Contents

Corporate Information

2

Financial Highlights

3

Management Discussion and Analysis

4

Other Information

15

Interim Condensed Consolidated Financial Statements

Interim Condensed Consolidated Statement of Profit or Loss

25

Interim Condensed Consolidated Statement of Profit or Loss and Other Comprehensive Income

26

Interim Condensed Consolidated Statement of Financial Position

27

Interim Condensed Consolidated Statement of Changes in Equity

29

Interim Condensed Consolidated Statement of Cash Flows

30

Notes to the Interim Condensed Consolidated Financial Statements

31

Corporate Information

DIRECTORS

Executive Directors

Mr. Xu Yiran (Chairman and Chief Executive Officer) Mr. Li Yang (Deputy Chairman)

Dr. Alan Chen (Chief Operating Officer) ("COO") (appointed as COO on 22 April 2020 and as Executive Director on 29 May 2020)

Mr. Gu Zhenghao Mr. Cao Bo

Non-executive Director

Mr. Eric Todd

Independent Non-executive Directors

Mr. Hu Chung Ming

Mr. Chan Chi Yuen

Mr. Kwan Ngai Kit

AUDIT COMMITTEE

Mr. Hu Chung Ming (Committee Chairman)

Mr. Chan Chi Yuen

Mr. Kwan Ngai Kit

REMUNERATION COMMITTEE

Mr. Hu Chung Ming (Committee Chairman)

Mr. Chan Chi Yuen

Mr. Xu Yiran

NOMINATION COMMITTEE

Mr. Xu Yiran (Committee Chairman)

Mr. Hu Chung Ming

Mr. Chan Chi Yuen

COMPANY SECRETARY

Mr. Chan Siu Tak

AUTHORISED REPRESENTATIVES

Mr. Xu Yiran

Mr. Chan Siu Tak

LEGAL ADVISORS AS TO HONG KONG LAW

MinterEllison LLP

Level 32, Wu Chung House,

213 Queen's Road East,

Hong Kong

AUDITORS

HLB Hodgson Impey Cheng Limited

Certified Public Accountants

31/F, Gloucester Tower,

The Landmark, 11 Pedder Street,

Central, Hong Kong

STOCK CODE

1089

PRINCIPAL BANKERS

The Hong Kong and Shanghai Banking Corporation Limited Bank of Communications Co., Ltd.

REGISTERED OFFICE

Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands

PRINCIPAL PLACE OF BUSINESS

IN HONG KONG

Suite 3201, Tower Two, Lippo Centre,

89 Queensway, Admiralty,

Hong Kong

CAYMAN ISLANDS PRINCIPAL SHARE REGISTRAR AND TRANSFER OFFICE

SMP Partners (Cayman) Limited 3rd Floor, Royal Bank House,

24 Shedden Road, P.O. Box 1586, Grand Cayman, KY1-1110, Cayman Islands

HONG KONG BRANCH SHARE REGISTRAR AND TRANSFER OFFICE

Tricor Investor Services Limited

Level 54, Hopewell Centre,

183 Queen's Road East,

Hong Kong

COMPANY WEBSITE

www.leyoutech.com.hk

2

LEYOU TECHNOLOGIES HOLDINGS LIMITED

Interim Report 2020

Financial Highlights

Six months ended 30 June

2020

2019

Change

US$'000

US$'000

%

(Unaudited)

(Unaudited)

RESULTS HIGHLIGHTS

Revenue

90,692

105,671

-14.2%

Gross profit

42,804

63,908

-33.0%

Gross profit margin (%)

47.2%

60.5%

-13.3%

(Loss)/profit for the period attributable

to the owners of the Company

(5,788)

9,288

N/A

EBITDA1

24,100

37,785

-36.2%

Adjusted EBITDA2

46,735

43,368

+7.8%

Basic (loss)/earnings per share (US cents)

(0.19)

0.30

N/A

Diluted (loss)/earnings per share (US cents)

(0.19)

0.30

N/A

Dividend per share (US$)

Nil

Nil

N/A

As at

As at

30 June 2020

31 December 2019

Change

US$'000

US$'000

%

(Unaudited)

(Audited)

STATEMENT OF FINANCIAL POSITION HIGHLIGHTS

Total assets

311,130

322,848

-3.6%

Total interest-bearing borrowings3

28,179

25,772

+9.3%

Net assets

238,444

251,806

-5.3%

Net assets per share (US$)4

0.08

0.08

-

Current ratio

1.55

1.57

-1.3%

Gearing ratio5

9.1%

8.0%

+1.1%

1

2

3

4

5

EBITDA = Earnings before interest income, interest expense, taxation, depreciation and amortisation Adjusted EBITDA = EBITDA less impairment losses and equity-settledshare-based payment expenses Total interest-bearing borrowings = Bank borrowings + debenture

Net assets per share (US$) = Net assets/Total number of shares at the end of the Reporting Period Gearing ratio = Total interest-bearing borrowings/Total assets

LEYOU TECHNOLOGIES HOLDINGS LIMITED

3

Interim Report 2020

Management Discussion and Analysis

BUSINESS OVERVIEW

In the first half of 2020, the Coronavirus Disease 2019 ("COVID-19") pandemic swept across the world, causing unexpected changes to how we live and work. While our major live product Warframe remains one of the most popular video games, the operation of Leyou Technologies Holdings Limited (the "Company", together with its subsidiaries, the "Group") was also impacted to a certain extent due to the shutdown of our overseas studios, leading to a decline of revenue from its major products during the first half of 2020 as compared to the corresponding period in 2019. The Group's revenue for the six months ended 30 June 2020 (the "Reporting Period") was US$90.7 million (2019: US$105.7 million), representing a year-on-year decrease of 14.2%. Due to the suspended development of a product, the capitalised development cost of which was recognised as impairment loss during the Reporting Period, our gross profit margin reduced to 47.2% in the first half of 2020 from 60.5% in the first half of 2019, with gross profit down by US$21.1 million to US$42.8 million. During the Reporting Period, a consolidated net loss of US$4.7 million and loss attributable to the owners of the Company of US$5.8 million were recorded. The Group's EBITDA was US$24.1 million, representing a year-on- year decrease of 36.2%. After excluding impairment losses and equity-settledshare-based payment expenses, adjusted EBITDA increased by 7.8% to US$46.7 million during the Reporting Period.

During the Reporting Period, game development and publishing, work-for-hire and other businesses contributed to 81.7%, 18.2% and 0.1% of the revenue of the Group, respectively.

Game Development and Publishing Business

Game development and publishing is the Group's core business, and our flagship product Warframe is the key driver of the Group's revenue and profit. During the Reporting Period, revenue contributed by the game development and publishing business reduced by US$17.3 million to US$74.1 million, representing a year-on-year decrease of 18.9%.

Warframe

The following table shows the main operational data of Warframe:

Six months ended 30 June

2020

2019

Change

(in thousands, unless otherwise stated)

Total number of registered users:

61,338

53,119

+15.5%

Warframe is a free-to-play ("F2P") science fiction-themed multiplayer third-person action game developed and published by one of the Company's subsidiaries, Digital Extremes Ltd. ("Digital Extremes"), and is currently available on personal computer ("PC") and consoles (including PlayStation 4, Xbox One and Switch). Warframe was first launched in March 2013 and has been operating for over 7 years as of the end of the Reporting Period. Since its initial launch, Warframe has been one of the most popular F2P games worldwide. Warframe steadily sits amongst the top 10 of all game genres in terms of number of players and playtime on Steam, and earns a 91% positive review score from players. Warframe is also one of the top F2P games on PlayStation 4 and Xbox One in terms of revenue on such platforms. The continued success of Warframe is attributable to the unique and strong development and publishing capabilities of the Group for F2P online games. The Group provides frequent updates of premium game content for all platforms across the world, offers efficient and timely customer services, helps build a cohesive and passionate player community and facilitates communications between players and the development team through online and offline interactions.

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LEYOU TECHNOLOGIES HOLDINGS LIMITED

Interim Report 2020

Management Discussion and Analysis

During the Reporting Period, Warframe released two major updates including Operation: Scarlet Spear and The Deadlock

Protocol, bringing players new missions and collectibles. It also launched its third game season (i.e. Nightwave: Series 3). Due to the COVID-19 pandemic, the annual fan event TennoCon shifted to a live online broadcast and was postponed to 1 August 2020. However, the enthusiasm of Warframe fans was not affected at all. TennoCon 2020 was a huge success, driving an increase of concurrent users to a new record high.

The decline in revenue of Warframe during the Reporting Period was mainly due to the following factors. On one hand, our content creation pipeline during the COVID-19 pandemic could not fully meet the players' demand for a greater amount of new content. Since the outbreak of the pandemic, home quarantine restrictions have largely increased the free time of entertainment product users, benefiting most games, including premium games offering experiences with a fixed amount of hours, as well as some highly competitive or interactive F2P games. However, as Warframe is a content-driven F2P game, the content that could be created within a certain period of time is limited. When users' spare time and their demand for new game content increased, Warframe's competitive advantages over other popular games reduced by a certain degree as the progress of the Group's game development team was inevitably affected by home quarantine measures. Meanwhile, the ambitious update Empyrean released in December 2019 fell slightly short of players' expectation due to certain technical issues, thus impacted the revenue of Warframe to a certain extent in the first quarter of 2020. The development team released patch updates regarding Empyrean in March to enhance and elevate the game experience, which turned out to be very well received by players. In addition, we saw a decrease in revenue in China during the transitional period when new cooperation arrangement with Wegame platform was in discussion.

Despite the abovementioned situation, the development and operating teams have several exciting changes planned, and the management team has full confidence in the continued success of Warframe. The most anticipated update is the release of Heart of Deimos announced at TennoCon, which will introduce a brand-newWarframe customisation system and a new open-world environment that are expected to greatly enhance players' engagement and their enthusiasm towards Warframe personalisation. Meanwhile, Digital Extremes and the Chinese distributor of Warframe will establish deeper cooperation with the WeGame platform to provide Chinese players with significant content updates, with a view to gradually align the Chinese version of Warframe with the international version in terms of update frequency and progress. This will solve a key pain point of Chinese players, significantly improve their game experience, and help drive a significant increase in Warframe's revenue in China. In addition, the factor affecting Warframe's revenue in 2019, namely the decrease in new users due to the upgrade of next-generation consoles in 2020, has been stabilised. Total payment from console users recorded a slight increase during the Reporting Period as compared to that for each of the first and second halves of 2019. Additional traffic from certain next-generation console platforms is expected to generate further growth for Warframe.

Telltale Games

The Company's publishing subsidiary, Athlon Games, Inc., took part as a publishing partner in the revival of Telltale Games, a well-known United States of America ("US") game brand that was shut down in 2018, and obtained the exclusive publishing rights of certain games including Batman and The Wolf Among Us. Following the relaunch and good sales performance of these games in 2019, the sales of these games reached a new height in 2020 benefitting from the implementation of home quarantine policy under COVID-19 outbreak.

LEYOU TECHNOLOGIES HOLDINGS LIMITED

5

Interim Report 2020

Management Discussion and Analysis

Other casual / mid-core games

In addition to Civilization Online , one of the Company's development subsidiaries, Guangzhou Radiance Software Technology Co. Ltd. ("Guangzhou Radiance"), has developed or is currently developing several relatively lower budget casual / mid-core games including Endless World and Idle Big Devil. These products mainly adopt multi-platform strategies, with two of them being launched on Steam already and to be made available on mobile platforms through third-party publishers in the future. In contrast to the Group's main products of high-quality PC and console games which require long research and development cycle and huge investment, the investment in developing casual / mid-core games will speed up the launch timeline of the Group's new games, and will reduce the return cycle of research and development investment, enabling the Group to generate new revenue streams and profit growth.

Endless World and Idle Big Devil are F2P idle role-playing games. Currently available on Steam, the two games will also be launched on mobile platforms in future. Endless World has received nearly 80% positive review scores from players and was nominated for a 2019 Game of the Year Award (New Release) on Steam. Idle Big Devil is still in its early access stage with continuous optimisation, and has achieved a nearly 90% positive review score from players.

Work-for-hire and Other Businesses

The Group's work-for-hire business is mainly contributed by Splash Damage Limited ("Splash Damage"), the Company's subsidiary in the United Kingdom ("UK"). Splash Damage has extensive experience in developing critically acclaimed AAA titles with world-leading publishers and developers and contributes a predictable stream of income to the Group.

