SEALAND CAPITAL GALAXY LIMITED

NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS

FOR THE SIX MONTHS ENDED 30 JUNE 2017

1.         GENERAL INFORMATION

Sealand Capital Galaxy Limited (the "Company") was incorporated in the Cayman Islands on 22 May 2015 as an exempted Company with limited liability under the Companies Law. The registered office of the Company is Willow House, Cricket Square, PO Box 709, Grand Cayman, KY1-1107, Cayman Islands. The Company's nature of operations is to act as a special purpose acquisition Company.

On 29 February 2017, the Company acquired the entire share capital of SecureCom Media Holding Limited, as disclosed in note 17. The unaudited consolidated interim financial information set out in this report represents the consolidated financial statements of the Company and its newly acquired subsidiary companies (together referred to as the "Group").

The comparative financial information for the year ended 31 December 2016 is not the Company's full annual accounts for that period but has been derived from the annual financial statements for that period. The auditors' report on those accounts was unqualified and did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report.

Items included in the consolidated interim financial statements of the Company are measured using the currency of the primary economic environment in which the Company operates (the "functional currency"). The financial statements are presented in Great British Pound ("£"), which is the functional currency of the Company.

2.         BASIS OF PREPARATION AND ACCOUNTING POLICIES

Basis of preparation

The unaudited consolidated interim financial statements for the six months ended 30 June 2017 have been prepared in accordance with International Accounting Standard ("IAS") No. 34 "Interim Financial Reporting". This consolidated interim financial statement does not include all the notes of the type normally included in an annual report. This consolidated interim financial statement is to be read in conjunction with the Company's annual report for the year ended 31 December 2016, and any public announcements made by the Company during the interim reporting period. The annual financial report for the year ended 31 December 2016 was prepared in accordance with International Financial Reporting Standards ("IFRSs") as adopted for use by the European Union and the accounting policies applied in this consolidated interim financial statement are consistent with the polices applied in the annual financial report for the year ended 31 December 2016 unless otherwise noted.

The preparation of unaudited consolidated interim financial information in conformity with IAS 34 requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. (see note 4)

These unaudited consolidated financial statements were authorised for issue by the Company's Board of Directors on 29 September 2017.

3.         BASIS OF PREPARATION AND ACCOUNTING POLICIES

Going concern basis

The consolidated interim financial statements have been prepared on a going concern basis notwithstanding net current liabilities of £51,662,229 as at 30 June 2017.

In the opinion of the directors of the Company, the Group should be able to maintain itself as a going concern in the coming year by taking into consideration the proposed arrangements which include, but are not limited to, the followings:

1.    As detailed in note 17, subsequent to 30 June 2017, £1,320,500 was received in cash for issuance of new ordinary shares to an independent third party;

2.    The Group incurred a positive operating cash flows for the period and expects to continue to generate positive operating cash flows in the futures; and

3.    The deferred revenue of £52,356,645 represents prepayment of advertising service and will be recognised as income rather than refunded.

Summary of significant accounting policies

Except as described below, the accounting policies applied are consistent with those of the annual financial statements for the year ended 31 December 2016, as described in those annual financial statements.

(a)  Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances.

Revenue from advertising services is recognised when the related advertisements are broadcast. Payments received from customers that are related to services not yet rendered are deferred and disclosed as deferred revenue in the consolidated statement of financial position. Upon the expiry of prepaid packages of advertising services, the corresponding amount of deferred revenue remaining, if any, will be fully recognised as income in profit or loss.

Advertising credit are earned by customers whenever the customers chat through Metalk application. Advertising credit can then be redeemed into cash or utilized through purchase of the Company's broadcasting plans.

(b)  Goodwill

Goodwill arising on an acquisition of a business is carried at cost as established at the date of acquisition of the business less accumulated impairment losses, if any.

For the purposes of impairment testing, goodwill is allocated to each of the Group's cash-generating units (or groups of cash-generating units) that is expected to benefit from the synergies of the combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually, or more frequently when there is indication that the unit may be impaired. For the goodwill arising on an acquisition in a reporting period, the cash-generating unit to which goodwill has been allocated is tested for impairment before the end of that reporting period. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit on a pro rata basis based on the carrying amount of each asset in the unit. Any impairment loss for goodwill is recognised directly in profit or loss. An impairment loss recognised for goodwill is not reversed in subsequent periods.

On disposal of the relevant cash-generating unit, the attributable amount of goodwill is included in the determination of the amount of profit or loss on disposal.

(c)   Subsidiaries

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

Intra-group transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform to the Group's accounting policies.

Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable costs of investment. The results of subsidiaries are accounted for by the company on the basis of dividend received and receivable.

