Business Context and Reporting Period
This Form 8-K was filed by TMSR Holding Company Limited (trading symbol: TMSR) on January 3, 2020. The report details the entry into a Material Definitive Agreement and the appointment of a new director. The company is incorporated in Nevada and operates primarily through a subsidiary in China.
Key Financial Metrics
This filing does not contain audited financial statements, revenue, profit, cash flow, or debt metrics. The only financial figure disclosed is the annual compensation of $10,000 for the newly appointed director, Mr. Wei Xu, effective upon the closing of the acquisition.
Material Changes and Agreements
- Acquisition of Wuge: On January 3, 2020, TMSR entered into a Share Purchase Agreement (SPA) to acquire Sichuan Wuge Network Games Co., Ltd. ("Wuge"), a Chinese game developer.
- Consideration: TMSR will issue 4,000,000 shares of its common stock to Wuge shareholders in exchange for Variable Interest Entity (VIE) agreements granting TMSR's subsidiary control over Wuge.
- Target Business: Wuge is developing "Wuge Manor," a game combining Internet of Things (IoT) and e-commerce based on the CodeChain blockchain interface, connecting players to vendors in over 100 Chinese cities.
- VIE Structure: The acquisition utilizes a series of VIE agreements (Technical Consultation, Equity Pledge, Equity Option, and Voting Rights Proxy) to grant TMSR's subsidiary the right to control Wuge's operations and receive 100% of its net income as a service fee.
- Conditions: The closing of the acquisition is conditioned upon approval from the Nasdaq Stock Market.
Management Commentary, Risks, and Outlook
- Board Appointment: Mr. Wei Xu, the inventor of the QR code patent and creator of the CodeChain interface, was appointed to the Board of Directors, effective upon the closing of the acquisition.
- Regulatory Risk: The transaction is contingent on Nasdaq approval. Additionally, the VIE structure relies on PRC law and local authority registration for equity pledges.
- Operational Control: The VIE agreements grant TMSR's subsidiary exclusive rights to intellectual property arising from the relationship and the power to vote on all shareholder matters for a term of 20 years.
Investor Verification Checklist
- Verify the status of the Nasdaq Stock Market approval required to close the acquisition.
- Confirm the registration of the equity pledge with the competent local authority in China as required by the Equity Pledge Agreement.
- Review the full text of the Share Purchase Agreement (Exhibit 10.1) and VIE agreements (Exhibits 10.2 through 10.5) for specific termination clauses and liability caps.
- Assess the development stage and revenue potential of the "Wuge Manor" game prior to the issuance of 4,000,000 new shares.
- Monitor the dilution impact of the 4,000,000 shares to be issued to Wuge shareholders.