FINANCIAL INFORMATION

Transcription

1 You should read the following discussion and analysis with our audited consolidated financial information, including the notes thereto, included in the Accountant s Report set out in Appendix I to this document. The Accountant s Report has been prepared in accordance with IFRS, which may differ in material aspects from generally accepted accounting principles in other jurisdictions. Information presented in this section, in particular, in respect of the sections headed Liquidity and Capital Resources Net Current Assets and Indebtedness, that are not extracted or derived from the Accountant s Report have been extracted or derived from unaudited management accounts as at and for the nine-month period ended September 30, 2013 (which are not included in this document) or from other records. The following discussion and analysis and other parts of this document contain forward-looking statements that reflect our current views with respect to future events and financial performance that involve risks and uncertainties. These statements are based on assumptions and analysis made by us in light of our experience and perception of historical events, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. In evaluating our business, you should carefully consider the information provided in the section headed Risk Factors in this document. For the purpose of this section, unless the context otherwise requires, references to 2010, 2011 and 2012 refer to our financial year ended December 31 of such year. Unless the context otherwise requires, financial information described in this section is described on a consolidated basis. LR rd Sch 3 OVERVIEW App1A-28(1)(a) We are a leading online card and board game developer and operator with a strong strategic focus on mobile games. We currently offer a total of 16 online games, 13 of which are card and board games. Fourteen of our online games are offered as web-based games and another 14 are mobile games. We had over million cumulative registered players, including million cumulative registered players for our web-based games and million cumulative registered players for our mobile games, located in more than 100 countries and regions calculated based on IP addresses as at the Latest Practicable Date. All of our games are free to play, and we generate all of our revenues from sales of in-game virtual tokens and other virtual items. We have a strong brand image associated with popular card and board games and a large and avid player base for both our web-based and mobile games. The average DAUs and MAUs of our web-based games increased from 1.8 million and 5.9 million, respectively, in 2010, to 2.0 million and 8.1 million, respectively, in 2011 and 2.1 million and 10.6 million, respectively, in 2012, and were 1.5 million and 7.1 million, respectively, in the six months ended June 30, The average DAUs and MAUs of our mobile games increased from 13.5 thousand and 41.6 thousand, respectively, in 2010, to thousand and 1.0 million, respectively, in 2011 and 2.2 million and 10.0 million, respectively, in 2012, and reached 3.3 million and 13.9 million, respectively, in the six months ended June 30, Starting from 2012, the DAUs of our mobile games exceeded those of our web-based games. Our revenue from web-based games increased from RMB155.0 million in 2010 to RMB304.6 million in 2011 and RMB430.3 million in 2012 and reached RMB216.1 million in the six months ended June 30, Our revenue derived from mobile games increased rapidly from RMB1.2 million in 2010 to RMB13.3 million in 2011 and RMB87.4 million in 2012 and reached RMB92.8 million in the six months ended June 30, Our adjusted profit increased from RMB73.1 million in 2010 to RMB104.2 million in 2011 and further to RMB159.7 million in 2012, representing a three-year CAGR of 47.8%, and amounted to RMB103.9 million for the six months ended June 30, Please refer to the section headed Financial Information Non-IFRS Measure. We have established a broad global presence over the past years. As at the Latest Practicable Date, we had derived revenues from players located in more than 80 countries and regions by offering various language versions of our games, such as simplified and traditional Chinese (targeting China, Hong Kong, 158

