Indicate by check mark whether the registrant
files or will file annual reports under cover of Form 20-F or Form 40-F. Form 20-F
Indicate by check mark if the registrant is submitting
the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting
the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Effective on March 17, 2021, Luokung Technology
Corp. (“LKCO”) consummated its acquisition of eMapgo Technologies (Beijing) Co., Ltd. (“eMapgo”) through the purchase
of the equity interests of Saleya Holdings Limited, which, through a series of contracts between its wholly-owned subsidiary DMG Infotech
Co., Ltd. and eMapgo, made Emapgo its variable interest entity (“VIE”). On March 17, 2021, LKCO filed a Report on Form 6-K
to disclose completion of that acquisition, as subsequently amended on March 25, 2021 (the “Closing Reports”). The purpose
of this filing is to amend the Closing Reports, by filing certain financial statements and financial information, as more particularly
identified below.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 2020
(U.S. dollars, except share and per share data)
1. ORGANIZATION AND PRINCIPAL
ACTIVITIES
Saleya Holdings Limited (“Saleya”
or the “Company”) was incorporated in the British Virgin Islands on April 4, 2006. It has a wholly-owned subsidiary and a
variable interest entity (“VIE”). Its wholly-owned subsidiary is DMG Infotech Co., Ltd. (“DMG”), which was established
by the Company in Beijing, China on October 20, 2006. On November 1, 2006, DMG entered into a series of contractual arrangements with
eMapgo Technologies (Beijing) Co., Ltd. (“EMAPGO”) which was incorporated in Beijing, China on March 12, 2004 and EMAPGO became
a VIE of DMG on that date. The Company, its subsidiary and its VIE (collectively the “Group”) are primarily engaged in providing
digital map content, navigation and location-based solutions in the People’s Republic of China (“PRC”).
As of December 31, 2020, details of
the Company’s subsidiary and its VIE were as follows:
|
|
Date of
incorporation
|
|
Place of
establishment/
incorporation
|
|
Percentage
of economic
ownership
|
|
|
Percentage
of legal
ownership
|
|
Subsidiary:
|
|
|
|
|
|
|
|
|
|
|
DMG Infotech Co., Ltd. (“DMG”)
|
|
October 20, 2006
|
|
PRC
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
VIE:
|
|
|
|
|
|
|
|
|
|
|
|
|
eMapgo Technologies (Beijing) Co., Ltd. (“EMAPGO”)
|
|
March 12, 2004
|
|
PRC
|
|
|
100
|
%
|
|
|
N/A
|
|
The VIE arrangements
Applicable PRC laws and regulations
prohibit foreign investors from (i) holding a majority equity interest in PRC surveying and mapping companies, (ii) holding equity interest
in PRC companies engaging in the production of digital navigation maps and aerial photogrammetry, and (iii) holding a majority equity
interest in PRC companies providing internet content or other value-added telecommunication services or internet map services. As a British
Virgin Islands corporation, the Company is deemed a foreign legal person under PRC law. Accordingly, DMG, the Company’s wholly owned
subsidiary in PRC, as a foreign-invested company, is currently ineligible to engage in the aforementioned business in the PRC.
The Company therefore conducts substantially
all of its activities through the VIE, EMAPGO in the PRC. To provide the Company with the power to control and the ability to receive
the majority of the expected residual returns of the VIE, DMG entered into a series of contractual arrangements with EMAPGO on November
1, 2006.
|
●
|
Agreements that transfer economic benefits to DMG
|
Exclusive Business Cooperation Agreement.
DMG and the VIE entered into an Exclusive Business Cooperation Agreement on November 1, 2006. Pursuant to this cooperation agreement,
the VIE engages DMG as VIE’s exclusive service provider to provide the VIE with business support and technical and consulting services
during the term of the cooperation agreement, in accordance with the terms and conditions of this cooperation agreement, which may include
all services within the business scope of DMG, including, without limitation, technical services, business consultations, license of intellectual
property rights, equipment or property leasing, sales, marketing, system integration, product research and development, systems maintenance
and such other services necessary and desirable to the successful operation of VIE as may be determined in DMG’s sole discretion.
There is no limit on the amount of services DMG can potentially provide to the VIE. Since the senior management teams of the VIE and those
of DMG are all assigned by the Company, the agreement effectively entitles DMG to charge the VIE service fees that amount to substantially
all of the net income of VIE. The term of this agreement is 10 years and shall be extended automatically unless a notice of termination
is sent in writing by DMG prior to the expiration. DMG may terminate the agreement at any time by providing 30 days’ prior written
notice to the VIE. The Exclusive Business Cooperation Agreement was re-signed on February 27, 2008 and March 24, 2021 respectively with
the VIE arrangement unchanged. The term of the newest Exclusive Business Cooperation Agreement is extended to March 11, 2044 and shall
be automatically extended 10 years unless a notice of termination is sent in writing by DMG prior to the expiration. The automatic renewal
scheme remains effective so long as DMG does not send a written notice to terminate the cooperation agreement prior to the expiration.
Equity Pledge Agreements. DMG
and the shareholders of the VIE entered into equity pledge agreements on November 1, 2006. Pursuant to the equity pledge agreements, the
shareholders of the VIE pledge all of their equity interests in the VIE to DMG to guarantee the VIE’s performance of its obligations
under the exclusive business cooperation agreements. If the VIE breaches its contractual obligations under those agreements, DMG, as pledgee,
will be entitled to certain rights, including the right to sell the pledged equity interests. The shareholders of the VIE agree that,
without prior written consent of DMG, they will not dispose of the pledged equity interests or create or allow any encumbrance on the
pledged equity interests that would prejudice DMG’s interest. During the term of the equity pledge agreements, DMG is entitled to
receive all the dividends paid on the pledged equity interests. The equity pledge agreement will expire when the VIE has fully performed
its obligations under the exclusive business cooperation agreement. The equity pledge agreements were re-signed on February 27, 2008,
October 15, 2010, March 18,2018, and March 24, 2021 respectively due to changes of shareholders of the VIE.
|
●
|
Agreements that provide DMG effective control over the VIE
|
Proxy Agreements. The shareholders
of the VIE signed a proxy agreement on March 27, 2008 appointing Mr. Zhigang Wang, CEO of DMG, or any person subsequently designated by
DMG as its attorney-in-fact to vote on their behalf on all matters of the VIE requiring shareholder approval under PRC laws and regulations
and the articles of association of the VIE. The proxy agreement will remain in force until the shareholders of the VIE are instructed
by DMG to designate another PRC citizen to be the shareholders’ attorney-in-fact. The shareholders of the VIE re-signed proxy agreements
on October 15, 2010 and March 18, 2018, respectively, appointing Mr. Zhixun Wang, legal representative of the VIE, or any person subsequently
designated by DMG as its attorney-in-fact to vote on their behalf on all matters of the VIE requiring shareholder approval under PRC laws
and regulations and the articles of association of the VIE. The shareholders of the VIE re-signed a proxy agreement on March 24, 2021
appointing Mr. Jian Zhang, legal representative of the VIE, or any person subsequently designated by DMG as its attorney-in-fact to vote
on their behalf on all matters of the VIE requiring shareholder approval under PRC laws and regulations and the articles of association
of the VIE.