During the Reporting Period, the Group's work-for-hire business served multiple customers including Microsoft Game Studios and Google Stadia. The total revenue of this segment was US$16.6 million, representing a year-on-year increase of 17.1% compared to the first half of 2019. This growth is especially notable as the Group continued to deliver high-quality development work despite the severe constraints on its business and operation imposed by the COVID-19 pandemic. Splash Damage quickly resolved to arrange its development teams to work from home very early in the pandemic, enabling the teams to rapidly adapt to the difficult circumstances thereafter. As a result, the studio continued to operate without any loss in productivity and remained a reliable development partner for its clients.

The Group's work-for-hire projects have not only achieved growth in revenue, but more importantly, further enhanced its popularity and reputation in the industry and among players. Following the impressive launch of Gears 5 and Halo Reach (part of Halo: The Master Chief Collection), both of which were developed by Splash Damage in partnership with Microsoft's first party game studios in 2019, Gears Tactics was released in April 2020. Gears Tactics is a fast-paced,turn-based tactics game based on Microsoft's Gears of War universe and one of the flagship titles on Microsoft's Game Pass service for PC. Splash Damage designed and developed Gears Tactics as the sole development studio, and the game received an average Metacritic score of 81. Furthermore, Splash Damage announced its partnership with cloud gaming platform Google Stadia in March 2020 and subsequently announced its first Google Stadia exclusive game, Outcasters, a fast-paced multiplayer game which aimed to appeal to a broad audience.

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LEYOU TECHNOLOGIES HOLDINGS LIMITED

Interim Report 2020

Management Discussion and Analysis

Other business mainly included the sale of merchandise goods, which generated revenue of US$0.1 million (2019: US$0.2 million) during the Reporting Period.

New Product Line

Concurrent with the persistent quality updates and optimisation of its live games, the Group also attaches great importance to the development of new products, by either creating original intellectual property ("IP") or working with globally renowned ones. The performance of live games during the Reporting Period has propelled us to invest more resources in the development of new games. The Group strives to create a high-quality product portfolio within the next two years, minimising fluctuation in the Group's revenue and scale of business.

Guided by the Group's established strategy in AAA quality F2P online games, the Group launched several large-scale projects in the second half of 2017. By combining the F2P design from Asia with the mature development processes from Western counterparts, the Group dedicated an enormous amount of resources to the research and development of new games. Developing AAA quality game products requires a significant investment of time, human resources and funding. Over the past three years, the Group's development teams have focused on creating new products and brought multiple new products to the production stage. Meanwhile, the Group regularly reviews development progress of each project and optimises human resources and economic investment to maximise its output. During the Reporting Period, the Group suspended the development of an undisclosed, original F2P online game and realised a financial impairment.

TRANSFORMERS

In 2017, the Group entered into a license agreement with Hasbro Inc. and Hasbro International Inc. (collectively referred as "Hasbro") and started to develop the game TRANSFORMERS alongside with renowned US game developer, Certain Affinity, Inc. ("Certain Affinity"). During the Reporting Period, Certain Affinity completed a development agreement totalling US$33 million and submitted a satisfactory beta version. Based on this, the Group has decided to grant a further development funding of US$10 million to Certain Affinity and signed a new supplementary agreement on 6 July 2020. The Group has also invited Splash Damage to join the development of this project. With its proven track record in delivering large scale projects, Splash Damage's involvement will reduce risk and provides the live operation experience to properly manage the game long term.

Civilization Online

In 2017, the Group and Take Two International GmbH ("Take Two") entered into an IP agreement, pursuant to which the internal studio of the Group would be responsible for the development of a massively multiplayer online ("MMO") game product, Civilization Online. In 2018, Take Two awarded the global distribution rights of Civilization Online (excluding Mainland China) to the Group. The Group therefore became responsible for both the game development and global distribution of Civilization Online, since it could leverage its successful experience and unique advantages in multiplayer online games. During the Reporting Period, the team completed the development of all basic systems and moved onto the production stage for both world and quest creations.

LEYOU TECHNOLOGIES HOLDINGS LIMITED

7

Interim Report 2020

Management Discussion and Analysis

The Lord of the Rings

In 2018, the Group secured the IP license for certain The Lord of the Rings literary works and prepared to develop a F2P MMO game within The Lord of the Rings universe. In 2019, the Group and subsidiaries of Amazon.com, Inc., entered into a co-development agreement whereby the Group and Amazon Game Studios would co-develop and publish a F2P MMO game based on The Lord of the Rings. Under the co-development agreement, the parties would separately and exclusively market, publish and operate the game in their respective territories. Driven by Amazon Game Studios, the development of the project has progressed smoothly.

Other new products in pipelines

Apart from the abovementioned projects, the Group has multiple unannounced new F2P game products in various development stages. Each game is developed by different game studios within the Group or in collaboration with other third-party game studios.

MATERIAL TRANSACTIONS AND EVENTS

Termination of major and connected transaction in relation to the cooperative agreement (the "Cooperative Agreement") with MEGA Ample Holdings Limited ("MEGA")

On 9 November 2018, the Company entered into the Cooperative Agreement with MEGA, a company wholly-owned by Mr. Yuk Kwok Cheung Charles ("Mr. Yuk") who is the controlling shareholder of the Company, pursuant to which the parties conditionally agreed to enter into a joint arrangement for the development and operation of five specific video games which were being or would be developed under the Cooperative Agreement. The parties have subsequently entered into five supplemental agreements to amend certain terms and conditions of the Cooperative Agreement, including but not limited to removing one game from the scope of the cooperation and revising the long stop date.

However, after amicable discussions and due consideration of (i) the change of the portfolio of games subject to the cooperation (with the removal of one game); (ii) the changes in costs and benefits to the parties and their respective commercial rationale for entering into the joint arrangement; (iii) the continuing development of the remaining games which have progressed differently from that initially envisaged by the parties due to the non-commencement of the Cooperative Agreement; and (iv) the substantial amount of time elapsed since the entering into of the Cooperative Agreement, the parties have decided not to proceed with the joint arrangement as any further negotiation on the terms of their cooperation of the remaining games would probably be futile and the condition precedent for the Cooperative Agreement to have effect would not likely be satisfied before the long stop date. Accordingly, the Company entered into a termination agreement with MEGA, pursuant to which the parties agreed to terminate the Cooperative Agreement with effect from 26 June 2020.

Further details of the said transaction were set out in the announcements dated 9 November 2018, 12 December 2018, 2 January 2019, 24 January 2019, 20 February 2019, 28 March 2019, 5 June 2019, 31 July 2019, 26 September 2019, 30 December 2019, 27 March 2020 and 26 June 2020.

Events after the Reporting Period

Further details of the events after the Reporting Period are set out in Note 27 of this interim report.

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LEYOU TECHNOLOGIES HOLDINGS LIMITED

Interim Report 2020

Management Discussion and Analysis

Outlook

The unforeseen pandemic has not materially disrupted the Group's normal working schedule. The worldwide team of the Group quickly adapted during the quarantine period, and has been able to continue delivering work to the desired quality. This is a strong testimony that talent and teams are the Group's most valuable assets. Guided by the strategies to develop and publish high quality games for the global market, the Group's team is familiar with both Chinese and Western game markets, leveraging its AAA quality research and development capabilities as well as global layout and connection. The Group is committed to launching more high-quality new games in near term, enriching its product line and further improving its profitability, thus bringing better returns to its shareholders.

FINANCIAL REVIEW

Revenue

Our total revenue decreased by 14.2%, from US$105.7 million for the six months ended 30 June 2019 to US$90.7 million for the six months ended 30 June 2020, primarily due to the decline in revenue from Warframe, market competition and reduced number of new console players. Such decrease was partially offset by an increase in work-for-hire segment revenue.

Gross Profit

Our total gross profit decreased by 33.0%, from US$63.9 million for the six months ended 30 June 2019 to US$42.8 million for the six months ended 30 June 2020 and the gross profit margin significantly decreased from 60.5% for the six months ended 30 June 2019 to 47.2% for the six months ended 30 June 2020, primarily due to the impairment of development expenditure of US$10.9 million during the Reporting Period (2019: Nil).

Other Revenue and Gains

Other revenue and gains significantly increased by 6.2 times, from US$0.9 million for the six months ended 30 June 2019 to US$6.3 million for the six months ended 30 June 2020, primarily due to net exchange gain of US$6.0 million recorded during the Reporting Period (2019: net exchange loss of US$4.4 million included in other operating expenses). Such increase was partially offset by a decrease in interest income on bank deposits by US$0.5 million.

Selling and Marketing Expenses

Selling and marketing expenses decreased by 14.6%, from US$6.2 million for the six months ended 30 June 2019 to US$5.3 million for the six months ended 30 June 2020. The decrease in selling and marketing expenses was in line with the decrease in the revenue during the Reporting Period.

Administrative Expenses

Administrative expenses slightly increased by 1.3%, from US$19.8 million for the six months ended 30 June 2019 to US$20.1 million for the six months ended 30 June 2020. Administrative expenses primarily consist of staff costs and legal fees and depreciation. The increase was primarily driven by greater staff costs and legal expenses for different ongoing projects.

Amortisation of Intangible Assets

Amortisation of intangible assets decreased by 3.7%, from US$8.7 million for the six months ended 30 June 2019 to US$8.4 million for the six months ended 30 June 2020, primarily as a result of impairment of intangible assets made in the second half of 2019.

LEYOU TECHNOLOGIES HOLDINGS LIMITED

9

Interim Report 2020

Management Discussion and Analysis

Finance Costs

Finance costs decreased by 22.3%, from US$1.3 million for the six months ended 30 June 2019 to US$1.0 million for the six months ended 30 June 2020, primarily as a result of a reduction in average bank borrowings as compared to 2019.

Equity-settledShare-based Payment Expenses

Equity-settledshare-based payment expenses increased significantly by 54.3%, from US$2.5 million for the six months ended 30 June 2019 to US$3.9 million for the six months ended 30 June 2020, primarily due to the grant of share options by the Company under its share option scheme in May and June 2019 which resulted in less amortisation charges in the first half of 2019.

Taxation

Taxation decreased by 13.9%, from US$10.7 million for the six months ended 30 June 2019 to US$9.2 million for the six months ended 30 June 2020, which was in line with the decline in revenue during the Reporting Period.

Financial Positions

Property, Plant and Equipment

Property, plant and equipment comprise mainly the Group's leasehold land and buildings, office equipment and motor vehicles. As at 30 June 2020, property, plant and equipment amounted to US$31.7 million (31 December 2019: US$36.2 million). The decrease was mainly attributable to the depreciation and impairment loss which amounted to US$1.1 million and US$4.6 million, respectively, during the Reporting Period.

Goodwill

Goodwill was allocated to cash-generating units ("CGU(s)") in Canada, UK and People's Republic of China ("PRC"). As at 30 June 2020, goodwill amounted to US$74.9 million (31 December 2019: US$79.2 million). The decrease was mainly attributable to the exchange alignment of US$4.3 million during the Reporting Period.

Intangible Assets

Intangible assets comprise brand name, completed game, game engine, game under development and trademark. As at 30 June 2020, intangible assets amounted to US$5.0 million (31 December 2019: US$14.1 million). The significant decrease was mainly attributable to amortisation of intangible assets amounting to US$8.4 million during the Reporting Period.

Development Expenditure

Development expenditure represents payment to independent video game developers payable under development agreements and expenditure from development activities. As at 30 June 2020, development expenditure amounted to US$86.4 million (31 December 2019: US$84.7 million). The slight increase was mainly due to the continuous involvement of several new projects of US$19.6 million. Such increase was partially offset by an impairment loss of development expenditure of US$10.9 million and the amortisation recognised in profit or loss of US$6.4 million during the Reporting Period.

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LEYOU TECHNOLOGIES HOLDINGS LIMITED

Interim Report 2020

Management Discussion and Analysis

Financial Assets at Fair Value through Other Comprehensive Income

As at 30 June 2020, financial assets at fair value through other comprehensive income amounted to US$9.5 million (31 December 2019: US$10.1 million). The decrease was mainly due to the change in fair value of financial assets at fair value through other comprehensive income of US$0.6 million during the Reporting Period.