2 Macau, Taiwan and overseas Chinese communities), Thai, Indonesian, German, French, Portuguese, Turkish, Vietnamese, Arabic and English. In 2010, 2011 and 2012 and the six months ended June 30, 2013, revenues contributed by our games offered in language versions other than simplified Chinese accounted for approximately 59.2%, 71.6%, 70.2% and 69.2% of our total revenue, respectively. We have established multiple tiers of game distribution platforms that market and promote our online games among game players in China and other countries and regions. These game distribution platforms include major social networking websites (such as Facebook), online application stores (such as Apple Inc. s App Store and Google Play) and web and mobile game portals. We utilize three types of payment collection channels, namely game distribution platforms payment systems, pre-paid game card distributors and third-party payment vendors, which charge us commission fees, to collect the proceeds from sales of in-game virtual tokens and other virtual items on a commission basis. BASIS OF PRESENTATION Our Company was incorporated in the British Virgin Islands on June 14, 2010 as an exempted company with limited liability under the Business Companies Act, 2004 of the BVI. With a board resolution passed on May 28, 2013, our Company re-domiciled to the Cayman Islands and the registration procedures with the relevant authority was completed on June 7, Accordingly, the Company became an exempted company with limited liability under the Cayman Companies Law. Immediately prior to and after the Reorganization, our business of online card and board game development and operation, or the Business, was carried out by Boyaa Shenzhen, which was under the control of Mr. Zhang. As a result of the Reorganization, both Boyaa Shenzhen and the Business are under the effective control of Boyaa PRC and ultimately, of our Company, through the Contractual Arrangements. For the details of the Contractual Arrangements, please see the section headed History, Reorganization and Corporate Structure in this document. Prior to the Reorganization, our Company did not engage in any other business and its operations did not meet the definition of a business. The Reorganization is merely a recapitalization of the Business and did not result in any change in the business substance, nor in any management or the Controlling Shareholders of the Business. Accordingly, the financial information of the companies now comprising our Group for the Track Record Period as contained in the Accountant s Report in Appendix I to this document has been prepared using the carrying value of the Business for all periods presented. SIGNIFICANT FACTORS AFFECTING OUR RESULTS OF OPERATIONS 3rd Sch 3 Our results of operations have been, and are expected to continue to be, affected by a number of factors, which primarily include the following: Development of Online Games Industry The online game industry is highly competitive and has grown rapidly in China and other countries and regions in recent years, driven primarily by technology advancement and rising penetration of smartphones and other mobile devices and high-speed wireless Internet connection. To continue our success in this industry, we must anticipate and respond to changes in the competitive landscape and effectively respond to changing player interests and preferences. Although we expect player demand for online games to continue to grow rapidly, changes in market conditions, player preferences or the Internet and mobile technologies may render it more difficult to compete with other industry players in various geographic markets. In addition, an increasing number of online games available in the market and existing and emerging online game developers and operators have presented significant pressure on our game development and marketing and selling efforts, which may increasingly affect our results of operations. Expansion of Our Player Base The size of our player base reflects the popularity of our games and the basis for a sustainable growth. We measure our player base primarily by cumulative registered players since our inception, average DAUs and average MAUs. Our cumulative registered players increased from 83.8 million as at the end of 2010 to 159

3 309.0 million as at June 30, Our average DAUs increased from 1.8 million in 2010 to 4.8 million in the six months ended June 30, 2013, and our average MAUs increased from 5.9 million to 21.0 million over the same period. These increases were primarily driven by the enhanced player acceptance of our games as a result of our expanded game portfolio, the engaging nature of our games, the superior game experience we offer to our players and our marketing and distribution efforts. We offer our games in multiple language versions that are equipped with localized features and services, and have attracted registered users located in more than 100 countries calculated based on IP addresses. In addition, all of our games are offered on a free-to-play basis, which enables us to quickly establish a sizable registered and active user base, opening up access to a pool of potential players to purchase our in-game virtual tokens and other virtual items. Our future growth will largely depend on whether we are able to retain our existing players, attract new players and maintain an active player base. Ability to Offer Highly Engaging Online Games Our ability to further expand our player base depends on our ability to develop and offer new games that are interesting and compelling to play. During the Track Record Period, three of our most popular games, namely, the Texas Hold em Series, Fight the Landlord ( ) and Ant Wars ( ), generated substantially all of our revenue. To reduce our reliance on a limited number of games and expand our revenue base, we have developed and offered players other highly engaging games, such as Big Two ( ), a popular card game, and various Mahjong games, as well as other types of casual games. We currently offer a total of 16 online games. We plan to develop and launch several new card games that are based on popular long-lifespan card games worldwide or in China. However, the success of our new games depends on many factors beyond our control, such as trends in the online game industry and game player preferences. We believe that our ability to develop and launch new and highly engaging games will have a long-term impact on our sustainable growth and profitability. Monetization of Our Player Base We generate all of our revenues from the sales of virtual tokens and other virtual items, which allow our players to enhance their game experience through extending playtime, improving in-game communication, customizing game settings, improving in-game performance and accelerating game progress. Our results of operations depend on our ability to monetize our player base, i.e., to increase both the number of paying players and ARPPU. Our paying players increased from thousand in 2010 to thousand in 2011 and thousand in 2012, and were thousand in the six months ended June 30, Our ARPPU increased from RMB41.2 in 2010 to RMB51.2 in 2011 and RMB70.6 in 2012 and decreased from RMB102.6 in the six months ended June 30, 2012 to RMB74.7 in the six months ended June 30, To enhance game monetization, we will continue to stimulate player interest and drive in-game purchases and the number of rounds of games they play by improving the quality of our games, introducing new game features and services and virtual items, launching additional in-game promotions and other activities. Business Relationships with Game Distribution Platforms and Payment Collection Channels We primarily utilize our game distribution platforms, which comprise social networking websites and web game portals for our web-based games, and global and regional online application stores and mobile game portals for our mobile games, to promote and market our games and attract game players in both our existing markets and new countries and regions. We utilize three types of payment collection channels, namely, game distribution platforms, pre-paid game card distributors and third-party payment vendors, which charge us commission fees, to collect proceeds from players purchases of our in-game virtual items on a commission basis. See the section headed Business Game Distribution Platforms and Payment Collection Channels above. Our ability to expand and deepen our relationships with our game distribution platforms and payment collection channels significantly affects the expansion of business and results of operations. During the Track Record Period, our revenue growth was primarily driven by the significant increases in 160

