UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For the month of September 2021
Commission File Number:
(Registrant’s Name)
(Address of Principal Executive Offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-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): ☐
EXHIBIT INDEX
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Exhibit No. |
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Description |
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99.1 |
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Unaudited Interim Condensed Consolidated Financial Statements |
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101.INS |
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Inline XBRL Instance Document — this instance document does not appear in the Interactive Data File because its XBRL tags are not embedded within the Inline XBRL document |
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101.SCH |
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Inline XBRL Taxonomy Extension Scheme Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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UCLOUDLINK GROUP INC. |
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By |
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/s/ Yimeng Shi |
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Name |
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Yimeng Shi |
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Title |
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Chief Financial Officer |
Date: September 29, 2021
Exhibit 99.1
UCLOUDLINK GROUP INC.
Index to UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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Contents |
Page |
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(F-2) |
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Unaudited Interim Condensed Consolidated Balance Sheets as of December 31, 2020 and June 30, 2021 |
(F-3) |
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(F-4) |
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(F-5) |
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Notes to Unaudited Interim Condensed Consolidated Financial Statements |
(F-6) |
F-1
UCLOUDLINK GROUP INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
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Six Months ended June 30, |
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(Amounts expressed in thousands of US$, except for number of shares and per share data) |
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Note |
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2020 |
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2021 |
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Revenues |
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4 |
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Revenues from services |
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Sales of products |
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Cost of revenues |
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( |
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( |
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Cost of services |
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( |
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( |
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Cost of products sold |
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( |
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( |
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Gross profit |
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Research and development expenses |
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( |
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( |
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Sales and marketing expenses |
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( |
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( |
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General and administrative expenses |
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( |
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( |
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Other income/(expense) |
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5 |
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( |
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Loss from operations |
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( |
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( |
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Interest income |
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Interest expenses |
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( |
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( |
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Loss before income tax |
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( |
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( |
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Income tax (expenses)/credit |
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6 |
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( |
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Share of profit in equity method investment, net of tax |
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— |
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Net loss |
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( |
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( |
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Accretion of Series A Preferred Shares |
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8 |
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( |
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— |
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Net loss attributable to ordinary shareholders of the Company |
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( |
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( |
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Net loss |
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( |
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( |
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Foreign currency translation adjustment |
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( |
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Total comprehensive loss |
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( |
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( |
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Net loss per share attributable to ordinary shareholders of the Company |
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Basic and diluted |
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10 |
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( |
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( |
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Weighted average number of ordinary shares used in computing net loss per share |
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Basic and diluted |
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10 |
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The accompanying notes are an integral part of these consolidated financial statements.
F-2
UCLOUDLINK GROUP INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
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As of December 31, |
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As of June 30, |
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(Amounts expressed in thousands of US$, except for number of shares and per share data) |
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Note |
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2020 |
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2021 |
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Assets |
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Current assets: |
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Cash and cash equivalents |
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11 |
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Restricted cash |
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11 |
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— |
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Short-term deposit |
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11 |
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Accounts receivable, net |
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12 |
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Inventories |
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13 |
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Prepayments and other assets |
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14 |
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Amounts due from related parties |
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21 |
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Other investments |
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18 |
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Total current assets |
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Non-current assets: |
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Long-term investments |
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15 |
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Property and equipment, net |
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16 |
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Intangible assets, net |
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17 |
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Other investments |
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18 |
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Prepayments |
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14 |
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Total non-current assets |
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Total assets |
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Liabilities |
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Current liabilities: |
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Short term borrowings |
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20 |
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Accrued expenses and other liabilities (including US$ thousands and US$ VIEs, without recourse to the Company as of December 31, 2020 and June 30, 2021, respectively) |
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19 |
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Accounts payables (including US$ US$ without recourse to the Company as of December 31, 2020 and June 30, 2021, respectively) |
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19 |
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Amounts due to related parties (including nil and US$ without recourse to the Company as of December 31, 2020 and June 30, 2021, respectively) |
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21 |
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Contract liabilities (including US$ thousands from the consolidated VIEs, without recourse to the Company as of December 31, 2020 and June 30, 2021, respectively) |
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Total current liabilities |
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Non-current liabilities: |
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Other non-current liabilities |
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Total non-current liabilities |
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Total liabilities |
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Commitments and contingencies |
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22 |
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Shareholders’ equity |
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Class A ordinary shares (US$ December 31, 2020 and June 30, 2021, respectively) |
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7,9 |
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Class B ordinary shares (US$ shares authorized; issued and outstanding as of December 31, 2020 and June 30, 2021, respectively) |
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7,9 |
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Additional paid-in capital |
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Accumulated other comprehensive (loss) /income |
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( |
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Accumulated losses |
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( |
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( |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-3
UCLOUDLINK GROUP INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
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Ordinary shares |
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Class A ordinary shares |
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Class B ordinary shares |
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(Amounts expressed in thousands of US$, except for number of shares and per share data) |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Additional paid-in capital |
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Cumulative translation adjustments |
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Accumulated losses |
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Total equity |
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Balance as of January 1, 2020 |
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— |
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— |
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— |
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— |
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( |
) |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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( |
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Net loss for the year |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Accretion of Series A Preferred Shares |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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— |
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— |
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( |
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Redesignation of ordinary shares into Class A ordinary shares |
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( |
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( |
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— |
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— |
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— |
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— |
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— |
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— |
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Redesignation of ordinary shares into Class B ordinary shares |
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( |
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( |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of ordinary shares upon Initial Public Offering (“IPO”) |
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— |
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— |
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— |
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— |
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— |
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— |
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Conversion of Series A Preferred Shares upon IPO |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance as of June 30, 2020 |
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— |
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— |
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( |
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Ordinary shares |
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Class A ordinary shares |
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Class B ordinary shares |
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(Amounts expressed in thousands of US$, except for number of shares and per share data) |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Additional paid-in capital |
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Cumulative translation adjustments |
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Accumulated losses |
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Total equity |
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Balance as of January 1, 2021 |
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— |
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— |
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( |
) |
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( |
) |
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Foreign currency translation adjustment |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss for the year |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Share-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Shares issued upon exercise of employee share options |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance as of June 30, 2021 |
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— |
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— |
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( |
) |
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The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-4
UCLOUDLINK GROUP INC.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
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Six Months ended June 30, |
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(Amounts expressed in thousands of US$ except for number of shares and per share data) |
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2020 |
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2021 |
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Cash flows from operating activities |
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Net loss |
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( |
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( |
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Adjustments to reconcile net loss to net cash generated from/ (used in) operating activities |
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Provision for bad debts |
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Impairment for inventory obsolescence |
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— |
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Disposal of obsolescent goods |
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— |
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( |
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Depreciation of property and equipment |
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Amortization of intangible assets |
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(Losses)/gains on disposals of property and equipment |
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( |
) |
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Interest expenses |
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Share-based compensation |
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Fair value losses on other investments |
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Share of profit in equity method investments |
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— |
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( |
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Foreign currency exchange gains/(losses), net |
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( |
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Changes in operating assets and liabilities |
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Accounts receivable |
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( |
) |
||||||||
|
Prepayments and other assets |
|
|
( |
) |
|
|
( |
) |
||||||||
|
Inventories |
|
|
|
|
|
|
( |
) |
||||||||
|
Accrued expenses, accounts payable and other liabilities |
|
|
( |
) |
|
|
|
|
||||||||
|
Amounts due to related parties |
|
|
( |
) |
|
|
|
|
||||||||
|
Amounts due from related parties |
|
|
|
|
|
|
|
|
||||||||
|
Contract liabilities |
|
|
( |
) |
|
|
|
|
||||||||
|
Net cash generated from/ (used in) operating activities |
|
|
|
|
|
|
( |
) |
||||||||
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
||||||||
|
Purchase of property and equipment |
|
|
( |
) |
|
|
( |
) |
||||||||
|
Purchase of intangible assets |
|
|
( |
) |
|
|
( |
) |
||||||||
|
Proceeds from disposal of property and equipment |
|
|
— |
|
|
|
|
|
||||||||
|
Cash paid for equity method investment |
|
|
— |
|
|
|
( |
) |
||||||||
|
Increase in short-term deposit |
|
|
( |
) |
|
|
( |
) |
||||||||
|
Purchase of other investments |
|
|
( |
) |
|
|
— |
|
||||||||
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
||||||||
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
||||||||
|
Repayments of other borrowings |
|
|
( |
) |
|
|
— |
|
||||||||
|
Proceeds from bank borrowings |
|
|
|
|
|
|
|
|
||||||||
|
Repayments of bank borrowings |
|
|
( |
) |
|
|
( |
) |
||||||||
|
Proceeds from initial public offering, net of insurance costs |
|
|
|
|
|
|
— |
|
||||||||
|
Proceeds from exercise of share options |
|
|
— |
|
|
|
|
|
||||||||
|
Net cash generated from financing activities |
|
|
|
|
|
|
|
|
||||||||
|
Decrease in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
||||||||
|
Cash, cash equivalents and restricted cash at beginning of period |
|
|
|
|
|
|
|
|
||||||||
|
Effect of exchange rates on cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
||||||||
|
Cash, cash equivalents and restricted cash at end of period |
|
|
|
|
|
|
|
|
||||||||
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
||||||||
|
Interest paid |
|
|
( |
) |
|
|
( |
) |
||||||||
|
Supplemental disclosure on non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
||||||||
|
—Accretion of Series A Preferred Shares |
|
|
( |
) |
|
|
— |
|
||||||||
The accompanying notes are an integral part of these unaudited interim condensed consolidated financial statements.
