Peak Positioning Technologies Inc.

Peak Positioning Technologies Inc.

May 21, 2014 08:30 ET

Peak Signs Definitive Agreement to Acquire LongKey Hong Kong

MONTREAL, QUEBEC--(Marketwired - May 21, 2014) - Peak Positioning Technologies Inc. ("Peak" or the "Company") (TSX VENTURE:PKK) today announced that following the announcement originally made on April 17, 2013, of the signing of a letter of intent to acquire its Chinese business partner, LongKey Hong Kong Limited ("LongKey), the Company has now entered into a definitive share purchase agreement to acquire a majority stake in LongKey (the "Acquisition").

The Acquisition is structured such that Peak will initially acquire 51% of LongKey's issued and outstanding shares (the "LongKey Shares") at the closing of the proposed transaction. Peak will have the option to acquire the remaining 49% of LongKey's issued and outstanding shares within a 24-month period of the closing of the transaction.

The contemplated Acquisition is an arm's length transaction.

About LongKey

LongKey is a private holding company based in Hong Kong. It was incorporated as a Company Limited by Shares under the Hong Kong Business Registration Ordinance on July 11, 2007. LongKey's authorized share capital consists of 750,000,000 ordinary class shares, of which 300,000,000 are issued and outstanding. LongKey has a total of six shareholders whose names, percentage of share ownership and jurisdiction of residence are listed in the table below:

Shareholder Name % of Ownership Jurisdiction of Residence
Alex Wang 35.00 Fremont, California
Liang Qiu 18.00 Montreal, Quebec
Lin Lu 18.00 Wuxi, China
Daming Wang 16.00 Guangzhou, China
Lei Zhang 6.50 Central, Hong Kong
Kai Bao 6.50 Beijing, China
Total 100.00

LongKey is the parent company of LongKey Software Technology Limited ("LongKey Soft"), which is a Wuxi, China based IT solution provider. LongKey Soft provides B2B Software as a Service (SaaS) solutions to Chinese businesses in partnership with China Telecom, China's largest telecom service provider, and e-commerce and mobile e-commerce solutions in partnership with the Industrial and Commercial Bank of China (ICBC), China's largest bank.

LongKey Soft is a growth-stage company. Its e-commerce division is growing particularly rapidly in large part due to a project launched by ICBC in the city of Huzhou in December 2012, which was expanded to the provincial level of Zhejiang in 2013. For the 12-month period ended December 31, 2013, LongKey Soft's audited year-end financial statements showed a net loss of CAD$841,273 on revenues of CAD$3,228,490, compared to revenues of CAD$1,774,940 in 2012, representing a revenue increase of 81.9% in 2013. As of December 31, 2013, LongKey Soft's financials showed current assets of CAD$1,038,510 and total assets of CAD$6,474,190 against current liabilities of CAD$821,510 and no long-term liabilities.

The E-commerce and Mobile E-commerce Opportunities

According to iResearch Global Inc., China is the largest and fastest growing e-commerce market in the world with sales of gross merchandise value (GMV) of USD$294 billion in 2013, and projected to grow to USD$712 billion by 2017. As the largest bank in the world by many measures, with its more than USD$2.8 trillion in assets, 4.3 million business clients, and 393 million individual clients as of 2012, ICBC has the potential play a significant role in the rapidly-growing Chines e-commerce space. In December 2012, in collaboration with LongKey Soft, ICBC launched the "Gongyinju" e-commerce B2B marketplace ( Gongyinju was first made available to ICBC business clients in the city of Huzhou, and then access was extended to ICBC business clients in the entire province of Zhejiang in 2013. The launch of Gongyinju accounted for most of the dramatic increase in LongKey Soft's revenues in 2013. With plans to further expand the Gongyinju e-commerce B2B marketplace to ICBC business clients in other Chinese provinces and eventually to all of ICBC's business clients in China, LongKey Soft requires working capital to expand its operations to keep pace with the planned expansion of Gongyinju.

In addition to the Gongyinju marketplace offering, LongKey Soft is well positioned to leverage its existing partnerships to introduce a peer-to-peer mobile e-commerce solution, such as the Quickable mobile e-commerce platform, that would allow its banking partner's individual clients to buy and sell products among themselves using their mobile devices.

The Software as a Service (SaaS) and Mobile Opportunities

The cloud-based SaaS landscape in China is emerging and is projected to grow at a CAGR of 50%~60% through 2015 according to China Materialia LLC. This makes SaaS one of the fastest growing sectors of the Chinese tech industry. Recognizing the potential of SaaS in China back in 2009, well before the its current emergence, LongKey Soft partnered with China Telecom, China's largest telecommunication service provider, to offer SaaS solutions to China Telecom's business clients. Today LongKey Soft provides cloud-based SaaS solutions such as office automation tools and real estate community management software to over 450 China Telecom business customers in three cities in the province of Jiangsu with plans to expand the offerings to other cities and other provinces in the future.

Furthermore, LongKey Soft has partnered with Peak Positioning Corporation ("Peak Corp"), Peak's wholly-owned subsidiary, on the development of a mobile application platform for smart devices aimed at helping mobile network operators (MNOs) increase and maintain their mobile subscriber bases. The mobile platform comes with a suite of standard applications and features for mobile subscribers and offers MNOs the possibility for the development of additional custom applications and features to be integrated to the platform. LongKey Soft and Peak Corp are in discussions with one of China's largest MNOs to introduce the mobile platform on the MNO's network to help reduce the subscriber churn rate of its more than 280 million mobile subscriber base.

