Our Group’s history can be traced back to 2011 when our four Founders, Mr. Zhang, Mr. Huang, Mr. Wu and Mr. Rao, who are currently our Directors, established Shenzhen Fire Element with their cash savings.
On 17 March 2011, Shenzhen Fire Element was established in the PRC as a limited liability company with a registered capital of RMB1.0 million, which was fully paid up by way of cash. At the time of its establishment, Mr. Wu and Mr. Yang Mingpu (楊明樸) (“Mr. Yang”) owned 60% and 40% equity interests in Shenzhen Fire Element, respectively. Mr. Yang, the brother-in-law of Mr. Zhang, was the trustee on behalf of Mr. Zhang in relation to the then 40% equity interest in Shenzhen Fire Element.
According to three trust agreements (the “Trust Agreements”) entered into between (1) Mr. Yang and Mr. Zhang; (2) Mr. Wu and Mr. Huang; and (3) Mr. Wu and Mr. Rao, all dated 10 March 2011:
• Mr. Yang acknowledged that, (1) the capital contribution of RMB400,000 in
Shenzhen Fire Element was made by Mr. Zhang, and (2) he held the 40% equity interest in Shenzhen Fire Element on trust for and on behalf of Mr. Zhang, who had been the beneficial owner of such equity interest. Mr. Yang further undertook that he would transfer such equity interest at the instruction of Mr. Zhang;
• Mr. Wu acknowledged that, (1) the capital contribution of RMB160,000 in Shenzhen Fire Element was made by Mr. Huang, and (2) he held the 16% equity interest in Shenzhen Fire Element on trust for and on behalf of Mr. Huang, who had been the beneficial owner of such equity interest. Mr. Wu further undertook that he would transfer such equity interest at the instruction of Mr. Huang; and
• Mr. Wu acknowledged that, (1) the capital contribution of RMB160,000 in Shenzhen Fire Element was made by Mr. Rao, and (2) he held the 16% equity interest in Shenzhen Fire Element on trust for and on behalf of Mr. Rao, who had been the beneficial owner of such equity interest. Mr. Wu further undertook that he would transfer such equity interest at the instruction of Mr. Rao.
Mr. Zhang, Mr. Huang, Mr. Wu and Mr. Rao entered into the Trust Agreements based on the following commercial considerations:
1. Given that the principal operations of Shenzhen Fire Element are in Shenzhen, the PRC, Mr. Zhang was unable to manage the business of Shenzhen Fire Element in Shenzhen on a daily basis, Mr. Zhang decided to hold his equity interests in Shenzhen Fire Element through Mr. Yang (who was stationed in Shenzhen) by way of the above-mentioned trust arrangement; and
2. As Mr. Huang (our CEO and executive Director) and Mr. Rao (our chief technology officer and executive Director) devoted most of their time on game development, and did not have sufficient time to attend to company incorporation and related administrative matters in a timely manner, Mr. Huang and Mr. Rao decided to hold their respective equity interests in Shenzhen Fire Element through Mr. Wu by way of the above-mentioned trust arrangement.
Through the above trust arrangements, Shenzhen Fire Element had all along been beneficially owned by Mr. Zhang, Mr. Wu, Mr. Huang and Mr. Rao as to 40%, 28%, 16% and 16%, respectively, until the termination thereof in November 2012 when the Founders considered that the business operation of Shenzhen Fire Element became more established and the shareholding structure of Shenzhen Fire Element should be properly delineated. Our PRC Legal Advisers have confirmed that the Trust Agreements and their subsequent termination do not violate any applicable PRC laws.
The following changes in the number of equity interests and the registered capital of Shenzhen Fire Element took place after its establishment and before the Reorganisation:
(i) First equity transfer
In order to terminate the trust arrangements under the Trust Agreements, on 5 November 2012, Mr. Yang, Mr. Wu, Mr. Huang and Hangzhou Green Valley Investment Limited (杭州綠 谷投資有限公司) (“Hangzhou Green Valley”) entered into an equity transfer agreement (“First Equity Transfer Agreement”), pursuant to which:
(i) Mr. Yang agreed to transfer the 40% equity interest in Shenzhen Fire Element, which was held by Mr. Yang on trust for and on behalf of Mr. Zhang, to Hangzhou Green Valley, which was then a company beneficially owned (i.e. not on trust) by Mr. Zhang and Mr. Yang as to 90% and 10%, respectively;
(ii) Mr. Wu agreed to transfer the 16% equity interest in Shenzhen Fire Element, which was held by Mr. Wu on trust for and on behalf of Mr. Huang, to Mr. Huang; and (iii) Mr. Wu agreed to transfer the 16% equity interest in Shenzhen Fire Element, which
was held by Mr. Wu on trust for and on behalf of Mr. Rao, to Mr. Rao.