F-5
UCLOUDLINK GROUP INC.
NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN US$ UNLESS OTHERWISE STATED)
|
1. |
Organization and principal activities |
|
(a) |
History and organization |
UCLOUDLINK GROUP INC. (the “Company”) was incorporated in the Cayman Islands on 25 August 2014 as an exempted company with limited liability under the Companies Law, Cap. 22 (Law 3 of 1961, as consolidated and revised) of the Cayman Islands. The Company through its consolidated subsidiaries and consolidated variable interest entities (the “VIE”) (collectively, the “Group”) is principally engaged in the provision of data connectivity services and sales of Wi-Fi terminals and data related products to enable personal and enterprise users to access mobile internet in more than 100 countries and areas. Due to the legal restrictions of the People’s Republic of China (the “PRC”) on foreign ownership and investment in such business, the Company conducts its primary business operations in the PRC through its VIEs.
|
(b) |
Principal subsidiaries and VIEs |
As of June 30, 2021, the details of the Company’s principal subsidiaries and VIEs were as follows:
|
Entity |
|
Place of incorporation |
|
Date of incorporation |
|
Relationship |
|
% of direct or indirect economic ownership |
|
|
Principal activities |
|
|
UCLOUDLINK (HK) LIMITED |
|
|
|
|
|
|
|
|
|
% |
|
|
|
HONG KONG UCLOUDLINK NETWORK TECHNOLOGY LIMITED |
|
|
|
|
|
|
|
|
|
% |
|
|
|
Shenzhen Ucloudlink Technology Limited |
|
|
|
|
|
|
|
|
|
% |
|
|
|
Shenzhen uCloudlink Co., Ltd. |
|
|
|
|
|
|
|
|
|
% |
|
|
|
Beijing uCloudlink Technology Co., Ltd. (“Beijing uCloudlink”) |
|
|
|
|
|
|
|
|
|
% |
|
|
|
UCLOUDLINK (SINGAPORE) PTE.LTD |
|
|
|
|
|
|
|
|
|
% |
|
|
|
UCLOUDLINK (UK) CO. LTD |
|
|
|
|
|
|
|
|
|
% |
|
|
|
Ucloudlink (America), Ltd. |
|
|
|
|
|
|
|
|
|
% |
|
|
|
UCLOUDLINK SDN.BHD |
|
|
|
|
|
|
|
|
|
% |
|
|
|
uCloudlink Japan Co., Ltd. |
|
|
|
|
|
|
|
|
|
% |
|
|
|
Shenzhen uCloudlink Network Technology Co., Ltd. (“Shenzhen uCloudlink”) |
|
|
|
|
|
|
|
|
|
% |
|
|
|
Beijing uCloudlink New Technology Co., Ltd. (“Beijing Technology”) |
|
|
|
|
|
|
|
|
|
% |
|
|
|
PT UCLOUDLINK TECHNOLOGIES PMA |
|
|
|
|
|
|
|
|
|
% |
|
|
|
UCLOUDLINK UK LIMITED |
|
|
|
|
|
|
|
|
|
% |
|
|
Refer to Note 2.3 for the consolidated financial information of the Company’s VIEs as of December 31, 2020 and June 30, 2021.
F-6
|
1. |
Organization and principal activities (Continued) |
|
(c) |
Variable Interest Entities |
The Company has entered into certain exclusive technical services agreements with certain PRC domestic companies, which entitle it to receive a majority of their residual returns and make it obligatory for the Company to absorb a majority of the risk of losses from their activities. In addition, the Company has entered into certain agreements with the equity holders of these PRC domestic companies, including loan agreements that require them to contribute registered capital to those PRC domestic companies, exclusive call option agreements to acquire the equity interests in these companies when permitted by the PRC laws, rules and regulations, equity pledge agreements of the equity interests held by those equity holders, and proxy agreements that irrevocably authorize individuals designated by the Company to exercise the equity owner’s rights over these PRC domestic companies.
Details of the typical structure of the Group’s significant VIEs are set forth below:
|
|
(i) |
VIE agreements amongst Beijing uCloudlink, Shenzhen uCloudlink and its nominee shareholders |
The following is a summary of the contractual arrangements entered among Beijing uCloudlink, Shenzhen uCloudlink and its nominee shareholder:
|
|
• |
Exclusive Technology Support and Technology Services Agreement |
Under the exclusive technology support and technology services agreement between Beijing uCloudlink and Shenzhen uCloudlink, Beijing uCloudlink has the exclusive right to provide to Shenzhen uCloudlink technology support and technology services related to all technologies needed for its business. Beijing uCloudlink owns the exclusive intellectual property rights created as a result of the performance of this agreement. The service fee payable by Shenzhen uCloudlink to Beijing uCloudlink is determined by the revenue of Shenzhen uCloudlink less the expenditures incurred for operation and capital purpose, or at an amount subject to mutual negotiation and agreement between the parties. The term of this agreement will expire only upon the liquidation of Shenzhen uCloudlink.
|
|
• |
Exclusive Business Operation Agreement |
Under the exclusive business operation agreement among Beijing uCloudlink, Shenzhen uCloudlink and Beijing Technology, which is the sole shareholder of Shenzhen uCloudlink, Shenzhen uCloudlink and Beijing Technology undertake that without Beijing uCloudlink’s prior written consent, Shenzhen uCloudlink shall not enter into any transactions that may have a material effect on Shenzhen uCloudlink’s assets, business, personnel, obligations, rights or business operations. Shenzhen uCloudlink and Beijing Technology agree that to the extent permitted by law, they will accept and unconditionally execute instructions from Beijing uCloudlink on business operations. Shenzhen uCloudlink and Beijing Technology also agree to elect directors nominated by Beijing uCloudlink and such directors shall nominate officers designated by Beijing uCloudlink. The business operation agreement will remain effective until the end of the dissolution of Shenzhen uCloudlink and Beijing Technology correspondingly, the term of which will be extended if Beijing uCloudlink’s business term is extended or as required by Beijing uCloudlink.
|
|
• |
Exclusive Option Agreement |
The parties to the exclusive option agreement are Beijing uCloudlink, Shenzhen uCloudlink and the shareholder of Shenzhen uCloudlink. Under the exclusive option agreement, the shareholder of Shenzhen uCloudlink irrevocably granted Beijing uCloudlink or its designated representative(s) an exclusive option to purchase all or part of his or its equity interests in Shenzhen uCloudlink at a consideration of RMB
F-7
|
1. |
Organization and principal activities (Continued) |
|
(c) |
Variable Interest Entities (Continued) |
|
|
(i) |
VIE agreements amongst Beijing uCloudlink, Shenzhen uCloudlink and its nominee shareholders (Continued) |
|
|
• |
Powers of Attorney |
Pursuant to the irrevocable power of attorney executed by each shareholder of Shenzhen uCloudlink, each such shareholder appointed Beijing uCloudlink as its attorney-in-fact to exercise such shareholders’ rights in Shenzhen uCloudlink, including, without limitation, the power to vote on its behalf on all matters of Shenzhen uCloudlink requiring shareholder approval under PRC laws and regulations and the articles of association of Shenzhen uCloudlink. Each power of attorney will remain in force until the termination of the Exclusive Business Cooperation Agreement.
|
|
• |
Equity Interest Pledge Agreement |
Pursuant to the share pledge agreement among Beijing uCloudlink, Shenzhen uCloudlink and the shareholder of Shenzhen uCloudlink, the shareholder of Shenzhen uCloudlink has pledged all of their equity interests in Shenzhen uCloudlink to Beijing uCloudlink to guarantee the performance by Shenzhen uCloudlink and its shareholders’ performance of their respective obligations under the exclusive business cooperation agreement, exclusive option agreement, exclusive technology support and technology services agreement and powers of attorney. If Shenzhen uCloudlink and/or its shareholders breach their contractual obligations under those agreements, Beijing uCloudlink, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests.