Financial Assets at Fair Value through Profit or Loss

As at 30 June 2020, financial assets at fair value through profit or loss amounted to US$1.5 million (31 December 2019: US$2.7 million). The decrease in financial assets at fair value through profit or loss during the Reporting Period was mainly attributable to fair value loss of US$1.2 million.

Trade Receivables

As at 30 June 2020, trade receivables amounted to US$19.2 million (31 December 2019: US$22.6 million). The decrease was in line with the decline in business activities during the Reporting Period.

Bank Borrowings

At 30 June 2020, the Group had bank borrowings of US$27.5 million (31 December 2019: US$25.2 million). The bank borrowings were secured by (i) leasehold land and buildings, being the Group's office premises located in Hong Kong and included in property, plant and equipment with carrying amount of US$25.6 million (31 December 2019: US$30.3 million); and (ii) a corporate guarantee given by a subsidiary of the Company for an amount of up to US$25 million (31 December 2019: US$25 million). The slight increase was due to the drawdown of a revolving bank loan and offset by repayments of term loan and mortgage loan during the Reporting Period.

Deferred Tax Liabilities

Deferred tax liabilities comprise withholding tax on tax liabilities on upward valuation of intangibles arising from business combination and accelerated tax depreciation. At 30 June 2020, deferred tax liabilities amounted to US$3.2 million (31 December 2019: US$4.8 million). The decrease in deferred tax liabilities was in line with amortisation of intangible assets during the Reporting Period.

LIQUIDITY AND FINANCIAL RESOURCES

Financial Resources

The Group generally finances its operations with internally generated cash flow and debt financing activities to meet its capital requirements. All financing methods will be considered as long as such methods are suitable and beneficial to the Group.

As at 30 June 2020, cash and bank balances amounted to US$40.6 million (31 December 2019: US$22.1 million), which were denominated in United States Dollars ("US$"), Canadian Dollars ("CAD"), British Pound ("GBP"), Renminbi ("RMB") and Hong Kong dollars ("HK$").

LEYOU TECHNOLOGIES HOLDINGS LIMITED

11

Interim Report 2020

Management Discussion and Analysis

Interest-bearing Borrowings and Gearing Ratio

As at 30 June 2020, the total amount of interest-bearing borrowings was US$28.2 million (31 December 2019: US$25.8 million). The slight increase was mainly attributable to the drawdown of a revolving bank loan and offset by repayments of term loan and mortgage loan during the Reporting Period. Details of the Group's bank borrowings, including the maturity profile, currency and interest rate, are set out in Note 19 to the interim condensed consolidated financial statements.

As at 30 June 2020, the gearing ratio of the Group was 9.1% (31 December 2019: 8.0%). The gearing ratio was calculated by dividing total interest-bearing borrowings by total assets of the Group.

SEGMENTAL INFORMATION

Details of segmental information are set out in Note 3 to the interim condensed consolidated financial statements.

PROSPECT

As demonstrated in the section headed "Business Overview" in this interim report, the Company will devote its efforts to achieving the goals set by the Board and the management.

OTHER INFORMATION

Human Resources

As at 30 June 2020, the Group had 1,045 employees (31 December 2019: 1,046).

Staff Costs

Total staff costs, including directors' emoluments, amounted to US$20.1 million for the six months ended 30 June 2020 (six months ended 30 June 2019: US$17.1 million). All of the group members are equal opportunity employers, with the selection and promotion of individuals based on their suitability for the position offered.

Retirement Benefits Costs

The Group contributes to a defined contribution Mandatory Provident Fund retirement benefits scheme (the "MPF Scheme") under the Mandatory Provident Fund Schemes Ordinance, for all of its employees who are eligible to participate in the MPF Scheme. Contributions are made based on a percentage of the employees' basic salaries.

The employees of the Company's subsidiaries which operate in the PRC are required to participate in a central pension scheme operated by the local municipal government. These subsidiaries are required to contribute a certain percentage of its payroll costs to the central pension scheme. The contributions are charged to profit and loss as they become payable in accordance with the rules of the central pension scheme.

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LEYOU TECHNOLOGIES HOLDINGS LIMITED

Interim Report 2020

Management Discussion and Analysis

The employees of the Company's subsidiaries which operate in Canada may make voluntary contributions to the Registered Retirement Savings Plan. These subsidiaries match the employee contributions up to an annual maximum. These subsidiaries have no further payment obligation once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due.

A defined contribution plan is a pension plan under which the Company's subsidiaries which operate in UK pay fixed contributions into a separate entity. These subsidiaries have no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

The Company's subsidiaries in the US participated in the tax-qualified defined contribution plan under section 401(k) scheme of the Internal Revenue Code of the US covering all of its eligible employees in the US who participate in the plan and contribute a portion of their compensation on a pre-income tax basis up to a limit specified by law. The Group's contribution to the plan is based on the percentage of employee contribution from the individual employee's monthly basic salary. Under this plan, these subsidiaries matches voluntary employee's contribution at a rate of 100% for the first 6% of the employee's eligible compensation. Employee contributions are voluntary.

For defined contribution plans, the Company's subsidiaries pay contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. These subsidiaries have no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available.

Share Option Scheme

The share option scheme of the Company ("Share Option Scheme") was adopted for a period of 10 years on, and commenced from, 25 August 2017. Details of the rules of the Share Option Scheme were set out in the circular of the Company dated 8 August 2017. As at the date of this interim report, the total number of outstanding share options granted under the Share Option Scheme was 408,859,122 share options.

MATERIAL RISK FACTORS

Equity Price Risk

The Group's held-for-trading investments are measured at fair value at the end of each reporting period. Therefore, the Group is exposed to equity price risk due to the fluctuation of fair value of held-for-trading investment. Our management closely monitors the market condition of the listed securities and regularly reviews the exposure to the equity price risk on held-for-trading investment.

LEYOU TECHNOLOGIES HOLDINGS LIMITED

13

Interim Report 2020

Management Discussion and Analysis

Foreign Exchange Risk

The Group's main operations are in Canada, UK, PRC (including Hong Kong) and US. Most of the assets, income, payment and cash balances are denominated in US$, RMB, HK$, CAD and GBP. Any significant exchange rate fluctuations of US$ against RMB, HK$, CAD and GBP may have financial impacts on the Group. The Group did not enter into any foreign exchange hedging arrangement. Nevertheless, the Group will from time to time review and adjust the Group's hedging and financing strategies.

Given the inherent uncertainties and the high level of subjectivity involved in the recognition or measurement of the items above, it is possible that the outcomes in the next financial year will differ from the expectations on which the management's estimates are based, resulting in the amounts of recognition and measurement being materially different from those estimated by the management in the interim condensed consolidated financial statements.

FUTURE PLAN FOR MATERIAL INVESTMENTS AND CAPITAL ASSETS

During the six months ended 30 June 2020, the Group did not have other plans for material investments and capital assets.

PLEDGE OF ASSETS

As at 30 June 2020, bank borrowings of the Group with carrying amount of US$27.5 million (31 December 2019: US$25.2 million) was secured under a mortgage arrangement over the Group's office premises located in Hong Kong and a corporate guarantee given by a subsidiary of the Company.

CONTRACTUAL AND CAPITAL COMMITMENTS

As at 30 June 2020, the Group had capital commitments of US$93.5 million (31 December 2019: US$97.0 million).

CONTINGENT LIABILITIES

As at 30 June 2020, the Group did not have any significant contingent liabilities (31 December 2019: Nil).

14

LEYOU TECHNOLOGIES HOLDINGS LIMITED

Interim Report 2020

Other Information

DIRECTORS' AND CHIEF EXECUTIVES' INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES

As at 30 June 2020, the interests and short positions of the directors of the Company (the "Directors") and chief executives in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (the "SFO")) as recorded in the register required to be kept under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the "Model Code") as set out in Appendix 10 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the "Stock Exchange") (the "Listing Rules") were as follows:

Approximate

Number of

percentage

underlying

of total

Name of Director/

shares held

Total number

issued share

chief executive

Nature

Number of

under equity

of shares

capital of the

of the Company

of interests

shares held

derivatives

interested

Company

Mr. Xu Yiran

Beneficial owner

-

29,246,800 (L)

29,246,800

(L)

0.95%

Mr. Gu Zhenghao

Beneficial owner

-

29,246,800 (L)

29,246,800

(L)

0.95%

Mr. Li Yang

Beneficial owner and

2,895,000 (L)

12,750,000 (L)

15,645,000

(L)

0.51%

interest of controlled

(Note)

corporation

Abbreviation:

"L" stands for long position

Note: 2,895,000 shares include (i) 1,895,000 shares beneficially owned by Mr. Li Yang; and (ii) 1,000,000 shares beneficially owned by DC Capital Management Inc., a company 100% controlled by Mr. Li Yang. Accordingly, Mr. Li Yang is deemed to be interested in the shares in which DC Capital Management Inc. is interested.

Save as disclosed above, as at 30 June 2020, none of the Directors or chief executives had any interests or short positions in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) as recorded in the register required to be kept by the Company pursuant to Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

LEYOU TECHNOLOGIES HOLDINGS LIMITED

15

Interim Report 2020

Other Information

SUBSTANTIAL SHAREHOLDERS' AND OTHER PERSONS' INTERESTS IN SHARES AND UNDERLYING SHARES

As at 30 June 2020, the interests and short positions of the persons (other than the Directors and chief executives of the Company) in the shares and underlying shares of the Company as recorded in the register required to be kept by the Company under Section 336 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to Divisions 2 and 3 of Part XV of the SFO were as follows:

Approximate

percentage

Number of

of the

underlying

issued share

shares held

Total number

capital of the

Capacity/nature

Number of

under equity

of shares

Company

Name of shareholder

of interest

shares held

derivatives

interested

(%)

Port New Limited (Note 1)

Beneficial owner

1,539,894,522

(L)

518,700,000 (L)

2,058,594,522

(L)

66.78%

Novel New Limited (Note 1)

Beneficial owner

74,100,000

(L)

-

74,100,000

(L)

2.40%

Mr. Yuk (Note 1)

Interest of controlled

1,613,994,522

(L)

518,700,000 (L)

2,132,694,522

(L)

69.18%

corporation

Kingston Finance Limited

Security interest in shares

1,539,894,522

(L)

-

1,539,894,522

(L)

49.95%

(Note 2)

(Note 3)

Ample Cheer Limited

Interest of controlled

1,539,894,522

(L)

-

1,539,894,522

(L)

49.95%

(Note 2)

corporation

(Note 3)

Best Forth Limited (Note 2)

Interest of controlled

1,539,894,522

(L)

-

1,539,894,522

(L)

49.95%

corporation

(Note 3)

Mrs. Chu Yuet Wah (Note 2)

Interest of controlled

1,539,894,522

(L)

-

1,539,894,522

(L)

49.95%

corporation

(Note 3)

LaGuardia Venture Limited

Beneficial owner

518,700,000

(L)

-

518,700,000

(L)

16.82%

(Note 4)

(Note 5)

Beneficial owner

-

518,700,000 (S)

518,700,000

(S)

16.82%

(Note 5)

16

LEYOU TECHNOLOGIES HOLDINGS LIMITED

Interim Report 2020

Other Information

SUBSTANTIAL SHAREHOLDERS' AND OTHER PERSONS' INTERESTS IN SHARES AND UNDERLYING SHARES (CONTINUED)

Approximate

percentage

Number of

of the

underlying

issued share

shares held

Total number

capital of the

Capacity/nature

Number of

under equity

of shares

Company

Name of shareholder

of interest

shares held

derivatives

interested

(%)

Alpha Frontier Limited

Interest of controlled

518,700,000 (L)

-

518,700,000 (L)

16.82%

(Note 4)

corporation

(Note 5)

Interest of controlled

-

518,700,000 (S)

518,700,000 (S)

16.82%

corporation

(Note 5)

Giant Investment(HK) Limited

Interest of controlled

518,700,000 (L)

-

518,700,000 (L)

16.82%

(Note 4)

corporation

(Note 5)

Interest of controlled

-

518,700,000 (S)

518,700,000 (S)

16.82%

corporation

(Note 5)

巨人網絡集團股份有限公司

Interest of controlled

518,700,000 (L)

-

518,700,000 (L)

16.82%

(Note 4)

corporation

(Note 5)

Interest of controlled

-

518,700,000 (S)

518,700,000 (S)

16.82%

corporation

(Note 5)

Mr. Shi Yuzhu (Note 4)

Interest of controlled

518,700,000 (L)

-

518,700,000 (L)

16.82%

corporation

(Note 5)

Interest of controlled

-

518,700,000 (S)

518,700,000 (S)

16.82%

corporation

(Note 5)

Abbreviations:

"L" stands for long position "S" stands for short position

LEYOU TECHNOLOGIES HOLDINGS LIMITED

17

Interim Report 2020

Other Information

SUBSTANTIAL SHAREHOLDERS' AND OTHER PERSONS' INTERESTS IN SHARES AND UNDERLYING SHARES (CONTINUED)

Note 1: Each of Port New Limited and Novel New Limited is a company incorporated in the British Virgin Islands and is wholly controlled by Mr. Yuk. Accordingly, Mr. Yuk is deemed to be interested in the shares in which Port New Limited and Novel New Limited are respectively interested. Meanwhile, Mr. Li Zhigang, a former non-executive Directors, is one of the two directors of Port New Limited.

