle that is

controlled by PRC companies or individuals formed for the purpose of seeking a public listing on an

overseas stock exchange through acquisitions of PRC domestic companies of the aforementioned

PRC companies or individuals using shares of such special purpose vehicle or shares held by its

shareholders as a consideration to obtain CSRC approval prior to the listing and trading of such

special purpose vehicle’s securities on an overseas stock exchange.

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The Anti-Monopoly Law (《中華人民共和國反壟斷法》) promulgated by the SCNPC, which

became effective on August 1, 2008, requires that transactions which are deemed concentrations and

involve parties with specified turnover thresholds to be cleared by MOFCOM before they can be

completed. In addition, on February 3, 2011, the General Office of the State Council promulgated a

Notice on Establishing the Security Review System for Mergers and Acquisitions of Domestic

Enterprises by Foreign Investors (《國務院辦公廳關于建立外國投資者並購境內企業安全審查制度的通知》), or Circular 6, which officially established a security review system for mergers and acquisitions

of domestic enterprises by foreign investors. Further, on August 25, 2011, MOFCOM promulgated

the Regulations on Implementation of Security Review System for the Merger and Acquisition of

Domestic Enterprises by Foreign Investors (《商務部實施外國投資者並購境內企業安全審查制度的規定》), or the MOFCOM Security Review Regulations, which became effective on September 1, 2011,

to implement Circular 6. Under Circular 6, a security review is required for mergers and acquisitions

by foreign investors having “national defense and security” concerns and mergers and acquisitions

by which foreign investors may acquire “de facto control” of domestic enterprises with “national

security” concerns. Under the MOFCOM Security Review Regulations, MOFCOM will focus on the

substance and actual impact of the transaction when deciding whether a specific merger or

acquisition is subject to security review. If MOFCOM decides that a specific merger or acquisition is

subject to security review, it will submit it to the Inter-Ministerial Panel, an authority established

under Circular 6 led by the NDRC and MOFCOM under the leadership of the State Council, to carry

out the security review. The regulations prohibit foreign investors from bypassing the security

review by structuring transactions through trusts, indirect investments, leases, loans, control through

contractual arrangements or offshore transactions. These laws and regulations are continually

evolving as the recently enacted Foreign Investment Law took effect. On December 19, 2020, the

Measures for the Security Review for Foreign Investment (《外商投資安全審查辦法》) was jointly

issued by NDRC and MOFCOM, which became effective on January 18, 2021. The Measures for the

Security Review for Foreign Investment contains provisions concerning the security review

mechanism on foreign investment, including the types of investments subject to review, review

scopes and procedures, among others.

REGULATIONS RELATING TO UNFAIR COMPETITION AND ANTI-MONOPOLY

According to the Anti-unfair Competition Law of the PRC (《中華人民共和國反不正當競爭法》),

promulgated by the SCNPC on September 2, 1993, and last amended with immediate effect on

April 23, 2019, unfair competition refers to that the operator disrupts the market competition order

and damages the legitimate rights and interests of other operators or consumers in violation of the

provisions set forth therein in its production and operating activities. Operators shall abide by the

principle of voluntariness, equality, impartiality, integrity, as well as laws and business ethics during

production and operating activities.

The Anti-Monopoly Law of the PRC (《中華人民共和國反壟斷法》) promulgated by the

SCNPC, which became effective on August 1, 2008, and the Provisions of the State Council on the

Standard for Declaration of Concentration of Business Operators (《國務院關於經營者集中申報標準的規定》) promulgated by the State Council on August 3, 2008, and latest amended on September 18,

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2018, require that where a concentration reaches one of the following thresholds, a declaration must

be lodged in advance with the anti-monopoly law enforcement agency under the State Council, or

otherwise the concentration shall not be implemented: (i) during the previous fiscal year, the total

global turnover of all business operators participating in the concentration exceeded RMB10 billion,

and at least two of these business operators each had a turnover of more than RMB400 million

within China; or (ii) during the previous fiscal year, the total turnover within China of all the

business operators participating in the concentration exceeded RMB2 billion, and at least two of

these business operators each had a turnover of more than RMB400 million within China. According

to the Anti-Monopoly Law of the PRC, if business operators fail to comply with the mandatory

declaration requirement, the anti-monopoly authority is empowered to terminate and/or unwind the

transaction, dispose of relevant assets, shares or businesses within certain periods and impose fines

of up to RMB500,000.

On October 23, 2020, the SAMR further issued the Measures for Examination and Approval of

Concentration of Business Operators (《經營者集中審查暫行規定》), effective on December 1, 2020

and latest amended on May 1, 2022, which refers concentration as (i) a merger of business operators;

(ii) acquiring control over other business operators by acquiring equities or assets; or (iii) acquisition

of control over, or the possibility of exercising decisive influence on, an business operator by

contract or by any other means.

In February 2021, the Anti-Monopoly Commission of the State Council published the Anti-

Monopoly Guidelines for the Internet Platform Economy Sector (《關於平臺經濟領域的反壟斷指南》), which provides that the calculation of turnover in the field of platform economy may be

different depending on the business model of the operators: for platform operators who only provide

information matchings and collect commissions, their turnovers should be calculated including the

service fee charged by the platform and other platform income; for the platform operators who

participate in the market competition on the platform side, their turnovers shall be calculated

including the transaction amount involved in the platform and other platforms. The concentration of

business operators involving the contractual arrangements falls within the scope of the antitrust

review of concentration of business operators.

– 234 –


RELATIONSHIP WITH OUR CONTROLLING SHAREHOLDERS

CONTROLLING SHAREHOLDERS

Immediately after the completion of the [REDACTED], Ms. Lu Zhang, our founder,

chairwoman of the Board, executive Director and chief executive officer, will be interested in

[48,607,303] Shares through Soulgate Holding Limited (“Soulgate Holding”). Assuming the

Presumptions, immediately after the completion of the [REDACTED], Ms. Lu Zhang’s shareholding

in our Company represents approximately [REDACTED]% of our issued Shares and Ms. Zhang will

control approximately [REDACTED]% of the voting power of our Company through Shares

controlled by her directly and pursuant to the Voting Proxy. For details of the Voting Proxy, please

refer to the section headed “History, Development and Corporate Structure – Pre-[REDACTED]

Investment – Voting Proxy” of this document. Ms. Lu Zhang holds her interests in our Company

through Soulgate Holding, a company incorporated in the British Virgin Islands with limited liability

and controlled by Ms. Lu Zhang.

As such, each of Ms. Lu Zhang and Soulgate Holding will be a Controlling Shareholder of our

Company after the [REDACTED]. The chart below illustrates the voting rights of Ms. Zhang in our

Company immediately after the completion of the [REDACTED] and assuming the Presumptions:

Ms. Lu Zhang(1)

Soulgate Holding

Limited(BVI)

Our Company(Cayman Islands)

[REDACTED]

100%

Note:

(1) Ms. Zhang controls her interest in Soulgate Holding Limited and our Company through a trust, with Zedra Trust Company

(Cayman) Limited as trustee and Ms. Zhang as settlor.

Our Group operates independently of our Controlling Shareholders. Apart from their interests

in our Company, our Controlling Shareholders do not currently have any interest in a business that

operates or is likely to operate, either directly or indirectly, with our Group’s business.

INDEPENDENCE FROM CONTROLLING SHAREHOLDERS

Having considered the following factors, our Directors are satisfied that we are capable of

carrying on our business independently from our Controlling Shareholders and its close associates

after the [REDACTED].

– 235 –



Management Independence

Our business is managed and conducted by our Board and senior management. Ms. Lu Zhang,

is our Controlling Shareholder and also one of our executive Directors. Upon [REDACTED], our

Board will consist of nine Directors comprising three executive Directors, three non-executive

Directors and three independent non-executive Directors. See the section headed “Directors and

Senior Management” for more details on the composition of the Board.

Our Directors consider that our Board and senior management will function independently of

our Controlling Shareholders because:

(a) each of our Directors is aware of his / her fiduciary duties as a director which require,

among others, that he / she acts for the benefit and in the interest of our Company and

does not allow any conflict between his / her duties as a Director and his / her personal

interests;

(b) our daily management and operations are carried out by a senior management team, all of

whom have substantial experience in the industry in which our Company is engaged in,

and will therefore be able to make business decisions that are in the best interests of our

Group;

(c) we have three independent non-executive Directors and certain matters of our Company

must always be referred to the independent non-executive directors for review;

(d) 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) is(are) required to declare the nature of such interest before voting

at the relevant Board meeting; and

(e) we have adopted other corporate governance measures to manage conflicts of interest, if

any, between our Group and our Controlling Shareholders, as detailed in “— Corporate

governance measures”.

Based on the above, our Directors believe that our business is managed independently of our

Controlling Shareholders.

Operational Independence

Our Group is not operationally dependent on the Controlling Shareholders. Our Company

(through our subsidiaries) holds all relevant licenses and owns all relevant intellectual properties and

research and development facilities necessary to carry on our business. We have sufficient capital,

facilities, equipment and employees to operate our business independently from our Controlling

Shareholders. We also have independent access to our customers and an independent management

team to operate our business.

– 236 –



Based on the above, our Directors believe that we are able to operate independently of our

Controlling Shareholders.

Financial Independence

We have independent internal control and accounting systems. We also have an independent

finance department responsible for discharging the treasury function. We are capable of obtaining

financing from third parties, if necessary, without reliance on our Controlling Shareholders.

No loans or guarantees provided by, or granted to, our Controlling Shareholders or their

associates will be outstanding as of the [REDACTED].

Based on the above, our Directors are of the view that they and our senior management are

capable of carrying on our business independently of, and do not place undue reliance, on our

Controlling Shareholders and its close associates after the [REDACTED].

DISCLOSURE UNDER RULE 8.10 OF THE LISTING RULES

Our Controlling Shareholders confirm that as of the Latest Practicable Date, they did not have

any interest in a business, apart from the business of our Group, which competes or is likely to

compete, directly or indirectly, with our business that would require disclosure under Rule 8.10 of

the Listing Rules.

CORPORATE GOVERNANCE MEASURES

Our Company and our Directors are committed to upholding and implementing the highest

standards of corporate governance and recognize the importance of protecting the rights and interests

of all Shareholders, including the rights and interests of our minority Shareholders.

Under the Articles of Association, extraordinary general meetings of our Company may be

convened on the written requisition of any one or more members holding, as at the date of deposit of

the requisition, in aggregate shares representing not less than one-tenth of the paid up capital of our

Company which carry the right of voting at general meetings of our Company. In addition, pursuant to

the Shareholder communication policy to be adopted by our Company upon [REDACTED],

Shareholders are encouraged to put governance related matters to the Directors and to our Company

directly in writing.

We will also adopt the following corporate governance measures to resolve actual or potential

conflict of interests between our Group and our Controlling Shareholders:

(a) where a Shareholders’ meeting is held pursuant to the Listing Rules to consider proposed

transactions or arrangements in which our Controlling Shareholders or any of their

associates have a material interest, our Controlling Shareholder(s) shall abstain from

voting and their votes shall not be counted;

– 237 –



(b) our Company has established internal control mechanisms to identify connected

transactions, and we will comply with the applicable Listing Rules if we enter into

connected transactions with our Controlling Shareholders or any of their associates after

[REDACTED];

(c) the independent non-executive Directors will review, on an annual basis, whether there is

any conflict of interests between our Group and our Controlling Shareholders (the

“Annual Review”) and provide impartial and professional advice to protect the interests

of our minority Shareholders;

(d) our Controlling Shareholders will undertake to provide all information necessary or

requested by the independent non-executive Directors for the Annual Review, including

all relevant financial, operational and market information;

(e) our Company will disclose decisions on matters reviewed by the independent non-

executive Directors either in our annual reports or by way of announcements as required

by the Listing Rules;

(f) where our Directors reasonably request the advice of independent professionals, such as

financial advisers, the appointment of such independent professionals will be made at our

Company’s expense;

(g) we have appointed Guotai Junan Capital Limited as our compliance adviser to provide

advice and guidance to us in respect of compliance with the applicable laws, rules and

regulations, including but not limited to the Listing Rules, in relation to various

requirements relating to corporate governance; and

(h) we have established our audit committee, remuneration committee and nomination

committee with written terms of reference in compliance with the Listing Rules and the

Code of Corporate Governance and Corporate Governance Report in Appendix 14 to the

Listing Rules.

Based on the above, our Directors believe that sufficient corporate governance measures have

been put in place to manage conflicts of interest between our Group and our Controlling

Shareholders, and to protect minority Shareholders’ interests after the [REDACTED].

– 238 –



Pursuant to Chapter 14A of the Listing Rules, the transactions that we enter into with our

connected persons will constitute connected transactions upon the [REDACTED].

CONNECTED PERSONS

We have entered into certain transactions in the ordinary and usual course of our business with

the following connected persons:

Name of connected person Relationship

Shenzhen Tencent Computer Systems CompanyLimited (深圳市騰訊計算機系統有限公司)(“Tencent Computer”)

Tencent Computer is a subsidiary of Tencent.Tencent is one of our substantial shareholders.

Ms. Zhang Ms. Zhang is one of our executive Directors andour Controlling Shareholder.

SUMMARY OF OUR CONTINUING CONNECTED TRANSACTIONS

We have entered into the following transactions that will constitute continuing connected

transactions under Rule 14A.31 of the Listing Rules upon the [REDACTED]:

Proposed annual cap

for the years ending December 31,

(in millions of RMB)

Transaction

Applicable

Listing Rules Waiver(s) sought 2022 2023 2024

Tencent Group Framework Agreement

Non-exempt continuing

connected transactions

1 Provision of advertising

services by Tencent Group

to our Group

Rule 14A.35

Rule 14A.36

Rule 14A.46

Rule 14A.53

Rule 14A.105

Announcement,

independent

shareholders’

approval, and

circular

requirements

100 120 140

Partially -exempt continuing

connected transaction

2 Provision of payment

services by Tencent Group

to our Group

Rule 14A.35

Rule 14A.53

Rule 14A.105

Announcement

requirements

11 14 17

3 Provision of advertising

services by our Group to

Tencent Group

Rule 14A.35

Rule 14A.53

Rule 14A.105

Announcement

requirements

10 15 20

– 239 –



Proposed annual cap

for the years ending December 31,

(in millions of RMB)

Transaction

Applicable

Listing Rules Waiver(s) sought 2022 2023 2024

Contractual Arrangements

Non-exempt continuing

connected transactions

1 Contractual Arrangements Rule 14A.35

Rule 14A.36

Rule 14A.46

Rule 14A.52

Rule 14A.53

Rule 14A.105

Announcement,

independent

shareholders’

approval, circular,

annual cap

requirements, and

limiting the term

to three years

N/A N/A N/A

TENCENT GROUP FRAMEWORK AGREEMENT

Background

On [Š] 2022, we entered into a business cooperation and service framework agreement with

Tencent Computer (the “Tencent Group Framework Agreement”) to regulate (a) the provision of

advertising services by our Group and (b) the provision of advertising services and payment services

by Tencent Group.

The Tencent Group Framework Agreement was entered into on normal commercial terms (or

better) after arm’s length negotiations and the transactions under the Tencent Group Framework

Agreement will commence on the [REDACTED] and continue until December 31, 2024 (both dates

inclusive).

DETAILS OF THE TRANSACTIONS CONTEMPLATED UNDER THE TENCENT GROUP

FRAMEWORK AGREEMENT

Non-exempt continuing connected transactions

Advertising services by Tencent Group to our Group

Tencent Group will provide our Group with advertising services utilizing different internet

platforms including its social media platform and online advertising platform, on which our Group

will advertise our Soul app to potential users of our mobile application and website to acquire users

(the “Tencent Advertising Services”). We shall in return pay advertising service fees to Tencent

Group. Separate underlying agreements will be entered into which will set out the precise scope of

– 240 –



services, advertising service commission fees, the applicable advertising platform, method of

payment, assignment of responsibilities between parties and other details of the service arrangement

in the manner provided in the Tencent Group Framework Agreement.

Reasons for the transaction

The Tencent Advertising Services provided by Tencent Group allow us to reach a vast amount of

internet and mobile users, given Tencent Group’s leading position in the online advertising service

industry, the massive user base of Tencent Group’s social media platform in the PRC and Tencent’s

technological capability to match us with our target users. Many of our users and potential new users

are users of Tencent Group’s platforms through which we deliver our services. We believe that the

Tencent Advertising Services will enable us to acquire users and increase potential new users’

awareness of and familiarity with our business which will in turn contribute to our success.

Pricing policies

Before entering into any advertising service agreement pursuant to the Tencent Group

Framework Agreement, we will assess our business needs and compare the fee rates proposed by

Tencent Group with the rates offered by other comparable service providers which are Independent

Third Parties. We take into account a number of factors before any decision is made, including but

not limited to (i) whether the fee rates proposed by Tencent Group are in line with the market rates,

(ii) the effectiveness of the marketing and promotion services provided by Tencent Group as

compared to those provided by different online marketing and promotion service providers; (iii) the

breadth of user base of Tencent Group as compared to those of other online marketing and promotion

platforms. We will only enter into the Tencent Advertising Service if (i) the terms and conditions are

fair and reasonable and based on normal or no less favorable commercial terms than those offered by

Independent Third Party service providers who can provide comparable services and (ii) the

agreement is in the best interests of our Company and our Shareholders as a whole.

The service fee we pay to Tencent Group in respect of the Tencent Advertising Services will be

charged on the basis of (i) the price of each click and the aggregate number of clicks of online users,

(ii) the number of impressions generated by the Tencent Advertising Services to our online users, and

(iii) the number of advertisement served or delivered through the Tencent Advertising Services.

Historical amounts

The historical transaction amounts of the Tencent Advertising Services over the Track Record

Period are set out below:

Transaction amount of the Tencent Advertising Services over the Track Record Period (in RMB million)

Year ended December 31, 2019 Year ended December 31, 2020 Year ended December 31, 2021

4.7 52.2 78.8

– 241 –



Annual caps

In respect of the Tencent Advertising Services, the transaction amounts to be paid by our Group

to Tencent Group for the three years ending December 31, 2024 shall not exceed the proposed annual

caps as set out in the table below:

Expected maximum transaction amount of the Tencent Advertising Services for the three years ending December 31,,

(in RMB million)

2022 2023 2024

100 120 140

Basis of annual caps

The above proposed annual caps have been determined primarily based on the following

factors:

(a) the rapid growth in historical transaction amounts of the Tencent Advertising Services

costs paid by us to Tencent Group during the Track Record Period, with a ten-fold

increase from 2019 to 2020, and 51% from 2020 to 2021, respectively. The increase in

fees paid by us in respect of the Tencent Advertising Services was mainly due to the

increase in the number of advertisements that our Group put on the Tencent platforms,

which in turn increased our expenditure on the Tencent Advertising Services;

(b) the expected continual growth in our demand for the Tencent Advertising Services due to

our business need. As our strategies on advertising mature and our business needs require

us to engage more Tencent Advertising Services for our target users, the growth trend is

expected to continue. As we expand our business, we expect that our total advertising and

promotion expenses will sustain stable growth. Taking into account the average

percentage of the historical expenditures of the Tencent Advertising Services to our total

advertising and promotion expenditure, as well as the stable growth of our total

advertising and promotion expenditure, we expect our service fees paid in respect of the

Tencent Advertising Services will also rise proportionally for the three years ending

December 31, 2024, with the rapid growth momentum to continue from 2021 to 2022 and

then more gradual rate of growth in the years 2023 and 2024 trending towards

[REDACTED]; and

(c) the expansion of user base. As mentioned in our pricing policies, the service fee we pay to

Tencent Group in respect of the Tencent Advertising Services composes of various costs.

As our user base expands and our brand is more well known, we believe our target users

will be exposed to our advertisement more and chances of them clicking into our

advertisements increase. As such, we expect that the advertising fee we pay to Tencent

Group will increase at a gradual pace from 2022 to 2024 as a result of economies of scale

and as we aim to expand our user base.

– 242 –



Listing Rules implications and waiver

Our Directors expect that the highest applicable percentage ratio under the Listing Rules in

respect of the Tencent Advertising Services, on an annual basis, will be more than 5%. As such, the

Tencent Advertising Services will be subject to the reporting, annual review, announcement, circular

and independent shareholders’ approval requirements under Chapter 14A of the Listing Rules.

We have applied for[, and the Stock Exchange has granted us,] a waiver from strict compliance

with the announcement requirements, the circular (including the opinion and recommendation from

an independent financial adviser) requirements, and the independent shareholders’ approval

requirements under Rules 14A.35 and 14A.36 of the Listing Rules pursuant to Rule 14A.105 of the

Listing Rules.

Partially-exempt continuing connected transactions

Payment services by Tencent Group to our Group

Tencent Group will provide our Group with payment services through its payment channel

Weixin Pay (the “Tencent Payment Services”) in order to enable our users to conduct online

transactions on our platform through Weixin Pay. We shall in return pay payment processing costs to

Tencent Group. Separate underlying agreements will be entered into which will set out the precise

scope of services, payment service commissions, the applicable payment channels, method of

payment, assignment of responsibilities between parties and other details of the service arrangement

in the manner provided in the Tencent Group Framework Agreement.


Our users mainly use online payment services to settle their payments in connection with our

services. There are limited choices of online payment channels in the PRC, and Weixin Pay is one of

the most preferred payment channels of our users. The Tencent Payment Services provided by

Tencent Group enable us to provide our users with more convenient payment methods and hence

enhance our users’ satisfaction with our services, given Tencent Group’s leading position in the

online payment service industry and the massive user base of Tencent Group’s online payment

service in the PRC.

Pricing policies

Before entering into any payment service agreement pursuant to the Tencent Group Framework

Agreement, we will consider (i) the efficiency and prevalence of payment channels operated by

different online payment service providers such as Apple Pay and Alipay; (ii) our users’ preference

among different online payment service providers; and (iii) the fee rates proposed by Tencent Group

with the rates offered by other comparable service providers, which are Independent Third Parties.

We will only enter into a payment service agreement with Tencent Group (i) when the fee rates

– 243 –



proposed by Tencent Group are in line with the market rates provided by Independent Third Party

service providers and (ii) the agreement is in the best interests of our Company and our Shareholders

as a whole. The fees that we pay Tencent Group will be based on payment service fee rates and

actual payment volumes processed on our platform. The fee rates, as listed out on Tencent’s official

website, reflect, among other things, Tencent Group’s bank-processing costs and operating costs

allocable to the services provided to us, and accordingly are subject to adjustment on an annual basis

to the extent these costs increase or decline.

Historical amounts

The historical transaction amounts of the Tencent Payment Services over the Track Record


Transaction amount of the Tencent Payment Services over the Track Record Period (in RMB million)


0.5 2.4 6.1

Annual caps

In respect of the Tencent Payment Services, the transaction amounts to be paid by our Group to

Tencent Group for the three years ending December 31, 2024 shall not exceed the proposed annual

caps as set out in the table below:

Expected maximum transaction amount of the Tencent Payment Services for the three years ending December 31,

(in RMB million)

2022 2023 2024

11 14 17


The above proposed annual caps have been determined primarily based on the following

factors:

(a) the historical transaction amounts. During the Track Record Period, the Tencent Payment

Services costs paid by us to Tencent Group increased significantly, by 380% and 154%

from 2019 to 2020, and from 2020 to 2021, respectively. Given the leading position of

Weixin Pay, the online payment channel offered by Tencent Group in the PRC, we expect

Weixin Pay will continue to be one of the most popular and convenient payment channels

among our users. Although our users may also use non-Tencent Group payment channels

such as Apple Pay and Alipay and therefore the proportion of our revenue processed by

– 244 –



Weixin Pay may vary from time to time, we expect such proportion to remain stable

overall in the near future. Accordingly, as our business continues to grow, we expect the

total amount of revenue processed by Weixin Pay to increase and the corresponding

payment processing service fees payable by our Group to Tencent Group for the next three

years to also continue to rise; and

(b) the expected amount of the Tencent Payment Services costs we required as a result of the

expansion of our businesses. Our user base expanded during the Track Record Period and

is expected to continue to expand in the three years ending December 31, 2024. As we

also plan to broaden our merchandise offering after the [REDACTED], we expect the

number of our paying users and their average payment amount for the next three years

ending December 31, 2024 will experience steady growth, which will lead to a

corresponding increase in the revenue to be processed. As such, we expect our overall

payment services costs will continue to increase, and accordingly, the amount of Tencent

Payment Services costs is expected to continue its growth momentum from 2021 to 2022

and then experience more gradual rate of growth in 2023 and 2024.


Our Directors expect that the highest applicable percentage ratio calculated under Chapter 14A of

the Listing Rules in relation to the Tencent Payment Services is more than 0.1% but less than 5%,

pursuant to Rule 14A.76(2)(a) of the Listing Rules. As such, this transaction will be a partially-exempt

continuing connected transaction, exempt from the circular and independent shareholders’ approval

(including recommendation from an independent financial advisor) requirements, but will be subject to

announcement and annual reporting requirements under Chapter 14A of the Listing Rules.


with the announcement requirements under Rule 14A.35 of the Listing Rules pursuant to

Rule 14A.105 of the Listing Rules.

Advertising services provided by our Group to Tencent Group

Pursuant to the Tencent Framework Agreement, we will provide (a) advertising services to

Tencent Group by displaying online advertisement materials provided by Tencent Group or creating

and displaying collaborative content on our online platforms; and (b) provide advertising services

through our online platforms to the You Liang Hui (優量匯) platform or other digital advertising

platforms operated by Tencent Group (“Tencent Advertising Platforms”) by displaying online

advertisement materials for the advertising partners of Tencent Advertising Platforms. Tencent

Advertising Platforms are platforms that connect buyers (i.e. the advertising partners) and suppliers

of digital advertising resources (e.g. Soul App). Through such platforms, Tencent cooperates with

and distributes to advertising partners advertising resources provided by suppliers that use such

platforms. We participate in such platforms as a supplier of advertising services and display on our

online platforms the advertisement materials for the advertising partners connected through such

platforms (the “Soul Advertising Services”).

– 245 –



In return for the Soul Advertising Services provided by us, Tencent Group will pay us service

fees and the cost shall be determined based on arm’s length negotiation between the parties.


Provision of online advertising services through our Soul platform is part of our ordinary

business. Tencent Group is one of our valued long-term customers of our advertising services and we

expect to continue to provide advertising services to Tencent Group following the [REDACTED].

Pricing policies

The service fees to be charged by us for provision of advertising services to Tencent Group and

through Tencent Advertising Platforms will be determined based on arm’s length negotiation

between the parties. We take into account a number of factors before any decision is made, including

but not limited to (i) whether the fee rates to be charged by us are in line with the market rates, (ii)

the effectiveness of the marketing and promotion services provided by us as compared to those

provided by different online marketing and promotion service providers; (iii) the breadth of target

audience on our online platforms to be matched with the relevant advertising strategies of Tencent

Group. We will only enter into a specific advertising service agreement under the Tencent

Framework Agreement if (i) the terms and conditions are fair and reasonable and based on normal or

no less favorable commercial terms as compared to our provision of similar advertising services to

other customers who are Independent Third Parties; and (ii) it is in the best interests of our Company

and the Shareholders as a whole.

Historical amounts

The historical transaction amounts of the Soul Advertising Services over the Track Record


Transaction amount of the Soul Advertising Services over the Track Record Period (in RMB million)


Nil 0.2 4.2

Annual caps

In respect of the Soul Advertising Services, the transaction amounts to be paid by Tencent

Group to our Group for the three years ending December 31, 2024 shall not exceed the proposed

annual caps as set out in the table below:

Expected maximum transaction amount of the Soul Advertising Services for the three years ending December 31, (in RMB million)

2022 2023 2024

10 15 20

– 246 –




The annual caps were determined taking into account the following key factors:

(a) the aforesaid historical transaction amounts and the existing agreements between our

Group and Tencent Group, in particular, as the Soul Advertising Services commenced in

2020, the transaction amount increased aggressively from 2020 to 2021 by over 26 times

in the initial growth stage; and

(b) the expected expansion of the cooperation between our Group and Tencent Group in the

Soul Adverting Services, on the basis of (i) the expected demand of Tencent Group for our

advertising services; and (ii) our expected allocation of our advertising resources. We

expect that (i) the relatively rapid growth trend in the Soul Advertising Services will

continue for the year ending December 31, 2022 (with an year-on-year increase of

approximately 100%) as the business is still in its initial growth stage, and (ii) the growth

rate will gradually stabilize as the business matures, which leads to an expected increase

in transaction amounts by approximately 50% and 30% in the two years ending

December 31, 2024, respectively.


Our Directors expect that the highest applicable percentage ratio calculated under Chapter 14A

of the Listing Rules in relation to the Soul Advertising Services will be more than 0.1% but less than

5% pursuant to Rule 14A.76(2)(a) of the Listing Rules. As such, this transaction will be a partially-

exempt continuing connected transaction, exempt from the circular and independent shareholders’

approval (including recommendation from an independent financial advisor) requirements, but will

be subject to announcement and annual reporting requirements under Chapter 14A of the Listing

Rules.


with the announcement requirements under Rules 14A.35 of the Listing Rules pursuant to

Rule 14A.105 of the Listing Rules.


Background

As disclosed in the section headed “Contractual Arrangements”, due to regulatory restrictions

on foreign ownership in the PRC, we conduct certain business through our Consolidated Affiliated

Entities in the PRC.

We do not hold any controlling equity interests in our Consolidated Affiliated Entities. The

Contractual Arrangements among the WFOE, our Consolidated Affiliated Entities and shareholders

– 247 –



of our Consolidated Affiliated Entities enable us to (i) receive substantially all of the economic

benefits from our Consolidated Affiliated Entities in consideration for the services provided by the

WFOE to the Onshore Holdco(s); (ii) exercise effective control over our Consolidated Affiliated

Entities through the Onshore Holdco(s); and (iii) hold an exclusive option to purchase all or part of

the equity interests in the Onshore Holdco(s) when and to the extent permitted by PRC laws.

See the section headed “Contractual Arrangements” for detailed terms of the Contractual

Arrangements.

Listing Rules implications

For the purposes of Chapter 14A of the Listing Rules, and in particular the definition of

“connected person”, the Consolidated Affiliated Entities will be treated as our Company’s wholly-

owned subsidiaries, and its directors, chief executives or substantial shareholders (as defined in the

Listing Rules) and their respective associates will be treated as our Company’s “connected persons.”

The transactions contemplated under the Contractual Arrangements will constitute continuing

connected transactions of the Company. The highest applicable percentage ratio (other than the

profits ratio) under the Listing Rules in respect of the transactions associated with the Contractual

Arrangements is expected to be more than 5%. As such, the transactions will be subject to the

reporting, annual review, announcement and independent shareholders’ approval requirements under

Chapter 14A of the Listing Rules.

Waiver Application

Our Directors (including the independent non-executive Directors) are of the view that the

Contractual Arrangements and the transactions contemplated therein are fundamental to our legal

structure and business operations. Our Directors also believe that our structure, whereby the

financial results of our Consolidated Affiliated Entities are consolidated into our financial statements

as if they were our Company’s wholly-owned subsidiaries, and all the economic benefits of their

business flows to our Group, places our Group in a special position in relation to the connected

transactions rules. Accordingly, notwithstanding that the transactions contemplated under the

Contractual Arrangements and any new transactions, contracts and agreements or renewal of existing

transactions, contracts and agreements to be entered into, among others, by our Consolidated

Affiliated Entities and any member of our Group from time to time (including Consolidated

Affiliated Entities) (the “New Intergroup Agreements”) technically constitute continuing connected

transactions under Chapter 14A of the Listing Rules, our Directors consider that it would be unduly

burdensome and impracticable, and would add unnecessary administrative costs to our Company, for

all such transactions to be subject to strict compliance with the requirements set out under Chapter

14A of the Listing Rules, including, among other things, the announcement and independent

shareholders’ approval requirements.

– 248 –



In respect of the Contractual Arrangements and the New Intergroup Agreements, we have

applied for, and the Stock Exchange [has granted] us, waivers from strict compliance with (i) the

announcement, circular and independent shareholders’ approval requirements pursuant to

Rule 14A.105 of the Listing Rules, (ii) the requirement to set annual caps under Rule 14A.53 of the

Listing Rules, and (iii) the requirement to limit the term to three years or less under Rule 14A.52 of

the Listing Rules, for so long as our Shares are [REDACTED] on the Stock Exchange subject to the

following conditions.

No change without independent non-executive Directors’ approval

Save as described below, no change to the Contractual Arrangements (including with respect to

any fees payable to the WFOEs thereunder) will be made without the approval of our independent

non-executive Directors.

No change without independent Shareholders’ approval

Save as described below, no change to the agreements governing the Contractual Arrangements

will be made without the approval of our independent Shareholders. Once independent Shareholders’

approval of any change has been obtained, no further announcement or approval of the independent

Shareholders will be required under Chapter 14A of the Listing Rules unless and until further

changes are proposed. The periodic reporting requirement regarding the Contractual Arrangements in

the annual reports of our Company will however continue to be applicable.

Economic benefits and flexibility

The Contractual Arrangements shall continue to enable our Group to receive the economic

benefits derived by the Consolidated Affiliated Entities through (i) our Group’s options (if and when

so allowed under applicable PRC laws) to acquire, all or part of the equity interests in the

Consolidated Affiliated Entities for nil consideration or the minimum amount of consideration

permitted by applicable PRC laws and regulations, (ii) the business structure under which the profit

generated by the Consolidated Affiliated Entities is substantially retained by our Group, such that no

annual cap shall be set on the amount of service fees payable to the WFOEs by our Consolidated

Affiliated Entities under the Contractual Arrangements, and (iii) our Group’s right to control the

management and operation of, as well as, in substance, a substantial portion of the voting rights of

the Consolidated Affiliated Entities.

Renewal and reproduction

On the basis that the Contractual Arrangements provide an acceptable framework for the

relationship between, on the one hand, our Company and the subsidiaries in which our Company has

direct shareholding and, on the other hand, the Consolidated Affiliated Entities, this framework may

be renewed and/or reproduced without an announcement, circular, or obtaining the approval of our

Shareholders (i) upon the expiry of the existing arrangements, (ii) in connection with any changes to

– 249 –



the shareholders or directors of, or of their shareholdings in, the Consolidated Affiliated Entities, or

(iii) in relation to any existing, new or acquired wholly foreign-owned enterprise or operating

company (including branch company) engaging in a business similar or relating to those of our

Group.

The directors, chief executive or substantial shareholders of any existing, new or acquired

wholly foreign-owned enterprise or operating company (including branch company) engaging in a

business similar or relating to those of our Group will, upon renewal and/or reproduction of the

Contractual Arrangements, be treated as connected persons of our Group and transactions between

these connected persons and our Group other than those under similar Contractual Arrangements

shall comply with Chapter 14A of the Listing Rules.

This condition is subject to relevant PRC laws, regulations and approvals. Any such renewed or

reproduced agreements will be on substantially the same terms and conditions as the existing

Contractual Arrangements.

Ongoing reporting and approvals

We will disclose details relating to the Contractual Arrangements on an ongoing basis:

• the Contractual Arrangements in place during each financial period will be disclosed in our

Company’s annual report and accounts in accordance with the relevant provisions of the

Listing Rules;

• our independent non-executive Directors will review the Contractual Arrangements

annually and confirm in our Company’s annual report that for the relevant year (i) the

transactions carried out during such year have been entered into in accordance with the

relevant provisions of the Contractual Arrangements, (ii) no dividends or other distributions

have been made by our Consolidated Affiliated Entities to the holders of its equity interests

which are not otherwise subsequently assigned or transferred to our Group, and (iii) any

new contracts entered into, renewed or reproduced between our Group and the Consolidated

Affiliated Entities are fair and reasonable, or advantageous, so far as our Group is

concerned and in the interests of our Shareholders as a whole;

• our Company’s auditors will carry out review procedures annually on the transactions

carried out pursuant to the Contractual Arrangements and will provide a letter to our

Directors with a copy to the Stock Exchange, confirming that the transactions have been

approved by our Board, have been entered into in accordance with the relevant Contractual

Arrangements and that no dividends or other distributions have been made by our

Consolidated Affiliated Entities to the holders of its equity interests which are not

otherwise subsequently assigned or transferred to our Group;

• for the purpose of Chapter 14A of the Listing Rules, and in particular the definition of

‘connected person’, our Consolidated Affiliated Entities will be treated as our Company’s

– 250 –



subsidiaries, but at the same time, the directors, chief executives or substantial shareholders

of the Consolidated Affiliated Entities and their associates will be treated as connected

persons of our Company as applicable under the Listing Rules (excluding for this purpose,

the Consolidated Affiliated Entities themselves), and therefore transactions between these

connected persons and our Group (including for this purpose, the Consolidated Affiliated

Entities), other than those under the Contractual Arrangements, will be subject to

requirements under Chapter 14A of the Listing Rules; and

• our Consolidated Affiliated Entities will, for so long as our Shares are [REDACTED] on

the Stock Exchange, provide our Group’s management and our Company’s auditors with

full access to their relevant records for the purpose of reporting on the connected

transactions.

DIRECTORS’ CONFIRMATION

Our Directors (including independent non-executive Directors) are of the view that: (i) the

continuing connected transactions set out above have been and will be entered into in our ordinary

and usual course of business on normal commercial terms or better, on terms that are fair and

reasonable, and in the interests of our Company and our Shareholders as a whole; and (ii) it is

normal business practice for the Contractual Arrangements to be of a term greater than three years.

JOINT SPONSORS’ CONFIRMATION

The Joint Sponsors have (i) reviewed the relevant documents and information provided by the

Company in relation to the above continuing connected transactions; (ii) obtained necessary

representations and confirmations from the Company and the Directors, and (iii) participated in the

due diligence and discussions with the management of our Group.

Based on the above, the Joint Sponsors are of the view that the aforesaid continuing connected

transactions, for which waivers have been sought, have been entered into in the ordinary and usual

course of our business on normal commercial terms that are fair and reasonable and in the interest of

our Company and our Shareholders as a whole, and that the proposed annual caps in respect of these

non-exempt continuing connected transactions are fair and reasonable and in the interests of our

Company and our Shareholders as a whole.

With respect to the term of the relevant agreements underlying the Contractual Arrangements

which is of a duration longer than three years, the Joint Sponsors are of the view that it is a

justifiable and normal business practice to ensure that (i) policies of the Consolidated Affiliated

Entities can be effectively controlled by the WFOE, (ii) the WFOE can obtain the economic benefits

derived from our Consolidated Affiliated Entities, (iii) any possible leakages of assets and values of

our Consolidated Affiliated Entities can be prevented on an uninterrupted basis, and (iv) it is normal

business practice for the Contractual Arrangements to be of a term greater than three years.

– 251 –


DIRECTORS AND SENIOR MANAGEMENT

DIRECTORS

Our Board consists of nine Directors, comprising three executive Directors, three non-executive

Director, and three independent non-executive Directors. The following table provides certain

information about the Directors:

Name Age Position

Date of joining our

Group

Date of appointment

as a Director Roles and responsibilities

Ms. Lu Zhang

(張璐) . . . . . . . . . . .

37 Executive

Director,

Chairwoman,

Chief

Executive

Officer and

Founder

June 17, 2015 May 16, 2017 Overall executive and

business direction

and overall

management of our

Group

Mr. Ming Tao

(陶明) . . . . . . . . . . .

33 Executive

Director

and Chief

Technology

Officer

February 23,

2017

December 7,

2018

Overseeing and

building the

technology and

development team

of our Group

Mr. Gaozheng Zhang

(張高政) . . . . . . . . .

35 Executive

Director

and Vice

President of

Technology

December 4,

2017

October 10,

2021

Overseeing the

technology

research and

development and

risk management

of our Group

Mr. Ye Yuan (袁野) . . 35 Non-executive

Director

September 5,

2017

September 5,

2017

Providing

professional

advice, opinion,

and guidance to

our Board

Mr. Di Wu (吳頔) . . . . 37 Non-executive

Director

October 10,

2021

October 10,

2021

Providing professional

advice, opinion, and

guidance to our

Board

Ms. Yu Wu (吳昱) . . . 45 Non-executive

Director

March 19,

2021

March 19,

2021

Providing professional

advice, opinion, and

guidance to our

Board

– 252 –



Name Age Position

Date of joining our

Group

Date of appointment

as a Director Roles and responsibilities

Ms. Lili Xu

(徐黎黎) . . . . . . . . . .

41 Independent

non-executive

Director

[REDACTED] [REDACTED] Providing

professional

advice, opinion,

and guidance to

our Board

Mr. Xiaohuang Huang

(黃曉煌) . . . . . . . . .

37 Independent

non-executive

Director


professional

advice, opinion,

and guidance to

our Board

Ms. Han Chen

(陳晗) . . . . . . . . . . .

33 Independent

non-executive

Director


professional

advice, opinion,

and guidance to

our Board

Save as disclosed below, none of the Directors had held any directorships in listed companies

during the three years immediately prior to the Latest Practicable Date, there is no other information

in respect of the Directors to be disclosed pursuant to Rules 13.51(2)(a) to (v) of the Listing Rules,

and there is no other matter that needs to be brought to the attention of Shareholders or potential

[REDACTED].

Executive Directors

Ms. Lu Zhang (張璐), aged 37, is our founder and an executive Director, and has served as the

chairwoman of the Board and the chief executive officer of our Company since our inception. Prior

to founding Soul, Ms. Zhang worked as a consultant and then as the chief executive officer of Innext

China from 2009 to 2015. Prior to that, Ms. Zhang worked at The Nielsen Company from 2008 to

2009. Ms. Zhang received her bachelor of arts degree in English literature from Sun Yat-sen

University in the PRC in 2007.

Mr. Ming Tao (陶明), aged 33, has served as our chief technology officer since 2017 and as an

executive Director since December 2018, and has been responsible for overseeing and building our

technology and development team. Prior to joining us, Mr. Tao was a technology leader at Waterdrop

in 2016, a company listed on the New York Stock Exchange (NYSE: WDH), a company in China

focusing on providing an online health care mutual aid platform. Prior to that, Mr. Tao was a

research and development engineer at Sogou Inc. Mr. Tao received his master’s degree in computer

science from Beijing University of Posts and Telecommunications in the PRC in 2013.

Mr. Gaozheng Zhang (張高政), aged 35, has served as our vice president of technology since

December 2017 and as an executive Director since October 2021. Before joining us, Mr. Zhang was

– 253 –



a senior research and development engineer at Sogou Inc., where he was mainly responsible for the

research and development supporting the company’s advertisement business and commercial

platform. Mr. Zhang received his master’s degree in computer science from Beihang University in

the PRC in 2013.

Non-executive Directors

Mr. Ye Yuan (袁野), aged 35, has served as our non-executive Director since September 2017.

Mr. Yuan is a partner at 5Y Capital (formerly known as Morningside Venture Capital), where he has

worked since July 2011. Before that, he worked as an assistant audit manager at KPMG from 2007 to

2011. Mr. Yuan received his bachelor of science degree in chemistry from Nanjing University in the

PRC in 2007.

Mr. Di Wu (吳頔), aged 37, has served as our non-executive Director since October 2021.

Mr. Wu is a vice president at miHoYo, where he has worked since March 2018. Prior to that, he

worked as a manager at Bilibili, a company listed on the Nasdaq Global Select Market (Nasdaq:

BILI) and the Hong Kong Stock Exchange (HKEX: 9626), from 2016 to 2017, and then as an

investment director at Bilibli’s affiliated investment management company from 2017 to 2018.

Mr. Wu received his master of accounting and finance degree from the University of Adelaide in

Australia in 2009.

Ms. Yu Wu (吳昱), aged 45, has served as our non-executive Director since March 2021.

Ms. Wu has served as general manager of the strategy & development department at Tencent

(HKEX: 700) since 2011. Ms. Wu received her MBA degree from University of Virginia in the

United States in May 2005 and her bachelor’s degree in international business from Sun Yat-Sen

University in the PRC in June 1999.

Independent Non-executive Directors

Ms. Lili Xu (徐黎黎), aged 41, has been appointed as an independent non-executive Director

with effect from the [REDACTED]. Ms. Xu has served as an independent director of Yalla Group

Limited, a company listed on the New York Stock Exchange (NYSE: YALA), since February 2021,

and has served as an independent director of MINISO Group Holding Limited, a company listed on

the New York Stock Exchange (NYSE: MNSO), since October 2020. In addition, Ms. Xu has served

as the chief financial officer of ClouDr, a chronic disease management and smart healthcare platform

in China, since October 2020. Prior to that, Ms. Xu served as the chief financial officer of Tongdao

Liepin Group, a company listed on the Hong Kong Stock Exchange (HKEX: 6100), from March

2014 to September 2020 and an executive director from March 2018 to September 2020. Prior to

that, Ms. Xu held various positions at General Electric Company (NYSE: GE), including as the chief

financial officer of GE Power Generation Services China, from January 2005 to March 2014. Ms. Xu

received a bachelor’s degree in international business from Nanjing University in the PRC in June

2003 and a master of science degree in local economic development from the London School of

Economics and Political Science in November 2004. Ms. Xu is a public accountant certified by the

Board of Accountancy of Washington State of the United States.