4 revenue derived from our game distribution platforms and pre-paid game card sales. In addition, the commission fees charged by our payment collection channels have a significant impact on our cost of revenue. Our cost of revenue, gross profit and gross margin during the Track Record Period were affected by the changes in the rates of commission fees charged by our payment collection channels. SIGNIFICANT ACCOUNTING POLICIES AND ESTIMATES We have identified certain accounting policies that we believe are most significant to the preparation of our consolidated financial statements. Some of our significant accounting policies involve subjective assumption and estimates, as well as complex judgments by our management relating to accounting items. Our significant accounting policies are set forth in detail in Note 2 of Section II to the Accountant s Report included in Appendix I to this document. The estimates and associated assumptions are based on our historical experience and various other relevant factors that we believe are reasonable under the circumstances, the results of which form the basis of making judgments about matters that are not readily apparent from other sources. When reviewing our financial results, you should consider: (i) our selection of significant accounting policies, (ii) the judgment and other uncertainties affecting the application of such policies, and (iii) the sensitivity of reported results to changes in conditions and assumptions. The determination of these items requires management judgments based on information and financial data that may change in the future periods, and as a result, actual results could differ from those estimates. Revenue Recognition Our revenue is primarily derived from the sales of in-game virtual tokens and other virtual items in the game development operations through cooperation with three types of payment collection channels, namely, game distribution platforms, pre-paid game card distributors and third-party payment vendors. See Business Game Distribution Platforms and Payment Collection Channels. Revenue we report is measured at the fair value of the consideration received or receivable. In our cooperation with the payment collection channels, we are responsible for hosting the games, providing on-going updates of new contents, technical support for the operations of the games, as well as preventing, detecting and resolving in-game cheating and hacking activities. Our payment collection channels are responsible for distribution, marketing, platform maintenance, payer authentication and/or payment collections related to the games we offer and operate. Our games are free to play and players can purchase virtual tokens or other virtual items for better in-game experience. Players purchase our virtual tokens or other virtual items through the payment collection channels. Our payment collection channels collect the payments from players and remit the cash net of commission charges to us. Upon the sales of virtual tokens or other virtual items, we typically have an implied obligation to provide the relevant game services. As a result, the proceeds received from sales of virtual tokens or other virtual items are initially recorded as deferred revenue, while the proceeds received from sales of prepaid game cards are initially recorded as advance received from sales of prepaid game cards. This advance is then transferred to deferred revenue when the game cards are activated by the players, i.e., the first time the players use the prepaid game cards to credit their game accounts. The attributable portion of the deferred revenue relating to values of the virtual tokens consumed and other virtual items purchased are immediately or ratably recognized as revenue only when the services are rendered to the respective players. For the purposes of determining when services have been provided, we have determined the following: Consumable virtual items, which represent items that are extinguished after consumption in the form of fixed charges levied on each round of games played. The players will not continue to benefit from the virtual items thereafter. Revenue is recognized (as a release from deferred revenue) when the items are consumed and the related services are rendered. 161