Note 2: Kingston Finance Limited, a company incorporated in Hong Kong, is wholly owned by Ample Cheer Limited, a company incorporated in the British Virgin Islands. Ample Cheer Limited is controlled as to 80% by Best Forth Limited and 20% by Insight Glory Limited. Each of Best Forth Limited and Insight Glory Limited is a company incorporated in the British Virgin Islands and is wholly controlled by Mrs. Chu Yuet Wah.

Note 3: The four references to the long position of 1,539,894,522 shares relate to the same block of shares.

Note 4: LaGuardia Venture Limited ("LaGuardia") is wholly controlled by Alpha Frontier Limited ("Alpha"), which Alpha is held as to 42.04% by Chongqing Cibi Business Information Consultancy Co., Ltd.*（重慶賜比商務信息諮詢有限公司）("Chongqing Cibi"), 32.95% by Hazlet Global Limited ("Hazlet"), 10.87% by Shanghai Lingyi Internet Technology Partnership (Limited Partnership)* （上海瓴逸互聯網科技合夥企業（有限合夥））, 10.87% by Shanghai Lingyi Internet Technology Partnership (Limited Partnership)*（上海瓴熠互聯網科技合夥企業（有限合夥））and 3.27% by Chongqing Jiezi Business Information Consultancy Partnership (Limited Partnership)*（重慶傑資商務信息諮詢合夥企業（有限合夥））respectively. Chongqing Cibi is a company controlled by Mr. Shi Yuzhu（史玉柱）. The de facto controller of Hazlet is Ms. Shi Jing（史靜）, who is the daughter of Mr. Shi Yuzhu. Hazlet is a person acting in concert with Chongqing Cibi. Mr. Shi Yuzhu is the de facto controller of LaGuardia and Alpha.

  • For identification purposes only

Note 5: The five references to the long position of 518,700,000 shares and the short position of 518,700,000 shares relate to the same block of shares.

Note 6: As at 30 June 2020, the number of issued shares was 3,082,934,197 shares.

Note 7: The percentages are subject to rounding difference, if any.

Save as disclosed above and so far as the Directors and chief executives of the Company are aware of, as at 30 June 2020, no person (other than the Directors and chief executive of the Company) had any interest or short position in the shares and underlying shares of the Company as recorded in the register required to be kept by the Company pursuant to Section 336 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to Divisions 2 and 3 of Part XV of the SFO.

18

LEYOU TECHNOLOGIES HOLDINGS LIMITED

Interim Report 2020

Other Information

SHARE OPTIONS SCHEME

The Company adopted the Share Option Scheme on 25 August 2017. The terms of the Share Option Scheme are in accordance with the provision of Chapter 17 of the Listing Rules. The Share Option Scheme shall be valid and effective for a period of 10 years commencing on 25 August 2017.

The purpose of the Share Option Scheme is to recognise and motivate the contribution of the Share Options Scheme's participants, namely any full-time or part-time employee of the Group (including any executive and non-executive director or proposed executive and non-executive director), adviser, consultant, agent, contractor, client and supplier who in the sole discretion of the Board has contributed or is expected to contribute to the Group, and to provide incentives and help the Company retain its existing employees and recruit additional employees and provide them with a direct economic interest in attaining the long-term business objectives of the Company.

Details of the movement in the share options granted under the Share Option Scheme during the six months ended 30 June 2020 are as follows:

Number of share options

Exercise

Outstanding

Outstanding

price of

as at

Granted

Exercised

Lapsed

as at

Date of grant

Exercise

share

1 January

during

during

during

30 June

Grantees

of share options

period

options

2020

the period

the period

the period

2020

Executive Directors

Mr. Xu Yiran

24 October 2017

24 October 2017 to

HK$1.91

29,246,800

-

-

-

29,246,800

24 October 2022

(Note (a))

Mr. Gu Zhenghao

24 October 2017

24 October 2017 to

HK$1.91

29,246,800

-

-

-

29,246,800

24 October 2022

(Note (a))

Mr. Li Yang

2 May 2019

2 May 2020 to

HK$2.50

4,250,000

-

-

-

4,250,000

2 November 2022

2 May 2019

2 May 2021 to

HK$2.80

4,250,000

-

-

-

4,250,000

2 November 2022

2 May 2019

2 May 2022 to

HK$3.10

4,250,000

-

-

-

4,250,000

2 November 2022

Sub-total

71,243,600

-

-

-

71,243,600

LEYOU TECHNOLOGIES HOLDINGS LIMITED

19

Interim Report 2020

Other Information

SHARE OPTIONS SCHEME (CONTINUED)

Number of share options

Exercise

Outstanding

Outstanding

price of

as at

Granted

Exercised

Lapsed

as at

Date of grant

Exercise

share

1 January

during

during

during

30 June

Grantees

of share options

period

options

2020

the period

the period

the period

2020

Employees

24 October 2017

24 October 2017 to

HK$1.91

29,246,800

-

-

-

29,246,800

24 October 2022

(Note (a))

24 October 2017

24 October 2018 to

HK$1.91

29,246,791

-

(1,150,000)

-

28,096,791

24 October 2022

24 October 2017

24 October 2019 to

HK$1.91

29,246,791

-

-

-

29,246,791

24 October 2022

24 October 2017

24 October 2020 to

HK$1.91

29,246,818

-

-

-

29,246,818

24 October 2022

2 May 2019

2 May 2020 to

HK$2.50

41,849,987

-

-

(600,000)

41,249,987

2 November 2022

(Note (b))

2 May 2019

2 May 2021 to

HK$2.80

41,849,987

-

-

(933,332)

40,916,655

2 November 2022

(Note (b))

2 May 2019

2 May 2022 to

HK$3.10

41,850,026

-

-

(933,336)

40,916,690

2 November 2022

(Note (b))

20 May 2019

20 May 2020 to

HK$2.50

2,011,938

-

(89,197)

(118,641)

1,804,100

20 November 2022

20 May 2019

20 May 2021 to

HK$2.80

2,011,938

-

-

(671,575)

1,340,363

20 November 2022

20 May 2019

20 May 2022 to

HK$3.10

2,011,945

-

-

(671,571)

1,340,374

20 November 2022

5 June 2019

5 June 2020 to

HK$2.50

333,333

-

-

-

333,333

5 December 2022

5 June 2019

5 June 2021 to

HK$2.80

333,333

-

-

-

333,333

5 December 2022

5 June 2019

5 June 2022 to

HK$3.10

333,334

-

-

-

333,334

5 December 2022

Sub-total

249,573,021

-

(1,239,197)

(3,928,455)

244,405,369

20

LEYOU TECHNOLOGIES HOLDINGS LIMITED

Interim Report 2020

Other Information

SHARE OPTIONS SCHEME (CONTINUED)

Number of share options

Exercise

Outstanding

Outstanding

price of

as at

Granted

Exercised

Lapsed

as at

Date of grant

Exercise

share

1 January

during

during

during

30 June

Grantees

of share options

period

options

2020

the period

the period

the period

2020

Consultants

24 October 2017

24 October 2017 to

HK$1.91

87,740,400

-

-

-

87,740,400

24 October 2022

(Note (a))

20 May 2019

20 May 2020 to

HK$2.50

2,500,000

-

-

-

2,500,000

20 November 2022

20 May 2019

20 May 2021 to

HK$2.80

2,500,000

-

-

-

2,500,000

20 November 2022

20 May 2019

20 May 2022 to

HK$3.10

2,500,000

-

-

-

2,500,000

20 November 2022

5 June 2019

5 June 2020 to

HK$2.50

500,000

-

-

-

500,000

5 December 2022

5 June 2019

5 June 2021 to

HK$2.80

500,000

-

-

-

500,000

5 December 2022

5 June 2019

5 June 2022 to

HK$3.10

500,000

-

-

-

500,000

5 December 2022

Sub-total

96,740,400

-

-

-

96,740,400

Total

417,557,021

-

(1,239,197)

(3,928,455)

412,389,369

LEYOU TECHNOLOGIES HOLDINGS LIMITED

21

Interim Report 2020

Other Information

SHARE OPTIONS SCHEME (CONTINUED)

Notes:

  1. The share options were vested upon grant.
  2. The share options will be vested in three tranches in accordance with a vesting schedule, conditional upon the achievement by the grantee of certain performance targets. For details of the vesting schedule and exercise price of the share options, please refer to the announcement of the Company dated 2 May 2019.
  3. The exercise price of the share options was subject to adjustments in the case of capitalisation of profits or reserve, rights or bonus issues, consolidation, subdivision or reduction of the share capital or other changes in the capital structure of the Company.
  4. The market price of shares on the date of grant on 24 October 2017 was HK$1.88; the market prices of the shares on the dates of grant on 2 May 2019, 20 May 2019 and 5 June 2019 were HK$2.32, HK$2.24 and HK$2.30 respectively.
  5. Save as disclosed above, no option under the Share Option Scheme was outstanding, granted, exercised, cancelled or lapsed during the Reporting Period.

PLEDGE OF SHARES BY CONTROLLING SHAREHOLDER

As at 30 June 2020, Mr. Yuk, the controlling shareholder of the Company, has pledged 1,539,894,522 ordinary shares in the issued share capital of the Company to Kingston Finance Limited. To the best of the knowledge of the Directors, such shares were not pledged to secure the Company's debts or to secure guarantees or other support of its obligations.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY'S LISTED SECURITIES

During the Reporting Period, neither the Company nor any of its subsidiaries has purchased, sold or redeemed any of the Company's listed securities.

ISSUE OF EQUITY SECURITIES

During the Reporting Period, the Company has not conducted any equity fund raising activity.

ADVANCE TO AN ENTITY

On 15 October 2017, the Company and Certain Affinity, a video game development studio based in the US owned as to 20% by the Company, entered into a game development agreement (the "Game Development Agreement"), pursuant to which Certain Affinity should develop and produce for the Company the Game based on certain IP, including the TRANSFORMERS property (the "Game") and the Company should provide Certain Affinity with an interest-free loan facility (the "Loan"), which was essentially the development budget for the Game, in the amount of up to US$15 million to pay for costs and expenses incurred in connection with the provision of the development services relating to the Game.

22

LEYOU TECHNOLOGIES HOLDINGS LIMITED

Interim Report 2020

Other Information

ADVANCE TO AN ENTITY (CONTINUED)

On 7 January 2019, by an amendment agreement entered into among the Company, Certain Affinity and Mr. Hoberman who was the founder, President and controlling shareholder of Certain Affinity, the maximum principal amount of the Loan increased from US$15 million to US$33 million. The Loan continued to be interest-free and be granted on a non-recourse basis and solely recoupable by the Company from its share of the revenues derived from exploitation of the Game. The reason for the increase in the principal amount of the Loan was to enable Certain Affinity to develop and produce the Game with richer content and prepare to make the Game available on PC.

By another amendment agreement dated 6 July 2020 entered into between the Company and Certain Affinity, the maximum principal amount of the Loan further increased from US$33 million to approximately US$43 million. With the second increase in the principal amount of the Loan, Certain Affinity would be able to start volume production towards a higher-quality open beta version of the Game.

As at 30 June 2020 and as at the date of this interim report, the Loan exceeded 8% under the assets ratio defined under Rule 14.07(1) of the Listing Rules. Further details of the Loan and the subsequent amendment agreements were set out in the announcements of the Company dated 16 October 2017, 7 January 2019 and 6 July 2020.

Save as disclosed above, as at 30 June 2020, no other advance to an entity which exceeded 8% under the assets ratio defined under Rule 14.07(1) of the Listing Rules has been made.