The articles of association of the VIE
state that the major rights of the shareholders include the power to review and approve the annual budget, operating strategy and investment
plan, elect the members of the board of directors and approve their compensation plan. Therefore, through the irrevocable power of attorney
arrangement, DMG has the ability to exercise effective control over the VIE through shareholder votes and, through such votes, to also
control the composition of the board of directors and thus appoint the senior management of the VIE.
Exclusive Call Option Agreements.
DMG, the VIE and the shareholders of the VIE signed exclusive call option agreements on November 1, 2006, March 27, 2008, October 15,
2010, March 18, 2018, and March 24, 2021 respectively. Pursuant to the exclusive call option agreements, the VIE’s shareholders
irrevocably grant DMG an exclusive option to purchase, or cause a person designated by it to purchase, to the extent permitted under PRC
law, all or part of the equity interests in the VIE. The purchase price would be the legally allowed minimum amount. DMG has sole discretion
to decide when to exercise the option, whether in part or in full. The term of the agreement will not expire unless all of the equity
interests in the VIE has been purchased by DMG, or by persons or entities designated by DMG. Through the exclusive call option agreements,
each of VIE’s shareholders irrevocably granted DMG an exclusive right to acquire, at any time, for its own account or through one
or more PRC individuals or entities as nominee shareholders of its choice to replace the existing shareholders of the VIE, which constitutes
a substantive kick-out right that is exercisable and enforceable under current PRC laws and regulations. This kick-out right reinforces
DMG’s ability to direct the activities that most significantly impact the VIE’s economic performance.
As a result of these contractual arrangements,
the Company, through its wholly owned subsidiary, DMG, has (1) the power to direct the activities of the VIE that most significantly affect
the entity’s economic performance and (2) the right to receive benefits from the VIE. Consequently, DMG, ultimately the Company,
is the primary beneficiary of the VIE and the Company has consolidated the financial results of the VIE in its financial statements since
the later of the date of inception or acquisition.
In concluding that the Company is the
primary beneficiary of the VIE, the Company believes that the powers of attorney are valid, binding and enforceable under existing PRC
laws and regulations and enable the Company, through DMG, to vote on all matters requiring shareholder approval for the VIE. In addition,
the Company believes that the exclusive call option agreements provide the Company, through DMG, with a substantive kick-out right. More
specifically, the terms of the exclusive call option agreements are exercisable and enforceable under current PRC laws and regulations,
and the minimum amount of consideration permitted by the applicable PRC law to exercise the purchase option does not represent a financial
barrier or disincentive for the Company, through DMG, to exercise the purchase option. The Company’s rights under the powers of
attorney and the exclusive call option agreements provide the Company with control over the shareholders of the VIE and thus provide the
Company with the power to direct the activities that most significantly impact VIE’s economic performance. The Company believes
that this ability to exercise control together with the equity pledge agreements ensure that the VIE will continue to execute and renew
the exclusive business cooperation agreement and pay related service and license fees to DMG and that accordingly the Company, through
its wholly owned subsidiary, DMG, has the rights to receive the economic benefits from the VIE.
2. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements
of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“US
GAAP”).
Going concern
The consolidated financial statements
of the Group have been prepared assuming that the Group will continue as a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. The Group had incurred a loss of $7,543,342 for the year and as
of December 31, 2020, the Group’s total shareholders’ deficit amounted to $11,906,832. These factors raise substantial doubt
about the Group’s ability to continue as a going concern.
Subsequent to the end of the
reporting period in March 2021, the Group has been acquired by Luokung Technology Corp. (“LKCO”, see Note 10 for
details) and LKCO has made a commitment to give unconditional financial support when the Group is short of funds for at least twelve
months after the date of these financial statements.
Basis of consolidation
The consolidated financial statements
include the financial statements of the Company, its subsidiary and its VIE. All inter-company transactions and balances have been eliminated
upon consolidation.
A subsidiary is an entity in which
(i) the Company directly or indirectly controls more than 50% of the voting power; or (ii) the Company 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 the board of directors or to govern
the financial and operating policies of the investee pursuant to a statute or under an agreement among the shareholders or equity holders.
A VIE is required to be consolidated by the primary beneficiary of the entity if the equity holders in the entity do not have the characteristics
of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties.
Use of estimates
The preparation of financial statements
in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. The most significant estimates are the allowance for doubtful accounts, the useful lives of property and
equipment and intangible assets, valuation allowance for deferred tax assets, and impairment of long-lived assets. Actual results could
differ from those estimates.
Fair value measurements
Fair value is 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 under current market conditions. When determining the fair value measurements for assets and liabilities required or permitted to
be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers
assumptions that market participants would use when pricing the asset or liability.
Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements provides a fair value hierarchy
which prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The level in the hierarchy within
which the fair value measurement in its entirety falls is based upon the lowest level of input that is significant to the fair value measurement
as follows:
Level 1
Level 1 applies to assets or liabilities
for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities
for which there are inputs other than quoted prices included within Level 1 that are observable for the asset or liability such as quoted
prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient
volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can
be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities
for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the
assets or liabilities.
Cash and cash equivalents
Cash primarily consist of cash, money
market funds, investments in interest bearing demand deposit accounts, time deposits and highly liquid investments with original maturities
of three months or less from the date of purchase and are stated at cost which approximates their fair value. As of December 31, 2020,
the Company has no cash equivalents.
Accounts receivable, net of allowance
Accounts receivable are recognized
and carried at the original invoiced amount less an allowance for any potential uncollectible amounts. An estimate for doubtful debts
is made when collection of the full amount is no longer probable. Bad debts are written off as incurred. The Group generally does not
require collateral from its customers.
