Exhibit 99.3

YY INC.

INDEX TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Contents	Page
Unaudited Interim Condensed Consolidated Balance Sheets as of December 31, 2018 and March 31, 2019	1
Unaudited Interim Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2018 and 2019	3
Unaudited Interim Condensed Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2018 and 2019	5
Unaudited Interim Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2019	7
Notes to the Unaudited Interim Condensed Consolidated Financial Statements	8

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2018 AND MARCH 31, 2019 (CONTINUED)

(All amounts in thousands, except share, ADS, per share and per ADS data)

			As of December 31,		As of March 31,
	Note		2018		2019		2019
			RMB		RMB		US$
							(Note2(c))
Assets
Current assets
Cash and cash equivalents				6,004,231		8,936,229		1,331,540
Restricted cash and cash equivalents				-		263,132		39,208
Short-term deposits				7,326,996		4,907,121		731,184
Restricted short-term deposits				-		637,907		95,051
Short-term investments				979,053		1,402,678		209,006
Accounts receivable, net				198,428		632,357		94,224
Amounts due from related parties		12		193,559		10,330		1,539
Financing receivables, net				768,343		704,451		104,966
Prepayments and other current assets		4		1,019,019		639,029		95,218
Total current assets				16,489,629		18,133,234		2,701,936
Non-current assets
Long-term deposits				1,000,000		-		-
Deferred tax assets				70,834		113,059		16,846
Investments				4,591,524		1,436,281		214,013
Property and equipment, net				1,296,319		1,697,773		252,976
Land use rights, net				1,784,639		1,772,615		264,128
Intangible assets, net		5		74,685		3,533,432		526,498
Right-of-use assets, net (1)				-		266,728		39,744
Goodwill		3		11,763		12,497,140		1,862,132
Financing receivables, net				224,793		224,609		33,468
Other non-current assets				223,859		246,938		36,794
Total non-current assets				9,278,416		21,788,575		3,246,599
Total assets				25,768,045		39,921,809		5,948,535
Liabilities, mezzanine equity and shareholders’ equity
Current liabilities
Convertible bonds				6,863		6,734		1,003
Accounts payable				114,589		235,556		35,099
Deferred revenue				951,616		1,210,396		180,355
Advances from customers				101,690		90,516		13,487
Income taxes payable				235,561		307,124		45,763
Accrued liabilities and other current liabilities		6		2,414,371		3,324,934		495,431
Amounts due to related parties		12		28,336		33,745		5,028
Lease liabilities due within one year(1)				-		103,350		15,400
Short-term loans		7		-		1,282,516		191,101
Total current liabilities				3,853,026		6,594,871		982,667
Non-current liabilities
Lease liabilities (1)				-		172,138		25,649
Deferred revenue				91,710		129,876		19,352
Deferred tax liabilities				27,505		350,981		52,298
Total non-current liabilities				119,215		652,995		97,299
Total liabilities				3,972,241		7,247,866		1,079,966

1

UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF DECEMBER 31, 2018 AND MARCH 31, 2019 (CONTINUED)

(All amounts in thousands, except share, ADS, per share and per ADS data)

			As of December 31,		As of March 31,
	Note		2018		2019		2019
			RMB		RMB		US$
							(Note 2(c))
Commitments and contingencies		14
Mezzanine equity				418,673		420,525	62,660
Shareholders’ equity
Class A common shares (US$0.00001 par value; 10,000,000,000 and 10,000,000,000 shares authorized, 981,740,848 shares issued and outstanding as of December 31, 2018; 1,297,051,264 shares issued and 1,286,804,655 shares outstanding as of March 31, 2019, respectively)				59		80	12
Class B common shares (US$0.00001 par value; 1,000,000,000 and 1,000,000,000 shares authorized, 288,182,976 and  326,509,555 shares issued and outstanding as of December 31, 2018 and March 31, 2019, respectively)				21		24	4
Additional paid-in capital				11,168,866		19,048,058	2,838,249
Statutory reserves				101,725		101,725	15,157
Retained earnings				6,913,469		10,024,537	1,493,703
Accumulated other comprehensive income				336,152		228,389	34,031
Total YY Inc.’s shareholders’ equity				18,520,292		29,402,813	4,381,156
Non-controlling interests				2,856,839		2,850,605	424,753
Total shareholders’ equity				21,377,131		32,253,418	4,805,909
Total liabilities, mezzanine equity and shareholders’ equity				25,768,045		39,921,809	5,948,535

(1) The Company has adopted ASC 842 “Leases” beginning January 1, 2019 using the optional transition method and prior periods were not restated. The only major impact of the standard is that assets and liabilities amounting to RMB145.2 million and RMB141.2 million, respectively, are recognized beginning January 1, 2019 for leased office space with terms of more than 12 months.

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

2

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2019

(All amounts in thousands, except share, ADS, per share and per ADS data)

			For the three months ended March 31,
	Note		2018			2019			2019
			RMB			RMB			US$
									(Note2(c))
Net revenues
Live streaming				3,032,035			4,485,020			668,289
Others				216,896			295,564			44,040
Total net revenues				3,248,931			4,780,584			712,329
Cost of revenues (1)		8		(2,015,797	)		(3,160,325	)		(470,903	)
Gross profit				1,233,134			1,620,259			241,426
Operating expenses (1)
Research and development expenses				(249,465	)		(404,736	)		(60,308	)
Sales and marketing expenses				(235,658	)		(534,236	)		(79,604	)
General and administrative expenses				(163,976	)		(276,424	)		(41,188	)
Total operating expenses				(649,099	)		(1,215,396	)		(181,100	)
Other income				12,374			68,688			10,235
Operating income				596,409			473,551			70,561
Interest expense				(2,019	)		(6,219	)		(927	)
Interest income and investment income				92,191			148,289			22,096
Foreign currency exchange gains, net				6,719			1,333			199
Gain on fair value changes of investments				426,547			2,649,843			394,839
Fair value loss on derivative liabilities				(11,868	)		-			-
Income before income tax expenses				1,107,979			3,266,797			486,768
Income tax expenses		9		(148,245	)		(123,971	)		(18,472	)
Income before share of income in equity method investments, net of income taxes				959,734			3,142,826			468,296
Share of income in equity method investments, net of income taxes				9,179			7,156			1,066
Net income				968,913			3,149,982			469,362
Less: Net income attributable to the non-controlling interest shareholders and the mezzanine equity classified non-controlling interest shareholders				5,384			29,549			4,403
Net income attributable to controlling interest of YY Inc.				963,529			3,120,433			464,959
Less: Accretion of subsidiaries’  redeemable convertible preferred shares to redemption value				30,107			9,365			1,395
Cumulative dividend on subsidiary’s Series A Preferred Shares				-			6,730			1,003
Deemed dividend to subsidiary’s Series A Preferred shareholders				489,284			-			-
Net income attributable to common shareholders of YY Inc.				444,138			3,104,338			462,561
Foreign currency translation adjustments, net of nil tax				(119,187	)		(107,763	)		(16,057	)
Comprehensive income attributable to the common shareholders of YY Inc.				324,951			2,996,575			446,504

3

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2019 (CONTINUED)

(All amounts in thousands, except share, ADS, per share and per ADS data)

			For the three months ended March 31,
	Note		2018		2019		2019
			RMB		RMB		US$
							(Note2(c))
Net income per ADS*
—Basic		11		6.97		44.93		6.69
—Diluted		11		6.86		44.55		6.64
Weighted average number of ADS used in calculating net income per ADS
—Basic		11		63,694,535		69,097,090		69,097,090
—Diluted		11		64,713,421		69,640,885		69,640,885
Net income per common share*
—Basic		11		0.35		2.25		0.33
—Diluted		11		0.34		2.23		0.33
Weighted average number of common shares used in calculating net income per common share
—Basic		11		1,273,890,701		1,381,941,802		1,381,941,802
—Diluted		11		1,294,268,422		1,392,817,695		1,392,817,695

* Each ADS represents 20 common shares.