CORPORATE GOVERNANCE CODE

In the opinion of the Directors, the Company has complied with the relevant code provisions (the "Code Provision(s)") set out in the Corporate Governance Code contained in Appendix 14 of the Listing Rules (the "Code"), except for Code Provision A.2.1 as explained below.

Under the Code Provision A.2.1, the roles of chairman and chief executive should be separate and should not be performed by the same individual. Mr. Xu Yiran has been performing the dual roles of Chairman and Chief Executive Officer of the Company since 5 September 2017. In light of the rapid development of the Group, the Board believes that by vesting the roles of both chairman and chief executive officer in the same person, the Group can enjoy consistent leadership which in turn facilitates strategic planning and prompt and effective execution of business plans. In addition, under the current composition of the Board, namely five executive Directors, one non-executive Director and three independent non-executive Directors, we believe that the interests of shareholders of the Company are adequately and fairly represented. The Board considers that the present corporate governance arrangement does not impair the balance of power and authority within the Group.

Save as aforesaid, in the opinion of the Directors, the Company has met all the Code Provisions set out in the Code during the Reporting Period.

LEYOU TECHNOLOGIES HOLDINGS LIMITED

23

Interim Report 2020

Other Information

MODEL CODE FOR SECURITIES TRANSACTIONS BY DIRECTORS

The Company has adopted a code of conduct regarding securities transactions by Directors on terms no less exacting than the required standard set out in the Model Code. The Company has made specific enquiries of all Directors and all the Directors confirmed that they have complied with the Model Code and the required standards of the Company's code of conduct regarding securities transactions by Directors during the Reporting Period.

DISCLOSURE ON CHANGES IN THE INFORMATION OF DIRECTORS IN ACCORDANCE WITH RULE 13.51(B)(1) OF THE LISTING RULES

In March 2020, Mr. Eric Todd, a non-executive Director, was appointed as a director of Tech Pro Technology Development Limited (previous Stock Code: 3823; delisted now).

In June 2020, Mr. Kwan Ngai Kit ("Mr. Kwan"), an independent non-executive Director, was appointed as a reviewer for reviewing and judging the Best Corporate Awards of the Hong Kong Institute of Certified Public Accountants. Moreover, in July 2020, Rare Earth Magnesium Technology Group Holdings Limited (Stock Code: 601), in which Mr. Kwan serves as an independent non-executive director, has appointed "light touch" joint provisional liquidators for a possible debt restructuring.

In July 2020, Mr. Chan Chi Yuen, an independent non-executive Director, resigned as an independent non-executive director of Asia Energy Logistics Group Limited (Stock Code: 351).

In August 2020, Mr. Li Yang, the deputy chairman and an executive Director, was appointed as an executive director of CT Environmental Group Limited (Stock Code: 1363).

AUDIT COMMITTEE

The Company established the audit committee ("Audit Committee") with written terms of reference in compliance with the Code. The primary duties of the Audit Committee are to review the Company's financial information and oversee the Company's financial reporting process, risk management and internal control systems. The unaudited interim condensed consolidated results of the Group for the six months ended 30 June 2020 have been reviewed by the Audit Committee, which comprises Mr. Hu Chung Ming (Committee Chairman), Mr. Chan Chi Yuen and Mr. Kwan Ngai Kit, all being independent non-executive Directors. The Audit Committee has also discussed matters with respect to the accounting policies and practices adopted by the Company and the Company's internal control with members of the senior management.

INTERIM DIVIDEND

The Board has resolved not to declare payment of any interim dividend for the six months ended 30 June 2020 (six months ended 30 June 2019: Nil).

By order of the Board

Leyou Technologies Holdings Limited

Mr. Xu Yiran

Chairman and Chief Executive Officer

Hong Kong, 21 August 2020

24

LEYOU TECHNOLOGIES HOLDINGS LIMITED

Interim Report 2020

Interim Results

The board (the "Board") of directors (the "Directors") of Leyou Technologies Holdings Limited (the "Company") is pleased to present the unaudited interim condensed consolidated financial statements of the Company and its subsidiaries (collectively referred to as the "Group") for the Reporting Period. These interim condensed consolidated financial statements have not been audited but have been reviewed by the audit committee of the Company (the "Audit Committee") which comprises Mr. Hu Chung Ming (Committee Chairman), Mr. Chan Chi Yuen and Mr. Kwan Ngai Kit.

INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS

For the six months ended 30 June 2020

Six months ended 30 June

2020

2019

US$'000

US$'000

Notes

(Unaudited)

(Unaudited)

Revenue

4

90,692

105,671

Cost of sales

(47,888)

(41,763)

Gross profit

42,804

63,908

Other revenue and gains

5

6,251

873

Net loss on financial assets at fair value through profit or loss

8

(1,200)

(821)

Amortisation of intangible assets

8, 13

(8,386)

(8,707)

Impairment of property, plant and equipment

8, 11

(4,594)

-

Selling and marketing expenses

(5,315)

(6,222)

Administrative expenses

(20,095)

(19,831)

Finance costs

6

(1,020)

(1,312)

Other operating expenses

-

(4,390)

Equity-settledshare-based payment expenses

8

(3,894)

(2,524)

Profit before taxation

8

4,551

20,974

Taxation

7

(9,246)

(10,744)

(Loss)/profit for the period

(4,695)

10,230

(Loss)/profit for the period attributable to:

Owners of the Company

(5,788)

9,288

Non-controlling interests

1,093

942

(4,695)

10,230

(Loss)/earnings per share

Basic (US cents per share)

9

(0.19)

0.30

Diluted (US cents per share)

9

(0.19)

0.30

The accompanying notes form an integral part of these interim condensed consolidated financial statements.

LEYOU TECHNOLOGIES HOLDINGS LIMITED

25

Interim Report 2020

Interim Results

INTERIM CONDENSED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND

OTHER COMPREHENSIVE INCOME

For the six months ended 30 June 2020

Six months ended 30 June

2020

2019

US$'000

US$'000

(Unaudited)

(Unaudited)

(Loss)/profit for the period

(4,695)

10,230

Other comprehensive (loss)/income for the period, net of income tax:

Items that will not be reclassified to profit or loss:

Changes in the fair value of equity investments at fair value

through other comprehensive income

(600)

300

Items that may be reclassified subsequently to profit or loss:

Exchange differences on translating foreign operation

(12,281)

6,041

Other comprehensive (loss)/income for the period

(12,881)

6,341

Total comprehensive (loss)/income for the period

(17,576)

16,571

Total comprehensive (loss)/income for the period attributable to:

Owners of the Company

(18,493)

15,748

Non-controlling interests

917

823

(17,576)

16,571

The accompanying notes form an integral part of these interim condensed consolidated financial statements.

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Interim Results

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 30 June 2020

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

Notes

(Unaudited)

(Audited)

Non-current assets

Property, plant and equipment

11

31,683

36,194

Goodwill

12

74,901

79,250

Intangible assets

13

4,985

14,086

Development expenditure

14

86,444

84,667

Right-of-use assets

15

14,682

17,349

Financial assets at fair value through other comprehensive income

9,500

10,100

Deferred tax assets

525

560

222,720

242,206

Current assets

Inventories

153

147

Trade receivables

16

19,198

22,575

Deposits paid, prepayments and other receivables

20,752

20,704

Financial assets at fair value through profit or loss

17

1,522

2,723

Tax recoverable

6,197

12,388

Cash and bank balances

40,588

22,105

88,410

80,642

Current liabilities

Trade payables

18

3,440

3,498

Accruals and other payables

13,188

10,646

Bank borrowings

19

27,548

25,157

Lease liabilities

5,066

5,314

Contract liabilities

7,748

6,751

56,990

51,366

Net current assets

31,420

29,276

Total assets less current liabilities

254,140

271,482

LEYOU TECHNOLOGIES HOLDINGS LIMITED

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Interim Results

INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION (CONTINUED)

As at 30 June 2020

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

Notes

(Unaudited)

(Audited)

Equity

Share capital

21

39,750

39,734

Reserves

192,513

206,808

Equity attributable to owners of the Company

232,263

246,542

Non-controlling interests

6,181

5,264

Total equity

238,444

251,806

Non-current liabilities

Deferred tax liabilities

3,174

4,814

Lease liabilities

11,891

14,247

Debenture

20

631

615

Total non-current liabilities

15,696

19,676

Total equity and non-current liabilities

254,140

271,482

The accompanying notes form an integral part of these interim condensed consolidated financial statements.

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Interim Results

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the six months ended 30 June 2020

Financial

Equity

assets at

Share

attributable

Non-

Share

Share

Capital

Exchange

FVTOCI

Other

option

Retained

to owners of

controlling

Total

capital

premium*

reserve*

reserve*

reserve*

reserve*

reserve*

earnings*

the Company

interests

equity

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

US$'000

(Note (a))

(Note (b))

(Note (c))

As at 1 January 2019 (audited)

39,345

167,959

(437)

(1,752)

1,000

(47,911)

16,024

52,947

227,175

3,567

230,742

Profit for the period

-

-

-

-

-

-

-

9,288

9,288

942

10,230

Exchange differences on translating foreign operations and

other comprehensive (loss)/income for the period

-

-

-

6,160

300

-

-

-

6,460

(119)

6,341

Total comprehensive income for the period

-

-

-

6,160

300

-

-

9,288

15,748

823

16,571

Recognition of equity-settledshare-based payment expenses

-

-

-

-

-

-

2,524

-

2,524

-

2,524

Ordinary shares issued

389

8,746

-

-

-

-

-

-

9,135

-

9,135

Lapse of share option

-

-

-

-

-

-

(1)

1

-

-

-

As at 30 June 2019 (unaudited)

39,734

176,705

(437)

4,408

1,300

(47,911)

18,547

62,236

254,582

4,390

258,972

As at 1 January 2020 (audited)

39,734

176,705

(437)

8,136

2,000

(47,911)

23,746

44,569

246,542

5,264

251,806

(Loss)/profit for the period

-

-

-

-

-

-

-

(5,788)

(5,788)

1,093

(4,695)

Exchange differences on translating foreign operations and

other comprehensive income/(loss) for the period

-

-

-

(12,105)

(600)

-

-

-

(12,705)

(176)

(12,881)

Total comprehensive (loss)/income for the period

-

-

-

(12,105)

(600)

-

-

(5,788)

(18,493)

917

(17,576)

Recognition of equity-settledshare-based payment expenses

-

-

-

-

-

-

3,903

-

3,903

-

3,903

Exercise of share options (Note 21(b))

16

395

-

-

-

-

(100)

-

311

-

311

Lapse of share option

-

-

-

-

-

-

(177)

177

-

-

-

As at 30 June 2020 (unaudited)

39,750

177,100

(437)

(3,969)

1,400

(47,911)

27,372

38,958

232,263

6,181

238,444

  • These reserve accounts comprise the consolidated reserve of US$192,513,000 (31 December 2019: US$206,808,000) in the interim condensed consolidated statement of financial position.

Notes:

  1. Exchange reserve
    The exchange reserve comprises all foreign exchange differences arising from the translation of the financial statements of operations.
  2. Financial assets at FVTOCI reserve
    Fair value reserve comprises the cumulative net change in the fair value of equity investments designated at fair value through other comprehensive income ("FVTOCI") under HKFRS 9 that are held at the end of the Reporting Period.
  3. Share option reserve
    Share option reserve relates to share options granted under the Company's share option scheme and which are reclassified to share capital and share premium when the share option were exercised, and to accumulated losses when the share options were lapsed or expired.

The accompanying notes form an integral part of these interim condensed consolidated financial statements.

LEYOU TECHNOLOGIES HOLDINGS LIMITED

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Interim Results

INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

For the six months ended 30 June 2020

Six months ended 30 June

2020

2019

US$'000

US$'000

(Unaudited)

(Unaudited)

Operating activities

Cash from operation

46,514

42,129

Interest paid

(569)

(842)

Tax paid

(1,239)

(16,530)

Net cash generated from operating activities

44,706

24,757

Investing activities

Purchase of property, plant and equipment

(1,279)

(748)

Purchase of intangible assets

(1)

(403)

Other cash flows arising from investing activities

(18,916)

(31,252)

Net cash used in investing activities

(20,196)

(32,403)

Financing activities

Repayment of bank borrowings

(5,802)

(4,490)

Proceeds from bank borrowings

8,075

-

Issue of shares

-

9,135

Repayment of lease liabilities

(3,131)

(2,588)

Exercise of share options

311

-

Net cash (used in)/generated from financing activities

(547)

2,057

Net increase/(decrease) in cash and bank balances

23,963

(5,589)

Cash and bank balances at the beginning of the period

22,105

32,658

Effect of foreign exchange rate changes, net

(5,480)

2,934

Cash and bank balances at the end of the period

40,588

30,003

The accompanying notes form an integral part of these interim condensed consolidated financial statements.