The Group maintains allowances for
doubtful accounts for estimated losses resulting from the failure of customers to make payments on time. The Group reviews the accounts
receivable on a periodic basis and makes specific allowances when there is doubt as to the collectability of individual balances. In evaluating
the collectability of individual receivable balances, the Group considers many factors, including the age of the balance, the customer’s
payment history, its current credit-worthiness and current economic trends.
Property and equipment, net
Property and equipment are carried at
cost less accumulated depreciation. Depreciation is calculated on a straight-line basis over the following estimated useful lives:
Vehicles
|
|
10 years
|
Office and other equipment
|
|
5 years
|
Leasehold improvements
|
|
Shorter of the term of the lease or the estimated useful lives of the assets
|
Costs of repairs and maintenance are
expensed as incurred and asset improvements are capitalized. The gain or loss on disposal of property and equipment is the difference
between the net sales proceeds and the carrying amount of the relevant assets and is recognized in the consolidated statement of operations
and comprehensive loss. When property and equipment are retired or otherwise disposed of the cost and accumulated depreciation are removed
from the accounts and any resulting gain or loss is included in the results of operations for the respective period.
Intangible assets
Intangible assets with finite lives are
amortized using the straight-line method over the estimated economic lives.
Intangible assets have weighted average
economic lives from the date of purchase as follows:
Impairment or disposal of long-lived assets
Long-lived assets are included in impairment
evaluations when events and circumstances exist that indicate the carrying value of these assets may not be recoverable. In accordance
with FASB ASC 360, Property, Plant and Equipment, the Group assesses the recoverability of the carrying value of long-lived assets by
first grouping its long-lived assets with other assets and liabilities at the lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities (the asset group) and, secondly, estimating the undiscounted future cash
flows that are directly associated with and expected to arise from the use of and eventual disposition of such asset group. If the carrying
value of the asset group exceeds the estimated undiscounted cash flows, the Group recognizes an impairment loss to the extent the carrying
value of the long-lived asset exceeds its fair value. The Group determines fair value through quoted market prices in active markets or,
if quotations of market prices are unavailable, through the performance of internal analysis using a discounted cash flow methodology
or by obtaining external appraisals from independent valuation firms. The undiscounted and discounted cash flow analyses are based on
a number of estimates and assumptions, including the expected period over which the asset will be utilized, projected future operating
results of the asset group, discount rate and long-term growth rate.
As of December 31, 2020, the Group assessed
the impairment of its long-lived assets and identified impairment indications. We did not recognize any impairment for either property,
plant and equipment or intangible assets for the year ended December 31, 2020.
Revenue recognition
The Group recognizes revenue in accordance
with ASC Topic 606, “Revenue from Contracts with Customers”
The Group derives revenues primarily
from the following:
Automotive In-dash navigation
The Group provides perpetual license
of navigable digital standard definition map data to certain application providers, in-dash navigation system manufacturers and automobile
manufacturers for in-dash navigation systems on a per copy basis. The Group provides a master copy of map data to certain application
providers and the application providers offer customized solutions to in-dash navigation system manufacturers and automobile manufacturers
based on their specific needs, including digital map data, a navigation engine, and a user interface, on a per copy basis. Revenues from
licensing map data for in-dash navigation systems are recognized at the point in time when a customer copies the map data from the master
copy of map data.
Autonomous driving map data service
Map data licensing
The Group provides a one-time high-definition
digital map (“HD map”) data license. When a one-time HD Map data license is provided, revenues are recognized at the point
in time when the right to use the HD map data is provided to customers.
Autonomous driving simulation & verification test
The Group provides data collection
and desensitization for compliance with legal requirements to system manufacturers and automobile manufacturers for autonomous driving
simulation and verification testing. Revenues are derived from the provision of data collection and desensitization service for compliance
with legal requirements. Revenues are recognized over time as the services are performed because the customer receives and consumes the
benefit of our performance throughout the contract period.
Map data service for public sector
and enterprise
Map data licensing
The Group provides one-time map data
licenses to certain public sectors and enterprises to support their location-based application. When a one-time map data license is provided,
revenues are recognized at the point in time when the right to use the HD map data is provided to customers.
Map service platform local deployment
Through local deployment, the Group
provides one-time map service platform license or map service platform license for a certain period with timely updates to the map service
platform during such contract to certain public sectors and enterprises to support their location-based application. The map service platform
includes map data and software that support certain map applications such as display, search, routing and others. Revenues from a map
data license for a certain period are recognized ratably over time because the customer receives and consumes the benefit of the Group’s
map services throughout the contract period.
Other revenues
Other services provided by the Group
include consulting services. The Group recognizes revenues over time because the customer receives and consumes the benefit of its consulting
services throughout the contract period
The Group does not offer credits or
refunds and therefore has not recorded any sales return allowance for any of the periods presented. Upon a periodic review of outstanding
accounts receivable, amounts that are deemed to be uncollectible are written off against the allowance for doubtful accounts. The Group’s
policy is to record revenues net of any applicable sales, use or excise taxes.
Contract liabilities represent prepayments
from customers and are recognized as revenue when the services are rendered.
The following table shows the amount
of revenue recognized that were included in contract liabilities as at December 31, 2020:
January 1, 2020
|
|
|
175,641
|
|
Revenue recognized in 2020
|
|
|
(48,255
|
)
|
Increase in contract liabilities
|
|
|
201,656
|
|
Exchange difference
|
|
|
12,149
|
|
December 31, 2020
|
|
|
341,191
|
|
Disaggregation of revenue
The following tables disaggregate
revenues under ASC 606 by product line:
|
|
For the year ended
December 31,
|
|
|
|
2020
|
|
Revenues
|
|
|
|
Automotive In-dash navigation
|
|
|
1,425,495
|
|
Autonomous driving map data service
|
|
|
3,043,995
|
|
Map data service
|
|
|
2,205,617
|
|
Others
|
|
|
70,535
|
|
Subtotal revenues
|
|
|
6,745,642
|
|
Less: tax surcharge
|
|
|
(52,581
|
)
|
Total revenues
|
|
|
6,693,061
|
|
|
|
|
|
|
Automotive In-dash navigation
|
|
|
21.3
|
%
|
Autonomous driving map data service
|
|
|
45.5
|
%
|
Map data service
|
|
|
33.0
|
%
|
Others
|
|
|
0.2
|
%
|
Total
|
|
|
100.0
|
%
|
Research and development costs
The Group incurs costs in developing
applications for internal use, such as software to improve the effectiveness of map data creation and updating activities, and costs in
developing software for sale, such as map engine software and application software solutions for geographic information system applications
in government and enterprise location based solution arrangements.