– 254 –



Mr. Xiaohuang Huang (黃曉煌), aged 37, has been appointed as an independent non-executive

Director with effect from the [REDACTED]. Mr. Huang is a co-founder and the chairman of the

board of directors of Manycore Tech Inc. Before co-founding Manycore, Mr. Huang was a software

engineer at NVIDIA Corporation (Nasdaq: NVDA) from 2010 to 2011. Mr. Huang received a

bachelor’s degree in computer science from Zhejiang University, Chu Kochen Honors College in

2007 and a master’s degree in computer science from University of Illinois Urbana-Champaign in the

United States in 2010.

Ms. Han Chen (陳晗), aged 33, has been appointed as an independent non-executive Director

with effect from the [REDACTED]. She has served as a director of Hong Kong Sustaintech

Foundation Limited since November 2021 and the general manager and investment manager at

Hainan Langrun Lifang Private Equity Fund Management Co., Ltd. since May 2021. Prior to that,

Ms. Chen worked as a fund manager at Shanghai Ruifeng Asset Management Co., Ltd. from July

2019 to March 2021. She served as a general manager of health division at Red Star Macalline

Group Corp Ltd., a company listed on the Hong Kong Stock Exchange (HKEX: 1528), from 2018 to

2019, and a managing director at L Squared Management in 2018. Ms. Chen received her MBA

degree from Columbia University in the United States in May 2017 and her bachelor’s degree in

economics from Shanghai Jiao Tong University in the PRC in September 2011.

SENIOR MANAGEMENT

The following table provides information about members of the senior management of our

Company:

Name Age Position

Date of joining

our Group Roles and responsibilities

Ms. Lu Zhang (張璐) . . . . . . . 37 Executive Director,Chairwoman, ChiefExecutive Officerand Founder

June 17, 2015 Overall executive andbusiness direction andoverall management ofour Group

Mr. Ming Tao (陶明) . . . . . . . 33 Executive Directorand ChiefTechnology Officer

February 23,2017

Overseeing and buildingthe technology anddevelopment team ofour Group

Mr. Gaozheng Zhang(張高政) . . . . . . . . . . . . . . . .

35 Executive Directorand Vice Presidentof Technology

December 4,2017

Overseeing the technologyresearch anddevelopment and riskmanagement of ourGroup

Mr. Ran Wang (王然) . . . . . . . 41 Chief FinancialOfficer

April 1, 2022 Overseeing capitaloperation and finance

– 255 –



Name Age Position

Date of joining

our Group Roles and responsibilities

Mr. Weipeng Chen(陳煒鵬) . . . . . . . . . . . . . . . .

35 Vice President ofTechnology

August 23,2021

Overseeing the technologyresearch anddevelopment of ourGroup

Ms. Lu Zhang (張璐), aged 37, is our founder, an executive Director, chairwoman of the Board

and the chief executive officer of our Company. For further details, please see the paragraphs headed

“— Executive Directors” in this section.

Mr. Ming Tao (陶明), aged 33, is an executive Director and the chief technology officer of our

Company. For further details, please see the paragraphs headed “— Executive Directors” in this

section.

Mr. Gaozheng Zhang (張高政), aged 35, is an executive Director and a vice president of

technology of our Company. For further details, please see the paragraphs headed “— Executive

Directors” in this section.

Mr. Ran Wang (王然), aged 41, is our chief financial officer, and has been responsible for our

capital operation and finance. Prior to joining us, Mr. Wang served at UBS AG Hong Kong Branch

from September 2013 to March 2022 in various roles, most recently as a managing director in the

global banking department. Prior to that, Mr. Wang worked at HSBC Bank Plc and HSBC Markets

(Asia) Limited from June 2005 to September 2013 in various roles, most recently as an associate

director at global banking and markets department. Mr. Wang received his master’s degree in law

and accounting from the London School of Economics and Political Science in the United Kingdom

in November 2004 and his bachelor’s degree in international trade from Beijing Foreign Studies

University in the PRC in July 2003. In addition, Mr. Wang was recognized as a chartered financial

analyst by CFA Institute in the U.S. in November 2010.

Mr. Weipeng Chen (陳煒鵬), aged 35, is a vice president of technology of our Company. Prior

to joining us, Mr. Chen worked in various roles managing research and development for natural

language processing, search algorithm, and feeds recommendation at Sogou Inc. from 2012 to 2021,

where his last position was the general manager of research and development of the company.

Mr. Chen received his bachelor’s degree in computer science and technology from Harbin Institute

of Technology in the PRC in 2010 and a master’s degree in computer science and technology from

the Research Center for Social Computing and Information Retrieval of Harbin Institute of

Technology in 2012.

JOINT COMPANY SECRETARIES

Mr. Gaozheng Zhang (張高政) has been appointed as our joint company secretary. For further

details, please see the paragraphs headed “—Executive Directors” in this section.

– 256 –



Ms. Sau Ling Chan (陳秀玲) has been appointed as our joint company secretary. Ms. Chan is a

director of Corporate Services of Tricor Services Limited and has been providing professional

corporate services to Hong Kong listed companies as well as multinational, private and offshore

companies. Ms. Chan is currently the company secretary or joint company secretary of listed

companies on The Stock Exchange of Hong Kong Limited, namely, China Longyuan Power Group

Corporation Limited龍源電力集團股份有限公司 (HKEX: 916), CSMall Group Limited金貓銀貓集團有限公司 (HKEX: 1815), Huafa Property Services Group Company Limited華發物業服務集團有限公司(HKEX: 982), Huisen Household International Group Limited匯森家居國際集團有限公司 (HKEX:

2127) and Wise Ally International Holdings Limited 麗年國際控股有限公司 (HKEX: 9918).

Ms. Chan is a chartered secretary, a chartered governance professional and a fellow of both The

Hong Kong Chartered Governance Institute (HKCGI) (formerly “The Hong Kong Institute of

Chartered Secretaries”) and The Chartered Governance Institute (CGI) (formerly “The Institute of

Chartered Secretaries and Administrators”).

Management and corporate governance

Board Committees

Audit committee

We have established an audit committee with written terms of reference in compliance with

Rule 3.21 of the Listing Rules and the Corporate Governance Code set out in Appendix 14 to the

Listing Rules. The primary duties of the audit committee are to review and supervise the financial

reporting process and internal controls system of our Group, review and approve connected

transactions and provide advice and comments to the Board. The audit committee comprises three

members, namely Ms. Lili Xu, Mr. Di Wu and Ms. Han Chen, with Ms. Lili Xu (being our

independent non-executive Director with the appropriate professional qualifications) as the

chairperson of the audit committee.

Remuneration committee

We have established a remuneration committee with written terms of reference in compliance

with Rule 3.25 of the Listing Rules and the Corporate Governance Code set out in Appendix 14 to

the Listing Rules. The primary duties of the remuneration committee are to review and make

recommendations to the Board on the terms of remuneration packages, bonuses and other

compensation payable to our Directors and other senior management. The remuneration committee

comprises three members, namely Ms. Han Chen, Mr. Xiaohuang Huang and Mr. Ye Yuan, with Ms.

Han Chen as the chairperson of the remuneration committee.

Nomination committee

We have established a nomination committee with written terms of reference in compliance

with the Code on Corporate Governance in Appendix 14 to the Listing Rules. The primary duties of

– 257 –



the nomination committee are to make recommendations to our Board on the appointment of

Directors and management of Board succession. The nomination committee comprises three

members, namely Mr. Xiaohuang Huang, Ms. Han Chen and Mr. Di Wu, with Mr. Xiaohuang Huang

as the chairperson of the nomination committee.

Corporate Governance Code

We aim to achieve high standards of corporate governance which are crucial to our

development and safeguard the interests of our Shareholders. In order to accomplish this, we expect

to comply with the Corporate Governance Code set out in Appendix 14 to the Listing Rules save for

the below.

Code provision A.2.1 of the Corporate Governance Code and Corporate Governance Report in

Appendix 14 to the Listing Rules, recommends, but does not require, that the roles of chairman and

chief executive should be separate and should not be performed by the same person. The Company

deviates from this provision because Ms. Lu Zhang performs both the roles of the chairwoman of the

Board and the chief executive officer of the Company. Ms. Zhang is the founder of the Group and

has extensive experience in the business operations and management of our Group. Our Board

believes that vesting the roles of both chairwoman and chief executive officer to Ms. Zhang has the

benefit of ensuring consistent leadership within our Group and enables more effective and efficient

overall strategic planning for the Group. This structure will enable our Company to make and

implement decisions promptly and effectively. Our Board considers that the balance of power and

authority will not be impaired due to this arrangement. In addition, all major decisions will be made

in consultation with members of the Board, including the relevant Board committees and

independent non-executive Directors. Our Board will reassess the division of the roles of chairman

and the chief executive officer from time-to-time, and may recommend dividing the two roles

between different people in the future, taking into account the circumstances of our Group as a

whole.

Board Diversity

Our Company has adopted a board diversity policy which sets out the approach to achieve

diversity of the Board. Our Company recognizes and embraces the benefits of having a diverse

Board and sees increasing diversity at the Board level, including gender diversity, as an essential

element in maintaining our Company’s competitive advantage and enhancing its ability to attract,

retain, and motivate employees from the widest possible pool of available talent. Pursuant to the

board diversity policy, in reviewing and assessing suitable candidates to serve as a director of our

Company, the nomination committee will consider a number of factors, including but not limited to

gender, age, cultural and educational background, professional qualifications, skills, knowledge, and

industry and regional experience. Pursuant to the board diversity policy, the nomination committee

will discuss periodically and when necessary, agree on the measurable objectives for achieving

diversity, including gender diversity, on the Board and recommend them to the Board for formal

adoption. Upon [REDACTED], four of our Directors will be female.

– 258 –



Management Presence

According 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 our executive Directors must be ordinarily

resident in Hong Kong.

Since the principal business operations of our Group are conducted in China, members of our

senior management are, and are expected to continue to be, based in China. Further, as our executive

Directors have a vital role in our Group’s operations, it is crucial for them to remain in close

proximity to our Group’s central management located in China. Our Company does not and, for the

foreseeable future, will not have a sufficient management presence in Hong Kong. We have applied

for, and the Stock Exchange [has granted], a waiver from compliance with Rule 8.12 of the Listing

Rules. For further details, see “Waivers and Exemptions—management presence in Hong Kong.”

REMUNERATION

Our Directors receive remuneration, including salaries, allowances and benefits in kind,

including our contribution to the pension plan on their behalf.

The aggregate amount of remuneration (including basic salaries, housing allowances, other

allowances and benefits in kind, contributions to pension plans and discretionary bonuses but

excluding share-based payments) for our directors for the years ended December 31, 2019, 2020 and

2021 was RMB4.7 million, RMB5.5 million and RMB7.7 million, respectively. None of our

Directors waived any remuneration during the aforesaid periods.

The five highest paid individuals of our Group for the years ended December 31, 2019, 2020

and 2021 included three, three and three Directors, respectively. The aggregate amount of

remuneration (including basic salaries, housing allowances, other allowances and benefits in kind,

contributions to pension plans and discretionary bonuses but excluding share-based payments) for

the remaining highest paid individuals for the years ended December 31, 2019, 2020 and 2021 was

RMB2.0 million, RMB3.3 million and RMB3.3 million, respectively.

Save as disclosed above, no other payments have been paid or are payable, in respect of the

years ended December 31, 2019, 2020 and 2021 by our Company to our Directors or senior

management. For the year ending December 31, 2022, we expect to pay approximately RMB16.4

million in aggregate remuneration to our Directors or senior management.

No remuneration was paid to our Directors or the five highest paid individuals as an

inducement to join, or upon joining, our Group. No compensation was paid to, or 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 same period.

– 259 –



Compliance Adviser

We have appointed Guotai Junan Capital Limited as our Compliance Adviser pursuant to

Rules 3A.19 of the Listing Rules. The Compliance Adviser will provide us with guidance and advice

as to compliance with the requirements under the Listing Rules and applicable Hong Kong laws.

Pursuant to Rule 3A.23 of the Listing Rules, the Compliance Adviser will advise our Company,

among others, in the following circumstances:

(a) before the publication of any regulatory announcement, circular, or financial report;

(b) where a transaction, which might be a notifiable or connected transaction, is

contemplated, including share issues and share repurchases;

(c) where we propose to use the [REDACTED] of the [REDACTED] in a manner different

from that detailed in this document or where the business activities, development or

results of our Group deviate from any forecast, estimate or other information in this

document;

(d) where the Stock Exchange makes an inquiry to our Company regarding unusual

movements in the [REDACTED] or [REDACTED] volume of its [REDACTED] or any

other matters in accordance with Rule 13.10 of the Listing Rules;

The term of appointment of the Compliance Adviser shall commence on the [REDACTED] and

is expected to end on the date on which we comply with Rule 13.46 of the Listing Rules in respect of

our financial results for the first full financial year commencing after the [REDACTED].

COMPETITION

Each of the Directors confirms that as of the Latest Practicable Date, save as disclosed in this

document, he or she did not have any interest in a business which materially competes or is likely to

compete, directly or indirectly, with our business, and requires disclosure under Rule 8.10 of the

Listing Rules.

– 260 –


SUBSTANTIAL SHAREHOLDERS

SUBSTANTIAL SHAREHOLDERS

So far as our Directors are aware, immediately following completion of the [REDACTED]

(assuming the Presumptions and based on the information available as of the Latest Practicable Date)

the following persons will have an interest or short position in our Shares or underlying Shares

which would fall to be disclosed to us under the provisions of Divisions 2 and 3 of Part XV of the

SFO, or, will be, directly or indirectly, interested in 10% or more of the issued voting shares of our

Company or any other member of our Group:

Name of Shareholder Capacity / Nature of interest

Number of

Shares

Shareholding

percentage

immediately

after the

[REDACTED]

Voting

percentage

immediately

after the

[REDACTED]

Soulgate Holding

Limited(1) . . . . . . . . Beneficial owner 48,607,303 [REDACTED]% [REDACTED]%

Ms. Lu Zhang(1) . . . . Interest in controlled

corporations 48,607,303 [REDACTED]% [REDACTED]%

Image Frame

Investment (HK)

Limited(2) . . . . . . . . Beneficial owner 85,104,930 [REDACTED]% [REDACTED]%

Tencent Holdings

Limited(2) . . . . . . . .

Interest in a controlled

corporation 85,104,930 [REDACTED]% [REDACTED]%

Notes:

(1) Soulgate Holding Limited is a British Virgin Islands company. Ms. Zhang controls her interest in Soulgate Holding Limited

and our Company through a trust, with Zedra Trust Company (Cayman) Limited as trustee and Ms. Zhang as settlor.

Additionally, pursuant to the Voting Proxy, Ms. Lu Zhang has been granted voting rights over preferred shares equivalent to

36,500,000 ordinary shares of our Company (on an as-converted basis) held by Image Frame. See “History, Development, and

Corporate Structure — Voting Proxy”.

(2) Tencent Holdings Limited is the sole member of Image Frame Investment (HK) Limited. Pursuant to the Voting Proxy, Image

Frame has granted voting rights over preferred shares equivalent to 36,500,000 ordinary shares of our Company (on an as-

converted basis) held by it in favour of Ms. Lu Zhang. See “History, Development and Corporate Structure — Voting Proxy”.

Except as disclosed above, our Directors are not aware of any other person who will,

immediately following completion of the [REDACTED] (assuming the Presumptions), have an

interest or short position in our Shares or underlying Shares which would fall to be disclosed to us

under the provisions of Divisions 2 and 3 of Part XV of the SFO, or, will be, directly or indirectly,

interested in 10% or more of the issued voting shares of our Company or any other member of our

Group.

– 261 –


SHARE CAPITAL

AUTHORIZED AND ISSUED SHARE CAPITAL

The following is a description of our authorized share capital and the amount in issue and to be

issued as fully paid or credited as fully paid immediately prior to and following completion of the

[REDACTED]:

Number of

shares

Approximate

aggregate nominal

value

Authorized share capital as of the date of this document . . . . . . . . . 1,000,000,000 US$100,000.00

Shares in issue as of the date of this document . . . . . . . . . . . . . . . . . 170,550,963 US$17,055.10

Shares to be issued under the [REDACTED] . . . . . . . . . . . . . . . . . [REDACTED] US$[REDACTED]

Shares in issue immediately following the [REDACTED] . . . . . . . [REDACTED](1) US$[REDACTED]

Note:

(1) These Shares exclude the 16,147,145 Shares underlying the Pre-[REDACTED] Share Incentive Plan and pursuant to the

share awards granted thereunder, that our Company expects to issue to a trust before the [REDACTED].

The above table assumes (i) the Presumptions, and (ii) the [REDACTED] becomes

unconditional and Shares are issued pursuant to the [REDACTED].

Ranking

The [REDACTED] rank equally with all Shares currently in issue or to be issued as mentioned

in this document and, in particular, will rank pari passu for all dividends or other distributions

declared, made or paid on the Shares in respect of a record date which falls after the date of this

document.

POTENTIAL CHANGES TO SHARE CAPITAL

Circumstances under which general meeting and class meeting are required

Our Company may by ordinary resolution of Shareholders: (i) increase its capital;

(ii) consolidate and divide its capital into shares of larger amount; (iii) divide its shares into several

classes; (iv) subdivide its shares into shares of smaller amount; and (v) cancel any shares which have

not been taken. In addition, our Company may reduce its share capital or capital redemption reserve

by its shareholders passing a special resolution.

See “Summary of the constitution of the Company — 2. Articles of Association — 2.4 Alteration

of capital” in Appendix III for further details.

Subject to the Cayman Companies Act, if at any time the share capital of our 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.

– 262 –


SHARE CAPITAL

See “Summary of the constitution of the Company — 2. Articles of Association — Shares —

2.3 Variation of rights of existing shares or classes of shares” in Appendix III for further details.

General mandate to issue Shares

Subject to the [REDACTED] becoming unconditional, our Directors were granted a general

mandate to allot, issue and deal with any Shares or securities convertible into Shares of not more

than the sum of:

• [REDACTED]% of the total number of Shares in issue immediately following completion

of the [REDACTED] (but excluding any Shares which may be issued pursuant to the

exercise of the [REDACTED] and the shares to be issued under the Share Incentive Plans);

and

• the total number of Shares repurchased by our Company pursuant to the authority referred

to in “— General mandate to repurchase Shares” below.

This general mandate to issue Shares will remain in effect until the earliest of:

• the conclusion of the next annual general meeting of our Company unless, by resolution of

members passed at that meeting, the authority is renewed, either unconditionally or subject

to condition;

• the expiration of the period within which the next annual general meeting of our Company

is required to be held under any applicable laws of the British Virgin Islands or the

memorandum and the articles of association of our Company; and

• the passing of resolution of members by our Shareholders in a general meeting revoking or

varying the authority.

General mandate to repurchase Shares

Subject to the [REDACTED] becoming unconditional, our Directors were granted a general

mandate to repurchase our own Shares up to 10% of the total number of Shares in issue immediately

following completion of the [REDACTED] (but excluding any Shares which may be issued pursuant

to the exercise of the [REDACTED] and excluding the share to be issued under the Share Incentive

Plans).

This mandate only relates to repurchases on the Stock Exchange or on 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, and in accordance with all applicable laws and the

requirements under the Listing Rules or equivalent rules or regulations of any other stock exchange

as amended from time to time.

– 263 –


SHARE CAPITAL

This general mandate to repurchase Shares will remain in effect until the earliest of:

• the conclusion of the next annual general meeting of our Company unless, by resolution of

members passed at that meeting, the authority is renewed, either unconditionally or subject

to condition;

• the expiration of the period within which the next annual general meeting of our Company

is required to be held under any applicable laws of the British Virgin Islands or the


• the passing of resolution of members by our Shareholders in a general meeting revoking or


See “Statutory and general information — Further information about our group — Explanatory

statement on repurchase of our own securities” in Appendix IV for further details of this general

mandate to repurchase Shares.

SHARE INCENTIVE PLANS

We have adopted the Pre-[REDACTED] Share Incentive Plan and the Post-[REDACTED]

Share Incentive Plan. See “Statutory and general information — Share Incentive Plans” in Appendix

IV for further details.

– 264 –


FINANCIAL INFORMATION

You should read the following discussion and analysis with our consolidated financial

information, including the notes thereto, included in the Accountants’ Report in Appendix I to this

document. Our consolidated financial information has been prepared in accordance with IFRS.

The following discussion and analysis contain forward-looking statements that reflect our

current views with respect to future events and financial performance. These statements are based on

our assumptions and analysis in light of our experience and perception of historical trends, current

conditions and expected future developments, as well as other factors we believe are appropriate

under the circumstances. However, whether actual outcomes and developments will meet our

expectations and predictions depends on a number of risks and uncertainties, many of which we

cannot control or foresee. In evaluating our business, you should carefully consider all of the

information provided in this document, including the sections headed “Risk Factors” and

“Business.”

For the purpose of this section, unless the context otherwise requires, references to 2019, 2020

and 2021 refer to our financial years ended December 31 of such years. Unless the context otherwise

requires, financial information described in this section is described on a consolidated basis.

OVERVIEW







Report.









and membership subscriptions. Soulers can use Soul Coins to purchase virtual items and privileges

including featured avatars, virtual gifts and access to enhanced recommendation opportunities.

Soulers who subscribe to our membership can enjoy a variety of time-based privileges such as access

to members-only virtual items, discounts for virtual items and enhanced social networking

functionalities. In addition, users can also purchase other types of new or limited-edition

functionalities under different scenarios on our platform, such as for the Soul Pets or within

– 265 –



Partyrooms. We started offering advertising services in the third quarter of 2020 on our platform. We

now offer different types of advertisements to accommodate different advertisers’ needs. In addition,

we started to generate revenues from Giftmojis services in the first quarter of 2021, which allows

users to send physical gifts to each other.

BASIS OF PRESENTATION

Our historical financial information has been prepared in accordance with International

Financial Reporting Standards (“IFRSs”). The historical financial information has been prepared

under the historical cost basis, except for certain financial assets, which are measured at fair value.

The preparation of the historical financial information in conformity with IFRSs requires the

use of certain critical accounting estimates, as well as our management’s judgment in applying our

accounting policies. See Note 3 to the Accountants’ Report in Appendix I to this document for the

areas involving a high degree of judgment or complexity, or areas where assumptions and estimates

are significant to the historical financial information.

Our Historical Financial Information has been prepared on a going concern basis,

notwithstanding the facts that during the Track Record Period:

(i) Our total liabilities exceeded the total assets by RMB9,224.4 million as of December 31,

2021;

(ii) We have incurred losses since our inception. As of December 31, 2021, we had

accumulated losses of RMB2,529.9 million; and

(iii) We recorded net cash used in operating activities in the amount of RMB279.1 million,

RMB238.2 million and RMB794.0 million for the years ended December 31, 2019, 2020

and 2021, respectively.

Our directors are of the opinion that it is appropriate for the Historical Financial Information to

be prepared on a going concern basis, considering:

(i) As of December 31, 2021, we recorded financial liabilities resulting from the redeemable

shares and financial liabilities for redemption obligations amounting to RMB9,723.6

million. Our directors have considered that the redemption rights of these financial

instruments would be terminated upon the closing of a qualified [REDACTED] of the

Company and the financial liabilities would be converted into equity, resulting in the

change from a net liability position to a net asset position.

(ii) Our directors believe that the amount of the Group’s available cash balance as of

December 31, 2021 and forecasted net cash flows for a period of one year after the date of

this document will be sufficient for us to satisfy its obligations and commitments, except

– 266 –



for the financial liabilities as described above, when they become due for a reasonable

period of time. Our directors also believe that we can adjust the pace of our business

expansion and control operating expenses, including selling and marketing expenses,

when necessary.

KEY OPERATING DATA

The following table sets forth the key operating data for the periods indicated:


2019 2020 2021

Average MAUs (in millions)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.5 20.8 31.6

Average DAUs (in millions)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.3 5.9 9.3

Average monthly paying users (in thousands)(1) . . . . . . . . . . . . . . 269 929 1,655

Average monthly revenues per paying user (RMB)(1) . . . . . . . . . . 21.9 43.5 60.5

Note:

(1) For the definitions, see “Glossary of technical terms.”

MAJOR FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our business and operating results are affected by general factors affecting China’s online

social platforms, including:

• China’s overall economic growth and level of per capita disposable income;

• User preferences and overall trend in China’s social networking industry;

• Growth and competitive landscape of China’s social networking industry;

• Governmental policies and initiatives affecting China’s social networking industry;

• Increasing willingness of Chinese consumers to consume and pay for value-added services;

and

• Seasonality affecting young generations’ leisure time, in particular summer and winter

vacations for students.

Unfavorable changes in any of the above industry conditions could negatively affect demand

for our services and materially and adversely affect our results of operations.

– 267 –



Our results of operations, financial condition, and the period-to-period comparability of our

financial results have been, and are expected to continue to be, more specifically affected by the

below factors:

Our ability to expand our user base as well as maintain and enhance user engagement

Our ability to attract and grow our user base and to maintain and enhance user engagement is

fundamental to the success of our business. The more users post, share, communicate and form

genuine relationships with each other on our platform, the more diverse and welcoming our platform

will become, which in turn will encourage more users to join our platform. Soul is a leading social

network in China in terms of average MAUs and DAUs. We had the highest daily private message

sent per user of the messaging function and the highest average daily launches per device in 2021

among open-ended mobile social networks in China, according to the iResearch Report. We have

experienced rapid user growth since our inception. In 2021, the numbers of our average MAUs and

average DAUs were 31.6 million and 9.3 million, respectively, representing a year-over-year growth

of 51.6% and 55.8%, respectively.

Our ability to attract and grow our user base and to maintain and enhance user engagement

depends on, among other things, our ability to continue to cultivate an engaging and warm

community, facilitate genuine and long-term interpersonal connections among our users, roll out fun

and attractive new features on our Soul app, attract more users through word-of-mouth and

advertisement marketing, and improve our user recommendation and content moderation capabilities

to improve user experience.

Our ability to effectively enhance monetization through enhanced user engagement and continuous

innovations

Our revenue and results of operations depend on our ability to enhance monetization. We have

accumulated a large and engaged user base who are keen to form and maintain genuine relationships

on our platform, providing us with multiple levels for monetization that are integrated with the Soul

universe and the immersive experience it offers. Enhanced user engagement powered by diverse

functionalities on our platform enables us to secure an abundant supply of user behavioral data,

which is essential for our advertising services and our ability to improve our service features,

including our membership subscription packages.

Our revenue is primarily generated from value-added services including virtual items and

membership privileges, which we started offering in 2019. Users can purchase, with Soul Coins,


recommendation opportunities. Users who subscribe to our membership can enjoy a variety of time-

based privileges such as access to members-only virtual items, discounts for virtual items and

enhanced social networking functionalities.

Our revenue from value-added services increased from RMB70.7 million in 2019 to RMB485.2

million in 2020, and further increased to RMB1,202.5 million in 2021. Our revenue from value-

– 268 –



added service is driven primarily by the number of average monthly paying users and average

monthly revenue generated per paying user. We define the number of monthly paying users in a

given month as the number of users who has paid for our value-added service in that month. We

define average monthly paying users in a given period by adding the numbers of the monthly paying

users for each month in that period and divide sum by the number of months in that period. We

define average monthly revenue generated per paying user in a given period as the result of dividing

revenue generated from paying users in the period by the sum of the numbers of monthly paying

users in each month of the same period. In 2019, 2020 and 2021, our numbers of average monthly

paying users were 268.9 thousand, 929.3 thousand and 1.7 million, respectively, and our average

monthly revenue per paying user were RMB21.9, RMB43.5 and RMB60.5, respectively. The

increases were primarily driven by increases in our MAUs, as well as increased user engagement on

our mobile app and the new and attractive value-added services that we have rolled out. We also use

average monthly paying ratio to measure our effectiveness in converting non-paying users to paying

users. Average monthly paying ratio in a given period is defined as the result of dividing the average

monthly paying users in the period by the average MAUs in the period. Our average monthly paying

ratio was 2.3%, 4.5% and 5.2% for 2019, 2020 and 2021, respectively. Our ability to increase the

number of paying users depends on, among other things, our ability to continually roll out more

attractive functions and our ability to implement dynamic and precise pricing.

We continually expand the types of monetization streams on our Soul app through innovation.

For example, we started generating revenue from our Giftmojis services in the first quarter of 2021.

Giftmojis is a function that allows Soulers to send physical gifts to each other. The physical gifts are

offered by our vendor partners. We partner with vendors popular among the young generations to

provide these presents for sale on our Soul app. Users purchase Giftmojis on our Soul app and send

them to other users, who can receive these presents offline from our vendor partners. After users

placed orders to purchase Giftmojis on our Soul app, we submit the purchasing orders to vendors on

behalf of our users. We earn the difference between the price pre-negotiated with vendors that

provide the Giftmojis and the price for Giftmojis we sell to users on our Soul app.

Our ability to enhance our advertising capabilities

We generated revenue from advertising services starting in the third quarter of 2020. We

current mainly offer display-based advertising. Our advertising revenue is primarily driven by our

average DAUs, which are attractive to advertisers. Our advertising revenue is also driven by

advertising revenue per DAU, which is defined as total advertising service revenue during a period

divided by the average DAUs during the same period. Our advertising revenue have grown rapidly

since 2020. In 2021, our revenue from advertising services reached RMB77.9 million. We plan to

introduce more effective and diverse advertising services and actively promote our advertising

services through attracting a large user base.

Our advertising revenue is also contingent on the form of advertisement that we offer, our ad

loads, advertising effect as well as customer base. We plan to continue exploring new ways and

– 269 –



introduce new functions and expand our advertising services. We also plan to diversify and expand

our advertisement customer base.

Our ability to manage our selling and marketing expenses

Our ability to manage and control our costs and expenses is critical to the performance of our

business. Our selling and marketing expenses, which comprise a majority of our cost and expenses,

consist primarily of advertising and promotion expenses. In 2019, 2020 and 2021, our advertising

and promotion expenses were RMB196.6 million, RMB602.1 million and RMB1,456.2 million,

respectively, representing 278.1%, 120.9% and 113.7% of our revenue, respectively. We strive to

continually improve our sales and marketing efficiency by utilizing emerging and innovative

marketing tools. We expect to balance our advertising and promotion expenses and the need of our

business expansion in more cost effective ways.

Effective investment in technology

We have invested substantially in our proprietary recommendation algorithm, content

moderation capabilities and other areas of our technological infrastructure, which has contributed to

the growth of our revenue and user engagement. Technology and development expenses comprise a

substantial part of our cost and expenses. In 2019, 2020 and 2021, our technology and development

expenses were RMB97.3 million, RMB187.2 million and RMB414.9 million, respectively,

representing 137.6%, 37.6% and 32.4% of our revenue, respectively. Our technology and

development expenses are primarily salaries to our technology and development staff and technology

service fee. As of December 31, 2021, technology and development staff comprised 21.0% of our

total headcount. We intend to control our technology service fee through continued innovation and

by increasing our operational efficiency.

IMPACT OF COVID-19 ON OPERATIONS

Although the COVID-19 pandemic has caused general business disruption in China and the rest

of the world, we have experienced an increase in our operational performance, user base and user

engagement since the first half of 2020. In an effort to contain the spread of COVID-19, China took

precautionary measures, such as imposing travel restrictions, quarantining individuals infected with

or suspected of having COVID-19, encouraging employees of enterprises to work remotely, and

canceling public activities, among others. In 2020 and 2021, as people had more disposable time and

attention span at home, they were more likely to start using our app, extend their time-spent and

cultivate more connections.



contained in China. However, the COVID-19 resurgence caused by the Omicron variants since late

March 2022 in multiple regions in China, including Shanghai where our headquarters is located, has

an adverse impact on our operations. Temporary restrictions, quarantines, lockdowns and other

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temporarily postponed due to the restrictions. The duration and the development of the pandemic and

its impact on our business are difficult to predict. While we believe the impact on our business due


long-term results remains uncertain, and we have continued to closely monitor its impact on us. For

additional details, see “Risk Factors — Risks Relating to Our Business and Industry — The ongoing

outbreak of COVID-19 could adversely affect our business, results of operations and financial

condition.”

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

We have identified certain accounting policies that we believe are most significant to the

preparation of our consolidated financial statements. Our significant accounting policies and

estimates, which are important for understanding our results of operations and financial condition,

are set forth in Notes 2 and 3 to the Accountants’ Report in Appendix I to this document,

respectively. Some of the accounting policies involve subjective assumptions and estimates, as well

as complex Judgments relating to accounting items. In each case, the determination of these items

requires management judgment based on information and financial data that may change in future

periods. When reviewing our financial statements, you should consider (1) our selection of critical

accounting policies, (2) the judgment and other uncertainties affecting the application of such

policies, and (3) the sensitivity of reported results to changes in conditions and assumptions.

Revenue recognition

We classify income as revenue when it arises from the provision of services in the ordinary

course of our business.

Revenue is recognized when control over a product or service is transferred to the customer, at

the amount of promised consideration to which we are 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 our revenue recognition policies are as follows:

(i) Valued-added services

We primarily derive revenues from providing value-added services to our users via operating a

social networking platform. Users get free access to basic functionalities on the platform, such as

private messaging and content sharing. Users can also, through third-party payment service

providers, purchase credits or subscribe to membership to unlock value-added services, including

– 271 –



various virtual items and membership privileges on the platform, which are our performance

obligations to the paying users of the social networking platform. Revenue derived from the sale of

virtual items and memberships are recognized on a gross basis as we are the principal with respect to

the fulfillment of the associated promises. As such, where we share a fixed percentage of fees we

receive from paying users with third-party payment service providers, such fees are presented as cost

of sales.

Virtual items, which can be acquired through credits, provide access to value-added services

including access to enhanced recommendation opportunities, enhanced experience such as virtual

gifts and avatars for a limited period of time, etc. Virtual items are categorized as either consumable

or durable.

Consumable virtual items represent items that can be consumed by a specific user action at a

point in time. We recognize revenue attributable to consumable virtual items at the point in time

when those items are consumed by a specific user action. Substantially all durable virtual items are

made available to the users over a predetermined period of time, over which we recognize revenue

on a straight-line basis related to these durable virtual items. To a lesser extent, certain durable

virtual items are made available to the user without any time limits. We recognize revenue related to

these durable virtual items on a straight-line basis over an estimated period, which is determined

based on the expected service period taking into account all known and relevant information at the

time of assessment such as historical users’ behavioral pattern. This estimate is reassessed on a

quarterly basis. Adjustments arising from the changes of estimated period of the users resulting from

new information are applied prospectively as changes in estimates.

Membership privileges include various time-based privileges during the membership period,

such as access to members-only virtual items, discounts for virtual items and enhanced social

networking functionalities. Membership privileges are available to users over the membership period

ranging from one month to one year. We recognize revenue relating to membership privileges on a

straight-line basis over the membership period.

(ii) Advertising services

We provide display-based mobile advertising services to our customers, which allow customers

to place advertisements on particular areas of our social networking platform in different formats,

including but not limited to launch screen advertisements and feed advertisements, over a period of

time. We determine each format of advertisements as a distinct performance obligation, and allocate

the total consideration to each performance obligation based on its standalone selling price. Revenue

for each performance obligation is recognized ratably over the period that format of advertisements

is displayed.

– 272 –



Redeemable shares and financial liabilities for redemption obligations

We issued several series of redeemable shares to [REDACTED]. The instrument holders have

the right to require us to redeem some or all of the shares held by the holders upon certain

redemption events, which are not all within our control.

We also issued a re-designation right to one of our shareholders when the shareholder

subscribed for our redeemable shares. With the re-designation right, any shares, including the

ordinary shares, purchased by this shareholder from other shareholders through specified means shall

be re-designated as redeemable shares. As the purchase of shares by this shareholder from other

shareholders, and the occurrence of the specified redemption triggering events are beyond our

control, we recognized the financial liabilities for its obligations to buy back the shares arising from

the redemption clauses of the re-designated shares when the re-designation right was granted to the

shareholder.

The redeemable shares and financial liabilities for redemption obligations are initially

recognized as financial liabilities at the present value of the redemption amount. The redeemable

shares and financial liabilities for redemption obligations are subsequently measured at amortised

cost, and any changes in the carrying amount of the redeemable shares and financial liabilities for

redemption obligations, except for those changes arising from transactions between us and our

shareholders in their capacity as owners were recognized in profit or loss as “changes in the carrying

amount of redeemable shares and financial liabilities for redemption obligations”. See Note 19 to the

Accountants’ Report in Appendix I to this document.

The redeemable shares and financial liabilities for redemption obligations were classified as

current liabilities as certain redemption events may occur anytime. The redeemable shares will be

automatically converted into our ordinary shares and the financial liabilities for redemption

obligations will be reclassified to equity, upon the closing of our qualified [REDACTED].

Share-based payments

A share-based payment is classified as either an equity-settled share-based payment or a cash-

settled share-based payment. The term “equity-settled share-based payments” refers to a transaction

in which we grant share options, restricted share units (“RSUs”), or other equity instruments as a

consideration in return for services rendered or a transaction in which we receive services but have

no obligation to settle the transaction.

The grant-date fair value of equity-settled share-based payments granted to employees is

recognized as an employee cost with a corresponding increase in a share-based payments reserve

within equity. Where the employees have to meet vesting conditions before becoming

unconditionally entitled to the equity instruments, the total estimated fair value of the equity

instruments is spread over the vesting period, taking into account the probability that the equity

instruments will vest.

– 273 –



During the vesting period, the number of equity instruments that is expected to vest is

reviewed. Any resulting adjustment to the cumulative fair value recognized in prior years is charged

/ credited to the profit or loss for the year of the review, unless the original employee expenses

qualify for recognition as an asset, with a corresponding adjustment to the share-based payments

reserve. On vesting date, the amount recognized as an expense is adjusted to reflect the actual

number of equity instruments that vest (with a corresponding adjustment to the share-based payments

reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the

[REDACTED] of the Company’s shares.

Modifications of an equity-settled share-based payment arrangement are accounted for only if

they are beneficial to the employee. If we modify the terms or conditions of the equity instruments

granted in a manner that reduces the fair value of the equity instruments granted, or is not otherwise

beneficial to the employee, we continue to recognize the services received measured at the grant date

fair value of the equity instruments granted, unless those equity instruments do not vest because of

failure to satisfy a vesting condition (other than a market condition) that was specified at grant date.

DESCRIPTION OF MAJOR COMPONENTS OF OUR RESULTS OF OPERATIONS

Selected Consolidated Statements of Profit or Loss and Other Comprehensive Income Items

The following table sets forth our consolidated statements of profit or loss and other

comprehensive income, both in absolute amount and as a percentage of our revenue, for the periods

indicated:


2019 2020 2021

RMB % RMB % RMB %

(in thousands, except for percentage data)Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,707 100.0 498,013 100.0 1,281,175 100.0Cost of sales(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36,368) (51.4) (99,958) (20.1) (190,004) (14.8)Other income/(loss), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,388 9.0 (5,723) (1.1) (4,275) (0.3)Selling and marketing expenses(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (204,418) (289.1) (621,487) (124.8) (1,512,918) (118.1)Administrative expenses(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42,928) (60.7) (88,266) (17.7) (203,263) (15.9)Technology and development expenses(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . (97,320) (137.6) (187,220) (37.6) (414,913) (32.4)Impairment loss on trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — (555) (0.0)Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (303,939) (429.9) (504,641) (101.3) (1,044,753) (81.5)Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (278) (0.4) (449) (0.1) (1,803) (0.1)Changes in the carrying amount of redeemable shares and financial

liabilities for redemption obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (49,216) (69.6) (73,960) (14.9) (277,888) (21.7)Loss before taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (353,433) (499.9) (579,050) (116.3) (1,324,444) (103.4)

Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — —Loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (353,433) (499.9) (579,050) (116.3) (1,324,444) (103.4)

– 274 –



Note:


Year Ended

December 31,

2019 2020 2021

(RMB in thousands)


Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,955 7,231 7,855

Selling and marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 746 2,227

Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,482 13,349 9,307

Technology and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,206 17,948 28,427

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,906 39,274 47,816

– 275 –



Revenue

We primarily derive revenues from operating our mobile app and providing value-added

services to our users for the years ended December 31, 2019, 2020 and 2021. Users can purchase

Soul Coins or subscribe to membership to unlock value-added services, including various virtual

items and membership privileges on our platform. The following table sets forth the components of

our revenue by amounts and percentages of our total revenue for the periods presented.


2019 2020 2021

RMB % RMB % RMB %


RevenueValue-added services . . . . . . . . . . . . . . . . . . . . 70,707 100.0 485,247 97.4 1,202,480 93.9Advertising services . . . . . . . . . . . . . . . . . . . . . — — 12,766 2.6 77,864 6.1Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — 831 0.1

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,707 100.0 498,013 100.0 1,281,175 100.0

– 276 –



Value-added services

We primarily derive revenues from providing value-added services to our users via operating a

social networking platform. Users get free access to basic functionalities on the platform, such as

private messaging and content sharing. Users can also, through third-party payment service


various virtual items and membership privileges on our platform, which are our performance

obligations to the paying users of the social networking platform.

Virtual items, which can be acquired through credits provide access to value-added services



or durable. Consumable virtual items represent items that can be consumed by a specific user action

at a point in time. Substantially all durable virtual items are made available to the users over a

predetermined period of time.




ranging from one month to one year.

Advertising services

We provide display-based mobile advertising services to our customers, which allow customers

to place advertisements on particular areas of the social networking platform in different formats,

including but not limited to launch screen advertisements and feed advertisements, over a period of

time. We determine each format of advertisements as a distinct performance obligation, and allocate

the total consideration to each performance obligation based on its standalone selling price.

– 277 –



Cost of Sales

Cost of sales consists primarily of (i) commission fees paid to third-party payment platforms

and (ii) personnel salary, share-based payments and welfare for staff related to operation of our

mobile app. The following table sets forth the components of our cost of sales by amounts and

percentages of our total revenue for the periods presented:


2019 2020 2021

RMB % RMB % RMB %


Cost of sales

Commission fees paid to third-party payment

platforms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,028 14.2 60,114 12.1 96,729 7.6

Personnel salary, share-based payments and

welfare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,075 31.2 36,057 7.2 78,631 6.1

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,265 6.0 3,787 0.8 14,644 1.1

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,368 51.4 99,958 20.1 190,004 14.8

Gross Profit and Gross Margin

The following table sets forth our gross profit both in absolute amount and as percentages of

our revenue, for the periods indicated:


2019 2020 2021

(RMB in thousands, except for percentage data)

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,339 398,055 1,091,171

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48.6% 79.9% 85.2%

– 278 –



Selling and Marketing Expenses

Selling and marketing expenses primarily consist of advertising and promotion expenses.

Advertising and promotion expenses consist primarily of online and offline advertisements to

promote our brand and services. The following table sets forth the components of our selling and

marketing expenses by amounts and percentages of our total revenue for the periods presented.