(1) Share-based compensation was allocated in cost of revenues and operating expenses as follows:

		For the three months ended March 31,
	Note	2018		2019		2019
		RMB		RMB		US$
						(Note2(c))
Cost of revenues			19,608		14,309		2,132
Research and development expenses			54,467		70,607		10,521
Sales and marketing expenses			1,869		1,976		294
General and administrative expenses			36,563		94,877		14,137

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

4

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2019

(All amounts in thousands, except share, ADS, per share and per ADS data)

	Class A common shares				Class B common shares
	Number of shares		Amount		Number of shares			Amount			Additional paid-in capital			Statutory reserves		Retained earnings			Accumulated other comprehensive loss			Total YY Inc.’s shareholders’ equity			Non- controlling interests			Total shareholders’ equity
			RMB					RMB			RMB			RMB		RMB			RMB			RMB			RMB			RMB
Balance as of December 31, 2017		945,245,908		57		317,982,976			23			5,339,844			62,718		5,218,110			(9,597	)		10,611,155			101,704			10,712,859
Adoption of ASU 2016-01		-		-		-			-			-			-		87,802			(87,802	)		-			-			-
Issuance of common shares for vested restricted share units		682,760		-		-			-			1			-		-			-			1			-			1
Class B common shares converted to Class A common shares		20,000,000		1		(20,000,000	)		(1	)		-			-		-			-			-			-			-
Share-based compensation		-		-		-			-			112,507			-		-			-			112,507			-			112,507
Capital injection in subsidiaries from non-controlling interest shareholders		-		-		-			-			-			-		-			-			-			658			658
Acquisition of subsidiary’s shares from mezzanine equity holders		-		-		-			-			(13,315	)		-		-			-			(13,315	)		-			(13,315	)
Partial disposal of a subsidiary’s interests to non-controlling interest shareholders		-		-		-						389,358			-		-			(529	)		388,829			(34,081	)		354,748
Components of comprehensive income
Net income attributable to YY Inc. and non-controlling interest shareholders		-		-		-			-			-			-		963,529			-			963,529			4,027			967,556
Accretion of subsidiaries' redeemable convertible preferred shares to redemption value		-		-		-			-			-			-		(30,107	)		-			(30,107	)		(474	)		(30,581	)
Deemed dividend to subsidiary’s Series A Preferred shareholders		-		-		-			-			-			-		(489,284	)		-			(489,284	)		(7,711	)		(496,995	)
Foreign currency translation adjustments, net of nil tax		-		-		-			-			-			-		-			(119,187	)		(119,187	)		-			(119,187	)
Balance as of March 31, 2018		965,928,668		58		297,982,976			22			5,828,395			62,718		5,750,050			(217,115	)		11,424,128			64,123			11,488,251

5

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2019 (CONTINUED)

(All amounts in thousands, except share, ADS, per share and per ADS data)

	Class A common shares					Class B common shares
	Number of shares			Amount		Number of shares		Amount		Additional paid-in capital			Statutory reserves		Retained earnings			Accumulated other comprehensive income (loss)			Total YY Inc.’s shareholders’ equity			Non- controlling interests			Total shareholders’ equity
				RMB				RMB		RMB			RMB		RMB			RMB			RMB			RMB			RMB
Balance as of December 31, 2018		981,740,848			59		288,182,976		21		11,168,866			101,725		6,913,469			336,152			18,520,292			2,856,839			21,377,131
Issuance of common shares for vested restricted share units		1,421,920			-		-		-		-			-		-			-			-			-			-
Issuance of common shares in connection with the acquisition of Bigo		305,127,046			21		38,326,579		3		7,704,396			-		-			-			7,704,420			-			7,704,420
Forfeiture of restricted shares		(1,485,159	)		-		-		-		-			-		-			-			-			-			-
Share-based compensation		-			-		-		-		181,769			-		-			-			181,769			-			181,769
Issuance of a subsidiary’s common shares for exercised share options		-			-		-		-		(6,973	)		-		-			-			(6,973	)		17,655			10,682
Components of comprehensive income		-
Net income attributable to YY Inc. and non-controlling interest shareholders		-			-		-		-		-			-		3,120,433			-			3,120,433			29,549			3,149,982
Accretion of subsidiaries' redeemable convertible preferred shares to redemption value		-			-		-		-		-			-		(9,365	)		-			(9,365	)		(408	)		(9,773	)
Foreign currency translation adjustments, net of nil tax		-			-		-		-		-			-		-			(107,763	)		(107,763	)		(53,030	)		(160,793	)
Balance as of March 31, 2019		1,286,804,655			80		326,509,555		24		19,048,058			101,725		10,024,537			228,389			29,402,813			2,850,605			32,253,418

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

6

UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2019

(All amounts in thousands)

			For the three months ended March 31,
	Note		2018			2019			2019
			RMB			RMB			US$
									(Note2(c))
Cash flows from operating activities
Net cash provided by operating activities				780,276			966,079			143,949
Cash flows from investing activities
Placements of short-term deposits				(5,338,720	)		(2,760,181	)		(411,280	)
Maturities of short-term deposits				2,504,224			6,065,339			903,764
Placements of short-term investments				(98,000	)		(490,001	)		(73,012	)
Cash paid for investments				(242,658	)		(74,127	)		(11,045	)
Cash received from disposal of investments				213,028			141,875			21,140
Acquisition of businesses, net of cash, cash equivalents and restricted cash acquired				-			(1,387,840	)		(206,795	)
Loans to a related party		12		(20,000	)		(170,000	)		(25,331	)
Payments to originate financing receivables				-			(462,678	)		(68,941	)
Principal collection from financing receivables				-			559,000			83,294
Cash flows from other investing activities				38,749			81,263			12,109
Net cash (used in) provided by investing activities				(2,943,377	)		1,502,650			223,903
Cash flows from financing activities
Capital contributions from mezzanine equity holders				2,919,112			100,536			14,980
Partial disposal of subsidiary’s interests to non-controlling interest shareholders				378,548			-			-
Proceeds from bank borrowings		7		-			1,278,601			190,517
Repayments of bank borrowings				(569,166	)		-			-
Cash flows from other financing activities				(33,314	)		(100	)		(15	)
Net cash provided by financing activities				2,695,180			1,379,037			205,482
Net increase in cash, cash equivalents and restricted cash				532,079			3,847,766			573,334
Cash, cash equivalents and restricted cash at the beginning of the year				3,617,432			6,004,231			894,658
Effect of exchange rate changes on cash, cash equivalents and restricted cash				(62,994	)		(14,729	)		(2,193	)
Cash, cash equivalents and restricted cash at the end of the period				4,086,517			9,837,268			1,465,799
Supplemental disclosure of cash flows information:
—Cash paid for interest, net of amounts capitalized				(2,796	)		(4,687	)		(698	)
—Income taxes paid				(116,259	)		(120,014	)		(17,883	)
Supplemental disclosures of non-cash investing and financing activities:
—Acquisition of property and equipment				14,270			176,737			26,335
—Disposal of  investments				12,140			17,790			2,651
—Common shares issued for the acquisition of Bigo				-			7,704,420			1,147,994

The accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements.

7

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

1. Organization and principal activities

(a) Organization and principal activities

YY Inc. (the “Company”), together with its subsidiaries, its variable interest entities (“VIEs”, also refer to VIEs and their subsidiaries as a whole, where appropriate) (collectively, the “Group”), is a leading global social media platform, offering users around the world a uniquely engaging and immersive experience across various video-based products and services, such as live streaming, short-form videos and video communication.

In March 2019, the Company completed the acquisition of Bigo Inc (“Bigo”). Bigo is primarily engaged in the video and audio broadcast business all over the world. The Company paid US$343.1 million in cash and issued 305,127,046 Class A common shares and 38,326,579 Class B common shares of the Company to Bigo’s other shareholders. The details of this acquisition are disclosed in Note 3 “Business combination”.

(b) Initial Public Offering

The Company completed its initial public offering (“IPO”) on November 21, 2012 on the NASDAQ Global Market.

(c) Principal subsidiaries and VIEs

The details of the principal subsidiaries and VIEs through which the Company conducts its business operations as of March 31, 2019 are set out below:

Name	Place of incorporation	Date of incorporation or acquisition	% of direct or indirect economic ownership			Principal activities
Principal subsidiaries
Duowan Entertainment Corporation (“Duowan BVI”)	British Virgin Islands (“BVI”)	November 6, 2007		100	%	Investment holding
Huanju Shidai Technology (Beijing) Co., Ltd. (“Beijing Huanju Shidai” or “Duowan Entertainment”)	PRC	March 19, 2008		100	%	Investment holding
Guangzhou Huanju Shidai Information Technology Co., Ltd. (“Guangzhou Huanju Shidai”)	PRC	December 2, 2010		100	%	Software development
Engage Capital Partners I, L.P. (“Engage L.P.”)	Cayman Islands	March 23, 2015		93.5	%	Investment
HUYA Inc. (“Huya”)	Cayman Islands	March 30, 2017		43.9	%	Investment holding
Guangzhou Huya Technology Co., Ltd. (“Huya Technology”)	PRC	June 16, 2017		43.9	%	Software development
Hago Singapore Pte. Ltd. (“Hago Singapore”)	Singapore	May 7, 2018		100	%	Internet value added services
Bigo	Cayman Islands	March 4, 2019		100	%	Investment holding
Bigo Technology Pte. Ltd. (“Bigo Singapore”)	Singapore	March 4, 2019		100	%	Investment holding, operation of live streaming platform
Bigo (Hong Kong) Limited (“Bigo HK”)	Hong Kong	March 4, 2019		100	%	Investment holding
Guangzhou BaiGuoYuan Information Technology Co., Ltd. (“BaiGuoYuan Technology”)	PRC	March 4, 2019		100	%	Software development and provision of information technology services

