232 million yuan of performance compensation remains unfulfilled The performance commitment party of Fuchun shares was notified of criticism and public condemnation

Recently, the Shenzhen Stock Exchange announced two disciplinary sanctions at the same time, showing that three counterparties to the major asset restructuring transaction of Fuchun Technology Co., Ltd. (hereinafter referred to as "Fuchun Shares") and the performance compensation commitment party were given the punishment of notification of criticism and public reprimand respectively.

According to the disciplinary decision, Fuchun Purchased 100% of the equity of Chengdu Mochikaka Technology Co., Ltd. (hereinafter referred to as "Mochicaca") for 880 million yuan in cash in January 2017. The parties Fan Ping, Qiu Xiaoxia and Fu Peng (blog, Weibo) are the original shareholders of Mochicaca.

<b>Performance commitments have not been realized 232 million compensation to be fulfilled</b>

Pursuant to the Agreement on the Cash Purchase of Mochica Shares and the Supplementary Agreement signed by the parties to the Transaction, Fan Ping, Qiu Xiaoxia and Fu Peng undertake that the net profit attributable to the shareholders of the parent company (hereinafter referred to as "Net Profit") after deducting non-recurring gains and losses from 2016 to 2019 shall not be less than RMB63 million, RMB79 million, RMB99 million and RMB115 million respectively. If the net profit of any year is lower than the promised value, the three persons shall perform the compensation obligation within 30 days after receiving the notice of requesting performance compensation.

At the same time, the three also made commitments to the impairment of Mochica. After the expiration of the profit commitment annual period, if the impairment amount of Mochikaca at the end of the period is higher than the amount already compensated by the compensation obligor, Fuchun shares will be compensated.

Later, after investigation by the Shenzhen Stock Exchange, it was found that the three parties did not complete the performance commitment during the agreement period. According to the relevant announcement disclosed by Fuchun Shares, Mochika achieved net profits of 65.07 million yuan, 70.26 million yuan and 31.52 million yuan from 2016 to 2019, respectively, and a loss of 23.57 million yuan. In addition, the relevant impairment test report shows that as of the end of 2019, the cumulative impairment of assets (goodwill) generated by Mochikaca reached 812 million yuan.

According to the above-mentioned agreement, the total amount of performance compensation and impairment compensation to be borne by the three parties has reached the upper limit of 790 million yuan. As of now, the compensation period has expired, the three parties have only fulfilled the performance compensation obligations in 2017, the compensation obligations for 2018 and 2019 have not been fulfilled, and the total amount of compensation is 232 million yuan, of which Fan Ping, Qiu Xiaoxia and Fu Peng need to compensate 125 million yuan, 58.71 million yuan and 48.54 million yuan respectively. In this regard, Fuchun Shares has sued the Fuzhou Intermediate People's Court, and the court has accepted the case and has held a hearing.

With regard to the above matters, the Shenzhen Stock Exchange pointed out that the three parties failed to be honest and trustworthy, violating the relevant provisions of the Rules Governing the Listing of Stocks on the Growth Enterprise Market (revised in December 2020) and the Guidelines for the Standardized Operation of Listed Companies on the Growth Enterprise Market (Revised in 2020). In view of the above-mentioned facts and circumstances of the violation, the Shenzhen Stock Exchange gave Fan Ping the punishment of public condemnation in accordance with the regulations, and Qiu Xiaoxia and Fu Peng were given the punishment of circulating criticism. Moreover, the above-mentioned violations and sanctions will be recorded in the integrity file of the listed company and disclosed to the public.

<b>Mochica shares have been sold Performance compensation disputes have not yet been concluded</b>

According to public information, the main business of Fuchun Co., Ltd. is communication network construction technical services and game business. As a game company, Mochikaka's products include "New Big Lord", "School Flower's Personal Master", "Million Three Kingdoms" and many other best-selling games. Fuchun shares previously said that the acquisition of Mochikaka is conducive to Fuchun shares to extend its business to online games, animation entertainment and other fields.

However, due to the policy changes in the game industry in recent years, some of The self-developed products of Mochika Card and the game products represented by the agents in previous years have not yet obtained the version number, and the online operation products have been greatly reduced, and their operations have been in a state of loss since 2019. Fuchun shares pointed out in the 2020 annual report that due to the operating losses of Mochikaca and weak profitability in the future. In order to further optimize the assets and business structure of the game sector and enhance the overall profitability of the company, Fuchun shares have sold 100% of the shares of Mochikaka last year.

It is worth noting that according to the Shenzhen Stock Exchange's inquiry letter on the annual report of Fuchun shares in May this year, regarding this performance compensation matter, Fuchun shares said that it made a provision for bad debts in the proportion of 52.81% for 232 million yuan, with a total provision for bad debts of 122 million yuan. As of the disclosure date of the annual report, the first instance has not yet decided, and according to the judgment of the lawyer representing the representative, the probability of winning the lawsuit is high. However, with the actual repayment ability of the performance compensation obligor, the repayment cycle will be longer or the possibility of full recovery is low. As of press time, Fuchun shares have not announced the new progress of this litigation matter.