2019 2020 2021

RMB % RMB % RMB %


Selling and marketing expenses

Advertising and promotion expenses . . . . . . . . . . . 196,605 278.1 602,077 120.9 1,456,176 113.7

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,813 11.0 19,410 3.9 56,742 4.4

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 204,418 289.1 621,487 124.8 1,512,918 118.1

Administrative Expenses

Our Administrative expenses mainly primarily of (i) personnel salary, share-based payments

and welfare expenses for our administrative personnel, (ii) outsourcing and other labor cost for the

operation of our platform, and (iii) professional service fees for legal, accounting and other

professional services. The following table sets forth the components of our administrative expenses

by amounts and percentages of our total revenue for the periods presented:

For the Year Ended

December 31,

2019 2020 2021

RMB % RMB % RMB %


Administrative Expenses

Personnel salary, share-based payments and welfare . . . . . 12,545 17.7 33,986 6.8 110,625 8.6

Outsourcing and other labor cost . . . . . . . . . . . . . . . . . . . . . 22,887 32.4 34,374 6.9 29,873 2.3

Professional service fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,792 2.5 9,022 1.8 27,447 2.1

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,704 8.1 10,884 2.2 35,318 2.8

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,928 60.7 88,266 17.7 203,263 15.9

Technology and Development Expenses

Our technology and development expenses primarily consist of (i) personnel salary, share-

based payments and welfare expenses for technology and development staff, and (ii) technology

service fee, which mainly include servers and cloud infrastructure fees. The following table sets

– 279 –



forth the components of our technology and development expenses by amounts and percentages of

our total revenue for the periods presented:


2019 2020 2021

RMB % RMB % RMB %


Technology and development expenses

Personnel salary, share-based payments and welfare . . . 44,528 63.0 97,612 19.6 239,035 18.7

Technology service fee . . . . . . . . . . . . . . . . . . . . . . . . . . 48,476 68.6 83,589 16.8 161,074 12.6

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,316 6.0 6,019 1.2 14,804 1.2

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97,320 137.6 187,220 37.6 414,913 32.4

Changes in the Carrying Amount of Redeemable Shares and Financial Liabilities for Redemption

Obligations

We recognized redeemable shares and financial liabilities for redemption obligations resulted

from the issuance of redeemable shares and re-designation right to [REDACTED], and any changes

in the carrying amount, except for those changes arising from transactions between us and our

shareholders in their capacity as owners, were recognized in profit or loss as changes in the carrying

amount of redeemable shares and financial liabilities for redemption obligations.

In the fiscal years ended December 31, 2019, 2020 and 2021, our changes in the carrying

amount of redeemable shares and financial liabilities for redemption obligations resulted in losses of

RMB49.2 million, RMB74.0 million and RMB277.9 million, respectively. See Note 19 to the

Accountants’ Report in Appendix I to this document for details regarding our redeemable shares and

financial liabilities for redemption obligations.

TAXATION

We are subject to various rates of income tax under different jurisdictions. The following

summarizes the major factors affecting our applicable tax in the Cayman Islands, Hong Kong and the

PRC, which we believe are significant.

Cayman Islands

Under the current laws of the Cayman Islands, our Company is not subject to tax on income or

capital gain. Additionally, the Cayman Islands does not impose a withholding tax on payments of

dividends to shareholders.

Hong Kong

Our subsidiaries incorporated in Hong Kong are subject to income tax at the rate of 16.5% on

the assessable profits arising in Hong Kong during the years ended December 31, 2019, 2020, and

– 280 –



2021. No provision for Hong Kong profits tax was made as we had no estimated assessable profit

that was subject to Hong Kong profits tax during the years ended December 31, 2019, 2020, and

2021.

PRC

Generally, our PRC subsidiary, controlled entity and its subsidiaries are subject to PRC

enterprise income tax rate of 25% during the years ended December 31, 2019, 2020, and 2021.

Pursuant to the relevant tax regulations in the PRC, relevant qualified software enterprises

(“Software Enterprise”) are exempt from enterprise income tax for two years, followed by a 50%

reduction in the applicable tax rates for the next three years, commencing from the first profit

making year. Since 2021, Soulgate Technology is qualified as qualified software enterprise, and

exempted from enterprise income tax for two years starting from its first profitable year and a 50%

reduction to a rate of 12.5% for the subsequent three years.

Dividends paid by our wholly foreign-owned subsidiary in mainland China to our intermediary

holding company in Hong Kong will be subject to a withholding tax rate of 10%, unless the relevant

Hong Kong entity satisfies all the requirements under the Arrangement between the Mainland China

and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax

Evasion on Income. If our Hong Kong subsidiary satisfies all the requirements under such tax

arrangement, then the dividends paid to the Hong Kong subsidiary would be subject to withholding

tax not exceeding 5% of the dividends.

We do not have any plan in the foreseeable future to require our subsidiaries in the PRC to

distribute their retained earnings, and intend to retain them to operate and expand our business in the

PRC. Accordingly, no deferred income tax liability related to withholding tax on undistributed

earnings was accrued as of December 31, 2019, 2020 and 2021.

Adjusted Net Loss (non-IFRS Measure)

To supplement our consolidated financial statements, which are presented in accordance with

IFRSs, we also use adjusted net loss (non-IFRS measure)(defined below) as an additional financial

measure, which is not required by, or presented in accordance with, IFRSs. We believe that the

presentation of this non-IFRS measure facilitates comparisons of operating performance from period

to period and company to company by eliminating potential impacts of items that our management

does not consider to be indicative of our operating performance such as certain non-cash items. We

believe that this measure provides useful information to [REDACTED] in understanding and

evaluating our consolidated results of operations in the same manner as they help our management.

However, the use of non-IFRS measure has limitations as an analytical tool, and you should not

consider them in isolation from, or as a substitute for the analysis of, our results of operations or

financial conditions as reported under IFRSs. In addition, the non-IFRS financial measure may be

defined differently from similar terms used by other companies.

– 281 –



We define “adjusted net loss (non-IFRS measure)” as loss for the year or period, adding back

(i) changes in the carrying amount of redeemable shares and financial liabilities for redemption

obligations, and (ii) share-based payments expenses.

For the years ended December 31, 2019, 2020 and 2021, our adjusted net loss (non-IFRS measure)

was RMB292.3 million, RMB465.8 million and RMB998.7 million, respectively.

The following table sets forth the reconciliations of our non-IFRS financial measure for the

fiscal years ended December 31, 2019, 2020 and 2021 to loss for the year, which is the nearest

measure prepared in accordance with IFRSs.


2019 2020 2021

(RMB in thousands)

Reconciliation of adjusted net loss (non-IFRS measure) to loss forthe year:

Loss for the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (353,433) (579,050) (1,324,444)Add:Changes in the carrying amount of redeemable shares and financial

liabilities for redemption obligations(1) . . . . . . . . . . . . . . . . . . . . . . . . . 49,216 73,960 277,888Share-based payments expenses(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,906 39,274 47,816Adjusted net loss (non-IFRS measure) . . . . . . . . . . . . . . . . . . . . . . . . . (292,311) (465,816) (998,740)

Notes:

(1) Changes in the carrying amount of redeemable shares and financial liabilities for redemption obligation do not directly relate

to our ability to generate revenue from our daily operations, and we do not expect to record any further changes in the carrying

amount of redeemable shares and financial liabilities after the [REDACTED] as: 1) the redemption rights of these financial

instruments would be terminated; and 2) these redeemable shares will be reclassified from liabilities to equity as a result of the

automatic conversion into ordinary shares. The adjustment has been consistently made during the Track Record Period.

(2) Share-based payments expenses are mostly non-cash in nature and do not result in cash outflow, and the adjustment has been

consistently made during the Track Record Period.

– 282 –



YEAR-OVER-YEAR COMPARISON OF RESULTS OF OPERATIONS

The following table sets forth a summary of our consolidated results of operations for the

periods indicated, both in absolute amount and as a percentage of our revenue for the periods

presented. This information should be read together with our consolidated financial statements and

related notes included elsewhere in this document. The operating results in any period are not

necessarily indicative of the results that may be expected for any future period.


2019 2020 2021

RMB % RMB % RMB %


Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,707 100.0 498,013 100.0 1,281,175 100.0

Cost of sales (1) . . . . . . . . . . . . . . . . . . . . . . . . (36,368) (51.4) (99,958) (20.1) (190,004) (14.8)

Other income/(loss), net . . . . . . . . . . . . . . . . . 6,388 9.0 (5,723) (1.1) (4,275) (0.3)

Selling and marketing expenses (1) . . . . . . . . . (204,418) (289.1) (621,487) (124.8) (1,512,918) (118.1)

Administrative expenses (1) . . . . . . . . . . . . . . . (42,928) (60.7) (88,266) (17.7) (203,263) (15.9)

Technology and development expenses (1) . . . (97,320) (137.6) (187,220) (37.6) (414,913) (32.4)

Impairment loss on trade receivables . . . . . . . — — — — (555) (0.0)

Loss from operations . . . . . . . . . . . . . . . . . . (303,939) (429.9) (504,641) (101.3) (1,044,753) (81.5)

Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . (278) (0.4) (449) (0.1) (1,803) (0.1)

Changes in the carrying amount of

redeemable shares and financial liabilities

for redemption obligations . . . . . . . . . . . . . (49,216) (69.6) (73,960) (14.9) (277,888) (21.7)

Loss before taxation . . . . . . . . . . . . . . . . . . . (353,433) (499.9) (579,050) (116.3) (1,324,444) (103.4)

Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — —

Loss for the year . . . . . . . . . . . . . . . . . . . . . . (353,433) (499.9) (579,050) (116.3) (1,324,444) (103.4)

Note:



2019 2020 2021

(RMB in thousands)


Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,955 7,231 7,855

Selling and marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 746 2,227

Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,482 13,349 9,307

Technology and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,206 17,948 28,427

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,906 39,274 47,816

– 283 –



Year ended December 31, 2021 compared to year ended December 31, 2020

Revenue

Our revenue increased by 157.3% from RMB498.0 million in 2020 to RMB1,281.2 million in



per paying user. Our average monthly paying users increased by 78.1% from 929.3 thousand in 2020

to 1.7 million in 2021. Our average monthly revenue per paying user increased by 39.1% from

RMB43.5 in 2020 to RMB60.5 in 2021. These increases were in turn mainly driven by an increase in

our user base and paying ratio as well as our effort in enriching the offerings of our value-added

services, which stimulated more spending of our users. In 2020 and 2021, we had average MAUs of

20.8 million and 31.6 million, respectively, representing a growth rate of 51.6%. Increases in our

average MAUs were primarily driven by continued product improvements and our increased

recognition among the young generations in China. Revenue from advertising services increased

from RMB12.8 million in 2020 to RMB77.9 million in 2021, as we started generating revenue from

advertising services since the third quarter of 2020.

Cost of sales

Our cost of sales increased by 90.1% from RMB100.0 million in 2020 to RMB190.0 million in

2021, representing 20.1% and 14.8% of our revenue in the corresponding periods, respectively. The

increase was primarily due to an increase in commission fees paid to third-party payment platforms,

as well as an increase in personnel salary, share-based payments and welfare cost.

Commission fees paid to third-party payment platforms increased by 60.9% from RMB60.1

million in 2020 to RMB96.7 million in 2021. Our commission fees grew at a lower rate compared

with that of our revenue, mainly because of the change in the payment channel mix, which led to a

lower average commission fee rate. Our personnel salary, share-based payments and welfare cost

increased by 118.1% from RMB36.1 million in 2020 to RMB78.6 million in 2021, which is primarily

a result of increased salary and compensation cost due to an increase in the number of employees

related to the operation of our mobile app. The number of employees related to mobile app

operations and maintenance increased from 111 as of December 31, 2020 to 209 as of December 31,

2021.

Gross profit and gross margin

As a result of the foregoing, our gross profit increased by 174.1% from RMB398.1 million in

2020 to RMB1,091.2 million in the 2021. Our gross margin improved from 79.9% to 85.2% during

the same periods.

– 284 –




Our selling and marketing expenses increased by 143.4% from RMB621.5 million in 2020 to

RMB1,512.9 million in 2021. This increase was primarily due to an increase in our advertising and

promotion expenses.

Our advertising and promotion expenses increased by 141.9% from RMB602.1 million in 2020

to RMB1,456.2 million in 2021. This increase was primarily due to our increased level of advertising

activities as well as innovative promotion initiatives.

Administrative expenses

Our administrative expenses increased by 130.3% from RMB88.3 million in 2020 to RMB203.3

million in 2021. The increase is primarily due to increases in (i) personnel salary, share-based

payments and welfare related to general and administrative staff and (ii) professional service fee.


Our technology and development expenses increased by 121.6% from RMB187.2 million in

2020 to RMB414.9 million in 2021. The increase was primarily due to increases in personnel salary,

share-based payments and welfare expense and technology service fee.

Our personnel salary, share-based payments and welfare expense related to technology and

development staff increased by 144.9% from RMB97.6 million in 2020 to RMB239.0 million in

2021. This increase was primarily due to an increase in the number of technology and development

employees from 219 as of December 31, 2020 to 416 as of December 31, 2021. Our technology

service fee increased by 92.7% from RMB83.6 million in 2020 to RMB161.1 million in 2021,

primarily due to an increase in our usage of cloud services.

Loss from Operations

As a result of the foregoing, we recorded operating losses of RMB504.6 million and

RMB1,044.8 million in 2020 and 2021, respectively.

Changes in the carrying amount of redeemable shares and financial liabilities for redemption obligations


financial liabilities for redemption obligations of RMB74.0 million in 2020 and RMB277.9 million

in 2021. The increase was primarily due to the increase of the redemption amount of redeemable

shares, as a result of the increase in the number of redeemable shares issued.

Loss for the year

As a result of the foregoing, we recorded a net loss of RMB1,324.4 million in 2021, compared

to a net loss of RMB579.1 million in 2020.

– 285 –



Year ended December 31, 2020 compared to year ended December 31, 2019

Revenue

Our revenue increased by 604.3% from RMB70.7 million in 2019 to RMB498.0 million in



per paying user. Our average monthly paying users increased by 245.6% from 268.9 thousand in

2019 to 929.3 thousand in 2020. Our average monthly revenue per paying user increased by 98.6%

from RMB21.9 in 2019 to RMB43.5 in 2020. These increases were in turn mainly driven by an

increase in our user base and paying ratio as well as our effort in enriching the offerings of our

value-added services, which stimulated more spending of our users. In 2019 and 2020, we had

average MAUs of 11.5 million and 20.8 million, respectively, representing a growth rate of 80.7%.

Increases in our average MAUs were primarily driven by continued product improvements and our

increased recognition among the young generations in China. Our average monthly paying ratio was

2.3% and 4.5% for 2019 and 2020, respectively. We started generating revenue from advertising

services since the third quarter of 2020, which has also led to the increase of revenue in 2020.

Cost of sales

Our cost of sales increased by 174.9% from RMB36.4 million in 2019 to RMB100.0 million in

2020. The increase was primarily due to an increase in commission fees paid to third-party payment

platforms, as well as an increase in personnel salary and welfare cost.

Commission fees paid to third-party payment platforms increased by 499.5% from RMB10.0

million in 2019 to RMB60.1 million in 2020. Our commission fees grew at a lower rate compared

with that of our revenue did, mainly because of the change in the payment channel mix, which led to

a lower average commission fee rate. Our personnel salary, share-based payments and welfare cost

increased by 63.3% from RMB22.1 million in 2019 to RMB36.1 million in 2020, which is primarily

a result of higher salary levels and an increase in the number of employees related to the operation of

our mobile app. The number of employees related to mobile app operations and maintenance

increased from 95 as of December 31, 2019 to 111 as of December 31, 2020.

Gross profit and gross margin

As a result of the foregoing, our gross profit increased by 1059.2% from RMB34.3 million in

2019 to RMB398.1 million in 2020. Our gross margin improved from 48.6% to 79.9% during the

same periods.


Our selling and marketing expenses increased by 204.0% from RMB204.4 million in 2019 to

RMB621.5 million in 2020. This increase was primarily due to an increase in our advertising and

promotion expenses.

– 286 –



Our advertising and promotion expenses increased from RMB196.6 million in 2019 to

RMB602.1 million in 2020. This increase was primarily due to our increased level of advertising

activities as well as innovative promotion initiatives.

Administrative expenses

Our Administrative expenses increased by 105.6% from RMB42.9 million in 2019 to RMB88.3

million in 2020. The increase is primarily due to increases in personnel salary, share-based payments

and welfare related to administrative staff and in professional service fee.


Our technology and development expenses increased by 92.4% from RMB97.3 million in 2019

to RMB187.2 million in 2020. The increase was primarily due to an increase in personnel salary,

share-based payments and welfare expense and technology service fee.

Our personnel salary, share-based payments and welfare expense related to technology and

development staff increased by 119.2% from RMB44.5 million in 2019 to RMB97.6 million in 2020.

This increase was primarily due to an increase in the number of technology and development

employees from 108 as of December 31, 2019 to 219 as of December 31, 2020. Our technology

service fee increased by 72.4% from RMB48.5 million in 2019 to RMB83.6 million in 2020,

primarily due to an increase in our usage of cloud services.

Loss from Operations

As a result of the foregoing, we recorded an operating loss of RMB303.9 million in 2019 and

an operating loss of RMB504.6 million in 2020.

Changes in the carrying amount of redeemable shares and financial liabilities for redemption obligations


financial liabilities for redemption obligations of RMB49.2 million in 2019 and RMB74.0 million in

2020. The increase was primarily due to the increase of the redemption amount of redeemable shares,

as a result of the increase in the number of redeemable shares issued.

Loss for the year

As a result of the foregoing, we recorded a net loss of RMB579.1 million in 2020, compared to

a net loss of RMB353.4 million in 2019.

– 287 –



DISCUSSION OF CERTAIN KEY FINANCIAL POSITION ITEMS

The following table sets forth our consolidated statements of financial position as of the dates

indicated:

As of December 31,

2019 2020 2021

(RMB in thousands)

Non-current assets:

Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,236 30,769 108,893

Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 5,250 11,189

6,413 36,019 120,082

Current assets:

Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 11,800 33,196

Prepayments, deposits and other receivables . . . . . . . . . . . . . . . . 30,142 50,130 122,845

Financial assets at FVTPL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,029 — —

Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 31,860

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,205 626,031 910,357

121,376 687,961 1,098,258

Current liabilities:

Other payables and accrued expenses . . . . . . . . . . . . . . . . . . . . . . 49,264 283,129 570,517

Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,319 34,516 63,425

Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,302 14,471 20,660

Redeemable shares and financial liabilities for redemption

obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 688,671 7,386,794 9,723,623

754,556 7,718,910 10,378,225

Net current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (633,180) (7,030,949) (9,279,967)

– 288 –



Current Assets/Liabilities

We recorded net current liabilities of RMB633.2 million, RMB7,030.9 million,

RMB9,280.0 million and RMB9,941.1 million as of December 31, 2019, 2020, 2021 and April 30, 2022,

respectively. The following table sets forth our current assets and current liabilities as of the dates

indicated:

As of December 31, As of April 30,

2019 2020 2021 2022

(RMB in thousands)

(Unaudited)

Current assets:

Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . — 11,800 33,196 41,747

Prepayments, deposits and other receivables . . . . 30,142 50,130 122,845 127,307

Financial assets at FVTPL . . . . . . . . . . . . . . . . . . . 50,029 — — —

Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 31,860 31,882

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . 41,205 626,031 910,357 743,785

121,376 687,961 1,098,258 944,721

Current liabilities:

Other payables and accrued expenses . . . . . . . . . . 49,264 283,129 570,517 565,561

Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 12,319 34,516 63,425 72,980

Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,302 14,471 20,660 23,238

Redeemable shares and financial liabilities for

redemption obligations . . . . . . . . . . . . . . . . . . . 688,671 7,386,794 9,723,623 10,224,012

754,556 7,718,910 10,378,225 10,885,791

Net current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . (633,180) (7,030,949) (9,279,967) (9,941,070)

Our current assets as of December 31, 2019 were primarily attributable to financial assets at

FVTPL, and cash and cash equivalents, prepayments, deposits and other receivables. Our current

assets as of December 31, 2020 and 2021 and April 30, 2022 were primarily attributable to cash and

cash equivalents, prepayments, deposits and other receivables. Our current liabilities as of

December 31, 2019, 2020 and 2021 and April 30, 2022 were primarily attributable to redeemable

shares and financial liabilities for redemption obligations and other payables and accrued expenses.

– 289 –



Prepayments, deposits and other receivables

Our prepayments, deposits and other receivables primarily consists of deductible input VAT,

receivable from third-party payment platforms and prepaid advertising expenses. The following table

sets forth our prepayments, deposits and other receivables as of the date indicated:

As of December 31,

2019 2020 2021

(RMB in thousands)

Deductible input VAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,022 10,511 36,745

Receivable from third-party payment platforms . . . . . . . . . . . . . . . . . . . . . 10,245 17,115 59,639

Deferred payment platforms commission fee . . . . . . . . . . . . . . . . . . . . . . . 2,210 4,800 8,403

Rental deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,937 307 8,787

Prepaid advertising expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 10,308 3,532

Advances to third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 3,300 —

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 714 3,789 5,739

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,142 50,130 122,845

Our prepayments, deposits and other receivables increased by 66.3% from RMB30.1 million as

of December 31, 2019 to RMB50.1 million as of December 31, 2020, primarily due to an increase in

prepaid advertising expenses as we increased our marketing efforts, and receivables from third-party

payment platforms as our business grew, partially offset by a decrease in deductible input VAT.

Our prepayments, deposits and other receivables increased by 145.1% from RMB50.1 million

as of December 31, 2020 to RMB122.8 million as of December 31, 2021, primarily due to increases

in receivable from third-party payment platforms, which is in line with the increase in our revenue,

deductible input VAT and rental deposits.

Trade receivables

Our trade receivables primarily consist of outstanding amounts payable by third parties and

certain related parties. The following table sets forth our trade receivables as of the dates indicated:

As of December 31,

2019 2020 2021

(RMB in thousands)

Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 11,800 33,751

Less: loss allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (555)

Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 11,800 33,196

– 290 –



Our trade receivables increased from nil as of December 31, 2019 to RMB11.8 million as of

December 31, 2020, and further increased to RMB33.2 million as of December 31, 2021, primarily

due to the growth of our advertising services.

Our trading terms with our advertising services customers are on credit. We generally allow a

credit period of 30 to 180 days to those customers. The aging analysis of the trade receivables based

on bill date and net of loss allowance is as follows:

As of December 31,

2019 2020 2021

(RMB in thousands）

Less than 1 month . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 11,800 27,871

More than 1 month but less than 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 3,119

More than 3 months but less than 6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 2,165

More than 6 months but less than 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 41

Total trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 11,800 33,196

Trade receivables turnover days for a given period are equal to the average balances of gross

trade receivables at the beginning and at the end of the period divided by revenue from advertising

services during the period and multiplied by the number of days during the period. We launched our

advertising business in the third quarter of 2020. We recorded trade receivables turnover days of 107

days in 2021. As at April 30, 2022, RMB21.0 million, or 63.1%, of our trade receivables as at

December 31, 2021 had been subsequently settled.

Other payables and accrued expenses

Our other payables and accrued expenses primarily consist of salary and welfare payables and

advertising and promotion fee payables. The following table sets forth our other payables and

accrued expenses as of the dates indicated:

As of December 31,

2019 2020 2021

(RMB in thousands)

Advertising and promotion fee payables . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 202,811 415,874

Salary and welfare payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,918 46,720 74,682

Technology service fee payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,262 15,760 37,719

Other taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,721 3,241 15,732

Human resource outsourcing service fee payables . . . . . . . . . . . . . . . . . . 863 3,039 4,607

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 11,558 21,903

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,264 283,129 570,517

– 291 –



As at April 30, 2022, RMB362.5 million, or 63.5%, of our other payables and accrued expenses

as at December 31, 2021 had been subsequently settled.

Contract liabilities

Contract liabilities primarily relate to considerations received from customers. Our contract

liabilities increased from RMB12.3 million to RMB34.5 million and further to RMB63.4 million as

of December 31, 2019, 2020 and 2021, respectively. Such increases were primarily due to the growth

of our value-added services.

Non-Current Assets/Liabilities

The following table sets forth our non-current assets and non-current liabilities as of the dates

indicated:

As of December 31,

2019 2020 2021

(RMB in thousands)

Non-current assets:

Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,236 30,769 108,893

Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 5,250 11,189

Total non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,413 36,019 120,082

Non-current liabilities:

Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 12,938 64,479

Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 12,938 64,479

Property and equipment

Our property and equipment primarily consist of leasehold properties, office and electronic

equipment, motor vehicles and leasehold improvements. Our property and equipment increased by

393.4% from RMB6.2 million as of December 31, 2019 to RMB30.8 million as of December 31,

2020, and further increased by 253.9% to RMB108.9 million as of December 31, 2021, primarily due

to an increase in our leasehold properties as we expanded and leased more office space.

– 292 –



KEY FINANCIAL RATIOS

The following table sets forth our key financial ratios for the periods indicated:


2019 2020 2021

Revenue growth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N/A 604.3% 157.3%

Gross margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48.6% 79.9% 85.2%

Net loss margin . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (499.9%) (116.3%) (103.4%)

Adjusted net margin (non-IFRS measure)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . (413.4%) (93.5%) (78.0%)

Note:

(1) Adjusted net loss (non-IFRS measure) as a percentage of revenue for the years indicated.

LIQUIDITY AND CAPITAL RESOURCES

The following table sets forth a summary of our cash flows for the periods indicated:


2019 2020 2021

(RMB in thousands)

Net cash used in operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (279,122) (238,185) (794,022)

Net cash (used in)/provided by investing activities . . . . . . . . . . . . . . . . . . (51,409) 42,144 (17,463)

Net cash (used in)/provided by financing activities . . . . . . . . . . . . . . . . . . (13,853) 842,306 1,113,633

Net (decrease)/increase in cash and cash equivalents . . . . . . . . . . . . . . . . (344,384) 646,265 302,148

Cash and cash equivalents at the beginning of the year . . . . . . . . . . . . 394,314 41,205 626,031

Effect of foreign currency exchange rate changes . . . . . . . . . . . . . . . . . . . (8,725) (61,439) (17,822)

Cash and cash equivalents at the end of the year . . . . . . . . . . . . . . . . . 41,205 626,031 910,357

During the Track Record Period and up to the Latest Practicable Date, we have financed our

operating and investing activities mainly through cash from historical equity financing activities. As

of December 31, 2019, 2020 and 2021, our cash and cash equivalents were RMB41.2 million,

RMB626.0 million and RMB910.4 million, respectively.

We believe that our liquidity requirements will be satisfied by a combination of the cash

generated from operating activities, the net [REDACTED] received from the [REDACTED], and

other funds raised from the capital markets from time to time. We currently do not have any plans for

material additional external financing.

Net Cash Used in Operating Activities

Net cash used in operating activities in 2021 was RMB794.0 million. The difference between

net cash used in operating activities and net loss of RMB1,324.4 million in the same year was

– 293 –



primarily the result of (i) non-cash items that primarily include changes in the carrying amount of

redeemable shares and financial liabilities for redemption obligations of RMB277.9 million, share-

based payments expenses of RMB47.8 million and deprecation of RMB25.0 million and (ii) a

decrease in working capital that mainly resulted from an increase in other payables and accrued

expenses of RMB279.6 million and an increase in contract liabilities of RMB28.9 million, partially

offset by an increase in prepayments, deposits and other receivables of RMB76.1 million, an increase

in restricted cash of RMB31.9 million and an increase in trade receivables of RMB22.0 million. The

increase in other payables and accrued expenses was primarily the result of the increase in

advertising expenses payable as a result of our business expansion. The increase in prepayments,

deposits and other receivables was primarily due to an increase in receivable from third-party

payment platforms and increase in our deductible input VAT.


net cash used in operating activities and net loss of RMB579.1 million in the same year was



based payments expenses of RMB33.0 million and depreciation of RMB9.7 million, and (ii) a



offset by an increase in prepayments, deposits and other receivables of RMB15.7 million and an

increase in trade receivables of RMB11.8 million. The increase in accrued expenses and other

current liabilities was primarily the result of the increase in advertising expenses payable as a result

of our business expansion. The increase in prepayments, deposits and other receivables was

primarily due to the increase in receivable from third-party payment platforms and increase in

prepaid advertising expenses.


net cash used in operating activities and net loss of RMB353.4 million in the same year was



based payments expenses of RMB11.9 million and depreciation of RMB7.3 million, and (ii) a



offset by an increase in prepayments, deposits and other receivables of RMB23.3 million. The

increase in prepayments, deposits and other receivables was primarily due to increases in our

deductible input VAT and receivable from third-party payment platforms.

Net Cash Used in/Provided by Investing Activities

Net cash used in investing activities in 2021 was RMB17.5 million, consisting of purchase of

financial assets at FVTPL of RMB40.0 million and purchase of property and equipment of RMB17.0

million, partially offset by proceeds from redemption of financial assets at FVTPL of RMB40.1

million.

– 294 –



Net cash provided by investing activities in 2020 was RMB42.1 million, consisting of proceeds

from redemption of financial assets at FVTPL of RMB50.2 million, partially offset by purchasing of

property and equipment of RMB4.7 million.

Net cash used in investing activities in 2019 was RMB51.4 million, consisting of purchase of

financial assets at FVTPL of RMB402.0 million, partially offset by proceeds from redemption of

financial assets at FVTPL of RMB353.1 million.

Net Cash Provided by/Used in Financing Activities

Net cash provided by financing activities in 2021 was RMB1,113.6 million, primarily

consisting of proceeds from issuance of redeemable shares of RMB1,149.6 million, partially offset

by payments of capital element of lease liabilities of RMB20.7 million and payment of issuance cost

of redeemable shares of RMB13.5 million.

Net cash provided by financing activities in 2020 was RMB842.3 million, primarily consisting

of proceeds from issuance of redeemable shares of RMB956.7 million, and partially offset by

payments for repurchase of ordinary shares of RMB98.9 million and payment of issuance cost of

redeemable shares of RMB8.6 million.

Net cash used in financing activities in 2019 was RMB13.9 million, primarily consisting of

payment of issuance cost of redeemable shares of RMB8.7 million, payments of capital element of

lease liabilities of RMB4.9 million and payments of interest element of lease liabilities of RMB0.3

million.

INDEBTEDNESS

Redeemable shares and financial liabilities for redemption obligations

Our redeemable shares and financial liabilities for redemption obligations represent financial

liabilities resulted from the issuance of redeemable shares and re-designation right to

[REDACTED]. The following table sets forth the amount of our redeemable shares and financial

liabilities for redemption obligations as of the dates indicated:

As of December 31,

As of

April 30,

2019 2020 2021 2022

(RMB in thousands)

(Unaudited)

Redeemable shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 688,671 3,947,944 6,567,639 6,948,238

Financial liabilities for redemption obligations . . . . . . . . . . — 3,438,850 3,155,984 3,275,774

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 688,671 7,386,794 9,723,623 10,224,012

– 295 –



Lease liabilities

Our lease liabilities are in relation to properties that we lease for our office premises. The

following table sets forth our lease liabilities as of the dates indicated:

As of December 31,

As of

April 30,

2019 2020 2021 2022

(RMB in thousands)

(Unaudited)

Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,302 14,471 20,660 23,238

Non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 12,938 64,479 61,868

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,302 27,409 85,139 85,106

Except as discussed above, we did not have any material mortgages, charges, debentures, loan

capital, debt securities, loans, bank overdrafts or other similar indebtedness, finance lease or hire

purchase commitments, liabilities under acceptances other than normal trade bills, acceptance

credits, which are either guaranteed, unguaranteed, secured or unsecured as of April 30, 2022.

CONTINGENT LIABILITIES

As of December 31, 2019, 2020, and 2021 and April 30, 2022, we did not have any material

contingent liabilities.

CAPITAL EXPENDITURES AND LONG-TERM INVESTMENTS

Our capital expenditures are primarily related to purchasing of computers and other office

supplies, and leasehold improvement. Our capital expenditures were RMB2.5 million, RMB4.7

million and RMB17.0 million in 2019, 2020 and 2021, respectively. We will continue to make

capital expenditures to meet the expected growth of our business.

CONTRACTUAL OBLIGATIONS

As of December 31, 2019, 2020 and 2021, we did not have any significant capital or other

commitments, long-term obligations, or guarantees.

OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS

As of the Latest Practicable Date, we had not entered into any off-balance sheet arrangements.

MATERIAL RELATED PARTY TRANSACTIONS

We enter into transactions with our related parties from time to time. During the Track Record

Period, we entered into a number of related party transactions, primarily including (i) sales and

purchase of services, (ii) loans to a related party and (iii) key management personnel remuneration.

– 296 –



We had the following significant transactions with related parties during the Track Record

Period:

Year ended December 31,

2019 2020 2021

(RMB in thousands)

Sales of services

Tencent Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 151 4,191

Purchase of services

Tencent Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 43,880 85,364

Loans to

A Director of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 4,190

Interest income on loans to

A Director of the Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 146

We had the following amounts of remuneration to our key management personnel during the

Track Record Period:


2019 2020 2021

(RMB in thousands)

Salaries, wages, bonuses and other benefits . . . . . . . . . . . . . . . . . . . . . . . . . . 7,025 11,573 13,508

Share-based payment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,893 21,179 15,587

Contributions to defined retirement schemes . . . . . . . . . . . . . . . . . . . . . . . . . 126 24 346

11,044 32,776 29,441

Our Directors believe that our transactions with related parties during the Track Record Period

were conducted on an arm’s length basis, and they did not distort our results of operations or make

our historical results not reflective of our future performance.

For more details about our related party transactions during the Track Record Period, see Note

24 to our consolidated financial statements included in the Accountants’ Report in Appendix I to this

document.

QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISKS

Credit risk

Credit risk refers to the risk that a counterparty will default on its contractual obligations

resulting in a financial loss to us. Our credit risk is primarily attributable to trade receivables. Our

exposure to credit risk arising from cash and cash equivalents, restricted cash and financial assets at

FVTPL is limited because the counterparties are banks and financial institutions with good credit

– 297 –



standing, for which we consider to have low credit risk. Other receivables mainly included

receivable from third-party payment platforms, which represented amounts due from reputable online

payment platforms. Based on the historical settlement records and the cooperation history with the

online payment platforms, we consider our exposure to credit risk arising from receivable from third-

party payment platforms is low.

Our exposure to credit risk arising from trade receivables is influenced mainly by the individual

characteristics of each customer rather than the industry or country in which the customers operate

and therefore significant concentrations of credit risk primarily arise when we have significant

exposure to individual customers. The trade receivables from the five largest debtors at

December 31, 2020 and 2021 represented 89% and 71% of the total trade receivables respectively,

while 38% and 32% of the total trade receivables were due from the largest single debtor

respectively.

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 take into account the

customer’s past payment history, financial position and other factors. Trade receivables are generally

due within 30 to 180 days from the date of billing. Normally, we do not obtain collateral from

customers. For further details, see Note 22(a) to the Accountants’ Report set out in Appendix I to

this document.

Liquidity risk

Our policy is to regularly monitor its liquidity requirements and its compliance with lending

covenants, to ensure that it maintains sufficient reserves of cash and readily realizable marketable

securities and adequate committed lines of funding from major financial institutions to meet its

liquidity requirements in the short and longer term. For further details, see Note 22(b) to the

Accountants’ Report set out in Appendix I to this document.

Interest rate risk

Our interest rate risk is the risk that the fair value or future cash flows of a financial instrument

will fluctuate because of changes in market interest rates.

We are primarily exposed to fair value interest rate risk in relation to lease liabilities and cash

flow risk in relation to variable-rate bank balances. We currently do not have an interest rate hedging

policy to mitigate interest rate risk; nevertheless, the management monitors interest rate exposure

and will consider hedging significant interest rate risk should the need arise.

Our management consider that the exposure of cash flow interest rate risk arising from

variable-rate bank balances is insignificant because the current market interest rates are relatively

low and stable.

– 298 –



Currency risk

Currency risk arises when future commercial transactions or recognized assets and liabilities

are denominated in a currency that is not the functional currency of our subsidiaries, VIE and VIE’s

subsidiaries. We manage our foreign exchange risk by minimizing non-functional currency

transactions, wherever possible.

We operate mainly in the PRC with most of the transactions settled in RMB. Our management

consider that our business is not exposed to significant foreign exchange risk as we do not have

significant financial assets or liabilities denominated in currencies other than the respective

functional currencies of our subsidiaries, VIE and VIE’s subsidiaries.

FUTURE DIVIDENDS

We are a holding company incorporated under the laws of the Cayman Islands. As a result, the

payment and amount of any future dividend will also depend on the availability of dividends

received from our subsidiaries. PRC laws require that dividends be paid only out of the profit for the

year calculated according to PRC accounting principles, which differ in many aspects from the

generally accepted accounting principles in other jurisdictions, including IFRS. PRC laws also

require foreign-invested enterprises to set aside at least 10% of its after-tax profits, if any, to fund its

statutory reserves, which are not available for distribution as cash dividends. Dividend distribution to

our shareholders is recognized as a liability in the period in which the dividends are approved by our

shareholders or Directors, where appropriate. During the Track Record Period, no dividends have

been paid or declared by us.

WORKING CAPITAL CONFIRMATION

Taking into account the financial resources available to us, including our cash and cash

equivalents on hand and the estimated [REDACTED] from the [REDACTED], our Directors are of

the view that we have sufficient working capital to meet our present needs and for the next twelve

months from the date of this document. We had negative cash flows from operations during the

Track Record Period. Our net cash used in operating activities was RMB[REDACTED],

RMB[REDACTED] and RMB[REDACTED], respectively, during the fiscal years ended

December 31, 2019, 2020 and 2021. Our Directors confirm that we had no material defaults in

payment of trade and non-trade payables during the Track Record Period.

DISTRIBUTABLE RESERVES

As of December 31, 2021, we did not have any distributable reserves.

[REDACTED] EXPENSE

Based on the mid-point [REDACTED] of HK$[REDACTED], the total estimated

[REDACTED] expenses in relation to the [REDACTED] is approximately RMB[REDACTED].

[REDACTED] expenses of

– 299 –



approximately RMB[REDACTED] were incurred and charged to our consolidated statements of

profit or loss and other comprehensive income during the Track Record Period. We estimate that we

will further incur [REDACTED] expenses of RMB[REDACTED] of which RMB[REDACTED]

will be charged to our consolidated statement of profit or loss and other comprehensive income for

the year ending December 31, 2022. The balance of approximately RMB[REDACTED], which

mainly includes [REDACTED], is expected to be accounted for as a deduction from equity upon the

completion of the [REDACTED].

UNAUDITED PRO FORMA STATEMENT OF ADJUSTED NET TANGIBLE ASSETS

The following unaudited pro forma statement of our adjusted net tangible assets prepared in

accordance with Rule 4.29 of the Listing Rules is to illustrate the effect of the [REDACTED] on our

net tangible liabilities as of December 31, 2021 as if the [REDACTED] had taken place on that date.

The unaudited pro forma statement of adjusted net tangible assets has been prepared for illustrative

purposes only and, because of its hypothetical nature, it may not provide a true picture of our net

tangible assets had the [REDACTED] been completed as of December 31, 2021 or at any future

date. It is prepared based on our consolidated net liabilities as of December 31, 2021 as set forth in

the Accountants’ Report in Appendix I to this document, and adjusted as described below. No

adjustment has been made to reflect any trading results or other transactions which we entered into

subsequent to December 31, 2021. Our unaudited pro forma adjusted net tangible assets do not form

part of the Accountants’ Report in Appendix I to this document.

Consolidated net

tangible liabilities

attributable

to equity

shareholders of

the Company as

at December 31,

2021(1)

Estimated net

[REDACTED]

from the

[REDACTED](2)

Estimated impact

to net tangible

assets upon

reclassification of

redeemable shares

and financial

liabilities for

redemption

obligations(3)

Unaudited pro

forma adjusted

consolidated net

tangible assets

attributable to

equity shareholders

of the Company

Unaudited pro forma

adjusted consolidated

net tangible assets

attributable to equity

shareholders of

the Company per

Share(4)

RMB’000 RMB’000 RMB’000 RMB’000 RMB HK$(5)

Based on an

[REDACTED]

of

HK$[REDACTED]

per Share . . . . . (9,224,364) [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Based on an

[REDACTED]

of

HK$[REDACTED]

per Share . . . . . (9,224,364) [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Notes:

(1) The consolidated net tangible liabilities attributable to equity shareholders of the Company as at December 31, 2021 is based

on the consolidated total deficit of RMB9,224,364,000 as at December 31, 2021, which is extracted from the Accountants’

Report set out in Appendix I to this document.

– 300 –



(2) The estimated net [REDACTED] from the [REDACTED] are based on [REDACTED] Shares to be issued pursuant to the

[REDACTED] and the indicative [REDACTED] of HK$[REDACTED] per Share and HK$[REDACTED] per Share, being

the low end and high end of the [REDACTED] respectively, after deduction of the estimated [REDACTED] and other

related [REDACTED] expenses payable by the Group (excluding the [REDACTED] expenses charged to profit or loss

during the Relevant Periods) and does not take into account any shares which may be issued upon the exercise of the

[REDACTED], any shares which may be issued pursuant to the Pre-[REDACTED] Share Incentive Plan including any

restricted shares which may be issued in exchange for the share options granted, or any shares which may be issued or

repurchased by the Company pursuant to the general mandates. The estimated net [REDACTED] of the [REDACTED] have

been converted to Renminbi at the exchange rate of HK$1 to RMB[0.8516] prevailing on [June 21, 2022], which is the Latest

Practicable Date. No representation is made that the Hong Kong dollar amounts have been, could have been or could be

converted into RMB, or vice versa, at that rate or at any other rates.

(3) As at December 31, 2021, the carrying amount of the redeemable shares and financial liabilities for redemption obligations

was RMB9,723,623,000 (as set out in Note 19 of Appendix I to this document). Upon the [REDACTED], the redemption

rights of these financial instruments will be terminated, the redeemable shares will be automatically converted into ordinary

shares, and the financial liabilities for redemption obligations will be reclassified from liabilities to equity.

(4) The unaudited pro forma adjusted consolidated net tangible assets attributable to equity shareholders of the Company per

Share is arrived at after the adjustments referred to in the preceding paragraphs and on the basis that [REDACTED] Shares

were in issue assuming that the [REDACTED] and the conversion of redeemable shares into ordinary shares had been

completed on December 31, 2021, but does not take into account any shares which may be issued upon the exercise of the



repurchased by the Company pursuant to the general mandates.


Share amounts in RMB are converted to Hong Kong dollar with the exchange rate of RMB1 to HK$[1.1742] prevailing on

[June 21, 2022], which is the Latest Practicable Date. No representation is made that the Hong Kong dollar amounts have

been, could have been or could be converted into RMB, or vice versa, at that rate or at any other rates.

(6) No adjustment has been made to the unaudited pro forma adjusted consolidated net tangible assets attributable to equity

shareholders of the Company as at December 31, 2021 to reflect any trading results or other transactions of the Group

subsequent to December 31, 2021.

NO MATERIAL ADVERSE CHANGE

After performing sufficient due diligence work which our Directors consider appropriate and

after due and careful consideration, the Directors confirm that, up to the date of this document, there

has been no material adverse change in our financial or trading position or prospects since

December 31, 2021, which is the end date of the periods reported on in the Accountants’ Report

included in Appendix I to this document, and there is no event since December 31, 2021 that would

materially affect the information as set out in the Accountants’ Report included in Appendix I to this

document.

DISCLOSURE UNDER RULES 13.13 TO 13.19 OF THE LISTING RULES

Our Directors confirm that, except as otherwise disclosed in this document, as of the Latest

Practicable Date, there was no circumstance that would give rise to a disclosure requirement under

Rules 13.13 to 13.19 of the Listing Rules.

– 301 –


FUTURE PLANS AND USE OF [REDACTED]

FUTURE PLANS

See “Business — Our Strategies” in this document for a detailed description of our future

plans.

USE OF [REDACTED]

Assuming an [REDACTED] of HK$[REDACTED] per Share (being the mid-point of the

[REDACTED] of between HK$[REDACTED] and HK$[REDACTED] per Share), we estimate that

we will receive net [REDACTED] of HK$[REDACTED] from the [REDACTED] after deducting

the [REDACTED] and other estimated [REDACTED] expenses paid and payable by us in

connection with the [REDACTED] and assuming that the [REDACTED] is not exercised. In line

with our strategies, we intend to use our [REDACTED] from the [REDACTED] for the purposes

and in the amounts set forth below:

• Approximately [REDACTED]% (approximately HK$[REDACTED]) of the net

[REDACTED] is expected to be used to improve and upgrade our proprietary

technologies, improve our data analytics capability, and develop our social metaverse.

Specifically, we plan to:

i. invest in big-data technologies and data analytics capability on user

recommendation, content distribution and data processing. We will (i) enhance our

technologies in big-data analytics, including but not limited to image and natural

language processing and semantic recognition, (ii) further improve our data

processing capabilities and efficiencies for more rapid data feedback, (iii) continue

to develop and utilize deep learning and big-data analytics in a fully compliant

manner to better understand our users’ behaviors, needs and preferences,

(iv) develop more high-quality tools for content creation and distribution,

(v) continue to improve the search relevance and user experience of our search and

recommendation system, (vi) continue to enhance our content security and anti-spam

capabilities, maintain healthy development of our platform ecosystem and create an

increasingly warm and welcoming community.

ii. invest in social metaverse-related technologies, including extended reality (XR),

virtual space and metaverse content creation. We will continue to construct our Soul

social metaverse through (i) optimizing our capabilities of vision-based general

recognition, 2D and 3D virtual image building, general object rendering, and

automated editing, (ii) gradually expanding our capabilities in algorithms, image

processing, and engine structure to facilitate full-body virtualization, indoor and

outdoor virtualization, enabling each Souler to possess a full suite of virtual image,

virtual asset and virtual space and build an integrated virtual realm with cross-

platform data and virtual asset transfer capability, and (iii) actively explore UGC

generation and editing tools to facilitate user creation and the co-development of our

platform.