8

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

1. Organization and principal activities (continued)

(c) Principal subsidiaries and VIEs (continued)

Name	Place of incorporation		Date of incorporation or acquisition	% of direct or indirect economic ownership			Principal activities
Principal VIEs
Guangzhou Huaduo Network Technology Co., Ltd. (“Guangzhou Huaduo”)		PRC	April 11, 2005		100	%	Holder of internet content provider licenses and internet value added services
Zhuhai Huanju Interactive Entertainment Technology Co., Ltd. (“Zhuhai Huanju Interactive”)		PRC	May 4, 2015		100	%	Software development
Shanghai Yilian Equity Investment Partnership (LP) (“Shanghai Yilian”)		PRC	June 23, 2015		93.5	%	Investment
Guangzhou Huanju Microfinance Co., Ltd. (“Guangzhou Microfinance”)		PRC	January 11, 2016		100	%	Financing services
Guangzhou Huya Information Technology Co., Ltd. (“Guangzhou Huya”)		PRC	August 10, 2016		43.9	%	Holder of internet content provider licenses and internet value added services
Guangzhou Yilianyixing Investment Partnership (LP) (“Guangzhou Yilianyixing”)		PRC	June 28, 2017		99	%	Investment
Guangzhou BaiGuoYuan Network Technology Co., Ltd. (“Guangzhou BaiGuoYuan”)		PRC	March 4, 2019		100	%	Holder of internet content provider licenses and internet value added services

9

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

1. Organization and principal activities (continued)

(d) Variable Interest Entities

To comply with PRC laws and regulations that prohibit or restrict foreign ownership of companies that provide internet-content, the Group’s major operations in the PRC are conducted primarily through its principal VIEs Guangzhou Huaduo, Guangzhou Huya and Guangzhou BaiGuoYuan, which hold the internet value-added service license and approvals to provide such internet services in the PRC. VIE agreements amongst Beijing Huanju Shidai, Guangzhou Huaduo and its nominee shareholders and VIE agreements among of Huya Technology, Guangzhou Huya and its nominee shareholders have been disclosed in the audited financial statements for the year ended December 31,2018. The VIE agreements related to Bigo’s business is discussed below.

VIE agreements amongst BaiGuoYuan Technology, Guangzhou BaiGuoYuan and its nominee shareholders

The following is a summary of the contractual arrangements entered among BaiGuoYuan Technology, Guangzhou BaiGuoYuan and its nominee shareholders.

• Exclusive Business Cooperation Agreement

Under the exclusive business cooperation agreement between BaiGuoYuan Technology and Guangzhou BaiGuoYuan, BaiGuoYuan Technology has the exclusive right to provide Guangzhou BaiGuoYuan technology support, business support and consulting services related to the services provided by Guangzhou BaiGuoYuan, the scope of which is to be determined by BaiGuoYuan Technology from time to time. BaiGuoYuan Technology owns the exclusive intellectual property rights created as a result of the performance of this agreement. BaiGuoYuan Technology receives substantially all of the economic interest returns generated by Guangzhou BaiGuoYuan. The term of this agreement will not expire unless with BaiGuoYuan Technology’s written confirmation to terminate the agreement.

• Exclusive Option Agreement

The parties to the exclusive option agreement are BaiGuoYuan Technology, Guangzhou BaiGuoYuan and each of the shareholders of Guangzhou BaiGuoYuan. Under the exclusive option agreement, each of the shareholders of Guangzhou BaiGuoYuan irrevocably granted BaiGuoYuan Technology or its designated representative(s) an exclusive option to purchase, to the extent permitted under the PRC laws, all or part of his or its equity interests in Guangzhou BaiGuoYuan. BaiGuoYuan Technology or its designated representative(s) have sole discretion as to when to exercise such options, either in part or in full. Without BaiGuoYuan Technology’s prior written consent, Guangzhou BaiGuoYuan’s shareholders shall not sell, transfer, mortgage or otherwise dispose their equity interests in Guangzhou BaiGuoYuan. The term of this agreement is ten years and may be extended at BaiGuoYuan Technology’s sole discretion.

• Powers of Attorney

Pursuant to the irrevocable power of attorney executed by each shareholder of Guangzhou BaiGuoYuan, each such shareholder appointed BaiGuoYuan Technology as its attorney-in-fact to exercise such shareholders’ rights in Guangzhou BaiGuoYuan, including, without limitation, the power to vote on its behalf on all matters of Guangzhou BaiGuoYuan requiring shareholders’ approval under the PRC laws and regulations and the articles of association of Guangzhou BaiGuoYuan. Each power of attorney will remain in force until the shareholder ceases to hold any equity interest in Guangzhou BaiGuoYuan.

• Share Pledge Agreement

Pursuant to the share pledge agreement between BaiGuoYuan Technology and the shareholders of Guangzhou BaiGuoYuan, the shareholders of Guangzhou BaiGuoYuan have pledged all of their equity interests in Guangzhou BaiGuoYuan to BaiGuoYuan Technology to guarantee the performance by Guangzhou BaiGuoYuan and its shareholders’ performance of their respective obligations under the exclusive business cooperation agreement, exclusive option agreement and powers of attorney. If Guangzhou BaiGuoYuan and/or its shareholders breach their contractual obligations under those agreements, BaiGuoYuan Technology, as pledgee, will be entitled to voting right and the right to sell the pledged equity interests.

10

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

1. Organization and principal activities (continued)

(d) Variable Interest Entities (continued)

Through the aforementioned contractual agreements, Guangzhou BaiGuoYuan is considered a VIE in accordance with Generally Accepted Accounting Principles in the United States (“U.S. GAAP”) because the Company, through BaiGuoYuan Technology, has the ability to:

• exercise effective control over Guangzhou BaiGuoYuan;

• receive substantially all of the economic benefits and residual returns, and absorb substantially all the risks and expected losses from Guangzhou BaiGuoYuan as if it was its sole shareholder; and

• have an exclusive option to purchase all of the equity interests in Guangzhou BaiGuoYuan.

2. Principal accounting policies

(a) Basis of presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements as of December 31, 2018 and for the year ended December 31, 2018, except for the newly adopted leasing standard. In the opinion of management, all adjustments, consisting of normal recurring adjustments necessary for the fair statement of results for the periods presented, have been included. The results of operations of any interim period are not necessarily indicative of the results of operations for the full year or any other interim period.

The preparation of the unaudited interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the recorded amounts reported therein. A change in facts or circumstances surrounding the estimate could result in a change to estimates and impact future operating results.

The unaudited interim condensed consolidated financial statements and related disclosures have been prepared with the presumption that users of the unaudited interim condensed consolidated financial statements have read or have access to the audited consolidated financial statements as of December 31, 2018 and for the year ended December 31, 2018. The condensed consolidated balance sheet at December 31, 2018 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by U.S. GAAP. Accordingly, these unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto as of December 31, 2018 and for the year ended December 31, 2018.

(b) Consolidation

The Group’s unaudited interim condensed consolidated financial statements include the financial statements of the Company, its subsidiaries and VIEs for which the Company or its subsidiary is the primary beneficiary. All transactions and balances among the Company, its subsidiaries and VIEs have been eliminated upon consolidation.

A subsidiary is an entity in which the Company, directly or indirectly, controls more than one half of the voting powers; or has the power to appoint or remove the majority of the members of the board of directors; or to cast a majority of votes at the meeting of directors; or has the power to govern the financial and operating policies of the investee under a statute or agreement among the shareholders or equity holders.

A VIE is an entity in which the Company, or its subsidiary, through contractual agreements, bears the risks of, and enjoys the rewards normally associated with ownership of the entity, and therefore the Company or its subsidiary is the primary beneficiary of the entity. In determining whether the Company or its subsidiaries are the primary beneficiary, the Company considered whether it has the power to direct activities that are significant to the VIEs economic performance, and also the Company’s obligation to absorb losses of the VIEs that could potentially be significant to the VIEs or the right to receive benefits from the VIEs that could potentially be significant to the VIEs. Beijing Huanju Shidai, Bilin Changxiang Information Technology Co., Ltd., Huya Technology, Guangzhou 100 Education Technology Co., Ltd., BaiGuoYuan Technology and ultimately the Company hold all the variable interests of the VIEs and have been determined to be the primary beneficiary of the VIEs.

11

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

2. Principal accounting policies (continued)

(c) Convenience translation

Translations of amounts from RMB into US$ for the convenience of the reader were calculated at the noon buying rate of US$1.00 = RMB 6.7112 on March 29, 2019 as set forth in the H.10 statistical release of the U.S. Federal Reserve Board. No representation is made that the RMB amounts could have been, or could be, converted into US$ at such rate. 

(d) Cash and cash equivalents

As of March 31, 2019, cash, cash equivalents and restricted cash presented in the unaudited interim condensed consolidated statement of cash flows is 9,837,268, including cash and cash equivalents of RMB8,936,229, restricted cash and cash equivalents of RMB263,132 and restricted short-term deposits of RMB637,907 on the unaudited interim condensed consolidated balance sheet, respectively.