|
|
(ii) |
VIE agreements among Beijing uCloudlink, Beijing Technology and its nominee shareholders |
The following is a summary of the contractual arrangements entered among Beijing uCloudlink, Beijing Technology and its nominee shareholders:
|
|
• |
Exclusive Technology Support and Technology Services Agreement |
Under the exclusive technology support and technology services agreement between Beijing uCloudlink and Beijing Technology, Beijing uCloudlink has the exclusive right to provide to Beijing Technology technology support and technology services related to all technologies needed for its business. Beijing uCloudlink owns the exclusive intellectual property rights created as a result of the performance of this agreement. The service fee payable by Beijing Technology to Beijing uCloudlink is determined by the revenue of Beijing Technology generated less the expenditures incurred for operation and capital purpose, or at an amount subject to mutual negotiation and agreement between the parties. The term of this agreement will expire only upon the liquidation of Beijing Technology.
|
|
• |
Exclusive Business Operation Agreement |
Beijing uCloudlink, Beijing Technology and the shareholders of Beijing Technology entered into exclusive business operation agreement under which Beijing Technology engages Beijing uCloudlink as its exclusive provider of technology support, business support and consulting services. Beijing Technology shall pay to Beijing uCloudlink service fees, which is determined by the revenue of Beijing Technology less the expenditures incurred for operation and capital purpose, subject to further mutual negotiation and agreement. Beijing uCloudlink shall have exclusive and proprietary rights and interests in all rights, ownership, interests and intellectual properties arising from the performance of the agreement. During the term of the agreement, Beijing Technology shall not accept any consultations and/or services provided by any third party and shall not cooperate with any third party for the provision of identical or similar services without prior consent of Beijing uCloudlink. The term of this agreement will expire only upon the liquidation of Beijing Technology or may be cancelled at Beijing uCloudlink’s sole discretion.
F-8
|
1. |
Organization and principal activities (Continued) |
|
(c) |
Variable Interest Entities (Continued) |
|
|
(ii) |
VIE agreements among Beijing uCloudlink, Beijing Technology and its nominee shareholders (Continued) |
|
|
• |
Exclusive Purchase Option Agreement |
Under the exclusive purchase option agreement, the nominee shareholders of Beijing Technology have granted Beijing uCloudlink or its designated representative(s) irrevocably an exclusive option to purchase, to the extent permitted under PRC law, all or part of their equity interests in Beijing Technology at the lowest price permitted by the laws of the PRC applicable at the time of exercise. Beijing uCloudlink or its designated representative(s) have sole discretion as to when to exercise such options, either in part or in full. Without Beijing uCloudlink’s prior written consent, the nominee shareholders shall not sell, transfer, mortgage or otherwise dispose their equity interests in Beijing Technology. The term of this agreement will expire only when the total assets of Beijing Technology have been acquired by Beijing uCloudlink.
|
|
• |
Power of Attorney |
Pursuant to the irrevocable power of attorney, Beijing uCloudlink is authorized by each of the nominee shareholders as its attorney-in-fact to exercise such nominee shareholders’ rights in Beijing Technology , including, without limitation, the power to vote on its behalf on all matters of Beijing Technology requiring nominee shareholder approval under PRC laws and regulations and the articles of association of Beijing Technology and rights to information relating to all business aspects of Beijing Technology . Each power of attorney will remain in force until the termination of the Exclusive Business Cooperation Agreement.
|
|
• |
Equity Interest Pledge Agreement |
Pursuant to the equity pledge agreement, the nominee shareholders of Beijing Technology have pledged all of their equity interests in Beijing Technology to Beijing uCloudlink to guarantee the performance by Beijing Technology and its nominee shareholders’ performance of their respective obligations under the exclusive business cooperation agreement, exclusive purchase option agreement, and powers of attorney. The nominee shareholders shall not transfer or assign the equity interests, the rights and obligations in the equity pledge agreement or create or permit to create any pledges which may have an adverse effect on the rights or benefits of Beijing uCloudlink without Beijing uCloudlink’s written consent. If Beijing Technology and/or its nominee shareholders breach their contractual obligations under those agreements, Beijing uCloudlink, as pledgee, will be entitled to certain rights, including the right to sell the pledged equity interests.
Through the aforementioned contractual agreements, Shenzhen uCloudlink and Beijing Technology are considered VIEs and Beijing uCloudlink is the primary beneficiary because the Company, through Beijing uCloudlink has the ability to:
|
|
• |
exercise effective control over Shenzhen uCloudlink and Beijing Technology; |
|
|
• |
receive substantially all of the economic benefits and residual returns, and absorb substantially all the risks and expected losses from these VIEs as if it were their sole shareholder; and |
|
|
• |
have an exclusive option to purchase all of the equity interests in these VIEs. |
F-9
|
|
|
1. |
Organization and principal activities (Continued) |
|
(c) |
Variable Interest Entities (Continued) |
|
|
(iii) |
Risks in relation to the VIE structure |
In accordance with various contractual agreements, the Company has the power to direct the activities of the VIEs and can have assets transferred out of the VIEs. Therefore, the Company considers that there are no assets in the respective VIEs that can be used only to settle obligations of the respective VIEs, except for the registered capital of the VIEs amounting to approximately US$
There is no VIE in the Group where the Company or any subsidiary has a variable interest but is not the primary beneficiary.
In the opinion of the Company’s management, the contractual arrangements among its subsidiary, the VIEs and their respective nominee shareholders are in compliance with the current PRC laws and are legally binding and enforceable. However, uncertainties in the interpretation and enforcement of the PRC laws, regulations and policies could limit the Company’s ability to enforce these contractual arrangements. As a result, the Company may be unable to consolidate the VIEs in the consolidated financial statements.
In January 2015, the Ministry of Commerce (“MOFCOM”), released for public comment a proposed PRC law, the Draft Foreign Investment Enterprises (“FIE”) Law, that appears to include VIEs within the scope of entities that could be considered to be FIEs, that would be subject to restrictions under existing PRC law on foreign investment in certain categories of industry. Specifically, the Draft FIE Law introduces the concept of “actual control” for determining whether an entity is considered to be an FIE. In addition to control through direct or indirect ownership or equity, the Draft FIE Law includes control through contractual arrangements within the definition of “actual control”. If the Draft FIE Law is passed by the People’s Congress of the PRC and goes into effect in its current form, these provisions regarding control through contractual arrangements could be construed to include the Company’s contractual arrangements with its VIEs, and as a result, the Group’s VIEs could become explicitly subject to the current restrictions on foreign investment in certain categories of industry. The Draft FIE Law includes provisions that would exempt from the definition of FIEs where the ultimate controlling shareholders are either entities organized under PRC law or individuals who are PRC citizens. The Draft FIE Law is silent as to what type of enforcement action might be taken against existing VIEs, that operates in restricted or prohibited industries and is not controlled by entities organized under PRC law or individuals who are PRC citizens. If the restrictions and prohibitions on FIEs included in the Draft FIE Law are enacted and enforced in their current form, the Company’s ability to use the contractual arrangements with its VIEs and the Company’s ability to conduct business through the VIEs could be severely limited.
The Company’s ability to control the VIEs also depends on the power of attorney exercised by Beijing uCloudlink to vote on all matters requiring shareholders’ approvals in the VIEs. As noted above, the Company believes these powers of attorney are legally binding and enforceable but may not be as effective as direct equity ownership. In addition, if the Company’s corporate structure or the contractual arrangements with the VIEs were found to be in violation of any existing PRC laws and regulations, the PRC regulatory authorities could, within their respective jurisdictions:
|
|
• |
revoke the Company’s business and operating licenses; |
|
|
• |
require the Company to discontinue or restrict its operations; |
|
|
• |
restrict the Company’s right to collect revenues; |
F-10
|
|
|
1. |
Organization and principal activities (Continued) |
|
(c) |
Variable Interest Entities (Continued) |
|
|
(iii) |
Risks in relation to the VIE structure (Continued) |
|
|
• |
require the Company to restructure its operations, re-apply for the necessary licenses or relocate the Company’s businesses, staff and assets; |
|
|
• |
impose additional conditions or requirements with which the Company may not be able to comply; or |
|
|
• |
take other regulatory or enforcement actions against the Company that could be harmful to the Group’s business. |
The imposition of any of these restrictions or actions may result in a material adverse effect on the Company’s ability to conduct its business. In addition, if the imposition of any of these restrictions causes the Company to lose the right to direct the activities of the VIEs or the right to receive their economic benefits, the Company would no longer be able to consolidate the financial statements of the VIEs. In the opinion of management, the likelihood of losing the benefits in respect of the Company’s current ownership structure or the contractual arrangements with its VIEs is remote.
