20-F 1 f20f-061020imt.htm FORM 20-F ENDED DECEMBER 31, 2019 Integrated Media Technology Limited

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

 

(Mark One)

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934  

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to                         

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number 001-38018

 

 

Integrated Media Technology Limited

Integrated Media Technology Limited

(Exact name of Registrant as specified in its charter

and translation of Registrant's name into English)

Australia

(Jurisdiction of incorporation or organization)

 

Level 7, 420 King William Street, Adelaide, SA 5000, Australia

Phone: +61 8 7324 6018    Fax: +61 8 8312 0248

 

 

(Address of principal executive offices)

 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

         
 

Title of each class

 

Name of each exchange on which registered
or to be registered

 
  Ordinary Shares  

The NASDAQ Capital Market

 

 

Securities registered or to be registered pursuant to Section 12(g) of the Act. None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act. None

Indicate the number of outstanding shares of each of the issuer's classes of capital or common stock as of the close of the period covered by the annual report.

The number of ordinary shares, as of June 1, 2020 is 3,663,100

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes       No

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.      Yes      No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes      No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).      Yes      No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   Accelerated filer   Non-accelerated filer

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP   International Financial Reporting Standards as issued
by the International Accounting Standards Board
    Other

If "Other" has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.       Item 17      Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  
 Yes      No

 

 

 


 

 

 

TABLE OF CONTENTS

 

INTRODUCTION 1
PART I 2
Item 1.   Identity of Directors, Senior Management and Advisers 2
Item 2. Offer Statistics and Expected Timetable 2
Item 3. Key Information 2
Item 4. Information on the Company 22
Item 4A. Unresolved Staff Comments 40
Item 5. Operating and Financial Review and Prospects 41
Item 6. Directors, Senior Management and Employees 57
Item 7. Major Shareholders and Related Party Transactions 64
Item 8. Financial Information 66
Item 9. The Offer and Listing 68
Item 10. Additional Information 69
Item 11. Quantitative and Qualitative Disclosures About Market Risks 79
Item 12. Description of Securities Other than Equity Securities 79
PART II   80
Item 13.   Defaults, Dividend Arrearages and Delinquencies 80
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 80
Item 15. Controls and Procedures 80
Item 15T Controls and Procedures 82
Item 16 Reserved 82
Item 16A. Audit Committee Financial Expert 82
Item 16B. Code of Ethics 82
Item 16C. Principal Accountant Fees and Services 82
Item 16D. Exemptions from the Listing Standards for Audit Committees 83
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 83
Item 16F. Change in Registrant's Certifying Accountant 83
Item 16G. Corporate Governance 83
Item 16H. Mine Safety Disclosure 83
PART III   84
Item 17. Financial Statements 84
Item 18. Financial Statements 84
Item 19. Exhibits 85
SIGNATURES 86

 

 

i


 

 

INTRODUCTION

Integrated Media Technology Limited was incorporated under the laws of the Commonwealth of Australia on August 8, 2008. As used in this annual report, the terms "we," "us," "our", "IMTE", and the "Company" mean Integrated Media Technology Limited and its subsidiaries, unless otherwise indicated.

Our consolidated financial statements appearing in this annual report on Form 20-F are prepared in Australian dollars and in accordance with the International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board, or IASB. Our consolidated financial statements appearing in this annual report on Form 20-F comply with both the IFRS and Australian equivalents to IFRS, or A-IFRS. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with IFRS.

In this annual report, all references to "U.S. dollars" or "US$" are to the currency of the United States of America, and all references to "Australian dollars" or "A$" are to the currency of Australia.

Statements made in this annual report on Form 20-F concerning the contents of any contract, agreement or other documents are summaries of such contracts, agreements or documents and are not complete descriptions of all of their terms. If we filed any of these documents as an exhibit to this annual report or to any annual report that we previously filed, you may read the document itself for a complete description of its terms.

Except for the historical information contained in this annual report on Form 20-F, the statements contained in this annual report on Form 20-F are "forward-looking statements" which reflect our current view with respect to future events and financial results. We urge you to consider that statements which use the terms "anticipate," "believe," "do not believe," "expect," "plan," "intend," "estimate," and similar expressions are intended to identify forward-looking statements. We remind investors that forward-looking statements are merely predictions and therefore inherently subject to uncertainties and other factors and involve known and unknown risks that could cause the actual results, performance, levels of activity, or our achievements, or industry results, to be materially different from any future results, performance, levels of activity, or our achievements expressed or implied by such forward-looking statements. Investors are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by applicable law, including the securities laws of the United States, we undertake no obligation to publicly release any update or revision to any forward-looking statements to reflect new information, future events or circumstances, or otherwise after the date hereof. Please see the Risk Factors section that appears in "Item 3. Key Information - D. Risk Factors."

 

 

1


 

 

PART I

 

 

ITEM 1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

 

Not applicable.

 

 

ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE

 

Not applicable.

 

 

ITEM 3.   KEY INFORMATION

 

A.   Selected Financial Data

 

Our consolidated financial statements appearing in this annual report on Form 20-F comply with both the International Financial Reporting Standards, or IFRS, as issued by the International Accounting Standards Board and Australian equivalents to IFRS, or A-IFRS. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with IFRS.

 

The following selected consolidated financial data as of December 31, 2019 and 2018 and for the fiscal years ended December 31, 2019, 2018 and 2017 have been derived from our audited consolidated financial statements and notes thereto included elsewhere in this annual report on Form 20-F, on a post-reverse split basis. This data should be read together with, and is qualified in its entirety by reference to, "Item 5. Operating and Financial Review and Prospects" as well as our consolidated financial statements and notes thereto appearing in "Item 18. Financial Statements" of this annual report on Form 20-F.

 

The selected financial data are presented in Australian dollars (A$) (except as otherwise noted).

 

Consolidated Statement of Profit or Loss and Other Comprehensive Income (Loss) Data:

 

    Year Ended December 31,
    2019   2018   2017   2016   2015
    (Audited)   (Audited)   (Audited)   (Audited)   (Audited)
    (expressed in A$)
Total revenue   2,411,213   1,815,475   10,153,636   14,039,248   7,306,699
Cost of sales   (1,008,821)   (723,711)   (2,548,064)   (2,027,743)   (2,984,291)
Depreciation and amortization expenses   (3,174,784)   (2,029,373)   (2,021,131)   (2,147,231)   (383,635)
Corporate administrative expenses   (6,336,243)   (4,384,357)   (2,522,927)   (2,447,545)   (1,432,564)
Gain / (loss) on disposal of a subsidiary   -   608,995   -   (872)   -
Other operating expenses   (2,543,571)   (2,503,507)   (1,510,267)   (1,627,234)   (506,245)
Gain on fair value change in derivative financial instruments  

 

127,551

  709,543   -   -   -
Provision for impairment loss of goodwill   (4,486,301)   (9,953,311)   -   -   -
Exchange (loss) / gain   (10,296)   493,365   61,307   (100,950)   -
Finance costs   (1,561,625)   (1,383,399)   (107,101)   (73,666)   -
Income tax credit / (expense)   (117,322)   507,057   187,213   (2,018,939)   356,158
Net / (loss) profit   (16,700,199)   (16,843,223)   1,692,666   3,595,068   2,356,122
Loss / (profit) per share - basic and diluted (post-reverse split)   (4.63)   (5.93)   0.64   1.37   1.22
Weighted average number of ordinary shares outstanding (post-reverse split)
- basic and diluted
 

 

3,377,386

  2,692,543   2,643,611   2,643,611   1,922,143

 

 

Consolidated Statement of Financial Position Data:

 

        As of December 31
    2019   2018   2017   2016   2015
    (Audited)   (Audited)     (Audited)     (Audited)   (Audited)
    (expressed in A$)
                     
Cash and cash equivalents   (166,758)   1,514,215   2,860,014   1,820,994   6,883,196
Working capital   (12,798,159)   1,279,813   5,478,132   8,263,311   7,642,256
Total assets   19,946,276   26,033,074   35,859,449   43,481,437   37,271,467
Long-term debt   1,874,392   4,690,822   16,748,877   22,657,065   24,464,929
Total shareholders' equity   79,023   16,621,751   15,390,334   14,354,982   11,086,012

 

  (1) All previously reported share and per share amounts have been restated to reflect the reverse stock split of thirty-to-one effective on May 8, 2017.

 

 

2


 

 

Exchange Rate Information:

The Company publishes its consolidated financial statements in Australian dollars. In this annual report and the annual report, references to dollars, "$" or "A$" are to Australian dollars currency and references to "U.S. dollars" or "US$" are to U.S. currency. Solely for informational purposes, this annual report and the annual report contains translations of certain Australian dollars into or from U.S. dollars at specified rates. These translations should not be construed as representations that the Australian dollars amounts actually represent such U.S. dollar amounts or could be converted into or from U.S. dollars at the rate indicated or at any other rate. Unless otherwise stated herein, the translations of Australian dollars into or from U.S. dollars have been made at $1.00 to US$0.7030, the buying rate on December 31, 2019.

 

The following tables set forth, for the periods and dates indicated, certain information regarding the rates of exchange of A$1.00 into US$ based on the noon market buying rate in New York City for cable transfers in Australian dollars as certified for customs purposes by the Federal Reserve Bank of New York, or the noon buying rate. The period average data set forth below is the average of the last day of each full month during the period.

Exchange rate as of the latest practicable date, May 29, 2020: A$1.00 is US$0.6642

 

                 

Year Ended December 31,

  At Period End   Average Rate   High   Low
    US$   US$   US$   US$
2014   0.8173   0.9034   0.9488   0.8097
2015   0.7286   0.7522   0.8212   0.6917
2016   0.7230   0.7445   0.7817   0.6855
2017   0.7815   0.7671   0.8071   0.7230
2018   0.7040   0.7480   0.8100   0.7020
2019   0.7030   0.6954   0.7282   0.6698

 

         

Month

  High   Low
    US$   US$
July 2019   0.7043   0.6872
August 2019   0.6858   0.6730
September 2019   0.6886   0.6746
October 2019   0.6888   0.6698
November 2019   0.6914   0.6762
December 2019   0.7030   0.6814
January 2020   0.6982   0.6699
February 2020   0.6748   0.6495
March 2020   0.6654   0.5755
April 2020   0.6536   0.6001
May 2020   0.6664   0.6410

 

B.   Capitalization and Indebtedness

 

Not applicable.

 

C.   Reasons for the Offer and Use of Proceeds

 

Not applicable.

 

 

 

3


 

 

D.   Risk Factors

 

The following risks relate specifically to our business and should be considered carefully. Our business, financial condition and results of operations could be harmed by any of the following risks. The risks and uncertainties described below are not the only ones that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also adversely affect our business. If any of the following risks and uncertainties develops into actual events, our business, financial condition and results of operations could be materially and adversely affected, and the trading price of our ordinary shares could decline. As a result of the above factors, the trading price of our ordinary shares could decline and the holders could lose part or all of their investment.

 

General Risks

 

The COVID-19 is currently impacting countries, communities, supply chains and markets globally. The outbreak of COVID-19 in China and Hong Kong results in increased travel restrictions, border control, and shutdown of businesses, which may cause slower recovery of the China and Hong Kong economies. We may experience impact from quarantines and market downturns related to pandemic fears and impact on our workforce if the virus continues to spread. COVID-19 affects our workforce and supplier's workforce, and as a result we are experiencing a slow resumption of operations and may experience delays or the inability to deliver goods on a timely basis. In addition, one or more of our customers, partners, service providers or suppliers may experience financial distress, delayed or defaults on payment, file for bankruptcy protection, sharp diminishing of business, or suffer disruptions in their business due to the outbreak. The extent to which the COVID-19 impacts our results are highly uncertain and will include emerging information concerning the severity of the COVID-19 and the actions taken by governments at various levels and private businesses to attempt to contain the virus. Wider-spread COVID-19 in China and globally could prolong the deterioration in economic conditions and could cause decreases in demand and reduce and/or negatively impact our ability to grow our revenues. Any decreased collectability of accounts receivable, bankruptcy of small and medium businesses, or early termination of agreements due to deterioration in economic conditions could negatively impact our results of operations. Although the Company is taking measures to mitigate the effect as much as possible, there is no assurance that the steps will be sufficient. In most respects it is too early in the pandemic to be able to quantify all the ramifications.

Risks Related to Our Business

We have a history of operating losses and may not achieve profitability in the future

Our Company has been an early mover in the development of 3D technologies and products for a number of years with limited success. Unless we are able to generate sufficient and consistent product revenue, we will incur losses from operations and may not achieve or maintain profitability. As of December 31, 2019, we had an accumulated deficit of A$25,786,912. For the year ended December 31, 2019 we recorded loss of A$16,700,199. The loss was the result of the decline of sales of our ASD products and software, technology solutions and 2D to 3D auto conversion workstations, and the write-down of goodwill in the amount of A$4,486,301. The Group's business declined as compared to the prior year due to the problems in the manufacturing process which is still being worked on. The Company needs to sell its 3D products and services on a consistent basis through distribution channels for commercial and consumer sectors to increase revenue. In addition, the Company also needs to reduce its operating overhead to return to profitability. There is no certainty that the Company can solve the manufacturing process problems.

In the past, the Company pursued the strategy to undertake to innovate the technologies and products in house, the costs of which was substantial. Because of the numerous risks and uncertainties associated with the research and development of 3D technologies and products, we may experience lesser profits or even incur losses, and may never become profitable. In May 2020, the Company divested from research and development in the core 3D technologies so that it could reduce costs and focus exclusively on marketing and sales of 3D products. We are then dependent on outside developers to develop our future products which may not be successfully developed, and if successfully developed, may not generate sufficient revenue to enable us to recover such development costs and to generate sales to achieve profitability in the future.

 

If we fail to achieve profitability, or if we are unable to fund our continuing operations, our business will be harmed and the holders of our ordinary shares could lose all or part of their investment. There is a substantial risk that we may not be able to fund the completion of the development of our current planned 3D products or other 3D products. We will rely on 2D to 3D auto conversion workstation and our other 3D products to generate revenues in the future. It is possible that none of them will be successfully commercialized or any new 3D products will be developed, which would prevent us from achieving and maintaining profitability.

 

We have a limited operating history, and it may be difficult for potential investors to evaluate our business

 

The 3D display operation commenced in 2013 with relatively short history. Our limited operating history makes it difficult for potential investors to evaluate our business or prospective operations with long term view. We are subject to all the risks inherent in the initial organization, financing, expenditures, complications and delays inherent in a relatively new business. Our display business faced delays in sales and financing from suppliers due to our new entry into the market. Our products are new in the market and face challenges in consumer recognition and acceptance, where more established players and products have better resources to penetrate the markets. Moreover as a new entrant in the competitive electronics market, we face many questions on our Company, organization, finances and product information before electronic distributors are willing to carry our products into their network. Thus it takes additional time to establish distributor network for our products and also for these distributors to accept our products into their network. Our products may never be accepted by distributors and thereby hinder our ability to sell our products in the target markets. Investors should evaluate an investment in us in light of the uncertainties encountered by such companies in a competitive environment. Our business is dependent upon the implementation of our business plan, as well as the ability to access continuous innovation in 3D products. There can be no assurance that our efforts will be successful or that we will be able to attain profitability.

 

We may incur significant delays and/or expenses relating to the COVID-19 (coronavirus) outbreak in China and Hong Kong

Beginning in late 2019, a novel strain of coronavirus (COVID-19) was reported in Wuhan, China. The World Health Organization has declared the outbreak to constitute a “Public Health Emergency of International Concern.” This has prompted government-imposed quarantines, closures of certain travel and businesses. Following this outbreak, in February 2020, the Company temporarily shut down its operations in Shenzhen and Guangzhou, Guangdong Province, as mandated by the local authorities. In March 2020, the Company gradually resumed its operations in these cities and continue to conduct some of our development activities. In Hong Kong, for the months of February and March, our offices has generally been open but some of our staff have been working remotely from home. This has delayed some of our work in research and development activities. Our sales activities has been severely affected by the pandemic and the effect of social distancing to advertising industry. As many people choose to stay at home, advertisers will be cautious in committing capital expenditures for advertising i.e. 3D displays. Our customers are reviewing their purchase commitments with us for the rest of 2020 and 2021. It is presently unknown whether and to what extent the Company’s sales pipeline may be affected if the pandemic persists for an extended time. The Company will likely incur significant losses as most of our sales is derived from selling our 3D displays to advertisers. This could have a material adverse impact on our business, operating results and financial condition.

 

We will require additional financing in the future to sufficiently fund our operations, certain research and development activities

We have had intermediate success recently. However we had a significant loss in 2019, and we may incur losses in the future as we continue our 3D development. Our actual cash requirements may vary from those now planned and will depend upon many factors, including: the continued progress of our research and development programs; the timing, costs and results of product development; the commercial potential of our products; our ability to outsource manufacturing capabilities; and the status and timing of competitive developments.

We anticipate that as the development of 3D products and its associated costs increase we will require additional funds to achieve our long-term goals of commercialization and further development of other 3D products. In addition, we will require funds to defend intellectual property rights, outsource manufacturing capacity, develop marketing and sales capability and fund operating expenses. We intend to seek such additional funding through public or private financings and/or through licensing of our intellectual properties or other arrangements with corporate partners. However, such financing, licensing opportunities or other arrangements may not be available from any sources on acceptable terms, or at all. Any shortfall in funding could result in our having to curtail or cease our operations including our research and development activities, which would harm our business, financial condition and results of operations.