(e) Leasing

The Group leases facilities in the PRC under non-cancellable operating leases expiring on different dates. On January 1, 2019, the Company adopted ASU No. 2016-02 (Topic 842) “Leases” using the optional transition method. Results and disclosure requirements for reporting periods beginning after January 1, 2019 are presented under Topic 842, while prior period amounts have not been adjusted and continue to be reported in accordance with our historical accounting under Topic 840. Under Topic 842, lessees are required to recognize assets and liabilities on the balance sheet for most leases. A contract is or contains a lease if the contract conveys the right to control the use of identified property, plant, or equipment (an identified asset) for a period of time in exchange for consideration. The Company determines whether a contract conveys the right to control the use of an identified asset for a period of time by assessing whether the Company has both the right to obtain substantially all of the economic benefits from use of the identified asset and the right to direct the use of the identified asset.

The only major impact of the adoption of the standard is that assets and liabilities amounting to RMB145.2 million and RMB141.2 million, respectively, are recognized beginning January 1, 2019 for leased office space with terms of more than 12 months. The Company accounts for short-term leases with terms less than 12 months in accordance with ASC 842-20-25-2 to recognize the lease payments in profit or loss on a straight-line basis over the lease term and variable lease payments in the period in which the obligation for those payments is incurred.

Operating leases are included in operating lease right-of-use assets, current lease liabilities and non-current lease liabilities on the unaudited interim condensed consolidated balance sheets.

(i) Right-of-use assets

Right-of-use assets are initially measured at the present value of the lease payments. Amortization of the right-of-use assets is made over the lease term on a generally straight-line basis. The weighted average lease terms of the right-of-use assets was 3.22 years.

(ii) Lease liabilities

Lease liabilities are lessees’ obligations to make the lease payments arising from a lease, measured on a discounted basis.

As a lessee, the discount rate for the lease is the rate implicit in the lease unless that rate cannot be readily determined. In that case, the lessee is required to use its incremental borrowing rate. A weighted average incremental borrowing rate of 4.94% was adopted at commencement date in determining the present value of lease payments.

For the three months ended March 31, 2019, operating lease cost and short-term lease cost were RMB16,838 and RMB818, respectively. There were no other lease cost other than operating lease cost and short-term lease cost for the three months ended March 31, 2019. For the 3 months ended March 31, 2019, cash paid for operating leases included in operating cash flows was RMB26,349.

12

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

2. Principal accounting policies (continued)

(e) Leasing (continued)

A maturity analysis of the Company's operating lease liabilities and reconciliation of the undiscounted cash flows to the operating lease liabilities recognized on the unaudited interim condensed consolidated balance sheet was as below:

	Office rental
	RMB
The remainder of 2019		84,011
2020		98,106
2021		66,460
2022		35,450
2023 and after		20,252
Total undiscounted cash flows		304,279
Less: imputed interest		(28,791	)
Present value of lease liabilities		275,488

(f) Share-based compensation

The Group grants stock-based award, such as, but not limited to, share options, restricted shares, restricted share units of the Company, share option, restricted share units and ordinary shares of the Company’s subsidiaries to eligible employees, officers, directors, and non-employee consultants.

The Group’s share-based awards mainly include share-based awards of YY as well as share-based awards of Huya.

Upon the acquisition of Bigo, Class A common shares are issued for the replacement awards to Bigo’s employees to replace their original share-based awards, namely restricted shares. In determining the fair value of restricted share granted to Bigo’s employees, the fair value of the underlying shares of YY on the grant dates is applied. The grant date fair value of restricted share is based on stock price of YY in the NASDAQ Global Market.

13

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

2. Principal accounting policies (continued)

(g) Statutory reserves

The Group did not make any appropriation to its general reserve fund, statutory surpluses fund, discretionary surplus fund, and the staff bonus and welfare fund for the three months ended March 31, 2018 and 2019, respectively.  

(h) Segment reporting

Operating segments are defined as components of an enterprise engaging in businesses activities for which separate financial information is available that is regularly evaluated by the Group’s chief operating decision makers (“CODM”) in deciding how to allocate resources and assess performance. The Group’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews segment results when making decisions about allocating resources and assessing performance of the Group.

(i) Recently issued accounting pronouncements

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13: Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company is in the process of evaluating the impact of the standard on its consolidated financial statements.

In January 2017, the FASB issued Accounting Standards Update (“ASU”) 2017-04: Simplifying the Test for Goodwill Impairment. The guidance removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. The guidance should be adopted on a prospective basis for the annual or any interim goodwill impairment tests beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is in the process of evaluating the impact of the standard on its consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this standard will remove, modify and add certain disclosures under ASC Topic 820, Fair Value Measurement, with the objective of improving disclosure effectiveness. ASU 2018-13 will be effective for the Group’s fiscal year beginning January 1, 2020, with early adoption permitted. The transition requirements are dependent upon each amendment within this update and will be applied either prospectively or retrospectively. The Company does not expect ASU 2018-13 to have a material impact to the Company’s consolidated financial statements.

14

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

3. Business combination

Acquisition of Bigo

Immediately prior to this acquisition, the Company held 31.7% of equity interest of Bigo, a company which is primarily engaged in the video and audio broadcast business through its live-streaming applications and platforms all over the world. The Company had a contingent redemption right on its investment in Bigo, therefore the interest held by the Company did not meet the definition of in-substance common stock under ASC 323. As the investment in Bigo did not have readily determinable fair value, it was accounted for as an investment at cost less impairments, adjusted by observable price changes.

In February 2019, the Group entered into a share purchase agreement with Bigo and its shareholders. Under the agreement, the Group agreed to purchase all outstanding shares of Bigo that were not already owned by the Group. Pursuant to the agreement, the Company paid US$343.1 million in cash and issued 305,127,046 Class A common shares and 38,326,579 Class B common shares of the Company to Bigo’s other shareholders. In addition, the Company has also issued 8,761,450 Class A common shares for future grants to employees as share-based awards. The acquisition was completed on March 4, 2019. The Group believed that the acquisition of Bigo helped the Group create enhanced live streaming content, expand global footprint and offer world-class user experiences for global user community. Upon the completion of the acquisition, Bigo became a wholly-owned subsidiary of the Group.

The following table summarizes the components of the purchase consideration transferred based on the closing price of the Company’s common share as of the acquisition date:

	As of acquisition date
	RMB
Cash		2,300,196
Fair value of common shares issued		7,704,420
Fair value of previously held equity interest in Bigo		5,697,154
Elimination of preexisting amounts due from Bigo		323,002
Total consideration		16,024,772

The fair value of common shares issued above does not include post-acquisition share-based compensation amounting to RMB590,346. Out of the 305,127,046 Class A common shares issued, 38,042,760 shares are for the replacement awards to Bigo’s employees to replace their original share-based awards. The post-acquisition share-based compensation of RMB590,346 are share-based compensation subject to continuous employment and will be recognized as share-based compensation expenses over the remaining required service period.

Immediately before the acquisition, the amounts due from Bigo to the Company amounted to RMB323,002. This amount due from Bigo was effectively eliminated upon the acquisition. The amount of the preexisting amounts due from Bigo of RMB323,002 was included as part of the consideration.

In accordance with ASC 805, the Company’s previously held equity interest in Bigo was remeasured to fair value on the acquisition date, and a re-measurement gain of RMB2,669,334 was recognized as gain on fair value changes of investments. Acquisition-related costs of RMB27,162 was recognized as general and administrative expenses.

15

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

3. Business combination (continued)

Acquisition of Bigo (continued)

The acquisition was accounted for as a business combination. The Group made estimates and judgements in determining the fair value of the assets acquired and liabilities assumed with the assistance from an independent valuation firm. The consideration was allocated on the acquisition date as follows:

	As of acquisition date			Amortization period
	RMB
Net tangible assets acquired:
-Cash and cash equivalents, restricted cash and cash equivalents and restricted short-term deposits		912,356
-Accounts receivables		386,517
-Other current assets		52,432
-Property and equipment, net		294,030
-Other non-current assets		174,837
Identifiable intangible assets acquired:
-Trademark		2,400,354			10 years
-User Base		1,027,191			3 years
-Non-compete agreement		81,129			1 year
-Others		6,195
Accrued liabilities and other liabilities		(1,425,777	)
Deferred tax liabilities		(316,859	)
Goodwill		12,432,367
Total		16,024,772

The goodwill was mainly attributable to intangible assets that cannot be recognized separately as identifiable assets under U.S. GAAP, and mainly comprised (a) the assembled work force and (b) the expected future growth, enhancing world-class user experiences and expansion in global markets as a result of the synergy resulting from the acquisition. The goodwill recognized was not expected to be deductible for income tax purpose.