Research and development costs are charged to expense as
incurred.
Government subsidies
Government subsidies are
recognized upon receipt as other operating income because the subsidies are not intended to compensate for specific expenditure and
not subject to future return. $45,227 of government subsidies were received and recorded in the statement of operations and
comprehensive loss during the year ended December 31, 2020.
Income taxes
Deferred income taxes are recognized
for temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements and net
operating loss carry forwards and credits by applying enacted statutory tax rates applicable to future years. Deferred tax assets are
reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Current income taxes are provided for in accordance with the laws of the relevant tax authorities.
The impact of an uncertain income
tax position on the income tax return is recognized at the largest amount that is more-likely-than not to be sustained upon audit by the
relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained.
Interest and penalties on income taxes will be classified as a component of the provisions for income taxes.
Foreign currency translation
The functional and reporting currency
of the Company is the United States dollar (“U.S. dollar”). The financial records of the Company’s subsidiary and the
VIE located in the PRC are maintained in its local currency, the Renminbi (“RMB”), which is the functional currency of these
entities.
Monetary assets and liabilities denominated
in currencies other than the functional currency are translated into the functional currency at the rates of exchange ruling at the balance
sheet date. Transactions in currencies other than the functional currency during the year are converted into functional currency at the
applicable rates of exchange prevailing when the transactions occurred. Transaction gains and losses are recognized in the statements
of operations.
The Group’s entities with functional
currency of RMB translate their operating results and financial position into the U.S. dollar. Assets and liabilities are translated using
the exchange rates in effect on the balance sheet date. Revenues, expenses, gains and losses are translated using the average rate for
the year. Translation adjustments are reported as cumulative translation adjustments and are shown as a separate component of other comprehensive
income.
Related parties
Parties are considered to be related
to the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under common
control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families
of principal owners of the Company and its management and other parties with which the Company may deal with if one party controls or
can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be
prevented from fully pursuing its own separate interests. The Company discloses all significant related party transactions.
Comprehensive loss
Comprehensive loss mainly includes
net loss and foreign currency translation adjustments. The Group presents the components of net income/(loss), the components of other
comprehensive income and total comprehensive income/(loss) in a single continuous statement of comprehensive income/(loss).
Concentration of credit risk
Financial instruments that potentially
expose the Group to concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and amounts due
from related parties. The Group places their cash with financial institutions at various locations. The Group conducts credit evaluations
of customers and generally do not require collateral or other security from its customers. At December 31, 2020, the Company had credit
risk exposure of uninsured cash in banks of $2,650,983.
Details of the customers accounting
for 10% or more of total revenues are as follow:
|
|
For the year ended
December 31,
|
|
Customer
|
|
2020
|
|
A
|
|
|
36
|
%
|
B
|
|
|
17
|
%
|
Details of the customers accounting
for 10% or more of accounts receivable are as follow:
|
|
December 31,
|
|
Customer
|
|
2020
|
|
B
|
|
|
27
|
%
|
C
|
|
|
19
|
%
|
D
|
|
|
12
|
%
|
Recent accounting pronouncements
In February 2016, the FASB issued ASU
No. 2016-02, “Leases (Subtopic 842).” The new guidance requires lessees to recognize assets and liabilities arising from leases
as well as extensive quantitative and qualitative disclosures. A lessee will need to recognize on its balance sheet a right-of-use asset
and a lease liability for the majority of its leases (other than leases that meet the definition of a short-term lease). The lease liabilities
will be equal to the present value of lease payments. The right-of-use asset will be measured at the lease liability amount, adjusted
for lease prepayment, lease incentives received and the lessee’s initial direct costs. The standard is effective for the Company
for fiscal years beginning after December 15, 2021. Early adoption is permitted. ASU 2016-02 is required to be applied using the modified
retrospective approach for all leases existing as of the effective date and provides for certain practical expedients. The Company will
adopt the new standard on January 1, 2022 using the modified retrospective approach. The Company expects the impact of the standard adoption
to increase its assets and liabilities within its consolidated balance sheet. These increases will result from the recognition of its
existing right-of-use and liabilities required by ASU 2016-02.
In June 2016, the FASB issued ASU
2016-13, “Financial Instruments—Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments”, which
will be effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. The guidance
replaces the incurred loss impairment methodology with an expected credit loss model for which a company recognizes an allowance based
on the estimate of expected credit loss. In November 2019, the FASB issued ASU 2019-10. Financial Instruments — Credit Losses (Topic
326), Derivatives and Hedging (Topic 815), and Leases (Topic 842): Effective Dates, finalizes effective date delays for private companies,
not-for-profit organizations, and certain smaller reporting companies applying the credit losses, leases, and hedging standards. The effective
date for the Company will be the fiscal years beginning after December 15, 2022. The Company does not expect a significant difference
in the amount of impairment losses to be recognized when using the expected credit loss model in its consolidated financial statements.
Other new pronouncements issued but
not effective until after December 31, 2020 are not expected to have a material impact on the Company’s financial position, results
of operations or liquidity.
3. ACCOUNTS RECEIVABLE
At December 31, 2020, accounts receivable
consisted of the following:
|
|
As
of December 31,
2020
|
|
Accounts receivable
|
|
|
2,080,243
|
|
Less: allowance for doubtful accounts
|
|
|
(559,866
|
)
|
|
|
|
1,520,377
|
|
During the year ended December 31,
2020, allowance for doubtful accounts amounted to $28,023 and was recorded in general and administrative expenses.
4. DEPOSITS, PREPAYMENTS
AND OTHER RECEIVABLES
|
|
As
of December 31,
2020
|
|
Non-current:
|
|
|
|
Rental deposits
|
|
|
105,146
|
|
Other receivables (1)
|
|
|
343,300
|
|
Subtotal
|
|
|
448,446
|
|
|
|
|
|
|
Current:
|
|
|
|
|
Prepayments
|
|
|
82,924
|
|
Advances to employees
|
|
|
476,451
|
|
Rental deposits
|
|
|
45,567
|
|
Bid bond
|
|
|
36,118
|
|
Other receivables
|
|
|
89,659
|
|
Subtotal
|
|
|
730,719
|
|
|
|
|
|
|
Total
|
|
|
1,179,165
|
|
|
(1)
|
The balance represents performance bond for certain project and
its term of validity is 30 days after the date of final acceptance of the project, and shall not exceed January 31, 2022 at the latest.
|
5. PROPERTY AND EQUIPMENT,
NET
|
|
As
of December 31,
2020
|
|
Vehicles
|
|
|
302,661
|
|
Office and other equipment
|
|
|
3,352,859
|
|
Leasehold improvements
|
|
|
1,288,128
|
|
Total property and equipment
|
|
|
4,943,648
|
|
Less: Accumulated depreciation
|
|
|
(3,725,633
|
)
|
|
|
|
1,218,015
|
|
The Group recognized depreciation
expenses of $303,255 for the year ended December 31, 2020, of which $154,636 was included in cost of revenue, $77,391 was included in
research and development expenses, $5,402 was included in selling and marketing expenses and $65,826 was included in general and administrative
expenses.