(d)   Foreign currency

(i)        Functional and presentation currency

Items included in the unaudited condensed consolidated interim financial statements of each of the Group's entities are measured using the currency of the primary economic environment in which the entity operates (the "functional currency"). The unaudited condensed consolidated interim financial statements are presented in Great British Pound ("£"), which the functional currency of the Company is United States dollars ("US$").

(ii)          Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the annual average rate for the statement of comprehensive income and closing rate for the statement of financial position. Foreign currency gains and losses are recorded in the unaudited condensed consolidated statement of comprehensive income.

(d) Foreign currency (continued)

(iii)         Group companies

The results and financial position of all the Group entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

·       assets and liabilities for each statement of financial position presented are translated at the closing exchange rate at the date of that statement of financial position;

·       income and expenses for each statement of comprehensive income are translated at average exchange rates; and

·       all resulting exchange differences are recognised in other comprehensive income (loss).

(e)  Plant and equipment

Property, plant and equipment are recorded at historical cost and are depreciated on a straight-line basis over their estimated useful lives as follows:

The assets' residual values and useful lives are reviewed and adjusted on a prospective basis, if appropriate, at the end of each reporting year.

The Group reviews the carrying values of its plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group might not be recoverable. Assets are grouped at the lowest level for which identifiable cash inflows are largely independent when testing for, and measuring for, impairment (cash-generating units). In performing its review of recoverability, the Group compares the carrying values to either the value in use or fair value less costs to dispose and if required an impairment charge is recognised in the consolidated statements of comprehensive income to bring the carrying value to its recoverable value.

The Group has not applied any new standard or interpretation that is not yet effective for the current accounting period.

4.         ESTIMATES AND JUDGEMENTS

The preparation of an interim financial report in conformity with IAS 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. Actual results may differ from these estimates.

The estimates and underlying assumption are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods

Key sources of estimation uncertainty

Determining whether goodwill is impaired requires an estimation of the value in use of the CGUs

to which goodwill has been allocated. The value in use calculation requires the Group to estimate

the future cash flows expected to arise from the CGUs and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, a material impairment loss may arise. As at 30 June 2017, the carrying amount of goodwill is £81,328,467. No impairment loss has been recognised for the six months ended 30 June 2017.

5.         SEGMENT INFORMATION

The Chief Operating Decision Maker ("CODM") has been identified as the CEO of the Company

who reviews the Group's internal reporting in order to assess performance and allocate resources. The CODM has determined the operating segments based on these reports.

The CODM assesses the performance based on a measure of profit after income tax. The CODM considers all business is included in a single operating segment.

The Group is principally engaged in the advertising services through Metalk. Information reported to the CODM for the purpose of resources allocation and performance assessment focuses on the operation results of the Group as a whole as the Group's resources are integrated and no discrete operating segment financial information is available. Accordingly, the Group has identified one operating segment - provision of advertising services and no operating segment information is presented.

Information about major customers

For the period ended 30 June 2017, there are no single external customers contributed more than 10% revenue of the Group.

Geographical information

The Group's operations are mainly carried out in Hong Kong. Accordingly, no geographical information related to revenue has been presented.

6.         REVENUE AND OTHER INCOME

An analysis of the Group's other income is as follows:

7.         LOSS BEFORE TAX

8.         EMPLOYEES

9.         INCOME TAX EXPENSE

Pursuant to the rules and regulations of the British Virgin Islands (the "BVI") and Cayman Islands, the Company is not subject to any income tax in the BVI and Cayman Islands for the six months ended 30 June 2017.

No provision for Hong Kong profits tax has been made in these consolidated financial statements as the subsidiary did not have any assessable profits subject to tax in those jurisdictions. The profits tax rates for Hong Kong are currently 16.5%.

10.       PROFIT PER SHARE

Basic and diluted profit per share

Basic profit per share is calculated by dividing the profit attributable owners of the Company of £22,926,671 (six months ended 30 June 2016: loss attributable to owners of the Company of £85,844) by the weighted average number of 111,662,983 ordinary shares (six months ended 30 June 2016: 30,000,000) in issue during the six months ended 30 June 2017.

Diluted profit per share was the same as basic profit per share as there were no potential dilutive ordinary shares outstanding for the six months ended 30 June 2017 and 2016.

11.          PLANT AND EQUIPMENT

During the six months ended 30 June 2017, the Group acquired at cost, plant and equipment of £2,693.

12.       AMOUNTS DUE FROM DIRECTORS

The amounts are unsecured, interest-free and has no fixed terms of repayment.