Pro forma information of the acquisition

The following unaudited pro forma information summarizes the results of operations for the three month ended March 31, 2019 of the Company as if the acquisition had occurred on January 1, 2018. The unaudited pro forma information includes: (i) amortization associated with estimates for the acquired intangible assets and corresponding deferred tax liability; (ii) recognition of the post-combination share-based compensation; (iii) removal of the transaction costs related to the acquisition; (iv) removal of the remeasurement gain of YY’s previously held interests in Bigo; (v) removal of fair value loss on derivative liabilities related to Bigo’s preferred shares; (vi) elimination of transaction between Bigo and the Company and (vii) the associated tax impact on these unaudited pro forma adjustments. The following pro forma financial information is presented for informational purpose only and is not necessarily indicative of the results that would have occurred had the acquisition been completed on January 1 2018, nor is it indicative of future operating results.

	For the three months ended March 31,
	2019
	RMB
Pro forma net revenues		5,441,913
Pro forma net income		215,994

The amounts of revenues and earnings of Bigo since the acquisition date are disclosed in Note 16 “Segment Reporting”. 

16

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

4. Prepayments and other current assets

	December 31,		March 31,
	2018		2019
	RMB		RMB
Prepayments and deposits to vendors and content providers		183,293		188,900
Loans to third parties		180,964		90,467
Value added taxes to be deducted		69,563		86,586
Receivables from payment platforms		112,061		64,725
Interests receivable		218,553		48,581
Rental and other deposits		22,457		32,246
Employee advances		11,536		19,380
Receivables from disposal of investments		59,255		17,790
Amounts receivable from issuance of a subsidiary’s preferred shares		102,951		-
Others		58,386		90,354
Total		1,019,019		639,029

5. Intangible assets, net

The following table summarizes the Group’s intangible assets:

	December 31,			March 31,
	2018			2019
	RMB			RMB
Gross carrying amount
Trademark		-			2,410,593
User base		-			1,031,572
Non-compete agreement		-			81,475
Operating rights		67,080			67,080
Software		39,535			45,481
License		32,000			32,000
Domain names		26,819			26,855
Technology		18,094			17,928
Total of gross carrying amount		183,528			3,712,984
Less: accumulated amortization
Trademark		-			(20,086	)
User base		-			(35,327	)
Non-compete agreement		-			(6,787	)
Operating rights		(48,451	)		(53,205	)
Software		(28,406	)		(31,532	)
License		(1,422	)		(1,956	)
Domain names		(11,213	)		(11,474	)
Technology		(11,856	)		(11,787	)
Total accumulated amortization		(101,348	)		(172,154	)
Less: accumulated impairment		(7,495	)		(7,398	)
Intangible assets, net		74,685			3,533,432

Amortization expense for the three months ended March 31, 2018 and 2019 were RMB3,703 and RMB70,870, respectively.

17

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

5. Intangible assets, net (continued)

The estimated amortization expenses for each of the following five years as of March 31 are as follows:

	Amortization expense of intangible assets
	RMB
2020		761,344
2021		644,132
2022		307,245
2023		306,832
2024		301,670

The weighted average amortization periods of intangible assets as of December 31, 2018 and March 31, 2019 are as below:

	December 31,	March 31,
	2018	2019
Trademark	Not applicable	10 years
User base	Not applicable	3 years
Non-compete agreement	Not applicable	1 year
Operating rights	2 years	2 years
Software	4 years	5 years
License	15 years	15 years
Domain names	15 years	15 years

18

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

6. Accrued liabilities and other current liabilities

	December 31,		March 31,
	2018		2019
	RMB		RMB
Revenue sharing fees		1,318,561		1,417,482
Marketing and promotion expenses		213,216		597,085
Salaries and welfare		329,169		260,149
Bandwidth costs		131,252		238,106
Consideration payables related to business acquisition		-		238,014
Value added taxes and other taxes payable		109,040		149,276
Deposits from third parties		82,771		100,004
Payables to merchants		75,471		78,040
Other payables to content providers		30,313		48,944
Others		124,578		197,834
Total		2,414,371		3,324,934

7. Short-term loans

	December 31,		March 31,
	2018		2019
	RMB		RMB
Short-term loans		-		1,282,516

The Group entered into agreements with financial institutions, pursuant to which the Group borrowed three loans with total principal amount of US$149.7 million and HK$320 million in the first quarter of 2019. These loans were all with a maturity of less than one year and the annual interest rates of these loans ranged from 2.38% to 3.88%. Term deposits of RMB300 million and US$50 million were pledged as collaterals for the loans.

8. Cost of revenues

	For the three months ended March 31,
	2018		2019
	RMB		RMB
Revenue sharing fees and content costs		1,620,959		2,524,715
Bandwidth costs		225,423		297,402
Salaries and welfare		70,871		119,330
Payment handling costs		20,012		98,957
Depreciation and amortization		29,885		37,785
Other taxes and surcharges		10,099		19,943
Share-based compensation		19,608		14,309
Other costs		18,940		47,884
Total		2,015,797		3,160,325

19

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

9. Income tax

(i) Cayman Islands

Under the current tax laws of Cayman Islands, the Company and its subsidiaries are not subject to tax on income or capital gains. Besides, upon payment of dividends by the Company to its shareholders, no Cayman Islands withholding tax will be imposed.

(ii) BVI

Duowan BVI is exempted from income tax on its foreign-derived income in the BVI. There are no withholding taxes in the BVI.

(iii) Hong Kong profits tax

Under the current Hong Kong Inland Revenue Ordinance, the subsidiaries of the Group in Hong Kong are subject to 16.5% Hong Kong profit tax on its taxable income generated from operations in Hong Kong. Additionally, payments of dividends by the subsidiaries incorporated in Hong Kong to the Company are not subject to any Hong Kong withholding tax.

(iv) Singapore

The income tax provision of the Group in respect of its international operations in Singapore was calculated at the tax rate of 17% on the assessable profits, based on the existing legislation, interpretations and practices in respect thereof.

According to the Development and Expansion Incentive (the “Incentive”) pursuant to the provisions of Part IIIB of the Economic Expansion Incentives (Relief from Income Tax) Act, Chapter 86, corporations engaging in new high-value-added projects, expanding or upgrading their operations, or undertaking incremental activities after their pioneer period may apply for their profits to be taxed at a reduced rate of not less than 5% for an initial period of up to ten years. The total tax relief period for each qualifying project or activity is subject to a maximum of 40 years (inclusive of the post-pioneer relief period previously granted, if applicable).

The Group’s Singapore entities provided for income tax are as follows:

•      Bigo Singapore applied for the Incentive and received approval in October 2018. Bigo Singapore is entitled to enjoy the beneficial tax rate of 5% as the Incentive for the years 2018 through 2022, and will need to re-apply for the Incentive qualification renewal in 2023.

•      Other Singapore entities were subject to 17% income tax for the periods reported.

(v) PRC

The Company’s subsidiaries and VIEs in China are governed by the Enterprise Income Tax Law (“EIT Law”), which became effective on January 1, 2008. Pursuant to the EIT Law and its implementation rules, enterprises in China are generally subject to tax at a statutory rate of 25%. Certified High and New Technology Enterprises (“HNTE”) are entitled to a favorable statutory tax rate of 15%, but need to re-apply every three years. During this three-year period, an HNTE must conduct a qualification self-review each year to ensure it meets the HNTE criteria and is eligible for the 15% preferential tax rate for that year. If an HNTE fails to meet the criteria for qualification as an HNTE in any year, the enterprise cannot enjoy the 15% preferential tax rate in that year, and must instead use the regular 25% EIT rate.

Enterprises qualified as software enterprises can enjoy an income tax exemption for two years beginning with their first profitable year and a 50% tax reduction to the applicable tax rate for the subsequent three years. An entity that qualifies as a “Key National Software Enterprise” (a “KNSE”) is entitled to a further reduced preferential income tax rate of 10%. Enterprises wishing to enjoy the status of a Software Enterprise or a KNSE must perform a self-assessment each year to ensure they meet the criteria for qualification. These enterprises will be subject to the tax authorities’ assessment each year as to whether they are entitled to use the relevant preferential EIT treatments. If at any time during the preferential tax treatment years an enterprise uses the preferential EIT rates but the relevant authorities determine that it fails to meet applicable criteria for qualification, the relevant authorities may revoke the enterprise’s Software Enterprise/KNSE status.

20

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

9. Income tax (continued)

(v) PRC (continued)

The EIT Law also provides that an enterprise established under the laws of a foreign country or region but whose “de facto management body” is located in the PRC be treated as a resident enterprise for PRC tax purposes and consequently be subject to the PRC income tax at the rate of 25% for its global income. The Implementing Rules of the EIT Law merely define the location of the “de facto management body” as “the place where the exercising, in substance, of the overall management and control of the production and business operation, personnel, accounting, properties, etc., of a non-PRC company is located”. Based on a review of surrounding facts and circumstances, the Group does not believe that it is likely that its entities registered outside of the PRC should be considered as resident enterprises for the PRC tax purposes.