5 Durable virtual items, which represent items that are accessible and beneficial to players over an extended period of time. Revenue is recognized ratably over the average life of durable virtual items for the applicable game, or the Player Relationship Period. We consider the game profile, target audience and its appeal to players of different demographics groups in estimating the Player Relationship Period, until a newly launched game has established its own track record, which is normally up to 12 months after launch. We estimate the Player Relationship Period on a game-by-game and platform-by-platform basis and re-assess such periods semi-annually. The range of the average Player Relationship Period for our games was around three to seven months during the Track Record Period. We have evaluated our roles and responsibilities and those of our payment collection channels in the delivery of game services to our players and concluded we take the primary responsibilities in rendering the services. We are determined to be the primary obligor and accordingly, we record revenue on a gross basis, and commission charges by our payment collection channels are recorded as cost of revenue. We grant virtual items free of charge to our players during the ordinary course of business, which are identical in nature and in function with the paid ones, and the players cannot distinguish whether the virtual items are paid or not at the time of consumption. Our back-end data centre captures the details of virtual items purchased as well as those granted free of charge, and the consumption of these virtual items (with no differentiation of paid ones or free ones given they are identical) for each game on each game distribution platform on a daily basis. As revenue is derived only from paying players, only paid and free virtual items granted to paying players are (while free virtual items granted to non-paying players are not) taken into account in our revenue recognition policy. For the purposes of revenue recognition, we assign a value for each of the paid and free virtual items granted to paying players calculated using the total payments made by paying players. The fair value of each of the paid or free virtual item is identical given they are identical in nature and in function, which is determined by computing a weighted average unit price to each of the paid and free virtual item purchased or granted to a paying player. Revenue associated with these items is recognized upon their respective consumption based on the policy described above. Current and Deferred Income Tax Our tax expense comprises two parts, current income tax and deferred income tax. Tax is recognized in the statements of comprehensive income, except to the extent that it relates to items recognized in other comprehensive income or directly in equity, in which case tax is also recognized in other comprehensive income or directly in equity, respectively. Current income tax Current income tax is calculated pursuant to the tax laws enacted or substantively enacted at the balance sheet date in the countries and regions where our subsidiaries and associates operate and generate taxable income. Our management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. We establish provisions where appropriate on the basis of amounts expected to be paid to tax authorities. Deferred income tax Inside basis differences Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill, and deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a 162

6 transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Outside basis differences Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Offsetting Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same tax authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Share-based Payments Equity-settled share-based payment transactions We have established a number of equity-settled, share-based compensation plans, under which we grant share options to our directors, officers and other employees. The fair value of the services received in exchange for the grant of the share options is recognized as an expense. The total amount to be expensed is determined by making reference to the fair value of the options granted: including any market performance conditions (for example, an entity s share price); excluding the impact of any service and non-market performance vesting conditions (for example, profitability, sales growth targets and remaining as an employee of the entity over a specified time period); and including the impact of any non-vesting conditions (for example, the requirement for employees to serve). Non-market performance and service conditions are included in assumptions about the number of options that are expected to vest. The total expense is recognized over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. In addition, in some circumstances employees may provide services in advance of the grant date and therefore the grant date fair value is estimated for the purposes of recognising the expense during the period between service commencement date and grant date. Where there is modification of terms and conditions which increases the fair value of the equity instruments granted (for example, by reducing the exercise price of share options), we include the incremental fair value granted in the measurement of the amount recognized for the services received over the remainder of the vesting period. The incremental fair value is the difference between the fair value of the modified equity instrument and that of the original equity instrument, both estimated as at the date of the modification. An expense based on the incremental fair value is recognized over the period from the modification date to the date when the modified equity instruments vest in addition to any amount in respect of the original instrument, which should continue to be recognized over the remainder of the original vesting period. 163

7 At the end of each reporting period, we revise our estimates of the number of options that are expected to vest based on the non-marketing performance and service conditions. We recognise the impact of the revision to original estimates, if any, in profit or loss, with a corresponding adjustment to equity. When the options are exercised, we issue new shares. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium. Share-based payments treatments applied to the issuance of the Series A Preferred Shares The difference between the identifiable consideration received by us from the issuance of the Series A Preferred Shares and the fair value of the Series A Preferred Shares at the time of issuance is recognized in profit or loss immediately as the value of the services received from the holders. The Series A Preferred Shares issued are accounted for as a compound financial instrument which has a liability component (i.e., the preferred share shareholder s right to demand payment in cash) and an equity component (i.e., the preferred share shareholder s right to demand settlement in the Company s shares). We first measure the fair value of the liability component, and the residual is recognized as the equity component. Subsequent to the initial recognition, the liability component of the Series A Preferred Shares is stated at fair value, with changes recorded in profit or loss under financial income/(costs) net. The equity component is not re-measured subsequent to its initial recognition. Share-based payment transactions among group entities Our grant of options to the employees of our subsidiary undertakings is treated as a capital contribution. The fair value of employee services received, measured by reference to the grant date fair value, is recognized over the vesting period as an increase to investments in the subsidiary undertakings, with a corresponding credit to equity in the parent entity accounts. 164