13.       PREPAYMENT AND OTHER RECEIVABLES

14.       RECEIVABLE FROM CASH COLLECTION AGENT

The Group has engaged a cash collection agent to manage collection of subscription monies in certain territories and to provide administrative services to the Group. The receivable from the cash collection agent represents subscription monies received on behalf of the Group under the terms of an agency agreement, after deduction of attributable expenses.

15.       DEFERRED REVENUE

Movement of deferred revenue during the period is as follows:

16.       SHARE CAPITAL

Allotted, called up and fully paid (Ordinary shares of £0.0001 each)

Notes:

(a)  On 28 February 2017, the Company conducted a placing of 7 million shares at 20 pence per share.

In addition, the Company conducted a placing 10 million shares at 20 pence per share for the acquisition of independent company "SecureCom Media Holdings Limited" and with cash consideration of 1 million.

(b)  On 1 June 2017, the Company increased share capital by the way of the Bonus Issue. Pursuant to the Bonus issue, 423,000,000 new Ordinary Shares ("Bonus Shares") will be issued, with Shareholders receiving nine Bonus Shares for every one Ordinary Share held.

17.          BUSINESS COMBINATION

                Business combination for the period ended 30 June 2017

On 28 February 2017, the Company entered into a share transfer agreement with the shareholder of SecureCom Media Holdings Limited ("SecureCom"), a company incorporated in British Virgin Islands, to acquire 100% equity interest in SecureCom for a total consideration of £3,000,000, which was satisfied by cash payment of £1,000,000 and the issuance of 10,000,000 ordinary shares in the Company at 20 pence per share. SecureCom is principally engaged in investment holding and the provision of advertising services through social media mainly in Hong Kong, People of Republic of China and Singapore. This acquisition has been accounted for using acquisition method.

Consideration transferred

Acquisition-related costs were insignificant and have been excluded for the consideration transferred and have been recognised as an expense for the period ended 30 June 2017, within the 'administrative expenses' in the consolidated statement of profit or loss.

Assets acquired and liabilities recognised at the date of acquisition are as follows:

Goodwill arising on acquisition:

Goodwill arose in the acquisition of SecureCom because the consideration paid for the acquisition effectively included amounts in relation to the benefit of expansion to social media sector. These benefits are not recognised separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.

None of the goodwill arising on this acquisition is expected to be deductible for tax purpose.

Net cash inflow on acquisition of SecureCom

Impact of acquisition on the results of the Group

Included in the Group's profit for the period ended 30 June 2017 is approximately profit of £23,434,061 attributable to SecureCom. Revenue of the Group for the period ended 30 June 2017 includes approximately £32,109,805 attributable to SecureCom.

Had the acquisition of SecureCom been effected on 1 January 2017, the consolidated revenue and profit for the six months ended 30 June 2017 of the Group would have been approximately £142,156,914 and £60,461,550 respectively. The pro-forma information is for illustrative purposes only and is not necessarily an indication of revenue and results of operations of the Group that actually would have been achieved had the acquisition been completed at the beginning of the interim period, nor is it intended to be a projection of future results.

18.       RELATED PARTY TRANSACTIONS

(a)   Compensation of key management personnel

The remuneration of members of key management non-director personnel during the period was as follows:

(b)   Apart from the balances with related parties at the end of the reporting period disclosed elsewhere in the financial statements, the Company had not entered into any other significant related party transactions for the period.

19.          EVENT AFTER THE REPORTING PERIOD

i.         On 13 July 2017, the Company entered into a subscription agreement with independent third parties, under which the independent third parties agreed to subscribe 3,500,000 new ordinary shares to be issued by the Company at subscription price of £0.025 per share ("1^st Placing"). 

The 1^st Placing was completed on 19 July 2017, and 3,500,000 new ordinary shares of the Company were issued and allotted at the placing price of £0.025 per share. Proceeds of £87,500 were received. Details of 1^st Placing are set out, inter alia, in the announcement of the Company dated 13 July 2017.

ii.     On 27 July 2017, the Company entered into a memorandum of understanding with the majority shareholders in order to acquire at least 51% of Guangzhou Ruiyou Information Technologies Co., Ltd.. Up to the date of annual report, the transaction is in the process.  

iii.          

iv.          On 11 August 2017, the Company entered into a subscription agreement with independent third parties, under which the independent third parties agreed to subscribe 20,550,000 new ordinary shares to be issued by the Company at subscription price of £0.060 per share ("2^nd Placing"). 

The 2^nd Placing was completed on 17 August 2017, and 20,550,000 new ordinary shares of the Company were issued and allotted at the placing price of £0.060 per share. Proceeds of £1,233,000 were received. Details of 2^nd Placing are set out, inter alia, in the announcement of the Company dated 11 August 2017.