The Group’s PRC entities provided for enterprise income tax are as follows:

· Guangzhou Huaduo applied for the renewal of HNTE qualification and received approval in December 2016. Guangzhou Huaduo is entitled to continue to enjoy the beneficial tax rate of 15% as an HNTE for the years 2016 through 2018, and will need to re-apply for HNTE qualification renewal in 2019. In 2019, Guangzhou Huaduo is expected to enjoy the beneficial tax rate of 15% based on its self-assessment.

· In 2018, Guangzhou Huanju Shidai was qualified as a KNSE after the relevant government authorities’ assessment and was entitled to a preferential income tax rate of 10%. In 2019, Guangzhou Huanju Shidai is expected to enjoy a reduced tax rate of 10% based on its self-assessment.

· In June 2017, Guangzhou Juhui Information Technology Co., Ltd. was qualified as a Software Enterprise, and started to enjoy the zero preferential tax rate beginning from 2016 and 12.5% preferential tax rate beginning from 2018.

· Huya Technology was qualified as a Software Enterprise, and started to enjoy the zero preferential tax rate starting from 2017 and 12.5% preferential tax rate starting from 2019.

· Guangzhou Huya applied for the HNTE qualification and received approval in November 2018. Guangzhou Huya is entitled to enjoy the preferential tax rate of 15% as an HNTE for three years starting from 2018, and will need to apply for HNTE qualification renewal in 2021.

· Guangzhou BaiGuoYuan applied for the HNTE and received approval in December 2016. Guangzhou BaiGuoYuan is entitled to enjoy the beneficial tax rate of 15% as an HNTE for the years 2016 through 2018, and will need to re-apply for HNTE qualification renewal in 2019. In 2019, Guangzhou BaiGuoYuan is expected to enjoy the beneficial tax rate of 15% based on its self-assessment.

· BaiGuoYuan Technology applied for the HNTE and received approval in 2018. BaiGuoYuan Technology are entitled to enjoy the beneficial tax rate of 15% as HNTEs for the years 2018 through 2020, and will need to re-apply for HNTE qualification renewal in 2021.

· Other PRC subsidiaries and VIEs were subject to 25% EIT for the periods reported.

According to a policy promulgated by the State Tax Bureau of the PRC and effective from 2008 onwards, enterprises engaged in research and development activities are entitled to claim an additional tax deduction amounting to 50% of the qualified research and development expenses incurred in determining its tax assessable profits for that year. The additional tax deducting amount of the qualified research and development expenses have been increased from 50% to 75%, effective from 2018 to 2020, according to a new tax incentives policy promulgated by the State Tax Bureau of the PRC in September 2018 (“Super Deduction”).

Certain subsidiaries and VIEs of the Group successfully claimed the Super Deduction in ascertaining the tax assessable profits for the periods reported.

21

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

9. Income tax (continued)

(v) PRC (continued)

The EIT Law also imposes a withholding income tax of 10% on dividends distributed by an FIE to its immediate holding company outside of China, if such immediate holding company is considered as a non-resident enterprise without any establishment or place within China or if the received dividends have no connection with the establishment or place of such immediate holding company within China, unless such immediate holding company’s jurisdiction of incorporation has a tax treaty with China that provides for a different withholding arrangement. The Cayman Islands, where the Company incorporated, does not have such tax treaty with China. According to the arrangement between the mainland China and Hong Kong Special Administrative Region on the Avoidance of Double Taxation and Prevention of Fiscal Evasion in August 2006, dividends paid by an FIE in China to its immediate holding company in Hong Kong will be subject to withholding tax at a rate of no more than 5% (if the foreign investor owns directly at least 25% of the shares of the FIE). In accordance with accounting guidance, all undistributed earnings are presumed to be transferred to the parent company and are subject to the withholding taxes. All FIEs are subject to the withholding tax from January 1, 2008. The presumption may be overcome if the Group has sufficient evidence to demonstrate that the undistributed dividends will be re-invested and the remittance of the dividends will be postponed indefinitely.

Aggregate undistributed earnings and reserves of the Group entities located in the PRC that are available for distribution to the Company as of December 31, 2018 and March 31, 2019 are approximately RMB11,519,699 and RMB12,635,662, respectively.

The Group has a plan to indefinitely reinvest its funds and any future earnings for use in the operation and expansion of its business. Accordingly, no deferred tax liability on 10% withholding tax of aggregate undistributed earnings and reserves of the Company’s subsidiaries located in the PRC has been accrued that would be payable upon the distribution of those amounts to the Company as of December 31, 2018 and March 31, 2019.

Composition of income tax expense

The current and deferred portions of income tax expense included in the unaudited interim condensed consolidated statements of comprehensive income are as follows:

	For the three months ended March 31,
	2018			2019
	RMB			RMB
Income before income tax expenses
PRC entities		675,595			911,441
Non-PRC entities (a)		432,384			2,355,356
Total		1,107,979			3,266,797
Current income tax expenses
PRC entities		(102,731	)		(158,392	)
Non-PRC entities		-			(2,911	)
Total		(102,731	)		(161,303	)
Deferred income tax (expenses) benefit
PRC entities		4,968			33,100
Non-PRC entities		(50,482	)		4,232
Total		(45,514	)		37,332
Income tax expenses
PRC entities		(97,763	)		(125,292	)
Non-PRC entities		(50,482	)		1,321
Total		(148,245	)		(123,971	)

(a) The income before tax incurred by non-PRC entities for the three months ended March 31, 2019 was mainly due the Company’s previously held equity interest in Bigo which was re-measured to fair value on the acquisition date, and a re-measurement gain of RMB2,669,334 was recognized as gain on fair value changes of investments. This fair value gain was incurred by Duowan BVI whose applicable tax rate is zero.

22

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

10. Share-based compensation

Under the Company’s 2011 Share Incentive Scheme, the Company granted restricted share units and share options to its employees. Besides, Huya granted restricted share units and share options to its employees under Huya’s 2017 Share Incentive Plan, details of which were disclosed in the company’s audited consolidated financial statements for the year ended December 31, 2018. For the three month ended March 31, 2019, the new grants of share-based awards under the Company’s 2011 Share Incentive Scheme and Huya’s 2017 Share Incentive Plan were immaterial. For the three months ended March 31, 2019, the Company recorded share-based compensation of RMB139,788 using the graded-vesting attribution method for the Company’s share-based awards other than those granted to Bigo’s employees, which is discussed below.

In connection with the acquisition of Bigo in March 2019, the Group granted replacement awards to Bigo’s employees covering Bigo’s original share incentive scheme. These awards are included in the Company‘s 2011 Share Incentive Scheme.

There are mainly three types of vesting schedule under Bigo’s original share incentive scheme, which are: i) 50% of the share-based awards will be vested after 24 months of the grant date and the remaining 50% will be vested in two equal installments over the following 24 months, ii) share-based awards will be vested in four equal installments over the following 48 months, and iii). share-based awards will be vested in three equal installments over the following 36 months. After the acquisition, Bigo’s original share incentive scheme are replaced by YY’s restricted shares without change in vesting terms. The post-acquisition share-based compensation expenses are recognized over the remaining vesting period after the acquisition date.

The following table summarizes the restricted shares activity for the three months ended March 31, 2019:

	Number of restricted shares			Weighted average grant-date fair value (US$)
Outstanding, December 31, 2018		-			-
Granted		38,042,760			3.6020
Forfeited		(1,485,159	)		3.6020
Vested		(288,815	)		3.6020
Outstanding, March 31, 2019		36,268,786			3.6103
Expected to vest at March 31, 2019		31,459,321			3.6116

For the three months ended March 31, 2019, the Company recorded share-based compensation for restricted shares granted to Bigo’s employees of RMB41,981 using the graded-vesting attribution method. As of March 31, 2019, total unrecognized compensation expense relating to the restricted shares granted to Bigo’s employees was RMB501,774. The expense is expected to be recognized over a weighted average period of 1.83 years using the graded-vesting attribution method.

23

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

11. Basic and diluted net income per share

Basic and diluted net income per share for the three months ended March 31, 2018 and 2019 are calculated as follows:

	For the three months ended March 31,
	2018		2019
	RMB		RMB
Numerator:
Net income attributable to common shareholders of YY Inc.		444,138		3,104,338
Interest expenses of convertible notes		36		38
Incremental dilution from Huya(1)		-		(2,217	)
Numerator for diluted income per share		444,174		3,102,159
Denominator:
Denominator for basic calculation—weighted average number of Class A and Class B common shares outstanding		1,273,890,701		1,381,941,802
Dilutive effect of share options		154,347		-
Dilutive effect of restricted share		-		1,395,656
Dilutive effect of restricted share units		20,042,706		9,299,569
Dilutive effect of convertible bonds		180,668		180,668
Denominator for diluted calculation		1,294,268,422		1,392,817,695
Basic net income per Class A and Class B common share		0.35		2.25
Diluted net income per Class A and Class B common share		0.34		2.23
Basic net income per ADS*		6.97		44.93
Diluted net income per ADS*		6.86		44.55

* Each ADS represents 20 common shares.