– 302 –



iii. enhance our technology infrastructure and attract R&D talents to support our

business expansion and maintain our technological leadership. We will keep

upgrading and expanding our IT infrastructure, enhance our capabilities in data

storage and processing, network bandwidth, as well as service reliability. We will

continue to increase our R&D capability and efficiency and attract, retain and

incentivize our R&D talents to support continuous technological innovations and

operational efficiency improvement.


[REDACTED] is expected to be used to further expand and retain our user base and

strengthen our brand to promote sustainable and high-quality user growth. The detailed

breakdown of the net [REDACTED] to be allocated is as follows:

i. enhance our customer acquisition capabilities and efficiencies through business

cooperation with diverse media channels and proprietary advertising management

platform. Specifically, we will (i) engage and interact with young generations,

especially Generation Z, through diversified online media platform (including but

not limited to short video, streaming, pay-for-knowledge platform, and mobile app

stores) and offline events, with gamified, immersive features and functionalities as a

focal point in branding and advertising activities, and (ii) develop and upgrade our

advertising management platform to empower our marketing and promotional

activities for more targeted and precise user acquisition.

ii. increase our brand recognition, enhance our user penetration and improve our user

acquisition efficiency through executing multi-channel marketing strategies and

promotional activities. We plan to collaborate with marketing partners appealing to

young generations, engage our potential users through marketing campaigns on

mobile app stores, and online and offline joint theme events with marketing partners

that match our brand image to promote our new features.

iii. improve our brand recognition among both the general public and target user groups,

especially Generation Z, through cooperating with high-quality IPs. We plan to

(i) combine IPs with our content offerings, (ii) collaborate with KOLs to increase the

influence of our thematic and festival events, and (iii) create marketing topics

through the fusion of high-quality IPs and digital assets.

iv. promote high quality UGC on our platform. In order to attract and retain a broad user

base, we will strive to improve the richness and diversity of our content offerings on

our platform through (i) encouraging users, including Soul Super Reals, or SSRs, to

create more original and high-quality contents on our platform, (ii) expand our

content library to cover new categories that our users are increasingly interested in.

– 303 –




[REDACTED] is expected to be used to develop innovative products and features to

engage our users and further enhance our monetization potential. Specifically, we plan to:

i. develop and constantly upgrade immersive interaction features and functionalities

leveraging our Lingxi and Nawa engines and massive user behavior and interaction

insights we have accumulated. For example, we will (i) continue to upgrade our

group interactive features, including Audio and Video Partyroom. For example, we

plan to invest in high quality music and other audio content to enrich the interactive

experience in multiple settings, including the Karaoke Rooms, (ii) build live multi-

user interaction scenarios, such as parties in 3D virtual settings and augmented

reality party, (iii) organize periodic sitewide promotional events to enhance our

users’ recognition and user stickiness of our group features, and (iv) devote more

resources to enhance our user interest graph and improve user interest recognition

and identification through enhancing algorithm model accuracy and efficiency,

paving the way for the continuous upgrade of our Lingxi engine.

ii. develop more gamified interactive features. We will invest more resources to

empower communication and interaction through gamified features and

functionalities and acquire more immersive experience through the continuous

upgrade of our party games.

iii. create a decentralized content co-creation ecosystem focusing on personalized

avatars and accessories and enhance our monetization potential. We will invest more

resources to build a closed-loop ecosystem in which the users are both consumers

and producers. For example, users can apply our newly-promulgated metaverse

content creation tools to produce their own products and upload their products to an

online marketplace, then users can use the credits from selling products on the

marketplace to upgrade their creation tools and purchase more paid materials to

create more and individualized avatars. We will make the ecosystem more vibrant by

setting up incentive schemes to attract content creators. We will continue to develop

monetization methods that match user lifecycle and ability to pay, create more

tailored customer acquisition strategies and implementation plans, continue to create

more interactive scenarios to enrich user experience and continuously increase

individual user’s customer lifetime value and return on customer acquisition

investment. We will expand our network of high-quality advertisers, further

collaborate with advertisers appealing to young generations, especially Generation Z,

and explore immersive advertisement.

iv. continue to expand and optimize our existing content community and develop new

methods of content discovery. For example, we plan to explore new ways of

– 304 –



content aggregation to provide an easier path for users to find the right content for

them. We plan to further enhance our automated tagging capabilities and interest

discovery algorithms to more accurately interpret user behaviors, user attributes,

and user interest categories, and continue to accumulate more training data to

optimize our Lingxi engine, which in turns will help us enrich our content

community based on their diversified interests and foster more engaging user

experience.


[REDACTED] is expected to be used for working capital and general corporate purposes.

In the event that the [REDACTED] is fixed at the high or low end of the indicative

[REDACTED], the net [REDACTED] of the [REDACTED] will increase or decrease by

approximately HK$[REDACTED], respectively. If we make an upward or downward

[REDACTED] adjustment to set the final [REDACTED] to be above or below the mid-point of the

[REDACTED], we will increase or decrease the [REDACTED] of the net [REDACTED] to 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$[REDACTED] (assuming an [REDACTED] of HK$[REDACTED] per

Share, being the Maximum [REDACTED]), (ii) HK$[REDACTED] (assuming an [REDACTED]

of HK$[REDACTED] per Share, being the mid-point of the [REDACTED]) and

(iii) HK$[REDACTED] (assuming an [REDACTED] of HK$[REDACTED] per Share, being the

Minimum [REDACTED]).

To the extent that the net [REDACTED] from the [REDACTED] (including the net

[REDACTED] from the exercise of the [REDACTED]) are either more or less than expected, we

may adjust our [REDACTED] of the net [REDACTED] for the above purposes on a pro rata basis.

To the extent that the net [REDACTED] of the [REDACTED] are not immediately required

for the above purposes or if we are unable to put into effect any part of our plan as intended, we may

hold such funds in short-term deposits in authorized banks or financial institutions so long as it is

deemed to be in the best interests of the Company. In such event, we will comply with the

appropriate disclosure requirements under the Listing Rules.

– 305 –


[REDACTED]

[REDACTED]

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[REDACTED]

[REDACTED]

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[REDACTED]

[REDACTED]

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[REDACTED]

[REDACTED]

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[REDACTED]

[REDACTED]

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[REDACTED]

[REDACTED]

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[REDACTED]

[REDACTED]

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[REDACTED]

[REDACTED]

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[REDACTED]

[REDACTED]

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[REDACTED]

[REDACTED]

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[REDACTED]

[REDACTED]

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[REDACTED]

[REDACTED]

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STRUCTURE OF THE [REDACTED]

[REDACTED]

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[REDACTED]

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[REDACTED]

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[REDACTED]

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[REDACTED]

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[REDACTED]

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[REDACTED]

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[REDACTED]

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HOW TO APPLY FOR [REDACTED]

[REDACTED]

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[REDACTED]

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[REDACTED]

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[REDACTED]

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APPENDIX I ACCOUNTANTS’ REPORT

The following is the text of a report set out on pages I-1 to I-[67], 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 SOULGATE INC., CHINA INTERNATIONAL CAPITAL CORPORATION

HONG KONG SECURITIES LIMITED AND MERRILL LYNCH (ASIA PACIFIC) LIMITED

Introduction

We report on the historical financial information of Soulgate Inc. (the “Company”) and its

subsidiaries (together, the “Group”) set out on pages [I-3 to I-67], which comprises the consolidated

statements of financial position of the Group and the statements of financial position of the Company

as at December 31, 2019, 2020 and 2021, and the consolidated statements of profit or loss and other

comprehensive income, the consolidated statements of changes in equity and the consolidated cash

flow statements, for each of the years ended December 31, 2019, 2020 and 2021 (the “Relevant

Periods”), 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-3 to I-67] forms an integral part of this report, which has been prepared for inclusion in the

document of the Company dated [Š] (the “Document”) in connection with the [REDACTED] of

shares of the Company on the Main Board of The Stock Exchange of Hong Kong Limited.

Directors’ responsibility for 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 –



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’ judgment, 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 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 Company’s and the Group’s financial position as at December 31,

2019, 2020 and 2021, and of the Group’s financial performance and cash flows for the Relevant

Periods 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 Exchangeof 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-3 have been made.

Dividends

We refer to Note 21(b) to the Historical Financial Information which states that no dividends

have been paid by the Company in respect of the Relevant Periods.

No statutory financial statements for the Company

No statutory financial statements have been prepared for the Company since its incorporation.

KPMGCertified Public Accountants

8th Floor, Prince’s Building

10 Chater Road

Central, Hong Kong

[REDACTED]

– I-2 –



HISTORICAL FINANCIAL INFORMATION

Set out below is the Historical Financial Information which forms an integral part of this

accountants’ report.

The consolidated financial statements of the Group for the Relevant Periods, 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”).

– I-3 –



Consolidated statements of profit or loss and other comprehensive income

(Expressed in Renminbi (“RMB”))


Note 2019 2020 2021

RMB’000 RMB’000 RMB’000

Revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 70,707 498,013 1,281,175

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (36,368) (99,958) (190,004)

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,339 398,055 1,091,171

Other income/(loss), net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 6,388 (5,723) (4,275)

Selling and marketing expenses . . . . . . . . . . . . . . . . . . . . . . . (204,418) (621,487) (1,512,918)

Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (42,928) (88,266) (203,263)

Technology and development expenses . . . . . . . . . . . . . . . . . (97,320) (187,220) (414,913)

Impairment loss on trade receivables . . . . . . . . . . . . . . . . . . . 22(a) — — (555)

Loss from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (303,939) (504,641) (1,044,753)

Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6(a) (278) (449) (1,803)

Changes in the carrying amount of redeemable shares and

financial liabilities for redemption obligations . . . . . . . . . . 19 (49,216) (73,960) (277,888)

Loss before taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (353,433) (579,050) (1,324,444)

Income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 — — —

Loss for the year attributable to equity shareholders of

the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (353,433) (579,050) (1,324,444)

Other comprehensive (loss)/income for the year (after

tax)

Item that may be reclassified subsequently to profit or loss:

Exchange differences on translation of financial statements

of foreign operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (19,756) 571,670 196,885

Total comprehensive loss for the year attributable to

equity shareholders of the Company . . . . . . . . . . . . . . . (373,189) (7,380) (1,127,559)

Loss per share

Basic and diluted (RMB) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 N/A N/A N/A

The accompanying notes form part of the Historical Financial Information.

– I-4 –



Consolidated statements of financial position

(Expressed in RMB)

At December 31,

Note 2019 2020 2021

RMB‘000 RMB‘000 RMB‘000

Non-current assets

Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 6,236 30,769 108,893

Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 177 5,250 11,189

6,413 36,019 120,082- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Current assets

Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 — 11,800 33,196

Prepayments, deposits and other receivables . . . . . . . . . . . 13 30,142 50,130 122,845

Financial assets at fair value through profit or loss

(“FVTPL”) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 50,029 — —

Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 — — 31,860

Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . 15 41,205 626,031 910,357

121,376 687,961 1,098,258- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Current liabilities

Other payables and accrued expenses . . . . . . . . . . . . . . . . . 16 49,264 283,129 570,517

Contract liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 12,319 34,516 63,425

Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 4,302 14,471 20,660


obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 688,671 7,386,794 9,723,623

754,556 7,718,910 10,378,225- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (633,180) (7,030,949) (9,279,967)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Total assets less current liabilities . . . . . . . . . . . . . . . . . . (626,767) (6,994,930) (9,159,885)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Non-current liabilities

Lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 — 12,938 64,479

— 12,938 64,479- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (626,767) (7,007,868) (9,224,364)

Capital and reserves

Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21(c) 46 45 36

Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21(d) (626,813) (7,007,913) (9,224,400)

Total Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (626,767) (7,007,868) (9,224,364)


– I-5 –



Statements of financial position of the Company

(Expressed in RMB)

At December 31,

Note 2019 2020 2021

RMB‘000 RMB‘000 RMB‘000

Non-current asset

Investment in subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 1 645,026 830,202 1,721,453

645,026 830,202 1,721,453- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Current assets

Other receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 2,560 2,502

Cash at bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 712 583,700 810,717

712 586,260 813,219- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Current liabilities

Other payables and accrued expenses . . . . . . . . . . . . . . . . 14,871 27,866 28,134


obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 688,671 7,386,794 9,723,623

703,542 7,414,660 9,751,757- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (702,830) (6,828,400) (8,938,538)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (57,804) (5,998,198) (7,217,085)

Capital and reserves

Share capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21(c) 46 45 36

Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21(d) (57,850) (5,998,243) (7,217,121)

Total Deficit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (57,804) (5,998,198) (7,217,085)


– I-6 –


APPENDIX I ACCOUNTANTS’ REPORTC

onso

lidat

edst

atem

ents

ofch

ange

sin

equi

ty

(Exp

ress

edin

RM

B)

Not

eSh

are

capi

tal

Cap

ital

rese

rve

Shar

e-ba

sed

paym

ents

rese

rve

Exc

hang

ere

serv

e

Acc

umul

ated

loss

esT

otal

defi

cit

RM

B’0

00R

MB

’000

RM

B’0

00R

MB

’000

RM

B’0

00R

MB

’000

Not

e21

(c)

Not

e21

(d)

Not

e21

(d)

Not

e21

(d)

Bal

ance

atJa

nuar

y1,

2019

....

....

....

....

...

46(7

69)

18,6

59(9

,799

)(2

73,6

21)

(265

,484

)

Cha

nges

ineq

uity

for

2019

:

Los

san

dot

her

com

preh

ensi

velo

ssfo

rth

eye

ar..

..—

——

(19,

756)

(353

,433

)(3

73,1

89)

Sha

re-b

ased

paym

ents

....

....

....

....

....

....

20—

—11

,906

——

11,9

06

Ves

ting

ofre

stri

cted

shar

esun

its

(“R

SU

s”)

....

...

—2,

474

(2,4

74)

——

—

Exp

irat

ion

ofsh

are

opti

ons

....

....

....

....

....

——

(114

)—

114

—

Bal

ance

atD

ecem

ber

31,2

019

and

Janu

ary

1,

2020

....

....

....

....

....

....

....

....

....

461,

705

27,9

77(2

9,55

5)(6

26,9

40)

(626

,767

)

Cha

nges

ineq

uity

for

2020

:

Los

san

dot

her

com

preh

ensi

vein

com

efo

rth

e

year

....

....

....

....

....

....

....

....

....

.—

——

571,

670

(579

,050

)(7

,380

)

Sha

re-b

ased

paym

ents

....

....

....

....

....

....

20—

—39

,274

——

39,2

74

Eff

ecto

fgr

anto

fre

-des

igna

tion

righ

tsto

a

shar

ehol

der

onre

deem

able

shar

es..

....

....

...

19(b

)—

(2,5

67,3

68)

——

—(2

,567

,368

)

Rec

ogni

tion

offi

nanc

iall

iabi

liti

esfo

rre

dem

ptio

n

obli

gati

ons

....

....

....

....

....

....

....

...

19(b

)—

(3,7

39,2

07)

——

—(3

,739

,207

)

Exe

rcis

eof

shar

eop

tion

san

dve

stin

gof

RS

Us

....

.2

16,1

14(1

6,11

4)—

—2

Rep

urch

ase

and

reti

rem

ento

for

dina

rysh

ares

....

..21

(c)

(3)

(106

,419

)—

——

(106

,422

)

Bal

ance

atD

ecem

ber

31,2

020

....

....

....

....

45(6

,395

,175

)51

,137

542,

115

(1,2

05,9

90)

(7,0

07,8

68)

The

acco

mpa

nyin

gno

tes

form

part

ofth

eH

isto

rica

lF

inan

cial

Info

rmat

ion.

– I-7 –


APPENDIX I ACCOUNTANTS’ REPORTC

onso

lidat

edst

atem

ents

ofch

ange

sin

equi

ty(c

onti

nued

)

(Exp

ress

edin

RM

B)

Not

eSh

are

capi

tal

Cap

ital

rese

rve

Shar

e-ba

sed

paym

ents

rese

rve

Exc

hang

ere

serv

e

Acc

umul

ated

loss

esT

otal

defi

cit

RM

B’0

00R

MB

’000

RM

B’0

00R

MB

’000

RM

B’0

00R

MB

’000

Not

e21

(c)

Not

e21

(d)

Not

e21

(d)

Not

e21

(d)

Bal

ance

atJa

nuar

y1,

2021

....

....

....

....

...

45(6

,395

,175

)51

,137

542,

115

(1,2

05,9

90)

(7,0

07,8

68)

Cha

nges

ineq

uity

for

2021

:

Los

san

dot

her

com

preh

ensi

vein

com

efo

rth

e

year

....

....

....

....

....

....

....

....

....

.—

——

196,

885

(1,3

24,4

44)

(1,1

27,5

59)

Sha

re-b

ased

paym

ents

....

....

....

....

....

....

20—

—47

,816

——

47,8

16

Ves

ting

ofR

SU

s..

....

....

....

....

....

....

..—

824

(824

)—

——

Exp

irat

ion

ofsh

are

opti

ons

....

....

....

....

....

——

(546

)—

546

—

Eff

ecto

fte

rmin

atio

nof

re-d

esig

nati

onri

ghts

gran

ted

toa

shar

ehol

der

onre

deem

able

shar

es..

....

...

19(b

)—

2,28

5,84

6—

——

2,28

5,84

6

Rec

lass

ific

atio

nof

fina

ncia

llia

bili

ties

for

rede

mpt

ion

obli

gati

ons

toeq

uity

....

....

....

..19

(b)

—3,

395,

422

——

—3,

395,

422

Re-

desi

gnat

ion

ofor

dina

rysh

ares

and

pref

erre

d

shar

esin

toS

erie

sD

-3re

deem

able

shar

es..

....

.19

(c)

(9)

(2,6

07,1

78)

——

—(2

,607

,187

)

Eff

ecto

fgr

anto

fre

-des

igna

tion

righ

tsto

a

shar

ehol

der

onre

deem

able

shar

es..

....

....

...

19(e

)—

(1,0

12,9

24)

——

—(1

,012

,924

)

Rec

ogni

tion

offi

nanc

iall

iabi

liti

esfo

rre

dem

ptio

n

obli

gati

ons

....

....

....

....

....

....

....

...

19(e

)—

(3,1

97,9

10)

——

—(3

,197

,910

)

Bal

ance

atD

ecem

ber

31,2

021

....

....

....

....

36(7

,531

,095

)97

,583

739,

000

(2,5

29,8

88)

(9,2

24,3

64)

The

acco

mpa

nyin

gno

tes

form

part

ofth

eH

isto

rica

lF

inan

cial

Info

rmat

ion.

– I-8 –



Consolidated cash flow statements

(Expressed in RMB)


Note 2019 2020 2021

RMB’000 RMB’000 RMB’000

Operating activities

Loss before taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (353,433) (579,050) (1,324,444)

Adjustments for:

Impairment loss on trade receivables . . . . . . . . . . . . . . . . — — 555

Finance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6(a) 278 449 1,803

Share-based payments expenses . . . . . . . . . . . . . . . . . . . . 20 11,906 33,000 47,816

Changes in the carrying amount of redeemable shares

and financial liabilities for redemption obligations . . . 19 49,216 73,960 277,888

Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6(c) 7,260 9,732 24,989

Losses/(gains) on disposal of property and equipment . . — 59 (93)

Changes in fair value of financial assets at FVTPL . . . . . 5 (1,103) (151) (97)

Unrealized foreign currency exchange (gains)/losses . . . (18) 1,001 686

Changes in working capital:

Increase in trade receivables . . . . . . . . . . . . . . . . . . . . . . . 12 — (11,800) (21,951)

Increase in prepayments, deposits and other

receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23,311) (15,734) (76,059)

Increase in other non-current assets . . . . . . . . . . . . . . . . . (147) (5,059) (1,793)

Increase in contract liabilities . . . . . . . . . . . . . . . . . . . . . . 17 12,319 22,197 28,909

Increase in other payables and accrued expenses . . . . . . . 17,911 233,211 279,629

Increase in restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . — — (31,860)

Net cash used in operating activities . . . . . . . . . . . . . . . (279,122) (238,185) (794,022)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Investing activities

Purchase of property and equipment . . . . . . . . . . . . . . . . (2,483) (4,736) (17,009)

Disposal of property and equipment . . . . . . . . . . . . . . . . — — 339

Advances to third parties . . . . . . . . . . . . . . . . . . . . . . . . . — (3,300) —

Collection of advances to third parties . . . . . . . . . . . . . . . — — 3,300

Loans to a related party . . . . . . . . . . . . . . . . . . . . . . . . . . 24(b) — — (4,190)

Proceeds from redemption of financial assets at

FVTPL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22(e) 353,074 50,180 40,097

Purchase of financial assets at FVTPL . . . . . . . . . . . . . . . 22(e) (402,000) — (40,000)

Net cash (used in)/provided by investing activities . . . (51,409) 42,144 (17,463)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

– I-9 –



Consolidated cash flow statements (continued)

(Expressed in RMB)


Note 2019 2020 2021

RMB’000 RMB’000 RMB’000

Financing activities

Payment of capital element of lease liabilities . . . . . . . . . . 15(b) (4,864) (6,495) (20,665)

Payment of interest element of lease liabilities . . . . . . . . . . 15(b) (278) (449) (1,803)

Payment of issuance cost of redeemable shares . . . . . . . . . 15(b) (8,711) (8,578) (13,548)

Proceeds from issuance of redeemable shares . . . . . . . . . . 15(b) — 956,734 1,149,649

Repurchase of ordinary shares . . . . . . . . . . . . . . . . . . . . . . — (98,908) —

Proceeds from exercise of share options . . . . . . . . . . . . . . . — 2 —

Net cash (used in)/provided by financing activities . . . . (13,853) 842,306 1,113,633- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net (decrease)/increase in cash and cash equivalents . . (344,384) 646,265 302,148

Cash and cash equivalents at the beginning of the

year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15(a) 394,314 41,205 626,031

Effect of foreign currency exchange rate changes . . . . . (8,725) (61,439) (17,822)

Cash and cash equivalents at the end of the year . . . . . 15(a) 41,205 626,031 910,357


– I-10 –



Notes to the Historical Financial Information

(Expressed in RMB)

1 Basis of preparation and presentation of Historical Financial Information

Soulgate Inc. (“the Company”) was incorporated in the Cayman Islands on May 16, 2017 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. The Company and its subsidiaries

(collectively, the “Group”) are principally engaged in the operation of social networking online

platform and the provision of related value-added services to the platform users and advertising

services to their customers. The Group’s principal operations and geographic markets are in the

People’s Republic of China (“PRC”).

To ensure compliance with the relevant PRC laws and regulations, the Group conducts its

foreign investment-restricted business in PRC primarily through Shanghai Soulgate Technology Co.,

Ltd. (“Soulgate Technology”) based on a series of contractual arrangements (the “Contractual

Arrangements”) by and among Shanghai Soul Information Technology Co., Ltd. (“Shanghai Soul”),

Soulgate Technology and its shareholders. Details of the Contractual Arrangements are set out in the

section headed “Contractual Arrangements” in the Document.

The directors of the Company, based on the advice from its legal counsel, consider that the

Contractual Arrangements among Shanghai Soul, Soulgate Technology and its shareholders are in

compliance with the relevant PRC laws and regulations currently in effect and are legally binding

and enforceable. The Contractual Arrangements enable the Group to exercise power over Soulgate

Technology, receive variable returns from its involvement in Soulgate Technology and have the

ability to affect those returns through its power over Soulgate Technology. Therefore, the Group

controls Soulgate Technology and regards Soulgate Technology and its subsidiaries as controlled

structured entities.

As at the date of this report, the Company has direct or indirect interests in the following

subsidiaries, all of which are private companies. The subsidiaries established in the PRC are of

limited liability.

Company Name

Place and date of

incorporation/

establishment

Particulars of

issued and

paid-up capital Proportion of ownership Principal activities

Held by the

Company

Held by the

subsidiaries

Directly heldSoulgate HongKong Limited (iii) . . . . . Hong Kong

May 26, 2017Issued and

paid-up:USD252,747,456

100% — Investment holding

Soul Egg Holdings Limited (iv) . . . . . . Hong KongSeptember 16,2019

Issued: HKD1Paid-up: nil

100% — Investment holding

– I-11 –



Company Name

Place and date of

incorporation/

establishment

Particulars of

issued and

paid-up capital

Proportion of ownership

Principal activities

Held by the

Company

Held by the

subsidiaries

Indirectly heldShanghai Soul (上海搜爾信息科技有限公司) (i) (v) . . . . . . . . . . . . . . . . . . . . PRC

August 10,2017

Issued:USD375,000,000

Paid-up:USD239,000,000

— 100% Providingtechnology

development andconsulting services

Structured entities (ii)Soulgate Technology (上海任意門科技有限公司) (i) (v) . . . . . . . . . . . . . . . . . PRC

June 17, 2015Issued:

RMB10,000,000Paid-up:

RMB4,149,139

— 100% Providing socialnetworking related

services

Shanghai Huxingren InformationTechnology Co., Ltd. (上海護星人信息科技有限公司) (i) (vi) . . . . . . . . . . . PRC

October 19,2020

Issued:RMB1,000,000

Paid-up: nil

— 100% Providingsupporting services

for operation ofsocial networking

platformNanjing Huxingren Technology Co.,

Ltd. (南京護星人科技有限公司) (i)(vi) . . . . . . . . . . . . . . . . . . . . . . . . . . . PRC

December 23,2020

Issued:RMB1,000,000

Paid-up: nil

— 100% Providingsupporting service

for operation ofsocial networking

platformBeijing Soul Information Technology

Co., Ltd. (北京搜爾信息科技有限公司) (i) (vi) . . . . . . . . . . . . . . . . . . . . . PRC

October 20,2021

Issued:RMB5,000,000

Paid-up: nil

— 100% Research anddevelopment

service for socialnetworking

platform

Notes:

(i) The official names of these entities are in Chinese. The English translation of the names is for identification purpose only.

(ii) The Company does not have direct or indirect legal ownership in equity of the structured entities. Nevertheless, under the

Contractual Arrangements entered into with the structured entities and their shareholders, the Company and its other legally

owned subsidiaries have rights to exercise power over the structured entities, receive variable returns from their involvement

in the structured entities, and have the ability to affect those returns through their power over these structured entities. As a

result, these entities are presented as structured entities of the Group.

(iii) The entity prepared the financial statements for the years ended December 31, 2019 and 2020 in accordance with the Hong

Kong Small and Medium-sized Entity Financial Reporting Standard (“SME-FRS”) issued by the HKICPA. The financial

statements were audited by CLG CPA Limited. The audited financial statements for the year ended December 31, 2021 were

not yet issued as at the date of this report.

(iv) The entity prepared the financial statements for the years ended December 31, 2019 and 2020 in accordance with the SME-

FRS issued by the HKICPA. The financial statements were audited by Lun Man Ho Clement Certified Public Accountant

(Practising). The audited financial statements for the year ended December 31, 2021 were not yet issued as at the date of this

report.

(v) The entities prepared the financial statements for the years ended December 31, 2019, 2020 and 2021 in accordance with the

Accounting Standards for Business Enterprises issued by the Ministry of Finance of the PRC. The financial statements were

audited by Shanghai Honghua Certified Public Accountants Co., Ltd. (上海宏華會計師事務所有限公司).

(vi) No audited statutory financial statements were issued for these entities for the Relevant Periods.

– I-12 –



All companies comprising the Group have adopted December 31, 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 are set out in Note 2.

The IASB has issued a number of new and revised IFRSs. For the purpose of preparing this

Historical Financial Information, the Group has consistently adopted all applicable new and revised

IFRSs throughout the Relevant Periods, except for any new standards or interpretations that are not

yet effective for the accounting period beginning on January 1, 2021. The revised and new

accounting standards and interpretations issued but not yet effective for the accounting year

beginning January 1, 2021 and not yet adopted by the Group are set out in Note 27.

The Historical Financial Information also complies with the applicable disclosure provisions of

the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the

“Stock Exchange”).

The accounting policies set out in Note 2 have been applied consistently to all years presented

in the Historical Financial Information.

Going concern

The Historical Financial Information has been prepared on a going concern basis,

notwithstanding the facts that during the Relevant Periods:

(i) The Group’s total liabilities exceeded the total assets by approximately RMB9,224 million

as of December 31, 2021;

(ii) The Group has incurred losses since its inception. As of December 31, 2021, the Group

had accumulated losses of RMB2,530 million; and

(iii) The Group recorded net cash used in operating activities in the amount of

RMB279 million, RMB238 million and RMB794 million for the years ended

December 31, 2019, 2020 and 2021, respectively.

The directors of the Company are of the opinion that it is appropriate for the Historical

Financial Information to be prepared on a going concern basis, considering:

(i) As at December 31, 2021, the Group recorded financial liabilities resulting from

redeemable shares and financial liabilities for redemption obligations (Note 19) amounting

to RMB9,724 million. The directors of the Company have considered that the redemption

rights of these financial instruments would be terminated upon the closing of a qualified

[REDACTED] of the Company and the financial liabilities would be converted into

equity, resulting in the change from a net liability position to a net asset position.

– I-13 –



(ii) The directors of the Company believe that the amount of the Group’s available cash

balance as of December 31, 2021 and forecasted net cash flows for a period of one year

after the date of this report will be sufficient for the Group to satisfy its obligations and

commitments, except for the financial liabilities as described above, when they become

due for a reasonable period of time. The directors of the Company also believe that the

Group can adjust the pace of its business expansion and control operating expenses,

including selling and marketing expenses, when necessary.

2 Significant accounting policies

(a) Basis of measurement

The Historical Financial Information is presented in RMB, rounded to the nearest thousand

unless otherwise indicated.

The measurement basis used in the preparation of the Historical Financial Information is the

historical cost basis except that financial assets at FVTPL is stated at its fair value as explained in

the accounting policies.

(b) Use of estimates and judgments

The preparation of Historical Financial Information in conformity with IFRSs requires

management to make judgments, 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 judgments

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 recognized 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.

Judgments made by management in the application of IFRSs that have significant effect on the

financial statements and major sources of estimation uncertainty are discussed in Note 3.

(c) Basis of consolidation

The Historical Financial Information includes the financial statements of the Company and its

subsidiaries (collectively referred to as the “Group”) for the Relevant Periods. A subsidiary is an

– I-14 –



entity (including a structured entity), directly or indirectly, controlled by the Company. Control is

achieved when the Group is exposed, or has rights, to variable returns from its involvement with the

investee and has the ability to affect those returns through its power over the investee (i.e., existing

rights that give the Group the current ability to direct the relevant activities of the investee).

When the Group has, directly or indirectly, less than a majority of the voting or similar rights

of an investee, the Group considers all relevant facts and circumstances in assessing whether it has

power over an investee, including:

(a) The contractual arrangement with the other vote holders of the investee;

(b) Rights arising from other contractual arrangements; and

(c) The Group’s voting rights and potential voting rights.

The results of subsidiaries are consolidated from the date on which the Group obtains control,

and continues to be consolidated until the date that such control ceases. All intra-group assets and

liabilities, equity, income, expenses and cash flows relating to transactions between entities of the

Group are eliminated in full on consolidation. Unrealized losses resulting from intra-group

transactions are eliminated in the same way as unrealized gains but only to the extent that there is no

evidence of impairment.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate

that there are changes to one or more of the three elements of control described above. A change in

the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity

transaction.

If the Group loses control over a subsidiary, it derecognizes (i) the assets and liabilities of the

subsidiary, (ii) the carrying amount of any non-controlling interest in the subsidiary and (iii) the

cumulative translation differences in relation to the subsidiary recorded in equity; and recognizes

(i) the fair value of the consideration received, (ii) the fair value of any investment retained and

(iii) any resulting surplus or deficit in profit or loss. The Group’s share of components previously

recognized in other comprehensive income in relation to the subsidiary is reclassified to profit or

loss or retained profits, as appropriate, on the same basis as would be required if the Group had

directly disposed of the related assets or liabilities.

In the Company’s statement of financial position, an investment in a subsidiary is stated at cost

less impairment losses (see Note 2(h)(ii)).

(d) 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 recognized in profit or loss.

– I-15 –



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 recognizes such non-monetary assets or

liabilities.

The results of foreign operations are translated into RMB 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 recognized in other comprehensive income and

accumulated separately in equity in the exchange reserve.

(e) Other investments in debt and equity securities

The Group’s policies for investments in debt and equity securities, other than investments in

subsidiaries, are set out below.

Investments in debt and equity securities are recognized/derecognized on the date the Group

commits to purchase/sell the investment. The investments are initially stated at fair value plus

directly attributable transaction costs, except for those investments measured at FVTPL for which

transaction costs are recognized directly in profit or loss. For an explanation of how the Group

determines fair value of financial instruments, see Note 22(e). These investments are subsequently

accounted for as follows, depending on their classification.

(i) Investments other than equity investments

Non-equity investments held by the Group are classified into one of the following measurement

categories:

• amortized cost, if the investment is held for the collection of contractual cash flows which

represent solely payments of principal and interest. Interest income from the investment is

calculated using the effective interest method (See Note 2(r)(iii)).

• fair value through other comprehensive income (“FVOCI”)-recycling, if the contractual

cash flows of the investment comprise solely payments of principal and interest and the

investment is held within a business model whose objective is achieved by both the

collection of contractual cash flows and sale. Changes in fair value are recognized in other

comprehensive income, except for the recognition in profit or loss of expected credit losses,

interest income (calculated using the effective interest method) and foreign exchange gains

and losses. When the investment is derecognized, the amount accumulated in other

comprehensive income is recycled from equity to profit or loss.

• FVTPL if the investment does not meet the criteria for being measured at amortized cost or

FVOCI (recycling). Changes in the fair value of the investment (including interest) are

recognized in profit or loss.

– I-16 –



(ii) Equity investments

An investment in equity securities is classified as FVTPL unless the equity investment is not

held for trading purposes and on initial recognition of the investment the Group makes an irrevocable

election to designate the investment at FVOCI (non-recycling) such that subsequent changes in fair

value are recognized in other comprehensive income. Such elections are made on an

instrument-by-instrument basis, but may only be made if the investment meets the definition of

equity from the issuer’s perspective. Where such an election is made, the amount accumulated in

other comprehensive income remains in the fair value reserve (non-recycling) until the investment is

disposed of. At the time of disposal, the amount accumulated in the fair value reserve

(non-recycling) is transferred to retained earnings. It is not recycled through profit or loss. Dividends

from an investment in equity securities, irrespective of whether classified as at FVTPL or FVOCI,

are recognized in profit or loss as other income.

(f) Property and equipment

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

(see Note 2(h)(ii)).

Gains or losses arising from the retirement or disposal of an item of property and equipment are

determined as the difference between the net disposal proceeds and the carrying amount of the item

and are recognized in profit or loss on the date of retirement or disposal.

Depreciation is calculated to write off the cost of items of property and equipment, less their

estimated residual value, if any, using the straight-line method over their estimated useful lives as

follow:

• Office and electronic equipment 3 years

• Vehicles 4 years

• Leasehold improvements Shorter of 3 years or lease term

• Leasehold properties Over the term of lease

The Group reviews the estimated useful lives of the assets regularly in order to determine the

amount of depreciation expense to be recorded during any reporting period. The useful lives are

based on the Group’s historical experience with similar assets. The depreciation expense for future

periods is adjusted if there are material changes from previous estimates. Both the useful life of an

asset and its residual value, if any, are reviewed annually.

(g) Leased assets

At inception of a contract, the Group assesses whether the 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 customer has

both the right to direct the use of the identified asset and to obtain substantially all of the economic

benefits from that use.

– I-17 –



As a lessee

At the lease commencement date, the Group recognizes 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 capitalize the lease on a lease-by-lease basis. The lease payments associated with those leases

which are not capitalized are recognized as an expense on a systematic basis over the lease term.

Where the lease is capitalized, the lease liability is initially recognized 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 amortized 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.

The right-of-use asset recognized when a lease is capitalized 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 asset 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 (see Notes 2(f) and 2(h)(ii)).

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.

In the consolidated 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.

– I-18 –



(h) Credit losses and impairment of assets

(i) Credit losses from financial instruments

The Group recognizes a loss allowance for expected credit losses (ECLs) on financial assets

measured at amortized cost (including cash and cash equivalents, restricted cash, trade receivables

and other receivables).

Other financial assets measured at fair value, including investments in wealth management

products, are not subject to the ECL assessment.

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 fixed-rate financial assets, trade and other receivables and other

financial assets measured at amortized cost 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 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 recognizes 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.

– I-19 –



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 obligations to the Group in full, without recourse by the Group to actions such as realizing

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 of principal or interest 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 technological, 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 recognized as an impairment

gain or loss in profit or loss. The Group recognizes 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 recognized in accordance with Note 2(r)(iii) 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 amortized cost (i.e. the gross carrying amount less loss

allowance) of the financial asset.

– I-20 –



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.

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

reorganization;

• significant changes in the technological, market, economic or legal environment that have

an adverse effect on the debtor; or

• the disappearance of an active market for a security because of financial difficulties of the

issuer.

Write-off policy

The gross carrying amount of a financial asset is written off (either partially or in full) to the

extent that there is no realistic prospect of recovery. This is generally the case when the 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 recognized as a reversal of

impairment in profit or loss in the period in which the recovery occurs.

(ii) Impairment of other non-current 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

recognized no longer exists or may have decreased:

• property and equipment including right-of-use assets; and

• investment in subsidiaries in the Company’s statement of financial position;

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

– I-21 –



value using a pre-tax discount rate that reflects current market assessments of the time value of

money and the risks specific to the asset. 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).

• Recognition of impairment losses

An impairment loss is recognized 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

recognized in respect of cash-generating units are allocated first to reduce the carrying amount of

any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying

amount of the other 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 favorable 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 recognized in prior periods. Reversals of impairment losses

are credited to profit or loss in the period in which the reversals are recognized.

(i) Contract liabilities

A contract liability is recognized when the customer pays non-refundable consideration before

the Group recognizes the related revenue (see Note 2(r)). A contract liability would also be

recognized if the Group has an unconditional right to receive non-refundable consideration before

the Group recognizes the related revenue. In such cases, a corresponding receivable would also be

recognized (see Note 2(j)).

(j) Trade and other receivables

A receivable is recognized 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.

Receivables are stated at amortized cost using the effective interest method less allowance for

credit losses (see Note 2(h)(i)).

(k) Cash and cash equivalents

Cash and cash equivalents comprise cash at bank and term deposits, which are readily

convertible into known amounts of cash and subject to an insignificant risk of changes in value,

– I-22 –



having been within three months of maturity at acquisition. Cash and cash equivalents are assessed

for expected credit losses (ECL) in accordance with the policy set out in Note 2(h)(i).

(l) Restricted cash

Cash at bank that is restricted as to withdrawal or for use or pledged as security is reported

separately on the face of the consolidated statements of financial position.

(m) Other payables

Other payables are initially recognized at fair value, and subsequently stated at amortized cost

unless the effect of discounting would be immaterial, in which case they are stated at invoice

amounts.

(n) Redeemable shares and financial liabilities for redemption obligations

The Company issued several series of redeemable shares to [REDACTED]. The instrument

holders have the right to require the Company to redeem some or all of the shares held by the holders

upon certain redemption events, which are not all within the control of the Company.

The Company also issued a re-designation right to one of its shareholders when the shareholder

subscribed for the Company’s redeemable shares. With the re-designation right, any shares,

including the ordinary shares, purchased by this shareholder from other shareholders through

specified means shall be re-designated as redeemable shares. As the purchase of shares by this

shareholder from other shareholders, and the occurrence of the specified redemption triggering

events are beyond the Company’s control, the Company recognized the financial liabilities for its

obligations to buy back the shares arising from the redemption clauses of the re-designated shares

when the re-designation right was granted to the shareholder.

The redeemable shares and financial liabilities for redemption obligations are initially

recognized as financial liabilities at the present value of the redemption amount. The redeemable

shares and financial liabilities for redemption obligations are subsequently measured at amortized

cost, and any changes in the carrying amount of the redeemable shares and financial liabilities for

redemption obligations, except for those changes arising from transactions between the Company

and its shareholders in their capacity as owners (see Note 19), were recognized in profit or loss as

“changes in the carrying amount of redeemable shares and financial liabilities for redemption

obligations”.

The redeemable shares and financial liabilities for redemption obligations were classified as

current liabilities as certain redemption events may occur anytime. The redeemable shares will be

automatically converted into ordinary shares of the Company and the financial liabilities for

redemption obligations will be reclassified to equity, upon the closing of a qualified [REDACTED]

of the Company.

– I-23 –



(o) 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 year 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) Share-based payments

A share-based payment is classified as either an equity-settled share-based payment or a cash-

settled share-based payment. The term “equity-settled share-based payment” refers to a transaction in

which the Group grants share options, restricted share units (“RSUs”), or other equity instruments as

a consideration in return for services rendered or a transaction in which the Group receives services

but has no obligation to settle the transaction.

The grant-date fair value of equity-settled share-based payments granted to employees is

recognized as an employee cost with a corresponding increase in a share-based payments reserve

within equity. Where the employees have to meet vesting conditions before becoming

unconditionally entitled to the equity instruments, the total estimated fair value of the equity

instruments is spread over the vesting period, taking into account the probability that the equity

instruments will vest.

During the vesting period, the number of equity instruments that is expected to vest is

reviewed. Any resulting adjustment to the cumulative fair value recognized in prior years is charged

/ credited to the profit or loss for the year of the review, unless the original employee expenses

qualify for recognition as an asset, with a corresponding adjustment to the share-based payments

reserve. On vesting date, the amount recognized as an expense is adjusted to reflect the actual

number of equity instruments that vest (with a corresponding adjustment to the share-based payments

reserve) except where forfeiture is only due to not achieving vesting conditions that relate to the

[REDACTED] of the Company’s shares.

Modifications of an equity-settled share-based payment arrangement are accounted for only if

they are beneficial to the employee. If the Group modifies the terms or conditions of the equity

instruments granted in a manner that reduces the fair value of the equity instruments granted, or is

not otherwise beneficial to the employee, the Group continues to recognize the services received

measured at the grant date fair value of the equity instruments granted, unless those equity

instruments do not vest because of failure to satisfy a vesting condition (other than a market

condition) that was specified at grant date.

– I-24 –



(iii) Termination benefits

Termination benefits are recognized at the earlier of when the Group can no longer withdraw

the offer of those benefits and when it recognizes restructuring costs involving the payment of

termination benefits.

(p) Income tax

Income tax for the year comprises current tax and movements in deferred tax assets and

liabilities. Current tax and movements in deferred tax assets and liabilities are recognized in profit or

loss except to the extent that they relate to items recognized in other comprehensive income or

directly in equity, in which case the relevant amounts of tax are recognized in other comprehensive

income or directly in equity, respectively.

Current tax is the expected tax payable on the taxable income for the year, using tax rates

enacted or substantively enacted at the end of the reporting period, and any adjustment to tax payable

in respect of previous years.

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.

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 utilized, are recognized. 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 utilized.

The limited exceptions to recognition of deferred tax assets and liabilities are those temporary

differences arising from goodwill not deductible for tax purposes, 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.

– I-25 –



The amount of deferred tax recognized is measured based on the expected manner of realization

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 utilized. 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 Company or 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 realize the asset and settle the liability simultaneously; or

• in the case of deferred tax assets and liabilities, if they relate to income taxes 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

realize the current tax assets and settle the current tax liabilities on a net basis or

realize and settle simultaneously.

(q) Provisions and contingent liabilities

Provisions are recognized 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.

Where some or all of the expenditure required to settle a provision is expected to be reimbursed

by another party, a separate asset is recognized for any expected reimbursement that would be

virtually certain. The amount recognized for the reimbursement is limited to the carrying amount of

the provision.

– I-26 –



(r) Revenue and other income

Income is classified by the Group as revenue when it arises from the provision of services in

the ordinary course of the Group’s business.