According to the First Equity Transfer Agreement, the consideration of each of the equity transfers contemplated thereunder was RMB1.00. In November 2012, Hangzhou Green Valley, Mr. Huang and Mr. Rao fully settled their respective consideration under the First Equity Transfer Agreement.
(ii) Increase of registered capital
To cope with our rapid business expansion to meet market demand, on 11 April 2014, the registered capital of Shenzhen Fire Element was increased from RMB1 million to RMB10 million, the increased portion of which was fully paid up by all the then equity holders of Shenzhen Fire Element on a pro rata basis according to their respective percentage of equity interest by 10 April 2014.
(iii) Second equity transfer
In order to streamline the investment holding structure by Hangzhou Green Valley and Mr. Zhang in Shenzhen Fire Element, on 2 July 2014, Hangzhou Green Valley and Mr. Zhang entered into an equity transfer agreement (“Second Equity Transfer Agreement”), pursuant to which Hangzhou Green Valley agreed to transfer its entire 40% equity interest in Shenzhen Fire Element to Mr. Zhang at a cash consideration of approximately RMB3.6 million with reference to the actual investment amount paid by Hangzhou Green Valley under the increase of registered capital of Shenzhen Fire Element in April 2014. The equity transfer thereunder was completed on 28 July 2014 with Mr. Zhang settling fully the cash consideration under the Second Equity Transfer Agreement on 10 February 2015.
Upon completion of the above equity transfer, Shenzhen Fire Element was owned by Mr. Zhang, Mr. Wu, Mr. Huang and Mr. Rao as to 40%, 28%, 16% and 16%, respectively.
(iv) Third equity transfer
On 12 September 2014, Mr. Wu and Mr. Zhang entered into an equity transfer agreement (“Third Equity Transfer Agreement”), pursuant to which Mr. Wu agreed to transfer a 9% equity interest in Shenzhen Fire Element to Mr. Zhang at the cash consideration of RMB930,000, which was determined with reference to the appraised net asset value of Shenzhen Fire Element of approximately RMB10.5 million as of 31 May 2014. The equity transfer contemplated under the Third Equity Transfer Agreement was completed on 18 September 2014 with Mr. Zhang settling fully the consideration under the Third Equity Transfer Agreement on 25 September 2014.
Upon completion of the above equity transfer, Shenzhen Fire Element was owned by Mr. Zhang, Mr. Wu, Mr. Huang and Mr. Rao as to 49%, 19%, 16% and 16%, respectively.
(v) Fourth equity transfer
On 11 November 2014, Elite Charm, a company wholly-owned by Mr. Lau, entered into an equity transfer agreement (“Fourth Equity Transfer Agreement”) with Mr. Wu, pursuant to which Mr. Wu agreed to transfer a 3% equity interest in Shenzhen Fire Element to Elite Charm at the cash consideration of the USD equivalent of RMB320,000. Such consideration was determined on arm’s length negotiations among the parties with reference to, inter alia, the net asset value of Shenzhen Fire Element as of 31 May 2014, being approximately RMB10.5 million, as appraised by Shenzhen Pengsheng Xinghui Assets Appraisal (General Partnership) (深圳市鵬盛星輝資產評估事務所(普通合夥)), an independent qualified valuer.
The equity transfer contemplated under the Fourth Equity Transfer Agreement was completed on 1 December 2014, while the consideration was fully settled by Elite Charm on 9 February 2015 by cash payment of USD52,852, representing the USD equivalent of approximately RMB320,000.
Upon completion of the above equity transfer, Shenzhen Fire Element was owned by Mr. Zhang, Mr. Wu, Mr. Huang, Mr. Rao and Elite Charm as to 49%, 16%, 16%, 16% and 3%, respectively.