 

 

4


 

 

We have limited cash resources and if we cannot raise additional funds or generate more revenues, we will not be able to pay our vendors and will probably not be able to continue as a going concern

 

We will need to raise additional funds to pay outstanding debts, vendor invoices and execute our business plan. Our future cash flows depend on our ability to enter into, and be paid under, contracts with our distributors for the 3D and consumer electronics business. There can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us.

 

We may be required to pursue sources of additional capital through various means, including joint venture projects and debt or equity financings. Future financings through equity investments will be dilutive to existing stockholders. Also, the terms of securities we may issue in future capital transactions may be more favorable for our new investors. Newly issued securities may include preferences, superior voting rights, and the issuance of warrants or other convertible securities, which will have additional dilutive effects. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertible notes and warrants, which will adversely impact our financial condition and results of operations.

 

Our ability to obtain needed financing may be impaired by such factors as the weakness of capital markets and the fact that we have incurred a substantial loss in 2018 and 2019 which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.

 

 

5


 

 

Our limited operating history and rapidly evolving business makes it difficult for us to accurately forecast revenues and expenses

 

We have a limited operating history on which to base an evaluation of our business and prospects. Our operating results may fluctuate as a result of a number of factors, many of which are outside of our control. For these reasons, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our prospects must be considered in light of inherent risks, expenses, and difficulties encountered by companies in their early stages of development, particularly in new and evolving markets.

 

We have incurred losses in 2019 and 2018, but profits in 2017 and 2016 from our ASD products and software, 2D to 3D auto conversion workstations and the audio products. However, our future prospects are uncertain in light of the risks and uncertainties experienced by early stage companies in evolving electronic technology industries. Due to our short history, it is difficult for us to predict future revenues and operating expenses. We based our expense levels, in part, on our expectations of future revenues from anticipated transactions. If our 3D business develop slower than we expect, we may continue to incur losses and we may then have to curtail part of our business plan and the market price of our stock may decline.

 

Some of the other risks and uncertainties of our business relate to our ability to:

 

-  offer new and innovative 3D products and services to attract and retain customer base;

-  attract customers;

-  increase awareness of our brand and continue to develop consumer and customer loyalty;

-  respond to competitive market conditions;

-  respond to changes in our regulatory environment;

-  manage risks associated with intellectual property rights;

-  maintain effective control of our costs and expenses;

-  raise sufficient capital to sustain and expand our business;

-  attract, retain and motivate qualified personnel; and

-  upgrade our technology to support increased traffic and expanded services.

 

If we are unsuccessful in addressing any of these risks and uncertainties, our business may be materially and adversely affected.

 

The development of our business is dependent upon the completion and integration of acquisitions and other transactions that have only recently closed or incurred in the future

 

Our principal focus is on our 3D products and services businesses. Even when we close acquisitions like Marvel Digital Limited ("MDL") or the distribution of conductive film for the electronic glass, our business will not be successful if we are unable to successfully operate and integrate the businesses we acquire. Accordingly, it is difficult to evaluate our business based upon our historical financial results. We expect to continually look for new businesses to acquire to develop and grow our operations. If we fail to identify such business, or are unable to acquire such businesses on reasonable terms, or fail to successfully integrate such businesses, our operating results and prospects could be harmed.

 

We face significant competition and may suffer from a loss of customers as a result

 

We expect to face significant competition in our 3D display businesses, particularly from other companies that seek to provide similar products and services. Many of these competitors have significantly greater financial resources and more personnel than we have. They may also have longer operating histories and more experience in attracting, retaining and managing customers. They may use their experience and resources to compete with us in a variety of ways, including by competing more for users, customers, distributors, media channels and by investing more heavily in research and development and making acquisitions. If we fail to compete effectively, our business, financial condition and results of operation will be adversely affected.

 

Our research and development efforts will be seriously jeopardized if we are unable to attract and retain key personnel and cultivate key academic and scientific collaborations

 

We are a Company with 53 employees as of December 31, 2019. Our success is highly dependent on the continued contributions of our principal management and technology personnel and on our ability to develop and maintain important relationships with leading academic institutions. Competition among technology companies for qualified employees is intense, and we cannot be certain that we will be able to continue to attract and retain qualified scientific and management personnel critical to our success. We also have relationships with leading academic and technology collaborators who conduct research at our request or assist us in formulating our research and development strategies. These academic and technology collaborators are not our employees and may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us.

 

 

We may need to rely on the marketing and distribution capabilities of third parties for our picture frame business

 

We currently have limited experience in marketing, sales or distribution of consumer electronics products such as our picture frame business. If our picture frame enters into the consumer electronics category, we may be required to enter into marketing arrangements with other parties who have established appropriate marketing, sales and distribution capabilities. We cannot make any assurances that we will be able to enter into marketing arrangements with any marketing partner or that if such arrangements are established, our marketing partners will be able to commercialize our products successfully. Other companies offering similar or substitute products may have well-established and well-funded marketing and sales operations in place that will allow them to market their products more successfully. Failure to establish sufficient marketing capabilities may have a material adverse impact on our potential revenues and results of operations. Alternatively, if we decide to perform our own sales and marketing activitieswe will require additional management, will need to hire sales and marketing personnel, and will require additional capital. We cannot make any assurances that qualified personnel will be available in adequate numbers or at a reasonable cost, that additional financing will be available on acceptable terms, or at all, or that our sales staff will achieve success in their marketing efforts.

 

Exchange rate fluctuations will continue to affect our reported results of operations

 

The functional currency of each of our Group's entities is measured using the currency of the primary economic environment in which that entity operates. For our operations in Hong Kong and China, the functional currency for the companies operating in these territories will have a functional currency of Hong Kong dollars and Chinese Renminbi, respectively. Substantially all of our revenues are realized, and a significant portion of our operating costs are incurred, in Hong Kong dollars and Chinese Renminbi. Movement in currency exchange rates will also affect cash denominated in U.S. dollars and Australian dollars and therefore will affect our reported results of operations.

 

 

6


 

 

We have limited manufacturing experience with our production candidates. Delays in manufacturing sufficient quantities of products may negatively impact our business and operations

 

We have limited manufacturing experience. Our main focus is on pre-mass production manufacturing whilst we subcontract the mass production manufacturing to qualified manufacturers. If we receive test orders, we may not be able to manufacture sufficient quantities in a cost-effective or timely manner which would hinder the commercialization of the product, and reduce potential revenues. We may manufacture ourselves, but we may not have the expertise, staffing and technical capability to operate a successful and profitable manufacturing operation. We may need to develop additional manufacturing resources, enter into collaborative arrangements with other parties, or have third parties manufacture our products on a contract basis. We may not have access, on acceptable terms, to substantial financing that would be required to scale-up production and develop commercial manufacturing processes. We may not be able to enter into collaborative or contractual arrangements on acceptable terms with third parties that will meet our requirements for quality, quantity and timeliness. Such delays and hurdles could harm our business, financial condition and results of operations.

To the extent we rely significantly on contractors, we will be exposed to risks related to the business conditions of our contractors

We are a small company, with few manufacturing staff and small test assembly facilities. We rely on a variety of contractors to manufacture our products. Adverse events that affect one or more of our contractors could adversely affect us, such as:

 

  a contractor is unable to retain key staff that have been working on our manufacturing orders;
  a contractor produces substandard products that are unacceptable to clients;
  a contractor is unable to sustain operations due to financial or other business issues;
  a contractor loses its business permits or licenses that may be required to manufacture our products; or
  errors, negligence or misconduct that occur within a contractor may adversely affect our business concerns although we may not be directly responsible.

 

 

To the extent we are able to enter into collaborative arrangements or strategic alliances, we will be exposed to risks related to those collaborations and alliances

An important element of our strategy for developing, manufacturing and commercializing our 3D products is entering into partnerships and strategic alliances with other electronics and distribution companies or other industry participants to advance our development and distribution capabilities and enable us to maintain our financial and operational capacity. We may not be able to negotiate alliances on acceptable terms, if at all. Although we are not currently party to any collaborative arrangement or strategic alliance that we believe is material to our business, in the future we may rely on collaborative arrangements or strategic alliances to complete the development and commercialization of some of our 3D products. Although we have no specific reason to believe that we will be at a disadvantage when negotiating such collaborative arrangements or strategic alliances, our negotiating position will be influenced by our financial capacity at the relevant time to continue the development and commercialization of the relevant 3D products, as well as the timing of any such negotiations and the stage of development of the relevant product candidate. These arrangements may result in us receiving less revenue than if we sold such products directly, may place the development, sales and marketing of our products outside our control, may require us to relinquish important rights or may otherwise be on terms unfavorable to us. Collaborative arrangements or strategic alliances will subject us to a number of risks, including the risk that:

 

  we may not be able to control the amount and timing of resources that our strategic partners/collaborators may devote to the 3D products;
  our strategic partners/collaborators may experience financial difficulties;
  we may be required to relinquish important rights such as marketing and distribution rights;
  business combinations or significant changes in a collaborator's business strategy may also adversely affect a collaborator's willingness or ability to complete its obligations under any arrangement;
  a collaborator could independently move forward with a competing product developed either independently or in collaboration with others, including our competitors; and
  collaborative arrangements are often terminated or allowed to expire, which would delay the development and may increase the cost of developing our product candidates.

 

 

7


 

 

We may face intellectual property infringement claims and other related claims that could be time-consuming and costly to defend and may result in our inability to continue providing certain of our existing services

 

Technology and service companies are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition, and invasion of privacy, defamation and other violations of third-party rights. The validity, enforceability and scope of protection of intellectual property, particularly in China, are uncertain and still evolving. In addition, many parties are actively developing and seeking protection for electronics technologies, including seeking patent protection. There may be patents issued or pending that are held by others that cover significant aspects of our technologies, products, business methods or services. As we face increasing competition and as litigation becomes more common in China and Hong Kong and elsewhere in Asia for resolving commercial disputes, we face a higher risk of being the subject of intellectual property infringement claims.

 

Intellectual property litigation is expensive and time consuming and could divert resources and management attention from the operations of our businesses. If there is a successful claim of infringement, we may be required to pay substantial fines and damages or enter into royalty or license agreements that may not be available on commercially acceptable terms, if at all. Our failure to obtain a license of the rights on a timely basis could harm our business. Any intellectual property litigation could have a material adverse effect on our business, financial condition or results of operations.

 

If we fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results or prevent fraud

 

We are subject to reporting obligations under the U.S. securities laws. The SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include in its annual report a management report on such company's internal controls over financial reporting which contains management's assessment of the effectiveness of the company's internal controls over financial reporting. In addition, if the Company qualifies under certain revenue or market capitalization test an independent registered public accounting firm must attest to and report on management's assessment of the effectiveness of the company's internal controls over financial reporting. In addition, an independent registered public accounting firm must attest to and report on management's assessment of the effectiveness of the company's internal controls over financial reporting. Our management may conclude that our internal controls over financial reporting are not effective. Moreover, even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still decline to attest to our management's assessment or may issue a report that is qualified if they are not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us. Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future. We are a Company with a small team of accounting personnel and other resources with which to address our internal financial controls and procedures. If we fail to timely achieve and maintain the adequacy of our internal financial controls, we may not be able to conclude that we have effective internal controls over financial reporting at a reasonable assurance level. Moreover, effective internal controls over financial reporting are necessary for us to produce reliable financial reports and are important to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the market price of our shares.

 

If we fail to attract customers for our 3D products or services, our growth prospects could be seriously harmed

 

Our distributors will not work with us if our products and services offerings do not sell well or do not have adequate sales margin for their sales channels. In addition, our customers will not maintain their business relationships with us if we cannot secure attractive competitive product and service offerings. Failure to retain customers, distributors or channel partners could seriously harm our business and growth prospects.

 

 

 

8


 

 

Because we primarily rely on distributors in distributing 3D display technology and systems, our failure to retain key distributors or attract additional distributors could materially and adversely affect our business

 

For our 3D business, we mainly rely on distributors to sell our products and services. If our distributors do not provide quality services to its customers, they may lose customers and our results of operations may be materially and adversely affected indirectly. We will sign distributing agreements with our distributors, although we may not sign any long-term agreements with them, but we cannot assure that we can maintain favorable relationships with them. Our distribution arrangements will be non-exclusive. Furthermore, some of our potential distributors may have contracts with our competitors or potential competitors and may not sign distribution agreements with us. If we fail to retain our key distributors or attract additional distributors on terms that are commercially reasonable, our business and results of operations could be materially and adversely affected.

 

The recent global economic and financial market crisis due to Covid 19 has had and may continue to have a negative effect on our business and results of operations

 

Global economic conditions as a result of Covid 19 have had a negative effect on our business and results of operations as the economic activity in China and throughout much of the world has also undergone an economic downturn. As a result, the global credit and liquidity have tightened in much of the world. Some of our potential customers in China and Hong Kong may face business downturn and credit issues, and could experience cash flow problems and other financial hardships, which could affect timeliness of doing business with us.

 

Changes in governmental banking, monetary and fiscal policies to restore liquidity and increase credit availability may not be effective in alleviating the global economic declines due to the Covid 19 pandemic. It is difficult to determine the breadth and duration of the economic and financial market problems and the many ways in which they may affect our customers and our business in general. Nonetheless, continuation or further worsening of these difficult financial and macroeconomic conditions could have a significant effect on our business and results of operations.

 

Capital markets are currently experiencing a period of dislocation and instability, which has had and could continue to have a negative impact on the availability and cost of capital

 

The general disruption in the U.S. and Australia capital markets has impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole. These conditions could persist for a prolonged period of time or worsen in the future. Our ability to access the capital markets may be restricted at a time when we would like, or need, to access such markets, which could have an impact on our flexibility to react to changing economic and business conditions. The resulting lack of available credit, lack of confidence in the financial sector, increased volatility in the financial markets and reduced business activity could materially and adversely affect our business, financial condition, results of operations and our ability to obtain and manage our liquidity. In addition, the cost of debt financing may be materially adversely impacted by these market conditions.

 

The success of our business depends on the continuing contributions of key personnel who may terminate their employment with us at any time, and we will need to hire additional qualified personnel

 

We rely heavily on the services of technical and management personnel. Loss of the services of any such individuals would adversely impact our operations. In addition, we believe our technical personnel represent a significant asset and provide us with a competitive advantage over many of our competitors and that our future success will depend upon our ability to retain these key employees and our ability to attract and retain other skilled financial, engineering, technical and managerial personnel. We do not currently maintain any "key man" life insurance with respect to any of such individuals.

 

 

9


 

 

Our success depends on the continuing efforts of our senior management team and other key personnel and our business may be harmed if we lose their services

 

Our future success depends heavily upon the continuing services of the members of our senior management. If one or more of our senior executives or other key personnel are unable or unwilling to continue in their present positions, we may not be able to replace them easily or at all, and our business may be disrupted and our financial condition and results of operations may be materially and adversely affected. Competition for senior management and key personnel is intense, the pool of qualified candidates is very limited, and we may not be able to retain the services of our senior executives or key personnel, or attract and retain high-quality senior executives or key personnel in the future.

 

In addition, if any member of our senior management team or any of our other key personnel joins a competitor or forms a competing company, we may lose customers, distributors, know-how and key professionals and staff members. Each of our executive officers and key employees has entered into an employment agreement with us which contains confidentiality and non-competition provisions. Legal proceedings to enforce such provisions would be costly in both money and management time and such provisions may not be enforced or enforceable.

 

We rely on highly skilled personnel and if we are unable to retain or motivate key personnel or hire qualified personnel, we may not be able to grow effectively

 

Our performance and future success depends on the talents and efforts of highly skilled individuals. We will need to continue to identify, hire, develop, motivate and retain highly skilled personnel for all areas of our organization. Competition in our industry for qualified employees is intense. Our continued ability to compete effectively depends on our ability to attract new employees and to retain and motivate our existing employees.

 

As competition in our industry intensifies, it may be more difficult for us to hire, motivate and retain highly skilled personnel. If we do not succeed in doing so, we may be unable to grow effectively.

 

We have no business insurance coverage

 

We do not have any business liability or disruption insurance coverage for our operations in China and Hong Kong. Any business disruption, litigation or natural disaster may result in our incurring substantial costs and the diversion of our resources.

 

We are exposed to risks associated with the weakening global economy as a result of Covid 19, which increase the uncertainty of consumers purchasing products and/or services

 

The recent severe tightening of the credit markets, turmoil in the financial markets, and weakening global economy due to Covid 19 pandemic are contributing to a decrease in spending by consumers. If these economic conditions are prolonged or deteriorate further, as a result of Covid 19, the market for our products and services will decrease accordingly.

 

 

10


 

 

Our Company may experience, and continues to experience, rapid growth in operations, which may place, and may continue to place, significant demands on its management, operational and financial infrastructure

 

If the Company does not effectively manage its growth, the quality of its products and services could suffer, which could negatively affect the Company's brand and operating results. To effectively manage this growth, the Company will need to continue to improve its operational, financial and management controls and its reporting systems and procedures. Failure to implement these improvements could hurt the Company's ability to manage its growth and financial position.

 

Our Company's business faces inherent risk in the electronics and digital media industries for 3D products and services

 

Our Company’s business is subject to certain risks inherent in the electronics and digital advertising industries for 3D products and services. Our Company’s revenue and operating results could be adversely affect by many factors which include, amongst others, changes in general economic, business and credit conditions, fluctuation in foreign exchange rates, changes in demand for and market acceptance of our products and services, our ability to introduce new products and services and enhancements in a timely manner, rapid technological changes, increase in operating expenses, lower profit margins due to pricing competition and delay in expansion plans.