Refer to Note 2.3 for the consolidated financial information of the Company’s VIEs as of December 31, 2020 and June 30, 2021.
|
(d) |
Initial Public Offering |
On June 10, 2020, the Company completed its IPO on the Nasdaq Global Market. In the offering,
Immediately prior to the completion of the IPO, the Company completed the redesignation on a one-for-one basis of: (i)
In respect of all matters subject to shareholders’ vote, each holder of Class A ordinary share is entitled to
F-11
|
2. |
Summary of significant accounting policies |
|
2.1 |
Basis of presentation |
The accompanying unaudited interim condensed consolidated financial statements of the Group have been prepared in accordance with the 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 normally included in the annual financial statements prepared in accordance with U.S. GAAP. Certain information and footnote disclosures normally included in the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted consistent with Article 10 of Regulation S-X. In the opinion of management, the Group’s unaudited interim condensed consolidated financial statements and accompanying notes include all adjustments (consisting of normal recurring adjustments) considered necessary for the fair statement of the Group’s financial position as of December 31, 2020 and June 30, 2021, and results of operations and cash flows for the six months ended June 30, 2020 and 2021. Interim results of operations are not necessarily indicative of the results for the full year or for any future period. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2020, and related notes included in the Group’s audited consolidated financial statements. The financial information as of December 31, 2020 presented in the unaudited interim condensed consolidated financial statements is derived from the audited consolidated financial statements as of December 31, 2020.
|
2.2 |
Use of estimates |
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires the Group to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates, and such differences may be material to the consolidated financial statements. Significant accounting estimates reflected in the Company’s consolidated financial statements include legal contingencies, share-based compensation and realization of deferred tax assets. The Group bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
|
2.3 |
Consolidation |
The consolidated financial statements include the financial statements of the Company and its subsidiaries, which include the wholly-foreign owned enterprises (“WFOE”) and variable interest entities (“VIEs”) over which the Company is the primary beneficiary. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation. The results of subsidiaries acquired or disposed of are recorded in the consolidated statements of comprehensive (loss)/income from the effective date of acquisition or up to the effective date of disposal, as appropriate.
A subsidiary is an entity in which (i) the Company directly or indirectly controls more than
F-12
|
2. |
Summary of significant accounting policies (Continued) |
|
2.3 |
Consolidation (Continued) |
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.
Due to legal restrictions on foreign ownership and investment in commercial internet content provider or other value-added telecommunication service through certain PRC domestic companies, the equity interests of certain PRC domestic companies are held by PRC citizens or by PRC entities owned and/or controlled by PRC citizens. Specifically, the PRC domestic companies that are material to the Group’s businesses are Beijing Technology and Shenzhen uCloudlink.
The following table sets forth the assets, liabilities, results of operations and changes in cash and cash equivalents of the VIEs taken as a whole, which were included in the Company’s consolidated financial statements with intercompany balances and transactions eliminated between the VIEs:
|
|
|
As of December 31, |
|
|
As of June 30, |
|
||
|
|
|
2020 |
|
|
2021 |
|
||
|
|
|
(in thousands of US$) |
|
|||||
|
Cash and cash equivalents |
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
|
|
|
|
|
|
|
Amounts due from non-VIE subsidiaries of the Company |
|
|
|
|
|
|
|
|
|
Property and equipment and intangible assets |
|
|
|
|
|
|
|
|
|
Others |
|
|
|
|
|
|
|
|
|
Total assets |
|
|
|
|
|
|
|
|
|
Amounts due to non-VIE subsidiaries of the Company |
|
|
|
|
|
|
|
|
|
Accrued expenses, account payable and other liabilities |
|
|
|
|
|
|
|
|
|
Contract liabilities |
|
|
|
|
|
|
|
|
|
Others |
|
|
— |
|
|
|
|
|
|
Total liabilities |
|
|
|
|
|
|
|
|
|
|
|
Six Months ended June 30, |
||||||
|
|
|
2020 |
|
|
2021 |
|
||
|
|
|
(in thousands of US$) |
||||||
|
Revenue (note) |
|
|
|
|
|
|
|
|
|
Net income/ (loss) (note) |
|
|
|
|
|
|
( |
) |
|
Net cash provided by/ (used in) operating activities |
|
|
|
|
|
|
( |
) |
|
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
Net cash used in financing activities |
|
|
( |
) |
|
|
— |
|
Note:
Revenue and net income/ (loss) incurred by the VIEs are primarily from the provision of data connectivity services, as well as sales of Wi-Fi terminals and sales of data related products.
The VIEs did not have any material related party transactions except for the related party transactions which are disclosed in Note 21 or elsewhere in these consolidated financial statements, and those transactions with other subsidiaries that are not VIEs, which were eliminated upon consolidation.
F-13
|
2. |
Summary of significant accounting policies (Continued) |
|
2.3 |
Consolidation (Continued) |
Under the contractual arrangements with the VIEs, the Company has the power to direct activities of the VIEs and can have assets transferred out of the VIEs under its control. Therefore, the Company considers that there is
Currently there is no contractual arrangement which requires the Company to provide additional financial support to the VIEs. However, as the Company conducts its businesses primarily based on the licenses and approvals held by its VIEs, the Company has provided and will continue to provide financial support to the VIEs considering the business requirements of the VIEs, as well as the Company’s own business objectives in the future.
Unrecognized revenue-producing assets held by the VIEs include certain internet value added services provision and other licenses. The internet value added services provision and other licenses are required under relevant PRC laws, rules and regulations for the operation of internet businesses in the PRC, and therefore are integral to the Group’s operations. The internet content provision licenses require that core PRC trademark registrations and domain names are held by the VIEs that provide the relevant services.
|
2.4 |
Investment in equity investees |
The equity investment represents the Group’s investment in privately-held entities. The Group accounts for its equity investment over which it has significant influence but does not own a majority equity interest or otherwise control using the equity method. The Group adjusts the carrying amount of the investment and recognizes investment income or loss for share of the earnings or loss of the investees after the date of investment. When the Group’s share of loss in the equity investees equal or exceed their interest in the equity investee, the Group does not recognize further losses, unless the Group has incurred obligations or made payments or guarantees on behalf of the equity investees. The Group assesses its equity investment for other-than-temporary impairment by considering factors including, but not limited to, current economic and market conditions, operating performance of the entities, including current earnings trends and undiscounted cash flows, and other entity-specific information. The fair value determination, particularly for investment in privately-held entities, requires judgment to determine appropriate estimates and assumptions. Changes in these estimates and assumptions could affect the calculation of the fair value of the investment and determination of whether any identified impairment is other-than-temporary.
|
2.5 |
Fair value of financial instruments |
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. 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 it considers assumptions that market participants would use when pricing the asset or liability.
The established fair value hierarchy 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.
The three levels of inputs that may be used to measure fair value include:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2: Observable, market-based inputs, other than quoted prices, in active markets for identical assets or liabilities.
F-14
|
2. |
Summary of significant accounting policies (Continued) |
|
2.5 |
Fair value of financial instruments (Continued) |
Level 3: Unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
Accounting guidance also describes three main approaches to measuring 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.
The Group does not have any non-financial assets or liabilities that are recognized or disclosed at fair value in the financial statements on a recurring basis.
The Group’s financial instruments consist principally of cash and cash equivalents, short-term deposit, accounts receivable, accounts payable, contract liabilities and other liabilities.
As of December 31, 2020 and June 30, 2021, the carrying values of cash and cash equivalents, short-term deposit, accounts receivable, accounts payable, contract liabilities and other liabilities approximated their fair values reported in the consolidated balance sheets due to the short term nature of these instruments.
|
2.6 |
Revenue recognition |
Revenue is principally generated by the provision of data connectivity services and the sales of terminals and sales of data related products. Revenue represents the fair value of the consideration received or receivable for the sales of goods and the provision of services in the ordinary course of the Group’s activities and is recorded net of value-added tax (“VAT”). The Group recognizes revenue in accordance with ASC 606 “Revenue from Contracts with Customers” for all years presented with full retrospective method.
The Group conducts its business through various contracts with customers, including:
|
|
(i) |
Data connectivity services |
The Group generates international data connectivity services revenues from (i) data service fees from the use of portable Wi-Fi terminals (under its brand of “Roamingman”), (ii) data service fees generated from sales of data connectivity services to enterprise customers, and (iii) retail sales of data connectivity services.
The Group also generates local data connectivity services revenues from (i) data service fees generated from sales of data connectivity services to enterprise customers, and (ii) retail sales of data connectivity services.
For data connectivity services from the use of portable Wi-Fi terminals, the Group determines that the arrangement involves the leasing of portable Wi-Fi terminals with data connectivity services embedded. The Group determines that it is the lessor in the arrangement which contains an equipment lease component and a service non-lease component. The Group further determines that lease component is an operating lease under ASC 840, and that the operating lease component and service component are delivered over the same time and pattern. Therefore, the lease income and service income are recognized as data connectivity services revenue evenly over the service period.
F-15
|
2. |
Summary of significant accounting policies (Continued) |
|
2.6 |
Revenue recognition (Continued) |
The Group evaluates and determines that it is the principal. For data connectivity services from the use of portable Wi-Fi terminals and retail sales of data connectivity services, the Group views users as its customers. For data connectivity services generated from sales of data connectivity services to enterprise customers, the Group views enterprise customers as its customers. The Group reports data connectivity services revenues on gross basis. Accordingly, the amounts paid for data connectivity services by customers are recorded as revenues and the related commission fees paid to its agents (mainly travel agents and other online distributors) are recorded as cost of revenues. Where the Group is the principal, it controls the data before the data connectivity service is provided to customers. Its control is evidenced by the inventory risk borne by the Group and the Group’s ability to direct the use of the data, and is further supported by the Group being primarily responsible to customers and having the discretion in establishing pricing.