Subsequently, as part of the Reorganisation, Elite Charm transferred the 3% equity interest in Shenzhen Fire Element to Fire Rock (HK) at a cash consideration of RMB330,000, which was fully set off by the same consideration payable by Elite Charm to our Company for the allotment of three Shares, representing 3% of the then enlarged issued share capital of our Company.
Both Mr. Lau and Elite Charm were not granted any special rights with respect to his/its investment in Shenzhen Fire Element and ultimately our Company, and the terms of the Fourth Equity Transfer Agreement did not impose any lock-up obligations over the Shares to be held by Elite Charm upon the Listing. Each of Mr. Lau and Elite Charm has jointly and severally undertaken to and covenanted with our Company, the Sole Sponsor and the Sole Global Coordinator that, at any time during the period from the date of this prospectus and ending on the date which is 12 months from the Listing Date, he/it shall not, and shall procure that his/its associates or the relevant registered holder(s), nominee(s) or trustee(s) holding on trust for him/it or the companies controlled by him/it shall not, among other things, sell or otherwise transfer or dispose of any Shares or other securities of our Company in respect of which he/it is shown by this prospectus to be the beneficial owner (whether direct or indirect) or any interest therein. As Elite Charm is not a Substantial Shareholder or core connected person of our Company under the GEM Listing Rules, the Shares held by Elite Charm will be considered as part of the public float for the purpose of Rule 11.23 of the GEM Listing Rules.
The following table summarises the details of the investment of Elite Charm in our Company:
Name of the investor Elite Charm
Information of the investor Elite Charm is wholly owned by Mr. Lau.
To the best knowledge, information and belief of our Directors after having made
reasonable enquiries, Mr. Lau is the
director and general manager of Shenzhen Wealth Leader Asset Management Co., Ltd.
(深圳市領富資產管理有限公司), a PRC
licensed financial institution. He has
extensive experience in investment
activities, including investment in listed companies in the information technology and media industries. Mr. Lau currently also owns, and acts as general manager and director in, several unlisted investment companies in Hong Kong and the PRC. Our Directors became acquainted with Mr. Lau in 2014 and invited him to invest in our Group. Our Directors consider that Mr. Lau’s experience in investment activities
would be beneficial to the future
To the best knowledge, information and belief of our Directors after having made
reasonable enquiries, save for his
investment in and being a supervisor of Shenzhen Fire Element, Mr. Lau did not have any other past or present relationships
or any agreements, arrangements or
understandings with our Company, our subsidiaries, Shareholders or Directors and any of their respective associates, and is an Independent Third Party as of the Latest Practicable Date.
Completion date and date of payment of consideration of the investment
1 December 2014 (completion date) 9 February 2015 (date of payment)
Amount of consideration USD52,852, equivalent to approximately RMB320,000
Nature and type of interest acquired by the investor in our Group
The initial 3% equity interest in Shenzhen Fire Element from Mr. Wu was swapped into, through the Reorganisation and the Capitalisation Issue, 3,600,000 Shares, representing approximately 2.25% of our issued share capital upon the Capitalisation Issue and completion of the Placing,
respectively (assuming the Offer Size
Adjustment Option is not exercised and taking no account of the exercise of any options which may be granted under the Share Option Scheme).
Cost per Share paid by the investor (taking into account the Shares allotted and issued pursuant to the Capitalisation Issue)
approximately HK$0.11 (representing a discount of approximately 91.9% to the mid-point of the indicative Placing Price range of HK$1.20 to HK$1.50
Special rights Elite Charm was not given any special right with respect to its investment.
Use of proceed The cash consideration paid by Elite Charm was retained by Mr. Wu.
REORGANISATION
The companies comprising our Group underwent the Reorganisation to rationalise our corporate structure in preparation for the Placing, and as a result, our Company became the holding company of our Group.
Immediately prior to the Reorganisation and the equity transfer contemplated under the Fourth Equity Transfer Agreement, the corporate structure and shareholding of our Group were as follows:
16% 16%
19% 49%
Mr. Zhang Mr. Wu Mr. Huang Mr. Rao
Shenzhen Fire Element
(PRC)
Establishment of offshore listing structure
(a) On 18 September 2014, Meteor Technology was incorporated in the BVI. Since its incorporation, Meteor Technology is wholly-owned by Mr. Rao.