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Interim Results

NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the six months ended 30 June 2020

1. BASIS OF PREPARATION

Leyou Technologies Holdings Limited (the "Company") was incorporated as an exempted company with limited liability in the Cayman Islands on 22 February 2010 under the Companies Law, Cap 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The registered office and principal place of business of the Company are Cricket Square, Hutchins Drive, P.O. Box 2681, Grand Cayman, KY1-1111, Cayman Islands and Suite 3201, Tower Two, Lippo Centre, 89 Queensway, Admiralty, Hong Kong ("HK"), respectively. The Company's shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited (the "Stock Exchange"). The Directors consider that Port New Limited, a company incorporated in the British Virgins Island ("BVI"), is the parent company and ultimate holding company of the Company.

The interim condensed consolidated financial statements for the Reporting Period have been prepared in accordance with Hong Kong Accounting Standard 34 "Interim Financial Reporting" issued by the Hong Kong Institute of Certified Public Accountants (the "HKICPA") and the disclosure requirements of Appendix 16 to the Rules Governing the Listing of Securities (the "Listing Rules") on the Stock Exchange.

The interim condensed consolidated financial statements do not include all the information and disclosures required for annual financial statements, and should be read in conjunction with the consolidated financial statements of the Group for the year ended 31 December 2019 as contained in the Company's Annual Report 2019 (the "Annual Report 2019").

The preparation of the interim condensed consolidated financial statements in conformity with HKAS 34 requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses on a year to date basis.

The interim condensed consolidated financial statements are presented in United States Dollars ("US$") and all values are rounded to the nearest thousand (US$'000) except when otherwise indicated. The interim condensed consolidated financial statements are unaudited but have been reviewed by the Audit Committee.

LEYOU TECHNOLOGIES HOLDINGS LIMITED

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Interim Results

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies used in the preparation of the interim condensed consolidated financial statements are consistent with those used in the Annual Report 2019, except for the impact of the adoption of the new and revised HKASs, Hong Kong Financial Reporting Standards ("HKFRS(s)"), amendments and interpretations described below.

The Group has applied the following new and amendments to HKFRSs issued by the HKICPA for the first time for the financial period beginning on or after 1 January 2020:

HKAS 1 and HKAS 8 (Amendments)

Definition of Material

HKFRS

3 (Amendments)

Definition of Business

HKFRS

9, HKAS 39 and HKFRS 7 (Amendments)

Interest Rate Benchmark Reform

Early adoption of amendments to HKFRSs

The following amendments to HKFRSs, which is applicable to the Group but are not yet effective for the current year, have been early adopted in current year:

HKFRS 16 (Amendments)

COVID-19 Related Rent Concession

Except as described below, the application of new and amendments to HKFRSs in the current period has had no material impact on the Group's financial performance and positions for the current and prior periods and/or on the disclosures set out in the interim condensed consolidated financial statements.

Amendments to HKFRS 16 COVID-19 Related Rent Concession

The Group has elected the practical expedient to apply amendments to HKFRS 16 to account for any change in lease payments resulting from the rent concession occurring as a direct consequence of the COVID-19 pandemic.

The Group has applied the practical expedient to rent concession that meet all of the following conditions:

  1. the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change;
  2. any reduction in lease payments affects only payments originally due on or before 30 June 2021; and
  3. there is no substantive change to other terms and conditions of the lease.

The rent concession recognised in the interim condensed consolidated statement of profit or loss and other comprehensive income during the six months ended 30 June 2020 amounted to US$104,000 (2019: Nil).

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Interim Results

3. SEGMENT INFORMATION

During the Reporting Period, the Group operated in one operating segment which was the business of on-line game operation and retail game development. A single management team reported to the Directors (being the chief operating decision-maker) who comprehensively managed the entire business. Accordingly, the Group has not presented separate segment information.

Geographical information

The following table sets out information about the geographical locations of the Group's revenue from external customers during the Reporting Period and the Group's non-current assets. The geographical locations of the customers are determined based on the locations of the principal operations of the subsidiaries.

The Group's non-current assets included property, plant and equipment, goodwill, intangible assets, development expenditure, right-of-use assets, financial assets at fair value through other comprehensive income and deferred tax assets. The geographical location of property, plant and equipment and right-of-use assets are based on the physical location of the asset under consideration. In the case of goodwill, intangible assets, development expenditure, financial assets at fair value through other comprehensive income and deferred tax assets, they are based on the location of operations to which these assets are allocated.

Revenue from external customers

Six months ended 30 June

2020

2019

US$'000

US$'000

(Unaudited)

(Unaudited)

Canada

72,968

89,733

UK

15,156

12,028

US

1,588

3,590

PRC

980

320

90,692

105,671

Non-current assets

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

Canada

53,321

61,785

UK

60,709

66,441

PRC

22,797

23,046

HK

85,751

90,662

US

142

272

222,720

242,206

LEYOU TECHNOLOGIES HOLDINGS LIMITED

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Interim Report 2020

Interim Results

3. SEGMENT INFORMATION (CONTINUED)

Other information Revenue from major products

The Group's revenue from major products is as follows:

Six months ended 30 June

20202019

US$'000US$'000

(Unaudited) (Unaudited)

Computer and video games

90,692

105,671

4.

REVENUE

Six months ended 30 June

2020

2019

US$'000

US$'000

(Unaudited)

(Unaudited)

Game development and publishing

74,084

91,357

Work-for-hire

16,555

14,140

Sale of merchandise goods

53

174

90,692

105,671

Timing of revenue recognition

Over time

89,051

101,907

At a point in time

1,641

3,764

90,692

105,671

As at 30 June 2020, the aggregate amount of the transaction price allocated to the remaining performance obligations under the Group's existing contracts of game development and publishing is US$7,748,000 (31 December 2019: US$6,751,000) and the Group will recognise this revenue in the future.

All work-for-hire service contracts are for periods of one year or less. As permitted under HKFRS 15, the transaction price allocated to these unsatisfied contracts is not disclosed.

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5. OTHER REVENUE AND GAINS

Six months ended 30 June

2020

2019

US$'000

US$'000

(Unaudited)

(Unaudited)

Interest income on bank deposits

72

610

Net exchange gain

5,990

-

Sundry income

189

263

6,251

873

6. FINANCE COSTS

Six months ended 30 June

2020

2019

US$'000

US$'000

(Unaudited)

(Unaudited)

Interest on:

- Bank borrowings

527

799

- Lease liabilities

464

486

- Debenture

29

27

1,020

1,312

7. TAXATION

Six months ended 30 June

2020

2019

US$'000

US$'000

(Unaudited)

(Unaudited)

Canada corporate income tax expense

- current period

11,350

13,355

UK corporate income tax credit

- current period

(695)

(218)

Deferred tax

- current period

(1,409)

(2,393)

9,246

10,744

LEYOU TECHNOLOGIES HOLDINGS LIMITED

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Interim Results

7. TAXATION (CONTINUED)

Notes:

  1. Pursuant to the rules and regulations of the Cayman Islands and BVI, the Group was not subject to any income tax in the Cayman Islands and BVI during the Reporting Period (2019: Nil).
  2. On 21 March 2018, the Hong Kong Legislative Council passed the Inland Revenue (Amendment) (No.7) Bill 2017 (the "Bill") which introduces the two-tiered profits tax rates regime. The Bill was signed into law on 28 March 2018 and was gazetted on the following day. Under the two-tiered profits tax rate regime, the first HK$2,000,000 of profits of the qualifying group entity will be taxed at 8.25%, and profits above HK$2,000,000 will be taxed at 16.5%. The profits of group entities not qualifying for the two-tiered profits tax rates regime will continue to be taxed at a flat rate of 16.5%.
  3. Pursuant to the income tax rules and regulations of the PRC, the companies comprising the Group in PRC are liable to PRC Enterprise Income Tax at a tax rate of 25% for the six months ended 30 June 2020 and 2019.
  4. Pursuant to the income tax rules and regulations of Canada, the companies comprising the Group in Canada are liable to Canada Corporate Income Tax ("CIT") at a tax rate of 26.5% for the six months ended 30 June 2020 and 2019.
  5. Pursuant to the income tax rules and regulations of UK, the companies comprising the Group in UK are liable to United Kingdom CIT at a tax rate of 19% for the six months ended 30 June 2020 and 2019. The Group took advantage of Video Games Tax Relief which was tax relief of 25% of qualifying expenditure on qualifying video games as certified by the British Firm Institute. Qualifying expenditure is 80% of development costs incurred within the European Economic Area.
  6. Pursuant to the income tax rules and regulations of US, the companies comprising the Group in US were liable to the federal corporate tax at a tax rate of 21% for the six months ended 30 June 2020 and 2019.

No deferred tax liabilities were provided in respect of the tax that would be payable on the distribution of the retained profits as the Group determined that the retained profits as at 30 June 2020 would not be distributed in the foreseeable future (31 December 2019: Nil).

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Interim Results

8. PROFIT BEFORE TAXATION

Profit before taxation has been arrived at after charging/(crediting):

Six months ended 30 June

2020

2019

US$'000

US$'000

Notes

(Unaudited)

(Unaudited)

Staff costs including directors' remuneration

14,959

13,523

Equity-settledshare-based payment expenses

3,894

2,524

Contributions to retirement schemes

1,236

1,007

Total staff costs

20,089

17,054

Depreciation of property, plant and equipment

11

1,105

1,052

Depreciation of right-of-use assets

15

2,665

2,155

Amortisation of intangible assets

13

8,386

8,707

Amortisation of development expenditure1

14

6,445

4,195

Total depreciation and amortisation

18,601

16,109

Net realised loss on financial assets at fair value through

profit or loss

-

55

Net unrealised loss on financial assets at fair value through

profit or loss

1,200

766

Net loss on financial assets at fair value through profit or loss

1,200

821

Cost of inventories recognised as expenses

36

98

Expense relating to short-term leases

674

477

Net exchange (gain)/loss2

(5,990)

4,381

Net loss on disposal of property, plant and equipment

-

7

Impairment of development expenditure1

14

10,922

-

Impairment of property, plant and equipment

11

4,594

-

Reversal of allowance for expected credit loss

recognised in respect of trade receivables3

-

(3)

Allowance for expected credit loss recognised in

respect of deposits and other receivables3

3,225

3,062

1

2

3

Included in cost of sales in the interim condensed consolidated statement of profit or loss.

Included in (other revenue and gains)/other operating expenses in the interim condensed consolidated statement of profit or loss. Included in administrative expenses in the interim condensed consolidated statement of profit or loss.

LEYOU TECHNOLOGIES HOLDINGS LIMITED

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Interim Report 2020

Interim Results

9. (LOSS)/EARNINGS PER SHARE

Six months ended 30 June

2020

2019

US$'000

US$'000

(Unaudited)

(Unaudited)

(Loss)/earnings

(Loss)/profit attributable to owners of the Company for the purpose of

calculating (loss)/earnings per share

(5,788)

9,288

Weighted average number of ordinary shares

During the six months ended 30 June 2020 and 2019, the weighted average number of ordinary shares used as denominator in calculating (loss)/earnings per share was as follows:

2020

2019

'000

'000

Number of shares

Weighted average number of ordinary shares for the purposes of

calculating basic (loss)/earnings per share

3,081,902

3,059,283

Effect of dilutive potential ordinary shares:

- Share options (Note)

-

38,685

Weighted average number of ordinary shares for the purpose of

calculating diluted (loss)/earnings per share

3,081,902

3,097,968

Note:

For the six months ended 30 June 2020, the effects of the Company's outstanding share options were anti-dilutive and therefore the diluted loss per share are the same as the basic loss per share.

The computation of diluted earnings per share assumed the exercise of the Company's outstanding share options with the exercise price lower than the average market price during the six months ended 30 June 2019, together with the adjustment for the share options lapsed or exercised.