(1) In calculation of diluted net income per share, assuming a dilutive effect, all of Huya’s existing unvested restricted share units and unexercised share options are treated as vested and exercised by Huya under the treasury stock method, causing the decrease percentage of the weighted average number of shares held by YY in Huya. As a result, Huya’s net income (loss) attributable to YY on a diluted basis decreased accordingly, which is presented as “incremental dilution from Huya” in the table.

24

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

12. Related party transactions

The table below sets forth the major related parties and their relationships with the Group:

Major related parties	Relationship with the Group
Guangzhou Sunhongs Corp., Ltd. (“Guangzhou Sunhongs”)	Significant influence exercised by a principal shareholder of the Company
Kingsoft Corporation Limited (“Kingsoft Group”)	Significant influence exercised by a principal shareholder of the Company
Xiaomi Corporation(“Xiaomi Group”)	Controlled by a principal shareholder of the Company
Bigo*	Investment with significant influence
Shanghai Ansha Network Technology Co., Ltd.(“Shanghai Ansha”)	Investment with significant influence
Guangzhou Kuyou Information Technology Co., Ltd.(“Guangzhou Kuyou”)	Investment with significant influence

*Bigo became a subsidiary of the Group on March 4, 2019. Therefore, Bigo ceased to be a related party of the Group since March 4, 2019.

25

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

12. Related party transactions (continued)

During the three months ended March 31, 2018 and 2019, significant related party transactions are as follows:

	For the three months ended March 31,
	2018		2019
	RMB		RMB
Loans to a related party		20,000		170,000
Bandwidth service provided by Guangzhou Sunhongs		23,506		27,290
Bandwidth service provided by Kingsoft Group		2		11,906
Live streaming revenue sharing from Xiaomi Group		-		4,128
Online games revenue shared from related parties		12,135		1,222
Payments on behalf of related parties, net of repayments		423		(1,944	)
Repayment of loans from a related party		20,000		-
Others		1,746		6,776

As of December 31, 2018 and March 31, 2019, the amounts due from/to related parties are as follows:

	December 31,		March 31,
	2018		2019
	RMB		RMB
Amounts due from related parties
Due from Xiaomi Group		1,652		4,124
Due from Bigo(1)		191,800		-
Others		107		6,206
Total		193,559		10,330
Amounts due to related parties
Due to Guangzhou Sunhongs		11,062		9,969
Due to Kingsoft Group		5,239		8,506
Due to Shanghai Ansha		5,364		5,342
Due to Guangzhou Kuyou		4,144		3,852
Due to Xiaomi Group		-		3,349
Others		2,527		2,727
Total		28,336		33,745

(1) The amounts due from Bigo mainly consisted of unsecured loans provided to Bigo. The maturities of the loans were all within one year.

Other receivables and payables from/to related parties are unsecured and payable on demand.

26

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

13. Fair value measurements

Fair value reflects the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Group considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the assets or liabilities.

The Group applies a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. This guidance specifies a hierarchy of valuation techniques, which is based on whether the inputs into the valuation technique are observable or unobservable. The hierarchy is as follows:

Level 1—Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.

Level 2—Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.

Level 3—Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect the Group’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The fair value guidance describes three main approaches to measure the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.

When available, the Group uses quoted market prices to determine the fair value of an asset or liability. If quoted market prices are not available, the Group will measure fair value using valuation techniques that use, when possible, current market-based or independently sourced market parameters, such as interest rates and currency rates.

The Group did not have any other financial instruments that were required to be measured at fair value on a recurring basis as of March 31, 2019 except for short-term investments and equity investment with readily determinable fair values.

27

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

13. Fair value measurements (continued)

The following table summarizes the Company’s assets that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy as of December 31, 2018 and March 31, 2019:

	As of December 31, 2018
	Level 1		Level 2		Level 3		Total
Assets
Short-term investments (i)		78,605		900,448		-		979,053
Equity investment with readily determinable fair values (ii)		238,915		-		-		238,915
		317,520		900,448		-		1,217,968

	As of March 31, 2019
	Level 1		Level 2		Level 3		Total
Assets
Short-term investments (i)		134,846		1,267,832		-		1,402,678
Equity investment with readily determinable fair values (ii)		71,785		-		-		71,785
		206,631		1,267,832		-		1,474,463

(i)

Short-term investments represented the investments issued by commercial banks or other financial institutions with a variable interest rate indexed to the performance of underlying assets within one year. For the instruments whose fair value is provided by banks at the end of each period, the Company classifies the valuation techniques that use these inputs as Level 1 of fair value measurements. For the instruments whose fair value is estimated based on quoted prices of similar products provided by banks at the end of each period, the Company classifies the valuation techniques that use these inputs as Level 2 of fair value measurements.

(ii)

Equity investments with readily determinable fair values are valued using the market approach based on the quoted prices in active markets at the reporting date. The Group classifies the valuation techniques that use these inputs as Level 1 of fair value measurements.

28

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

13. Fair value measurements (continued)

Fair value measurement on a non-recurring basis

The Company measures investments without readily determinable fair value on a nonrecurring basis when impairment charges and fair value change due to observable price change are recognized. These nonrecurring fair value measurements use significant unobservable inputs (Level 3). The Company uses a combination of valuation methodologies, including market and income approaches based on the Company’s best estimate to determine the fair value of these investments. An observable price change is usually resulting from new rounds of financing of the investees. The Company determines whether the securities offered in new rounds of financing are similar to the equity securities held by the Company by comparing the rights and obligations of the securities. When the securities offered in new rounds of financing are determined to be similar to the securities held by the Company, the Company adjusts the observable price of the similar security to determine the amount that should be recorded as an adjustment in the carrying value of the security to reflect the current fair value of the security held by the Company by using the back-solve method based on the equity allocation model with adoption of some key parameters such as risk-free rate and equity volatility. Inputs used in these methodologies primarily include discount rate, the selection of comparable companies operating in similar businesses and etc. For the three months ended March 31, 2019, the Company’s previously held equity interest in Bigo was re-measured to fair value on the acquisition date, and a re-measurement gain of RMB2,669,334 was recognized as gain on fair value changes of investments.

Apart from the short-term investments, equity investment measured at fair value through earnings, the Company’s other financial instruments principally consist of cash and cash equivalent, short-term deposits, long-term deposits, accounts receivable, financing receivables, other receivables, amounts due to/from related parties, accounts payable, certain accrued expenses and convertible bonds. The recorded values of cash, short-term deposits, long-term deposits, accounts receivable, financing receivables, other receivables, amounts due to/from related parties, accounts payable, certain accrued expenses and convertible bonds are recorded at cost which approximates fair value. The fair value of convertible bonds is within Level 2 of the fair value hierarchy.

29

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

14. Commitments and contingencies

(a) Operating lease commitments

As of December 31, 2018, future minimum payments under non-cancellable operating leases commitments consist of the following:

	Office rental
	RMB
2019		84,689
2020		53,609
2021		35,871
2022 and after		47,726
		221,895

As of March 31, 2019, future minimum payments under non-cancellable operating leases commitments consist of the following:

	Office rental
	RMB
2020		17,592
2021		9,567
2022		8,765
2023 and after		8,574
		44,498

The operating lease commitments as of March 31, 2019, presented above mainly consist of the short-term lease commitments and leases that have not yet commenced but that create significant rights and obligations for the Company, which are not included in operating lease right-of–use assets and lease liabilities.

(b) Capital commitments

As of March 31, 2019, the Group had outstanding capital commitments totaling RMB94,815 which consisted of capital expenditures related to properties and additional investments in equity investments.

(c) Litigation

(i) In October 2014, Guangzhou NetEase Computer System Co., Ltd. (“Guangzhou NetEase”) brought a copyright infringement claim against the Group in the Intermediate People’s Court of Guangzhou, alleging that the Group’s live game broadcasting program has infringed the copyright of one of their online games called Fantasy Westward Journey. The claimant is seeking RMB100 million for their potential damages, requesting YY to cease the copyright infringement practices and apologize publicly.

In November 2017, the local court passed a judgment requesting the Company to compensate such game publisher for its loss amounting to RMB20 million, as a result of the alleged copyright infringement. Based on its estimate as of December 31, 2017, the Company recorded an estimated loss contingency of RMB20 million in its financial statements. Up to the date of this report, there has been no judgment from the appellate court yet and the Group’s estimate on the loss contingency remained the same as last year.