 

Our Company seeks to limit these business risks through, inter-alia prudent management policies, keeping abreast with new developments and technologies in the relevant industries and maintaining good relationship with customers and suppliers. However there can be no assurance that any changes in these factors will not have any material adverse effect on our Company’s business.

 

Our Company's business faces competition from local and foreign competitors

 

Our Company faces competition from both local and foreign competitors which offer similar products that of our Company offerings. Increased competition could result in competitive pricing resulting in lower profit margins. However, our Company believes that we have competitive edge over our competitors; including amongst others, better quality products, access to R&D capabilities and technological expertise acquired over the years.

 

Our Company seeks to limit the competitive risks through, inter-alia constant review of our product development and marketing strategies to adapt to changes in economic conditions and market demands as well as focusing on certain markets and industries. However, there can be no assurance that our Company will be able to compete effectively against our competitors and that competitive pressure will not materially and adversely affect our Company’s business, operations and results and or financial condition.

 

 

11


 

 

Risks Relating to Our Organization

 

Public company compliance may make it more difficult for us to attract and retain officers and directors

 

The Sarbanes-Oxley Act and new rules subsequently implemented by the SEC have required changes in corporate governance practices of public companies. As a public company, we expect these new rules and regulations to increase our compliance costs to an estimate of about A$250,000 and to make certain activities more time consuming and costly. As a public company, we also expect that these new rules and regulations may make it more difficult and expensive for us to obtain director and officer liability insurance in the future and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.

If we infringe the intellectual property rights of third parties, it may increase our costs or prevent us from the commercialization our product candidates.

There is a risk that we are or may infringe the proprietary rights of third parties of which we are unaware. There has been substantial litigation and other proceedings regarding patent and other intellectual property rights in the electronics industries. To date, we have not been involved in any such third-party claims and we are not aware that our 3D infringe the intellectual property rights of third parties. As a result of intellectual property infringement claims, or to avoid potential claims, we might be:

 

  prohibited from selling or licensing any products that we may develop unless the patent holder licenses the patent to us, which it is not required to do;

 

  required to expend considerable amounts of money in defending the claim;

 

  required to pay substantial royalties or grant a cross license to our patents to another patent holder;

 

  required to redesign the formulation of a product so that it does not infringe, which may not be possible or could require substantial funds and time; or

 

  required to pay substantial monetary damages.

Future sales of our products may suffer if they are not accepted in the marketplace by consumers and customers.

There is a risk that our 3D products may not gain market acceptance by consumers and customers. The degree of market acceptance of any of our 3D products will depend on a variety of factors, including:

 

  timing of market introduction; and

 

  price and product feature compared to existing and new products.

 

We may be exposed to product liability claims which could harm our business.

 

The marketing and sale of consumer and electronic products entails an inherent risk of product liability. We face product liability exposure related to our products. Regardless of merit or eventual outcome, liability claims may result in:

 

  decreased demand for our products;

 

  injury to our reputation;

 

  costs of related litigation;

 

  substantial monetary awards to customers and others;

 

  loss of revenues; and

 

  the inability to commercialize our other products.

 

If there is a claim made against us or some other problems that is attributable to our products, our share price may be negatively affected. Even if we were ultimately successful in product liability litigation, the litigation would consume substantial amounts of our financial and managerial resources and may create adverse publicity, all of which would impair our ability to generate sales of our product candidates. We may incur substantial liabilities or be required to limit development or commercialization of our product candidates if we cannot successfully defend ourselves against product liability claims. Such coverage may not be available in the future on acceptable terms, or at all. Even if we have adequate insurance coverage, product liability claims or recalls could result in negative publicity and force us to devote significant managerial and financial resources to those matters, and the commercialization of our other products may be delayed or severely compromised.

 

 

12


 

 

Changes in government legislation and policy may adversely affect us

 

While we do not anticipate in the near future any specific material changes in government legislation that may adversely affect us, any material changes in interest rates, exchange rates, relevant taxation and other legal regimes and government policies may adversely affect our operations, the use of our financial resources and the market price of our ordinary shares.

 

Currency fluctuations may expose us to increased costs and revenue decreases

 

Our business may in the future be affected by fluctuations in foreign exchange rates. Currency fluctuations could, therefore, cause our costs to increase and revenues to decline. The majority of our expenses will continue to be denominated in Hong Kong dollars and Renminbi. In the past two years, the Australian dollars, our reporting currency, has as a general trend, depreciated against the U.S. currency. We cannot anticipate whether this trend will continue in respect of the U.S. dollars. The exchange rates of the Australian dollar to the Hong Kong and the Chinese Renminbi have also fluctuated over the same period. In circumstances where the Australian dollar depreciates against either or both of the U.S. dollar, Hong Kong dollar or Chinese Renminbi, this may have an adverse effect on our costs incurred in either the U.S. or Hong Kong or China (as applicable) but may have a positive effect on any revenues which we source from the U.S. or Hong Kong or China (as applicable). The same principles apply in respect of our costs and revenues in other jurisdictions. In addition, we conduct operations in Hong Kong and China, which exposes us to potential cost increases resulting from fluctuations in exchange rates. To date, we have been affected negatively on material foreign exchange losses as a result of currency fluctuations.

Australian takeovers laws may discourage takeover offers being made for us or may discourage the acquisition of large numbers of our shares

We are incorporated in Australia and are subject to the takeovers laws of Australia. Amongst other things, we are subject to the Corporations Act 2001 (Commonwealth of Australia). Subject to a range of exceptions, the Corporations Act prohibits the acquisition of a direct or indirect interest in our issued voting shares if the acquisition of that interest will lead to a person's or someone else's voting power in us increasing from 20% or below to more than 20%, or increasing from a starting point that is above 20% and below 90%. Exceptions to the general prohibition include circumstances where the person makes a formal takeover bid for us, if the person obtains shareholder approval for the acquisition or if the person acquires less than 3% of the voting power of us in any rolling six month period. Australian takeovers laws may discourage takeover offers being made for us or may discourage the acquisition of large numbers of our shares.

Rights as a holder of ordinary shares are governed by Australian law and our Constitution and differ from the rights of shareholders under U.S. law. Holders of our ordinary shares may have difficulty in effecting service of process in the United States or enforcing judgments obtained in the United States


We are a public company incorporated under the laws of Australia. Therefore, the rights of holders of our ordinary shares are governed by Australian law and our Constitution. These rights differ from the typical rights of shareholders in U.S. corporations. Circumstances that under U.S. law may entitle a shareholder in a U.S. company to claim damages may also give rise to a cause of action under Australian law entitling a shareholder in an Australian company to claim damages. However, this will not always be the case. Holders of our ordinary shares may have difficulties enforcing, in actions brought in courts in jurisdictions located outside the U.S., liabilities under U.S. securities laws. In particular, if such a holder sought to bring proceedings in Australia based on U.S. securities laws, the Australian court might consider:

 

  that it did not have jurisdiction; and/or

 

  that it was not an appropriate forum for such proceedings; and/or

 

  that, applying Australian conflict of laws rule, U.S. law (including U.S. securities laws) did not apply to the relationship between holders of our ordinary shares and us or our directors and officers; and/or

 

  that the U.S. securities laws were of a public or penal nature and should not be enforced by the Australian court.

  

Holders of our ordinary shares may also have difficulties enforcing in courts outside the U.S. judgments obtained in the U.S. courts against any of our directors and executive officers or us, including actions under the civil liability provisions of the U.S. securities laws.

 

 

13


 

 

Our operations may be materially and adversely affected by changes in the economic, political and social conditions of China

 

Some of our non-cash assets are located in, and some of our revenue is sourced from China. However, the growth of our 3D display business will be derived from China. Accordingly, our business, financial condition, results of operations and prospects may be influenced to a significant degree by political, economic and social conditions in China generally and by continued economic growth in China as a whole.

 

China economy differs from the economies of most developed countries in many respects, including the extent of government involvement, level of development, growth rate, control of foreign exchange and allocation of resources. While China economy has experienced significant growth over the past three decades, growth has been uneven across different regions and among various economic sectors. The Chinese government has implemented various measures to encourage economic development and guide the allocation of resources. Some of these measures benefit the overall China economy, but may also have a negative effect on us. For example, our operating results and financial condition may be adversely affected by government control over capital investments or changes in tax regulations that are applicable to us. We cannot predict the possible impact of any future economic policies of the Chinese government on our business and operations.

 

China is facing a continued slowdown in economic growth. China's annual gross domestic product growth rate 2019 was 6.1% compared to 6.7% in 2018 and 6.9% in 2017. This slowdown could cause a slowdown or decline in investment in digital advertising display networks, which, in turn, may result in a reduction of demand for our products and services and thus materially reduce our revenues and profitability.

 

Uncertainties in the interpretation and enforcement of Chinese laws, rules and regulations could limit the legal protections available to you and us.

 

China legal system is a civil law system based on written statutes. Unlike common law systems, it is a system in which legal decisions have limited value as precedents. In 1979, the Chinese government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past three decades has significantly increased the protections afforded to various forms of foreign or private-sector investment in China. Our operations in China are foreign-invested enterprise and is subject to laws, rules and regulations applicable to foreign investment in China as well as laws, rules and regulations applicable to foreign-invested enterprises. These laws, rules and regulations change frequently, and their interpretation and enforcement involve uncertainties. For example, we may have to resort to administrative and court proceedings to enforce the legal protections that we enjoy either by law or contract. However, since China administrative and court authorities have significant discretion in interpreting and implementing statutory and contractual terms, it may be more difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy than in more developed legal systems. These uncertainties may also impede our ability to enforce the contracts we have entered into, and materially impair our business and operations.

 

We may rely on dividends and other distributions on equity paid by our operating subsidiary to fund cash and financing requirements, and limitations on the ability of our operating subsidiaries to pay dividends to us could materially restrict our ability to conduct our business.

 

We, as a holding company, may rely on dividends and other distributions on equity paid by our operating China subsidiaries for our cash and financing requirements, including the funds necessary to pay dividends and other cash distributions to the parent company, service any debt we may incur and pay our operating expenses. If these China subsidiaries incurs debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other distributions to us. Furthermore, relevant Chinese laws, rules and regulations permit payments of dividends by our China subsidiaries only out of their retained earnings, if any, determined in accordance with Chinese accounting standards and regulations.

 

Restrictions on currency exchange may limit our ability to effectively utilize our revenues as well as the ability of our China subsidiaries to obtain debt or equity financing from financial institutions or investors outside China, including us.

 

A significant portion of our operating revenues have been denominated in Renminbi. The Renminbi is currently convertible under the "current account," which includes dividends, trade and service-related foreign exchange transactions, but not under the "capital account," which includes foreign direct investment and loans. Currently, each of our China subsidiaries may purchase foreign exchange for settlement of "current account transactions," including purchase of imported components i.e. display chips and payment of dividends to the overseas parent company, without the approval of the State Administration of Foreign Exchange (the “SAFE”) by complying with certain procedural requirements. However, the relevant Chinese government authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. Since a significant amount of our future revenues will likely be denominated in Renminbi, any existing and future restrictions on currency exchange may limit our ability to utilize revenues generated in Renminbi to purchase for example computer display chips from suppliers outside China or fund our business activities outside China denominated in foreign currencies or pay dividends in foreign currencies to our overseas parent company.

 

In addition, certain foreign exchange transactions under the capital account are still subject to limitations and require approvals from, or registration with, the SAFE (or qualified banks designated by it) and other relevant Chinese government authorities. In particular, any loans to our China subsidiaries are subject to China regulations and approvals. For example, loans by us to Marvel Display Technology (Shenzhen) Limited, a foreign-invested enterprise, cannot exceed statutory limits and must be registered with the SAFE or its local counterpart.

 

This could affect the ability of Marvel Display Technology (Shenzhen) Limited to obtain foreign exchange through debt or equity financing, including by means of loans or capital contributions from us.

 

 

14


 

 

The Chinese government may alter its regulations and policies from time to time which may have direct or indirect impact to our Company operation.

 

Regulations and policies may be altered or other new regulations and policies may be implemented by the Chinese government from time to time which may have direct or indirect impact to our business operations. Some examples of such regulations and policies are:

 

  1 media broadcast regulations over the Internet;

 

  2 foreign media to be distributed in China;

 

  3 operating permit for mobile sales and distribution;

 

  4 copyrighted digital media regulations;

 

  5 educational and cultural materials to be sold, distributed, created or transacted in China by foreign investment entities; and

 

  6 foreign investment entities to operate business in the educational and media industries.

 

These are only some of the examples that may have more direct impact to our business. Change of government officials may also affect changes in regulations and policies, especially within local government. These changes may have impact to the operating strategies or financial performance of the Company.

 

 

15


 

 

Risks Associated with Our Technology and Intellectual Property

 

Potential technological changes in our field of business create considerable uncertainty

 

We are engaged in the 3D technology field, which is characterized by extensive research efforts and rapid technological progress. New developments in research are expected to continue at a rapid pace in both industry and academia. Research and discoveries by others may render some or all of our products uncompetitive or obsolete.

 

Our business strategy is based in part upon new technologies to the development of 3D products. Unforeseen problems may develop with these technologies or applications and it is possible that commercially feasible products will not ultimately be developed by us.

 

If we are unable to keep pace with technological change or with the advances of our competitors our technology and products may become non-competitive

 

The 3D display and electronics industries are subject to rapid and significant technological change. Our competitors in Hong Kong, China and Australia and elsewhere are numerous and include, among others, major technology companies, large electronics companies, universities and other research institutions. These competitors may develop technologies and products that are more effective than any that we are developing, or which would render our technology and products obsolete or non-competitive. Many of these competitors have greater financial and technical resources and manufacturing and marketing capabilities than we do. In addition, many of our competitors have much more experience than we do in commercializing new technologies of new or improved display products.

 

We know that competitors are developing or manufacturing various technologies or products for the 3D display products and services that we have targeted for product development. Some of these competitive products use alternative approaches that compete directly with some of our product candidates. Our ability to further develop our products may be adversely affected if any of our competitors were to succeed in commercializing their products sooner than we do.

  

Our success depends upon our ability to protect our intellectual property and our proprietary technology

 

Our success will depend in large part on whether we can:

 

  Obtain and maintain patents to protect our own products;

 

  Obtain licenses to relevant patented technologies of third parties;

 

  Operate without infringing on the proprietary rights of third parties;

 

  Protect our trade secrets and know-how; and

 

  Retain our valuable scientific staff who are experts on the subject matter.

  

Patent matters in industrial and consumer electronics are highly uncertain and involve complex legal and factual questions. Accordingly, the availability and breadth of claims allowed in electronics patents cannot be predicted. Statutory differences in patentable subject matter may limit the protection we can obtain on some or all of our inventions outside Hong Kong or China or prevent us from obtaining patent protection outside Hong Kong or China, either of which could have a material adverse effect on our business, financial condition and results of operations. Moreover, since patent applications in Hong Kong or China are maintained in secrecy until the patent is issued, and since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we or any of our licensors were the first creator of inventions covered by pending patent applications or that we or our licensors were the first to file patent applications for such inventions. Additionally, the enforceability of a patent depends on a number of factors that may vary amongst jurisdictions. These factors may include the novelty of the invention, the requirement that the invention not be obvious in light of prior art (including prior use or publication of the invention), the utility of the invention, and the extent to which the patent clearly describes the best method of working the invention.

 

 

16


 

 

Our success depends upon our ability to protect our intellectual property and our proprietary technology (continued)

 

While we intend to seek patent protection for some of our 3D products and technologies, we cannot be certain that any of the pending or future patent applications filed by us or on our behalf will be approved, or that we will develop additional proprietary products or processes that are patentable or that we will be able to license any other patentable products or processes. We also cannot be certain that others will not independently develop similar products or processes, duplicate any of the products or processes developed or being developed by us or licensed to us, or design around the patents owned or licensed by us, or that any patents owned or licensed by us will provide us with competitive advantages. Furthermore, we cannot be certain that patents held by third parties will not prevent the commercialization of products incorporating the technology developed by us or licensed to us, or that third parties will not challenge or seek to narrow, invalidate or circumvent any of the issued, pending or future patents owned or licensed by us.

 

We may have to resort to litigation to enforce any patents issued or licensed to us or to determine the scope and validity of third party proprietary rights. We may have to defend the validity of our patents in order to protect or enforce our rights against a third party, or third parties may in the future assert against us infringement claims regarding proprietary rights belonging to them. Such proceedings could result in the expenditure of significant financial and managerial resources and could negatively affect our profitability. Adverse determinations in any such proceedings could prevent us from developing and commercializing our products and could harm our business, financial condition and results of operations.

 

Our commercial success will also depend, in part, on our ability to avoid infringement of patents issued to others. If a court determines that we were infringing any third-party patents, we could be required to pay damages, alter our products or processes, obtain licenses or cease certain activities. We cannot be certain that the licenses required under patents held by third parties would be made available on terms acceptable to us or at all. To the extent that we are unable to obtain such licenses, we could be foreclosed from the development, manufacture or commercialization of the product requiring such license or encounter delays in product introductions while we attempt to design around such patents, and any of these circumstances could have a material adverse effect on our business, financial condition and results of operations.

  

In addition to patent protection, we rely on unpatented trade secrets and know-how and proprietary technological innovation and expertise that are protected in part by confidentiality and invention assignment agreements with our employees, advisors and consultants. We cannot make any assurances that we will have adequate remedies for any breach. In addition, third parties could independently develop the same or similar technologies.