6. INTANGIBLE ASSETS, NET
The costs and accumulated amortization of intangible assets
were as follows:
|
|
As
of December 31,
2020
|
|
Software
|
|
|
123,889
|
|
Less: Accumulated amortization
|
|
|
(33,740
|
)
|
Intangible assets, net
|
|
|
90,149
|
|
The Group recorded amortization expense
for intangible assets of $12,627 for the year ended December 31, 2020. Estimated amortization expense relating to the existing intangible
assets with finite lives for each of the next five years is as follows:
Year 2021
|
|
|
12,627
|
|
Year 2022
|
|
|
12,633
|
|
Year 2023
|
|
|
10,824
|
|
Year 2024
|
|
|
10,824
|
|
Year 2025
|
|
|
10,824
|
|
Thereafter
|
|
|
32,417
|
|
|
|
|
90,149
|
|
7. OTHER PAYABLES AND ACCRUALS
|
|
As
of December 31,
2020
|
|
Salaries and welfare payable
|
|
|
6,443,790
|
|
Value added tax and other taxes payable
|
|
|
512,909
|
|
Publication and encryption fees
|
|
|
275,649
|
|
Rental payables
|
|
|
87,326
|
|
Staff advances
|
|
|
172,935
|
|
Other payables
|
|
|
58,953
|
|
|
|
|
7,551,562
|
|
8. SHORT-TERM LOANS
|
|
As
of December 31,
2020
|
|
Short term loans
|
|
|
6,807,394
|
|
|
|
|
6,807,394
|
|
Short-term loans primarily consist
of:
|
1)
|
loans from Beijing Zhong Chuan Shi Xun Technology Limited (“Beijing Zhong Chuan”) of $5,818,820
which bear interest at 4.35% per annum and have been repaid to Beijing Zhong Chuan on May 18, 2021.
|
|
2)
|
a loan from Shanghai Tuqu Information Technology Co., Ltd. (“Shanghai Tuqu”) of $888,903 which
bears interest at 9% per annum. The loan is repayable on June 17, 2021 and has not been repaid to Shanghai Tuqu up to the report date.
|
|
3)
|
a loan from a former employee of $78,029 which bears interest at 18% per annum and was repaid to him on
March 23, 2021.
|
|
4)
|
interest of $21,642 of the loan from third party of $153,259 which bears interest at 10% per annum with
period from December 14, 2009 to December 13, 2010. The principal of the loan has been repaid up to May 30, 2011.
|
9. INCOME TAXES
At December 31, 2020, the Company
had unused net operating loss carryforwards of approximately $17,308,190 for income tax purposes, which expire between 2021 and 2025.
Because realization is not likely at this time, a valuation allowance in the same amount has been established. Deferred income taxes reflect
the net effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes.
Significant components of the Company’s
deferred tax liabilities and assets of December 31, 2020 are as follows:
|
|
As
of December 31,
2020
|
|
Deferred tax asset
|
|
|
|
Net operating loss carryforward
|
|
|
2,596,229
|
|
Valuation allowance
|
|
|
(2,596,229
|
)
|
Net deferred tax asset
|
|
|
-
|
|
Movement of valuation allowance
|
|
As
of December 31,
2020
|
|
At the beginning of the year
|
|
|
1,821,535
|
|
Current year addition
|
|
|
821,310
|
|
Expired
|
|
|
(207,344
|
)
|
Exchange difference
|
|
|
160,728
|
|
At the end of the year
|
|
|
2,596,229
|
|
The Company is not subject to taxation
in BVI under the current BVI law. The subsidiary and VIE in the PRC are subject to PRC Enterprise Income Tax at the statutory rate of
15% for the years ended December 31, 2020 as they are qualified as high-technology enterprises and benefit from a preferential tax rate
of 15%. They are qualified as a “high-technology enterprise” until 2022.
A reconciliation of the income tax
expense to the amount computed by applying the current PRC statutory tax rate of 25% to the loss before income taxes in the consolidated
statements of comprehensive income is as follows:
|
|
For
the year ended December 31, 2020
|
|
Loss before income taxes
|
|
|
(7,543,342
|
)
|
|
|
|
|
|
Tax loss at the PRC statutory tax rate of 25%
|
|
|
(1,916,201
|
)
|
Non-deductible items
|
|
|
341,699
|
|
Non-taxable items
|
|
|
(13,288
|
)
|
Change in valuation allowance
|
|
|
821,310
|
|
Effect of 15% preferential rate for certain PRC subsidiaries
|
|
|
766,480
|
|
Income tax expense
|
|
|
-
|
|
10. SHARE CAPITAL
The Company is authorized to issue
a maximum of 100,000,000 shares with par value $0.001 each, divided into 5 classes designated as (a) 68,067,439 Common Shares; (b) 6,745,455
Series A Preferred Shares; (c) 6,372,347 Series B Preferred Shares; (d) 11,734,616 Series C Preferred Shares; and (e) 7,080,143 Series
D Preferred Shares.
As of December 31, 2020, the Company
has issued a total of 48,638,341 shares with par value $0.001 each, including 17,199,945 Common Shares, 6,745,455 Series A convertible
redeemable preferred shares (“Series A Preferred Shares”), 5,878,182 Series B convertible redeemable preferred shares (“Series
B Preferred Shares”), 11,734,616 Series C convertible redeemable preferred shares (“Series C Preferred Shares”) and
7,080,143 Series D convertible redeemable preferred shares (Series D Preferred Shares).
On August 27, 2019, a Share Purchase
Agreement (“Agreement”) was entered into by and among Luokung Technology Corp. (“LKCO”), Beijing Zhong Chuan,
the Company, EMAPGO, DMG and the shareholders of the Company and EMAPGO. Pursuant to the Agreement, the shareholders of the Company will
sell all of their shares to LKCO and the shareholders of EMAGPGO will sell its 100% of equity interest to Beijing Zhong Chuan for an aggregate
purchase price of RMB 836 million (“Acquisition Transaction”). Immediately after the closing of the Acquisition Transaction,
LKCO will hold all the shares of the Company and Beijing Zhong Chuan will hold 100% of equity interest of EMAPGO. As of December 31, 2020,
the Acquisition Transaction had not been closed.