8 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME The table below sets forth our consolidated statements of comprehensive income with line items in absolute amounts and as percentages of our total revenue for the periods indicated: For the Year Ended December 31, For the Six Months Ended June 30, RMB 000 % RMB 000 % RMB 000 % RMB 000 % RMB 000 % (Unaudited) Revenue...156, , , , , Cost of revenue (1)... (68,571) (43.9) (135,121) (42.5) (203,916) (39.4) (98,043) (40.3) (117,696) (38.1) Gross profit... 87, , , , , Selling and marketing expenses (1)... (6,049) (3.9) (31,582) (9.9) (81,714) (15.8) (35,970) (14.8) (63,317) (20.5) Administrative expenses (1). (7,318) (4.7) (33,884) (10.7) (46,918) (9.1) (16,643) (6.8) (43,401) (14.0) Other (losses)/gains, net... (1,519) (1.0) 2, , , , Operating profit... 72, , , , , Finance income/(costs), net (8,297) (2.6) (7,722) (1.5) (6,650) (2.7) (5,937) (1.9) Share of (loss)/profit of associates... (140) (0.1) (1,341) (0.3) (157) (0.1) (229) (0.1) Profit before income tax.. 72, , , , , Income tax credit/(expense) (23,428) (7.4) (44,690) (8.6) (22,364) (9.2) (14,244) (4.6) Profit for the year/ period... 73, , , , , Non-IFRS Measure: Adjusted net profit (unaudited) (2)... 73, , , , , (1) Included the following amounts of share-based compensation expenses for the periods indicated: For the Six Months Ended For the Year Ended December 31, June 30, RMB 000 RMB 000 RMB 000 RMB 000 RMB 000 Cost of revenue... 7,815 Selling and marketing expenses... 2,967 Administrative expenses... 3,380 5,729 2,156 8,972 Total... 3,380 5,729 2,156 19,754 (2) We define adjusted net profit as net income excluding (i) share-based compensation expenses, (ii) fair value change of liability component of Series A Preferred Shares, (iii) service fees relating to the issuance of our Series A Preferred Shares and [ ] expenses. The use of adjusted net profit has material limitations as an analytical tool, as it does not include all items that impact our profit for the relevant year/period. Items excluded from adjusted net profit are significant components in understanding and assessing our operating and financial performance. Please refer to the section headed Financial Information Non-IFRS Measure. 165

9 DESCRIPTION OF MAJOR COMPONENTS OF OUR RESULTS OF OPERATIONS Revenue We derive all of our revenue from the sales of virtual tokens and other virtual items, which our players use to enhance their game experience through extending playtime, improving in-game communication, customizing game settings, improving in-game performance and accelerating game progress. Our revenue is recognized when services have been provided to paying players. In the case of consumable virtual items, such as virtual tokens used in our card and board game, which accounted for substantially all of the virtual items we sell, revenue is recognized when such items are consumed in the form of fixed charges levied on each round of games played. App1A-34(1)(b) App1A-33(1) 3rd Sch 27 3rd Sch 1 Revenue by language versions of games We generate revenue from players located in over 80 countries and regions. Offering our games in overseas markets has been one of the major strategic focuses of our business operations since we launched the traditional Chinese version of our Texas Hold em mainly targeting Hong Kong, Macau and Taiwan in November During the Track Record Period, we generated the majority of revenue from games offered in various language versions that target both China and overseas markets. As our game distribution platforms (which contribute a significant portion of our revenue) only provide players in-game purchase information by the language versions of our games. As one of their general policies, these game distribution platforms consistently decline to share details, including IP addresses of their users when making in-game purchases (which indicate the users geographic locations) with third parties (including us). As a result, we present our revenue by the language versions of our games accordingly. As a percentage of our total revenue, revenue derived from games that are offered in language versions other than simplified Chinese was 59.2%, 71.6%, 70.2%, 70.9% and 69.2% in 2010, 2011 and 2012 and the six months ended June 30, 2012 and 2013, respectively. The following table sets forth a breakdown of revenue derived from major language versions of our games in absolute amounts and as percentages of our total revenue for the periods indicated: For the Year Ended December 31, For the Six Months Ended June 30, RMB 000 % RMB 000 % RMB 000 % RMB 000 % RMB 000 % Simplified Chinese , , , , , Traditional Chinese , , , , , Thai , , , , Indonesian , , , German , , , French , , , Portuguese , , , , Turkish , , , Vietnamese , , , Arabic , , , English , , , , Others , , , Total , , , , , According to our internally collected data based on player IP addresses for the three months ended September 30, 2013, the PRC, Hong Kong, Taiwan, Thailand and Indonesia contributed a vast majority of players total in-game purchases of virtual items for this period, and no single other jurisdiction contributed any significant portion of players in-game purchases for this period. Such geographic breakdown prepared on the basis of internally collected data for this period was largely consistent, but with certain immaterial discrepancies, with our revenue breakdown by the language versions of our games. 166