(ii) A majority of the Group’s corporate loan business was in the form of sale-and-leaseback arrangements, under which the Group purchases equipment from third party companies and lease back the equipment to the third party companies. In January 2019, one of the lessees was unable to repay the principal amount of around RMB15 million due in January 2019. The total financing receivable due from this lessee was RMB195 million as of March 31, 2019. The Group has brought a lawsuit against this lessee to the court, claiming the lessee to repay all the outstanding amount due to the Group. The court session has not been open up to the date of this report. Pursuant to the finance lease agreement, the legal titles of the equipment purchased by the Group have been transferred to the Group and the fair value of the equipment exceeds the total financing receivable due from the lessee. The Group also pledged or applied to the court to preserve certain assets of the lessee or the lessee’s related entity. The Group believed that the financing receivable due from the lessee can be recovered based on the measures taken and therefore no loss allowance was provided against the receivable. The financing receivable was placed on non-accrual status after the lessee was unable to repay the principal due in January 2019.

30

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

15. Subsequent events

Huya completed a follow-on public offering of ADSs on April 12, 2019. As a result of these transactions, Huya issued and sold an aggregate of 13,600,000 ADSs and the Company, as selling shareholder, sold an aggregate of 4,800,000 Huya’s ADSs it held at a price of US$24.00 per ADS.

The net proceeds received by Huya, after deducting underwriter commissions and estimated offering expenses, amounted to approximately US$313.8 million. The net proceeds received by the Company, after deducting underwriter commissions, amounted to approximately US$111.2 million.

16. Segment Reporting

There are two segments in the Group, including YY Live and Huya for the three months ended March 31, 2018. Starting from the first quarter of 2019, the segment of “YY Live” was renamed as “YY”. The Company completed the acquisition of Bigo in March 2019, which is a separate segment of the Group. Therefore, there are three segments in the Group for the three months ended March 31, 2019.

The Group currently does not allocate assets to all of its segments, as its CODM does not use such information to allocate resources or evaluate the performance of the operating segments.

31

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

16. Segment Reporting (continued)

(a) The following table presents summary information by segment:

For the three months ended March 31, 2019:

	YY			Huya			Bigo			Elimination			Total
	RMB			RMB			RMB			RMB			RMB
Net revenues
Live streaming		2,566,523			1,552,482			366,015			-			4,485,020
Others		186,733			78,996			29,835			-			295,564
Total net revenues		2,753,256			1,631,478			395,850			-			4,780,584
Cost of revenues(1)		(1,548,046	)		(1,358,105	)		(254,174	)		-			(3,160,325	)
Gross profit		1,205,210			273,373			141,676			-			1,620,259
Operating expenses(1)
Research and development expenses		(235,502	)		(90,044	)		(79,190	)		-			(404,736	)
Sales and marketing expenses		(266,317	)		(78,164	)		(189,755	)		-			(534,236	)
General and administrative expenses		(163,364	)		(85,811	)		(27,249	)		-			(276,424	)
Total operating expenses		(665,183	)		(254,019	)		(296,194	)		-			(1,215,396	)
Other income		58,066			8,864			1,758			-			68,688
Operating income (loss)		598,093			28,218			(152,760	)		-			473,551
Interest expenses		(6,219	)		-			(1,395	)		1,395			(6,219	)
Interest income and investment income		94,745			54,585			354			(1,395	)		148,289
Foreign currency exchange (losses) gains, net		(965	)		(374	)		2,672			-			1,333
Gain on fair value changes of investments		2,649,843			-			-			-			2,649,843
Income (loss) before income tax expenses		3,335,497			82,429			(151,129	)		-			3,266,797
Income tax (expenses) benefits		(110,380	)		(18,968	)		5,377			-			(123,971	)
Income (loss) before share of income (loss) in equity method investments, net of income taxes		3,225,117			63,461			(145,752	)		-			3,142,826
Share of income (loss) in equity method investments, net of income taxes		7,157			(1	)		-			-			7,156
Net income (loss)		3,232,274			63,460			(145,752	)		-			3,149,982

32

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

16. Segment Reporting (continued)

(1) Share-based compensation was allocated in cost of revenues and operating expenses as follows:

	YY		Huya		Bigo		Total
	RMB		RMB		RMB		RMB
Cost of revenues		7,224		4,020		3,065		14,309
Research and development expenses		25,992		11,824		32,791		70,607
Sales and marketing expenses		552		904		520		1,976
General and administrative expenses		38,194		51,078		5,605		94,877

33

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

16. Segment Reporting (continued)

For the three months ended March 31, 2018:

	YY			Huya			Elimination			Total
	RMB			RMB			RMB			RMB
Net revenues
Live streaming		2,239,251			792,784			-			3,032,035
Others		168,053			50,798			(1,955	)		216,896
Total net revenues		2,407,304			843,582			(1,955	)		3,248,931
Cost of revenues(1)		(1,303,264	)		(712,533	)		-			(2,015,797	)
Gross profit		1,104,040			131,049			(1,955	)		1,233,134
Operating expenses(1)
Research and development expenses		(198,007	)		(51,458	)		-			(249,465	)
Sales and marketing expenses		(211,673	)		(25,940	)		1,955			(235,658	)
General and administrative expenses		(128,193	)		(35,783	)		-			(163,976	)
Total operating expenses		(537,873	)		(113,181	)		1,955			(649,099	)
Other income		2,091			10,283			-			12,374
Operating income		568,258			28,151			-			596,409
Interest expense		(2,019	)		-			-			(2,019	)
Interest income and investment income		81,607			10,584			-			92,191
Foreign currency exchange gains,  net		6,719			-			-			6,719
Gain on fair value changes of investments		426,547			-			-			426,547
Fair value loss on derivative liabilities		-			(11,868	)		-			(11,868	)
Income before income tax expenses		1,081,112			26,867			-			1,107,979
Income tax (expenses) benefits		(152,709	)		4,464			-			(148,245	)
Income before share of income in equity method investments, net of income taxes		928,403			31,331			-			959,734
Share of income in equity method investments, net of income taxes		9,103			76			-			9,179
Net income		937,506			31,407			-			968,913

34

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

16. Segment Reporting (continued)

(1) Share-based compensation was allocated in cost of revenues and operating expenses as follows:

	YY		Huya		Total
	RMB		RMB		RMB
Cost of revenues		19,353		255		19,608
Research and development expenses		52,677		1,790		54,467
Sales and marketing expenses		1,451		418		1,869
General and administrative expenses		14,659		21,904		36,563

35

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

16. Segment Reporting (continued)

(b) The following tables set forth revenues and property and equipment for of the Company’s geographic operations:

	For the three months ended March 31,
	2018		2019
Revenues:
PRC		3,248,931		4,450,344
Non- PRC		-		330,240

	As of December 31,		As of March 31,
		2018		2019
Property and equipment, net:
PRC		1,295,171		1,431,508
Non- PRC		1,148		266,265

36

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

17. VIEs

The following unaudited interim condensed consolidated financial information of the Group’s VIEs excluding the intercompany items with the Group’s subsidiaries was included in the accompanying unaudited interim condensed consolidated financial statements:

	As of December 31,		As of March 31,
	2018		2019
	RMB		RMB
Assets
Current assets
Cash and cash equivalents		4,665,938		6,278,016
Restricted cash and cash equivalents		-		7,043
Short-term deposits		2,100,000		1,300,000
Restricted short-term deposits		-		300,000
Short-term investments		979,052		1,387,645
Accounts receivable, net		192,932		232,257
Amounts due from related parties		172,258		8,636
Financing receivables, net		725,336		664,606
Prepayments and other current assets		663,437		471,456
Total current assets		9,498,953		10,649,659
Non-current assets
Long-term deposits		1,000,000		-
Deferred tax assets		70,834		103,338
Investments		862,272		980,142
Property and equipment, net		655,402		765,213
Intangible assets, net		57,050		582,947
Land use rights, net		1,784,639		1,772,615
Right-of-use assets, net		-		72,052
Other non-current assets		143,240		131,535
Total non-current assets		4,573,437		4,407,842
Total assets		14,072,390		15,057,501
Liabilities
Current liabilities
Accounts payable		112,167		119,192
Deferred revenue		950,816		1,167,246
Advances from customers		101,690		90,516
Income taxes payable		162,118		242,545
Accrued liabilities and other current liabilities		2,207,138		2,195,200
Lease liabilities due within one year		-		33,092
Amounts due to related parties		28,336		30,327
Total current liabilities		3,562,265		3,878,118
Non-current liabilities
Deferred revenue		86,977		123,976
Lease liabilities		-		40,007
Deferred tax liabilities		-		79,341
Total non-current liabilities		86,977		243,324
Total liabilities		3,649,242		4,121,442

37

NOTES TO THE UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(All amount in thousands, except share, ADS, per share and per ADS data, unless otherwise stated)

17. VIEs (continued)

	For the three months ended March 31,
	2018		2019
	RMB		RMB
Net revenues		3,245,356		4,448,582
Net income		506,169		966,169

	For the three months ended March 31,
	2018		2019
	RMB		RMB
Net cash provided by operating activities		859,492		1,046,447
Net cash provided by investing activities		291,504		1,385,494
Net cash provided by financing activities		-		-
		1,150,996		2,431,941

38