Revenue is recognized 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) Valued-added services

The Group primarily derives revenues from providing value-added services to its users via

operating a social networking platform. Users get free access to basic functionalities on the platform,

such as private messaging and content sharing. Users can also, through third-party payment service


various virtual items and membership privileges on the platform, which are the performance

obligations of the Group to the paying users of the social networking platform. Revenue derived

from the sale of virtual items and memberships are recognized on a gross basis as the Group is the

principal with respect to the fulfillment of the associated promises. As such, where the Group shares

a fixed percentage of fees it receives from paying users with third-party payment service providers,

such fees are presented as cost of sales.

Virtual items, which can be acquired through credits, provide access to value-added services



or durable.

Consumable virtual items represent items that can be consumed by a specific user action at a

point in time. The Group recognizes revenue attributable to consumable virtual items at the point in

time when those items are consumed by a specific user action. Substantially all of durable virtual

items are made available to the users over a predetermined period of time, over which the Group

recognizes revenue on a straight-line basis related to these durable virtual items. To a lesser extent,

certain durable virtual items are made available to the user without any time limits. The Group

recognizes revenue related to these durable virtual items on a straight-line basis over an estimated

period, which is determined based on the expected service period taking into account all known and

relevant information at the time of assessment such as historical users’ behavioral pattern. This

estimate is reassessed on a quarterly basis. Adjustments arising from the changes of estimated period

of the users resulting from new information are applied prospectively as changes in estimates.



– I-27 –




ranging from one month to one year. The Group recognizes revenue relating to membership

privileges on a straight-line basis over the membership period.

(ii) Advertising services

The Group provides display-based mobile advertising services to its customers, which allow

customers to place advertisements on particular areas of the Group’s social networking platform in

different formats, including but not limited to launch screen advertisements and feed advertisements,

over a period of time. The Group determines each format of advertisements as a distinct performance

obligation, and allocates the total consideration to each performance obligation based on its

standalone selling price. Revenues for each performance obligation are recognized ratably over the

period that format of advertisements is displayed.

(iii) Interest income

Interest income is recognized as it accrues using the effective interest rate method. For financial

assets measured at amortized 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 amortized cost (i.e. gross carrying amount net of loss allowance) of the asset (see

Note 2(h)(i)).

(s) Share capital

Ordinary shares are classified as equity, except for those with redemption feature which are

classified as redeemable shares. See Note 2(n) for the accounting policy on redeemable shares.

(t) 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 (which means that each

parent, subsidiary and fellow subsidiary is related to the others).

(ii) One entity is an associate or joint venture of the other entity (or an associate or joint

venture of a member of a group of which the other entity is a member).

– I-28 –



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

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

the third entity.

(v) The entity is a post-employment benefit plan for the benefit of 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.

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.

(u) Segment reporting

Operating segments, and the amounts of each segment item reported in the financial statements,

are identified from the financial information provided regularly to the Group’s most senior executive

management for the purposes of allocating resources to, and assessing the performance of, the

Group’s various lines of business and geographical locations.

Individually material operating segments are not aggregated for financial reporting purposes

unless the segments have similar economic characteristics and are similar in respect of the nature of

products and services, the nature of production processes, the type or class of customers, the

methods used to distribute the products or provide the services, and the nature of the regulatory

environment. Operating segments which are not individually material may be aggregated if they

share a majority of these criteria.

3 Accounting judgment and estimates

Estimates and judgments are continually evaluated and are based on historical experience and

other factors, including expectations of future events that are believed to be reasonable under the

circumstances.

– I-29 –



The Group makes estimates and assumptions concerning the future. The resulting accounting

estimates may not be equal to the related actual results. Significant sources of estimation uncertainty

are as follows:

Share-based payments

The Group grants share options to employees and other applicable grantees. The Group has

used the binomial option pricing model to determine the fair value of the share options as at the grant

date. The determination of the fair value of share options is affected by the significant assumptions

such as the underlying equity value, the expected volatility of share price, exercise multiple and risk-

free interest rate (see Note 20).

4 Revenue and segment reporting

(a) Revenue from contracts with customers

The Group is principally engaged in providing value-added services and advertising services.

Disaggregation of revenue from contracts with customers by major service lines is as follows:


2019 2020 2021

RMB’000 RMB’000 RMB’000

Valued-added services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,707 485,247 1,202,480

Advertising services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 12,766 77,864

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 831

70,707 498,013 1,281,175

Disaggregation of revenue from contracts with customers by the timing of revenue recognition

is as follows:


2019 2020 2021

RMB’000 RMB’000 RMB’000

Point in time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,983 326,073 1,026,529

Over time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,724 171,940 254,646

70,707 498,013 1,281,175

The Group’s customer base is diversified, where there was no customer with whom transactions

have exceeded 10% of the Group’s revenue in each of the year during the Relevant Periods.

The Group has applied the practical expedient in paragraph 121 of IFRS 15 and therefore the

information about remaining performance obligations is not disclosed for contracts that have an

original expected duration of one year or less.

– I-30 –



(b) Segment Reporting

The Group manages its businesses as a whole by the chief operating decision maker for the

purposes of resource allocation and performance assessment. The Group has one operating segment,

which is the provision of value-added services and advertising services. The Group’s chief operating

decision maker is the chief executive officer of the Group who reviews the Group’s combined results

of operations in assessing performance of and making decisions about allocations to this segment.

Accordingly, no reportable segment information is presented.

As substantially all of the Group’s operations and assets are in the PRC, no geographic

information is presented.

5 Other income/(loss), net


2019 2020 2021

RMB’000 RMB’000 RMB’000

Changes in fair value of financial assets at FVTPL (Note 22(e)) . . . . . . . . . . . 1,103 151 97

Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 953 570 869

Net foreign exchange gains/(losses) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,559 (6,444) (5,631)

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (227) — 390

6,388 (5,723) (4,275)

6 Loss before taxation

Loss before taxation is arrived at after charging:

(a) Finance costs


Note 2019 2020 2021

RMB’000 RMB’000 RMB’000

Interest on lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15(b) 278 449 1,803

– I-31 –



(b) Staff costs


Note 2019 2020 2021

RMB’000 RMB’000 RMB’000

Salaries, wages, bonuses and other benefits . . . . . . . . . . . . . . . . . . . . . 68,097 142,289 386,692

Share-based payment expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 11,906 39,274 47,816

Contributions to defined contribution retirement schemes . . . . . . . . . . 5,540 638 36,201

85,543 182,201 470,709

The employees of subsidiaries of the Group established in the PRC (excluding Hong Kong)

participate in defined contribution retirement schemes managed by the local government authorities,

whereby the Group is required to contribute to the schemes at a rate ranged 14% to 20% of the

employees’ basic salaries. Employees of these subsidiaries of the Group are entitled to retirement

benefits, calculated based on a percentage of the average salaries level in the PRC (excluding Hong

Kong), from the above mentioned retirement schemes at their normal retirement age.

According to <The notification about progressively relief corporate social insurance>

(Department of human resource and social security [2020]11) and <The notification about extension

of implementation period for about progressively relief corporate social insurance> (Department of

human resource and social security [2020]49), certain subsidiaries in the Group are entitled to relief

of social insurance contribution from February 2020 to December 2020.

The Group has no further material obligation for payment of other retirement benefits beyond

the above contributions.

(c) Other items


Note 2019 2020 2021

RMB’000 RMB’000 RMB’000

Advertising and promotion expenses . . . . . . . . . . . . . . . . . . . . . . . . . 196,605 602,077 1,456,176

Technology service fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,476 83,589 161,074

Commission fees paid to third-party payment platforms . . . . . . . . . . 10,028 60,114 96,729

Outsourcing and other labor cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,887 34,374 29,873

Professional service fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,792 9,022 27,447

[REDACTED] expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 7,542

Auditors’ remuneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 3,325 2,365

Depreciation charge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

- owned property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,873 1,872 4,164

- leasehold properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,387 7,860 20,825

– I-32 –



7 Income tax in the consolidated statements of profit or loss and other comprehensive

income

(a) Taxation in the consolidated statements of profit or loss and other comprehensive income

represents:

The Group had no current or deferred income tax expense during the Relevant Periods.

(b) Reconciliation between tax expense and accounting loss at applicable tax rates:


Note 2019 2020 2021

RMB’000 RMB’000 RMB’000

Loss before taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (353,433) (579,050) (1,324,444)

Notional tax calculated at tax rate of 25% . . . . . . . . . . . . . . . . (i) (88,358) (144,763) (331,111)

Tax rate differential for non-PRC entities . . . . . . . . . . . . . . . . . (ii) 135 3,553 3,872

Effect of preferential tax rate applicable to a subsidiary of the

Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (iii) — — (105,656)

Effect of additional deduction on research and development

expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (iv) — (13,325) (32,961)

Tax effect of non-deductible expenses . . . . . . . . . . . . . . . . . . . (v) 15,315 28,349 82,034

Tax effect of unused tax losses and deductible temporary

differences not recognized . . . . . . . . . . . . . . . . . . . . . . . . . . 72,908 126,186 383,822

Actual tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —

Notes:

(i) The Group’s subsidiaries established in the Mainland China, including structured entities, are subject to PRC Enterprise

Income Tax rate of 25%.

(ii) Pursuant to the current rules and regulations of the Cayman Islands, the Company is not subject to income tax in Cayman

Islands.

The Company’s subsidiaries incorporated in Hong Kong are subject to Hong Kong Profits Tax at 16.5% of the estimated

assessable profit. No provision for Hong Kong Profits Tax has been made, as the subsidiaries of the Group incorporated in

Hong Kong did not have assessable profits which were subject to Hong Kong Profits Tax during the Relevant Periods.

(iii) Since 2021, Soulgate Technology fulfilled the criteria required for preferential income tax rate granted to “Software

Enterprise” in the PRC, which entitled it to an income tax exemption for two years starting from its first profitable year and a

50% reduction to a rate of 12.5% for the subsequent three years.

(iv) According to the relevant tax rules in the PRC, qualified research and development expenses are allowed for additional

deduction based on 75% of such qualified expenses incurred from the taxable income during the Relevant Periods.

(v) Non-deductible expenses mainly represent changes in the carrying amount of redeemable shares and financial liabilities for

redemption obligations and share-based payments expenses during the Relevant Periods.

– I-33 –



(c) Deferred tax assets not recognized

In accordance with the accounting policy set out in Note 2(p), the Group has not recognized

deferred tax assets in respect of cumulative tax losses of RMB302,977,000, RMB310,753,000 and

RMB631,426,000 and deductible temporary differences of RMB170,894,000, RMB671,977,000 and

RMB1,893,305,000 as at December 31, 2019, 2020 and 2021, respectively, as it is not probable that

future taxable profits against which the cumulative tax losses and deductible temporary differences

can be utilized will be available in the relevant tax jurisdiction and entity.

The cumulative tax losses will be carried forward and expire in years as follows:

At December 31,

2019 2020 2021

RMB‘000 RMB‘000 RMB‘000

2020 5 — —

2021 497 — —

2022 7,315 2,965 2,965

2023 174,208 163,117 163,117

2024 120,745 84,463 84,463

2025 — 59,747 50,881

2026 and thereafter 207 461 330,000

302,977 310,753 631,426

8 Directors’ emoluments

Details of the emoluments of the directors during the Relevant Periods are as follows:


Directors’

fees

Salaries,

wages,

bonuses

and

other

benefits

Contributions

to defined

retirement

schemes Sub-Total

Share-

based

payments

(Note(i)) Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Chairwoman / Chief Executive Officer

Ms. Zhang Lu . . . . . . . . . . . . . . . . . . . . . 1,758 842 35 2,635 2,362 4,997

Executive directors

Mr. Tao Ming . . . . . . . . . . . . . . . . . . . . . — 1,181 8 1,189 635 1,824

Mr. Li Long . . . . . . . . . . . . . . . . . . . . . . — 814 35 849 431 1,280

– I-34 –




Directors’

fees

Salaries,

wages,

bonuses

and

other

benefits

Contributions

to defined

retirement

schemes Sub-Total

Share-

based

payments

(Note(i)) Total


Non-executive directors

Mr. Ding Zhiyuan . . . . . . . . . . . . . . . . . — — — — — —

Mr. Wu Man Chak . . . . . . . . . . . . . . . . — — — — — —

Mr. Yuan Ye . . . . . . . . . . . . . . . . . . . . . — — — — — —

Mr. Chi Wanjin . . . . . . . . . . . . . . . . . . . — — — — — —

1,758 2,837 78 4,673 3,428 8,101


Directors’

fees

Salaries,

wages,

bonuses

and

other

benefits

Contributions

to defined

retirement

schemes Sub-Total

Share-

based

payments

(Note(i)) Total


Chairwoman / Chief Executive

Officer

Ms. Zhang Lu . . . . . . . . . . . . . . . . . . . . . 1,758 1,236 4 2,998 7,088 10,086

Executive directors

Mr. Tao Ming . . . . . . . . . . . . . . . . . . . . . — 1,891 4 1,895 8,815 10,710

Mr. Li Long (resigned on February 21,

2020) . . . . . . . . . . . . . . . . . . . . . . . . . — 109 4 113 2,454 2,567

Mr. Zhang Yumeng (appointed on

February 21, 2020 and resigned on

December 31, 2020) . . . . . . . . . . . . . . — 457 — 457 235 692

Ms. Xue Rui (appointed on

December 31, 2020) . . . . . . . . . . . . . . — — — — — —

– I-35 –




Directors’

fees

Salaries,

wages,

bonuses

and

other

benefits

Contributions

to defined

retirement

schemes Sub-Total

Share-

based

payments

(Note(i)) Total


Non-executive directors

Mr. Ding Zhiyuan (resigned on

December 31, 2020) . . . . . . . . . . . . . . — — — — — —

Mr. Wu Man Chak (resigned on

May 14, 2020) . . . . . . . . . . . . . . . . . . — — — — — —

Mr. Yuan Ye . . . . . . . . . . . . . . . . . . . . . — — — — — —

Mr. Chi Wanjin (resigned on

December 31, 2020) . . . . . . . . . . . . . . — — — — — —

Mr. Wang Wenjie (appointed on

May 14, 2020) . . . . . . . . . . . . . . . . . . — — — — — —

1,758 3,693 12 5,463 18,592 24,055


Directors’

fees

Salaries,

wages,

bonuses

and

other

benefits

Contributions

to defined

retirement

schemes Sub-Total

Share-

based

payments

(Note(i)) Total


Chairwoman/ Chief Executive Officer

Ms. Zhang Lu . . . . . . . . . . . . . . . . . . . . . 697 1,396 57 2,150 47 2,197

Executive directors

Mr. Tao Ming . . . . . . . . . . . . . . . . . . . . . 697 1,903 53 2,653 8,426 11,079

Mr. Zhang Gaozheng (appointed on

October 10, 2021) . . . . . . . . . . . . . . . — 482 14 496 4 500

Ms. Xue Rui (resigned on

November 19, 2021) . . . . . . . . . . . . . — 2,256 — 2,256 3,647 5,903

Mr. Zhang Yumeng (appointed on

October 10, 2021 and resigned on

November 19, 2021) . . . . . . . . . . . . . — 124 10 134 32 166

– I-36 –




Directors’

fees

Salaries,

wages,

bonuses

and

other

benefits

Contributions

to defined

retirement

schemes Sub-Total

Share-

based

payments

(Note(i)) Total


Non-executive directorsMr. Chi Wanjin (appointed on

October 10, 2021 and resigned onNovember 23, 2021) . . . . . . . . . . . . . — — — — — —

Mr. Yuan Ye . . . . . . . . . . . . . . . . . . . . . — — — — — —Mr. Wu Di (appointed on October 10,

2021) . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — —Ms. Wu Yu (appointed on March 19,

2021) . . . . . . . . . . . . . . . . . . . . . . . . . — — — — — —Mr. Wang Wenjie (resigned on

March 19, 2021) . . . . . . . . . . . . . . . . . — — — — — —

1,394 6,161 134 7,689 12,156 19,845

Notes:

(i) These represent the estimated value of share options granted to the directors under the Company’s share incentive plan. The

value of these share options is measured according to the Group’s accounting policies for share-based payment transactions

and, in accordance with that policy, includes adjustments to reverse amounts accrued in previous years where grants of equity

instruments are forfeited prior to vesting. The details of these benefits in kind, including the principal terms and number of

options granted, are disclosed in Note 20.

(ii) During the Relevant Periods, no emoluments were paid by the Group to the directors or any of the five highest paid individuals

as set out in Note 9 below as an inducement to join or upon joining the Group or as compensation for loss of office.

(iii) Ms. Xu Lili, Mr. Huang Xiaohuang and Ms. Chen Han were appointed as independent non-executive directors with effect

from the [REDACTED] date of the Company.

9 Individuals with highest emoluments

The number of directors and non-directors included in the five highest paid individuals for the

years ended December 31, 2019, 2020 and 2021 are set forth below:

Year ended

December 31,

2019 2020 2021

Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3 3

Non-directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2 2

5 5 5

– I-37 –



The emoluments of the directors are disclosed in Note 8. The aggregate of the emoluments in

respect of the remaining highest paid individuals are as follows:


2019 2020 2021

RMB’000 RMB’000 RMB’000

Salaries, wages, bonuses and other benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,998 3,294 3,185

Share-based payments expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 345 981 3,062

Contributions to defined retirement schemes . . . . . . . . . . . . . . . . . . . . . . . . . . 14 8 105

2,357 4,283 6,352

The emoluments of the individuals who are not directors and who are amongst the five highest

paid individuals of the Group are within the following bands:


2019 2020 2021

Number of

individuals

Number of

individuals

Number of

individuals

HKD Nil — HKD 1,000,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —

HKD 1,000,001 — HKD 1,500,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 — —

HKD 2,000,001 — HKD 2,500,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1 —

HKD 2,500,001 — HKD 3,000,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1 1

HKD 4,500,001 — HKD 5,000,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 1

2 2 2

10 Loss per share

As disclosed in Note 19, the Company has an obligation to redeem its ordinary shares upon the

occurrence of certain contingent events for which financial liabilities have been recognized. The

Company’s ordinary shares have therefore become contingently redeemable and not treated as

outstanding for the purpose of calculating basic loss per share. Such status continued during the

period from May 14, 2020 to May 10, 2021, and October 10, 2021 to December 31, 2021. No loss

per share information is presented in this report as its inclusion would not provide a meaningful and

comparable measure of the interests of each outstanding ordinary share of the Company in the

performance of the Company over the Relevant Periods.

– I-38 –



11 Property and equipment

(a) Reconciliation of carrying amount

Office and

electronic

equipment Vehicles

Leasehold

improvements

Leasehold

properties Total

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

Cost:At January 1, 2019 . . . . . . . . . . . . . . . . . . . 865 — 801 2,550 4,216

Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 874 — 1,579 8,139 10,592

Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (801) (2,550) (3,351)

At December 31, 2019 . . . . . . . . . . . . . . . . . 1,739 — 1,579 8,139 11,457- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

At January 1, 2020 . . . . . . . . . . . . . . . . . . . 1,739 — 1,579 8,139 11,457

Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,763 1,002 957 29,602 34,324

Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (141) (8,139) (8,280)

At December 31, 2020 . . . . . . . . . . . . . . . . . 4,502 1,002 2,395 29,602 37,501- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

At January 1, 2021 . . . . . . . . . . . . . . . . . . . 4,502 1,002 2,395 29,602 37,501

Additions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,087 — 4,966 86,306 103,359

Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . (300) — — — (300)

At December 31, 2021 . . . . . . . . . . . . . . . . . 16,289 1,002 7,361 115,908 140,560- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Accumulated depreciation:At January 1, 2019 . . . . . . . . . . . . . . . . . . . (72) — (148) (1,092) (1,312)

Charge for the year . . . . . . . . . . . . . . . . . . . . (401) — (1,472) (5,387) (7,260)

Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 801 2,550 3,351

At December 31, 2019 . . . . . . . . . . . . . . . . . (473) — (819) (3,929) (5,221)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

At January 1, 2020 . . . . . . . . . . . . . . . . . . . (473) — (819) (3,929) (5,221)

Charge for the year . . . . . . . . . . . . . . . . . . . . (849) (79) (944) (7,860) (9,732)

Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 82 8,139 8,221

At December 31, 2020 . . . . . . . . . . . . . . . . . (1,322) (79) (1,681) (3,650) (6,732)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

At January 1, 2021 . . . . . . . . . . . . . . . . . . . (1,322) (79) (1,681) (3,650) (6,732)

Charge for the year . . . . . . . . . . . . . . . . . . . . (2,798) (238) (1,128) (20,825) (24,989)

Disposals . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 — — — 54

At December 31, 2021 . . . . . . . . . . . . . . . . . (4,066) (317) (2,809) (24,475) (31,667)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Net book value:At December 31, 2019 . . . . . . . . . . . . . . . . . 1,266 — 760 4,210 6,236

At December 31, 2020 . . . . . . . . . . . . . . . . . 3,180 923 714 25,952 30,769

At December 31, 2021 . . . . . . . . . . . . . . . . . 12,223 685 4,552 91,433 108,893

– I-39 –



(b) Leasehold properties

(i) The Group’s leased offices expire from 1 to 5 years. None of the leases includes an option

to purchase the leased assets at the end of the lease term.

(ii) The analyzes of expenses items in relation to leases recognized in the Group’s profit or

loss are as follows:


Note 2019 2020 2021

RMB’000 RMB’000 RMB’000

Depreciation charge of leasehold properties . . . . . . . . . . . . . . . . . . . . . . 5,387 7,860 20,825

Interest on lease liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6(a) 278 449 1,803

Expense relating to short-term leases . . . . . . . . . . . . . . . . . . . . . . . . . . . 280 641 5,505

5,945 8,950 28,133

(iii) Details of total cash outflow for leases and the maturity analysis of lease liabilities are set

out in Notes 15(c) and 18, respectively.

12 Trade receivables

At December 31,

2019 2020 2021

RMB‘000 RMB‘000 RMB‘000

Trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 11,800 33,751

Less: loss allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (555)

— 11,800 33,196

Aging analyzes

As of the end of each reporting period, the aging analysis of trade receivable, based on the bill

date and net of loss allowance, of the Group are as follows:

At December 31,

2019 2020 2021

RMB‘000 RMB‘000 RMB‘000

Less than 1 month . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 11,800 27,871

More than 1 month but less than 3 months . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 3,119

More than 3 months but less than 6 months . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 2,165

More than 6 months but less than 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 41

— 11,800 33,196

– I-40 –



Further details on the Group’s credit policy and credit risk are set out in Note 22(a).

13 Prepayments, deposits and other receivables

At December 31,

2019 2020 2021

RMB‘000 RMB‘000 RMB‘000

Deductible input VAT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,022 10,511 36,745Receivable from third-party payment platforms . . . . . . . . . . . . . . . . . . . . . . . 10,245 17,115 59,639Deferred payment platforms commission fee . . . . . . . . . . . . . . . . . . . . . . . . . 2,210 4,800 8,403Rental deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,937 307 8,787Prepaid advertising expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 10,308 3,532Advances to third parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 3,300 —Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 714 3,789 5,739

30,142 50,130 122,845

All of the prepayments, deposits and other receivables are expected to be recovered or

recognized as expenses within one year.

14 Financial assets at fair value through profit or loss

Financial assets at FVTPL represent wealth management products purchased from commercial

banks in the PRC with variable interest, and will mature within one year as of the end of each of the

reporting period.

At December 31,

2019 2020 2021

RMB‘000 RMB‘000 RMB‘000

Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,000 — —Changes in fair value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 — —

50,029 — —

15 Cash and cash equivalents and other cash flow information

(a) Cash and cash equivalents comprise:

The Group

At December 31,

2019 2020 2021

RMB‘000 RMB‘000 RMB‘000

Cash at bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,205 626,031 942,217Term deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,000 — —Less: restricted cash (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (31,860)

41,205 626,031 910,357

– I-41 –



The Company

At December 31,

2019 2020 2021

RMB‘000 RMB‘000 RMB‘000

Cash at bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 712 583,700 810,717

712 583,700 810,717

Note:

(i) Restricted cash as of December 31, 2021 represents cash at bank frozen by the courts for the Group’s pending litigations. See

Note 23 for related contingencies.

(b) Reconciliation of liabilities arising from financing activities

The table below details 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 consolidated cash flow

statement as cash flows from financing activities.

Redeemable

shares and

financial

liabilities for

redemption

obligations

Issuance cost

payables

(included in

other payables

and accrued

expenses)

Lease

Liabilities Total

RMB‘000 RMB‘000 RMB‘000 RMB‘000

At January 1, 2019 . . . . . . . . . . . . . . . . . . . . . . . . 628,533 8,711 1,027 638,271- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Changes from financing cash flows:Payment of issuance cost of redeemable shares . . . — (8,711) — (8,711)

Payment of capital element of lease liabilities . . . . — — (4,864) (4,864)

Payment of interest element of lease liabilities . . . . — — (278) (278)

Total changes from financing cash flows . . . . . . — (8,711) (5,142) (13,853)- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Other changes:Changes in the carrying amount of redeemable

shares and financial liabilities for redemption

obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,216 — — 49,216

Increase in lease liabilities from entering into new

leases during the year . . . . . . . . . . . . . . . . . . . . . — — 8,139 8,139

Interest expenses (Note 6(a)) . . . . . . . . . . . . . . . . . — — 278 278

Exchange adjustments . . . . . . . . . . . . . . . . . . . . . . . 10,922 — — 10,922

Total other changes . . . . . . . . . . . . . . . . . . . . . . . . . 60,138 — 8,417 68,555- - - - - - - - - - - - - - - - - - - - - - - - - - - - -

- - - - - - - - - - - - - -- - - - - - - - - - - - - - -

At December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . 688,671 — 4,302 692,973

– I-42 –



Redeemable

shares and

financial

liabilities for

redemption

obligations

Lease

Liabilities Total

RMB‘000 RMB‘000 RMB‘000

At January 1, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 688,671 4,302 692,973- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Changes from financing cash flows:Proceeds from issuance of redeemable shares . . . . . . . . . . . . . . . . . . 956,734 — 956,734

Payment of issuance cost of redeemable shares . . . . . . . . . . . . . . . . . (8,578) — (8,578)

Payment of capital element of lease liabilities . . . . . . . . . . . . . . . . . . — (6,495) (6,495)

Payment of interest element of lease liabilities . . . . . . . . . . . . . . . . . — (449) (449)

Total changes from financing cash flows . . . . . . . . . . . . . . . . . . . . 948,156 (6,944) 941,212- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Other changes:Consideration receivable for issuance of redeemable shares . . . . . . . 1,064 — 1,064


liabilities for redemption obligations . . . . . . . . . . . . . . . . . . . . . . . 73,960 — 73,960

Effect of grant of re-designation rights to a shareholder on

redeemable shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,567,368 — 2,567,368

Recognition of financial liabilities for redemption obligations . . . . . 3,739,207 — 3,739,207

Increase in lease liabilities from entering into new leases during the

period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 29,602 29,602

Interest expenses (Note 6(a)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 449 449

Exchange adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (631,632) — (631,632)

Total other changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,749,967 30,051 5,780,018- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

At December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,386,794 27,409 7,414,203

Redeemable

shares and

financial

liabilities for

redemption

obligations

Lease

Liabilities Total

RMB‘000 RMB‘000 RMB‘000

At January 1, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,386,794 27,409 7,414,203- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Changes from financing cash flows:Proceeds from issuance of redeemable shares . . . . . . . . . . . . . . . . . . 1,149,649 — 1,149,649

Payment of issuance cost of redeemable shares . . . . . . . . . . . . . . . . . (13,548) — (13,548)

Payment of capital element of lease liabilities . . . . . . . . . . . . . . . . . . — (20,665) (20,665)

Payment of interest element of lease liabilities . . . . . . . . . . . . . . . . . — (1,803) (1,803)

Total changes from financing cash flows . . . . . . . . . . . . . . . . . . . . 1,136,101 (22,468) 1,113,633- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

– I-43 –



Redeemable

shares and

financial

liabilities for

redemption

obligations

Lease

Liabilities Total

RMB‘000 RMB‘000 RMB‘000

Other changes:


liabilities for redemption obligations . . . . . . . . . . . . . . . . . . . . . . 277,888 — 277,888

Effect of termination of re-designation rights granted to a

shareholder on redeemable shares . . . . . . . . . . . . . . . . . . . . . . . . . (2,285,846) — (2,285,846)

Reclassification of financial liabilities for redemption obligations

to equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,395,422) — (3,395,422)

Re-designation of ordinary shares and preferred shares into Series

D-3 redeemable shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,607,187 — 2,607,187

Effect of grant of re-designation rights to a shareholder on

redeemable shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,012,924 — 1,012,924

Recognition of financial liabilities for redemption obligations . . . . . 3,197,910 — 3,197,910

Increase in lease liabilities from entering into new leases during the

period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 78,395 78,395

Interest expenses (Note 6(a)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,803 1,803

Exchange adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (213,913) — (213,913)

Total other changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,200,728 80,198 1,280,926- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

At December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,723,623 85,139 9,808,762

(c) Total cash outflow for leases

Amounts included in the cash flow statement for leases comprise the following:


2019 2020 2021

RMB‘000 RMB‘000 RMB‘000

Within operating cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303 679 6,815

Within financing cash flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,142 6,944 22,468

Total lease rentals paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,445 7,623 29,283

– I-44 –



16 Other payables and accrued expenses

At December 31,

2019 2020 2021

RMB‘000 RMB‘000 RMB‘000

Advertising and promotion fee payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 202,811 415,874

Salary and welfare payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,918 46,720 74,682

Technology service fee payables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,262 15,760 37,719

Other taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,721 3,241 15,732

Human resource outsourcing service fee payables . . . . . . . . . . . . . . . . . . . . . 863 3,039 4,607

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500 11,558 21,903

49,264 283,129 570,517

All of the other payables and accrued expenses are expected to be settled within one year or are

repayable on demand.

17 Contract liabilities

Contract liabilities primarily represent the contract liability in connection with the advances

from valued-added services of virtual item sales and membership subscription and advertising

services from online marketing services customers. The following table sets forth contract liabilities

as of the dates indicated, respectively:

At December 31,

2019 2020 2021

RMB‘000 RMB‘000 RMB‘000

Valued-added services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,319 34,376 61,154

Advertising services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 140 2,150

Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 121

12,319 34,516 63,425

Normally the Group receives advanced payments before the provision of services to customers.

Contract liabilities represent the Group’s obligations to provide services to customers for which the

Group has received advanced payments from such customers.

Valued-added services and advertising services are generally rendered within one year after the

contracts with the customers are entered into.

The amount of revenue recognized for the years ended December 31, 2019, 2020 and 2021 that

was included in contract liabilities as at January 1, 2019, 2020 and 2021 was nil, RMB10.0 million

and RMB26.4 million respectively.

– I-45 –



18 Lease liabilities

As at December 31, 2019, 2020 and 2021, the lease liabilities were repayable as follows:

At December 31,

2019 2020 2021

RMB‘000 RMB‘000 RMB‘000

Within 1 year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,302 14,471 20,660- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

After 1 year but within 2 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 12,938 20,111

After 2 year but within 5 years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 44,368

— 12,938 64,479- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

4,302 27,409 85,139

19 Redeemable shares and financial liabilities for redemption obligations

The Group and the Company

At December 31,

2019 2020 2021

RMB‘000 RMB‘000 RMB‘000

Redeemable shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 688,671 3,947,944 6,567,639

Financial liabilities for redemption obligations (Note (b) and (e)) . . . . . — 3,438,850 3,155,984

688,671 7,386,794 9,723,623

The movements of the redeemable shares and financial liabilities for redemption obligations are

set out as below:

RMB’000

At January 1, 2019 (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 628,533

Changes in the carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,216

Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,922

At December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 688,671

At January 1, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 688,671

Issuance of Series D-1 and Series D-2 redeemable shares (a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 957,798

Issuance cost of redeemable shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,578)

Changes in the carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73,960

Effect of grant of re-designation rights to a shareholder on redeemable shares (b) . . . . . . . . . . . . 2,567,368

Recognition of financial liabilities for redemption obligations (b) . . . . . . . . . . . . . . . . . . . . . . . . 3,739,207

Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (631,632)

At December 31, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,386,794

– I-46 –



RMB’000

At January 1, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,386,794

Effect of termination of re-designation rights granted to a shareholder on redeemable

shares (b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,285,846)

Reclassification of financial liabilities for redemption obligations to equity (b) . . . . . . . . . . . . . (3,395,422)

Re-designation of ordinary shares and preferred shares into Series D-3 redeemable

shares (c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,607,187

Issuance of Series D-4 redeemable shares (d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,149,649

Issuance cost of redeemable shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,548)

Effect of grant of re-designation rights to a shareholder on redeemable shares (e) . . . . . . . . . . . 1,012,924

Recognition of financial liabilities for redemption obligations (e) . . . . . . . . . . . . . . . . . . . . . . . . 3,197,910

Changes in the carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277,888

Foreign currency translation adjustment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (213,913)

At December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,723,623

(a) Issuance of Series Angel to Series D-2 redeemable shares

Since the date of incorporation, the Group has completed several rounds of financing by issuing

redeemable convertible preferred shares (the “Preferred Shares”) of the Company to [REDACTED].

The details of the issuance are set out in the table below:

Series of financing

Date of

issuance Issuance consideration

Number of shares

subscribed

Issue price per

share

USD’000 RMB‘000 US$

Series Angel-1 . . . . . . . . . . . . . . . 05/09/2017 211 1,381 3,309,177 0.06

Series Angel-2 . . . . . . . . . . . . . . . 10/11/2017 110 727 1,595,704 0.07

Series A . . . . . . . . . . . . . . . . . . . . 05/09/2017 1,502 9,806 12,195,122 0.12

Series A-1 . . . . . . . . . . . . . . . . . . . 10/11/2017 4,390 29,125 10,878,780 0.40

Series B . . . . . . . . . . . . . . . . . . . . . 16/04/2018 26,000 163,517 16,435,085 1.58

Series C . . . . . . . . . . . . . . . . . . . . . 07/12/2018 57,000 392,503 13,254,173 4.30

Series D-1 . . . . . . . . . . . . . . . . . . . 14/05/2020 15,000 106,422 4,043,262 3.71

Series D-2 . . . . . . . . . . . . . . . . . . . 14/05/2020 120,000 851,376 24,594,961 4.88

Total . . . . . . . . . . . . . . . . . . . . . . . 224,213 1,554,857 86,306,264

Series Angel-1 Preferred Shares and Series Angel-2 Preferred Shares are collectively referred

to as the “Series Angel Preferred Shares”. Series D-1 Preferred Shares and Series D-2 Preferred

Shares are collectively referred to as the “Series D Preferred Shares”. The key terms of the Preferred

Shares are summarized as follow:

Redemption feature

Upon the occurrence of certain specified triggering events including failure of a qualified

[REDACTED] by 2025 and a material breach of the representations and warranties, covenants,

undertakings by any

– I-47 –



company of the Group or Ms. Zhang Lu (the “Founder”), which are not all within the control of the

Company, the Preferred Shares holders may redeem all or part of the outstanding Preferred Shares at

the redemption price equal to one hundred percent (100%) of the applicable Preferred Shares issue

price, plus interest at a simple rate of eight percent (8%) per annum accrued from the issue date, plus

any declared but unpaid dividends.

The redemption preference from high priority to low priority is as follows: Series D Preferred

Shares, Series C Preferred Shares, Series B Preferred Shares, Series A-1 Preferred Shares, Series A

Preferred Shares and Series Angel Preferred Shares.

Conversion feature

Each Preferred Share shall be convertible, at the option of the shareholders, at any time after

the issue date into fully paid and non-assessable ordinary shares as based on the then-effective

applicable conversion price.

Each Preferred Share shall automatically be converted, based on the then-effective applicable

conversion price, without the payment of any additional consideration, into fully-paid and

non-assessable ordinary shares upon the earlier of (i) the closing of the qualified [REDACTED], or

(ii) the date specified by written consent or agreement of the majority preferred shareholders.

The conversion price shall initially be the applicable issue price, resulting in an initial

conversion ratio for the Preferred Shares of 1:1, and shall be subject to adjustment and readjustment

including but not limited to the issuance of new shares at a price lower than the previous issue

prices.

Voting rights

Each Preferred Share shall be entitled to the number of votes corresponding to the number of

ordinary shares on an as-converted basis. The shareholders of Preferred Shares shall have the right to

vote separately as a class or series.

Dividend rights

Each holder of the Preferred Shares shall be entitled to receive discretionary fixed-rate

dividends at a simple rate of eight percent (8%) of the applicable issue price per annum since the

issue date. Such dividends shall be payable only if declared by the Board of Directors and they are

non-cumulative. Dividend rights preference is as follows in sequence: Series D Preferred Shares,

Series C Preferred Shares, Series B Preferred Shares, Series A-1 Preferred Shares, Series A Preferred

Shares and Series Angel Preferred Shares.

After the dividends of the Preferred Shares have been paid-in full for the given calendar years,

any remaining funds of the Company available for distribution could be distributed pari passu on a

pro rata basis to the Preferred Shares and the ordinary shares on an as-converted basis.

– I-48 –



Liquidation preference

In the event of any liquidation, dissolution or winding up of the Company, whether voluntary or

involuntary, the holders of Preferred Shares shall be entitled to receive a per share amount equal to

one hundred and twenty-five percent (125%) of the applicable issue price, plus all declared but

unpaid dividends on such Preferred Shares.

Liquidation preference is as follows in sequence: Series D Preferred Shares, Series C Preferred

Shares, Series B Preferred Shares, Series A-1 Preferred Shares, Series A Preferred Shares and Series

Angel Preferred Shares.

If there are any assets or funds remaining after the aggregate amount has been distributed or

paid-in full to the applicable holders of the Preferred Shares, the remaining assets and funds of the

Company available for distribution shall be distributed on a pro-rata base, among all holders of the

Preferred Shares and the ordinary shares according to the relative number of ordinary shares on an

as-converted basis.

(b) Re-designation rights granted to a shareholder

On May 14, 2020, the Company also issued a re-designation right to the investor of Series D

Preferred Shares (the “Series D preferred shareholder”). With the re-designation right, any shares

including ordinary shares and preferred shares purchased by this shareholder from other shareholders

through the means specified in the shareholders’ agreement shall be re-designated as the same

number of the most senior preferred shares of the Company. For the re-designated preferred shares,

upon the occurrence of specified redemption triggering events, the Company would be obliged to

buy back such shares at the redemption price based on the purchase price paid by this shareholder.

The re-designation right granted to the shareholder shall be terminated upon the closing of a

qualified [REDACTED] or upon the consent of all ordinary shareholders and all preferred

shareholders.

On May 10, 2021, the Company and all shareholders of the Company agreed to terminate the

re-designation right granted to the Series D preferred shareholder.

The Company recognized financial liabilities for its obligations resulted from the redemption of

re-designated ordinary shares as both the re-designation and the occurrence of certain redemption

triggering events are not all within the control of the Company. The financial liabilities were initially

recognized at the present value of the redemption price, and were reclassified from equity. The

financial liabilities are subsequently measured at amortized cost. When the re-designation right

granted to shareholders was terminated on May 10, 2021, the financial liabilities for redemption

obligations were reclassified from financial liabilities to equity.

The changes in the redemption amount of redeemable shares arising from granting and

termination of re-designation right were charged to equity, as the changes were resulted from

transactions with the Company’s shareholders in their capacity as owners.

– I-49 –



(c) Re-designation of Series D-3 redeemable shares

On May 10, 2021, the Series D preferred shareholder purchased 47,169,068 shares (the

“Transferred Shares”), including 13,634,698 ordinary shares, 3,523,638 Series Angel Preferred

Shares, 8,760,904 Series A Preferred Shares, 7,815,252 Series A-1 Preferred Shares, 11,806,870

Series B Preferred Shares and 1,627,706 Series C Preferred Shares, from the respective shareholders

of the Company at US$9.37 per share. The Company did not receive any proceeds from the share

transfer transaction.

On May 10, 2021, upon the closing of the share transfer transaction, the Company’s share

capital was adjusted to reflect the following: (i) conversion and re-designation of all of its currently

issued and outstanding Preferred Shares into Class A Ordinary Shares (the “Class A Ordinary

Shares”) on a 1:1 basis; (ii) re-designation and reclassification of 35,814,050 of its issued and

outstanding ordinary shares beneficially owned by the Founder into Class B Ordinary Shares (the

“Class B Ordinary Shares”) on a 1:1 basis, and all its other issued and outstanding ordinary shares

into Class A Ordinary Shares on a 1:1 basis. Each Class A Ordinary Share shall entitle the holder

thereof to one vote and each Class B Ordinary Share shall entitle the holder thereof to five votes.

Except for the voting rights and conversion rights, there is no other difference between Class A

Ordinary Share and Class B Ordinary Share.

Pursuant to the share transfer agreement, if the Company failed to complete the qualified

[REDACTED] by July 10, 2021 (the “Reinstatement Date”), all outstanding shares other than the

Transferred Shares should be automatically re-designated and re-classified as the same amount and

class of shares held by the shareholders immediately before the share transfer transaction, and the

Transferred Shares should be automatically re-designated and re-classified as Series D-3 Preferred

Shares. The redemption price of Series D-3 Preferred Shares upon the occurrence of any redemption

triggering event, shall be the purchase price paid by the Series D preferred shareholder. Except for

the redemption price, the terms of the Series D-3 Preferred Shares including redemption rights,

conversion rights, voting rights, dividend rights and liquidation rights were the same as the terms of

Series D-1 and Series D-2 Preferred Shares.

On July 6, 2021, the Reinstatement Date was extended from July 10, 2021 to October 10, 2021.

The changes in the carrying amount of redeemable shares resulted from the re-designation of

ordinary shares and preferred shares into Series D-3 redeemable shares, were charged to equity as

the changes were resulted from transactions with the Company’s shareholders in their capacity as

owners.

(d) Issuance of Series D-4 redeemable shares

In July and August 2021, the Company entered into share purchase agreements with two

investors, pursuant to which the Company issued 18,632,543 Class A Ordinary Shares (the

“Series D-4 redeemable shares”) at US$9.52 per share for an aggregated cash consideration of

– I-50 –



US$177,405,190 (equivalent to RMB1,149,649,089). The Series D-4 redeemable shares shall all be

automatically re-designated and re-classified as Series D-4 Preferred Shares if the Company fails to

complete the qualified [REDACTED] prior to or upon the Reinstatement Date. Except for the

redemption price, the terms of the Series D-4 Preferred Shares including redemption rights,

conversion rights, voting rights, dividend rights and liquidation rights are the same as the terms of

Series D-1, Series D-2 and Series D-3 Preferred Shares.

(e) Reinstatement and grant of re-designation rights

On October 10, 2021, the shares of the Company were reinstated as follows:

(i) all outstanding shares beneficially owned by the Founder as of the Reinstatement Date were

re-designated and re-classified as ordinary shares on a 1:1 basis; all ordinary shares that were

converted into Class A Ordinary Shares on May 10, 2021 were re-designated and re-classified as

ordinary shares on a 1:1 basis;

(ii) all Preferred Shares of the Company that were converted into Class A Ordinary Shares on

May 10, 2021 were re-designated and re-classified as the same amount and class of Preferred Shares

held on the date immediately prior to May 10, 2021, except that the Transferred Shares were

re-designated and re-classified as Series D-3 Preferred Shares;

(iii) all Series D-4 redeemable shares were re-designated and re-classified as Series D-4

Preferred Shares.

The Company also granted a re-designation right to the Series D preferred shareholder on

October 10, 2021. With the re-designation right, any shares including ordinary shares and preferred

shares purchased by this shareholder from other shareholders through the means specified in the

shareholders’ agreement shall be re-designated as the same number of the most senior preferred

shares of the Company. For the re-designated preferred shares, upon the occurrence of specified

redemption triggering events, the Company would be obliged to buy back such shares at the

redemption price based on the purchase price paid by this shareholder. The accounting for the grant

of re-designation right is set out in Note 19(b).

20 Share-based payments

The share-based payments expenses have been charged to the consolidated statement of profit

or loss and other comprehensive income for the Relevant Periods as follows:


2019 2020 2021

RMB’000 RMB’000 RMB’000

Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,955 7,231 7,855

Selling and marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263 746 2,227

Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,482 13,349 9,307

Technology and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,206 17,948 28,427

11,906 39,274 47,816

– I-51 –



(a) Share options

On November 27, 2017, the Board of Directors of the Company approved and adopted the 2017

Share Incentive Plan (the “2017 Plan”), under which the Company reserved 13,170,732 shares to

motivate officers, directors, employees and consultants of the Group. On April 26, 2018, the Board

of Directors of the Company approved the increase of shares reserved for issuance under the 2017

Plan to 18,959,799 shares. During the year ended December 31, 2020, 2,812,654 share options were

exercised, resulting in the decrease of number of shares reserved for issuance under the 2017 Plan to

16,147,145.