As set out in Note 14, the Acquisition
Transaction was completed in March 2021, and all the issued shares of the Company have been sold to LKCO and the Series A Preferred Shares,
Series B Preferred Shares, Series C Preferred Shares and Series D Preferred Shares have been reclassified and redesignated as 31,932,561
Common Shares.
11. PRC CONTRIBUTION PLAN
Full time employees of the Group in
the PRC participate in a government-mandated defined contribution plan pursuant to which certain pension benefits, medical care, unemployment
insurance, employee housing fund and other welfare benefits are provided to employees. PRC labor regulations require the Group to accrue
for these benefits based on certain percentages of the employees’ salaries. The total contribution for such employee benefits was
$1,110,593 for the year ended December 31, 2020 and $1,182,747 of these employee benefits was exempted and reduced for the year ended
December 31, 2020 due to COVID-19.
12. COMMITMENTS
|
(a)
|
Operating lease commitments
|
The Group has entered into operating
lease agreements primarily for its office spaces. These leases expire from 2021 to 2022 and are renewable upon negotiation. Rental expense
under operating leases was $647,687 for the year ended December 31, 2020.
Future minimum lease payments under such non-cancelable
leases as of December 31, 2020 are as follows:
Year 2021
|
|
|
45,451
|
|
Year 2022
|
|
|
398
|
|
|
|
|
45,489
|
|
13. RELATED PARTY TRANSACTIONS
|
(a)
|
As of December 31 2020, the Group had the following outstanding balances with its related parties:
|
|
|
Relationship
|
|
As at December 31, 2020
|
|
Due from related parties:
|
|
|
|
|
|
Trading receivable from related party:
|
|
|
|
|
|
Related party A
|
|
Controlled by a shareholder of EMAPGO
|
|
|
253,924
|
|
Related party I
|
|
Controlled by a director of the Company
|
|
|
28,345
|
|
Less: allowance for doubtful accounts
|
|
|
|
|
(126,962
|
)
|
Subtotal, net
|
|
|
|
|
155,307
|
|
|
|
|
|
|
|
|
Other non-trading receivable from related parties:
|
|
|
|
|
|
|
Related party B
|
|
Shareholder of EMAPGO
|
|
|
1,812
|
|
Related party C
|
|
Shareholder of EMAPGO
|
|
|
8,583
|
|
Related party D
|
|
Shareholder of EMAPGO
|
|
|
356
|
|
Related party E
|
|
Shareholder of EMAPGO
|
|
|
356
|
|
Related party F
|
|
Shareholder of EMAPGO
|
|
|
1,582
|
|
Related party G
|
|
Director of EMAPGO
|
|
|
15,881
|
|
Related party H
|
|
Director of the Company
|
|
|
209,572
|
|
Subtotal
|
|
|
|
|
238,142
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
393,449
|
|
|
|
|
|
|
|
|
Due to related parties:
|
|
|
|
|
|
|
Interest payable to related party J
|
|
Shareholder of EMAPGO
|
|
|
360,769
|
|
Other payable to related party K
|
|
Director of the Company
|
|
|
5,291
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
366,060
|
|
The related party balances are unsecured, interest free
and repayable on demand.
|
(b)
|
Related party transactions consist of the following:
|
|
|
Relationship
|
|
For the year ended December 31,
2020
|
|
Purchase from related party A
|
|
Controlled by a shareholder of EMAPGO
|
|
|
14,547
|
|
|
|
|
|
|
|
|
Sales to related party I
|
|
Controlled by a director of the Company
|
|
|
70,535
|
|
14. SUBSEQUENT EVENT
On March 17, 2021, the Acquisition
Transaction as set out in Note 10 was completed. Immediately after the closing of the Acquisition Transaction, LKCO held all the issued
shares of the Company and Beijing Zhong Chuan held 100% of equity interest of EMAPGO. After the closing of the Acquisition Transaction,
the VIE structure will continue to be retained and a series of new VIE agreements (including exclusive business cooperation agreement,
equity pledge agreement, proxy agreement and exclusive call option agreement) have been entered into by and among DMG, EMAPGO and other
parties on March 24, 2021.
The consolidated financial statements
and related disclosures include an evaluation of events up to and including July 2, 2021, which is the date the consolidated financial
statements were available to be issued.
LUOKUNG TECHNOLOGY CORP. AND SUBSIDIARIES
UNAUDITED PROFORMA CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2020
The following unaudited proforma consolidated
financial statements give effect to the acquisition of 100% equity interest in Saleya Holdings Limited (“Saleya”) and subsidiaries,
including its VIE (“Saleya Group”) by Luokung Technology Corp. (“LKCO”) (the “Acquisition”) pursuant
to a Share Purchase Agreement dated August 28, 2019 (the “SPA”) and the Supplemental Agreement dated February 24, 2021 (the
“Supplemental Agreement”). On March 17, 2021, the Acquisition was completed and Saleya Group became wholly-owned subsidiaries
of LKCO.
The unaudited proforma consolidated balance
sheet as of December 31, 2020, together with the unaudited consolidated statement of operations and comprehensive loss for the year ended
December 31, 2020 presented herein gives effect to the Acquisition as if the transaction had occurred at the beginning of the year presented
and includes certain adjustments that are directly attributable to the transaction which are expected to have a continuing impact on LKCO,
and are factually supportable, as summarized in the accompanying notes and assumptions.