 

If we are not able to protect and control unpatented trade secrets, know-how and other technological innovation, we may suffer competitive harm

 

In addition to patented intellectual property, we also rely on unpatented technology, trade secrets, confidential information and know-how to protect our technology and maintain our competitive position. Trade secrets are difficult to protect. In order to protect proprietary technology and processes, we rely in part on confidentiality and intellectual property assignment agreements with our employees, consultants and others. These agreements may not effectively prevent disclosure of confidential information or result in the effective assignment to us of intellectual property, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information or other breaches of the agreements. In addition, others may independently discover trade secrets and proprietary information that have been licensed to us or that we own, and in such case we could not assert any trade secret rights against such party. Enforcing a claim that a party illegally obtained and is using trade secrets that have been licensed to us or that we own is difficult, expensive and time-consuming, and the outcome is unpredictable. In addition, courts outside the United States and Australia may be less willing to protect trade secrets. Costly and time-consuming litigation could be necessary to seek to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could have a material adverse effect on our business.

  

We do not have patent protection in certain countries and we may not be able to effectively enforce our intellectual property rights in certain countries, which could significantly erode the market for our product candidates

 

We intend to seek regulatory approval to market our product candidates in a number of foreign countries. Our product candidates are not protected by patents in certain countries, which means that competitors may be free to sell products that incorporate the same technology that is used in our products in those countries. In addition, the laws and practices in some foreign countries may not protect intellectual property rights to the same extent as in the United States or Australia. We may not be able to effectively obtain, maintain or enforce rights with respect to the intellectual property relating to our product candidates in those countries. Our lack of patent protection in one or more countries, or the inability to obtain, maintain or enforce intellectual property rights in one or more countries, could adversely affect our ability to commercialize our products in those countries and could otherwise have a material adverse effect on our business.

 

 

17


 

 

Risks Relating to Our Securities

 

Our stock price may be volatile

 

The market price of our Common Stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

 

  changes in our industry;
  our ability to work through a health crisis or pandemic;
  competitive pricing pressures;
  our ability to obtain working capital financing;
  additions or departures of key personnel;
  limited "public float" in the hands of a small number of persons whose sales or lack of sales could result in positive or negative pricing pressure on the market price for our Common Stock;
  sales of our Common Stock;
  our ability to execute our business plan;
  operating results that fall below expectations;
  loss of any strategic relationship;
  regulatory developments;
  developments concerning research and development, manufacturing, and marketing alliances or collaborations by us and our competitors;
  announcements of technological innovations or new commercial products by us and our competitors;
  regulatory actions in respect of any of our products or the products of any of our competitors;
  determinations regarding our patent applications and those of others;
  market conditions, including market conditions in the technology and digital media sectors;
  increases in our costs or decreases in our revenues due to unfavorable movements in foreign currency exchange rates;
  development or litigation concerning patents, licenses and other intellectual property rights;
  litigation or public concern about the safety of our potential products;
  changes in recommendations or earnings estimates by securities analysts;
  deviations in our operating results from the estimates of securities analysts;
  rumors relating to us or our competitors;
  developments concerning current or future strategic alliances or acquisitions;
  political, economic and other external factors such as interest rate or currency fluctuations; and
  period-to-period fluctuations in our financial results.

 

In addition, stock markets have recently experienced extreme price and volume fluctuations due to the effects of Covid 19. These fluctuations have especially affected the stock market price of many technology and digital media companies and, in many cases, are unrelated to the operating performance of the particular companies. We believe that these broad market fluctuations may continue to affect the market price of our ordinary shares.

Our ordinary shares may be considered a "penny stock" under SEC regulations which could adversely affect the willingness of investors to hold our Shares

The SEC has adopted regulations which generally define "penny stock" to be an equity security that has a market price of less than $5.00 per share, subject to specific exemptions. During the fiscal year ended December 31, 2019, our ordinary shares traded on the Nasdaq at below of US$5.00 per share. The low trading price of our ordinary shares may adversely impact the willingness of investors to invest in our common shares in the United States.

 

 

18


 

 

We may be deemed a passive foreign investment company (PFIC) which would subject our U.S. investors to adverse tax rules

Holders of our ordinary shares who are U.S. residents face income tax risks. There is a substantial risk that if we are deemed a passive foreign investment company, or PFIC, which could result in a reduction in the after-tax return to a "U.S. Holder" of our ordinary shares. For U.S. federal income tax purposes, we will be classified as a PFIC for any taxable year in which (i) 75% or more of our gross income is passive income, or (ii) at least 50% of the average value of all of our assets for the taxable year produce or are held for the production of passive income. For this purpose, cash is considered to be an asset that produces passive income.

The determination of whether we are a PFIC is made on an annual basis and depends on the composition of our income and the value of our assets. Therefore, it is possible that we could be deemed a PFIC in the current year as well as in future years. If we are classified as a PFIC in any year that a U.S. Holder owns ordinary shares, the U.S. Holder will generally continue to be treated as holding ordinary shares of a PFIC in all subsequent years, notwithstanding that we are not classified as a PFIC in a subsequent year. Dividends received by the U.S. Holder and gains realized from the sale of our ordinary shares would be taxed as ordinary income and subject to an interest charge. We urge U.S. investors to consult their own tax advisors about the application of the PFIC rules and certain elections that may help to minimize adverse U.S. federal income tax consequences in their particular circumstances.

 

As a foreign private issuer whose shares are listed on the NASDAQ Capital Market, we may follow certain home country corporate governance practices in lieu of instead of certain NASDAQ requirements

As a foreign private issuer whose shares are listed on the NASDAQ Capital Market, we are permitted to follow certain home country corporate governance practices instead of certain requirements of The NASDAQ Marketplace Rules. As an Australian company listed on the NASDAQ Capital Market, we may follow home country practice with regard to, among other things, the composition of the board of directors, director nomination process, compensation of officers and quorum at shareholders' meetings. In addition, we may follow Australian law instead of the NASDAQ Marketplace Rules that require that we obtain shareholder approval for certain dilutive events, such as for the establishment or amendment of certain equity based compensation plans, an issuance that will result in a change of control of the company, certain transactions other than a public offering involving issuances of a 20% or more interest in the company and certain acquisitions of the stock or assets of another company. A foreign private issuer that elects to follow a home country practice instead of NASDAQ requirements, must submit to NASDAQ in advance a written statement from an independent counsel in such issuer's home country certifying that the issuer's practices are not prohibited by the home country's laws. In addition, a foreign private issuer must disclose in its annual reports filed with the U.S. Securities and Exchange Commission each such requirement that it does not follow and describe the home country practice followed by the issuer instead of any such requirement. Accordingly, our shareholders may not be afforded the same protection as provided under NASDAQ's corporate governance rules. Please see "Item 6. Directors, Senior Management and Employees – C. Board Practices" for further information.

 

U.S. shareholders may not be able to enforce civil liabilities against us

 

All of our directors and executive officers are non-residents of the United States, and all or a substantial portion of the assets of such persons are located outside the United States. As a result, it may not be possible for investors to affect service of process within the United States upon such persons or to enforce against them judgments obtained in U.S. courts predicated upon the civil liability provisions of the federal securities laws of the United States. There is doubt as to the enforceability in Australia in original actions, or in actions for enforcement of judgments of U.S. courts, of civil liabilities to the extent predicated upon the federal securities laws of the United States.

 

 

19


 

 

As a foreign private issuer we do not have to provide the same information as an issuer of securities based in the U.S   

 

Given that we are a foreign private issuer within the meaning of the rules under the Exchange Act, we are exempt from certain provisions of that law that are applicable to U.S. public companies, including (i) the rules under the Exchange Act requiring the filing with the U.S. Securities and Exchange Commission ("SEC") of quarterly reports on Form 10-Q or current reports on Form 8-K; (ii) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a registered security; and (iii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time. Thus, investors are not afforded the same information which would be ordinarily available were they investing in a domestic U.S. public corporation.

 

In accordance with the requirements of the Corporations Act 2001, we disclose annual and semi-annual results. Our results are presented in accordance with Australian Accounting Standards and International Financial Reporting Standards (IFRS). Our annual results are audited, and our semi-annual results undergo a limited review by our independent auditors. We file annual audited results presented in accordance with Australian Accounting Standards and IFRS as issued by International Accounting Standards Board with the SEC on Form 20-F. We are required to provide our semi-annual results and other material information that we disclose in Australia in the U.S. under the cover of Form 6-K. Nevertheless, this information is not the same information as would be made available to investors were they investing in a domestic U.S. public corporation.

 

Future issuances and sales of our stock could dilute your ownership and may cause our stock price to decline

 

We intend to continue to finance our operations through the issuance of securities, if feasible, including by way of the public equity markets, private financings and debt. If we raise additional capital through the issuance of equity or securities convertible into equity, existing holders of our securities may experience dilution. Those securities may have rights, preferences or privileges senior to those of the holders of our ordinary shares. Additional financing may not be available to us on favorable terms, and financing available at less favorable terms may lead to more substantial dilution of existing shareholders.

 

If we fail to comply with internal controls evaluations and attestation requirements our stock price could be adversely affected

 

We are subject to United States securities laws, including the Sarbanes-Oxley Act of 2002 and the rules and regulations adopted by the SEC pursuant to such Act. As a foreign private issuer, under Section 404 of the Sarbanes-Oxley Act and the related regulations, we will be required to perform an evaluation of our internal control over financial reporting, including (1) management's annual report on its assessment of the effectiveness of internal control over financial reporting; and (2) our independent registered public accounting firm's annual audit of the effectiveness of internal control over financial reporting. In 2010, the enactment of the Dodd Frank Bill resulted in an exemption from Section 404(b) of the Sarbanes-Oxley Act for fiscal 2010 onwards, meaning that we did not have to comply with point (2) above. For further information, see "Item 15 - Controls and Procedures - Management's Annual Report on Internal Control over Financial Reporting."

 

The requirements of Section 404(a) of the Sarbanes-Oxley Act are ongoing and also apply to future years. We expect that our internal control over financial reporting will continue to evolve as our business develops. Although we are committed to continue to improve our internal control processes and we will continue to diligently and vigorously review our internal control over financial reporting in order to ensure compliance with the Section 404 requirements, any control system, regardless of how well designed, operated and evaluated, can provide only reasonable, not absolute, assurance that its objectives will be met. Therefore, we cannot be certain that in the future additional material weaknesses or significant deficiencies will not exist or otherwise be discovered. If our efforts to remediate weaknesses identified are not successful or if other deficiencies occur, these weaknesses or deficiencies could result in misstatements of our results of operations, restatements of our financial statements, a decline in our stock price, or other material effects on our business, reputation, results of operations, financial conditions or liquidity.

 

 

20


 

 

Our Constitution and other Australian laws and regulations applicable to us may adversely affect our ability to take actions that could be deemed beneficial to our shareholders

 

As an Australian company we are subject to different corporate requirements than a corporation organized under the laws of the United States. Our constituent document, or Constitution, as well as the Corporations Act 2001 set forth various rights and obligations that are unique to us as an Australian company. These requirements may limit or otherwise adversely affect our ability to take actions that could be beneficial to our shareholders.  

We have never paid a dividend and we do not intend to pay dividends in the foreseeable future which means that holders of shares may not receive any return on their investment from dividends

To date, we have not declared or paid any cash dividends on our ordinary shares and currently intend to retain any future earnings for funding growth. We do not anticipate paying any dividends in the foreseeable future. Dividends may only be paid out of our profits. Payment of cash dividends, if any, in the future will be at the discretion of our board of directors. Our holders of shares may not receive any return on their investment from dividends. The success of your investment will likely depend entirely upon any future appreciation of the market price of our ordinary shares, which is uncertain and unpredictable. There is no guarantee that our ordinary shares will appreciate in value or even maintain the price at which you purchased your ordinary shares.

 

We may not be able to attract the attention of major brokerage firms

 

Securities analysts of major brokerage firms may not provide coverage of us since there is no incentive to brokerage firms to recommend the purchase of our Common Stock. No assurance can be given that brokerage firms will, in the future, want to conduct any secondary offerings on behalf of our Company.

 

 

 

21


 

 

ITEM 4.   INFORMATION ON THE COMPANY

 

A.   History and Development of the Company

We were incorporated under the laws of the Commonwealth of Australia on August 8, 2008 under the name "China Integrated Media Corporation Limited." On October 12, 2016, we changed the name to Integrated Media Technology Limited ("IMTE"). The registered office is located at Level 7, 420 King William Street, Adelaide, SA 5000, Australia and our telephone number is +61 8 7324 6018 and our fax number is +61 8 8312 0248. Our principal office is located at 7/F., Siu On Center, 188 Lockhart Road, Wanchai, Hong Kong and our telephone number is +852 2989 0220 and our fax number is +852 2565 1303. Our address on the Internet is www.imtechltd.com. The information on, or accessible through, our website is not part of this annual report on Form 20-F. We have included our website address in this annual report on Form 20-F solely as an inactive textual reference.

In 2013, IMTE was engaged in (i) the development of the digital advertising platform in glasses-free 3D (autostereoscopic), (ii) distribution of digital displays and (iii) lottery gaming business in China. In 2015, the Company changed its focus of its businesses to concentrate on 3D autostereoscopic business and took the following corporate actions: (i) terminated the lottery gaming business in China and (ii) through a series of acquisitions for 3D technology and audio companies as described below. Today, the Company focuses on the business activities in the development, sale and distribution of autostereoscopic 3D display, 3D conversion equipment and software, development and sale of 3D autostereoscopic technology and provision of 3D consultancy services.

IMTE was listed on the Australian Securities Exchange, or ASX, in February 2013 and raised A$3,480,000 at IPO.

On February 9, 2015, the Company acquired all of the issued shares of Conco International Co., Ltd. ("CICL"), a company principally engaged in the design, sales and distribution of audio products. The consideration paid was $61,591 which was the amount of the net asset value of CICL. The consideration was settled by the Company issuing 307,954 shares at $0.20 per share. In addition, the Company will pay performance shares to be issued to the vendor contingent on CICL achieving an agreed level of profit performance.

In May 2015, the Company entered into a cooperation agreement to set up Global Vantage Audio Limited, a 50% subsidiary company, to distribute and market branded "Syllable" headsets globally except for the markets in China, India and Pakistan.

On September 30, 2015, the Company acquired all of the issued shares of Marvel Digital Limited ("MDL"), a Hong Kong incorporated technology company principally engaged in the development of autostereoscopic 3D display technology and products, 2D to 3D conversion software and digital content management system. The consideration paid was A$5,216,213 which was the net asset value of MDL. The consideration was settled by the Company issuing 26,081,065 shares at $0.20 per share. In addition, the Company will pay a deferred performance fee calculated at five times of the average annualized consolidated profits of MDL for the two years' period from the completion date less the initial purchase consideration. The deferred performance fee was paid in February 2018.

As a result of the above acquisition of MDL, Marvel Finance Limited, a company wholly owned and controlled by our Chairman, Dr. Herbert Ying Chiu Lee, became the controlling shareholder of IMTE holding 44,787,331 shares (pre share consolidation) representing approximately 56.48% of the then outstanding shares of IMTE.

In February 2016, Digital Media Technology Limited, a 100% owned subsidiary of IMTE, was incorporated in the Labuan, Malaysia. This subsidiary will be the sales and distribution of products and technology licenses outside of Hong Kong and China.

 

In March 2016, the Company disposed Conco International Co., Limited to an independent third party for US$41,235, representing the net asset value of CICL.

 

On October 12, 2016, pursuant to an extraordinary general meeting the Shareholders unanimously voted to change the name of the Company to Integrated Media Technology Limited which was registered with Australian Securities and Investments Commission, and became effective on the same date.

 

 

22


 

 

On May 2, 2017, we effected a 1-for-30 reverse split of our common stock, which was approved at a special meeting of our shareholders on March 2, 2017. The purpose of the reverse stock split was to enable us to meet the Nasdaq's minimum share price requirement. The reverse stock split became effective and the common stock began trading on a split-adjusted basis on the Australian Securities Exchange at the opening of trading on May 8, 2017. This reduced the number of outstanding shares of our common stock from 79,301,852 shares on May 5, 2017, to 2,643,611 shares on May 8, 2017, after adjusting for fractional shares.

 

In July 2017, the Group set up a new wholly-owned subsidiary - GOXD Technology Limited, incorporated in Hong Kong, for carrying out business activities on sales and distribution of 2D/3D glasses-free 4K digital photo frames to corporate customers and household consumers. In addition, a cloud platform with smart 2D to 3D photo conversion services, professional photographer contributed photo eShop, operating mobile APP and user upload photo storage have also been developed to form a complete digital photo frame ecosystem.

 

On August 3, 2017 our shares of Common Stock were admitted for listing on the Nasdaq Capital Markets under the symbol "IMTE".

 

On January 12, 2018, the Group entered into the following agreements in connection with the issue of a HK$23 million (equivalent to approximately AU$3.8 million) Convertible Bonds (the "Convertible Bonds"): (i) Subscription Agreement between Marvel Digital Limited, a wholly-owned subsidiary of the Company (the "Issuer" or "MDL") and an independent third party entity ("Bondholder") for the Convertible Bonds, (ii) Deed of Guarantee between the Company and the Bondholder to guarantee the payment obligations under the Convertible Bonds and (iii) Put Option Deed between the Company and the Bondholder to repurchase any converted MDL Shares as described below. On the same date, pursuant to the Subscription Agreement, the Convertible Bonds were issued by MDL to the Bondholder as all the terms and conditions in respect of the Subscription of the Convertible Bonds were complied with and fulfilled.