Data connectivity services offered to customers typically provide unlimited data usage during a fixed period of time (“contract period”), where revenue is recognized ratably on a straight-line basis over the contract period. The Group does not have further performance obligations to the customers after the contract period. The Group also offers data connectivity services where customers are charged service fee based on actual data usage, where revenue is recognized as the services are provided to customers.
In providing data connectivity services to its customers, the Group procures SIM cards and data plans from various suppliers. Those SIM cards are activated and hosted on the Group’s cloud SIM platform. The Group’s cloud SIM platform manages terminal information and customer accounts and intelligently allocates the SIM cards and data plans and makes them available to customers who purchase the Group’s data connectivity services. Accordingly, the Group takes inventory risk and obtains control of the SIM cards and data plans procured and direct the use of the data on its cloud SIM platform depending on customers’ demand. The Group accounts for the SIM cards and data plans procured as costs of revenue as data is being made available and consumed on its cloud SIM platform.
As the Group’s data connectivity services are provided without right of return and the Group does not provide any other credit and incentive to its customers, therefore, the Group’s provision of data connectivity services does not involve variable consideration.
|
|
(ii) |
Sales of terminals and data related products |
The Group generates revenues from selling tangible products, including GlocalMe portable Wi-Fi terminals, GlocalMe World Phone series and smartphones with GlocalMe Inside (“GMI”) implemented, as well as SIM cards, to enterprise and retail customers and business partners. Sales of terminals and data related products are recognized when control of promised goods is transferred to the customers, which generally occurs upon the acceptance of the goods by the customers.
For sales of Wi-Fi terminals, one gigabyte of free data connectivity service is normally included as a bundle package for the first time purchase of the terminals. There are two separate performance obligations in such bundle sales as the Wi-Fi terminal is a distinct good while the data connectivity service is a distinct service. The Group allocates the transaction price to each distinct performance obligation based on their relative standalone selling prices. The Group then recognizes revenue for each of the distinct performance obligations identified in accordance with the applicable revenue recognition method relevant for that obligation. For revenue related to the Wi-Fi terminals, revenue is recognized when the control of the Wi-Fi terminals is transferred. For revenue related to the data connectivity service, it is recognized ratably on a straight-line basis over the relevant contract period.
F-16
|
2. |
Summary of significant accounting policies (Continued) |
|
2.6 |
Revenue recognition (Continued) |
|
|
(iii) |
Provision of PaaS or SaaS services |
Platform-as-a-Service (PaaS) or Software-as-a-Service (SaaS) mainly consist of fees generated from providing cloud SIM platform as a service to business partners. The Group provides its cloud SIM platform as a service to business partners enabling them to manage their data resources. Business partners using the platform are charged service fees for the use of the cloud SIM platform services. The Group has continuous obligation to ensure the performance of the platform over the service period. Revenue is recognized ratably over the contract period as business partners simultaneously consume and receive benefits from the service. The Group does not provide any other credit and incentive related to the cloud SIM platform services, therefore there is no variable consideration in the arrangement.
|
|
(iv) |
Contract balance |
Contract liabilities represent the cash collected upfront from the customers for purchase of data connectivity services or purchase of Wi-Fi terminals, while the underlying data connectivity services have not yet been rendered or the Wi-Fi terminals have not been delivered to the customers by the Group, which is included in the presentation of contract liabilities.
Due to the generally short-term duration of the relevant contracts, all performance obligations are satisfied within
|
3. |
Recent accounting pronouncements |
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842)”, which increases lease transparency and comparability among organizations. Under the new standard, lessees will be required to recognize all assets and liabilities arising from leases on the balance sheet, with the exception of leases with a term of 12 months or less, which permits a lessee to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities. If a leasee makes this election, it should recognize lease expenses for such lease generally on a straight-line basis over the lease term. The ASU is effective for reporting periods beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption is permitted. In March 2018, the FASB approved an alternative transition method to the modified retrospective approach, which eliminates the requirement to restate prior period financial statements and allows the cumulative effect of the retrospective allocation to be recorded as an adjustment to the opening balance of retained earnings at the date of adoption. In November 2019, the FASB issued ASU No. 2019-10, “Leases (Topic 842): Effective Dates”, to finalize the effective date delays for private companies, not-for-profits, and smaller reporting companies applying the leases standards. The ASU is effective for reporting periods beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. Early adoption is permitted. The Group will adopt this new guidance for the fiscal years beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. Most of leases will continue to be operating leases. Upon the adoption, the Group expects its consolidated balance sheet to include a right of use asset and liability related to substantially all of its lease arrangements. The Group expects the adoption of the standard will not have a significant impact on its consolidated financial statements.
F-17
|
3. |
Recent accounting pronouncements (Continued) |
In June 2016, the FASB issued ASU No. 2016-13 “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The new guidance amended guidance on reporting credit losses for assets held at amortized cost basis and available for sale debt securities. For available for sale debt securities, credit losses will be presented as an allowance rather than as a write-down. This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for all entities. In November 2019, the FASB issued ASU No. 2019-10, “Financial Instruments-Credit Losses (Topic 326): Effective Dates”, to finalize the effective date delays for private companies, not-for-profits, and smaller reporting companies applying the CECL standards. The ASU is effective for reporting periods beginning after December 15, 2022 and interim periods within those fiscal years. Early adoption is permitted. The Group is currently assessing the impact of adopting this standard on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-15, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract”. This standard aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The implementation costs incurred in a hosting arrangement that is a service contract should be presented as a prepaid asset in the balance sheet and expensed over the term of the hosting arrangement to the same line item in the statement of operations as the costs related to the hosting fees. This standard is effective for annual reporting periods beginning after December 15, 2020, and interim periods within annual periods beginning after December 15, 2021. The amendments should be applied either retrospectively or prospectively to all implementation costs incurred after adoption. The Group expects the adoption of the standard will not have a significant impact on its consolidated financial statements.
F-18
|
4. |
Revenues |
|
|
|
Six Months ended June 30, |
||||||
|
(In thousands) |
|
2020 |
|
|
2021 |
|
||
|
Revenues from services |
|
|
|
|
|
|
|
|
|
—Data connectivity services |
|
|
|
|
|
|
|
|
|
International data connectivity services |
|
|
|
|
|
|
|
|
|
Local data connectivity services |
|
|
|
|
|
|
|
|
|
—PaaS and SaaS services |
|
|
|
|
|
|
|
|
|
—Others |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of products |
|
|
|
|
|
|
|
|
|
—Sales of terminals |
|
|
|
|
|
|
|
|
|
—Sales of data related products |
|
|
|
|
|
|
|
|
|
—Others |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
(a) |
Disaggregation of revenue |
In the following table, revenue is geographically disaggregated according to the locations of the customers.
|
|
|
Six Months ended June 30, |
||||||
|
(In thousands) |
|
2020 |
|
|
2021 |
|
||
|
Japan |
|
|
|
|
|
|
|
|
|
North America |
|
|
|
|
|
|
|
|
|
Mainland China |
|
|
|
|
|
|
|
|
|
Southeast Asia |
|
|
|
|
|
|
|
|
|
Hong Kong SAR |
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
Taiwan |
|
|
|
|
|
|
|
|
|
Others |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
5. |
Other income/(expense) |
|
|
|
|
Six Months ended June 30, |
|
||||
|
(In thousands) |
|
|
2020 |
|
|
|
2021 |
|
|
Foreign exchange gains/(losses), net |
|
|
|
|
|
|
( |
) |
|
Government grants (note) |
|
|
|
|
|
|
|
|
|
(Losses)/gains on disposal of property and equipment, net |
|
|
( |
) |
|
|
|
|
|
Fair value losses on other investments |
|
|
( |
) |
|
|
( |
) |
|
Others |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
( |
) |
Note:
Government grants mainly represent amounts received from central and local governments in connection with the Group’s investments in local business districts and contributions to technology development.