Share options granted under the 2017 Plan are generally subject to a five-year service schedule,

under which 20% of the option shall vest on each anniversary of the grant date. The options are

exercisable for a maximum period of 10 years after the date of grant. The vested options not

exercised by the grantees shall be forfeited 30 days after termination of employment of the grantees

except for termination due to disability, death or cause.

On January 20, 2020, the Company granted 303,867 share options with an exercise price of

US$0.0001 to certain employees, which are immediately vested on grant date, to settle the accrued

bonus of RMB4.6 million for these employees as of December 31, 2019. The awards provisions

provide that, before the Company’s [REDACTED], if employee leaves the Company for any

reasons, the employees have the right to request the Company to redeem the options in cash at a

fixed unit price of US$2.15 plus interest at a simple rate of five percent per annum from the date of

grant to the exercise date. Since the award is with two components in which exercise of one part

cancels the other, in measuring compensation cost, the award is treated as a combination of grant of

(1) 303,867 units with a value of RMB4.6 million (i.e. US$2.15 per unit) plus simple interest of five

percent per annum, and (2) 303,867 share options with a strike price of US$2.1501 per share.

Compensation cost for the share options component was RMB2.4 million during the year ended

December 31, 2020.

In September 2020, the Company granted 204,960 share options to a consultant who will

provide strategic consultation service to the Group with a five-year service schedule, under which

20% of the awards vest as of the end of each of the next five years.

In September 2020, the Company accelerated the vesting of 100,000 unvested share options of

one employee upon his termination of employment and allowed those options to remain exercisable

during the original contract life. The Company recognized the incremental fair value of the awards as

of the modification date and recognized the amount of RMB2.8 million immediately since the awards

did not require further service.

– I-52 –



A summary of activities of the share options is presented as follows:

Number of

options

Weighted average

exercise price

Weighted average

remaining

contractual term

US$ Year

Outstanding at January 1, 2019 . . . . . . . . . . . . . . . . . . . . . . 11,225,633 0.13Expired during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . (28,000) 0.46Forfeited during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . (426,540) 0.44Granted during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,742,634 0.42

Outstanding at December 31, 2019 . . . . . . . . . . . . . . . . . . . 13,513,727 0.18 8.37

Exercisable at December 31, 2019 . . . . . . . . . . . . . . . . . . . 5,764,341 0.07

Outstanding at January 1, 2020 . . . . . . . . . . . . . . . . . . . . . . 13,513,727 0.18Exercised during the year . . . . . . . . . . . . . . . . . . . . . . . . . . (2,812,654) 0.00Forfeited during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,859,292) 0.04Granted during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,665,184 0.19

Outstanding at December 31, 2020 . . . . . . . . . . . . . . . . . . . 13,506,965 0.24 8.17


Outstanding at January 1, 2021 . . . . . . . . . . . . . . . . . . . . . . 13,506,965 0.24Expired during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . (66,044) 0.38Forfeited during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,472,269) 0.16Granted during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,489,908 0.38

Outstanding at December 31 2021 . . . . . . . . . . . . . . . . . . . 15,458,560 0.29 7.59


The fair value of the share options is estimated on the dates of grant using the binomial option

pricing model with the following key assumptions used:


2019 2020 2021

Fair value of ordinary shares . . . . . . . . . . . . US$2.00~US$2.23 US$2.23~US$4.57 US$6.08~US$8.43Expected volatility . . . . . . . . . . . . . . . . . . . . 51.80%~53.36% 51.59%~52.59% 50.60%-52.00%Exercise multiple . . . . . . . . . . . . . . . . . . . . . 2.20x~2.80x 2.20x~2.80x 2.20x~2.80xExpected dividend yield . . . . . . . . . . . . . . . . — — —Risk-free interest rate . . . . . . . . . . . . . . . . . . 1.92%~2.85% 0.63%~1.92% 1.37%-1.74%Expected term . . . . . . . . . . . . . . . . . . . . . . . 10 years 10 years 10 years

The expected volatility was estimated based on the historical volatility of comparable peer

[REDACTED] companies with a time horizon close to the expected term of the Company’s options.

The weighted average grant date fair value of the share options granted for the years ended

December 31, 2019, 2020 and 2021 was US$1.76, US$2.90, and US$6.93 respectively. The weighted

– I-53 –



average share price at the date of exercise for share options exercised for the year ended

December 31, 2019, 2020 and 2021 was nil, US$2.55 and nil.

(b) RSUs

In September 2017, as one of the conditions to the closing of the Series A Preferred Shares, the

Founder entered into a share restriction agreement with shareholders of the Company, pursuant to

which 42,752,341 ordinary shares held by the Founder became unvested and subject to a five-year

service condition starting from September 2017. The share restriction agreement shall terminate

upon the closing of a qualified [REDACTED].

In April 2018, as one of the conditions to the closing of the Series B Preferred Shares,

10,688,085 unvested shares became early vested, while the remaining 32,064,256 unvested shares

were modified to vest in equal monthly installments over the next thirty-six months starting from

April 2018.

In May 2020, as one of the conditions to the closing of the Series D Preferred Shares, the

vesting period of the remaining 9,797,411 unvested shares were modified to vest in equal annual

installments over the next four years starting from May 2020.

Movements in the number of RSUs and the respective weighted average grant date fair value

were as follows:

Number of

RSUs

Weighted

average

fair value

Weighted

average

remaining

vesting

periods

US$ Year

Outstanding at January 1, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,938,865 0.0351Vested during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,688,085) 0.0351

Outstanding at December 31, 2019 and January 1, 2020 . . . . . . . . . . . . . 14,250,780 0.0351 0.67Vested during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,453,369) 0.0351

Outstanding at December 31, 2020 and January 1, 2021 . . . . . . . . . . . . . 9,797,411 0.0351 1.87Vested during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,449,353) 0.0351

Outstanding at December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,348,058 0.0351 1.37

(c) Repurchase of ordinary shares held by management

On May 14, 2020, the Company repurchased 2,608,556 ordinary shares held by a key

management of the Group at total consideration of US$10,000,000 (equivalent to RMB70,948,000),

and repurchased 1,434,706 ordinary shares from other institutional shareholders at total

consideration of US$5,000,000 (equivalent to RMB35,474,000). The repurchase price paid to the

management as US$3.83 per share in excess of the repurchase price paid to other institutional

shareholders as US$3.49 per share was treated as share-based payment to the management. As a

result, US$0.9 million (equivalent to RMB6.3 million) of share-based payment expenses were

recognized in administrative expenses for the year ended December 31, 2020.

– I-54 –



21 Capital and reserves

(a) Movements in components of equity

The reconciliation between the opening and closing balances of each component of the Group’s

consolidated equity during the Relevant Periods are set out in the consolidated statement of changes

in equity. Details of the changes in the Company’s individual components of equity are set out

below:

The Company:

Share

capital

Capital

reserve

Share-based

payments

reserve

Exchange

reserve

Accumulated

losses Total deficit

RMB‘000 RMB‘000 RMB‘000 RMB‘000 RMB‘000 RMB‘000

Balance at January 1, 2019 . . 46 (769) 18,659 (6,860) (30,587) (19,511)

Changes in equity for 2019:

Loss and other comprehensive

loss for the year . . . . . . . . . . — — — (514) (49,685) (50,199)

Share-based payments . . . . . . . — — 11,906 — — 11,906

Vesting of RSUs . . . . . . . . . . . . — 2,474 (2,474) — — —

Expiration of share options . . . — — (114) — 114 —

Balance at December 31, 2019

and January 1, 2020 . . . . . . 46 1,705 27,977 (7,374) (80,158) (57,804)

Changes in equity for 2020:


income for the year . . . . . . . . — — — 521,487 (88,160) 433,327

Share-based payments . . . . . . . — — 39,274 — — 39,274

Exercise of share options and

vesting of RSUs . . . . . . . . . . 2 16,114 (16,114) — — 2

Effect of grant of

re-designation rights to a

shareholder on redeemable

shares . . . . . . . . . . . . . . . . . . — (2,567,368) — — — (2,567,368)

Recognition of financial

liabilities for redemption

obligations . . . . . . . . . . . . . . — (3,739,207) — — — (3,739,207)

Repurchase and retirement of

ordinary shares . . . . . . . . . . . (3) (106,419) — — — (106,422)

– I-55 –



Share

capital

Capital

reserve

Share-based

payments

reserve

Exchange

reserve

Accumulated

losses Total deficit


Balance at December 31, 2020

and January 1, 2021 . . . . . . . 45 (6,395,175) 51,137 514,113 (168,318) (5,998,198)


income for the year . . . . . . . . — — — 161,790 (291,740) (129,950)

Share-based payments . . . . . . . . — — 47,816 — — 47,816

Vesting of RSUs . . . . . . . . . . . . — 824 (824) — — —

Expiration of share options . . . . — — 546 — (546) —

Effect of termination of

re-designation rights granted

to a shareholder on

redeemable shares . . . . . . . . . — 2,285,846 — — — 2,285,846

Reclassification of financial


obligations to equity . . . . . . . . — 3,395,422 — — — 3,395,422

Re-designation of ordinary

shares and preferred shares

into Series D-3 redeemable

shares . . . . . . . . . . . . . . . . . . . (9) (2,607,178) — — — (2,607,187)

Effect of grant of re-designation

rights to a shareholder on

redeemable shares . . . . . . . . . — (1,012,924) — — — (1,012,924)

Recognition of financial


obligations . . . . . . . . . . . . . . . — (3,197,910) — — — (3,197,910)

Balance at December 31,

2021 . . . . . . . . . . . . . . . . . . . . 36 (7,351,095) 97,583 675,903 459,512 (7,217,085)

(b) Dividends

The directors of the Company did not propose the payment of any dividend during the Relevant

Periods.

(c) Share capital

Authorized

The Company was incorporated in the Cayman Islands as an exempted company registered

under the laws of the Cayman Islands in May 2017. As of December 31, 2021, the authorized share

– I-56 –



capital of the Company is US$100,000 divided into 1,000,000,000 shares of a par value of

US$0.0001 each, comprising of: (i) 881,426,495 ordinary shares, (ii) 1,381,243 Series Angel

Preferred Shares, (iii) 3,434,218 Series A Preferred Shares, (iv) 3,063,528 Series A-1 Preferred

Shares, (v) 4,628,215 Series B Preferred Shares, (vi) 11,626,467 Series C Preferred Shares, (vii)

4,043,262 Series D-1 Preferred Shares, (viii) 24,594,961 Series D-2 Preferred Shares, (ix)

47,169,068 Series D-3 Preferred Shares, and (x) 18,632,543 Series D-4 Preferred Shares.

Movements of ordinary shares issued and fully paid

December 31, 2019 December 31, 2020 December 31, 2021

Number of

shares

Share

capital

Number of

shares

Share

capital

Number of

shares

Share

capital

RMB‘000 RMB‘000 RMB‘000

Ordinary shares, issuedand fully paid:

At January 1, . . . . . . . . . 66,842,764 46 66,842,764 46 65,612,156 45Exercise of share

options . . . . . . . . . . . . . — — 2,812,654 2 — —Repurchase and

retirement of ordinaryshares . . . . . . . . . . . . . . — — (4,043,262) (3) — —

Re-designation ofordinary shares intoSeries D-3 redeemableshares (Note 19) . . . . . . — — — — (13,634,698) (9)

At December 31, . . . . . . 66,842,764 46 65,612,156 45 51,977,458 36

On May 14, 2020, the Company repurchased 2,608,556 ordinary shares from a key management

of the Group, at total consideration of US$10,000,000 (equivalent to RMB70,948,000) and

repurchased 1,434,706 ordinary shares from other institutional shareholders at total consideration of

US$5,000,000 (equivalent to RMB35,474,000). Such shares were retired immediately upon

repurchase.

(d) Nature and purpose of reserves

(i) Capital reserve

The capital reserve represents the excess of the total [REDACTED] received over the par value

of ordinary shares issued by the Company and the changes in the carrying amount of redeemable

shares and financial liabilities for redemption obligations arising from transactions between the

Company and its shareholders in their capacity as owners as set out in Note 19.

– I-57 –



(ii) Share-based payments reserve

The share-based payments reserve represents the portion of the grant date fair value of share

options and RSUs granted to the directors and employees of the Group that has been recognized in

accordance with the accounting policy adopted for share-based payments in Note 2(o).

(iii) Exchange reserve

The exchange reserve comprises all foreign exchange differences arising from the translation of

the financial statements of foreign operations of the Company and certain subsidiaries within the

Group. The reserve is dealt with in accordance with the accounting policy set out in Note 2(d).

(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 shareholder 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.

Neither the Company nor any of its subsidiaries are subject to externally imposed capital

requirements.

22 Financial risk management and fair values of financial instruments

Exposure to credit, liquidity, interest rate and currency risks arises in the normal course of the

Group’s business.

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. The Group’s exposure to credit risk arising from cash and cash equivalents, restricted

cash and financial assets at FVTPL is limited because the counterparties are banks and financial

institutions with good credit standing, for which the Group considers to have low credit risk. Other

receivables mainly included receivable from third-party payment platforms, which represented

amounts due from reputable online payment platforms. Based on the historical settlement records

– I-58 –



and the cooperation history with the online payment platforms, the Group considers its exposure to

credit risk arising from receivable from third-party payment platforms is low.

The Group has no significant concentration of credit risk arising from trade receivables in

industries in which the customers operate. Significant concentrations of credit risk primarily arise

when the Group has significant exposure to individual customers. The trade receivables from the five

largest debtors at December 31, 2020 and 2021 represented 89% and 71% of the total trade

receivables respectively, while 38% and 32% of the total trade receivables were due from the largest

single debtor respectively.

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 take into

account the customer’s past payment history, financial position and other factors. Trade receivables

are generally due within 30 to 180 days from the date of billing. Normally, the Group does not obtain

collateral from customers.

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.

The following table provides information about the Group’s exposure to credit risk and ECLs

for trade receivables:

At December 31, 2020

Expected loss

rate

Gross carrying

amount Loss allowance

% RMB‘000 RMB‘000

Current (not past due) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.00% 11,800 —

At December 31, 2021

Expected loss

rate

Gross carrying

amount Loss allowance

% RMB‘000 RMB‘000

Current (not past due) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.29% 27,889 82

Less than 1 month past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.50% 67 2

More than 1 month past due but less than 2 months past due . . . 3.50% 1,701 60

More than 2 months past due but less than 3 months past

due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.40% 1,561 84

More than 3 months past due but less than 6 months past

due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.05% 2,329 164

More than 6 months past due but less than 1 year past due . . . . 80.00% 204 163

33,751 555

– I-59 –



Expected loss rates are based on actual loss experience over the past 12 months. These rates are

adjusted to reflect differences between economic conditions during the period 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.

(b) Liquidity risk

The Group’s policy is to regularly monitor its liquidity requirements, to ensure that it maintains

sufficient reserves of cash and cash equivalents and retains adequate financing arrangements with

[REDACTED] 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 non-derivative 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 date the Group can be required to pay:

As at December 31, 2019

Contractual undiscounted cash outflow

Within 1

year or on

demand

More than

1 year but

less than 2

years

More than

2 years but

less than 5

years

More than

5 years Total

Carrying

amount


Other payables and accrued expenses

(excluding salary and welfare

payables and other taxes payable) . . . . 24,625 — — — 24,625 24,625

Redeemable shares . . . . . . . . . . . . . . . . . 688,671 — — — 688,671 688,671

Lease liabilities . . . . . . . . . . . . . . . . . . . . 4,935 — — — 4,935 4,302

718,231 — — — 718,231 717,598

– I-60 –





Within 1

year or on

demand

More than

1 year but

less than 2

years

More than

2 years but

less than 5

years

More than

5 years Total

Carrying

amount


Other payables and accrued

expenses (excluding

salary and welfare

payables and other taxes

payable) . . . . . . . . . . . . . 233,168 — — — 233,168 233,168

Redeemable shares and

financial liabilities for

redemption

obligations . . . . . . . . . . . 7,386,794 — — — 7,386,794 7,386,794

Lease liabilities . . . . . . . . . 14,897 13,844 — — 28,741 27,409

7,634,859 13,844 — — 7,648,703 7,647,371



Within 1

year or on

demand

More than

1 year but

less than 2

years

More than

2 years but

less than 5

years

More than

5 years Total

Carrying

amount


Other payables and accrued

expenses (excluding

salary and welfare

payables and other taxes

payable) . . . . . . . . . . . . . 480,103 — — — 480,103 480,103

Redeemable shares and

financial liabilities for

redemption

obligations . . . . . . . . . . . 9,723,623 — — — 9,723,623 9,723,623

Lease liabilities . . . . . . . . . 21,227 21,624 51,927 — 94,778 85,139

10,224,953 21,624 51,927 — 10,298,504 10,288,865

– I-61 –



(c) Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will

fluctuate because of changes in market interest rates.

The Group is primarily exposed to fair value interest rate risk in relation to lease liabilities and

cash flow risk in relation to variable-rate bank balances. The Group currently does not have an

interest rate hedging policy to mitigate interest rate risk; nevertheless, the management monitors

interest rate exposure and will consider hedging significant interest rate risk should the need arise.

The directors of the Company consider that the exposure of cash flow interest rate risk arising

from variable-rate bank balances is insignificant because the current market interest rates are

relatively low and stable.

(d) Currency risk

Currency risk arises when future commercial transactions or recognized assets and liabilities

are denominated in a currency that is not the Group’s functional currency. The Group manages its

currency risk by minimizing non-functional currency transactions, wherever possible.

The Group operates mainly in the PRC with most of the transactions settled in RMB.

Management considers that the business is not exposed to significant foreign exchange risk as there

are no significant financial assets or liabilities of the Group denominated in currencies other than the

respective functional currencies of the Group’s subsidiaries and structured entities.

(e) Fair value measurement

(i) Financial assets and liabilities measured at fair value

Fair value hierarchy

The following table presents the fair value of the Group’s financial instruments measured at

each reporting dates on a recurring basis, categorized into the three-level fair value hierarchy as

defined in IFRS 13, Fair value measurement. The level into which a fair value measurement is

classified is determined with reference to the observability and significance of the inputs used in the

valuation technique as follows:

• Level 1 valuations: Fair value measured using only Level 1 inputs i.e. unadjusted

quoted prices in active markets for identical assets or liabilities at

the measurement date.

• Level 2 valuations: Fair value measured using Level 2 inputs i.e. observable inputs

which fail to meet Level 1, and not using significant unobservable

inputs. Unobservable inputs are inputs for which market data are

not available.

• Level 3 valuations: Fair value measured using significant unobservable inputs.

– I-62 –



The following table presents the Group’s financial assets and financial liabilities that are

measured at fair value at each reporting dates:

Fair value at

December 31, 2019

Fair value measurements as at

December 31, 2019 categorized into

Level 1 Level 2 Level 3

RMB‘000 RMB‘000 RMB‘000 RMB‘000

Recurring fair value measurementsFinancial assets at FVTPL:Wealth management products . . . . . . . . . . . . . . . . . . . . . 50,029 — — 50,029

During the Relevant Periods, there were no transfers between Level 1 and Level 2, or transfers

into or out of Level 3. The Group’s policy is to recognize transfers between levels of fair value

hierarchy as at the end of the Relevant Periods in which they occur.

Information about Level 3 fair value measurements

The fair values of wealth management products have been estimated using a discounted cash

flow valuation model based on assumptions that are not supported by observable market prices or

rates. The un-observable inputs are expected annual return rate fixed in the investment contracts.

These expected annual return rates ranged from 1.10% to 3.65% as of December 31, 2019.

The fair value measurement is positively correlated to the expected annual return rate. As at

December 31, 2019, it is estimated that with all other variables held constant, an increase/decrease in

expected annual return rate by 1% would have decreased/increased the Group’s loss before taxation

by RMB0.50 million.

The movements during the Relevant Periods in the balance of these Level 3 financial assets at

FVTPL were as follows:

RMB’000

At January 1, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402,000Changes in fair value recognized in profit or loss during the year . . . . . . . . . . . . . . . . . . . . . . . . . . 1,103Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (353,074)

At December 31, 2019 and January 1, 2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,029Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —Changes in fair value recognized in profit or loss during the year . . . . . . . . . . . . . . . . . . . . . . . . . . 151Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (50,180)

At December 31, 2020 and January 1, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —Purchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000Changes in fair value recognized in profit or loss during the year . . . . . . . . . . . . . . . . . . . . . . . . . . 97Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40,097)

At December 31, 2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . —

– I-63 –



(ii) Fair value of financial assets and liabilities carried at other than fair value

The carrying amounts of the Group’s financial instruments carried at cost were not materially

different from their fair values as at December 31, 2019, 2020 and 2021.

23 Contingencies

In June 2021, a PRC company operating an online content platform filed a civil lawsuit of

unfair competition claim against a subsidiary of the Group, seeking damages in the total amount of

approximately RMB26.9 million. RMB26.9 million cash at bank of the Group became restricted as

part of the court procedures. The case is still in the trial stage. Based on legal advice, the directors of

the Company do not believe a loss is probable. No provision has been made in respect of this claim.

24 Material related party transactions

The following significant transactions were carried out between the Group and its related

parties during the periods presented. In the opinion of the directors of the Company, the related party

transactions were carried out in the normal course of business and at terms negotiated between the

Group and the respective related parties.

(a) Names and relationships with related parties

The following companies are significant related parties of the Group that had transactions and/

or balances with the Group during the Relevant Periods.

Name of the parties Relationship

Tencent Holdings Limited and its subsidiaries(the “Tencent Group”) . . . . . . . . . . . . . . . . . . . . . . . One of the Company’s shareholders

Mr. Tao Ming . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Director

(b) Significant transactions with related parties


2019 2020 2021

RMB‘000 RMB‘000 RMB‘000

Sales of servicesTencent Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 151 4,191

Purchase of servicesTencent Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 43,880 85,364

Loans toA director (ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 4,190

Interest income on loans toA director (ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 146

– I-64 –



(c) Significant balances with related parties

At December 31,

2019 2020 2021

RMB‘000 RMB‘000 RMB‘000

Amounts due fromTrade in nature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- Tencent Group (i) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — 1,098 2,302Non-trade in nature- A director (ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 4,336

— 1,098 6,638

Amounts due toTrade in nature- Tencent Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — 421

Notes:

(i) The outstanding balance of amounts due from Tencent Group are included in “Prepayments, deposits, and other receivables”

and “Trade receivables”.

(ii) The loans to the director, Mr. Tao Ming, are unsecured, with an annual interest rate of 4.65% and repayable in March 2026.

The outstanding balance is included in “Other non-current assets”.

(iii) Except for the amounts due from director, all other amounts due from and to related parties of the Group are unsecured,

interest-free, repayable on demand/on contract terms.

(d) Key management personnel remuneration

Key management personnel are those persons holding positions with authority and

responsibility for planning, directing and controlling the activities of the Group, directly or

indirectly, including the Company’s directors.

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, is as follows:


2019 2020 2021

RMB‘000 RMB‘000 RMB‘000

Salaries, wages, bonuses and other benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,025 11,573 13,508Share-based payments expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,893 21,179 15,587Contributions to defined retirement schemes . . . . . . . . . . . . . . . . . . . . . . . . . . 126 24 346

11,044 32,776 29,441

– I-65 –



Total remuneration is included in “staff costs” (see Note 6(b)).

25 Subsequent events

[In June 2022, the board of Directors of the Company approved the exchange of all share

options granted under the 2017 Plan for the same number of restricted shares.]

26 Immediate and ultimate controlling party

As of the date of this report, the directors consider the immediate parent of the Company to be

Soulgate Holding Limited, a company incorporated in the British Virgin Islands and wholly owned

by Ms. Zhang Lu. Ms. Zhang Lu is considered as the ultimate controlling party of the Company.

27 Possible impact of amendments, new standards and interpretations issued but not yet

effective for the Relevant Periods

Up to the date of issue of this report, the IASB has issued a number of amendments, and a new

standard which are not yet effective for the Relevant Periods and which have not been adopted in the

Historical Financial Information as follows:

Effective for

accounting year

beginning on or

after

Amendment to IFRS 16, Covid-19-Related Rent Concessions beyond 30 June 2021 . . . January 1, 2022

Amendments to IFRS 3, Reference to the Conceptual Framework . . . . . . . . . . . . . . . . . January 1, 2022

Amendments to IAS 16, Property, Plant and Equipment: Proceeds before Intended

Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . January 1, 2022

Amendments to IAS 37, Onerous Contracts-Cost of Fulfilling a Contract . . . . . . . . . . . January 1, 2022

Annual Improvements to IFRSs 2018-2020 Cycle . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . January 1, 2022

IFRS 17, Insurance contracts and related amendments . . . . . . . . . . . . . . . . . . . . . . . . . . January 1, 2023

Amendments to IAS 1 and IFRS Practice Statement 2, Disclosure of

Accounting Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . January 1, 2023

Amendments to IAS 8, Definition of Accounting Estimates . . . . . . . . . . . . . . . . . . . . . . . January 1, 2023

Amendments to IAS 12, Deferred Tax related to Assets and Liabilities arising from a

Single Transaction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . January 1, 2023

Amendments to IAS 1, Classification of Liabilities as Current or Non-current . . . . . . . January 1, 2023

Amendments to IFRS 4, Extension of the temporary exemption from applying

IFRS 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . January 1, 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

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, the Group has concluded that the

– I-66 –



adoption of them is unlikely to have a significant impact on the Group’s results of operations and

financial position.

Subsequent Financial Statements

No audited financial statements have been prepared by the Company and its subsidiaries

comprising the Group in respect of any period subsequent to December 31, 2021.

– I-67 –


APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

The information set forth below does not form part of the Accountants’ Report from KPMG,

Certified Public Accountants, Hong Kong, the Company’s reporting accountants, as set out in

Appendix I to this document, and is included herein for illustrative purposes only.

The unaudited pro forma financial information should be read in conjunction with the section

headed “Financial Information” in this document and the Accountants’ Report set out in Appendix I

to this document.

A. UNAUDITED PRO FORMA STATEMENT OF ADJUSTED NET TANGIBLE ASSETS

The following unaudited pro forma statement of adjusted net tangible assets of the Group is

prepared in accordance with paragraph 4.29 of the Listing Rules and is set out below to illustrate the

effect of the [REDACTED] on the consolidated net tangible liabilities attributable to equity

shareholders of the Company as at December 31, 2021 as if the [REDACTED] had taken place on

December 31, 2021.

The unaudited pro forma statement of adjusted net tangible assets has been prepared for

illustrative purposes only and because of its hypothetical nature, it may not give a true picture of the

financial position of the Group had the [REDACTED] been completed as at December 31, 2021 or

at any future date.

Consolidated net

tangible liabilities

attributable

to equity

shareholders of

the Company as

at December 31,

2021(1)

Estimated net

[REDACTED]

from the

[REDACTED](2)

Estimated impact

to net tangible

assets upon

reclassification of

redeemable shares

and financial

liabilities for

redemption

obligations(3)

Unaudited pro

forma adjusted

consolidated net

tangible assets

attributable to

equity shareholders

of the Company

Unaudited pro forma

adjusted consolidated

net tangible assets

attributable to equity

shareholders of

the Company per

Share(4)

RMB’000 RMB’000 RMB’000 RMB’000 RMB HK$(5)

Based on an

[REDACTED]

of

HK$[REDACTED]

per Share . . . . (9,224,364) [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Based on an

[REDACTED]

of

HK$[REDACTED]

per Share . . . . (9,224,364) [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Notes:

(1) The consolidated net tangible liabilities attributable to equity shareholders of the Company as at December 31, 2021 is based

on the consolidated total deficit of RMB9,224,364,000 as at December 31, 2021, which is extracted from the Accountants’

Report set out in Appendix I to this document.

– II-1 –



(2) The estimated net [REDACTED] from the [REDACTED] are based on [REDACTED] Shares to be issued pursuant to the

[REDACTED] and the indicative [REDACTED] of HK$[REDACTED] per Share and HK$[REDACTED] per Share, being

the low end and high end of the [REDACTED] respectively, after deduction of the estimated [REDACTED] and other

related [REDACTED] expenses payable by the Group (excluding the [REDACTED] expenses charged to profit or loss

during the Relevant Periods) and does not take into account any shares which may be issued upon the exercise of the



repurchased by the Company pursuant to the general mandates. The estimated net [REDACTED] of the [REDACTED] have

been converted to Renminbi at the exchange rate of HK$1 to RMB[0.8516] prevailing on [June 21, 2022], which is the Latest

Practicable Date. No representation is made that the Hong Kong dollar amounts have been, could have been or could be

converted into RMB, or vice versa, at that rate or at any other rates.

(3) As at December 31, 2021, the carrying amount of the redeemable shares and financial liabilities for redemption obligations

was RMB9,723,623,000 (as set out in Note 19 of Appendix I to this document). Upon the [REDACTED], the redemption

rights of these financial instruments will be terminated, the redeemable shares will be automatically converted into ordinary

shares, and the financial liabilities for redemption obligations will be reclassified from liabilities to equity.


Share is arrived at after the adjustments referred to in the preceding paragraphs and on the basis that [REDACTED] Shares

were in issue assuming that the [REDACTED] and the conversion of redeemable shares into ordinary shares had been

completed on December 31, 2021, but does not take into account any shares which may be issued upon the exercise of the



repurchased by the Company pursuant to the general mandates.


Share amounts in RMB are converted to Hong Kong dollar with the exchange rate of RMB1 to HK$[1.1742] prevailing on

[June 21, 2022], which is the Latest Practicable Date. No representation is made that the Hong Kong dollar amounts have

been, could have been or could be converted into RMB, or vice versa, at that rate or at any other rates.

(6) No adjustment has been made to the unaudited pro forma adjusted consolidated net tangible assets attributable to equity

shareholders of the Company as at December 31, 2021 to reflect any trading results or other transactions of the Group

subsequent to December 31, 2021.

– II-2 –



[REDACTED]

– II-3 –



[REDACTED]

– II-4 –



[REDACTED]

– II-5 –


APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANYAND CAYMAN ISLANDS COMPANY LAW

Set out below is a summary of certain provisions of the Memorandum and Articles of our

Company and of certain aspects of Cayman Islands company law.

Our Company was incorporated in the Cayman Islands as an exempted company with limited

liability on May 16, 2017 under the Cayman Companies Act. Our Company’s constitutional

documents consist of the Memorandum and Articles.

SUMMARY OF THE CONSTITUTION OF THE COMPANY

1 Memorandum of Association

The Memorandum of Association of the Company was conditionally adopted on [Š] and states,

inter alia, that the liability of the members of the Company is limited, that the objects for which the

Company is established are unrestricted and the Company shall have full power and authority to

carry out any object not prohibited by the Companies Act or any other law of the Cayman Islands.

The Memorandum of Association is on display on the websites of the Stock Exchange and the

Company as specified in Appendix V in the section headed “Documents on display”.

2 Articles of Association

The Articles of Association of the Company were conditionally adopted on [Š] and include

provisions to the following effect:

2.1 Directors

(a) Power to allot and issue Shares

Subject to the provisions in the Memorandum of Association (and to any direction that may be

given by the Company in general meeting) and without prejudice to any rights attached to any

existing shares, the Directors may allot, issue, grant options over or otherwise dispose of shares with

or without preferred, deferred or other rights or restrictions, whether in regard to dividend or other

distribution, voting, return of capital or otherwise and to such persons, at such times and on such

other terms as the Directors think proper.

(b) Power to dispose of the assets of the Company or any subsidiary

Subject to the provisions of the Companies Act, the Memorandum and Articles of Association

and to any directions given by special resolution, the business of the Company shall be managed by

the Directors who may exercise all the powers of the Company. No alteration of the Memorandum

and Articles of Association and no such direction shall invalidate any prior act of the Directors

which would have been valid if that alteration had not been made or that direction had not been

given.

– III-1 –



(c) Compensation or payment for loss of office

There are no provisions in the Articles of Association relating to compensation or payment for

loss of office of a Director.

(d) Loans to Directors

There are no provisions in the Articles of Association relating to making of loans to Directors.

(e) Financial assistance to purchase Shares

There are no provisions in the Articles of Association relating to the giving of financial

assistance by the Company to purchase shares in the Company or its subsidiaries.

(f) Disclosure of interest in contracts with the Company or any of its subsidiaries

No person shall be disqualified from the office of Director or alternate Director or prevented by

such office from contracting with the Company, either as vendor, purchaser or otherwise, nor shall

any such contract or any contract or transaction entered into by or on behalf of the Company in

which any Director or alternate Director shall be in any way interested be or be liable to be avoided,

nor shall any Director or alternate Director so contracting or being so interested be liable to account

to the Company for any profit realized by or arising in connection with any such contract or

transaction by reason of such Director or alternate Director holding office or of the fiduciary

relationship thereby established, provided that the nature of the interest of any Director or any

alternate Director in any such contract or transaction shall be disclosed by them at or prior to its

consideration and any vote thereon.

A Director shall not be entitled to vote on (nor shall be counted in the quorum in relation to)

any resolution of the Directors in respect of any contract or arrangement or any other proposal in

which the Director or any of his close associates has any material interest, and if he shall do so his

vote shall not be counted (nor is he to be counted in the quorum for the resolution), but this

prohibition shall not apply to any of the following matters, namely:

(i) the giving to such Director or any of his close associates of any security or indemnity 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 any of his close

associates has himself/themselves assumed responsibility in whole or in part and whether

alone or jointly under a guarantee or indemnity or by the giving of security;

– III-2 –



(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 any of his close associates 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:

(A) the adoption, modification or operation of any employees’ share scheme or any share

incentive scheme or share option scheme under which the Director or any of his

close associates may benefit; or

(B) the adoption, modification or operation of a pension fund or retirement, death or

disability benefits scheme which relates to the Director, his close associates and

employees of the Company or any of its subsidiaries and does not provide in respect

of any Director or any of his close associates, as such any privilege or advantage not

generally accorded to the class of persons to which such scheme or fund relates;

(v) any contract or arrangement in which the Director or any of his close associates is/are

interested in the same manner as other holders of shares or debentures or other securities

of the Company by virtue only of their interest in shares or debentures or other securities

of the Company; and

(vi) the appointment and/or removal of themselves as a Director of the Company.

(g) Remuneration

The remuneration to be paid to the Directors, if any, shall be such remuneration as the Directors

shall determine. The Directors shall also be entitled to be paid all traveling, hotel and other expenses

properly incurred by them in connection with their attendance at meetings of Directors or committees

of Directors, or general meetings of the Company, or separate meetings of the holders of any class of

shares or debentures of the Company, or otherwise in connection with the business of the Company

or the discharge of their duties as a Director, or to receive a fixed allowance in respect thereof as

may be determined by the Directors, or a combination partly of one such method and partly the

other.

The Directors may approve additional remuneration to any Director for any services which in

the opinion of the Directors go beyond that Director’s ordinary routine work as a Director. Any fees

paid to a Director who is also counsel, attorney or solicitor to the Company, or otherwise serves it in

a professional capacity shall be in addition to their remuneration as a Director.

– III-3 –



(h) Retirement, appointment and removal

The Company may by special resolution (a) appoint any person to be a Director, either to fill a

vacancy or as an additional Director; (b) change the composition of the board of Directors and/or to

increase or reduce the limits in the number of the board of Directors; and (c) appoint or remove the

chief executive officer of the Company.

The Company may by ordinary resolution remove any Director (including a managing or other

executive Director) before the expiration of such Director’s term of office, notwithstanding anything

in the Articles of Association or in any agreement between the Company and such Director, and may

by special resolution elect another person in their stead. Nothing shall be taken as depriving a

Director so removed of compensation or damages payable to such Director in respect of the

termination of his appointment as Director or of any other appointment or office as a result of the

termination of his appointment as Director.

The Directors may, by a resolution passed by the affirmative vote of at least a majority of the

Directors present at a Directors’ meeting or by a resolution in writing signed by all Directors,

appoint any person to be a Director, either to fill a vacancy or as an additional Director provided that

the appointment does not cause the number of Directors to exceed any number fixed by or in

accordance with the Articles of Association as the maximum number of Directors. Any Director so

appointed shall hold office only until the first annual general meeting of the Company after such

Director’s appointment and shall then be eligible for re-election at that meeting. A Director (except

for a Director who is also the chairperson of the Board) may be removed from office by a resolution

passed by the affirmative vote of at least a majority of the Directors present at a Directors’ meeting

or by a resolution in writing signed by all Directors. The Directors may only remove a Director who

is also the chairperson of the Board by unanimous vote of all the Directors in office or by resolution

in writing signed by all Directors.

There is no shareholding qualification for Directors nor is there any specified age limit for

Directors.

The office of a Director shall be vacated if:

(i) the Director gives notice in writing to the Company that he resigns the office of Director;

(ii) the Director is absent (for the avoidance of doubt, without being represented by proxy or

an alternate Director appointed by him) for a continuous period of 12 months without

special leave of absence from the Directors, and the Directors pass a resolution that he has

by reason of such absence vacated office;

(iii) the Director dies, becomes bankrupt or makes any arrangement or composition with his

creditors generally;

(iv) the Director is found to be or becomes of unsound mind; or

– III-4 –



(v) the Director is removed from office pursuant to a resolution passed in accordance with

paragraph 2.1(h) above.

At every annual general meeting of the Company one-third of the Directors for the time being,

or, if their number is not three or a multiple of three, then the number nearest to, but not less than,

one-third, shall retire from office by rotation, provided that every Director (including those

appointed for a specific term) shall be subject to retirement by rotation at least once every three

years. A retiring Director shall retain office until the close of the meeting at which he retires and

shall be eligible for re-election at such meeting. The Company at any annual general meeting at

which any Directors retire may fill the vacated office by electing a like number of persons to be

Directors.

(i) Borrowing powers

The Directors may exercise all the powers of the Company to borrow money and to mortgage or

charge its undertaking, property and assets (present and future) and uncalled capital or any part

thereof and to issue debentures, debenture stock, mortgages, bonds and other such securities whether

outright or as security for any debt, liability or obligation of the Company or of any third party.

2.2 Alteration to constitutional documents

No alteration or amendment to the Memorandum or Articles of Association may be made

except by special resolution.

2.3 Variation of rights of existing shares or classes of shares

If at any time the share capital of the Company is divided into different classes of shares, all or

any of the rights attached to any class for the time being issued (unless otherwise provided by the

terms of issue of the shares of that class) may, whether or not the Company is being wound up, be

varied only with the consent in writing of the holders of not less than three-fourths of the voting

rights of the issued shares of that class, or with the approval of a resolution passed by a majority of

not less than three-fourths of the votes cast at a separate meeting of the holders of the shares of that

class. To any such meeting all the provisions of the Articles of Association relating to general

meetings shall apply mutatis mutandis, except that the necessary quorum shall be one or more

persons holding or representing by proxy or duly authorized representative at least one-third of the

voting rights of the issued shares of that class.

The rights conferred upon the holders of shares of any class shall not, unless otherwise

expressly provided in the rights attaching to or the terms of issue of the shares of that class, be

deemed to be varied by the creation or issue of further shares ranking pari passu therewith.

– III-5 –



2.4 Alteration of capital

The Company may by ordinary resolution:

(a) increase its share capital by such sum as the ordinary resolution shall prescribe and with

such rights, priorities and privileges annexed thereto, as the Company in general meeting

may determine;

(b) consolidate and divide all or any of its share capital into shares of larger amount than its

existing shares. On any consolidation of fully paid shares and division into shares of

larger amount, the Directors may settle any difficulty which may arise as they think

expedient and in particular (but without prejudice to the generality of the foregoing) may

as between the holders of shares to be consolidated determine which particular shares are

to be consolidated into each consolidated share, and if it shall happen that any person shall

become entitled to fractions of a consolidated share or shares, such fractions may be sold

by some person appointed by the Directors for that purpose and the person so appointed

may transfer the shares so sold to the purchasers thereof and the validity of such transfer

shall not be questioned, and so that the net proceeds of such sale (after deduction of the

expenses of such sale) may either be distributed among the persons who would otherwise

be entitled to a fraction or fractions of a consolidated share or shares rateably in

accordance with their rights and interests or may be paid to the Company for the

Company’s benefit;

(c) by subdivision of its existing shares or any of them divide the whole or any part of its

share capital into shares of smaller amount than is fixed by the Memorandum of

Association or into shares without par value; and

(d) cancel any shares that at the date of the passing of the ordinary 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 canceled.

The Company may by special resolution reduce its share capital or any capital redemption

reserve fund, subject to the provisions of the Companies Act.

2.5 Special resolution — majority required

A “special resolution” is defined in the Articles of Association to have the same meaning as in

the Companies Act, for which purpose, the requisite majority shall be not less than three-fourths of

the votes of such members of the Company as, being entitled to do so, vote in person or, in the case

of corporations, by their duly authorized representatives or, where proxies are allowed, by proxy at a

general meeting of which notice specifying the intention to propose the resolution as a special

resolution has been duly given and includes a special resolution approved in writing by all of the

– III-6 –



members of the Company entitled to vote at a general meeting of the Company in one or more

instruments each signed by one or more of such members, and the effective date of the special

resolution so adopted shall be the date on which the instrument or the last of such instruments (if

more than one) is executed.

In contrast, an “ordinary resolution” is defined in the Articles of Association to mean 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 corporations, by their duly authorized

representatives or, where proxies are allowed, by proxy at a general meeting held in accordance with

the Articles of Association and includes an ordinary resolution approved in writing by all the

members of the Company aforesaid.

2.6 Voting rights

Subject to any rights or restrictions attached to any shares, at any general meeting (a) every

member of the Company present in person (or, in the case of a member being a corporation, by its

duly authorized representative) or by proxy shall have the right to speak; (b) on a show of hands

every member present in any such manner shall have one vote; and (c) on a poll every member

present in such manner shall have one vote for every share of which he is the holder.

Where 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.

In the case of joint holders the vote of the senior holder who tenders a vote, whether in person

or by proxy (or in the case of a corporation or other non-natural person, by its duly authorized

representative or proxy) shall be accepted to the exclusion of the votes of the other joint holders, and

seniority shall be determined by the order in which the names of the holders stand in the register of

members of the Company.

A member of unsound mind, or in respect of whom an order has been made by any court having

jurisdiction in lunacy, may vote, whether on a show of hands or on a poll, by their committee,

receiver, curator bonis, or other person on such member’s behalf appointed by that court, and any

such committee, receiver, curator bonis or other person may vote by proxy.

No person shall be counted in a quorum or be entitled to vote at any general meeting unless he

is registered as a member on the record date for such meeting, nor unless all calls or other monies

then payable by him in respect of shares have been paid.

At any general meeting a resolution put to the vote of the meeting shall be decided by way of a poll

save that the chairperson of the meeting may allow a resolution which relates purely to a procedural or

administrative matter as prescribed under the Listing Rules to be voted on by a show of hands.

– III-7 –



Any corporation or other non-natural person which is a member of the Company may in

accordance with its constitutional documents, or in the absence of such provision by resolution of its

directors or other governing body, authorize such person as it thinks fit to act as its representative at

any meeting of the Company or of any class of members, and the person so authorized shall be

entitled to exercise the same powers as the corporation could exercise if it were an individual

member.

If a recognized clearing house (or its nominee(s)) is a member of the Company it may authorize

such person or persons as it thinks fit to act as its representative(s) at any general meeting of the

Company or at any general meeting of any class of members of the Company, provided that, if more

than one person is so authorized, the authorization shall specify the number and class of shares in

respect of which each such person is so authorized. A person authorized pursuant to this provision

shall be entitled to exercise the same rights and powers on behalf of the recognized clearing house

(or its nominee(s)) which that person represents as that recognized clearing house (or its nominee(s))

could exercise as if such person were an individual member of the Company holding the number and

class of shares specified in such authorization, including, where a show of hands is allowed, the right

to vote individually on a show of hands.

2.7 Annual general meetings and extraordinary general meetings

The Company shall hold a general meeting as its annual general meeting for each financial

year. The annual general meeting shall be specified as such in the notices calling it, to be held within

six months (or such other period as may be permitted by the Listing Rules or the Stock Exchange)

after the end of such financial year.