 

Pursuant to the terms of the Convertible Bonds, the Convertible Bonds are convertible in the circumstances set out therein into 75,000 ordinary shares of MDL ("MDL Shares") at a conversion price of HK$306.67 per share, which is equivalent to 20% of the then enlarged issued share capital of MDL. The Bondholder will have the right to convert the whole of their Convertible Bonds into ordinary shares of MDL at any time during the period from January 3, 2018 to January 2, 2020. The period may be extended to a further 12 months subject to the mutual agreement among MDL, Company and Bondholder. Unless previously redeemed or converted, the Convertible Bonds will be redeemed at 100% of their principal amount on the Maturity Date.

 

On August 6, 2018, the Company's subsidiary company, MDL, completed the Share Subscription Agreement where the investor subscribed for 5% of the enlarged issued share capital of MDL for HKD15,000,000 (approximately A$2,573,000). Upon the issuance of shares in MDL, IMTE's shareholding in MDL was decreased from 100% to 95%.

 

On August 8, 2018, the Company's subsidiary company, GOXD Technology Limited ("GOXD") entered into an Equity Investment Agreement where the investor purchased 20% of the enlarged issued share capital of GOXD for USD4,000,000 (approximately A$5,378,000). GOXD is a subsidiary of MDL. Upon the issuance of shares in GOXD, MDL's shareholding in GOXD will be decreased from 100% to 80%.

 

On December 12, 2018 the shareholders of the Company approved the settlement of A$8,000,000 debt owed to Marvel Finance Limited, the ultimate holding company, by the issuance of 708,500 shares in the Company.

 

During the year 2018, the Company disposed several subsidiaries including Yamaga Audio Limited, our audio operation and Marvel Digital (Shenzhen) Limited, our then Shenzhen manufacturing operation.

 

In April 2019, the Company and Teko International Limited ("Teko") entered into a distribution rights agreement for the territory of Hong Kong and Guangzhou Province, China ("Territories") for a proprietary conductive film and 3rd generation Polymer Dispersed Liquid Crystal ("PDLC") film. Pursuant to the Agreement, the Company shall pay 50,000 IMTE shares upon the commissioning of one (1) lamination line, (ii) for each of the next 3 years after the commissioning of the manufacturing line, IMTE shall pay Teko 50,000 IMTE shares should the annual revenue reach US$10 million or 100,000 IMTE shares should the revenue reach US$20 million, and (iii) 50,000 IMTE shares for each additional lamination line installed. In addition, for managing the operations, the Company will pay to Teko 25% of the net profits from the sale of the PDLC film products and the lamination operations. Mr. Con Unerkov and Mr. Cecil Ho, both the CEO and CFO, respectively of IMTE, were then directors and shareholders of Teko.

 

On January 3, 2020, the Convertible Bonds with MDL matured and then on January 21, 2020 the Company reached an agreement with Bondholder to repay HK$23million (equivalent to approximately A$4.3million) of the Convertible Bonds on the following schedule: i) HK$13 million (or about A$2.4million) to be paid on January 17, 2020 and ii) the remaining HK$10 million (or about A$1.9million) to be paid in equal installments over the next four(4) months from Feb to May. Furthermore the interest rate is changed to 15% per annum on the outstanding amount from the date of the maturity of the Convertible Bonds on January 3, 2020. As of the date of this Report, all the installments have been fully repaid.

 

On January 20, 2020, the Company entered into a Convertible Note Purchase Agreement with CIMB Limited ("the CN Agreement"), an independent third party. Pursuant to CN Agreement, CIMB will purchase from the Company a 10% convertible promissory note ("the Note") in the principal amount of HK$14 million (or about A$2.6million or about US$1.8million) maturing in two (2) years from the date of the agreement. The holder of the Note has the right to convert the principal amount to shares in the Company at a fixed conversion price of US$5.00 per share, subject to adjustment, over the term of the Note. On February 11, 2020, the Company and the holder of the Note entered into a supplement agreement to the CN Agreement to limit the total number of ordinary shares of the Company issuable upon conversion of the Note to no more than 19.99% of the total issued and outstanding ordinary shares of the Company. The supplement agreement further provides that the conversion price shall, in no event, be less than $1.50 per share, subject to regulatory or shareholder approval. As at the date of this Report, i) the Note is still outstanding, ii) 15,578 shares will be issued for the payment of interests in the CN Agreement, and (iii) the fixed conversion price has been adjusted to US$3.50 per share due to the exercise of the cashless Warrants and described below.

 

On February 20, 2020, the "Company entered into a Securities Purchase Agreement for the sale of 158,730 ordinary shares of, no par value, of the Company ("Ordinary Shares") and warrants ("Warrants") to purchase up to 126,984 ordinary shares ("Warrant Shares") to an accredited investor ("Investor") at a price of US$6.30 per share (the "Cash Offering"). The Warrants will be exercisable for the period of 12 months from the date of issuance, at an exercise price of US$10.50 per Share. The Cash Offering is for US$1 million and will generate a net cash proceeds of approximately US$920,000 after deducting estimated expenses in connection with the offering. The Company intends to use the net cash proceeds for partially paying off debts to a bondholder and general corporate purposes.

 

On May 12, 2020, the Company) issued 126,984 ordinary shares (the "Shares") as a result of the exercise of warrants (the "Warrants") which were issued to an accredited investor as announced on Form 6-K on February 24, 2020. The Warrants were exercised by means of a cashless exercise where each Warrant exercised would receive one Share without any cash payment to the Company as the VWAP of the Company's ordinary shares on the trading day immediately prior to the exercise date was less than US$10.50 per Share. 

 

In May 2020, the Company disposed its research and development operations to independent third parties so that the Group could rationalize its operations and focus on the marketing and sales of autostereoscopic 3D displays.

 

 

 

23


 

 

In summary, the Group's business activities are the development, sale and distribution of autostereoscopic 3D display, 3D video wall, 3D conversion equipment and software and provision of 3D consultancy services, and (ii) sale of switchable windows

 

Breakdown of total revenues by category for the years ended December 31, 2019, 2018 and 2017:

 

    Consolidated
    December 31, 2019
A$
  December 31, 2018
A$
  December 31, 2017
A$
Development, sales and distribution of 3D autostereoscopic products and conversion equipment   1,273,921   1,166,144   4,365,364
Sales of software and technology solutions   1,504   13,731   1,180,491
Sales and distribution of audio products   -   48,609   54,251
Provision of consultancy and other services   -   95,922   162,605
Interest income   115,762   21,409   3,092
    1,391,187   1,345,815   5,765,803
             

 

Breakdown of total revenues by geographic market for the years ended December 31, 2019, 2018 and 2017:

 

    Consolidated
    December 31, 2019
A$
  December 31, 2018
A$
  December 31, 2017
A$
Australia   -   65   62
Hong Kong   1,310,912   346,954   3,235,912
China   80,275   998,796   2,529,829
    1,391,187   1,345,815   5,765,803
             

 

 

24


 

 

B.   Business Overview

Integrated Media Technology Limited is a technology investment, product development and distribution company.  As a development company, we require funding for research and development into our stable of core technologies through acquisition, in-house development or in collaboration with research institutes.  Our strategy was to profit from the sale of mature technologies after we have developed advance technology that superseded the mature ones. We had set up three business units being: Technology Business Unit, Products and Services Business Unit and Brand/Distribution Business Unit. All 3 business units are interdependent on the development and success of the others. 

For example, products development depends on the success of the technology, and distribution is dependent on the products being developed. Therefore, the Group's resources allocation is skewed towards technology development today. As a result the Group’s resource allocation was skewed toward technology development in recent years.

In 2019, it was a challenge for each of our business units as we were undercapitalized and so much of the work planned was postponed or delayed until funding was secured.  Furthermore, the difficulty for our subcontractors to resolve the manufacturing process further delayed the sales process.  In early 2020, Covid 19 pandemic hit China and then spread to the rest of the world putting all business on hold for most of first half of 2020 and possible much longer into rest of 2020 and into 2021. The economic outlook for retail business is uncertain as the extent of the people’s behavior change to stay at home more and rely on pick-up and delivery services. This will drastically affect our 3D advertising platform business. 

 

In May 2020, as a cost cutting measure in the uncertain times ahead, we divested from the research and development operation. Instead we will focus on the Products and Services Business Unit and Brand/Distribution Business Unit. Most of the remaining development works will be outsourced with defined budgets. For the moment, our main focus is in the sales of our 3D products and services. In the term, we may have developments to our technologies provided that we can see a clear path to market.

 

The Company has started to recapitalize its equity base by selling US$1 million of its shares in February 2020. Furthermore, the Company is working on increasing its shareholder’s equity to more than US$2.5 million so that it complies with Nasdaq’s continual listing, requirement. The Company is seeking to increase its shareholders’ equity through debt conversion or sale of new shares.

 

IMTE Products and Services

 

IMTE has both the hardware and software technologies for products in everyday applications in the autostereoscopic display (ASD) technology domain. We specialize in providing a range of products incorporating this ASD technology for a whole new visual experience. This is a disruptive technology affecting how we will see contents in the future. IMTE has also developed technology for content creation and conversion through its "VisuMotion" software and 2D/3D conversion super-workstation hardware. In other words, IMTE has developed a whole ecosystem of technology in the ASD domain. The current products and services we offer are:

 

Hardware: ASD technology display, and Marvel3DPro Super-workstation;

 

Software: "Visumotion" content creation and conversion software; Content Management System and

 

Services: 2D to 3D content conversion service and ASD solutions consulting services.

 

 

25


 

 

IMTE Hardware Products

 

ASD Technology Display Products

 

ASD hardware products are mainly display terminals for presenting glasses-free 3D content which generally include ASD Video Wall, ASD digital signage, ASD PC Monitors, ASD mobile phones and tablets.

 

ASD hardware products can be classified into fixed lenticular hardware and switchable lenticular hardware based on the capability display panel. Switchable technology can display 2D image without affecting its perceived resolution, but the technology is still immature and limited to small screen size. The following table shows the current application of fixed and switchable technology on ASD hardware and the products which IMT is supplying today.

 

Screen Size Fixed Technology Switchable Technology Application IMTE Products
35"-100" Yes No Display and video wall

28", 46", 50", 55", 65", 85"

1x3, 3x3, 4x3 configuration

25"-34" Yes No PC monitor 27", 28"
15"-24" No Yes Laptop N/A
7"-14" Yes Yes Tablet 7", 10"
5"-6" Yes Yes Phone 6"

 

Autostereoscopic Display Solution

 

We provide a full series of ASD digital signage displays with very high quality 3D image. We can provide the following 3D Displays:

 

  i) A wide range of Glasses-Free 3D displays in ultra-high definition ranging from 27" to 85";
  ii) Outdoor Glasses-Free 3D digital signage which are waterproof and visible under sunlight making them suitable for use at bus-stops, stadiums and street store-fronts;
  iii) Indoor Glasses-Free 3D digital signage offer high-brightness making it suitable for use in shopping malls, hotels and casinos;
  iv) Indoor Glasses-Free 3D video wall using super thin bezel panels. Total resolution can be up to 8K with outstanding Glasses-Free 3D effect; and
  v) Glasses-Free 3D mobile phones and tables ranging from 5" to 10" using switchable parallax barrier display, allowing users to enjoy high resolution image in normal 2D application as well as watching 3D video and playing 3D games in 3D mode.

 

picture   picture

 

 

26


 

 

ASD Video Wall

 

IMTE has developed Glasses-Free 3D video wall comprising 3, 4, 9, 12 or 16 units of ASD displays.

 

  picture  
  3x3 Screen video wall  

Point of Sales Machine (“POS”)

 

picture

 

Glasses-Free 3D Mobile Device Solutions

We have developed switchable 2D/3D mobile device solutions based on the Android platform. The device can be used as an ordinary Android device such as mobile phone or tablet and it can be switched automatically from 2D mode to glasses-free 3D mode when the user plays 3D video content or 3D video game.

 

picture   picture

Content Management System

IMTE provides a proprietary 2D/3D content management and distribution system ("CMS") to complement our 3D digital signage products to create a networked advertising platform. This CMS can be sold as a standalone product or together with a network of 2D or 3D displays.

 

 

27


 

 

3D Super Workstation

IMTE has developed auto real-time conversion technology from 2D to 2D+Depth, 3D side-by-side and glasses–free 3D multi-view mode. This conversion technology is embedded in our 3D super workstation (Marvel3DPro). This 3D super workstation will be used for content conversion for 2D videos to 3D mode for the TV and movie industry.

 

picture   picture
3D Workstation Studio   3D Workstation Servers

 

 

IMTE Software Products

 

Software - VisuMotion

VisuMotion is a set of renowned professional software designed for 2D to 3D conversion as well as advanced 3D content creation. This software can be a standalone product or complementary to Marvel3DPro Workstation. It is a user-friendly software which allows users to easily create quality 3D images and videos from using the software and plugins. The software is not only catered for commercial usage by the professionals in content design and production, but also particularly useful for design institutes and schools for student training on 2D to 3D conversion and 3D content creation. We have enhanced the VisuMotion's functions and features so that the software can be more widely used by the educational and professional sector. The software and plug-ins we offer are as follows.

 

 

VisuMotion z.l.i.c.e 3D V3.0 is a professional video editing and compositing application especially designed for multi-view 3D footage. The software features 2D to 3D conversion, complete 2D+Depth workflow including declipse, import/export of native stereo view arrangements and file formats like StereoEXR (SXR) and MXF, shape/line functions and mathematical image functions. The application can perform real-time compositing and editing and preview on attached 3D device. Built-in graph filters allow flexible workflow set up with configuration nodes.

VisuMotion 3D Stereo Camera Plug-ins – This is a plug-in that enhances the 3D animation packages Autodesk 3D Studio Max and Maya by mature stereo rendering capabilities. This plug-in features 3D planes concept, simple control of stereo effect, real-time 3D preview on secondary 3D displays, rendering of multiple views, support all standard file formats and rendering of 2D + depth file format, including occlusion layers.

VisuMotion Stereo Tools for z.l.i.c.e. 3D - This is a plug-in collection of special nodes and a powerful tool to convert two-view stereo footage into multi-view content for usage with glasses-free display. This plug-in features a high resolution support up to 4K resolution, selectable color space (RGB & YUV), flicker mode with speed value for view comparison inter exploration up to 32 views and camera rectification through calibration pattern footage.

  picture
   
  picture

 

 

28


 

 

IMTE Delivers Total Service

 

IMTE provides total solution to our customers. IMTE has all the technology solutions that is needed to support the entire ASD ecosystem. We have 2D/3D video conversion technology for converting 2D or conventional 3D (SBS) video to ASD format, either in real time or in high quality offline mode. We have also developed content management system to deliver ASD content to our displays to form glasses free 3D digital signage networks. IMTE also developed a series of ASD displays and video walls with superb video quality. In the consumer level, IMTE provides 3D mobile phones and tablets. In the future and with the core technology that IMTE has developed, we can provide new innovative ASD products so long as there are needs for the market and we try our best to be the first to provide such products and services. This underlines the value of IMTE as a technology and product innovation company.

 

Future Developments

 

The focus of the Group is to continue to develop its digital media / advertising in various platforms such as in glasses-free 3D (autostereoscopic) displays (ASD). We are building technologies around ASD including ASD display, 3D digital content management system and 2D to 3D content conversion system. We are seeking more display media that can enhance the viewing experience in advertising besides digital signage and video wall.

 

Due to recent losses incurred in operations and in order to reduce the overhead and expenses of the Group, in May 2020 we have divested from the research and development operation, other than some R&D relating to our consumer products division. Our strategy is to outsource the development to third parties of our technologies and patents. This will ensure that we can cap the costs of development and off load the risk and share the benefits. This will enable the Group to reduce its overhead costs and focus on sales and marketing of ASD products.

 

Our main business focus in the coming years is to focus on our products and solutions for sale. We have an array of 3D products that are available. However the sales plan has been delayed due to certain problems encountered in the manufacturing process and we expected the manufacturers can resolved in later part of 2020 provided that the restriction in trade and movement as a result of the pandemic is relaxed.

 

Our focus on sales will be in a Point of Sales (“POS”) 3D Terminal which we have sales of 5,000 units anticipated for completion in the third quarter of 2020. This is an application of 3D display directly to consumers. We will focus our sales on this special segment of the market in addition to the sale of our traditional 55” to 65” 3D displays

IMTE will continue to position itself as a technology investment company focusing on acquisition of technology related companies or projects that will broaden our revenue base and have synergy with our existing business. The future business plans depend on adequate capital being available to the Group. The Company will be reviewing potential acquisitions that can add value to the Group. Management will also seek synergistic acquisitions to build revenue and bring in resources to complement and to supplement our internal capabilities to become a well-managed and fast-growing technology company.

 

 

29


 

 

Analysis of Auto Stereoscopic Display (ASD) technology market – the ASD ecosystem

 

3D displays exhibit images with depth perception by using various technologies such as stereoscopic, multi-view, and 2D-plus-depth display. Currently, these popular 3D displays need to be viewed with special 3D glasses in order to experience depth perception. 3D displays are used in numerous devices such as 3D TVs, mobile handsets, tablets, gaming devices, and head mount devices ("HMDs").

 

Since the commercialization of 3D displays, TV service providers, advertising agencies, and broadcasters have been focusing on airing more 3D content and displaying advertisements on 3D billboards. As a result, 3D technology has evolved as one of the fastest growing display formats worldwide. Although the global 3D display market is still in its early phase, the increasing popularity of 3D display is expected to lead to unprecedented growth during the forecast period. The increased penetration of high-bandwidth internet is another major driver in this market.