F-19
|
6. |
Taxation |
|
(a) |
Income taxes |
|
(i) |
Cayman Islands |
The Company was incorporated in the Cayman Islands and conducts most of its business through its subsidiaries and VIEs located in the PRC and Hong Kong. Under the current laws of the Cayman Islands, the Company is not subject to tax on either income or capital gain. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.
|
(ii) |
PRC |
The PRC enterprise income tax is calculated based on the taxable income determined under the PRC laws and accounting standards. Under the Corporate Income Tax (“CIT”) Law, which became effective on January 1, 2008, foreign invested enterprises and domestic enterprises are subject to a unified CIT rate of
Shenzhen Ucloudlink Technology Limited and Shenzhen uCloudlink are qualified as HNTE, which are eligible to a preferential tax rate of
The Group’s loss before income taxes consisted of:
|
|
|
Six Months ended June 30, |
||||||
|
(In thousands) |
|
2020 |
|
|
2021 |
|
||
|
Non-PRC |
|
|
( |
) |
|
|
( |
) |
|
PRC |
|
|
( |
) |
|
|
( |
) |
|
Total |
|
|
( |
) |
|
|
( |
) |
|
(iii) |
Hong Kong |
The Company’s subsidiaries incorporated in Hong Kong are subject to profits tax rate of
The reconciliations of the income tax expenses for the six months ended June 30, 2020 and 2021 were as follows:
|
|
|
Six Months ended June 30, |
|||||||
|
(In thousands) |
|
2020 |
|
|
2021 |
|
|||
|
Loss before income tax |
|
|
( |
) |
|
|
( |
) |
|
|
Income tax computed at statutory PRC income tax rate ( |
|
|
( |
) |
|
|
( |
) |
|
|
Differential income tax rates applicable to certain entities comprising the Group |
|
|
|
|
|
|
|
|
|
|
Effect of tax holiday |
|
|
|
|
|
|
|
|
|
|
Permanent differences(ii) |
|
|
|
|
|
|
|
|
|
|
Change in valuation allowance |
|
|
|
|
|
|
|
|
|
|
Accelerated deductions on research and development expenses(iii) |
|
|
( |
) |
|
|
( |
) |
|
|
Income tax expenses/(credit) |
|
|
|
|
|
|
( |
) |
|
|
|
(i) |
The PRC statutory income tax rate was used because the majority of the Group’s operations are based in the PRC. |
|
|
(ii) |
Permanent differences primarily represent non-deductible expenses. |
F-20
|
6. |
Taxation (Continued) |
|
(a) |
Income taxes (Continued) |
|
|
(iii) |
This amount represents tax incentives relating to the research and development expenses of certain major operating subsidiaries in the PRC. This tax incentive enables those subsidiaries to claim an additional tax deduction amounting to |
The per share effect of the tax holiday are as follows:
|
|
|
Six Months ended June 30, |
||||||
|
(In thousands) |
|
2020 |
|
|
2021 |
|
||
|
Effect of tax holiday |
|
|
|
|
|
|
|
|
|
Per share effect – basic and diluted |
|
|
|
|
|
|
|
|
|
(b) |
Deferred tax assets |
Deferred income tax expense reflects the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
|
|
|
As of December 31, |
As of June 30, |
||||||
|
(In thousands) |
|
2020 |
|
|
2021 |
|
|||
|
Deferred tax assets |
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards |
|
|
|
|
|
|
|
|
|
|
Accrued expenses and others |
|
|
|
|
|
|
|
|
|
|
Less: valuation allowance |
|
|
( |
) |
|
|
( |
) |
|
|
Net deferred tax assets |
|
|
— |
|
|
|
— |
|
|
Movement of valuation allowance
|
|
|
As of December 31, |
As of June 30, |
||||||
|
(In thousands) |
|
2020 |
|
|
2021 |
|
|||
|
Balance at beginning of the period |
|
|
|
|
|
|
|
|
|
|
Change of valuation allowance |
|
|
|
|
|
|
|
|
|
|
Balance at end of the period |
|
|
|
|
|
|
|
|
|
Valuation allowance is provided against deferred tax assets when the Group determines that it is more-likely-than-not that the deferred tax assets will not be utilized in the future. The Group considers positive and negative evidence to determine whether some portion or all of the deferred tax assets will be more-likely-than-not realized. This assessment considers, among other matters, the nature, frequency and severity of recent losses and forecasts of future profitability. These assumptions require significant judgment and the forecasts of future taxable income are consistent with the plans and estimates the Group is using to manage the underlying businesses. Valuation allowances are established for deferred tax assets based on a more likely than not threshold. The Group’s ability to realize deferred tax assets depends on its ability to generate sufficient taxable income within the carry forward periods provided for in the tax law. The Group has provided a full valuation allowance for the deferred tax assets as of December 31, 2020 and June 30, 2021, as management is not able to conclude that the future realization of those net operating loss carry forwards and other deferred tax assets are more likely than not. The statutory rate of
F-21
|
6. |
Taxation (Continued) |
|
(b) |
Deferred tax assets (Continued) |
As of December 31, 2020 and June 30, 2021, the Group had net operating loss carryforwards of approximately US$
According to the Circular of relevant governmental regulatory authorities of Taxation on Extending the Loss Carry-over Period of High-tech Enterprises and High-tech SMEs (Cai Shui [2018] No. 76), from January 1, 2018, the enterprises that have the qualifications of high-tech enterprises or high-tech SMEs will be able to make up for the losses that have not been completed in the previous five years before the qualification year. The longest carry-over period is extended from 5 years to 10 years. As of December 31, 2020, the net operating loss carry forwards arose from Shenzhen uCloudlink Technology Limited and Shenzhen uCloudlink will expire during the period from
|
(c) |
Uncertain tax position |
The Group evaluates the level of authority for each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measures the unrecognized benefits associated with the tax positions. As of December 31, 2020 and June 30, 2021, the Group did not have any significant unrecognized uncertain tax positions. The Group does not anticipate any significant increase to our liability for unrecognized tax benefit within the next 12 months. Interest and penalties related to income tax matters, if any, is included in income tax expense.
|
7. |
Ordinary shares |
|
|
(i) |
Prior to May 19, 2019, the authorized share of the Company was US$ |
On May 19, 2019, the Board of Directors of the Company passed the resolution that all of the Company’s ordinary shares and preferred shares were subdivided into
F-22
|
7. |
Ordinary shares (Continued) |
|
|
(ii) |
On January 28, 2015, the Company entered into a share purchase agreement (“Series A SPA”) with certain investors under which the Company issued |
|
|
(iii) |
On November 25, 2015, the Company entered into a share purchase agreement (“A-1 SPA”) with certain investors under which the Company issued |
|
|
(iv) |
On January 1, 2016, |
|
|
(v) |
On September 22, 2016, the Company entered into a share purchase agreement (“A-2 SPA”) with certain investors under which the Company issued |
|
|
(vi) |
On June 19, 2017, the Company repurchased |
|
|
(vii) |
On August 28, 2018, upon the occurrence of the event of automatic conversion of convertible bonds, in which that the Group attained cumulative revenue over RMB |
F-23
|
7. |
Ordinary shares (Continued) |
|
|
(viii) |
On November 25, 2015, June 19, 2017 and March 22, 2018, the Company issued |
|
|
(ix) |
On December 31, 2018, the board of directors of the Company adopted the 2018 Stock Option Scheme under which the Company may grant options to purchase its ordinary shares to selected employees of the Group. The board of directors of the Company reserved |
|
|
(x) |
In July 2019, two written resolutions were passed and approved by the board of directors of the Company and its shareholders: |
(a) The Group will adopt a dual-class share structure, consisting of Class A ordinary shares and Class B ordinary shares, which will become effective immediately prior to the completion of the Company’s IPO.
Immediately prior to the completion of the IPO, (i) the conversion and re-designation of all of the then currently issued and outstanding preferred shares into ordinary shares on a
(b) Immediately prior to the completion of the IPO, the authorized share capital will be increased from US$
|
|
(xi) |
On June 10, 2020, the Company completed its IPO on the Nasdaq Global Market. The outstanding shares consist of |
|
|
(xii) |
|
F-24
|
8. |
Redeemable and convertible shares |
The activities of Series A Preferred Shares included in mezzanine equity are as follows:
|
(In thousands) |
|
Series A Preferred Shares |
|
|
|
Balance as of January 1, 2020 |
|
|
|
|
|
Accretion |
|
|
|
|
|
Conversion and redesignation of Preferred Shares |
|
|
( |
) |
|
Balance as of June 30, 2020 and 2021 |
|
|
— |
|
|
9. |
Share-based awards |
Compensation expense recognized for share-based awards was as follow:
|
|
|
Six Months ended June 30, |
||||||
|
Share-based compensation expenses (In thousands) |
|
2020 |
|
|
2021 |
|
||
|
—Restricted Shares(a) |
|
|
— |
|
|
|
|
|
|
—Share options(b) |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
(a) |
Restricted Shares |
On January 27, 2021 and February 26, 2021, the Company granted
The fair value of each restricted share granted with service conditions is estimated based on the stock price of the underlying ordinary shares of the Company on the date of grant.