10. DIVIDENDS

No dividends were declared during the six months ended 30 June 2020 (six months ended 30 June 2019: Nil).

38

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Interim Results

11. PROPERTY, PLANT AND EQUIPMENT

Leasehold

land and

Office

Motor

buildings

equipment

vehicles

Total

US$'000

US$'000

US$'000

US$'000

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Cost

As at 1 January 2020

34,257

13,076

94

47,427

Additions

-

1,279

-

1,279

Disposals

-

(47)

-

(47)

Exchange alignment

160

(530)

-

(370)

As at 30 June 2020

34,417

13,778

94

48,289

Accumulated depreciation and impairment

As at 1 January 2020

3,920

7,275

38

11,233

Provided for the period (Note 8)

265

831

9

1,105

Impairment during the period (Note 8) (Note (b))

4,594

-

-

4,594

Eliminated on disposals

-

(24)

-

(24)

Exchange alignment

18

(320)

-

(302)

As at 30 June 2020

8,797

7,762

47

16,606

Net carrying amount

As at 30 June 2020 (unaudited)

25,620

6,016

47

31,683

As at 31 December 2019 (audited)

30,337

5,801

56

36,194

Notes:

  1. As at 30 June 2020 and 31 December 2019, all of the Group's leasehold land and buildings have been pledged to secure banking facilities of the Group.
  2. Due to the significant decrease in comparable selling price of properties, the Group recognised an impairment related to leasehold land and buildings amounting to US$4,594,000 during the six months ended 30 June 2020 (year ended 31 December 2019: US$3,315,000).

Recoverable amount has been determined by fair value less cost to disposal. In determining the fair value of relevant properties, the Group engaged an independent external professional valuer to perform the valuation. The fair value of the owned properties was determined based on the market comparable approach that reflects recent transaction price of similar properties.

LEYOU TECHNOLOGIES HOLDINGS LIMITED

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Interim Report 2020

Interim Results

12. GOODWILL

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

Cost

At the beginning of the period/year

123,646

119,363

Exchange alignments

(7,067)

4,283

At the end of the period/year

116,579

123,646

Accumulated impairment loss

At the beginning of the period/year

44,396

42,944

Exchange alignments

(2,718)

1,452

At the end of the period/year

41,678

44,396

Net carrying amount at the end of period/year

74,901

79,250

Allocation of goodwill to cash-generating units ("CGU(s)")

Goodwill has been allocated for impairment testing purposes to the following CGU:

  • Digital Extremes Ltd. and its subsidiary ("Digital Extremes"): Computer and video games CGU in Canada.
  • Splash Damage Limited, Warchest Limited and Fireteam Limited ("Splash Damage Group"): Computer and video games CGU in the UK.
  • Guangzhou Radiance Software Technology Co. Ltd. ("Guangzhou Radiance"): Computer and video games CGU in the PRC. The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.

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Interim Results

12. GOODWILL (CONTINUED)

Allocation of goodwill to cash-generating units ("CGU(s)") (Continued) The net carrying amount of goodwill was allocated to CGU as follows:

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

Digital Extreme

26,978

28,221

Splash Damage Group

47,563

50,665

Guangzhou Radiance

360

364

74,901

79,250

13. INTANGIBLE ASSETS

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

Cost

At the beginning of the period/year

107,550

103,770

Additions

1

1,343

Exchange alignment

(4,903)

2,437

At the end of the period/year

102,648

107,550

Accumulated amortisation and impairment

At the beginning of the period/year

93,464

72,254

Charge for the period/year (Note 8)

8,386

17,366

Impairment during the period/year*

-

2,540

Exchange alignment

(4,187)

1,304

At the end of the period/year

97,663

93,464

Net carrying amount at the end of period/year

4,985

14,086

  • As a result of the under-performance of a developed game, the Directors determine the recoverable amount of the developed game was minimal, an impairment of intangible assets of US$2,540,000 was recognised during the year ended 31 December 2019.

LEYOU TECHNOLOGIES HOLDINGS LIMITED

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Interim Results

13. INTANGIBLE ASSETS (CONTINUED)

The economic useful life of recognised intangible assets are as follows:

Intangible assets

Useful economic life

Brand name

10 years

Completed game

3-5 years

Game engine

3-5 years

Game under development

3-5 years

Trademark

10 years

Cost of intangible assets:

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

Brand name

9,302

9,908

Completed game

62,529

65,410

Game engine

11,396

11,920

Game under development

19,301

20,185

Trademark

120

127

102,648

107,550

42

LEYOU TECHNOLOGIES HOLDINGS LIMITED

Interim Report 2020

Interim Results

14. DEVELOPMENT EXPENDITURE

Development expenditure represents payment to independent video game developers payable under development agreements and expenditure from developtment activities. The Group entered into written agreements to provide the independent video game developer with advance payments for development of video games on both PC and console platforms in exchange of exclusive publishing rights to the game.

The movements of development expenditure during the period/year are as follows:

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

At the beginning of the period/year

84,667

48,297

Additions*

19,641

54,032

Amortisation recognised during the period/year (Note 8)

(6,445)

(10,471)

Impairment during the period/year (Note 8)**

(10,922)

(7,675)

Exchange alignment

(497)

484

At the end of the period/year

86,444

84,667

Notes:

  • Included in additions, there are equity-settledshare-based expenses capitalised of approximately US$799,000 (year ended 31 December 2019: US$1,638,000) and others addition of approximately US$18,842,000 (year ended 31 December 2019: US$52,394,000).
  • As a result of the under-performance of a game, the Directors determine the recoverable amount of this game related development expenditure is minimal, an impairment loss of US$10,922,000 was recognised during the six months ended 30 June 2020 (year ended 31 December 2019: US$7,675,000).

LEYOU TECHNOLOGIES HOLDINGS LIMITED

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Interim Report 2020

Interim Results

15. RIGHT-OF-USE ASSETS

The Group as lessee

Properties

Equipment

leased

leased

for own use

for own use

Total

US$'000

US$'000

US$'000

(Unaudited)

(Unaudited)

(Unaudited)

As at 1 January 2020

12,445

4,904

17,349

Additions

158

706

864

Depreciation charge during the period (Note 8)

(1,495)

(1,170)

(2,665)

Exchange alignment

(568)

(298)

(866)

As at 30 June 2020

10,540

4,142

14,682

Notes:

  1. For both periods, the Group leases various offices equipment and properties for its operations. Lease contracts are entered into for fixed term of 2 years to 10 years, but may have extension and termination options as described below. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. In determining the lease term and assessing the length of the non-cancellable period, the Group applies the definition of a contract and determines the period for which the contract is enforceable.
  2. The Group has options to purchase certain equipment for a nominal amount at the end of the lease term. The Group's obligations are secured by the lessors' title to the leased assets for such leases.
  3. At 30 June 2020, the Group is committed to US$353,000 for short-term leases (31 December 2019: US$378,000).
  4. The total cash outflow for leases amount to US$3,131,000 for the six months ended 30 June 2020 (year ended 31 December 2019: US$5,370,000).
  5. The Company has no expense relating to lease of low-value assets during the six months ended 30 June 2020 (year ended 31 December 2019: Nil).

16. TRADE RECEIVABLES

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

Trade receivables

19,265

22,646

Less: Allowance for credit loss*

(67)

(71)

19,198

22,575

Note:

  • No reversal of allowance for credit loss (2019: US$3,000) has been credited to the interim condensed consolidated statement of profit or loss during the six months ended 30 June 2020 (Note 8).

44

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Interim Report 2020

Interim Results

16. TRADE RECEIVABLES (CONTINUED)

The Group normally allows a credit period ranging from 7 days to 60 days. The ageing analysis of trade receivables, based on invoice date, net of impairment is as follows:

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

Within 30 days

17,775

18,668

31 days to 60 days

-

1,988

61 days to 180 days

1,423

1,553

Over 180 days

-

366

19,198

22,575

The trade receivables are denominated in US$, CAD, RMB and GBP.

17. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

Held for trading:

- Listed equity securities in HK (Note (a))

-

-

Derivative financial instruments, at fair value (Note (b))

1,400

2,600

Interest rate swap (Note (c))

122

123

1,522

2,723

Notes:

  1. Held for trading - Listed equity securities in HK
    Fair value was determined with reference to quoted market bid prices.

LEYOU TECHNOLOGIES HOLDINGS LIMITED

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Interim Report 2020

Interim Results

17. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED)

Notes: (Continued)

  1. Derivative financial instruments, fair value
    Pursuant to sale and purchase agreement in Certain Affinity, the Group was granted with a call option ("Call Option"), whereby the Group has the discretion to acquire the remaining equity interest in Certain Affinity, which is exercisable within 3 months following the receipt of Certain Affinity's audited financial statements for the year ending 31 December 2020. As at 30 June 2020 and 31 December 2019, the fair values of the Call Option were US$1,400,000 and US$2,600,000, respectively, which was determined by an independent valuer based on binomial option pricing model. The key inputs into the model for the value of the Call Option are as follows:

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

80% of equity value (US$'000)

42,152

44,961

Maturity

1.0 years

1.5 years

  1. Interest rate swap
    The Company entered into interest rate swap contract which was non-hedging derivative and was classified as current assets. For information about the methods and assumptions used in determining the fair value of derivative, please refer to Note 22.
    The notional amount of the outstanding interest rate swap contracts as at 30 June 2020 was HK$189,586,800 (31 December 2019: HK$189,586,800).

18. TRADE PAYABLES

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

Trade payables

3,440

3,498

46

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Interim Report 2020

Interim Results

18. TRADE PAYABLES (CONTINUED)

The ageing analysis of trade payables is as follows:

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

Within 30 days

2,523

2,392

31 days to 90 days

844

775

91 days to 180 days

47

327

Over 180 days

26

4

3,440

3,498

The average credit period on purchases of certain goods is generally within 15 days to 90 days.

19. BANK BORROWINGS

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

Secured:

Term loan (Note (a))

8,396

12,527

Mortgage loan (Note (b))

12,354

12,630

Revolving loan (Note (c))

6,798

-

27,548

25,157

The bank borrowings were repayable as follows:

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

Within 1 year or on demand

27,548

25,157

LEYOU TECHNOLOGIES HOLDINGS LIMITED

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Interim Report 2020

Interim Results

19. BANK BORROWINGS (CONTINUED)

The carrying amounts of the bank borrowings are denominated in the following currencies:

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

HK Dollars

19,152

12,630

US Dollars

8,396

12,527

27,548

25,157

Notes:

The secured bank borrowings were secured by leasehold land and buildings included in property, plant and equipment with carrying amounts of US$25,620,000 (31 December 2019: US$30,337,000) and a corporate guarantee given by a subsidiary of the Company for an amount up to US$25,000,000 (31 December 2019: US$25,000,000).

Particulars of each bank borrowing are as follows:

  1. Term loan
    The term loan is scheduled for repayment in June 2021. In addition, the related loan agreements contain a clause that provides the bank with an unconditional right to demand repayment at any time at its own discretion. Accordingly, the term loan is classified as current liability in the interim condensed consolidated statement of financial position. The term loan carries interest at Hong Kong Interbank Offer Rate ("HIBOR") plus 3.9%. The effective interest rate as at 30 June 2020 ranged from 4.5% to 6.4% per annum (31 December 2019: 4.9% to 6.4% per annum).
    The banking facilities are subject to the fulfilment of covenants relating to certain of the Group's financial ratios, as are commonly found in lending arrangements with financial institutions. If the Group were to breach the covenants, the drawn down facilities would become payable on demand. The Group regularly monitors its compliance with these covenants. As at 30 June 2020, none of the covenants relating to draw down facilities had been breached (31 December 2019: None).
  2. Mortgage loans
    The mortgage loans carry interest at HIBOR plus 1.2%. The effective interest rate as at 30 June 2020 ranged from 2.3% to 3.9% per annum (31 December 2019: 2.2% to 3.7% per annum).
  3. Revolving loan
    On 26 November 2018, the Company entered into a revolving loan facility of up to HK$65,000,000 (equivalent to approximately US$8,333,000) for a term of one year. The revolving loan was intended for general corporate funding purposes of the Company. The revolving loan carries interest at HIBOR plus 0.9%. The effective interest rate as at 30 June 2020 ranged from 2.0% to 3.1% per annum (31 December 2019: 1.9% to 3.6% per annum). As at 31 December 2019, the Company had fully repaid the banking facilities.
  4. The carrying amount of bank borrowings approximates to their fair values.