 

The increased adoption of 3D displays in the advertisement sector is a major trend witnessed in the market. To increase customer engagement, vendors in the advertising sector are adopting autostereoscopic displays that enable the 3D effect without requiring the viewer to wear 3D glasses. Extensive use of 3D projection and display in the healthcare sector is another major trend being witnessed in the market.

 

ASD technology is a disrupting technology as it brings in better viewing experience in 3D mode without the need for special glasses. This technology can be integrated into any products that uses LCD display panels. As most of the product displays use LCD panels, ASD technology will potentially replace all products that incorporate LCD panels when ASD technology achieves broad acceptance and competitive pricing. In addition to the current 3D display market that ASD technology can capture, there are new applications that ASD technology (3D without glasses) can enhance our lifestyle and productivity in the digital informative society we live in. New applications will be created by tapping into scenarios like 3D without glasses in education, entertainment, architecture, and medical industries. We are seeing some of these new applications in the education classrooms and in surgical instruments in the operating room. The market potential for ASD products and solutions is equal to society demand for 3D imagery in every digital display.

 

In order that ASD technology to be adopted by the consumers, there need to be enough 3D content available for ASD technology adopter to consume. The buildup of an ASD ecosystem that includes a variety of ASD products and services together with plentiful ASD content will enable the technology to be adopted in the new market. The sections below will explain different technology needed to build this ASD ecosystem.

 

Technology overview

 

Auto Stereoscopy is any method of displaying stereoscopic images (adding binocular perception of 3D depth) without the use of special headgear or glasses on the part of the viewer. Because headgear is not required, it is also called "glasses-free 3D" or "glasses less 3D". There are two broad approaches currently used to accommodate motion parallax and wider viewing angles: eye-tracking, and multiple views so that the display does not need to sense where the viewer's eyes are located.

 

There are 3 main autostereoscopic displays technologies, including parallax barrier, lenticular lens and directional backlight displays, used to create images on ASD.

 

 

30


 

 

ASD Technology Analysis

 

1) Parallax Barrier

 

This method is widely used in modern 3D liquid crystal displays. Parallax barrier is a special device with a series of precision slits that is placed in front of the LCD, serving as a filter for output image perception. The slits allow left and right eye to see their corresponding image, which is produced by a different set of pixels. That is how the illusion of 3D vision is created by parallax barriers. To have a clearer understanding of this method see the image in Diagram 4.1. The examples of parallax barrier employed in consumer products are Nintendo 3DS game console, HTC EVO 3D and LG Optimus 3D smartphones. Also used in Range Rover's navigation system, the parallax method allows both the driver to view GPS directions and a passenger to watch movies from the same display simultaneously.

 

However, the parallax method is not perfect, because it has some disadvantages. First one is that in order to experience stereoscopic 3D effect the viewer must be positioned at a certain angle to the display. That is actually not a big problem for video game consoles or smartphones, but not good when it comes to 3D TV sets, laptops etc. Another disadvantage is that the count of horizontal pixels that work to create a different image for each eye is reduced to one half. Another drawback for mobile devices is the barrier will block a certain percentage of light going through it. In order not to keep the display the same brightness, more energy is needed to power the backlight which will decrease the battery power of the device.

 

2) Lenticular Lens

 

The second mostly used method of glasses free 3D is lenticular lens technique. In general, the lenticular method is based on the use of magnifying lenses. Those lenses are set in arrays to produce slightly different images when viewed from different angles.

 

They are also constructed in such way that when you see the image from one angle and then move to another angle the image changes as well and even moves (see Diagram in 4.1).

 

3) Directional Backlight

 

Multi-directional diffractive backlight technology permits the rendering of high-resolution and full-parallax 3D images in a very wide view zone (up to 180 degrees in theory at an observation distance of up to a meter). Pixels associated with different views or colors are spatially multiplexed and can be independently addressed and modulated at video rate with an external shutter plane. The key factor is that the guided wave illumination technique must be based on light-emitting diodes that produce wide angel multi-view images in color from a thin planar transparent light guide. Directional backlight technology is still on the way of developing and not available for mass production.

 

Diagram 4.1 – Different types of technologies to create ASD images

 

 

picture   picture   picture
         
Parallax Barrier   Lenticular Lens   Directional Backlight

 

 

 

31


 

 

ASD Software

 

ASD software generally refers to a series of programs applied in converting 2D/3D to ASD content. Typically, for mobile phones or tablets, such programs may include applications from the app store to convert the 2D/3D content into ASD content. For ASD game consoles, there are default programs equipped inside to realize 3D effects. Converting 2D/3D to ASD mode can be done in either real time conversion or offline conversion. Real time conversion involves hardware acceleration and is done using dedicated computer hardware such as FPGA (field programmable gate array) or ASIC chip. This needs advance development work that few companies have the resources to tap into this development level. The offline conversion uses dedicated computer program to do the conversion. We have developed VISUMOTION which is a software program for 2D/3D to ASD content. On the other hand, a number of dedicated real time conversion solution based on FPGA hardware have been developed in the past two years. We have developed an ASIC chip for such conversion purpose and we consider this ASD conversion technology has formed the base technology for the Company to stay at the technology forefront.

 

ASD Content

 

ASD content refers to the photos, games, animations and other video content, which can be played in ASD hardware terminals and perceive depth by naked eyes without any viewing aids.

 

Currently the mainstream to create ASD content is the conversion from 2D or 3D/SBS content. With the continuous development of technology, it is believed that the ASD content could be directly generated in the near future.

 

Services

 

ASD technology has a high technology entry barrier for new players. Currently, ASD technology B2B service including consulting service, which aims to provide customized and integrated ASD solutions based on the need from clients; and technology support, which aims to help clients to fix the technical problems. Content conversion service can also be established. For example, in the digital advertising sector, almost all advertising content is in 2D mode. In order to display in the ASD digital signage, the 2D video has to be converted to 3D or ASD mode. In the future, one-stop ASD solution service throughout the process from consulting to post-maintenance tends to become the trend.

 

Technology Analysis of 2D/3D Switchable Display Technology

 

Fixed lenticular technology is a prevailing technology used by most ASD displays. However, fixed lenticular has a big drawback as it does not perform well in display 2D content, especially the display of text. For mobile devices such as smart phones, users spend a lot of time in surfing the Net. Fixed lenticular display provides a bad viewing experience in displaying text. Despite the additional cost of deploying switchable display technology, mobile phones will adopt 2D/3D switchable display.

 

Parallax barrier and lenticular lens are core methods to achieve switchable technology between 2D and 3D. Currently, parallax barrier is more commonly available in market due to the simple application and lower costs. Meanwhile, application of lenticular lens is considered as advanced switchable technology with better visual effect and such technology is still under development.

 

Switchable technology with parallax barrier is considered as an easy and low cost option, but the main drawback is reduced brightness of display, hence the method is battery consuming especially for some consumer electronics such as smartphones to maintain the normal brightness to viewers.

 

Lenticular lens are generally regarded as ultimate technology in switchable 2D/3D display. Compared with parallax barrier, switchable lenticular lens allows the display of 2D image with original resolution and switching to 3D image with equal brightness.

 

We have developed our ASD mobile phone using switchable parallax barrier technology. The mobile phone has a well balance design which presents a very good 3D image effect, while still keeping the cost of the product in an acceptable level. We believe we are one of the few companies that can develop such ASD mobile phone with outstanding image quality. There are a few ASD mobile producers in the market which are using fixed lenticular technology. Fixed lenticular display has a big drawback. It is not a good experience when viewing text, especially for surfing the net in a small screen. With switchable technology, the mobile phone will just act like an ordinary 2D mobile phone when the ASD function is switched off. When it comes to playing 3D video or 3D games, the 3D mode will be switched on automatically. However, we have a new method of designing fixed lenticular lens that can have little impact on viewing 2D mode on mobile device. We have only complated the testing of this new design method. We are now pushing it out to the consumer market as mobile protection screen with lenticular function. This may be a big market as mobile protection screens are sold in huge volume.

 

 

32


 

 

Market and Industry Analysis

 

3D Display Market

 

Currently, the 3D display market is in its early stage. Most of the 3D-enabled electronic devices require 3D glasses to experience the 3D effect. The usage of these 3D glasses is limiting the adoption of 3D displays as the glasses are uncomfortable to wear. For instance, wearing 3D glasses for a long period sometimes causes headache or eyestrain. Therefore, to eliminate the use of glasses, vendors in 3D display market are focusing on adopting autostereoscopic technology, which delivers the 3D effect to the naked eye.

 

However, autostereoscopic technology currently has limitations because of its high cost and image quality. Therefore, the potential commercialization of this technology will be seen in the near future as the vendors in the 3D display market are focusing on developing ideal 3D displays using autostereoscopic technology.

 

Market size by revenue

 

The global 3D display market size is expected to reach USD204.16 billion by 2025 (Source: Grand View Research Inc) exhibiting a CAGR of 19.4% during the forecast period from 2017 to 2025. The market is growing at an impressive rate because of the increasing popularity of 3D technology. Some Hollywood movies such as The Lego Movie and Captain America: The Winter Soldier have been featured in 3D format and this is indicative of the popularity of this format. The market is also witness increased adoption of 3D displays in the advertisement sector. The increased popularity of 3D technology has stimulated advertising agencies to exhibit 3D content on billboards and feature 3D advertisement films

 

The significant increase in the growth rate of the global 3D display market is attributed to the increased penetration of 3D TVs and the popularity of 3D technology. The increase in 3D content are expected to contribute to the growth of the global 3D display market.

 

Advancements in 3D display technology, along with the improved visual experience, picture clarity, superior performance, and high resolution of 3D display (8K resolution) have led to their increased adoption in numerous markets, industries, and applications. These benefits/features of 3D displays are expected to contribute to the growth of the global 3D display market.

 

Market Segmentation by Application

 

Global 3D display market is segmented as follows:

•   TVs

•   Smartphones

•   Others - include tablets, portable gaming devices, monitors and HMDs.

  

The majority of the revenue in the global 3D display market was generated from the 3D TVs segment in 2014. This was followed by the smartphones segment, wherein the penetration of 3D displays in smartphones is expected to rise significantly in the coming years. The others segment, which includes applications such as tablets, portable gaming devices, and HMDs will contribute significantly to the growth of the global 3D display market.

 

Consumers are adopting 3D technology at a significant pace because of the increasing popularity of 3D technology and the increasing 3D content worldwide. Moreover, numerous Hollywood movies such as Godzilla, 300, Rise of an Empire and animated movies such as Lego and How to Train Your Dragon are featuring 3D technology. As a result of this consumers are more drawn to the 3D visual experience, and hence the demand for 3D TVs is increasing. Therefore, the demand for 3D displays form the 3D TVs segment is increasing significantly. Moreover, with the advent of autostereoscopic technology, the 3D TVs segment will flourish as it eliminates the usage of glasses for 3D content.

 

However, there are challenges in the market with regards to the picture clarity when viewed from different angles in a TV. As a result, 3D display manufacturers are focusing on eliminating such technical challenges, to deliver superior customer satisfaction. Portable devices such as gaming devices, smartphones, and tablets will adopt 3D technology at a greater pace because consumers can adjust the eye angle accordingly as these are handheld devices.

 

The 3D advertising space and 3D gaming is gaining traction in the market, which will contribute significantly to the growth of the global 3D display market.

 

Trends in ASD Market

 

The three developing trends for autostereoscopic display market are i) expanding application fields, ii) higher level of interactivity and iii) standardization of the industry.

 

Expanding Application Fields

The application of ASD is still in the exploratory stage. For now, the application field mainly include gaming & entertainment, advertising, education and medical fields. In the future, ASD is estimated to further expand its application in existing fields and explore new land in architecture, military and other industries. With ASD technology getting more mature, manufacturing and e-commerce are also likely to join the downstream of ASD industry. Therefore, ASD industry is estimated to embrace a great surge in the future.

 

Enhance interactivity

Limited by the technology, content and presentation form of the current ASD, the audience has no choice but to play a passive role to accept the video information. However, in the long term R&D will lay more emphasis on humanization design and better user experience, and consumers are expected to raise higher requirements on the maneuverability of ASD products. As a result, higher interactivity tends to become a new focus for product development in ASD market.

 

Standardization of Industry

The ASD industry is typically of an emerging technology where there is a lack of uniform product standard. There needs to be a push towards a unified ASD industry standard such as input and output interface standard, media coding and encoding protocol, etc. Once the standards have been established then the industry can move quickly to bring this technology to the masses. Through our affiliate, we are now working the unified ASD industrial standard in China with the State Administration of Radio, Film and Television of the People's Republic of China (SARFT).

 

Competitors

 

The market for glasses-free 3D technology is still in its early stage, and there are very few competitors worldwide. Nonetheless, there are many established and early stage companies that address the 3D display market in one way or another, including makers of 3D televisions and mobile phones, such as Panasonic Corporation, Samsung Electronics Corporation, Ltd. and Sony Corporation. For the most part, these companies do not market 3D autostereoscopic products, and thus do not compete directly with the products and services we seek to market. However, at this time, we consider them to be competitors generally in the effort to market stereoscopic display (with glasses) solutions to end user businesses. They have different markets apart from this new autostereoscopic (glasses-free) 3D market. Philips is the pioneer in autostereoscopic technology. However, Philips does not produce or sell autostereoscopic 3D products for many years. Other companies operating in this domain such as Magnetic 3D, Alioscopy, and Dimenco have started operations earlier than us. They do have similar technology that we have, but we believe they do not have the cost advantage that we have. We have strategically well positioned our base operation in Hong Kong and China where we believe we have cost effective outsourcing manufacturing strategy. In addition, we are a public listed company on NASDAQ such that we can have a better position to raise capital for our product development.

 

 

33


 

 

Market Challenges

 

Some of the major challenges faced by the vendors in the market are as follows:

 

•   Lack of interoperability among stakeholders

•   Lack of standardization of 3D displays

•   Increased selling price of 3D displays

•   Limitations of autostereoscopic 3D display technology

 

Lack of interoperability among stakeholders

The adoption of 3D flat panel TVs plays a significant role in the growth of this market as it accounts for more than 80% of the overall demand for 3D displays. The adoption of these 3D flat panel displays depends on the availability of 3D video content. The more 3D content available, the higher the adoption rate of 3D TVs. However, the lack of interoperability among the players present in the 3D content delivery value chain works against an increase in 3D video content. These players include content owners, flat panel manufactures, satellite operators, and platform operators.

 

Lack of standardization of 3D displays

3D displays have been commercialized recently and their development is still in an early stage; hence, 3D display technology is yet to be standardized. The lack of standards has reduced the adoption rate of 3D displays among consumers. Standardization is essential to avoid confusion among potential buyers and to avoid burdening them with too many options. It is also essential for smooth interoperability among players in the value chain.

 

Increased Selling Price of 3D displays

The market is expected to witness an increased in the selling price of 3D displays because of the increased cost of raw materials and development. An increase in selling price would transfer the cost pressure to consumers. Another factor behind the increased in the selling price is the high cost of producing autostereoscopic 3D displays as the mass production process has not been established.

 

Limitations of autostereoscopic 3D display technology

All 3D technologies, except autostereoscopic technology, require glasses to experience the 3D projection. But autostereoscopic technology is expensive and difficult to be integrated with large-sized displays. The technology also has technical limitations pertaining to the viewing angle. It can also lead to visual fatigue, though this is only for those lower quality ASD display suppliers, when the user is viewing the display for long periods of time. Due to some of these limitations, the cost of autostereoscopic displays is expected to remain high, which will result in slow rate of adoption.

 

Market traction

 

The revenue generation of the global 3D display market is rising because of the increase in 3D content worldwide. The increasing popularity of 3D technology among end-consumers and the rise in the launch of 3D Hollywood movies are the major factors driving the demand for 3D enabled devices. Currently, the enhanced user experience through 3D technology is driving the market. The 3D display market is dominated by 3D TVs, and other application areas such as smartphones, tablets, and HMDs will take off in future as 3D because mainstream format.

 

With the increase in the number of gamers worldwide, 3D enabled gaming consoles are gaining market traction. The unique gaming experience created through these displays is engaging users. As traditional advertising has almost reached saturation, companies are focusing on 3D display billboards to enhance their respective customer bases. Healthcare is another booming sector, wherein doctors use 3D displays to better analyze 3D images.

 

Market attractiveness

 

The industry is influenced by many factors that either drive or curtail market growth. An increase in 3D content, rapid advances in technology, and the increased adoption of 3D displays in the advertising and healthcare sector are some of the significant trends fueling market growth.

 

Rapid advances in technology have prompted OEMs to upgrade their systems. But this has added to the costs for vendors. Moreover, with the emergence of autostereoscopic technology, vendors in the global 3D display market are focusing on eliminating the limitations associated with this technology, as autostereoscopic technology enables a user to see 3D visuals without the use of glasses.

 

Competition among vendors is expected to increase because of increased demand for mobile devices such as smartphones and tablets in both developing and developed regions. Most vendors are adopting new technologies to match global standards. 3D displays are penetrating numerous markets such as that of smartphones, tablets, gaming devices, monitors, HMDs, healthcare, and advertising. The use of 3D displays in HMDs, in particular, will find increased acceptance because of the enhanced visual experience it offers.