A summary of the Restricted Shares activity for the six months ended June 30, 2021 is presented below:
|
|
|
Number of Restricted Shares |
|
|
|
As of January 1, 2021 |
|
|
|
|
|
Granted |
|
|
|
|
|
As of June 30, 2021 |
|
|
|
|
|
(b) |
Share options |
In December 2018, the Company adopted a share incentive plan, which is referred to as the 2018 Stock Option Scheme (“the 2018 Plan”). The purpose of the plan is to attract and retain the best available personnel by linking the personal interests of the members of the board, employees, and consultants to the success of the Company’s business and by providing such individuals with an incentive to reward their performance. Under the 2018 Plan, the maximum number of shares in respect of which options, restricted shares, or restricted share units may be granted is
F-25
|
9. |
Share-based awards (Continued) |
|
(b) |
Share options (Continued) |
In July 2019, the Group adopted the Amended and Restated 2018 Stock Option Scheme (“Revised 2018 Plan”), which amends the previously adopted 2018 Stock Option Scheme, pursuant to which the Group may grant awards to directors, officers and employees. The maximum aggregate number of ordinary shares that may be issued under Revised 2018 Plan was
In July 2019, the shareholders and board of directors of the Company also approved the 2019 Share Incentive Plan (“the 2019 Plan”). Under the 2019 Plan, which will be increased by a number equal to
On December 31, 2018 and August 12, 2019, the Company granted
On April 27, 2020, August 3, 2020 and November 27, 2020, the Company granted
On January 27, 2021 and February 26, 2021, the Company granted
These options were granted with exercise prices denominated in US$. The grantees can exercise vested options after the commencement date of exercise and before the end of its contractual term (i.e.
All share-based payments to employees are measured based on their grant-date fair values. Compensation expense is recognized by graded vesting method.
A summary of the changes in the share options granted by the Company during the six months ended June 30, 2020 and 2021 is as follows:
|
|
|
Number of share options |
|
|
Weighted average exercise price |
|
|
Aggregate intrinsic value |
|
|||
|
Outstanding as of January 1, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Granted |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Forfeited |
|
|
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Outstanding as of June 30, 2020 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Exercisable as of June 30, 2020 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of January 1, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Granted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Forfeited |
|
|
( |
|
|
$ |
|
|
|
$ |
( |
)) |
|
Exercised |
|
|
( |
|
|
$ |
|
|
|
$ |
( |
)) |
|
Outstanding as of June 30, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Exercisable as of June 30, 2021 |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
F-26
|
9. |
Share-based awards (Continued) |
|
(b) |
Share options (Continued) |
The Group calculated the estimated fair value of an options on the grant date using the binomial option pricing model with assistance from an independent valuation firm. Assumptions used to determine the fair value of share options granted during the year ended December 31, 2020 and June 30, 2021 is summarized in the following table:
|
|
|
Years ended December 31, |
|
|
Six Months ended June 30, |
|
||
|
(In thousands) |
|
2020 |
|
|
2021 |
|
||
|
Risk-free interest rate(i) |
|
|
|
|
|
— |
|
|
|
Expected dividend yield(ii) |
|
|
|
|
|
|
— |
|
|
Expected volatility(iii) |
|
|
|
|
|
— |
|
|
|
Grant date fair value |
|
|
|
|
|
— |
|
|
|
|
(i) |
Risk-free interest rate is based on the yields of United States Treasury securities with maturities similar to the expected life of the share options in effect at the time of grant. |
|
|
(ii) |
Expected dividend yield is assumed to be 0% as the Company has no history or expectation of paying dividend on its ordinary shares. |
|
|
(iii) |
Expected volatility is assumed based on the historical volatility of the Company’s comparable companies in the period equal to the expected life of each grant. |
As of June 30, 2021, there were US$
|
10. |
Loss per share |
Basic and diluted net loss per share for each of the year presented were calculated as follows:
|
|
|
Six Months ended June 30, |
||||||
|
(In thousands of US$ except share data and per share data) |
|
2020 |
|
|
2021 |
|
||
|
Numerator: |
|
|
|
|
|
|
|
|
|
Net loss |
|
|
( |
) |
|
|
( |
) |
|
Add: Accretion of Series A Preferred Shares |
|
|
( |
) |
|
|
— |
|
|
Net loss attributable to ordinary shareholders of the Company for computing basic and diluted net loss per share |
|
|
( |
) |
|
|
( |
) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
Weighted average number of ordinary shares outstanding used in calculating basic and diluted net loss per share |
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per ordinary share |
|
|
( |
) |
|
|
( |
) |
Diluted earnings per share do not include the following instruments as their inclusion would have been anti-dilutive:
|
|
|
Six Months ended June 30, |
||||||
|
|
|
2020 |
|
|
2021 |
|
||
|
Restricted Shares |
|
|
— |
|
|
|
|
|
|
Share options awards |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
F-27
|
11. |
Cash and cash equivalents, short-term deposit and restricted cash |
Cash and cash equivalents represent cash on hand, cash held at bank, and term deposits placed with banks or other financial institutions, which have original maturities of three months or less.
Short-term deposit represents term deposit placed with bank with original maturity more than three months but less than one year. The Group had US$
Cash on hand and cash held at bank balance , short-term deposit and restricted cash as of December 31, 2020 and June 30, 2021 primarily consist of the following currencies:
|
|
|
December 31, 2020 |
|
|
June 30, 2021 |
|
||||||||||
|
(In thousands) |
|
Original currency |
|
|
US$ equivalent |
|
|
Original currency |
|
|
US$ equivalent |
|
||||
|
US$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMB |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HKD |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Others |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12. |
Accounts receivable, net |
|
(In thousands) |
|
December 31, 2020 |
|
|
June 30, 2021 |
|
||
|
Accounts receivable |
|
|
|
|
|
|
|
|
|
Less: Allowance for doubtful accounts |
|
|
( |
) |
|
|
( |
) |
|
Accounts receivable, net |
|
|
|
|
|
|
|
|
The following table presents movement in the allowance for doubtful accounts:
|
|
|
|
|
|
||||
|
(In thousands) |
|
|
December 31, 2020 |
|
|
|
June 30, 2021 |
|
|
Balance at beginning of the period |
|
|
|
|
|
|
|
|
|
Additions |
|
|
|
|
|
|
|
|
|
Exchange difference |
|
|
|
|
|
|
|
|
|
Balance at end of the period |
|
|
|
|
|
|
|
|
|
13. |
Inventories |
|
(In thousands) |
|
December 31, 2020 |
|
|
June 30, 2021 |
|
||
|
Raw materials |
|
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
Less: write-down of obsolete inventories |
|
|
( |
) |
|
|
( |
) |
|
Total inventories |
|
|
|
|
|
|
|
|
F-28
|
14. |
Prepayments and other assets |
|
(In thousands) |
|
December 31, 2020 |
|
|
June 30, 2021 |
|
||
|
Prepayments |
|
|
|
|
|
|
|
|
|
Deposits |
|
|
|
|
|
|
|
|
|
Export tax receivable |
|
|
|
|
|
|
|
|
|
VAT recoverable |
|
|
|
|
|
|
|
|
|
Others |
|
|
|
|
|
|
|
|
|
Total of prepayments and other assets |
|
|
|
|
|
|
|
|
|
(In thousands) |
|
December 31, 2020 |
|
|
June 30, 2021 |
|
||
|
Current |
|
|
|
|
|
|
|
|
|
Non-current |
|
|
|
|
|
|
|
|
|
Total of prepayments and other assets |
|
|
|
|
|
|
|
|
|
15. |
Long-term investments |
In October 2018, the Company made an equity investment in a privately-held company, Maya System, Inc. (the “Maya”), which provides cloud SIM related services in Japan, including sale of products and maintenance. The Company acquired
In April 2019 and September 2020, the Company made an equity investment in a privately-held company, Beijing Huaxianglianxin Technology Company(the“Huaxiang”), the Company held
In January 2021, the Company acquired
F-29
|
16. |
Property and equipment, net |
Property and equipment consist of the following:
|
(In thousands) |
|
December 31, 2020 |
|
|
June 30, 2021 |
|
||
|
Computers |
|
|
|
|
|
|
|
|
|
Server & switch |
|
|
|
|
|
|
|
|
|
Office equipment |
|
|
|
|
|
|
|
|
|
Wi-Fi terminals for data connectivity services |
|
|
|
|
|
|
|
|
|
Leasehold improvement |
|
|
|
|
|
|
|
|
|
Total original costs |
|
|
|
|
|
|
|
|
|
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
Net book value |
|
|
|
|
|
|
|
|
Depreciation expenses recognized for the six months ended June 30, 2020 and 2021 were US$
|
17. |
Intangible assets, net |
|
(In thousands) |
|
Carrying amount |
|
|
Accumulated amortization |
|
|
Net carrying amount |
|
|||
|
December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased software |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Trademarks |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Licensed copyrights |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Intangible assets |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
(In thousands) |
|
Carrying amount |
|
|
Accumulated amortization |
|
|
Net carrying amount |
|
|||
|
June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased software |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Trademarks |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Licensed copyrights |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Intangible assets |
|
|
|
|
|
|
( |
) |
|
|
|
|
Amortization expenses recognized for the the six months ended June 30, 2020 and 2021 were US$
F-30
|
18. |
Other investments |
|
(In thousands) |
|
December 31, 2020 |
|
|
June 30, 2021 |
|
||
|
Current(i) |
|
|
|
|
|
|
|
|
|
Non-current(ii) |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
Note:
|
|
(i) |
In June 2020, the Group made an investment in an investment fund for a cash consideration of US$ |
|
|
(ii) |
In June 2020, the Group made an investment in an investment fund for a cash consideration of US$ |
|
19. |
Accounts payable, accrued expenses and other liabilities |
|
(In thousands) |
|
December 31, 2020 |
|
|
June 30, 2021 |
|
||
|
Accounts payable to suppliers |
|
|
|
|
|
|
|
|
|
Accrued bonus and staff costs |
|
|
|
|
|
|
|
|
|
Other deposits |
|
|
|
|
|
|
|
|
|
Other taxes payable (note) |
|
|
|
|
|
|
|
|
|
Accrued professional fees |
|
|
|
|
|
|
|
|
|
Accrued marketing expenses |
|
|
|
|
|
|
|
|
|
Others |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
Note:
Other taxes payable represents business tax, VAT and related surcharges and PRC individual income tax of employees withheld by the Group.