10 The above geographic breakdown of players in-game purchases prepared on the basis of such internally collected data does not meet the requirements for financial reporting, because such data is incomparable with and does not provide a mutually accepted basis for comparing and verifying data provided by the relevant game distribution platforms. Revenue by game forms Our online games are offered in two forms: web-based games and mobile games. Since we started offering mobiles games in September 2010, revenue contributed by our mobile games experienced a substantial increase. The following table sets forth a breakdown of revenue contributed by web-based games and mobile games in absolute amounts and as percentages of our total revenue for the periods indicated: For the Year Ended December 31, For the Six Months Ended June 30, RMB 000 % RMB 000 % RMB 000 % RMB 000 % RMB 000 % Web-based games , , , , , Mobile games , , , , , P24 Total , , , , , Revenue by games Certain of our games have been highly popular among players and have generated a substantial portion of our revenue during the Track Record Period. Our three highest revenue-generating games, the Texas Hold em Series, Fight the Landlord ( ) and Ant Wars ( ), generated an aggregate of 91.4%, 95.7%, 98.1%, 97.4% and 98.6% of our total revenue in 2010, 2011 and 2012 and the six months ended June 30, 2012 and 2013, respectively, and our Texas Hold em Series generated 90.5%, 88.2%, 91.3%, 89.9% and 89.1%, respectively, of our total revenue in the same periods. The following table sets forth revenue generated from our top five games in absolute amounts and as percentages of our total revenue for the periods indicated: For the Year Ended December 31, For the Six Months Ended June 30, RMB 000 % RMB 000 % RMB 000 % RMB 000 % RMB 000 % Texas Hold em Series (1).. 141, , , , , Fight the Landlord (2)... 1, , , , , Ant Wars (3) , , , , Big Two (4) , , , , Happy Babies (5) , , , Others , , , , , P120 P2 P22 Total , , , , , Notes: (1) Texas Hold em is offered in 19 language versions. (2) Fight the Landlord is offered in two variations. The three-player version of Fight the Landlord is offered in three language versions, and the four-player version of Fight the Landlord is offered in two language versions. (3) Ant Wars is offered in six language versions. (4) Big Two is offered in three language versions. (5) Happy Babies is offered in two language versions. 167

11 Revenue by payment collection channels We utilize three types of payment collection channels to collect proceeds from sales of virtual tokens and other virtual items. See Business Game Distribution Platforms and Payment Collection Channels. The following table sets forth a breakdown of revenue contributed by the three types of payment collection channels in absolute amounts and as percentages of our total revenue for the periods indicated: For the Year Ended December 31, For the Six Months Ended June 30, RMB 000 % RMB 000 % RMB 000 % RMB 000 % RMB 000 % Game distribution platforms payment systems , , , , , Pre-paid game card distributors* , , , , Third-party payment vendors , , , , , Total , , , , , * In late September 2013, we and our largest pre-paid game card distributor for 2012 and the six months ended June 30, 2013 terminated our business relationship as we did not agree to its request for acting as the exclusive distributor for our pre-paid game cards. We do not expect that the termination of business relationship with this distributor will have a significant adverse effect on our overall business operation or our pre-paid game card sales. For details, please see Business Game Distribution Platforms and Payment Collection Channels Payment Collection Channels in this document. Revenue derived from game distribution platforms payment systems, our largest type of payment collection channel during the Track Record Period, experienced steady growth, primarily due to the expansion of our business and our cooperation with an increasing number of various game distribution platforms which required our players to make in-game purchases through such platforms payment systems. Revenue derived from pre-paid game card sales experienced a significant increase during the Track Record Period both in absolute amounts and as a percentage of our total revenue, largely as a result of the fast expansion of our business in Southeast Asia, particularly in the web-based game market in Thailand in 2012 and the six months ended June 30, 2013, where pre-paid game cards are a common payment option for online games. Pre-paid game cards currently can only be used in the web version of our Texas Hold em. Our revenue derived from third-party payment vendors experienced an overall decline during the Track Record Period as we terminated business relationships with certain third-party payment vendors based on their performance and proceeds settlement. Revenue by types of virtual items sold We derive all of our revenue from the sales of virtual items, including virtual tokens and other virtual items. We have divided the virtual goods we sell into two types, consumable virtual items and durable virtual items, for the purpose of determining when services have been provided. Substantially all of the virtual items we sold are consumable virtual items, most of which are virtual tokens used in our card and board games. 168