 

34


 

 

Sourcing and Manufacturing

We will subcontract the production of our hardware products to third party subcontract manufacturers. Such manufacturers produce these products using OEM parts under specifications and licenses granted, as necessary, by our Company. This would reduce the capital requirements to maintain and support a manufacturing infrastructure.

Marketing, Distribution and Sales

For our ASD products we have established distributors in major cities in China. We are also in the process of building our own brand for our ASD which we intend to launch when we have the necessary resources available.

Sources and Availability of Raw Materials and Principal Suppliers

For our ASD products we rely on certain critical components in the market place. Our principal suppliers are supplying us with LCD panels and computer hardware.

Inventory, Operating Capital and Seasonality

Our inventory levels are expected to be modest relative to our sales. Our policy is to manufacture to order. Thus we would not expect to keep much inventory other than key components unless under extraneous circumstances such as material shortage or expected prolonged manufacturing interruption i.e. labor strike.

We will monitor our operating capital to meet our obligations as they come due. We monitor our operating budgets in view of our operating cash flow requirements.

We do not expect any seasonality to our business other than normally expected in the consumer electronics business where there is a general let down in the first quarter of each year after the Christmas season.

Dependence on Major Customers

In 2019, our major sales were to a few customers. Our strategy is to appoint distributors to sell our products and services, and we will maintain a small sales and marketing team in order to keep our operating costs low. Each of these distributors will have their own major customers, but consider as a whole, we are not dependent on only a few specific customers in order to derive sales as we build up our distributor network and customer base.

 

 

35


 

 

Research and Developments

 

We have outsourced basic research to local universities and research institutes on research and development of advanced technology in 3D imaging. The research outcome from these research entities will be either owned by us or under exclusive or non-exclusive licenses to us. In the past, we maintain our own development team to further develop products and solutions which we foresee to have potential markets. This kind of two-step development will be best suited for small to medium size technology companies in order to keep a balance in the R&D budget. However, due to recent losses and the uncertainty of the COVID 19, in May 2020, we have divested from any internal R&D.

Intellectual Property

Pivotal to the development and commercialization of our ASD products is intellectual property protection for the underlying technology and the product candidates. The licenses we hold are further described under "Patent Portfolio" below.

In addition to patent protection, we rely on unpatented trade secrets, know-how and other confidential information as well as proprietary technological innovation and expertise that are protected in part by confidentiality and invention assignment agreements with our employees, advisors and consultants.

Patent matters in electronics industry are highly uncertain and involve complex legal and factual questions. The availability and breadth of claims allowed in electronics patents cannot be predicted. Statutory differences in patentable subject matter may limit the protection IMTE can obtain on some or all of its licensed inventions or prevent us from obtaining patent protection either of which could harm our business, financial condition and results of operations. Since patent applications are not published until at least 18 months from their first filing date and the publication of discoveries in the scientific literature often lags behind actual discoveries, we cannot be certain that we, or any of our licensors, were the first creator of inventions covered by pending patent applications, or that we or our licensors, were the first to file patent applications for such inventions. Additionally, the grant and enforceability of a patent is dependent on a number of factors that may vary between jurisdictions. These factors may include the novelty of the invention, the requirement that the invention not be obvious in the light of prior art (including prior use or publication of the invention), the utility of the invention, and the extent to which the patent clearly describes the best method of working the invention. In short, this means that claims granted in various territories may vary and thereby influence commercial outcomes.

While we intend to seek patent protection for our 3D products and technologies, we cannot be certain that any of the pending or future patent applications filed by the Company, or licensed to us, will be approved, or that IMTE will develop additional proprietary products or processes that are patentable or that we will be able to license any other patentable products or processes. IMTE cannot be certain that others will not independently develop similar products or processes, duplicate any of the products or processes developed or being developed by the Company or licensed to us, or design around the patents owned or licensed by us, or that any patents owned or licensed by us will provide us with competitive advantages.

Furthermore, we cannot be certain that patents held by third parties will not prevent the commercialization of products incorporating the technology developed by us or licensed to us, or that third parties will not challenge or seek to narrow, invalidate or circumvent any of the issued, pending or future patents owned or licensed by us.

Our commercial success will also depend, in part, on our ability to avoid infringement of patents issued to others. If a court determines that we were infringing any third party patents, we could be required to pay damages, alter our products or processes, obtain licenses or cease certain activities. We cannot be certain that the licenses required under patents held by third parties would be made available on terms acceptable to us or at all. To the extent that we are unable to obtain such licenses, we could be foreclosed from the development, export, manufacture or commercialization of the product requiring such license or encounter delays in product introductions while we attempt to design around such patents, and any of these circumstances could have a material adverse effect on our business, financial condition and results of operations. We may have to resort to litigation to enforce any patents issued or licensed to us or to determine the scope and validity of third party proprietary rights. Such litigation could result in substantial costs and diversion of effort by us. We may have to participate in opposition proceedings before the relevant patent office, or in interference proceedings declared by the United States Patent and Trademark Office, to determine the priority of invention for patent applications filed by competitors. Any such litigation interference or opposition proceeding, regardless of outcome, could be expensive and time consuming, and adverse determinations in any such proceedings could prevent us from developing, manufacturing or commercializing our products and could have a material adverse effect on our business, financial condition and results of operations.

 

 

36


 

 

Patent Portfolio

 

The following table presents our portfolio of patents and patent applications, including their status (as at December 31 2019) and a brief description of their respective inventions.

 

Patent Owner

Title

Patent No.

/Application No.

Status

Expires

Visumotion International Limited

(A wholly owned subsidiary of MDL)

(i) Method for processing a spatial image EP 2172032 Granted in Germany June 2028
EP 2172032 Granted in France
EP 2172032 Granted in U.K.
4988042 Granted in Japan
US 8,817,013 Granted in U.S.
(ii) Method for stereoscopic illustration 2010 80019861.4 Granted in China May 2030
US 8,797,383 Granted in U.S.
102010028668 Granted in Germany
(iii) Glasses-free 3D display device 1252602 A Granted in HK Nov 2026
Independent party Versitech Limited (A subsidiary of the University of Hong Kong) (i) Method and System for Global Motion Estimation and Compensation US 10,453,207 B2 These patent rights in relation to 3D video encoding and transmission will be assigned by the owner to Marvel Digital Limited in the event of either (1) IPO of MDL shares or (2) the 3D video technologies covered by the Patent Rights is approved by PRC authority as an industry standard. Oct 2036
(ii) Auxiliary Data for ArtifactsAware View Synthesis US 10,404,961 B2 Nov 2036
(iii) A depth discontinuitybased method for efficient intra coding for depth videos US15/748,532 N/A
(iv) A multioverlay variable support and order kernelbased representation for image deformation and view synthesis US15/748,503 N/A
(v) Auxiliary Data for Artifacts Aware View Synthesis (US) 62/285,825 N/A
(vi) Auxiliary Data for Artifacts Aware View Synthesis (PCT) PCT/CN2016/104887 N/A
JP2018523453A N/A
201680078156.9 N/A
(vii) Shapeadaptive modelbased codec for loss and lossless compression of binary images 62/300,502 N/A
KR1020187027805A N/A
201780013263.8 N/A
EP17755817.8 N/A
JP2018544483A N/A
US15/441,530 N/A

 

 

37


 

 

Patent Owner

Title

Patent No.

/Application No.

Status

Expires

Marvel Digital (Shenzhen) Limited (A wholly owned subsidiary of MDL) Method and apparatus for Chroma interpolation of video image 200710070313.4 Granted in China July 2027
A Universal Stereo Image Synthesis Method Based on Lenticular Lens for LCD Stereoscopic Display 200810062513.X June 2028
A Method of Virtual View Synthesis Based on Depth and Occlusion Information 200810062811.9 July 2028
A Method of Layered B Predictive Structural Arrangement with High Compressibility 200910155883.2 December 2029
A Method for Expressing 3D Scene and its TV System 201010039540.2 January 2030
A Virtual View Method Based on Video Sequence Background Modeling 201010039539.X January 2030

A Depth Representation Method Based on Optical Flow and Image Segmentation

201010101197.X January 2030
Extraction method of occlusion information in stereoscopic image pairing 201010141105.0 April 2030
A Method of Generating Virtual Multiview Images Based on Depth Graph Layered 201010228696.5 July 2030
A 3D Augmented Reality Method for Multiview Stereoscopic Display 201110412061.5 December 2031
Depth image postprocessing methods 201110460155.X December 2031
Pre-mimo channel smart antenna apparatus and radio transmitting method for transmitting signals 201310223518.7 Jun 2033
Pre-mimo channel wireless transmission apparatus and method for transmitting signals 201310102976.5 Mar 2033
Genetic optimization method for space-time channel MIMO wireless transmission system 201610298478.6  Sept 2036
LCD display 201821476907.5 Aug 2029
A kind of cooling system of outdoor highlight screen 201821423429.1 Aug 2029
A kind of open air mosaic screen 201821423427-2 Apr 2029
A Method of Extracting Hierarchical Image for 3D TV 200810062810.4 July 2028
A Multichannel Video Stream Coding Method Based on Depth Information 200810062864.0 July 2028
Multichannel Video Stream Encoder and Decoder Based on Depth Image Rendering 200810062865.5 July 2028
A Method of converting 2D video to 3D video in 3D TV system 200910102114.6 August 2029
A Depth Extraction Method of Fusing Motion Information and Geometric Information 200910102153.6 August 2029

GOXD Technology Limited

 

Digital Photo Frame Device and Control Method thereof 18103421.3 Granted in HK Mar 2026
201710744716.6 Granted in China N/A
Digital photo frame 1701272.5 Granted in HK Jun 2022
228398846 Granted in China Aug 2027

Marvel Digital Limited

 

Method for Enhancing Video Resolution and Video Quality, Encoder and Decoder 16103565.1 Granted in Hong Kong October 2023
A Method, Apparatus and Device for Acquiring a Spatial Audio Directional vector 16103566.0 Granted in Hong Kong October 2023
201610566911.X Granted in China N/A
15/216,726 Granted in U.S. N/A
105134696 Granted in Taiwan N/A
A Lens For Extended Light Source and Design Method Therefor 16106705.5 Granted in HK Jun-2023
201710427469.7 Granted in China N/A
PCT/CN2017/087396 Granted in PCT N/A
A Method and a System for generating depth information associated with an image 16111725.1 Granted in HK N/A
US15/404,461 Granted in U.S. Mar 2037
Method For Improving the Quality Of 2D-to-3D Automatic Conversion By Using Machine Learning 16111899.1 Granted in HK Oct-2023
PCT/CN2017/106019 Granted in PCT N/A
Computer 1601506.3 Granted in HK Aug-2041
CN201630079168.6 Granted in CN Mar-2026
29/574,856 Granted in U.S. N/A

 

 

38


 

 

Material Contracts Related to Intellectual Property and Commercialization Rights

License Agreement with Versitech Limited

 

In September 2015, Versitech Limited ("Versitech") and Marvel Digital Limited ("MDL") entered into a License Agreement in respect to the sharing of income arising from the intellectual property rights in the video encoding and transmission worldwide. The agreement provides MDL and its affiliates for the term an exclusive and royalty-bearing license under the patent rights owned by Versitech listed in the previous table above, to develop, make, have made, use, sell, offer to sell, lease, import, export or otherwise dispose of licensed product in 3D video encoding and transmission worldwide and with the right to grant sublicense pursuant to the terms of the agreement. MDL shall pay an upfront payment in the amount of HK$100,000 and a running royalties of 3% of net sales (“3% Royalty”) on licensed product and licensed process by MDL and its affiliates and sublicensee. MDL shall also pay Versitech a total of 15% of all sublicense income received by MDL or any of its affiliates. In addition, there are milestone payments payable to Versitech Limited upon the event when cumulative gross revenue arising from the licensed products reaching certain levels with the maximum cumulative total milestone payments of HK$2,000,000. This project was originally derived from an earlier agreement entered into among the Government of the Hong Kong Special Administrative Region, MDL and the University of Hong Kong ("HKU") under the Innovation and Technology Fund University-Industry Collaboration Programme entitled "Content Generation and Processing Technologies for 3D/Multiview Images and Videos". Versitech is a wholly-owned subsidiary and the technology transfer arm of HKU.

 

As at December 31, 2018 the development of the application of the video encoding and transmission is still under development. Therefore, there has been no fees paid to Veritech for royalty and sublicense fee.

 

Starting in 2019 and thereafter, the royalty will be the greater of 3% Royalty and HKD200,000 (approximately A$36,194) each year.

 

Technology License Agreement with Koninklijke Philips N.V.

 

In October 2013, a Technology License Agreement between Koninklijke Philips N.V. ("Philips") and MDL for granting MDL a non-exclusive and non-transferable license under certain intellectual property rights on/over for licensed patents and knowhow in relation to the 3D lenticular display design, 3D content creation and 3D formats ("the 3D Technology") to develop, manufacture, sell and / or otherwise dispose of such 3D display modules and sets, and to disclose and make available certain know-how and information relating to the 3D technology to MDL. The Agreement shall remain in force for a period of 10 years or until the last to expire Licensed Patent has expired, whichever is later, unless terminated earlier in accordance with the provisions. The Technology License Agreement involve 700+ patents owned by Philips.

Government Regulations

 

The market for 3D technology is affected by a wide range of U.S. and international regulations, including regulations related to taxation and import-export controls, which could negatively impact the market for these devices we sell or decrease potential profits to the Company. Pursuant to the Tariff Act of 1930, as amended, the Trade Act of 1974 and regulations promulgated there under, the United States government charges tariff duties, excess charges, assessments and penalties on many imports. These regulations are subject to continuous change and revision by government agencies and by action of the United States Trade Representative and may have the effect of increasing the cost of goods purchased by the Company or limiting quantities of goods available to the Company from our overseas suppliers. As some of our products are sold in China, we will need to follow the Regulations of the People's Republic of China on Import and Export Duties which are amended from time to time and may have the effect of increasing the costs of goods sold by the Company into China.

 

Costs and Effects of Compliance with Environmental Laws; Environmental Matters

We are not aware of any material costs or impacts on our business related to compliance with federal, state or local environmental laws regarding the products we intend to market and sell.

Insurance

We do not carry any kind of product liability or other business insurance.

Legal and Administrative Proceedings

We are not part to any material legal or administrative proceedings, and we are not aware of any threatened material legal or administrative proceedings against us.

 

 

39


 

 

C.   Organizational Structure

 

As at December 31, 2019, we have a total of 9 subsidiaries and their corporate details and business activities are listed below:

 

Subsidiary Name Place of Incorporation % held Business scope
CIMC Marketing Pty Ltd Australia 100% Direct Management services and trading
Binario Ltd British Virgin Islands 100% Direct Investment holding company
Smartglass Limited (formerly Dragon Creative Ltd) Hong Kong 100% Direct Sales and distribution of switchable glass
GOXD Technology Limited Hong Kong 76% Indirect Development and distribution of 3D digital picture frames
Marvel Digital Ltd Hong Kong 95% Indirect Development of 3D autostereoscopic display technology and investment holding
Visumotion International Ltd
(Renamed Cystar International Limited)
Hong Kong 95% Indirect Sale of software and provision of consultancy services
Marvel Display Technology (Shenzhen) Limited (formerly known as Marvel Software (Shenzhen) Ltd) China, PRC 95% Indirect Manufacturing and distribution of 3D products and provision of 3D consultancy services
GOXD Dongguan Limited China, PRC 76% Indirect Design and sale of 3D digital picture frame
Digital Media Technology Ltd Labuan, Malaysia 100% Indirect Sale and distribution of 3D and audio products

 

D.   Property, Plant and Equipment

The Company has its registered office in Adelaide, Australia, the principal and main operating office located in Hong Kong, and a test assembly and operating office in China. In Australia, in 2019 the Company rents a 100 square feet office on a month to month basis at a cost of A$1,000 per month. In 2020, the Company’s Australia office is now rent free on a month to month basis.

In Hong Kong, the Company's the principal office is approximately 3,000 square feet which was rent free in 2019 and in January 2020 the Company entered into a short term arrangement paying a monthly rent at US$20,000 A$28,500 per month on a month to month arrangement. The Group also rents two operating offices, (i) one of which is approximately 4,000 square feet on a three-year lease at approximately A$15,500 per month until May 31, 2020. and the other is approximately 4,400 square feet on a 3 years lease at approximately A$26,300 per month until October, 2021.

In China, the Company rents a 4,405 square feet development office in Dongguan, Guangdong Province, on a three years lease at approximately A$3,857 per month until November, 2021 In addition, the Company rents a 15,930 square feet pre-production facility in Shenzhen on a 2 years rental at approximately A$33,663 per month until January 2021. In April and May 2020, the Group disposed of the subsidiaries holding these leases.

Due to the divestment of the Company’s R&D and pre-production/testing in Shenzhen, the Company will outsource the production of its products. Accordingly, the Company does not intend to build at this time any infrastructure for its manufacturing requirements. We believe we will be able to obtain additional office space for our operations, as needed, on commercially reasonable terms. Our plant and equipment recorded in our consolidated financial statements as at December 31, 2019 consisted of A$83,949 for leasehold improvements relating to renovation and decoration costs for our offices and A$645,168 for office furniture and equipment. We are not aware of any environmental impact on the use of these equipment. With the distribution rights agreement for conductive film, we will seek to raise funds to build one lamination line for manufacturing electronic glass products. However, we are only at the preliminary planning and final raising.

 

 

ITEM 4A.   UNRESOLVED STAFF COMMENTS

None.