The Directors may call general meetings, and they shall on a members’ requisition forthwith

proceed to convene an extraordinary general meeting of the Company. A members’ requisition is a

requisition of one or more members holding at the date of deposit of the requisition not less than

10% of the voting rights, on a one vote per share basis, of the issued shares which as at that date

carry the right to vote at general meetings of the Company. The members’ requisition must state the

objects and the resolutions to be added to the agenda of the meeting and must be signed by the

requisitionists and deposited at the principal office of the Company in Hong Kong or, in the event

the Company ceases to have such a principal office, the registered office of the Company, and may

consist of several documents in like form each signed by one or more requisitionists. If there are no

Directors as at the date of the deposit of the members’ requisition or if the Directors do not within 21

days from the date of the deposit of the members’ requisition duly proceed to convene a general

meeting to be held within a further 21 days, the requisitionists, or any of them representing more

than one-half of the total voting rights of all the requisitionists, may themselves convene a general

meeting, but any meeting so convened shall be held no later than the day which falls three months

after the expiration of the said 21 day period. A general meeting convened by requisitionists shall be

convened in the same manner as nearly as possible as that in which general meetings are to be

convened by Directors.

– III-8 –



2.8 Accounts and audit

The Directors shall cause proper books of account to be kept with respect to all sums of money

received and expended by the Company and the matters in respect of which the receipt or

expenditure takes place, all sales and purchases of goods by the Company and the assets and

liabilities of the Company. Such books of account must be retained for a minimum period of five

years from the date on which they are prepared. Proper books shall not be deemed to be kept if there

are not kept such books of account as are necessary to give a true and fair view of the state of the

Company’s affairs and to explain its transactions.

The Directors shall determine whether and to what extent and at what times and places and

under what conditions or regulations the accounts and books of the Company or any of them shall be

open to the inspection of members of the Company not being Directors, and no member (not being a

Director) shall have any right of inspecting any account or book or document of the Company except

as conferred by the Companies Act or authorized by the Directors or by the Company in general

meeting.

The Directors shall cause to be prepared and to be laid before the Company at every annual

general meeting a profit and loss account for the period since the preceding account, together with a

balance sheet as at the date to which the profit and loss account is made up, a Directors’ report with

respect to the profit or loss of the Company for the period covered by the profit and loss account and

the state of the Company’s affairs as at the end of such period, an auditors’ report on such accounts

and such other reports and accounts as may be required by law.

2.9 Auditors

The Company shall at every annual general meeting by ordinary resolution appoint an auditor

or auditors of the Company who shall hold office until the next annual general meeting. The

Company may by ordinary resolution remove an auditor before the expiration of his period of office.

No person may be appointed as an auditor of the Company unless such person is independent of the

Company. The remuneration of the auditors shall be fixed by the Company at the annual general

meeting at which they are appointed by ordinary resolution, or in the manner specified in such

resolution.

2.10 Notice of meetings and business to be conducted thereat

An annual general meeting shall be called by not less than 21 days’ notice and any

extraordinary general meeting shall be called by not less than 14 days’ notice, which 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. The notice convening an annual general meeting shall specify the meeting as such, and the

notice convening a meeting to pass a special resolution shall specify the intention to propose the

resolution as a special resolution. Every notice shall specify the place, the day and the hour of the

meeting, particulars of the resolutions and the general nature of the business to be conducted at the

– III-9 –



meeting. Notwithstanding the foregoing, a general meeting of the Company shall, whether or not the

notice specified has been given and whether or not the provisions of the Articles of Association

regarding general meetings have been complied with, be deemed to have been duly convened if it is

so agreed:

(a) in the case of an annual general meeting, by all members of the Company entitled to

attend and vote at the meeting; and

(b) in the case of an extraordinary general meeting, by a majority in number of the members

having a right to attend and vote at the meeting, together holding not less than 95% in par

value of the shares giving that right.

If, after the notice of a general meeting has been sent but before the meeting is held, or after the

adjournment of a general meeting but before the adjourned meeting is held (whether or not notice of

the adjourned meeting is required), the Directors, in their absolute discretion, consider that it is

impractical or unreasonable for any reason to hold a general meeting on the date or at the time and

place specified in the notice calling such meeting, they may change or postpone the meeting to

another date, time and place.

The Directors also have the power to provide in every notice calling a general meeting that in

the event of a gale warning or a black rainstorm warning is in force at any time on the day of the

general meeting (unless such warning is canceled at least a minimum period of time prior to the

general meeting as the Directors may specify in the relevant notice), the meeting shall be postponed

without further notice to be reconvened on a later date.

Where a general meeting is postponed:

(a) the Company shall endeavor to cause a notice of such postponement, which shall set out

the reason for the postponement in accordance with the Listing Rules, to be placed on the

Company’s website and published on the Stock Exchange’s website as soon as

practicable, provided that failure to place or publish such notice shall not affect the

automatic postponement of a general meeting due to a gale warning or black rainstorm

warning being in force on the day of the general meeting;

(b) the Directors shall fix the date, time and place for the reconvened meeting and at least

seven clear days’ notice shall be given for the reconvened meeting; and such notice shall

specify the date, time and place at which the postponed meeting will be reconvened and

the date and time by which proxies shall be submitted in order to be valid at such

reconvened meeting (provided that any proxy submitted for the original meeting shall

continue to be valid for the reconvened meeting unless revoked or replaced by a new

proxy); and

– III-10 –



(c) only the business set out in the notice of the original meeting shall be transacted at the

reconvened meeting, and notice given for the reconvened meeting does not need to specify

the business to be transacted at the reconvened meeting, nor shall any accompanying

documents be required to be recirculated. Where any new business is to be transacted at

such reconvened meeting, the Company shall give a fresh notice for such reconvened

meeting in accordance with the Articles of Association.

2.11 Transfer of shares

Transfers of shares may be effected by an instrument of transfer, which shall be in writing and

in any standard for of transfer as prescribed by the Stock Exchange or such other form as the

Directors may approve. The instrument of transfer shall be executed by or on behalf of the transferor

and, unless the Directors otherwise determine, the transferee, and the transferor shall be deemed to

remain the holder of the share until the name of the transferee is entered in the register of members

of the Company.

The Directors may decline to register any transfer of any share which is not fully paid up or on

which the Company has a lien. The Directors may also decline to register any transfer of any shares

unless:

(a) the instrument of transfer is lodged with the Company accompanied by the certificate for

the shares to which it relates (which shall upon the registration of the transfer be canceled)

and such other evidence as the Directors may reasonably require to show the right of the

transferor to make the transfer;

(b) the instrument of transfer is in respect of only one class of shares;

(c) the instrument of transfer is properly stamped (in circumstances where stamping is

required);

(d) in the case of a transfer to joint holders, the number of joint holders to whom the share is

to be transferred does not exceed four;

(e) the shares concerned are free of any lien in favor of the Company; and

(f) a fee of such amount not exceeding the maximum amount as the Stock Exchange may

from time to time determine to be payable (or such lesser sum as the Directors may from

time to time require) is paid to the Company in respect thereof.

If the Directors refuse to register a transfer of any share they shall notify the transferor and the

transferee within two months of such refusal.

– III-11 –



The registration of transfers shall be suspended during such periods as the register of members

of the Company is closed. The Directors may, on 10 business days’ notice (or on 6 business days’

notice in the case of a rights issue) being given by advertisement published on the Stock Exchange’s

website, or, subject to the Listing Rules, in the manner in which notices may be served by the

Company by electronic means as provided in the Articles of Association or by advertisement

published in the newspapers, close the register of members at such times and for such periods as the

Directors may from time to time determine, provided that the register of members shall not be closed

for more than 30 days in any year (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).

2.12 Power of the Company to purchase its own shares

Subject to the provisions of the Companies Act, the Company may purchase its own shares

provided that (a) the manner of purchase has first been authorized by the members of the Company

by ordinary resolution, and (b) any such purchase shall only be made in accordance with any relevant

code, rules or regulations issued by the Stock Exchange or the Securities and Futures Commission of

Hong Kong from time to time in force.

2.13 Power of any subsidiary of the Company to own shares

There are no provisions in the Articles of Association relating to the ownership of shares by a

subsidiary.

2.14 Dividends and other methods of distribution

Subject to the Companies Act and the Articles of Association, the Company may by ordinary

resolution resolve to pay dividends and other distributions on shares in issue and authorize payment

of the dividends or other distributions out of the funds of the Company lawfully available therefor,

provided no dividends shall exceed the amount recommended by the Directors. No dividend or other

distribution shall be paid except out of the realized or unreleased profits of the Company, out of the

share premium account or as otherwise permitted by law.

The Directors may from time to time pay to the members of the Company such interim

dividends as appear to the Directors to be justified by the profits of the Company. The Directors may

in addition from time to time declare and pay special dividends on shares of such amounts and on

such dates as they think fit.

Except as otherwise provided by the rights attached to any shares, all dividends and other

distributions shall be paid according to the amounts paid up on the shares that a member holds

during any portion or portions of the period in respect of which the dividend is paid. For this purpose

no amount paid up on a share in advance of calls shall be treated as paid up on the share.

– III-12 –



The Directors may deduct from any dividends or other distribution payable to any member of

the Company all sums of money (if any) then payable by the member to the Company on account of

calls or otherwise. The Directors may retain any dividends or other monies payable on or in respect

of a share upon which the Company has a lien, and may apply the same in or towards satisfaction of

the debts, liabilities or engagements in respect of which the lien exists.

No dividend shall carry interest against the Company. Except as otherwise provided by the

rights attached to any shares, dividends and other distributions may be paid in any currency.

Whenever the Directors or the Company in general meeting have resolved that a dividend be

paid or declared on the share capital of the Company, the Directors may further resolve: (a) that such

dividend be satisfied wholly or in part in the form of an allotment of shares credited as fully paid up

on the basis that the shares so allotted are to be of the same class as the class already held by the

allottee, provided that the members of the Company entitled thereto will be entitled to elect to

receive such dividend (or part thereof) in cash in lieu of such allotment; or (b) that the members of

the Company 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 Directors may think

fit on the basis that the shares so allotted are to be of the same class as the class already held by the

allottee. The Company may upon the recommendation of the Directors by ordinary resolution resolve

in respect of any one particular dividend of the Company that notwithstanding the foregoing a

dividend may be satisfied wholly in the form of an allotment of shares credited as fully paid without

offering any right to members of the Company to elect to receive such dividend in cash in lieu of

such allotment.

Any dividend, interest or other monies payable in cash in respect of shares may be paid by wire

transfer to the holder or by check or warrant sent through the post directed to the registered address

of the holder or, in the case of joint holders, to the registered address of the holder who is first

named on the register of members of the Company or to such person and to such address as the

holder or joint holders may in writing direct. Every such check or warrant shall be made payable to

the order of the person to whom it is sent. Any one of two or more joint holders may give effectual

receipts for any dividends, other distributions, bonuses, or other monies payable in respect of the

shares held by them as joint holders.

Any dividend or other distribution which remains unclaimed after a period of six years from the

date on which such dividend or distribution becomes payable shall be forfeited and shall revert to the

Company.

The Directors, with the sanction of the members of the Company by ordinary resolution, may

resolve that any dividend or other distribution be paid wholly or partly by the distribution of specific

assets, and in particular (but without limitation) by the distribution of shares, debentures, or

securities of any other company or in any one or more of such ways, and where any difficulty arises

in regard to such distribution, the Directors may settle it as they think expedient, and in particular

– III-13 –



may disregard fractional entitlements, round the same up or down or provide that the same shall

accrue to the benefit of the Company, and may fix the value for distribution of such specific assets or

any part thereof and may determine that cash payments shall be made to any members of the

Company upon the basis of the value so fixed in order to adjust the rights of all members, and may

vest any such specific assets in trustees as may seem expedient to the Directors.

2.15 Proxies

A member of the Company entitled to attend and vote at a general meeting of the Company

shall be entitled to appoint another person who must be an individual as his proxy to attend and vote

instead of him and a proxy so appointed shall have the same right as the member to speak at the

meeting. Votes may be given either personally or by proxy. A proxy need not be a member of the

Company. A member may appoint any number of proxies to attend in his stead at any one general

meeting or at any one class meeting.

The instrument appointing a proxy shall be in writing and shall be executed under the hand of

the appointor or of his attorney duly authorized in writing, or, if the appointor is a corporation or

other non-natural person, under the hand of its duly authorized representative.

The Directors shall, in the notice convening any meeting or adjourned meeting, or in an

instrument of proxy sent out by the Company, specify the manner by which the instrument

appointing a proxy shall be deposited and the place and the time (being not later than the time

appointed for the commencement of the meeting or adjourned meeting to which the proxy relates) at

which the instrument appointing a proxy shall be deposited.

The instrument appointing a proxy may be in any usual or common form (or such other form as

the Directors may approve) and may be expressed to be for a particular meeting or any adjournment

thereof or generally until revoked.

2.16 Calls on shares and forfeiture of shares

Subject to the terms of the allotment and issue of any shares, the Directors may make calls

upon the members of the Company in respect of any monies unpaid on their shares (whether in

respect of par value or premium), and each member of the Company shall (subject to receiving at

least 14 clear days’ notice specifying the times or times of payment) pay to the Company at the time

or times so specified the amount called on his shares. A call may be revoked or postponed, in whole

or in part, as the Directors may determine. A call may be required to be paid by installments. A

person upon whom a call is made shall remain liable for calls made upon him, notwithstanding the

subsequent transfer of the shares in respect of which the call was made.

A call shall be deemed to have been made at the time when the resolution of the Directors

authorizing the call was passed. The joint holders of a share shall be jointly and severally liable to

pay all calls and installments due in respect of such share.

– III-14 –



If a call remains unpaid after it has become due and payable, the person from whom it is due

shall pay interest on the amount unpaid from the day it became due and payable until it is paid at

such rate as the Directors may determine (and in addition all expenses that have been incurred by the

Company by reason of such non-payment), but the Directors may waive payment of the interest or

expenses wholly or in part.

If any call or installment of a call remains unpaid after it has become due and payable, the

Directors may give to the person from whom it is due not less than 14 clear days’ notice requiring

payment of the amount unpaid together with any interest which may have accrued and any expenses

incurred by the Company by reason of such non-payment. The notice shall specify where payment is

to be made and shall state if the notice is not complied with the shares in respect of which the call

was made will be liable to be forfeited.

If such notice is not complied with, any share in respect of which it was given may, before the

payment required by the notice has been made, be forfeited by a resolution of the Directors. Such

forfeiture shall include all dividends, other distributions or other monies payable in respect of the

forfeited shares and not paid before the forfeiture.

A forfeited share may be sold, re-allotted or otherwise disposed of on such terms and in such

manner as the Directors think fit.

A person any of whose shares have been forfeited shall cease to be a member of the Company

in respect of the forfeited shares and shall surrender to the Company for cancelation the certificate

for the shares forfeited and shall remain liable to pay to the Company all monies which at the date of

forfeiture were payable by him to the Company in respect of the shares, together with interest at such

rate as the Directors may determine, but that person’s liability shall cease if and when the Company

shall have received payment in full of all monies due and payable by them in respect of those shares.

2.17 Inspection of register of members

The Company shall maintain or cause to be maintained the register of members of the Company

in accordance with the Companies Act. The Directors may, on giving 10 business days’ notice (or 6

business days’ notice in the case of a rights issue) by advertisement published on the Stock

Exchange’s website or, subject to the Listing Rules, in the manner in which notices may be served by

the Company by electronic means as provided in the Articles of Association or by advertisement

published in the newspapers, close the register of members at such times and for such periods as the

Directors may determine, either generally or in respect of any class of shares, provided that the

register shall not be closed for more than 30 days in any year (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).

Except when the register is closed, the register of members shall during business hours be kept

open for inspection by any member of the Company without charge.

– III-15 –



2.18 Quorum for meetings and separate class meetings

No business shall be transacted at any general meeting unless a quorum is present. Two

members of the Company present in person or by proxy, or if a corporation or other non-natural

person by its duly authorized representative or proxy, shall be a quorum unless the Company has

only one member entitled to vote at such general meeting in which case the quorum shall be that one

member present in person or by proxy, or in the case of a corporation or other non-natural person by

its duly authorized representative or proxy.

The quorum for a separate general meeting of the holders of a separate class of shares of the

Company is described in paragraph 2.3 above.

2.19 Rights of minorities in relation to fraud or oppression

There are no provisions in the Articles of Association concerning the rights of minority

shareholders in relation to fraud or oppression.

2.20 Procedure on liquidation

Subject to the Companies Act, the Company may by special resolution resolve that the

Company be wound up voluntarily.

Subject to the rights attaching to any shares, in a winding up:

(a) if the assets available for distribution amongst the members of the Company shall be

insufficient to repay the whole of the Company’s paid-up capital, such assets shall be

distributed so that, as nearly as may be, the losses shall be borne by the members of the

Company in proportion to the capital paid up, or which ought to have been paid up, on the

shares held by them at the commencement of the winding up;

(b) if the assets available for distribution amongst the members of the Company shall be more

than sufficient to repay the whole of the Company’s paid up capital at the commencement

of the winding up, the surplus shall be distributed amongst the members of the Company

in proportion to the capital paid up on the shares held by them at the commencement of

the winding up.

If the Company shall be wound up, the liquidator may with the approval of a special resolution

of the Company and any other approval required by the Companies Act, divide amongst the members

of the Company in kind the whole or any part of the assets of the Company (whether such assets

shall consist of property of the same kind or not) and may, for that purpose, value any assets and

determine how the division shall be carried out as between the members or different classes of

members of the Company. The liquidator may, with the like approval, vest the whole or any part of

– III-16 –



such assets in trustees upon such trusts for the benefit of the members of the Company as the

liquidator, with the like approval, shall think fit, but so that no member of the Company shall be

compelled to accept any assets, shares or other securities in respect of which there is a liability.

2.21 Untraceable members

The Company shall be entitled to sell any shares of a member of the Company or the shares to

which a person is entitled by virtue of transmission on death or bankruptcy or operation of law if:

(a) all checks or warrants, not being less than three in number, for any sums payable in cash to the

holder of such shares have remained uncashed for a period of 12 years; (b) the Company has not

during that time or before the expiry of the three month period referred to in (d) below received any

indication of the whereabouts or existence of the member; (c) during the 12-year period, at least

three dividends in respect of the shares in question have become payable and no dividend during that

period has been claimed by the member; and (d) upon expiry of the 12-year period, the Company has

caused an advertisement to be published in the newspapers or, subject to the Listing Rules, by

electronic communication in the manner in which notices may be served by the Company by

electronic means as provided in the Articles of Association, given notice of its intention to sell such

shares and a period of three months has elapsed since such advertisement and the Stock Exchange

has been notified of such intention. The net proceeds of any such sale shall belong to the Company

and upon receipt by the Company of such net proceeds it shall become indebted to the former

member for an amount equal to such net proceeds.

SUMMARY OF CAYMAN ISLANDS COMPANY LAW AND TAXATION

1 Introduction

The Companies Act is derived, to a large extent, from the older Companies Acts of England,

although there are significant differences between the Companies Act and the current Companies Act

of England. Set out below is a summary of certain provisions of the Companies Act, although this

does not purport to contain all applicable qualifications and exceptions or to be a complete review of

all matters of corporate law and taxation which may differ from equivalent provisions in jurisdictions

with which interested parties may be more familiar.

2 Incorporation

The Company was incorporated in the Cayman Islands as an exempted company with limited

liability on May 16, 2017 under the Companies Act. As such, its operations must be conducted

mainly outside the Cayman Islands. The Company is 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 size of its

authorized share capital.

– III-17 –



3 Share Capital

The Companies Act permits a company to issue ordinary shares, preference shares, redeemable

shares or any combination thereof.

The Companies Act provides that where a company issues shares at a premium, whether for

cash or otherwise, a sum equal to the aggregate amount of the value of the premia on those shares

shall be transferred to an account called the “share premium account”. At the option of a company,

these provisions may not apply to premia on shares of that company allotted pursuant to any

arrangement in consideration of the acquisition or cancelation of shares in any other company and

issued at a premium. The Companies Act provides that the share premium account may be applied by

a company, subject to the provisions, if any, of its memorandum and articles of association, in such

manner as the company may from time to time determine including, but without limitation:

(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;

(c) in the redemption and repurchase of shares (subject to the provisions of section 37 of the

Companies Act);

(d) writing-off the preliminary expenses of the company;

(e) writing-off the expenses of, or the commission paid or discount allowed on, any issue of

shares or debentures of the company; and

(f) providing for the premium payable on redemption or purchase of any shares or debentures

of the company.

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.

The Companies Act provides that, subject to confirmation by the Grand Court of the Cayman

Islands, a company limited by shares or a company limited by guarantee and having a share capital

may, if so authorized by its articles of association, by special resolution reduce its share capital in

any way.

Subject to the detailed provisions of the Companies Act, a company limited by shares or a

company limited by guarantee and having a share capital may, if so authorized by its articles of

association, issue shares which are to be redeemed or are liable to be redeemed at the option of the

– III-18 –



company or a shareholder. In addition, such a company may, if authorized to do so by its articles of

association, purchase its own shares, including any redeemable shares. The manner of such a

purchase must be authorized either by the articles of association or by an ordinary resolution of the

company. The articles of association may provide that the manner of purchase may be determined by

the directors of the company. At no time may a company redeem or purchase its shares unless they

are fully paid. A company may not redeem or purchase any of its shares if, as a result of the

redemption or purchase, there would no longer be any member of the company holding shares. A

payment out of capital by a company for the redemption or purchase of its own shares is not lawful

unless immediately following the date on which the payment is proposed to be made, the company

shall be able to pay its debts as they fall due in the ordinary course of business.

There is no statutory restriction in the Cayman Islands on the provision of financial assistance

by a company for the purchase of, or subscription for, its own or its holding company’s shares.

Accordingly, a company may provide financial assistance if the directors of the company consider, in

discharging their duties of care and to act in good faith, for a proper purpose and in the interests of

the company, that such assistance can properly be given. Such assistance should be on an arm’s-

length basis.

4 Dividends and Distributions

With the exception of section 34 of the Companies Act, there are no statutory provisions

relating to the payment of dividends. Based upon English case law which is likely to be persuasive in

the Cayman Islands in this area, dividends may be paid only out of profits. In addition, section 34 of

the Companies Act permits, subject to a solvency test and the provisions, if any, of the company’s

memorandum and articles of association, the payment of dividends and distributions out of the share

premium account (see paragraph 3 above for details).

5 Shareholders’ Suits

The Cayman Islands courts can be expected to follow English case law precedents. The rule in

Foss v. Harbottle (and the exceptions thereto which permit a minority shareholder to commence a

class action against or derivative actions in the name of the company to challenge (a) an act which is

ultra vires the company or illegal, (b) an act which constitutes a fraud against the minority where the

wrongdoers are themselves in control of the company, and (c) an action which requires a resolution

with a qualified (or special) majority which has not been obtained) has been applied and followed by

the courts in the Cayman Islands.

6 Protection of Minorities

In the case of a company (not being a bank) having a share capital divided into shares, the

Grand Court of the Cayman Islands 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 into the affairs of the

company and to report thereon in such manner as the Grand Court shall direct.

– III-19 –



Any shareholder of a company may petition the Grand Court of the Cayman Islands 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.

Claims against a company by its shareholders must, as a general rule, be based on the general

laws of contract or tort applicable in the Cayman Islands or their individual rights as shareholders as

established by the company’s memorandum and articles of association.

The English common law rule that the majority will not be permitted to commit a fraud on the

minority has been applied and followed by the courts of the Cayman Islands.

7 Disposal of Assets

The Companies Act contains no specific restrictions on the powers of directors to dispose of

assets of a company. As a matter of general law, in the exercise of those powers, the directors must

discharge their duties of care and to act in good faith, for a proper purpose and in the interests of the

company.

8 Accounting and Auditing Requirements

The Companies Act requires that a company shall cause to be kept proper books of account

with respect to:

(a) all sums of money received and expended by the company and the matters in respect of

which the receipt and expenditure takes place;

(b) all sales and purchases of goods by the company; and

(c) the assets and liabilities of the company.

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.

9 Register of Members

An exempted company may, subject to the provisions of its articles of association, maintain its

principal register of members and any branch registers at such locations, whether within or without

the Cayman Islands, as its directors may from time to time think fit. There is no requirement under

the Companies Act for an exempted company to make any returns of members to the Registrar of

Companies of 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.

– III-20 –



10 Inspection of Books and Records

Members of a company will have no general right under the Companies Act 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.

11 Special Resolutions

The Companies Act provides that a resolution is a special resolution when it has been passed by

a majority of at least two-thirds of such members as, being entitled to do so, vote in person or, where

proxies are allowed, by proxy at a general meeting of which notice specifying the intention to

propose the resolution as a special resolution has been duly given, except that a company may in its

articles of association specify that the required majority shall be a number greater than two-thirds,

and may additionally so provide that such majority (being not less than two-thirds) may differ as

between matters required to be approved by a special resolution. Written resolutions signed by all the

members entitled to vote for the time being of the company may take effect as special resolutions if

this is authorized by the articles of association of the company.

12 Subsidiary Owning Shares in Parent

The Companies Act does not prohibit a Cayman Islands company acquiring and holding shares

in its parent company provided its objects so permit. The directors of any subsidiary making such

acquisition must discharge their duties of care and to act in good faith, for a proper purpose and in

the interests of the subsidiary.

13 Mergers and Consolidations

The Companies Act permits mergers and consolidations between Cayman Islands companies

and between Cayman Islands companies and non-Cayman Islands companies. For these purposes,

(a) “merger” means the merging of two or more constituent companies and the vesting of their

undertaking, property and liabilities in one of such companies as the surviving company, and

(b) “consolidation” means the combination of two or more constituent companies into a consolidated

company and the vesting of the undertaking, property and liabilities of such companies to the

consolidated company. In order to effect such a merger or consolidation, the directors of each

constituent company must approve a written plan of merger or consolidation, which must then be

authorized by (a) a special resolution of each constituent company and (b) such other authorization,

if any, as may be specified in such constituent company’s articles of association. The written plan of

merger or consolidation must be filed with the Registrar of Companies of the Cayman Islands

together with a declaration as to the solvency of the consolidated or surviving company, a list of the

assets and liabilities of each constituent company and an undertaking that a copy of the certificate of

merger or consolidation will be given to the members and creditors of each constituent company and

that notification of the merger or consolidation will be published in the Cayman Islands Gazette.

– III-21 –



Dissenting shareholders have the right to be paid the fair value of their shares (which, if not agreed

between the parties, will be determined by the Cayman Islands court) if they follow the required

procedures, subject to certain exceptions. Court approval is not required for a merger or

consolidation which is effected in compliance with these statutory procedures.

14 Reconstructions

There are statutory provisions which facilitate reconstructions and amalgamations approved by

a majority in number representing 75% in value of shareholders or creditors, depending on the

circumstances, as are present at a meeting called for such purpose and thereafter sanctioned by the

Grand Court of the Cayman Islands. Whilst a dissenting shareholder would have the right to express

to the Grand Court his view that the transaction for which approval is sought would not provide the

shareholders with a fair value for their shares, the Grand Court is 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 shareholder

would have no rights comparable to the appraisal rights (i.e. the right to receive payment in cash for

the judicially determined value of his shares) ordinarily available, for example, to dissenting

shareholders of United States corporations.

15 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% of the shares which are the subject of the offer

accept, the offeror may at any time within two months after the expiration of the said four months,

by notice require the dissenting shareholders to transfer their shares on the terms of the offer. A

dissenting shareholder may apply to the Grand Court of the Cayman Islands within one month of the

notice objecting to the transfer. The burden is on the dissenting shareholder to show that the Grand

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 shareholders.

16 Indemnification

Cayman Islands law does not limit the extent to which a company’s articles of association may

provide for indemnification of officers and directors, except to the extent any such provision may be

held by the Cayman Islands courts to be contrary to public policy (e.g. for purporting to provide

indemnification against the consequences of committing a crime).

17 Liquidation

A company may be placed in liquidation compulsorily by an order of the court, or voluntarily

(a) by a special resolution of its members if the company is solvent, or (b) by an ordinary resolution

– III-22 –



of its members if the company is insolvent. The liquidator’s duties are to collect the assets of the

company (including the amount (if any) due from the contributories (shareholders)), settle the list of

creditors and discharge the company’s liability to them, rateably if insufficient assets exist to

discharge the liabilities in full, and to settle the list of contributories and divide the surplus assets (if

any) amongst them in accordance with the rights attaching to the shares.

18 Stamp Duty on Transfers

No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands

companies except those which hold interests in land in the Cayman Islands.

19 Taxation

Pursuant to section 6 of the Tax Concessions Act (As Revised) of the Cayman Islands, the

Company may obtain an undertaking from the Financial Secretary of the Cayman Islands:

(a) that no law which is enacted in the Cayman Islands imposing any tax to be levied on

profits, income, gains or appreciations shall apply to the Company or its operations; and

(b) in addition, that no tax to be levied on profits, income, gains or appreciations or which is

in the nature of estate duty or inheritance tax shall be payable:

(i) on or in respect of the shares, debentures or other obligations of the Company; or

(ii) by way of the withholding in whole or in part of any relevant payment as defined in

section 6(3) of the Tax Concessions Act (As Revised).

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 certain stamp duties which may be applicable, from time to time, on certain

instruments executed in or brought within the jurisdiction of the Cayman Islands. The Cayman

Islands are not party to any double tax treaties that are applicable to any payments made by or to the

Company.

20 Exchange Control

There are no exchange control regulations or currency restrictions in the Cayman Islands.

21 General

Maples and Calder (Hong Kong) LLP, the Company’s legal advisers on Cayman Islands law,

have sent to the Company a letter of advice summarizing aspects of Cayman Islands company law.

– III-23 –



This letter, together with a copy of the Companies Act, is on display on the websites as referred to in

the section headed “Documents on display” in Appendix V. Any person wishing to have a detailed

summary of Cayman Islands company law or advice on the differences between it and the laws of

any jurisdiction with which he/she is more familiar is recommended to seek independent legal

advice.

– III-24 –


APPENDIX IV STATUTORY AND GENERAL INFORMATION

A. FURTHER INFORMATION ABOUT OUR GROUP

1. Incorporation

Our Company was incorporated under the laws of the Cayman Islands as an exempted company

with limited liability on May 16, 2017.

Our registered office address is at the offices of Maples Corporate Services Limited, PO Box

309, Ugland House, Grand Cayman KY1-1104, Cayman Islands. Accordingly, our Company’s

corporate structure and Memorandum and Articles of Association are subject to the relevant laws of

the Cayman Islands. A summary of our Memorandum and Articles of Association is set out in

Appendix III to this document.

Our principal place of business in Hong Kong is at 5/F, Manulife Place, 348 Kwun Tong Road,

Kowloon, Hong Kong. We were registered as a non-Hong Kong company under Part 16 of the

Companies Ordinance on January 11, 2022 with the Registrar of Companies in Hong Kong. Ms. Sau

Ling Chan has been appointed as the authorized representative of our Company for the acceptance of

service of process in Hong Kong. The address for service of process is 5/F, Manulife Place, 348

Kwun Tong Road, Kowloon, Hong Kong.

As at the date of this document, our Company’s head office was located at 22/F, Tower A, SCG

Parkside, 868 Yinghua Road, Pudong New Area, Shanghai 201204, PRC.

2. Changes in share capital of our Company

Our Company was incorporated with an authorized share capital of US$50,000 divided into

500,000,000 shares with a par value of US$0.0001 each.

The following sets out the changes in the Company’s issued share capital during the two years

immediately preceding the date of this document:

(a) On May 10, 2021, we increased our authorized share capital by 500,000,000 shares,

resulting in the authorized share capital of our Company being US$100,000 divided into

1,000,000,000 shares with a par value of US$0.0001 each.

(b) On August 10, 2021, we issued an aggregate of 9,334,904 Class A Ordinary Shares with a

par value of US$0.0001 each to miHoYo Limited.

(c) On August 17, 2021, we issued an aggregate of 9,297,639 Class A Ordinary Shares with a

par value of US$0.0001 each to Image Frame Investment (HK) Limited.

3. Changes in the share capital of our subsidiaries and Consolidated Affiliated Entities

A summary of the corporate information and the particulars of our subsidiaries are set out in

note 1 to the Accountants’ Report as set out in Appendix I.

– IV-1 –



The following sets out the changes in the share capital of our subsidiaries during the two years

immediately preceding the date of this document:

(i) In July 2020, the registered capital of Shanghai Soul Information Technology Co., Ltd.

was increased from US$85 million to US$135 million.

(ii) In March 2021, the registered capital of Shanghai Soul Information Technology Co., Ltd.


(iii) In August 2021, the registered capital of Shanghai Soul Information Technology Co., Ltd.


Save as disclosed above, there has been no alteration in the share capital of any of the

subsidiaries of our Company within the two years immediately preceding the date of this document.

Save for the subsidiaries mentioned in the Accountants’ Report set out in Appendix I, our

Company has no other subsidiaries.

4. Resolutions of our Shareholders dated [Š], 2022

Resolutions of our Shareholders were passed on [Š], 2022, pursuant to which, among others,

conditional upon the conditions of the [REDACTED] (as set out in this document) being fulfilled:

(a) all of the preferred shares of par value US$0.0001 each, whether issued or unissued be re-

designated and re-classified as Shares of US$0.0001 each on a one-for-one basis;

(b) the Memorandum and the Articles were approved and adopted effective conditional on and

immediately prior to the [REDACTED] on the [REDACTED] Date;

(c) the [REDACTED], [REDACTED] and [REDACTED] were approved, and our Directors

were authorized to negotiate and agree the [REDACTED] and to [REDACTED] and

[REDACTED] the [REDACTED] (including pursuant to the [REDACTED]);

(d) a general mandate (the “Sale Mandate”) was granted to our Directors to allot, issue and

deal with any Shares or securities convertible into Shares and to make or grant offers,

agreements or options which would or might require Shares to be allotted, issued or dealt

with, provided that the number of Shares so allotted, issued or dealt with or agreed to be

allotted, issued or dealt with by our Directors, shall not exceed 20% of the total number of

Shares in issue immediately following completion of the [REDACTED];

(e) a general mandate (the “Repurchase Mandate”) was granted to our Directors to

repurchase our own Shares on the Stock Exchange or on any other stock exchange on

– IV-2 –



which the [REDACTED] of our Company may be [REDACTED] and which is

recognized by the SFC and the Stock Exchange for this purpose, such number of Shares as

will represent up to 10% of the total number of Shares in issue immediately following

completion of the [REDACTED]; and

(f) the Sale Mandate was extended by the addition to the total number of Shares which may

be allotted and issued or agreed to be allotted and issued by our Directors pursuant to such

general mandate of an amount representing the total number of the Shares purchased by

our Company pursuant to the Repurchase Mandate, provided that such extended amount

shall not exceed 10% of the total number of the Shares in issue immediately following

completion of the [REDACTED].

Each of the general mandates referred to above will remain in effect until the earliest of:

(a) the conclusion of the next annual general meeting of our Company unless, by ordinary

resolution passed at that meeting, the authority is renewed, either unconditionally or

subject to condition;

(b) the expiration of the period within which the next annual general meeting of our Company

is required to be held under any applicable laws of the Cayman Islands or the


(c) the passing of an ordinary resolution by our Shareholders in a general meeting revoking or


5. Explanatory statement on repurchase of our own securities

The following summarizes restrictions imposed by the Listing Rules on share repurchases by a

company [REDACTED] on the Stock Exchange and provides further information about the

repurchase of our own securities.

Shareholders’ approval

A [REDACTED] company whose [REDACTED] is on the Stock Exchange may only purchase

its shares on the Stock Exchange, either directly or indirectly, if: (i) the shares proposed to be

purchased are fully-paid up, and (ii) its shareholders have given a specific approval or general

mandate by way of an ordinary resolution of shareholders.

Size of mandate

The exercise in full of the Repurchase Mandate, on the basis of [REDACTED] Shares in issue

immediately following completion of the [REDACTED] (assuming the Presumptions), could

accordingly result in up to approximately [REDACTED] Shares being repurchased by our Company.

– IV-3 –



The total number of shares which a [REDACTED] company may repurchase on the Stock

Exchange may not exceed 10% of the number of issued shares as at the date of the shareholders’

approval.

Reasons for repurchases

Our Directors believe that it is in the best interests of our Company and 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 where our Directors believe that such repurchases will benefit our

Company and Shareholders.

Source of funds

Purchases must be funded out of funds legally available for the purpose in accordance with the

Memorandum and Articles and the applicable Laws of the Cayman Islands.

Our Company shall not purchase its own Shares 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 from time to time.

Any purchases by our Company may be made out of profits or out of an issue of new shares

made for the purpose of the purchase or, if authorized by its Memorandum and Articles and subject

to the Companies Ordinance, out of capital, and, in the case of any premium payable on the purchase

out of profits or from sums standing to the credit of our share premium account or, if authorized by

its Memorandum and Articles and subject to the Companies Ordinance, out of capital.

Suspension of repurchase

A [REDACTED] company shall not repurchase its shares on the Stock Exchange at any time

after inside information has come to its knowledge until the information is made publicly available.

In particular, during the period of one month immediately preceding the earlier of: (i) the date of the

board meeting (as such date is first notified to the Stock Exchange in accordance with the Listing

Rules) for the approval of the Company’s results for any year, half-year, quarterly or any other

interim period (whether or not required under the Listing Rules); and (ii) the deadline for the issuer

to announce its results for any year or half-year under the Listing Rules, or quarterly or any other

interim period (whether or not required under the Listing Rules), until the date of the results

announcement, the company may not repurchase its shares on the Stock Exchange unless there are

exceptional circumstances.

Trading restrictions

A listed company is prohibited from repurchasing its shares on the Stock Exchange if the

purchase price is 5% or more than the average closing market price for the five preceding trading

days on which its shares were traded on the Stock Exchange.

– IV-4 –



A listed company may not repurchase its shares if that repurchase would result in the number of

listed securities which are in the hands of the public falling below the relevant prescribed minimum

percentage as required by the Stock Exchange.

Status of repurchased shares

The [REDACTED] of all repurchased shares (whether through the Stock Exchange or

otherwise) shall be automatically canceled and the relevant documents of title must be canceled and

destroyed as soon as reasonably practicable.

Close associates and core connected persons

None of our Directors or, to the best of their knowledge having made all reasonable enquiries,

any of their close associates have a present intention, in the event the Repurchase Mandate is

approved, to sell any Shares to our Company.

No core connected person of our Company has notified our Company that they have a present

intention to sell Shares to our Company, or have undertaken to do so, if the Repurchase Mandate is

approved.

A listed company shall not knowingly purchase its shares on the Stock Exchange from a core

connected person (namely a director, chief executive or substantial shareholder of the company or

any of its subsidiaries, or a close associate of any of them), and a core connected person shall not

knowingly sell their interest in shares of the company to it.

Takeover implications

If, as a result of any repurchase of Shares, a Shareholder’s proportionate interest in the voting

rights of our Company increases, such increase will be treated as an acquisition for the purposes of

the Takeovers Code. Accordingly, a Shareholder or a group of Shareholders acting in concert could

obtain or consolidate control of our Company and become obliged to make a mandatory offer in

accordance with Rule 26 of the Takeovers Code. Save as aforesaid, our Directors are not aware of

any consequences which would arise under the Takeovers Code as a consequence of any repurchases

pursuant to the Repurchase Mandate.

General

If the Repurchase Mandate were to be carried out in full at any time, there may be a material

adverse impact on our working capital or gearing position (as compared with the position disclosed

in our most recent published audited accounts). However, our Directors do not propose to exercise

the Repurchase Mandate to such an extent as would have a material adverse effect on our working

capital or gearing position.

– IV-5 –



Our Directors have undertaken to the Stock Exchange to exercise the Repurchase Mandate in

accordance with the Listing Rules and the applicable laws in the Cayman Islands.

We have not made any repurchases of our Shares in the previous six months.

B. FURTHER INFORMATION ABOUT OUR BUSINESS

1. Summary of Material Contracts

The following contracts (not being contracts entered into in the ordinary course of business)

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) a loan agreement dated May 16, 2022 entered into between Shanghai Soul Information

Technology Co., Ltd. (上海搜爾信息科技有限公司) and Ms. Lu Zhang (張璐), a shareholder

of Shanghai Soulgate Technology Co., Ltd. (上海任意門科技有限公司), pursuant to which

Shanghai Soul Information Technology Co., Ltd. (上海搜爾信息科技有限公司) granted a

long term loan of RMB3.6106 million to Ms. Lu Zhang (張璐), for the purpose prescribed

therein;

(b) an exclusive business cooperation agreement dated May 16, 2022 entered into between

Shanghai Soul Information Technology Co., Ltd. (上海搜爾信息科技有限公司) and

Shanghai Soulgate Technology Co., Ltd. (上海任意門科技有限公司), pursuant to which

Shanghai Soul Information Technology Co., Ltd. (上海搜爾信息科技有限公司) has the

exclusive right to provide Shanghai Soulgate Technology Co., Ltd. (上海任意門科技有限公司) with comprehensive technology support, business support, and related consultancy

services in return for service fees;

(c) an exclusive purchase option agreement dated May 16, 2022 entered into among Shanghai

Soul Information Technology Co., Ltd. (上海搜爾信息科技有限公司), Ms. Lu Zhang (張璐),

Zhuanlian Technology (Shenzhen) Co., Ltd. (專聯科技（深圳）有限公司), Beijing Mingjun

Equity Investment Management Co., Ltd. (北京明雋股權投資管理有限公司), Shanghai

Jianming Enterprise Management Co., Ltd. (上海簡鳴企業管理有限公司), Shanghai

Moliang Venture Investment Center (Limited Partnership) (上海魔量創業投資中心（有限合夥）) and Shanghai Soulgate Technology Co., Ltd. (上海任意門科技有限公司), pursuant to

which Ms. Lu Zhang (張璐), Zhuanlian Technology (Shenzhen) Co., Ltd. (專聯科技（深圳）有限公司), Beijing Mingjun Equity Investment Management Co., Ltd. (北京明雋股權投資管理有限公司), Shanghai Jianming Enterprise Management Co., Ltd. (上海簡鳴企業管理有限公司) and Shanghai Moliang Venture Investment Center (Limited Partnership) (上海魔量創業投資中心（有限合夥）) have irrevocably granted Shanghai Soul Information

Technology Co., Ltd. (上海搜爾信息科技有限公司) (or its designated person(s)) an

exclusive call option to purchase all or part of their equity interests in Shanghai Soulgate

Technology Co., Ltd. (上海任意門科技有限公司);

– IV-6 –



(d) an equity pledge agreement dated May 16, 2022 entered into among Shanghai Soul

Information Technology Co., Ltd. (上海搜爾信息科技有限公司), Ms. Lu Zhang (張璐),

Zhuanlian Technology (Shenzhen) Co., Ltd. (專聯科技（深圳）有限公司), Beijing Mingjun

Equity Investment Management Co., Ltd. (北京明雋股權投資管理有限公司), Shanghai

Jianming Enterprise Management Co., Ltd. (上海簡鳴企業管理有限公司), Shanghai

Moliang Venture Investment Center (Limited Partnership) (上海魔量創業投資中心（有限合夥）) and Shanghai Soulgate Technology Co., Ltd. (上海任意門科技有限公司), pursuant to

which Ms. Lu Zhang, Zhuanlian Technology (Shenzhen) Co., Ltd. (專聯科技（深圳）有限公司), Beijing Mingjun Equity Investment Management Co., Ltd. (北京明雋股權投資管理有限公司), Shanghai Jianming Enterprise Management Co., Ltd. (上海簡鳴企業管理有限公司)

and Shanghai Moliang Venture Investment Center (Limited Partnership) (上海魔量創業投資中心（有限合夥）) have agreed to pledge 100% of their equity interests in Shanghai

Soulgate Technology Co., Ltd. (上海任意門科技有限公司) to Shanghai Soul Information

Technology Co., Ltd. (上海搜爾信息科技有限公司);

(e) a power of attorney dated May 16, 2022 executed by Ms. Lu Zhang (張璐) in favor of

Shanghai Soul Information Technology Co., Ltd. (上海搜爾信息科技有限公司), pursuant to

which Ms. Lu Zhang (張璐) agreed to, among other things, irrevocably authorize Shanghai

Soul Information Technology Co., Ltd. (上海搜爾信息科技有限公司) or its relevant

designated person(s) to act as her attorney in-fact to exercise all of her rights as a

shareholder of Shanghai Soulgate Technology Co., Ltd. (上海任意門科技有限公司);

(f) a power of attorney dated May 16, 2022 executed by Zhuanlian Technology (Shenzhen)

Co., Ltd. (專聯科技（深圳）有限公司) in favor of Shanghai Soul Information Technology

Co., Ltd. (上海搜爾信息科技有限公司), pursuant to which Zhuanlian Technology

(Shenzhen) Co., Ltd. (專聯科技（深圳）有限公司) agreed to, among other things,

irrevocably authorize Shanghai Soul Information Technology Co., Ltd. (上海搜爾信息科技有限公司) or its relevant designated person(s) to act as its attorney in-fact to exercise all

of its rights as a shareholder of Shanghai Soulgate Technology Co., Ltd. (上海任意門科技有限公司);

(g) a power of attorney dated May 16, 2022 executed by Beijing Mingjun Equity Investment

Management Co., Ltd. (北京明雋股權投資管理有限公司) in favor of Shanghai Soul

Information Technology Co., Ltd. (上海搜爾信息科技有限公司), pursuant to which Beijing

Mingjun Equity Investment Management Co., Ltd. (北京明雋股權投資管理有限公司) agreed

to, among other things, irrevocably authorize Shanghai Soul Information Technology Co.,

Ltd. (上海搜爾信息科技有限公司) or its relevant designated person(s) to act as its attorney

in-fact to exercise all of its rights as a shareholder of Shanghai Soulgate Technology Co.,

Ltd. (上海任意門科技有限公司);

(h) a power of attorney dated May 16, 2022 executed by Shanghai Jianming Enterprise

Management Co., Ltd. (上海簡鳴企業管理有限公司) in favor of Shanghai Soul Information

Technology Co., Ltd. (上海搜爾信息科技有限公司), pursuant to which Shanghai Jianming

– IV-7 –



Enterprise Management Co., Ltd. (上海簡鳴企業管理有限公司) agreed to, among other

things, irrevocably authorize Shanghai Soul Information Technology Co., Ltd. (上海搜爾信息科技有限公司) or its relevant designated person(s) to act as its attorney in-fact to

exercise all of its rights as a shareholder of Shanghai Soulgate Technology Co., Ltd. (上海任意門科技有限公司);

(i) a power of attorney dated May 16, 2022 executed by Shanghai Moliang Venture

Investment Center (Limited Partnership) (上海魔量創業投資中心（有限合夥）) in favor of

Shanghai Soul Information Technology Co., Ltd. (上海搜爾信息科技有限公司), pursuant to

which Shanghai Moliang Venture Investment Center (Limited Partnership) (上海魔量創業投資中心（有限合夥）) agreed to, among other things, irrevocably authorize Shanghai Soul

Information Technology Co., Ltd. (上海搜爾信息科技有限公司) or its relevant designated

person(s) to act as its attorney in-fact to exercise all of its rights as a shareholder of

Shanghai Soulgate Technology Co., Ltd. (上海任意門科技有限公司);

(j) a spousal consent dated May 16, 2022 executed by Ms. Lu Zhang (張璐)’s spouse under

which, among other things, the spouse agrees not to assert any rights over the equity

interest in Shanghai Soulgate Technology Co., Ltd. (上海任意門科技有限公司) held by

Ms. Lu Zhang (張璐); and

(k) the [REDACTED].