Peak is looking to access the capital markets in Canada and the US to meet LongKey Soft's rapid-growth working capital needs and looks forward to identifying strategic investors interested in the current LongKey Soft opportunities, and the opportunity to offer additional products and services in some of China's fastest growing economic sectors.

About The Acquisition

As consideration for the LongKey Shares, the Company will pay LongKey a total of CAD$10.2 million, of which CAD$2 million is to be paid in cash, which LongKey Soft will use as working capital to grow its business, and CAD$8.2 million in Peak shares through the issuance of 82 million shares to LongKey's shareholders at a deemed price of CAD$0.10 per share. Peak will have the option to purchase the remaining issued and outstanding shares of LongKey over the 24-month period following the close of the Acquisition for a total consideration of CAD$10 million payable in a combination of cash and Peak shares, of which at least CAD$4 million must be contributed as working capital.

Each of the LongKey shareholders acts independently and therefore will not collectively constitute a voting bloc.

"We have a unique opportunity in front of us", commented Alex Wang, President and CEO of LongKey. "LongKey is strategically positioned for exceptional growth over the next few years. We were able to recognize the tech sector trends in China early on and found the right partners to offer the right products at the right time. It's all about timing and the timing couldn't be better for LongKey and Peak. It's also about relationships. We've worked with Peak on several projects over the past three years and have developed very strong business and personal relationships with the people and the Company. We look forward to being a part of Peak and benefitting with all other Peak shareholders from the opportunities before us", concluded Mr. Wang.

"This agreement has been a long time coming, and required a lot of hard work to satisfy all of the various stakeholders on both sides of the deal", said Johnson Joseph, President and CEO of Peak. "Having LongKey as a subsidiary will allow Peak to have unprecedented access to introduce its products and services to the Chinese mobile, e-commerce and mobile e-commerce markets through LongKey Soft's existing partnerships".

"With this share exchange transaction we will once and for all align LongKey's shareholders interests with our own, thereby allowing all Peak shareholders to participate in some of China's fastest growing tech sectors through a Canadian-based public vehicle. It's an exciting time to be a Peak shareholder and we look forward to closing on the transaction as soon as possible", he concluded.

Concurrent and Interim Financings

The Acquisition will be subject to the completion by Peak of a concurrent private placement financing, the terms and conditions of which will be disclosed once they have been determined by the Company (the "Concurrent Financing"). The proceeds of the Concurrent Financing will be used by Peak to help cover the working capital contribution portion to LongKey of the Acquisition.

Since closing of the Concurrent Financing will not occur until the completion of the Acquisition, which itself may take several months to complete, Peak will endeavor to close an interim financing to help meet its ongoing obligations and cover the expected expenses related to the Acquisition while the Acquisition process unfolds. The interim financing will be in the form of a non-brokered private placement consisting of the issuance of 30,000,000 units (a "Unit") at the price of CAD$ 0.05 per Unit for gross proceeds of CAD$1.5 million. Each Unit consists of one (1) common share and one (1) one common share purchase warrant. Each common share purchase warrant entitles its holder to purchase one common share of Peak, at the price of $0.10, for a 12 month period following the closing date (the "Interim Financing").

Broker Compensation

Eligible brokers who help place Units of the Interim Financing will receive an 8% cash commission on all amounts raised and a number of broker warrants representing 8% of the number of Units placed. Each broker warrant will entitle its holder to acquire one (1) common share at a price of $0.05 for a period of twelve (12) months from the closing date and at a price of $0.10 after the initial twelve (12) month period following the closing date up to a maximum of twenty-four (24) months from the closing date.

Finder's Fees

Peak will not pay any finder's fee in relation to the Acquisition. Peak may pay a finder's fee to eligible finders in relation to the Concurrent Financing and/or the Interim Financing. Any finder's fee will be payable to eligible finders at the closing of either the Concurrent Financing and/or the Interim Financing, as applicable, subject to TSX Venture approval.

Other Conditions of the Acquisition

Completion of the Acquisition is subject to a number of conditions, including the parties completing their respective due diligence reviews, completion of the Concurrent Financing, and TSX Venture approval, which may, among other things, require disinterested shareholder approval and/or sponsorship. The Acquisition cannot close until the required conditions are met. There can be no assurances that the Acquisition will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with the Acquisition, any information released or received with respect to the Acquisition may not be accurate or complete and should not be relied upon. Trading in the securities of the Company should be considered highly speculative.

About Peak Positioning Technologies Inc.:

Peak Positioning Technologies Inc. ("Peak"), (TSX VENTURE:PKK), is a management company whose wholly-owned subsidiary, Peak Positioning Corporation provides Web development services and develops mobile software platforms destined to mobile network operators worldwide. Peak aims to deliver value to its shareholders by assembling a portfolio of high-growth projects and companies in mobile, mobile e-Commerce, and Web development in North America and China. For more information:

Forward-Looking Statements / Information

This news release may include certain forward-looking information, including statements relating to business and operating strategies, plans and prospects for revenue growth, using words including "anticipate", "believe", "could", "expect", "intend", "may", "plan", "potential", "project", "seek", "should", "will", "would" and similar expressions, which are intended to identify a number of these forward-looking statements. Forward-looking information reflects current views with respect to current events and is not a guarantee of future performance and is subject to risks, uncertainties and assumptions. The Company undertakes no obligation to publicly update or review any forward-looking information contained in this news release, except as may be required by applicable laws, rules and regulations. Readers are urged to consider these factors carefully in evaluating any forward-looking information.

The TSX Venture Exchange has in no way passed upon the merits of this transaction and has neither approved nor disapproved the contents of this press release. Neither the TSX Venture Exchange, Inc. nor its Regulation Service Provider (as that term is defined under the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of the contents of this press release.

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