48

LEYOU TECHNOLOGIES HOLDINGS LIMITED

Interim Report 2020

Interim Results

20. DEBENTURE

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

Unsecured debenture of 5%

631

615

On 20 January 2014, the Group had issued debenture amount of approximately US$645,000 (equivalent to HK$5,000,000) to an independent third party.

The debenture bears an interest of 5% (31 December 2019: 5%) per annum, unsecured and repayable on 19 January 2021. The

effective interest rate of the debenture is approximately 9.4% (31 December 2019: 9.4%).

21. SHARE CAPITAL AND SHARE PREMIUM

Number

Nominal value of

Share

of shares

ordinary shares

premium

HK$'000

US$'000

US$'000

(Unaudited)

(Unaudited)

(Unaudited)

Authorised:

Balance as at 1 January 2019, 31 December 2019,

1 January 2020 and 30 June 2020

10,000,000,000

1,000,000

129,000

-

Issued and fully paid:

As at 1 January 2019 ordinary shares of HK$0.1 each

3,051,195,000

305,119

39,345

167,959

Subscription of shares (Note (a))

30,500,000

3,050

389

8,746

Balance as at 31 December 2019 and 1 January 2020

3,081,695,000

308,169

39,734

176,705

Issue of shares upon exercise of share options (Note (b))

1,239,197

124

16

395

Balance as at 30 June 2020

3,082,934,197

308,293

39,750

177,100

Notes:

  1. On 25 April 2019, the Company issued 30,500,000 ordinary shares under subscription and at the subscription price of HK$2.35 per share. Among the gross proceeds of US$9,135,000, US$389,000 and US$8,746,000 were credited to the share capital account and share premium account, respectively.
  2. During the six months ended 30 June 2020, the Company issued 1,239,197 (year ended 31 December 2019: Nil) shares of the Company for
    proceeds of US$311,000 (year ended 31 December 2019: Nil), as a result of exercise of share options with the weighted average exercise
    price of US$0.25 (equivalent to HK$1.95) per share. Among the proceeds of US$311,000 (year ended 31 December 2019: Nil), US$16,000
    (year ended 31 December 2019: Nil) were credited to the share capital account and the balance of US$295,000 (year ended 31 December
    2019: Nil) were credited to the share premium account during the Reporting Period.

LEYOU TECHNOLOGIES HOLDINGS LIMITED

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Interim Report 2020

Interim Results

22. FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS

Fair value hierarchy

For financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurements in its entirety.

The table below analyses the fair value of the Group's assets that are measured at fair value on a recurring basis. The different levels are defined as follows:

  • Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;
  • Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
  • Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

As at 30 June 2020 (Unaudited)

Level 1

Level 2

Level 3

Total

US$'000

US$'000

US$'000

US$'000

Financial assets

Financial assets at fair value through profit or loss

-

122

1,400

1,522

Financial assets at fair value through other comprehensive income

-

-

9,500

9,500

-

122

10,900

11,022

As at 31 December 2019 (Audited)

Level 1

Level 2

Level 3

Total

US$'000

US$'000

US$'000

US$'000

Financial assets

Financial assets at fair value through profit or loss

-

123

2,600

2,723

Financial assets at fair value through other comprehensive income

-

-

10,100

10,100

-

123

12,700

12,823

50

LEYOU TECHNOLOGIES HOLDINGS LIMITED

Interim Report 2020

Interim Results

22. FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS (CONTINUED)

Reconciliation of Level 3 fair value measurements of financial assets

For the

For the

six months ended

year end

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

At the beginning of the period/year

12,700

11,500

Fair value (loss)/gain in profit or loss

(1,200)

200

Fair value (loss)/gain in other comprehensive income

(600)

1,000

At the end of the period/year

10,900

12,700

The above fair value (loss)/gain included in the interim condensed consolidated statement of profit or loss for the period related to investment in financial assets at fair value through profit or loss held at the end of the Reporting Period.

Fair value

Valuation technique

Significant unobservable

Type

hierarchy

and key input

inputs

Financial assets

Financial assets at fair value

through profit or loss

- Derivative financial instruments

Level 3

Binomial option pricing model

•

Risk-free rate (0.15%) (31 December 2019:

outside HK

1.58%): 1% increase/(decrease) in risk-free

30 June 2020: US$1,400,000

rate would have no material impact on the

31 December 2019: US$2,600,000

fair value

•

Volatility (27%) (31 December 2019: 23%):

1% increase/(decrease) in volatility would

have no material impact on the fair value

•

Equity value of Certain Affinity: A significant

increase/(decrease) in the equity value of

Certain Affinity would result in the significant

increase/(decrease) in the fair value of

derivative financial instruments

- Interest rate swap

Level 2

Monte Carlo Simulation

•

NA

30 June 2020: US$122,000

- Cap rate (4% per annum)

31 December 2019: US$123,000

- Floating rate (1.3%)

LEYOU TECHNOLOGIES HOLDINGS LIMITED

51

Interim Report 2020

Interim Results

22. FAIR VALUE MEASUREMENT OF FINANCIAL INSTRUMENTS (CONTINUED)

Reconciliation of Level 3 fair value measurements of financial assets (Continued)

Fair value

Valuation technique

Significant unobservable

Type

hierarchy

and key input

inputs

Financial assets at

fair value through other

comprehensive income

- Unlisted equity securities

Level 3

Discounted cash flow method

•

Discount for credit risk (14%) (31 December

outside HK

2019: 16%): 1% increase/(decrease) in

30 June 2020: US$9,500,000

discount rate would result in (decrease)/

31 December 2019: US$10,100,000

increase in fair value by (US$900,000)/

US$1,100,000 (31 December 2019:

(US$800,000)/US$900,000)

•

Estimated net profit of Certain Affinity: A

significant increase/(decrease) in estimated

net profit of Certain Affinity would result in

the significant increase/(decrease) in the fair

value of derivative financial instruments

23. MATERIAL RELATED PARTY TRANSACTIONS

Save as disclosed elsewhere in the interim condensed consolidated financial statements, the Group did not enter into transactions with related parties during the Reporting Period (2019: Nil)

Save as disclosed elsewhere in the interim condensed consolidated financial statements, the Group had entered into transactions with related parties which, in the opinion of the Directors, were carried out on normal commercial terms and in the ordinary course of the Group's business, as shown below:

The outstanding balances with related parties at the end of the Reporting Period are as follows:

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

Amounts due from the directors of the subsidiaries (Note)

18

631

Note:

Save for the amount of US$583,000 due from a director of a subsidiary as at 31 December 2019 which is interest-bearing and on normal commercial terms, the amounts due from the directors of subsidiaries are unsecured, interest-free and have no fixed terms of repayment. During the Reporting Period, the interest-bearing portion was fully repaid.

52

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Interim Report 2020

Interim Results

  1. MAJOR NON-CASH TRANSACTIONS
    During the Reporting Period, the Group entered into new lease agreements for the use of leased properties and equipments for fixed terms of 2 years to 10 years. On the lease commencement, the Group recognised approximately US$864,000 (31 December 2019: US$2,815,000) of right-of-use assets and approximately US$864,000 (31 December 2019: US$2,815,000) of lease liabilities.
  2. COMMITMENTS

As at

As at

30 June

31 December

2020

2019

US$'000

US$'000

(Unaudited)

(Audited)

Commitments for:

- development expenditure

93,484

97,005

  1. SEASONALITY
    The gaming industry is subject to seasonal fluctuations, with peak demand during the festive seasons in the second half of the year. As such, the revenues and results of the Group in the first half of the year are generally lower than those in the second half of the year.
  2. EVENTS AFTER THE REPORTING PERIOD
    1. Termination of the memorandum of understanding in relation to the possible sale of certain or all of the issued share capital of the Company in which Mr. Yuk is interested; and Privatization Exclusivity Agreement
      The Company has announced that it had been informed by Mr. Yuk that on 29 April 2020, Mr. Yuk and his wholly-owned companies, Port New Limited and Novel New Limited (together with Port New Limited, the "Selling Shareholders") entered into a memorandum of understanding (the "New MOU") with Diandian Interactive Holding regarding the possible sale of certain or all of the issued share capital of the Company in which Mr. Yuk was interested. The Board has been informed by the Selling Shareholders that on 9 July 2020, the Selling Shareholders and Mr. Yuk entered into a termination deed with Diandian Interactive Holding, pursuant to which the parties have agreed to terminate the new MOU as the parties were unable to reach agreement on the terms of the formal sale and purchase agreement. The Board considered that the termination of the New MOU had no material adverse impact on the business operation and financial position of the Group.
      On 10 July 2020, Mr. Yuk and the Company entered into an exclusivity agreement (the "Privatization Exclusivity Agreement") with Tencent Mobility Limited, a wholly-owned subsidiary of Tencent Holdings Limited, a company whose shares are listed on the Stock Exchange (Stock Code: 700) regarding a possible acquisition and privatization of the Company (the "Possible Privatization"). As at the date of this interim report, negotiations are still in progress and there is no certainty (a) as to the terms of the Possible Privatization; and (b) that the Possible Privatization will proceed or that it will result in a binding agreement. There is no assurance that any negotiations mentioned herein will either materialise or eventually be consummated and the negotiations may or may not lead to a possible acquisition and privatization of the Company.

LEYOU TECHNOLOGIES HOLDINGS LIMITED

53

Interim Report 2020

Interim Results

  1. EVENTS AFTER THE REPORTING PERIOD (CONTINUED)
    1. Termination of the memorandum of understanding in relation to the possible sale of certain or all of the issued share capital of the Company in which Mr. Yuk is interested; and Privatization Exclusivity Agreement (Continued)
      Further details of the New MOU and its termination and the Possible Privatization were set out in the announcements of the Company dated 20 September 2019, 16 October 2019, 13 November 2019, 22 November 2019, 29 November 2019, 9 December 2019, 20 December 2019, 3 January 2020, 13 January 2020, 22 January 2020, 30 January 2020, 17 February 2020, 10 March 2020, 12 March 2020, 9 April 2020, 4 May 2020, 19 May 2020, 17 June 2020, 9 July 2020, 10 July 2020, 14 July 2020, 15 July 2020, 16 July 2020, 17 July 2020, 20 July 2020, 21 July 2020, 22 July 2020, 28 July 2020, 31 July 2020, 4 August 2020, 5 August 2020, 6 August 2020, 7 August 2020, 10 August 2020, 11 August 2020 and 12 August 2020.
    2. Second amendment agreement in relation to the provision of loan for game development
      On 15 October 2017, the Company and Certain Affinity, a video game development studio based in the US owned as to 20% by the Company, entered into a game development agreement (the "Game Development Agreement"), pursuant to which Certain Affinity should develop and produce for the Company the Game based on certain IP, including the TRANSFORMERS property (the "Game") and the Company should provide Certain Affinity with an interest-free loan facility (the "Loan"), which was essentially the development budget for the Game, in the amount of up to US$15 million to pay for costs and expenses incurred in connection with the provision of the development services relating to the Game.
      On 7 January 2019, by an amendment agreement entered into among the Company, Certain Affinity and Mr. Hoberman who was the founder, President and controlling shareholder of Certain Affinity, the maximum principal amount of the Loan increased from US$15 million to US$33 million. The Loan continued to be interest-free and be granted on a non-recourse basis and solely recoupable by the Company from its share of the revenues derived from exploitation of the Game. The reason for the increase in the principal amount of the Loan was to enable Certain Affinity to develop and produce the Game with richer content and prepare to make the Game available on PC.
      By another amendment agreement dated 6 July 2020 entered into between the Company and Certain Affinity, the maximum principal amount of the Loan further increased from US$33 million to approximately US$43 million. With the second increase in the principal amount of the Loan, Certain Affinity would be able to start volume production towards a higher-quality open beta version of the Game.
      As at 30 June 2020 and as at the date of this interim report, the Loan exceeded 8% under the assets ratio defined under Rule 14.07(1) of the Listing Rules. Further details of the Loan and the subsequent amendment agreements were set out in the announcements of the Company dated 16 October 2017, 7 January 2019 and 6 July 2020.
  3. APPROVAL OF THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
    The interim condensed consolidated financial statements were approved and authorised for issue by the board of Directors on 21 August 2020.

54

LEYOU TECHNOLOGIES HOLDINGS LIMITED

Interim Report 2020

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