(b) On 19 September 2014, Sulfulon International was incorporated in the BVI. Since its incorporation, Sulfulon International is wholly-owned by Mr. Zhang.
(c) On 19 September 2014, Raglon International was incorporated in the BVI. Since its incorporation, Raglon International is wholly-owned by Mr. Huang.
(d) On 19 September 2014, R&P Global was incorporated in the BVI. Since its
incorporation, R&P Global is wholly-owned by Mr. Wu.
(e) On 3 November 2014, our Company was incorporated in the Cayman Islands with
limited liability with an authorised share capital of HK$390,000 divided into 39,000,000 Shares of HK$0.01 each, of which one Share was allotted and issued at par value to Reid Services Limited, being an Independent Third Party. On 10 November 2014, the one Share held by Reid Services Limited was transferred to Meteor Technology at par value.
(f) On 10 November 2014, our Company allotted and issued 49 Shares, 15 Shares, 16 Shares and 16 Shares to Sulfulon International, Meteor Technology, Raglon International and R&P Global, respectively, at par value. Upon completion of such subscriptions and allotments, the total number of issued Shares of our Company was 97 Shares, of which 49 Shares, 16 Shares, 16 Shares and 16 Shares were owned by Sulfulon International, Meteor Technology, Raglon International and R&P Global, respectively, representing 49/97, 16/97, 16/97 and 16/97 in the then total issued share capital of our Company, respectively.
(g) On 18 November 2014, Fire Rock International was incorporated in BVI with
limited liability with an authorised share capital of US$50,000 divided into 50,000 shares of US$1.00 each. On the same day, Fire Rock International allotted and issued one share to our Company at par value. Upon completion of the share subscription, Fire Rock International became a wholly-owned subsidiary of our Company.
(h) On 2 December 2014, Fire Rock (HK) was incorporated in Hong Kong with limited liability with one issued share and an issued share capital of HK$1.00, which was wholly owned by Fire Rock International since its incorporation.
Reorganisation Equity Transfer
(i) On 21 April 2015, the Founders and Elite Charm have entered into an equity transfer agreement with Fire Rock (HK) (“Reorganisation Equity Transfer Agreement”), pursuant to which each of the Founders and Elite Charm agreed to transfer (“Reorganisation Equity Transfers”) 49%, 16%, 16%, 16% and 3% equity interests in Shenzhen Fire Element to Fire Rock (HK), respectively, at the consideration of RMB5.39 million, RMB1.76 million, RMB1.76 million, RMB1.76 million and RMB330,000, respectively. Such consideration was determined with reference to the appraised net asset value of Shenzhen Fire Element as of 31 May 2014. On 22 May 2015, Fire Rock (HK) fully settled the consideration payable to the Founders under the Reorganisation Equity Transfer Agreement other than Elite Charm.
(j) On 2 June 2015, Elite Charm, our Company and Fire Rock (HK) entered into a
subscription agreement, pursuant to which our Company agreed to allot and issue, and Elite Charm agreed to subscribe, three Shares, representing 3% of the then enlarged issued share capital of our Company after allotment, at a consideration of RMB330,000, which the parties agreed was to be used to fully set off the consideration payable by Fire Rock (HK) to Elite Charm under the Reorganisation Equity Transfer Agreement. The three Shares were then allotted and issued by our Company to Elite Charm, credited as fully paid, on the same date.
As a result of such allotment, the total number of issued Shares of our Company increased to 100 Shares, of which 49 Shares, 16 Shares, 16 Shares, 16 Shares and three Shares were owned by Sulfulon International, Meteor Technology, Raglon International, R&P Global and Elite Charm, respectively, representing 49%, 16%, 16%, 16% and 3% in the then enlarged issued share capital of our Company, respectively.
Reorganisation Completion
(k) In May 2015, Shenzhen Fire Element has obtained the approval from the competent commerce authority, namely the Economy Promotion Bureau of Futian District, Shenzhen Municipality (深圳巿福田區經濟促進局), and completed the registration with the local branch of SAIC in respect of the Reorganisation Equity Transfers. Following completion of the Reorganisation Equity Transfers, Shenzhen Fire Element has become a wholly-owned subsidiary of Fire Rock (HK) thereafter.
Our PRC Legal Advisers has confirmed that all equity transfers in respect of Shenzhen Fire Element as described in this section comply in all material respects with PRC laws and regulations.