12 The table below sets forth a breakdown of revenue derived from the sales of the two types of virtual items we sold in absolute amounts and as percentages of our total revenue for the periods indicated: For the Year Ended December 31, For the Six Months Ended June 30, RMB 000 % RMB 000 % RMB 000 % RMB 000 % RMB 000 % Consumable virtual items. 145, , , , , Durable virtual items... 10, , , , , Total , , , , , Paying players and ARPPU The number of paying players and ARPPU in a specific period are the two most direct factors that affect revenue generated from our online games in such period. We calculate our ARPPU as the monthly average revenue per paying player, which represents the revenue for the period divided by the number of paying players in such period, and then divided by the number of months in the period. We focus on increasing both the number of paying players and ARPPU. During the Track Record Period, our paying users increased from thousand in 2010 to thousand in 2011 and thousand in 2012 and further to thousand in the six months ended June 30, 2013, primarily as a result of the various measures we have implemented to increase the number of our paying players. In addition, as a result of the various measures we have implemented to increase ARPPU and our expanding cooperation with various payment channels, including the commencement of pre-paid game card distribution since 2011, our ARPPU increased during the Track Record Period. For details of the various measures we implement to increase the number of paying players and ARPPU, please see Business Game Monetization Monetization Measures above. The table below sets forth our paying players and ARPPU for the periods indicated. For the Six Months Ended For the Year Ended December 31, June 30, Paying players in the period (in 000) ARPPU (in RMB)

13 Cost of Revenue Our cost of revenue consists primarily of (i) commission fees charged by our payment collection channels, (ii) compensation and benefits for employees involved in the operation of our online games, as well as share-based compensation expenses in connection with the share options we have granted to these employees, (iii) business tax and related surcharges, (iv) server rental expenses and (v) other expenses, such as depreciation of property and equipment. The following table sets forth a breakdown of the components of our cost of revenue in absolute amounts and as percentages of revenue for the periods indicated: For the Year Ended December 31, For the Six Months Ended June 30, RMB 000 % RMB 000 % RMB 000 % RMB 000 % RMB 000 % Commission charges... 56, , , , , Employee benefit expenses , , , , , Business tax, value-added tax and related surcharges , , , , , Server rental expense... 2, , , , , Other expenses , , Total , , , , , Commission charges The three types of payment collection channels we use charge us commission fees for collecting the proceeds from sales of our virtual tokens and other virtual items. See Business Game Distribution Platforms and Payment Collection Channels Payment Collection Channels. The table below sets forth a breakdown of the commission fees charged by the three types of payment collection channels in absolute amounts and as percentages of our total revenue for the periods indicated: For the Year Ended December 31, For the Six Months Ended June 30, RMB 000 % RMB 000 % RMB 000 % RMB 000 % RMB 000 % Game distribution platforms payment systems , , , , , Pre-paid game card distributors , , , , Third-party payment vendors , , , , , Total , , , , , Employee benefit expenses Employee benefit expenses consist of salaries, bonuses, share-based compensation expenses and benefits paid to our employees involved in the operation of our online games. Employee benefit expenses as a percentage of our total revenue increased from 1.6% in 2010 to 2.0% in 2011 and 2.5% in 2012 and increased from 2.9% in the six months ended June 30, 2012 to 4.1% in the six months ended June 30, 2013, primarily as a result of our expanded business operations and our efforts in enhancing the operation of our online games. 170