2. Intellectual Property Rights

Save as disclosed below, as of the Latest Practicable Date, there were no other trademarks,

service marks, patents, intellectual property rights, or industrial property rights which are or may be

material in relation to our business.

(a) Trademarks registered in China

As at the Latest Practicable Date, we had registered the following trademarks that we consider

to be or may be material to our business:

No. Trademark Registered Owner

Place of

registration

1. Soulgate Technology (上海任意門科技有限公司) PRC








– IV-8 –



(i) Pending trademarks

As at the Latest Practicable Date, we had applied for the registration of the trademarks that we

consider to be or may be material to our business:

No. Trademark Applicant

Place of

application






(b) Patents

As at the Latest Practicable Date, we had 21 patents registered with the State Intellectual

Property Office of the PRC, 23 pending patent applications in and outside China. These registered

patents include patents with respect to, among others, graphical user interface for mobile devices, the

screen panel for display, technology for user identification, computer devices and accessible storage

mediums.

(c) Copyrights

As at the Latest Practicable Date, we had registered the following copyrights which are material

in relation to our Group’s business:

No. Copyright Version

1. 基於心靈測試的智能社交平台 (android版) [簡稱 Soul] V1.0 V1.02. 基於心靈測試的智能社交平台 (ios版) [簡稱 Soul] V2.0 V2.03. 基於心靈測試的智能社交平台 (android_EN) [簡稱 soul (android_EN)] V1.0.0 V1.0.04. 基於心靈測試的智能社交平台 (ios_EN) [簡稱 soul (ios_EN)] V1.0.0 V1.0.05. 基於心靈測試的智能社交平台 (android_CN) [簡稱 soul (android_CN)] V3.14.0 V3.14.06. 基於心靈測試的智能社交平台 (ios_JP) [簡稱 soul (ios_JP)] V1.2.1 V1.2.17. 基於心靈測試的智能社交平台 (android_JP) [簡稱 soul (android_JP)] V1.0.2 V1.0.28. 基於心靈測試的智能社交平台 (ios_CN) [簡稱 soul (ios_CN)] V3.14.0 V3.14.09. 基於心靈測試的智能社交平台 (android版) [簡稱soul] V3.0 V3.010. 基於心靈測試的智能社交平台 (ios版) [簡稱soul] V3.0 V3.011. 基於心靈測試的智能社交平台 (安卓版) [簡稱soul] V3.0 V3.012. 基於深度學習的 SoulApp 細粒度多標簽圖像分類系統 V1.013. 基於人工智能技術的 soulapp 文本分類系統 V1.014. 基於人工智能技術的 soulapp 智能審核系統 V1.015. 基於人工智能技術的 soulapp 智能風控系統 V1.016. Soul 狼人殺Web 模擬系統 V1.0

– IV-9 –




17. soul 電子寵物游戲軟件 V1.018. Soul廣告投放管理系統 V1.019. Soul埋點管理平台 V1.020. Soul數據報表展示系統 V1.021. soul番茄相機Android軟件 V1.022. soul番茄相機IOS軟件 V1.023. Soul即時通訊系統 V2.0.324. Soul即時通訊iOS APP V3.64.025. Soul即時通訊Android APP V3.63.026. Soul pia戲配音iOS系統 V3.63.027. Soul pia戲配音Android系統 V1.028. Soul可配置的游戲狀態引擎系統 V1.029. Soul AB實驗自適應分流系統 V1.030. Soul 3D渲染引擎軟件 V1.031. Soul風險規則引擎軟件 V1.032. Soul品牌廣告系統 V1.033. Soul效果廣告投放平台 V1.034. Soul廣告審核系統 V1.035. Soul客戶關係管理系統 V1.036. Soul日志平台 V1.037. Soul夥伴系統 V2.038. Soul風險審核平台 V1.039. Soul小程序平台 V1.040. Soul發布系統 V1.041. soul爆彈喵游戲軟件 V2.2.1442. 搜爾基於java tf-serving 的推薦服務軟件 V1.043. 搜爾基於Embedding的推薦多路召回系統 V2.0.244. 搜爾基於用戶社交行為的深度協同過濾模型軟件 V1.045. 搜爾基於用戶興趣的個性化推薦系統 V1.046. 搜爾個性化規則重排系統 V1.047. 搜爾基於序列建模的推薦排序模型軟件 V1.048. 搜爾基於內容的個性化推薦中台軟件 V1.049. 搜爾社交領域下基於畫像的橫向檢索平台 V1.050. 搜爾基於多模態的自動評論技術軟件 V1.051. 搜爾隱私合規檢測系統 V1.052. 搜爾運維工單系統 V1.053. 搜爾OWL Monitor報警平台 V1.054. 搜爾洞察監控平台 V1.055. 搜爾數據查詢系統 V1.056. 搜爾指標異常歸因系統 V1.257. 搜爾短視頻播放器軟件 V1.0.158. 搜爾研發效能軟件 V1.059. 魂淡君5視圖 N/A60. 魂淡君形象延展2D圖 N/A61. 魂淡君形象延展3D圖 N/A

– IV-10 –




62. 完整的魂淡君和魂淡君本體 N/A63. 無嘴的魂淡君5視圖 N/A64. Soul-白鹿角色設定圖 N/A65. Soul-鳳凰角色設定圖 N/A66. Soul-天狗角色設定圖 N/A67. Soul-旋龜角色設定圖 N/A68. Soul-應龍角色設定圖 N/A69. 心情POP表情包 N/A70. 3DAvatar男生虛擬形象 N/A71. 3DAvatar女生虛擬形象 N/A72. Hi Five Soul (Soul五周年主題曲) N/A73. Hi Five Soul (Soul五周年主題曲) 歌詞MV N/A74. Soul App國內版Logo N/A75. Soul App國際版Logo N/A

(d) Domain names

As at the Latest Practicable Date, we owned the following domain names which we consider to

be or may be material to our business:

No. Domain name Registered owner

Expiry date

(MM/DD/YYYY)

1. soulapp.cn Shanghai Soulgate Technology Co., Ltd.

(上海任意門科技有限公司)

04/30/2024

2. soulapp-inc.cn Shanghai Soulgate Technology Co., Ltd.


10/29/2022

3. mysoulmate.cn Shanghai Soulgate Technology Co., Ltd.


04/30/2024

4. soul-im.com Shanghai Soulgate Technology Co., Ltd.


12/11/2022

5. soullaugh.cn Shanghai Soulgate Technology Co., Ltd.


07/29/2022

6. soulsmile.cn Shanghai Soulgate Technology Co., Ltd.


07/29/2022

7. soulfunny.cn Shanghai Soulgate Technology Co., Ltd.


07/29/2022

8. luckysouler.com Shanghai Soulgate Technology Co., Ltd.


07/29/2022

9. soulfriendly.cn Shanghai Soulgate Technology Co., Ltd.


07/29/2022

10. soulapp.com.cn Shanghai Soulgate Technology Co., Ltd.


07/05/2023

– IV-11 –



C. FURTHER INFORMATION ABOUT OUR DIRECTORS

1. Particulars of Directors’ service contracts and appointment letters

(a) Executive Directors

We [have entered] into service agreements with each of our executive Directors. Under these

agreements, each of our executive Directors is appointed for an initial term of three years from the

[REDACTED] or until the third annual general meeting of our Company after the [REDACTED],

whichever is sooner (subject to re-election as and when required under the Articles of Association).

Either party may terminate the agreement by giving not less than three months’ prior notice in

writing.

[The executive Directors are not entitled to receive any remuneration in their capacities as

executive Directors under their respective service agreements.]

(b) Non-executive Directors and independent non-executive Directors

Each of the non-executive Directors has entered into an appointment letter with our Company

on [Š], 2022. The initial term for their appointment letters shall be three years from the

[REDACTED] or until the third annual general meeting of the Company since the [REDACTED],

whichever is sooner, (subject always to re-election as and when required under the Articles of

Association) until terminated in accordance with the terms and conditions of the appointment letter

or by either party giving to the other not less than three months’ prior notice in writing. [The non-

executive Directors are not entitled to receive any remuneration and benefits in their capacity as non-

executive Directors under their respective appointment letters.]

Each of the independent non-executive Directors has entered into an appointment letter with

our Company on [Š], 2022. The initial term for their appointment letters shall be three years from the

[REDACTED] or until the third annual general meeting of the Company since the [REDACTED],

whichever is sooner (subject always to re-election as and when required under the Articles of

Association), until terminated in accordance with the terms and conditions of the appointment letter

or by either party giving to the other not less than three months’ prior notice in writing. Under these

appointment letters, each of our independent non-executive Directors shall receive an annual

director’s fee of [RMB][Š] per annum.

2. Remuneration of Directors

(a) Remuneration and benefits in kind of RMB7.7 million in aggregate were paid and granted

by our Group to our Directors in respect of the year ended December 31, 2021.

(b) Under the arrangements currently in force, our Directors will be entitled to receive

remuneration and benefits in kind which, for the year ending December 31, 2022, is

expected to be approximately RMB11.8 million in aggregate (excluding discretionary

bonus).

– IV-12 –



3. Disclosure of interests

(a) Interests and short positions of our Directors in the share capital of our Company and its

associated corporations following completion of the [REDACTED]

Immediately following completion of the [REDACTED] (assuming the Presumptions), the

interests and/or short positions (as applicable) of our Directors and chief executives in the shares,

underlying shares and debentures of our Company and its 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/or short

positions (as applicable) which he/she is 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 recorded 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 Companies contained in the

Listing Rules, will be as follows:

Interest in Shares of our Company

Name of Director Nature of interest Number of Shares

Approximate percentage of

interest in the Shares of our Company

immediately after the

[REDACTED](1)

Ms. Lu Zhang(2) Interest incontrolledcorporations 48,607,303 [REDACTED]%Interest underproxy 36,500,000 [REDACTED]%

Mr. Ming Tao Beneficial owner 4,019,610(3) [REDACTED]%Mr. Gaozheng Zhang Beneficial owner 600,000(4) [REDACTED]%

Notes:

(1) The calculation is made assuming the Presumptions.

(2) The 48,607,303 Shares are held by Soulgate Holding Limited, a company incorporated in the British Virgins Islands and

wholly owned by Ms. Lu Zhang. Ms. Zhang controls her interest in Soulgate Holding Limited and our Company through a

trust, with Zedra Trust Company (Cayman) Limited as trustee and Ms. Zhang as settlor. Additionally, pursuant to the Voting

Proxy, Ms. Lu Zhang has been granted voting rights over preferred shares equivalent to 36,500,000 ordinary shares of our

Company (on an as-converted basis) held by Image Frame. See “History, Development, and Corporate Structure — Voting

Proxy”.

(3) The 4,019,610 Shares represent such shares that may be issued to Mr. Ming Tao pursuant to share awards granted to him

under the Pre-[REDACTED] Share Incentive Plan.

(4) The 600,000 Shares represent such shares that may be issued to Mr. Gaozheng Zhang pursuant to share awards granted to him

under the Pre-[REDACTED] Share Incentive Plan.

– IV-13 –



(b) Interests and short positions discloseable under Divisions 2 and 3 of Part XV of the SFO

For information on the persons who will, immediately following the completion of the

[REDACTED] and taking no account of any Shares which may be issued pursuant to the exercise of

the options granted under the Share Incentive Plans, having or be deemed or taken to have beneficial

interests or short position in our Shares or underlying shares which would fall to be disclosed to our

Company under the provisions of 2 and 3 of Part XV of the SFO, or directly or indirectly be

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 any other member of our Group, please see the section

headed “Substantial Shareholders”.

4. Disclaimers

Save as disclosed in this document:

(a) there are no existing or proposed service contracts (excluding contracts expiring or

determinable by the employer within one year without payment of compensation (other

than statutory compensation)) between the Directors and any member of the Group;

(b) none of the Directors or the experts named in the section headed “Other Information — 4.

Consents of Experts” below has any direct or indirect interest in the promotion of, or 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 any member of the Group, or are

proposed to be acquired or disposed of by or leased to any member of the Group;

(c) there are no contracts or arrangements subsisting at the date of this document in which

any Director is materially interested and which is significant in relation to the business of

the Group taken as a whole;

(d) taking no account of any Shares which may be taken up under the [REDACTED] and

allotted and issued pursuant to the Share Incentive Plans, so far as is known to any

Director or chief executive of the Company, no other person (other than a Director or

chief executive of the Company) will, immediately following completion of the

[REDACTED], have interests or short positions in the Shares and underlying Shares

which would fall to be disclosed to the Company and the Stock Exchange under the

provisions of Divisions 2 and 3 of Part XV of the SFO or (not being a member of the

Group), be interested, directly or indirectly, 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

any member of the Group; and

(e) none of the Directors or chief executive of the Company has any interests or short

positions in the Shares, underlying shares or debentures of the Company or its associated

corporations (within the meaning of Part XV of the SFO) which will have to be notified to

– IV-14 –



the Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the

SFO (including interests and short positions which he is 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 into the register referred to therein, or will be required, pursuant to the

Model Code for Securities Transaction by Directors of Listed Issuers, to be notified to the

Company and the Stock Exchange once the Shares are [REDACTED] thereon.

D. SHARE INCENTIVE PLANS

1. Pre-[REDACTED] Share Incentive Plan

Summary

The following is a summary of the principal terms of the Pre-[REDACTED] Share Incentive

Plan of the Company as initially adopted in November 2017 and amended and restated in March

2020. The Pre-[REDACTED] Share Incentive Plan does not involve the grant of any share options

after [REDACTED] and is not subject to the provisions of Chapter 17 of the Listing Rules.

We [have applied] to the Stock Exchange and the SFC, respectively for, (i) a waiver from strict

compliance with the disclosure requirements under Rule 17.02(1)(b) of the Listing Rules and

paragraph 27 of Appendix IA to the Listing Rules; and (ii) an exemption under section 342A of the

Companies (Winding Up and Miscellaneous Provisions) Ordinance from strict compliance with the

disclosure requirements of paragraph 10 of Part I of the Third Schedule to the Companies (Winding

Up and Miscellaneous Provisions) Ordinance. See the paragraph headed “Waiver and Exemption in

relation to the Pre-[REDACTED] Share Incentive Plans” in the section headed “Waivers and

Exemptions” for more information.

(a) Purpose

The purpose of the Pre-[REDACTED] Share Incentive Plan is to attract and retain the best

available personnel for positions of substantial responsibility, to provide additional incentives to

selected employees, Directors, and consultants and to promote the success of the Company’s

business by offering these individuals an opportunity to acquire a proprietary interest in the success

of the Company or to increase this interest, by permitting them to acquire Shares of the Company.

The Pre-[REDACTED] Share Incentive Plan provides both for the direct award or sale of Shares and

for the grant of Options to purchase Shares. Options granted under the Pre-[REDACTED] Share

Incentive Plan may be Incentive Stock Options or Non-statutory Stock Options, as determined by the

administrator of the Pre-[REDACTED] Share Incentive Plan (the “Administrator”) at the time of

grant.

(b) Who may join

We may grant awards to employees, directors and consultants. However, incentive share

options may be granted to our employees and employees of any of our parent or subsidiaries only.

– IV-15 –



(c) Maximum number of Shares

As of June 21, 2022, the maximum aggregate number of Shares which may be issued under the

Pre-[REDACTED] Share Incentive Plan is 16,147,145 Shares.

(d) Administration

Our Board or a committee approved and appointed by our Board will administer the Pre-

[REDACTED] Share Incentive Plan. The committee or the full board of directors, as applicable,

will determine, among others, the participants to receive awards, the number of share to be covered

by each award, the form of award agreements, and the terms and conditions of each award.

(e) Awards

The Pre-[REDACTED] Share Incentive Plan permits the awards of options, share purchase

rights and restricted shares.

(f) Terms and conditions of the Pre-[REDACTED] Share Incentive Plan

Unless terminated earlier, the Pre-[REDACTED] Share Incentive Plan has a term of ten years

from its date of effectiveness. In general, the plan administrator determines the vesting schedule,

which is specified in the relevant award agreement.

Unless otherwise determined by the Administrator and so provided in the applicable option

agreement, restricted share purchase agreement or share award agreement (or be amended to

provide), no award shall be sold, pledged, assigned, hypothecated, transferred, or disposed of in any

manner (whether by operation of law or otherwise) other than (i) by will or applicable laws of

descent and distribution or (except in the case of an incentive stock option) pursuant to a qualified

domestic relations order or (ii) by trusts or companies established in connection with any employee

benefit plan of the Company (including the Pre-[REDACTED] Share Incentive Plan) for the benefit

of a service provider or service providers, in each case subject to applicable law, and shall not be

subject to execution, attachment, or similar process. In the event the Administrator in its sole

discretion makes an award transferable, only a non-statutory stock option, share purchase right or

share award may be transferred provided such award is transferred without payment of consideration

to members of the awardee’s immediate family (as such term is defined in Rule 16a-1(e) of the

Exchange Act) or to trusts or partnerships established exclusively for the benefit of the awardee and

the members of the awardee’s immediate family, all as permitted by applicable laws. Upon any

attempt to pledge, assign, hypothecate, transfer, or otherwise dispose of any Award or of any right or

privilege conferred by the Pre-[REDACTED] Share Incentive Plan contrary to the provisions hereof,

or upon the sale, levy or attachment or similar process upon the rights and privileges conferred by

the Pre-[REDACTED] Share Incentive Plan, such award shall thereupon terminate and become null

and void. Incentive stock options may be exercised during the lifetime of the awardee only by the

awardee.

– IV-16 –



(g) Exercise of options

The Administrator determines the exercise price for each award, which is stated in the relevant

award agreement. Options that are vested and exercisable will terminate if they are not exercised

prior to the time as the plan administrator determines at the time of grant. However, the maximum

exercisable term is ten years from the date of grant. In the case of an option granted to an employee

who, immediately prior to the time the option is granted, owns stock representing more than 10% of

the voting power of all classes of our stock or any parent or subsidiary of us, the term of option shall

be no longer than five years from the date of grant.

(h) Amendment and termination

Unless terminated earlier, the Pre-[REDACTED] Share Incentive Plan has a term of ten years

from its date of effectiveness. Our board of directors may at any time amend, alter, suspend, or

terminate the Pre-[REDACTED] Share Incentive Plan and shall obtain shareholder approval of any

plan amendment to the extent necessary to comply with or stock exchange rules, unless we decide to

follow home country practice. However, no such action may adversely impair the rights of any

awardee with respect to any outstanding award unless mutually agreed otherwise between the

awardee and the plan administrator.

Grants under the Pre-[REDACTED] Share Incentive Plan

On June 29, 2022 the board of Directors of the Company approved the exchange of all options

granted under the Pre-[REDACTED] Share Incentive Plan for the same number of share awards.

After such exchange, the aggregate number of share awards granted is [14,896,373] and the

grantees comprise [2] Directors, [1] member of senior management and [196] current or former

employees of our Group who are not Directors, members of senior management or connected persons

of our Company.

Our Company expects to issue 16,147,145 Shares underlying the Pre-[REDACTED] Share

Incentive Plan and pursuant to the share awards granted thereunder, to a trust before the

[REDACTED].

– IV-17 –



Below is a list of our Directors and senior management who are grantees of share awards under

the Pre-[REDACTED] Share Incentive Plan:

Name Role Date of grant

Vesting

Period

Purchase

price (US$)

Number

of Shares

under the

awards

granted

Approximate %

of issued Shares

immediately

after completion

of the

[REDACTED](1)

Mr. Ming Tao . . . . . . . . . . . . . . Directorand ChiefTechnologyOfficer

November 27,2017 toJanuary 20,2020

Vested fromdate ofgrant

0.0001-0.12 324,570 [REDACTED]%

November 27,2017 toApril 28,2020

5 years 0.03-0.42 3,695,040 [REDACTED]%

Mr. Gaozheng Zhang . . . . . . . . Directorand VicePresident ofTechnology

December 4,2017

5 years 0.45 600,000 [REDACTED]%

Mr. Weipeng Chen . . . . . . . . . . VicePresident ofTechnology

October 1,2021

4 years 0.46 310,000 [REDACTED]%

Note:


Below is a table of share awards granted to the remaining grantees under the Share Award

Scheme:

Number of grantees Date of grant

Vesting

period

Purchase

price (US$)

Number of Shares

under the awards

granted

Approximate%

of issued Shares

immediately

after completion

of the

[REDACTED](1)

196 . . . . . . . . . . . . . . . . . . . . . . . . . . . . November 27,2017 toMarch 31,2022

Vested fromthe date ofgrant — 5years

0.0001-0.46 9,966,763 [REDACTED]%

Notes:


– IV-18 –



2. Post-[REDACTED] Share Award Scheme

The following is a summary of the principal terms of the Post-[REDACTED] Share Award

Scheme conditionally adopted by our Shareholders’ resolutions dated [Š] with effect from

[REDACTED]. The Post-[REDACTED] Share Award Scheme is not a share option scheme and is

not subject to the provisions of Chapter 17 of the Listing Rules. The Company may appoint trustee(s)

(the “[REDACTED] Trustee”) to administer the Post-[REDACTED] Share Award Scheme with

respect to the grant of any award by the Board (an “[REDACTED] Award”) which may vest in the

form of Shares (“[REDACTED] Award Shares”) or the actual [REDACTED] of the

[REDACTED] Award Shares in cash in accordance with the Post-[REDACTED] Share Award

Scheme.

Eligible Persons

Any individual, being an employee, director (including executive Directors, non-executive

Directors and independent non-executive Directors), affiliate, officer, consultant, advisor,

distributor, contractor, customer, supplier, agent, business partner, joint venture business partner or

service provider of any member of the Group or any affiliate (an “Eligible Person” and, collectively

“Eligible Persons”) whom the Board or its delegate(s) considers, in its sole discretion, to have

contributed or will contribute to the Group is eligible to receive a [REDACTED] Award. However,

no individual who is resident in a place where the grant, acceptance or vesting of a [REDACTED]

Award pursuant to the Post-[REDACTED] Share Award Scheme is not permitted under the laws and

regulations of such place or where, in the view of the Board or its delegate(s), compliance with

applicable laws and regulations in such place makes it necessary or expedient to exclude such

individual, shall be entitled to participate in the Post-[REDACTED] Share Award Scheme.

Purpose

The purposes of the Post-[REDACTED] Share Award Scheme are to align the interests of

Eligible Persons’ with those of the Group through ownership of Shares, dividends and other

distributions paid on Shares and/or the increase in value of the Shares, and to encourage and retain

Eligible Persons to make contributions to the long-term growth and profits of the Group.

[REDACTED] Awards

A [REDACTED] Award gives a selected participant a conditional right, when the

[REDACTED] Award Shares vest, to obtain the [REDACTED] Award Shares or, if in the absolute

discretion of the Board or its delegate(s), it is not practicable for the selected participant to receive

the [REDACTED] Award in Shares, the cash equivalent from the sale of the [REDACTED] Award

Shares. A [REDACTED] Award includes all cash income from dividends in respect of those Shares.

– IV-19 –



Grant of [REDACTED] Award

(i) Making the Grant

The Board or the committee of the Board or person(s) to which the Board has delegated its

authority may, from time to time, at their absolute discretion, grant a [REDACTED] Award to a

selected participant (in the case of the Board’s delegate(s), to any selected participant other than a

Director or an officer of the Company) by way of an award letter (the “[REDACTED] Award

Letter”). The [REDACTED] Award Letter will specify the grant date, the number of

[REDACTED] Award Shares underlying the [REDACTED] Award, the vesting criteria and

conditions, the date the [REDACTED] Award vests (the “[REDACTED] Vesting Date”) and such

other details as the Board or its delegate(s) may consider necessary.

Each grant of a [REDACTED] Award to any Director or the chairman of the Board shall be

subject to the prior approval of the remuneration committee of the Board (excluding any member

who is a proposed recipient of the grant of the [REDACTED] Award) and the independent

non-executive Directors of the Company (excluding any independent non-executive Director who is

a proposed recipient of an Award).

(ii) Restrictions on Grants and Timing of Grants

The Board and its delegate(s) may not grant any [REDACTED] Award Shares to any selected

participant in any of the following circumstances:

(a) where any requisite approval from any applicable governmental or regulatory authorities

has not been granted, provided that to the extent permissible in accordance with applicable

laws, rules and regulations an Award may be made conditional upon such approval being

obtained;

(b) where such grant of [REDACTED] Award would result in a breach of the [REDACTED]

Share Award Scheme Limit (as defined below) or would otherwise cause the Company to

issue Shares in excess of the permitted amount in the mandate approved by the

Shareholders, provided that to the extent permissible in accordance with applicable laws,

rules and regulations an Award may be made conditional upon the Scheme Limit being

refreshed and/or such mandate being renewed or approval of Shareholders being otherwise

obtained;

(c) where such [REDACTED] Award is to a connected person and is to be satisfied by way

of issue of new Shares and under the Listing Rules requires the specific approval of

Shareholders, until such approval of Shareholders is obtained provided that to the extent

permissible in accordance with applicable laws, rules and regulations a [REDACTED]

Award may be made conditional upon such specific shareholder approval being obtained;

(d) where any Director of the Company is in possession of unpublished inside information in

relation to the Company or where dealings by Directors of the Company are prohibited

under any code or requirement of the Listing Rules or any applicable laws, rules or

regulations;

– IV-20 –



(e) 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

(f) during the period of 30 days immediately preceding the publication date of the half-year

results or, if shorter, the period from the end of the relevant half-year period up to the

publication date of the results.

Maximum Number of Shares to be Granted

The aggregate number of Shares underlying all grants made pursuant to the Post-

[REDACTED] Share Award Scheme (excluding Award Shares which have been forfeited in

accordance with the Post-[REDACTED] Share Award Scheme) will not exceed [REDACTED]

Shares (representing approximately [REDACTED]% of the total issued Shares immediately after

completion of the [REDACTED], assuming the [REDACTED] is not exercised and no Shares are

issued pursuant to any other Share Incentive Plan) without Shareholders’ approval (the

“[REDACTED] Share Award Scheme Limit”) subject to an annual limit of [REDACTED]% of

the total number of issued Shares at the relevant time.

Scheme Mandate

To the extent that the [REDACTED] Share Award Scheme Limit is subsequently increased by

way of alteration of the Post-[REDACTED] Share Award Scheme and the Company is required to

[REDACTED] and [REDACTED] to satisfy any Awards in excess of any amount previously

approved by the Shareholders, the Company shall at a general meeting propose, and the Shareholders

shall consider and, if thought fit, pass an ordinary resolution approving a mandate specifying:

(a) the maximum number of [REDACTED] that may be [REDACTED] for this purpose; and

(b) that the Board has the power to [REDACTED] and procure the transfer of and otherwise

deal with the Shares in connection with the Post-[REDACTED] Share Award Scheme.

The mandate will remain in effect during the period from the passing of the ordinary resolution

granting the mandate until the variation or revocation of such mandate by an ordinary resolution of

the Shareholders in a general meeting.

Rights attached to the [REDACTED] Award

The selected participant only has a contingent interest in the [REDACTED] Award Shares

underlying a [REDACTED] Award unless and until a vesting date occurs in respect of such

[REDACTED] Award Shares.

Neither the selected participant nor a Trustee may exercise any voting rights in respect of any

[REDACTED] Award Shares that have not yet vested.

– IV-21 –



Rights attached to the Shares

Any [REDACTED] Award Shares transferred to a selected participant in respect of any

[REDACTED] Awards will be subject to all the provisions of the Memorandum and the Articles.

Issue of Shares and/or transfer of funds to the [REDACTED] Trustee

For the purposes of satisfying the [REDACTED] Awards, the Company shall (i) purchase

Shares on-market at prevailing [REDACTED] from funds provided by the Company, and/or

(ii) [REDACTED] and [REDACTED] by the Company on terms and at [REDACTED] (including

at par value) as shall be determined by the Board and from funds provided by the Company, to the

extent permitted by applicable laws, rules and regulations, and the Company may appoint

[REDACTED] Trustee or other designated third party to acquire and hold such Shares and related

income on trust (the “[REDACTED] Trust”) for, and to distribute such Shares and related income

to, Eligible Persons.

Assignment of [REDACTED] Awards

[REDACTED] Award Shares granted under the Post-[REDACTED] Share Award Scheme are

personal to the selected participants to whom they are granted and cannot be assigned or transferred.

A selected participant shall not in any way sell, transfer, charge, mortgage, encumber or create any

interest in favor of any other person over or in relation to any [REDACTED] Award, or enter into

any agreement to do so.

Vesting of [REDACTED] Awards

The Board or its delegate(s) may from time to time while the Post-[REDACTED] Share Award

Scheme is in force and subject to all applicable laws, determine such vesting criteria and conditions

or periods for the [REDACTED] Award to be vested.

Within a reasonable time period as agreed between the [REDACTED] Trustee and the Board

from time to time prior to any [REDACTED] Vesting Date, the Board or its delegate(s) will instruct

the [REDACTED] Trustee the extent to which the Award Shares held in the [REDACTED] Trust

shall be transferred and released from the [REDACTED] Trust to the selected participant. Subject to

the notification from the Board or its delegate(s), the Trustee will transfer and release the relevant

[REDACTED] Award in the manner as determined by the Board or its delegate(s).

The Board or its delegate(s) may (whether or not through the [REDACTED] Trustee or a third

party) sell, on-market at the prevailing [REDACTED], the number of [REDACTED] Award Shares

so vested in respect of the selected participant and pay the selected participant the [REDACTED]

arising from such sale based on the actual [REDACTED] of such [REDACTED] Award Shares.

If there is an event of change in control of the Company by way of a merger, or privatization of

the Company by way of a [REDACTED] or an [REDACTED], the Board or its delegate(s) shall at

their sole

– IV-22 –



discretion determine whether the [REDACTED] Vesting Dates of any [REDACTED] Awards will

be accelerated to an earlier date and/or the vesting conditions or criteria of any [REDACTED]

Awards will be amended or waived.

Consolidation, subdivision, bonus issue and other distribution

In the event the Company undertakes a subdivision or consolidation of the Shares,

corresponding changes will be made to the number of outstanding [REDACTED] Award Shares that

have been granted provided that the adjustments shall be made in such manner as the Board

determines to be fair and reasonable in order to prevent dilution or enlargement of the benefits or

potential benefits intended to be made available under the Post-[REDACTED] Share Award Scheme

for the selected participants. All fractional Shares (if any) arising out of such consolidation or

subdivision in respect of the [REDACTED] Award Shares of a selected participant shall be deemed

as returned Shares and shall not be transferred to the relevant selected participant on the relevant

[REDACTED] Vesting Date. Each [REDACTED] Trustee shall hold returned Shares to be applied

towards future [REDACTED] Awards in accordance with the provisions of the Post-[REDACTED]

Share Award Scheme rules for the purposes of the Post-[REDACTED] Share Award Scheme.

In the event of any non-cash distribution or other events not referred to above by reason of

which the Board considers an adjustment to an outstanding [REDACTED] Award to be fair and

reasonable, an adjustment shall be made to the number of outstanding [REDACTED] Award Shares

of each selected participant as the Board shall consider fair and reasonable, in order to prevent

dilution or enlargement of the benefits or potential benefits intended to be made available under the

Post-[REDACTED] Share Award Scheme for the selected participants.

Cessation of employment and other events

If a selected participant ceases to be an Eligible Person by reason of retirement of the selected

participant, any outstanding [REDACTED] Award Shares and related income not yet vested shall

continue to vest in accordance with the Vesting Dates set out in the [REDACTED] Award Letter,

unless the Board or its delegate(s) determines otherwise at their absolute discretion.

If a selected participant ceases to be an Eligible Person by reason of (i) termination of the

selected ’participant’s employment or contractual engagement with the Group by reason of his/her

permanent physical or mental disablement, or (ii) termination of the selected ’participant’s

employment or contractual engagement with the Group by reason of redundancy, any outstanding

[REDACTED] Award Shares and Related Income not yet vested shall be immediately forfeited,


If a selected participant, being an employee whose employment is terminated by the Group by

reason of the employer terminating the contract of employment without notice or payment in lieu of

notice, or the selected participant having been convicted of any criminal offense involving his or her

integrity or honesty, any outstanding [REDACTED] Award Shares and related income not yet

vested shall be

– IV-23 –



immediately forfeited, unless the Board or its delegate(s) determines otherwise at their absolute

discretion.

If a selected participant ceases to be an Eligible Person by reason of his or her death, any

outstanding [REDACTED] Award Shares and related income not yet vested shall immediately vest,


If a selected participant is declared bankrupt or becomes insolvent or makes any arrangements

or composition with his or her creditors generally, any outstanding [REDACTED] Award Shares

and related income not yet vested shall be immediately forfeited, unless the Board or its delegate(s)

determines otherwise at their absolute discretion.

If a selected participant ceases to be an Eligible Person for reasons other than those stated this

paragraph, any outstanding [REDACTED] Award Shares and related income not yet vested shall be

immediately forfeited, unless the Board or its delegate(s) determines otherwise at their absolute

discretion.

Alteration of the Post-[REDACTED] Share Award Scheme

The Post-[REDACTED] Share Award Scheme may be altered in any respect (including but not

limited to changing the [REDACTED] Share Award Scheme Limit) by a resolution of the Board,

provided that no such alteration shall operate to affect adversely any subsisting rights of any selected

participant unless:

(a) with the consent in writing of selected participants amounting to three-fourths in nominal

value of all outstanding [REDACTED] Award Shares granted but not yet vested on that

date; or

(b) with the sanction of a special resolution that is passed at a meeting of the selected

participants amounting to three-fourths in nominal value of all outstanding [REDACTED]

Award Shares held granted but not yet vested on that date.

Termination

The Post-[REDACTED] Share Award Scheme shall terminate on the earlier of:

(a) the end of the period of ten years commencing on the adoption date; and

(b) such date of early termination as determined by the Board,

provided that such termination shall not affect any subsisting rights of any selected participant

under the rules of the Post-[REDACTED] Share Award Scheme, provided further that for the

avoidance of doubt, the change in the subsisting rights of a selected participant in this paragraph

refers solely to any change in the rights in respect of the Award Shares already granted to a selected

participant.

– IV-24 –



Administration of the Post-[REDACTED] Share Award Scheme

The Board is responsible for administering the Post-[REDACTED] Share Award Scheme in

accordance with the rules of the Post-[REDACTED] Share Award Scheme. The Board may delegate

the authority to administer the Post-[REDACTED] Share Award Scheme to a committee of the

Board or other person(s) as deemed appropriate at the sole discretion of the Board. The Board or its

delegate(s) may also appoint one or more independent third-party contractors to assist in the

administration of the Post-[REDACTED] Share Award Scheme as they think fit.

Grant of Shares under the Post-[REDACTED] Share Award Scheme

As of the date of this document, no Shares had been granted or agreed to be granted under the

Post-[REDACTED] Share Award Scheme.

An application has been to the [REDACTED] for the [REDACTED] of, and permission to

deal in, the Shares which may be issued pursuant to the Post-[REDACTED] Share Award Scheme.

E. OTHER INFORMATION

1. Estate Duty

Our Directors have been advised that no material liability for estate duty is likely to fall on our

Company or any of our subsidiaries.

2. Litigation

Save as disclosed in this document and so far as our Directors are aware, no litigation or claim

of material importance is pending or threatened against any member of our Group.

3. Joint Sponsors

The Joint Sponsors have made an application on our behalf to the [REDACTED] for the

[REDACTED] of, and permission to [REDACTED] in, (i) the Shares in issue and to be issued

pursuant to the [REDACTED] (including the additional Shares which may be issued pursuant to the

exercise of the [REDACTED]); and (ii) the Shares which may be issued pursuant to the Share

Incentive Plans.

The Joint Sponsors satisfy the independence criteria applicable to sponsors set out in Rule

3A.07 of the Listing Rules. Each Joint Sponsor will receive a fee of US$400,000 for acting as the

sponsor for the [REDACTED].

– IV-25 –



4. Consents of Experts

The following experts have each given and have not withdrawn their respective written

consents to the issue of this document with copies of their reports, letters, opinions or summaries of

opinions (as the case may be) and the references to their names included herein in the form and

context in which they are respectively included.

Name Qualification

China International Capital

Corporation Hong Kong Securities

Limited


A licensed corporation to conduct type 1 (dealing in

securities), type 2 (dealing in futures contracts), type 4

(advising on securities), type 5 (advising on futures

contracts) and type 6 (advising on corporate finance) of the

regulated activities as defined under the SFO

Merrill Lynch (Asia Pacific) Limited


A licensed corporation to conduct type 1 (dealing in

securities), type 4 (advising on securities), type 5 (advising

on futures contracts) and type 6 (advising on corporate

finance) of the regulated activities as defined under the

SFO

JunHe LLP Qualified PRC Lawyers

Maples and Calder (Hong Kong) LLP 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)

iResearch Consulting Group Industry consultant

As of the Latest Practicable Date, none of the experts named above has any shareholding

interest in any member of our Group or the right (whether legally enforceable or not) to subscribe for

or to nominate persons to subscribe for securities in any member of our Group.

Each of the experts named above have given and have not withdrawn their respective written

consent to the issue of this document with copies of their reports, letters, opinions or summaries of

opinions (as the case may be) and the references to their names included herein in the form and

context in which they are respectively included.

5. Binding Effect

This document shall have the effect, if an application is made in pursuance hereof, of rendering

all persons concerned bound by all the provisions (other than the penal provisions) of sections 44A

and 44B of the Companies Ordinance so far as applicable.

– IV-26 –



6. Bilingual Document

The English language and Chinese language versions of this document are being published

separately in reliance upon the exemption provided by section 4 of the Companies Ordinance

(Exemption of Companies and Prospectuses from Compliance with Provisions) Notice (Chapter 32L

of the Laws of Hong Kong).

7. Preliminary Expenses

The Company did not incur any material preliminary expenses.

8. Other Disclaimers

(a) Save as disclosed in this document, within the two years immediately preceding the date of this

document:

(i) there are no commissions (but not including commission to [REDACTED]) for

subscribing or agreeing to subscribe, or procuring or agreeing to procure subscriptions,

for any shares in or debentures of our Company;

(ii) no share or loan capital or debenture of our Company or any member of our Group has

been issued or agreed to be issued or is proposed to be issued for cash or shares as fully

or partly paid otherwise than in cash; and

(iii) no commissions, discounts, brokerages or other special terms have been granted in

connection with the issue or sale of any share of any member of our Group and no

Directors, promoters or experts named in the part headed “— Other information —

Consents of experts” received any such payment or benefit.

(b) Save as disclosed in this document:

(i) we do not have any promoter and no cash, securities or other benefit has been paid,

allotted or given within the two years immediately preceding the date of this document

nor are any proposed to be paid, allotted or given to any promoters;

(ii) there are no founder, management or deferred shares nor any debentures in any member

of our Group;

(iii) no capital of our Company or any of our subsidiaries is under option or is agreed

conditionally or unconditionally to be put under option;

(iv) none of the Directors or the experts named in the subsection headed “— Other

information — Consents of experts” above has any direct or indirect interest in the

– IV-27 –



promotion of, or 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 any member

of the Group, or are proposed to be acquired or disposed of by or leased to any member of

the Group;

(v) there is no arrangement under which future dividends are waived or agreed to be waived;

(vi) there are no outstanding debentures of our Company or any member of our Group;

(vii) we do not have any issued and outstanding, authorized or otherwise created but unissued

debt securities or term loans;

(viii) there are no bank overdrafts or other similar indebtedness by our Company or any

member of our Group;

(ix) there are no other stock exchange on which any part of the equity or debt securities of our

Company is [REDACTED] or dealt in or on which [REDACTED] or permission to

[REDACTED] is being or is proposed to be sought;

(x) there are no hire purchase commitments, guarantees or other material contingent

liabilities of our Company or any members of our Group.

– IV-28 –


APPENDIX V DOCUMENTS DELIVERED TO THE REGISTRAR OFCOMPANIES AND ON DISPLAY

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 in “Statutory and general information — Other

information — Consents of experts” in Appendix IV; and

(c) copies of the material contracts referred to in “Statutory and general information —

Further information about our business — Summary of material contracts” in Appendix

IV.

DOCUMENTS ON DISPLAY

Copies of the following documents will be published on the website of the Stock Exchange at

www.hkexnews.hk and our Company’s website at www.soulapp.cn up to and including the date

which is 14 days from the date of this document:

(a) the Memorandum and the Articles;

(b) the material contracts referred to in “Statutory and general information — Further

information about our business — Summary of material contracts” in Appendix IV;

(c) the service contracts and the letters of appointment with our Directors referred to in

“Statutory and general information — Further information about our Directors —

Particulars of Directors’ service contracts and appointment letters” in Appendix IV;

(d) the report issued by iResearch Consulting Group, a summary of which is set forth in

“Industry Overview”;

(e) the PRC legal opinion issued by JunHe LLP, our PRC Legal Adviser, in respect of certain

general corporate matters and property interests in the PRC of our Group;

(f) the Accountants’ Report and the report on the unaudited pro forma financial information

of our Group prepared by KPMG, the texts of which are set out in Appendices I and II,

respectively;

(g) the audited consolidated financial statements of our Company for the three financial years

ended December 31, 2021;

– V-1 –

chuie0hk

Inserted Text


APPENDIX V DOCUMENTS DELIVERED TO THE REGISTRAR OFCOMPANIES AND ON DISPLAY

(h) the letter of advice prepared by Maples and Calder (Hong Kong) LLP, our legal adviser on

Cayman Islands law, summarizing certain aspects of Cayman company law referred to in

Appendix III;

(i) the Cayman Companies Act; and

(j) the written consents referred to in “Statutory and general information — Other

information — Consents of experts” in Appendix IV.

– V-2 –