|
20. |
Short-term borrowings |
|
(In thousands) |
|
December 31, 2020 |
|
|
June 30, 2021 |
|
||
|
Current |
|
|
|
|
|
|
|
|
|
Bank borrowings(i) |
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
Note:
The Group’s short-term bank borrowings are primarily used for working capital and business development purposes and bear interest rate of
F-31
|
21. |
Related parties transactions |
|
(a) |
Related parties |
As at June 30, 2021, the name and relationship with material related parties are as follows:
|
Related Parties |
|
Relationship with the Company |
|
Maya |
|
Equity method investee of the Company |
|
Beijing Huaxianglianxin Technology Company |
|
Equity method investee of the Company |
|
iQsim S.A. |
|
Equity method investee of the Company |
|
(b) |
During the six months ended June 30, 2020 and 2021, other than disclosed elsewhere, the Company had the following material related parties transactions: |
|
|
|
Six Months ended June 30, |
||||||
|
(In thousands) |
|
2020 |
|
|
2021 |
|
||
|
Revenue from provision of data connectivity services, PaaS and SaaS services and sales of terminals and data related products: |
|
|
|
|
|
|
|
|
|
Maya |
|
|
|
|
|
|
|
|
|
Beijing Huaxianglianxin Technology Company |
|
|
|
|
|
|
|
|
|
Purchase of data connectivity service: |
|
|
|
|
|
|
|
|
|
Maya |
|
|
|
|
|
|
|
|
|
Beijing Huaxianglianxin Technology Company |
|
|
|
|
|
|
|
|
|
(c) |
The Company had the following related parties balances as December 31, 2020 and June 30, 2021: |
|
(In thousands) |
|
December 31, 2020 |
|
|
June 30, 2021 |
||
|
Deposits received from related parties: |
|
|
|
|
|
|
|
|
Maya |
|
|
|
|
|
|
|
|
Amounts payable to related parties: |
|
|
|
|
|
|
|
|
Maya |
|
|
|
|
|
|
— |
|
Beijing Huaxianglianxin Technology Company |
|
|
— |
|
|
|
|
|
Amounts receivable from related parties: |
|
|
|
|
|
|
|
|
Maya |
|
|
|
|
|
|
|
|
Beijing Huaxianglianxin Technology Company |
|
|
— |
|
|
|
|
|
22. |
Commitments and contingencies |
|
(a) |
Operating lease commitments |
The Group has leased office premises and buildings under non-cancellable operating lease agreements. These leases have different terms and renewal rights.
|
Year |
|
(In thousands) |
|
|
|
Remainder of 2021 |
|
|
|
|
|
2022 |
|
|
|
|
|
2023 |
|
|
|
|
|
2024 |
|
|
|
|
|
2025 |
|
|
— |
|
|
Total |
|
|
|
|
For the six months ended June 30, 2020 and 2021, the Group incurred rental expenses under operating leases US$
F-32
|
22. |
Commitments and contingencies (Continued) |
|
(b) |
Purchase commitment for purchase of data |
As at June 30, 2021, the Group has future minimum purchase commitment related to the purchase of data of US$
|
(c) |
Contingencies |
In June 2018, HONG KONG UCLOUDLINK NETWORK TECHNOLOGY LIMITED and Ucloudlink (America), Ltd., two wholly-owned subsidiaries of the Company, were named as defendants in a complaint filed by SIMO Holding Inc. (“SIMO”) in the United States District Court for the Southern District of New York (the “New York Court”), alleging patent infringements. The trial judge of the New York Court delivered a judgement in June 2019 approving total compensatory and enhanced damages of US$
F-33
|
22. |
Commitments and contingencies (Continued) |
|
(c) |
Contingencies (Continued) |
In January 2020, the Group became aware that SIMO is alleging patent infringement and trade secret misappropriation against the Group in the United States District Court for the Eastern District of Texas (“Texas Court”). The patent infringement claim was based on patent No. 9,736,689, which was the same patent the Federal Circuit addressed in its decision reversing a judgment of infringement from the New York Court. The trade secret allegations were the same as allegations SIMO previously made in a case between the parties in the United States District Court for the Northern District of California. Those allegations were dismissed from case in California with prejudice. The Group moved to transfer the patent infringement claim to the New York Court and to dismiss or transfer the claims for trade secret misappropriation to the United States for the Northern District of California. On November 24, 2020, the Texas Court denied both motions. Subsequently, SIMO dropped their patent infringement claim at the Texas Court on April 6, 2021. In response to the Texas Court’s ruling denying transfer of trade secret claims, the Group appealed to the United States Court of Appeals for the Fifth Circuit on April 16, 2021, which was denied by the Court on May 31, 2021. On July 15, 2021, the Texas Court held a scheduling conference for evidence exchanges. On July 27, 2021, SIMO and the Group participated in a settlement conference, with further settlement discussion held on July 30, 2021. On August 30, 2021, the Group and SIMO and their respective affiliates entered into a settlement agreement and had filed joint motion to the Texas Court for the dismissal of the case. On September 3, 2021, the Texas Court dismissed the trade secret case initiated by SIMO.
In August 2018, two affiliates of SIMO, namely Shenzhen Sibowei’ersi Technology Co., Ltd. and Shenzhen Skyroam Technology Co., Ltd., jointly filed a complaint against Shenzhen uCloudlink Network Technology Co., Ltd. in Guangzhou Intellectual Property Court in the PRC alleging patent infringements and claimed damages up to RMB
F-34
|
22. |
Commitments and contingencies (Continued) |
|
(c) |
Contingencies (Continued) |
In June 2019, Shenzhen Skyroam Technology Co., Ltd. filed a complaint against one of the Group’s employees, one of the Group’s officers, Shenzhen Ucloudlink Technology Limited and Shenzhen uCloudlink Network Technology Co., Ltd. in the Intermediate People’s Court of Shenzhen alleging trade secret misappropriation and claimed damage of approximately US$
Also, in June 2019, Shenzhen Skyroam Technology Co., Ltd. filed a complaint against the Shenzhen Ucloudlink Technology Limited in the Intermediate People’s Court of Shenzhen regarding a patent ownership dispute. The plaintiff claimed damages of approximately US$
The Group believes the aforementioned allegations are without merit and will defend vigorously. The Group considers that the likelihood of an unfavorable outcome is not probable or is unable to estimate the amount or the range of the possible loss. Therefore, no accrual has been recorded by the Group as of June 30, 2021 in respect of these proceedings.
|
23. |
Subsequent Events |
|
(a) |
Impact of COVID-19 |
In early 2020, there was an outbreak of novel coronavirus, later named COVID-19 in China. Following the COVID-19 outbreak, a series of precautionary and control measures have been implemented by the Chinese government, including but not limited to extending the Chinese New Year holiday, quarantine measures and travel restrictions. These measures have resulted in drop in outbound travelers from China and mainly impacted the Group’s Roamingman business.
In mid-March 2020, the World Health Organization declared COVID-19 a pandemic. Since then, the COVID-19 pandemic has led governments and other authorities around the world to impose measures intended to control its spread, including restrictions on freedom of movement, gatherings of large numbers of people, and business operations such as travel bans, border closings, business closures, quarantines, shelter-in-place orders and social distancing measures. These measures have caused a severe decline in the level of business and leisure travel around the globe. As a result, demands for the Group’s international data connectivity services, including the demands for Roamingman and from its business partners, have been significantly reduced. Such decline also caused a decrease in revenues from sales of terminals to the Group’s business partners.
F-35
|
24. |
Subsequent Events (Continued) |
|
(a) |
Impact of COVID-19 (Continued) |
The net cash used in operating activities of the Group was US$
|
(b) |
Issuance of new restricted share units and share options |
In July 2021, the Company granted
F-36