14 Business tax, value-added tax and related surcharges During the Track Record Period, our business operations in the PRC were subject to business tax, value-added tax and certain surcharges on the revenue generated from online game services. We were also subject to certain surcharges, such as city construction tax and education surcharges. Business tax, value-added tax and related surcharges accounted for approximately 4.3%, 4.6% and 4.2%, 4.9% and 2.8% of our total revenue for the years ended December 31, 2010, 2011 and 2012 and the six months ended June 30, 2012 and 2013, respectively. The table below sets forth the business tax, value-added tax and related surcharges and their rates that were applicable to us during the periods indicated: Category Tax Rate Basis of Levies Business tax... 5%prior to July 1, 2011 and 3% Revenue from online game services afterwards 5% prior to May 15, 2013 Revenue from online game related advisory services Value-added tax.... 3%since May 15, 2013 Revenue from online game related 6% since September 1, 2013 advisory services City construction tax... 1% prior to December 1, 2010 and 7% afterwards Actual business tax, value-added tax payments Educational surcharges.. 3% Actual business tax, value-added tax payments In 2011 and 2012 and the six months ended June 30, 2012 and 2013, Boyaa PRC charged Boyaa Shenzhen service fees in an amount of RMB80.0 million, RMB170.0 million, RMB85.0 million and RMB15.7 million, respectively, under the original contractual arrangements entered into in January 2011 (see History, Reorganization and Corporate Structure Introduction ) and the Contractual Arrangements, which service fees were subject to business tax and/or value-added tax, as applicable, and related surcharges in an aggregate amount of RMB4.8 million, RMB10.2 million, RMB5.1 million and RMB0.5 million for 2011 and 2012 and the six months ended June 30, 2012 and 2013, respectively. Selling and Marketing Expenses Selling and marketing expenses primarily consist of (i) expenses relating to advertising, marketing and brand promotion activities, (ii) salaries and benefits paid to our selling and marketing staff, as well as share-based compensation expenses in connection with the share options we have granted to these employees, (iii) travel and entertainment expenses relating to selling and marketing activities, and (iv) other expenses, which include depreciation of computers and office equipment and general office expenses incurred by selling and marketing personnel. We incurred selling and marketing expenses of RMB6.0 million, RMB31.6 million, RMB81.7 million, RMB36.0 million and RMB63.3 million for the years ended December 31, 2010, 2011 and 2012 and the six months ended June 30, 2012 and 2013, respectively, accounting for 3.9%, 9.9%, 15.8%, 14.8% and 20.5%, respectively, of our total revenue for the same periods. The significant increase in selling and marketing expenses during the Track Record Period reflected our strengthened marketing efforts in promoting our online games and expanding our player base and our expanded selling and marketing team. 171

15 The following table sets forth a breakdown of the components of our selling and marketing expenses in absolute amounts and as percentages of revenue for the periods indicated: For the Year Ended December 31, For the Six Months Ended June 30, RMB 000 % RMB 000 % RMB 000 % RMB 000 % RMB 000 % Advertising expenses... 4, , , , , Employee benefit expenses , , , , , Travel and entertainment expenses Other expenses , , Total , , , , , Administrative Expenses Administrative expenses primarily consist of (i) research and development expenses, which primarily relating to labour cost associated with new game development and enhancement of existing games, as well as the development and enhancement of our Boyaa Building Engine, (ii) employee benefit expenses, which include compensation and benefits for our general and administrative staff, as well as share-based compensation expenses in connection with the share options we have granted to our employees, (iii) professional service expenses relating to audit, legal, valuation and consulting services we used in our business operations, (iv) service fees, relating to the consulting and advisory services the holders of our Series A Preferred Shares provided to us and incurred in 2011, (v) office rental expenses, (vi) travel and entertainment expenses incurred by general and administrative personnel, (vii) other expenses, including general office expenses and impairment of receivables. We incurred administrative expenses of RMB7.3 million, RMB33.9 million, RMB46.9 million and RMB16.6 million and RMB43.4 million for the years ended December 31, 2010, 2011 and 2012 and the six months ended June 30, 2012 and 2013, respectively, accounting for 4.7%, 10.7%, 9.1% and 6.8% and 14.0%, respectively, of our total revenue for the same periods. P179 P186 The following table sets forth a breakdown of the components of our administrative expenses in absolute amounts and as percentages of revenue for the periods indicated: For the Year Ended December 31, For the Six Months Ended June 30, RMB 000 % RMB 000 % RMB 000 % RMB 000 % RMB 000 % Research and development expenses (1) , , , , , Employee benefit expenses (2) , , , , Professional service expenses , , , , Service fees relating to issuance of Series A Preferred Shares.... 4, Office rental expense , , Travel and entertainment expenses , , [ ] expenses , , , Impairment charges/(reversal of impairment charges) on trade receivables.... 4, (3,968) (0.8) (3,557) (1.4) Other expenses , , , , , Total , , , , ,