The proforma consolidated financial statements
presented herein are unaudited and have been prepared for illustrative purposes only and are not necessarily indicative of the consolidated
financial position or results of operations in future periods or the results that actually would have been realized had LKCO and Saleya
Group been consolidated during the specified periods. The unaudited proforma consolidated financial statements, including the
notes and assumptions thereto, are qualified in their entirety by reference, and should be read in conjunction with:
|
●
|
The
accompanying notes and assumptions to the unaudited proforma consolidated financial statements.
|
|
●
|
the audited consolidated financial
statements of LKCO for the year ended December 31, 2020 and the related notes thereto, included in its Annual Report on Form 20-F as
filed with the Securities and Exchange Commission.
|
|
●
|
The audited financial statements of Saleya Group for the year ended December 31, 2020 as filed herewith.
|
LKCO & SALEYA
Pro forma Consolidated Balance Sheets
As of December 31, 2020
(unaudited)
|
|
LUOKUNG
|
|
|
SALEYA
|
|
|
Pro forma
|
|
|
Pro forma
|
|
|
|
Technology
|
|
|
HOLDINGS
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
(historical)
|
|
|
(historical)
|
|
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
71,793
|
|
|
$
|
2,650,983
|
|
|
$
|
48,809,335
|
[1],
|
[2]
|
$
|
51,532,111
|
|
Accounts and notes receivable, net of allowance for expected credit losses
|
|
|
3,980,942
|
|
|
|
1,591,987
|
|
|
|
(287,387)
|
[3]
|
|
|
5,285,542
|
|
Deposits, other receivables and prepayments
|
|
|
7,996,378
|
|
|
|
730,719
|
|
|
|
(5,819,355)
|
[3]
|
|
|
2,907,742
|
|
Amounts due from related parties
|
|
|
-
|
|
|
|
393,449
|
|
|
|
|
|
|
|
393,449
|
|
Total current assets
|
|
|
12,049,113
|
|
|
|
5,367,138
|
|
|
|
42,702,593
|
|
|
|
60,118,844
|
|
NON-CURRENT ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
514,363
|
|
|
|
1,218,015
|
|
|
|
|
|
|
|
1,732,378
|
|
Intangible assets, net
|
|
|
42,716,594
|
|
|
|
90,149
|
|
|
|
52,103,128
|
[1],
|
[5]
|
|
94,909,871
|
|
Goodwill
|
|
|
11,957,839
|
|
|
|
-
|
|
|
|
73,297,763
|
[1]
|
|
|
85,255,602
|
|
Investment
|
|
|
196,798
|
|
|
|
-
|
|
|
|
|
|
|
|
196,798
|
|
Right-of-use assets
|
|
|
369,747
|
|
|
|
-
|
|
|
|
|
|
|
|
369,747
|
|
Deposits and other receivables
|
|
|
61,378,420
|
|
|
|
448,446
|
|
|
|
(35,150,770)
|
[1]
|
|
|
26,676,096
|
|
Total non-current assets
|
|
|
117,133,761
|
|
|
|
1,756,610
|
|
|
|
90,250,121
|
|
|
|
209,140,492
|
|
Total assets
|
|
$
|
129,182,874
|
|
|
$
|
7,123,748
|
|
|
|
132,952,714
|
|
|
$
|
269,259,336
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
5,841,511
|
|
|
$
|
3,044,819
|
|
|
|
(287,387)
|
[3]
|
|
$
|
8,598,943
|
|
Accrued liabilities and other payables
|
|
|
66,467,084
|
|
|
|
14,358,956
|
|
|
|
(5,819,355)
|
[3]
|
|
|
75,006,685
|
|
Contract liabilities
|
|
|
657,542
|
|
|
|
341,191
|
|
|
|
|
|
|
|
998,733
|
|
Lease liabilities – current portion
|
|
|
336,537
|
|
|
|
-
|
|
|
|
|
|
|
|
336,537
|
|
Amounts due to related parties
|
|
|
310,464
|
|
|
|
366,060
|
|
|
|
|
|
|
|
676,524
|
|
Total current liabilities
|
|
|
73,613,138
|
|
|
|
18,111,026
|
|
|
|
(6,106,742)
|
|
|
|
85,617,422
|
|
Non-current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued liabilities – and other payables
|
|
|
2,663,835
|
|
|
|
919,554
|
|
|
|
|
|
|
|
3,583,389
|
|
Deferred tax liabilities
|
|
|
211,796
|
|
|
|
-
|
|
|
|
|
|
|
|
211,796
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non- current liabilities
|
|
|
2,875,631
|
|
|
|
919,554
|
|
|
|
|
|
|
|
3,795,185
|
|
Total liabilities
|
|
|
76,488,769
|
|
|
|
19,030,580
|
|
|
|
(6,106,742)
|
|
|
|
89,412,607
|
|
SHAREHOLDERS’ EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred shares
|
|
|
242,952
|
|
|
|
31,438
|
|
|
|
(31,438)
|
[1]
|
|
|
242,952
|
|
Common stock
|
|
|
2,397,701
|
|
|
|
17,200
|
|
|
|
932,214
|
[1],
|
[2]
|
|
3,347,115
|
|
Additional paid-in capital
|
|
|
164,753,586
|
|
|
|
69,588,401
|
|
|
|
64,026,702
|
[1].
|
[2]
|
|
298,368,689
|
|
Accumulated deficit
|
|
|
(113,242,512
|
)
|
|
|
(78,929,343
|
)
|
|
|
71,517,450
|
[1],
|
[5]
|
|
(120,654,405
|
)
|
Accumulated other comprehensive loss
|
|
|
(1,523,978
|
)
|
|
|
(2,614,528
|
)
|
|
|
2,614,528
|
[1]
|
|
|
(1,523,978
|
)
|
Total shareholders’ equity (deficiency)
|
|
|
52,627,749
|
|
|
|
(11,906,832
|
)
|
|
|
139,059,456
|
|
|
|
179,780,373
|
|
Non-controlling interest
|
|
|
66,356
|
|
|
|
-
|
|
|
|
|
|
|
|
66,356
|
|
Total liabilities and shareholders’ equity (deficiency)
|
|
$
|
129,182,874
|
|
|
$
|
7,123,748
|
|
|
$
|
132,952,714
|
|
|
$
|
269,259,336
|
|
Proforma adjustments:-
|
[1]
|
To reflect the consideration paid and shares issued prior to December
31, 2020 and the purchase price allocation of the Acquisition.
|
|
[2]
|
To reflect the financing obtained in February 2021 for the Acquisition.
|
|
[3]
|
To eliminate intercompany balances
|
LKCO & SALEYA
Pro forma Consolidated Statements
of Operations and Comprehensive Loss
For the Year Ended December 31, 2020
(unaudited)
|
|
LUOKUNG
|
|
|
SALEYA
|
|
|
Pro forma
|
|
|
Pro forma
|
|
|
|
Technology
|
|
|
HOLDINGS
|
|
|
Adjustments
|
|
|
Consolidated
|
|
|
|
|
(historical)
|
|
|
|
(historical)
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
18,263,788
|
|
|
$
|
6,693,061
|
|
|
$
|
(93,702)
|
[4]
|
|
$
|
24,863,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
17,479,479
|
|
|
|
7,239,558
|
|
|
|
7,152,609
|
[4],
|
[5]
|
|
31,871,646
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GROSS PROFIT (LOSS)
|
|
|
784,309
|
|
|
|
(546,497
|
)
|
|
|
(7,246,311)
|
|
|
|
(7,008,499)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, General and administrative
|
|
|
31,633,279
|
|
|
|
3,532,980
|
|
|
|
165,582
|
[1]
|
|
|
35,331,841
|
|
Research and development
|
|
|
9,401,883
|
|
|
|
3,737,920
|
|
|
|
|
|
|
|
13,139,803
|
|
Total operating expenses
|
|
|
41,035,162
|
|
|
|
7,270,900
|
|
|
|
165,582
|
|
|
|
48,471,644
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(40,250,853
|
)
|
|
|
(7,817,397
|
)
|
|
|
(7,411,893)
|
|
|
|
(55,480,143
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expenses
|
|
|
(3,625,748
|
)
|
|
|
(218,590
|
)
|
|
|
|
|
|
|
(3,844,338
|
)
|
Foreign exchange gains, net
|
|
|
2,078,714
|
|
|
|
230,943
|
|
|
|
|
|
|
|
2,309,657
|
|
Other income, net
|
|
|
1,740,922
|
|
|
|
261,702
|
|
|
|
|
|
|
|
2,002,624
|
|
NET LOSS
|
|
|
(40,056,965
|
)
|
|
|
(7,543,342
|
)
|
|
|
(7,411,893
|
)
|
|
|
(55,012,200
|
)
|
Less: Net loss attributable to non-controlling interest
|
|
|
191,325
|
|
|
|
-
|
|
|
|
|
|
|
|
191,325
|
|
Net loss attributable to owners of LKCO
|
|
|
(39,865,640
|
)
|
|
|
(7,543,342
|
)
|
|
|
|
|
|
|
(54,820,875
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER COMPREHENSIVE INCOME:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(2,937,074
|
)
|
|
|
(906,057
|
)
|
|
|
|
|
|
|
(3,843,131)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMPREHENSIVE LOSS
|
|
$
|
(42,994,039
|
)
|
|
$
|
(8,449,399
|
)
|
|
|
(7,411,893)
|
|
|
$
|
(58,855,331
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted
|
|
|
(0.18
|
)
|
|
|
|
|
|
|
|
|
|
|
(0.17
|
)
|
Weighted average shares outstanding-basis and diluted
|
|
|
221,984,037
|
|
|
|
|
|
|
|
94,941,399
|
[6]
|
|
|
316,925,436
|
|
Proforma adjustments:-
|
[4]
|
To eliminate intercompany transactions
|
|
[5]
|
To record amortization of intangible assets.
|
|
[6]
|
To adjust the weighted average number of common shares which would
have been outstanding during the year had the Acquisition occurred on the first day of the year presented.
|
LUOKUNG TECHNOLOGY CORP. AND SUBSIDIARIES
NOTES AND ASSUMPTIONS TO THE UNAUDITED PROFORMA
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – THE ACQUISITION
On August 28, 2019, LKCO entered into the SPA,
pursuant to which LKCO shall acquire 100% of the equity interest in Saleya Holdings Limited (“Saleya”) from Saleya’s
shareholders for an aggregate purchase price of approximately $120 million. As of December 31, 2020, $35,150,770 in cash payments have
been made, 2,708,498 common shares were issued at $7.00 per share, amounting to $18,959,486 and 1,500,310 series B preferred shares were
issued at $4.09 per share, amounting to $6,138,204. On March 17, 2021, LKCO completed the acquisition of 100% equity interest in Saleya
for consideration of (i) a cash amount of $102 million (RMB666 million), (ii) 9,819,926 LKCO ordinary shares and (iii) 1,500,310 LKCO
preferred shares pursuant to the Supplemental Agreement. Saleya’s VIE, eMapgo Technologies (Beijing) Co., Ltd. is a leading provider
of navigation and electronic map services.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The unaudited proforma consolidated financial
statements have been compiled in a manner consistent with the accounting policies adopted by LKCO. The accounting policies of Saleya were
not deemed to be materially different from those adopted by LKCO.
NOTE 3 – PROFORMA ADJUSTMENTS
The unaudited proforma consolidated financial
statements are based upon the historical financial statements of LKCO and subsidiaries and Saleya Group and certain adjustments that management
believes are reasonable to give effect to the Acquisition. These adjustments are based upon currently available information and certain
assumptions, and therefore the actual impacts will likely differ from the proforma adjustments. The fair value amounts assigned to
the identifiable assets acquired and liabilities assumed are considered preliminary at this time. However, LKCO believes that the preliminary
determination of fair value of acquired assets and assumed liabilities and other related assumptions utilized in preparing the unaudited proforma
consolidated financial statements provide a reasonable basis for presenting the proforma effects of the Acquisition.
The adjustments made in preparing the unaudited proforma
consolidated financial statements are as follows:
|
1.
|
To reflect the consideration paid and shares issued after December
31, 2020 and the purchase price allocation of the Acquisition.
|
|
2.
|
To reflect the financing obtained in February 2021 for the Acquisition.
In February 2021, LKCO entered into several securities purchase agreements with certain institutional investors for registered
direct offerings in aggregate of $123 million. LKCO issued a total of 74,584,211 ordinary shares to the institutional investors. The
investors also exercised the warrants and purchased 13,245,760 ordinary shares.
|
|
3.
|
To eliminate intercompany balances.
|
|
4.
|
To
eliminate intercompany transactions.
|
|
5.
|
To record amortization of intangible assets.
|
|
6.
|
Proforma basic and diluted loss per common share information presented
in the accompanying proforma consolidated statement of operations and other comprehensive loss for the year ended December 31, 2020
is based on the weighted average number of common shares which would have been outstanding during the year had the Acquisition occurred
on the first day of the year presented.
|
Summary of Pro Forma Adjustment shares:
|
|
Year Ended
December 31
2020
|
|
Shares issued due to acquisition
|
|
|
7,111,428
|
|
Shares issued due to financing in February 2021
|
|
|
87,829,971
|
|
Add: weighted average number of LKCO shares outstanding
|
|
|
221,984,037
|
|
Pro Forma Adjustment of shares outstanding due to acquisition
|
|
|
316,925,436
|
|
The unaudited proforma consolidated financial
statements do not include any adjustment of non-recurring costs incurred or to be incurred after March 17, 2021 by both LKCO and Saleya
Group to consummate the Acquisition, except as noted above.
F-24