 

40


 

 

ITEM 5.   OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

The following discussion and analysis of the financial condition and results of operations of IMTE should be read in conjunction with the audited consolidated financial statements as at and for the fiscal year ended December 31, 2019, as at and for the year ended December 31, 2018, and for the year ended December 31 2017, together with the notes thereto included elsewhere in this Annual report. The financial information contained in this Annual report is derived from the financial statements, which were prepared in accordance with IFRS.

 

A.   Operating Results

IMTE is an Australian company engaged in the development, sale and distribution of autostereoscopic 3D display, 3D video wall, 3D conversion equipment and software, and provision of 3D technology solutions and consultancy services.

In the past few years, we were incorporated under the laws of the Commonwealth of Australia on August 8, 2008 under the name "China Integrated Media Corporation Limited". On October 12, 2016 we changed the company name to Integrated Media Technology Limited. Our ordinary shares were listed on the Australia Securities Exchange, or ASX in February 2013.

On May 2, 2017, we effected a 1-for-30 reverse split of our common stock and become effective on the Australian Securities Exchange at the opening of trading on May 8, 2017. All share and per share amounts disclosed herein give effect to this reverse stock split retroactively, for all periods presented. The purpose of the reverse stock split was to enable us to meet the Nasdaq's minimum share price requirement.

On August 3, 2017 our shares of Common Stock were admitted for listing on the Nasdaq Capital Markets under the symbol "IMTE".

On June 15, 2018 our shares of common stock were de-listed from the ASX. Today, the principal listing of our ordinary shares is on the Nasdaq Capital Markets, or Nasdaq.

For a description of the milestones that we have achieved since inception and through to the date of this report, see "Item 4. Information on the Company – A. History and Development of the Company."

Overview

In the past few years, we were at an early stage in the development of our 3D products and services. We have incurred net losses since inception until recently when we recorded a profit for the fiscal year 2017 mainly through the sale of our autostereoscopic 3D display, 3D conversion equipment and software. However, in 2019 and 2018 we recorded losses of A$16,700,199 and A$16,843,223, respectively, mainly due to the decrease in sales as we sorted out certain manufacturing issues with our manufacturer. In 2019, the Company manufacturing issues continued, and our sales suffered. We now expect to resolve this manufacturing issue in second half of 2020. This combined with COVID 2019, will present a challenge for the Company to grow sales in 2020 and to return to profitability. For the past 2 years, we have funded our operations primarily through the sale of equity securities in the Company and its subsidiaries, advances from shareholder and from operation cashflows. For details of the business overview, see "Item 4. Information on the Company - B. Business Overview."

Critical Accounting Policies

We prepare our consolidated financial statements in accordance with IFRS as issued by IASB. As such, we are required to make certain estimates, judgments, and assumptions that management believes are reasonable based upon the information available. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. The significant accounting policies listed in Note 3 to the consolidated financial statements that management believes are the most critical to aid in fully understanding and evaluating our financial condition and results of operations under IFRS are discussed below.

 

Goodwill

 

Goodwill is stated after separate recognition of identifiable intangible assets. It is calculated as the excess of the sum of: (a) fair value of consideration transferred, (b) the recognized amount of any non-controlling interest in the acquiree, and (c) acquisition-date fair value of any existing equity interest in the acquiree, over the acquisition-date fair values of identifiable net assets.

 

Any contingent consideration to be transferred by the acquirer is recognized at acquisition-date fair value. Subsequent adjustments to consideration are recognized against goodwill only to the extent that they arise from new information obtained within the measurement period (a maximum of 12 months from the acquisition date) about the fair value at the acquisition date. All other subsequent adjustments to contingent consideration classified as an asset or a liability are recognized in the consolidated statement of profit or loss.

 

 

41


 

 

Intangible Assets

 

(i)   Acquired both separately and from a business combination

Purchased intangible assets are initially measured at cost. The cost of an intangible asset acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are measured at cost less any accumulated amortization and any accumulated impairment losses. Intangible assets with finite lives are amortized over the useful life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at each financial year end.

 

(ii)   Autostereoscopic 3D display technologies and knowhow

The autostereoscopic 3D display technologies and knowhow acquired in the business combination is measured at fair value as at the date of acquisition. These costs are amortized over the estimated useful life of 8 years and are tested for impairment where an indicator of impairment exists. The useful lives are also examined on an annual basis and adjustments, where applicable, are made on a prospective basis. Please refer to Note 16 for impairment review of these autostereoscopic 3D display technologies and knowhow.

 

(iii)   Research and development costs

Development projects in the consolidated statement of financial position represent the development costs directly attributable to and incurred for internal technology projects of the Group. An intangible asset arising from development expenditure on an internal technology project is recognised and included in development projects only when the Group can demonstrate the technical feasibility of completing the intangible asset or technology so that it will be available for application in existing or new products or for sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development, the ability to measure reliably the expenditure attributable to the intangible asset during its development and the ability to use the tangible asset generated. For labour costs, all research and development member salaries that are directly attributable to the technology project are capitalised. Administrative staff and costs are recognised in the profit or loss instead of capitalising this portion of costs. Following the initial recognition of the development expenditure, the cost model is applied requiring the asset to be carried at cost less any accumulated impairment losses. The amortisation rate of these intangible assets was determined on the basis of the estimated useful life from the time that the relevant asset is taken into use.

 

(iv)   Intellectual property

Expenditure incurred on patents, trademarks or licenses are capitalized from the date of application. They have a definite useful life and are carried at cost less accumulated amortization. They are amortized, using the straight line method over their estimated useful lives for a period of 8 to 15 years.

 

(v)   Computer software

Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful lives (2-5 years). Costs associated with maintaining computer software programmes are recognized as an expense when incurred.

 

Inventories

Finished goods are stated at the lower of cost and net realizable value on a "first in first out" basis. Cost comprises direct materials and delivery costs, import duties and other taxes. Costs of purchased inventories are determined after deducting rebates and discounts received or receivable. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs necessary to make the sale.

 

 

42


 

 

Leases

 

The Group has applied IFRS 16 using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under IAS 17 and IFRIC 4. The details of accounting policies under IAS 17 and IFRIC 4 are disclosed separately.

 

The policy applicable from 1 January 2019

 

At inception of a contract, the Group assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Group uses the definition of a lease in IFRS 16.

 

This policy is applied to contracts entered into, on or after 1 January 2019.

 

As a lessee

 

At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative and-alone prices. However, for the leases of property the Group has elected not to separate lease components and account for the lease and non-lease components as a single lease component.

 

The Group recognises a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

 

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term or the cost of the right-of-use asset reflects that the Group will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group’s incremental borrowing rate. Generally, the Group uses its incremental borrowing rate as the discount rate.

 

The Group determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.

 

Lease payments included in the measurement of the lease liability comprise the following:

 

  - fixed payments, including in-substance fixed payments;
  - variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;
  - amounts expected to be payable under a residual value guarantee; and
  - the exercise price under a purchase option that the Group is reasonably certain to exercise, lease payments in an optional renewal period if the Group is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Group is reasonably certain not to terminate early.

 

The lease liability is measured at amortised cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Group’s estimate of the amount expected to be payable under a residual value guarantee, if the Group changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.

 

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

 

The Group presents right-of-use assets that do not meet the definition of investment property inplant and equipment’ and lease liabilities in ‘loans and borrowings’ in the consolidated statement of financial position.

 

Short-term leases and leases of low-value assets

The Group has elected not to recognise right-of-use assets and lease liabilities for leases of low value assets and short-term leases, including IT equipment. The Group recognises the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

 

Policy applicable before 1 January 2019

 

For contracts entered into before 1 January 2019, the Group determined whether the arrangement was or contained a lease based on the assessment of whether: fulfilment of the arrangement was dependent on the use of a specific asset or assets; and the arrangement had conveyed a right to use the asset. An arrangement conveyed the right to use the asset if one of the following was met: the purchaser had the ability or right to operate the asset while obtaining or controlling more than an insignificant amount of the output; the purchaser had the ability or right to control physical access to the asset while obtaining or controlling more than an insignificant amount of the output; or; amounts expected to be payable under a residual value guarantee; and facts and circumstances indicated that it was remote that other parties would take more than an insignificant amount of the output, and the price per unit was neither fixed per unit of output nor equal to the current market price per unit of output.

 

As a lessee

In the comparative period, where the Group acquires the use of assets under finance leases, the amounts representing the fair value of the leased asset, or, if lower, the present value of the minimum lease payments, of such assets are recognised as plant and equipment and the corresponding liabilities, net of finance charges, are recorded as obligations under finance leases. Depreciation is provided at rates which write off the cost or valuation of the assets over the term of the relevant lease or, where it is likely the Group will obtain ownership of the asset, the life of the asset, as set out in note 3(k). Impairment losses are accounted for in accordance with an accounting policy as set out in note 3(h). Finance charges implicit in the lease payments are charged to profit or loss over the period of the leases so as to produce an approximately constant periodic rate of charge on the remaining balance of the obligations for each accounting period. Contingent rentals are charged to profit or loss in the accounting period in which they are incurred.

Lease payments for operating lease, where substantially all the risks and benefits remain with the lessor, are charged as expenses on a straight line basis unless another method is more representative of the pattern to the users benefit.

 

 

43


 

 

Impairment of Assets

Internal and external sources of information are reviewed at the end of each reporting period to identify indications that the following assets may be impaired or, except in the case of goodwill, an impairment loss previously recognised no longer exists or may have decreased:

-       plant and equipment (other than properties carried at revalued amounts);

-       intangible assets; and

-       goodwill.

If any such indication exists, the asset's recoverable amount is estimated. In addition for goodwill, intangible assets that are not yet available for use and intangible assets that have indefinite useful lives, the recoverable amount is estimated annually whether or not there is any indication of impairment.

 

Impairment of Assets (continued)

(i)    Calculation of recoverable amount

The recoverable amount of an asset is the greater of its fair value less costs of disposal and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Where an asset does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the smallest group of assets that generates cash inflows independently (i.e. a cash-generating unit).

(ii)    Recognition of impairment losses

An impairment loss is recognized in profit or loss if the carrying amount of an asset, or the cash-generating unit to which it belongs, exceeds its recoverable amount. Impairment losses recognized in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit (or group of units) and then, to reduce the carrying amount of the other assets in the unit (or group of units) on a pro rata basis, except that the carrying value of an asset will not be reduced below its individual fair value less costs of disposal (if measurable) or value in use (if determinable).

(iii)    Reversals of impairment losses

In respect of assets other than goodwill, an impairment loss is reversed if there has been a favorable change in the estimates used to determine the recoverable amount. An impairment loss in respect of goodwill is not reversed.

A reversal of an impairment loss is limited to the asset's carrying amount that would have been determined had no impairment loss been recognized in prior years. Reversals of impairment losses are credited to profit or loss in the year in which the reversals are recognized.

Plant and Equipment

Items of plant and equipment are measured at cost less accumulated depreciation and impairment losses.

The carrying amount of plant and equipment is reviewed annually by the directors to ensure it is not in excess of the recoverable amount from those assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset's employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

The depreciable amount of all fixed assets are depreciated over their estimated useful lives to the Group commencing from the time the assets is held ready for use.

Depreciation is calculated on a straight-line basis to write the net cost of each item of plant and equipment over their expected useful lives. The depreciation rates used for each class of depreciable assets are generally as follows:

 

  Class of fixed assets   Depreciation rate  
  Leasehold improvements   lesser of 3-5 years or lease term  
  Office furniture and equipment   3-5 years  
  Motor vehicle   5 years  

 

Gains and losses on disposal are determined by deducting the net book value of the assets from the proceeds of sale and are booked to the profit or loss in the year of disposal.

 

 

44


 

 

Convertible Bonds

Convertible bonds that can be converted into ordinary shares at the option of the holder, where the number of shares to be issued is fixed, are accounted for as compound financial instruments, i.e. they contain both a liability component and an equity component.

At initial recognition the liability component of the convertible bonds is measured at fair value based on the future interest and principal payments, discounted at the prevailing market rate of interest for similar non-convertible instruments. The equity component is the difference between the initial fair value of the convertible bonds as a whole and the initial fair value of the liability component. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and equity components in proportion to the allocation of proceeds.

The liability component is subsequently carried at amortised cost. Interest expense recognised in profit or loss on the liability component is calculated using the effective interest method. The equity component is recognised in the capital reserve until either the bonds are converted or redeemed.

If the bonds are converted, the capital reserve, together with the carrying amount of the liability component at the time of conversion, is transferred to share capital and share premium as consideration for the shares issued. If the bonds are redeemed, the capital reserve is released directly to retained profits.

Derivative Financial Instruments

Derivative financial instruments are recognised at fair value. At the end of each reporting period the fair value is remeasured. The gain or loss on remeasurement to fair value is recognised immediately in profit or loss.

Revenue

Revenue is recognized in accordance with IFRS 15 Revenue from Contracts with Customers. The underlying principle is to recognize revenue when a customer obtains control of the promised goods at an amount that reflects the consideration that is expected to be received in exchange for those goods. It also requires increased disclosures including the nature, amount, timing, and uncertainty of revenues and cash flows related to contracts with customers. We adopted IFRS 15 Revenue from Contracts with Customers at the beginning of 2018, and implemented new accounting policies and internal controls necessary to support its requirements. The adoption of IFRS 15 did not have any impact on our revenue recognition.

We recognize revenue upon transfer of control of the promised goods in a contract with a customer in an amount that reflects the consideration we expect to receive in exchange for those products. Transfer of control occurs once the customer has the contractual right to use the product, generally upon shipment or once delivery and risk of loss has transferred to the customer. We account for a contract with customer when we have approval and commitment from both parties, the rights of the parties and payment terms are identified, the contract has commercial substance and collectability of consideration is probable. We identify separated contractual performance obligations and evaluate each distinct performance obligation within a contract, whether it is satisfied at a point in time or over time. All of our performance obligations for the reported periods were satisfied at a point in time.

Revenue is allocated among performance obligations in a manner that reflects the consideration that we expect to be entitled to for the promised goods based on standalone selling prices (“SSP”). SSP are estimated for each distinct performance obligation and judgment may be required in their determination. The best evidence of SSP is the observable price of the product when we sell the goods separately in similar circumstances and to similar customers.

Until January 1, 2018, revenues from sales of products and services were recognized upon delivery provided that the collection of the resulting receivable was reasonably assured, there was persuasive evidence of an arrangement, no significant obligations remained and the price was fixed or determinable.

The product warranties, which in the great majority of cases includes component and functional errors, are usually granted for one year period from legal transfer of the product. For the customers, the specific warranty period and the specific warranty terms are part of the basis of the individual contract.

Warranty provisions include only standard warranty, whereas services purchased in addition to the standard warranty are included in the services contracts.

Interest Income

Income is recognized as interest accrues using the effective interest method.

 

 

45


 

 

Recent Acquisitions

 

See "Item 4. Information on the Company - A. History and Development of the Company."

 

Results of Operations

 

The following table sets forth our condensed consolidated statements of operations by amount and as a percentage of our total operating revenues for the periods indicated:

 

 

 

  For the years ended December 31,
    2019   2018   2017
   

Amount

A$

  % of Net
Revenues
 

Amount

A$

  % of Net
Revenues
 

Amount

A$

  % of Net
Revenues
Revenues:                        
Products   1,165,607   91.4    1,228,485   92.8   5,600,106   97.2
Services   109,818   8.6   95,921   7.2   162,605   2.8
Total operating revenues   1,275,425   100    1,324,406   100.0   5,762,711   100.0
Expenses                        
Cost of sales   1,008,821   76.2   723,711   54.6   2,548,064   44.2
Employee benefit expenses   4,034,378   304.6   2,253,411   170.1   1,887,692   32.8
Depreciation and amortization expenses   3,174,784   239.7   2,029,373   153.2   2,021,131   35.1
Professional and consulting expenses   2,019,970   158.4   1,746,762   131.9   301,732   5.2
Gain on disposal of a subsidiary   -   -   (608,995)   (46)   -   -
Travel and accommodation expenses   281,895   22.1   384,184   29.0   333,503   5.8
Other operating expenses   2,341,672   183.6   2,010,142   151.8   1,448,960   25.1
Provision for impairment loss for goodwill   4,486,301   351.8  

 

9,953,311

 

 

751.5

  -   -
Financial costs   1,561,625   122.4   1,383,399   104.5   107,101   1.9
Total expenses   18,909,446   1,482.6   19,875,298   1,300.7   8,648,183   150.1
Operating loss before income tax   (17,634,021)   (1,382.6)   (18,550,892)   (1,400.7)   (2,885,472)   (50.1)
Non-operating income                        
Interest income   115,762   9.1   21,409   1.6   3,092   0.1
Gain on disposal of financial assets at fair value through profit or loss   127,551   10.0      709,543      53.6   -   -
Fair value change in contingent consideration liability   -   -   -   -   3,953,537   68.6
Other income   807,831   63.3   469,660   35.5   434,296   7.5
Net (loss) / profit before income taxes   (16,582,877)   (1,300.2)  

 

(17,350,280)

 

 

(1,310.0)

  1,505,453   26.1
Income tax credit / (expense)   (117,322)   9.2   507,057   38.3   187,213   3.2
Net (loss) / profit   (16,700,199)   (1,309.4)   (16,843,223)   (1,271.8)   1,692,666   29.3

 

 

46


 

 

Comparison of Year Ended December 31, 2019 to Year Ended December 31, 2018

 

Revenue

The following table sets forth revenues by sources and the percentage of our total operating revenues for the period indicated:

 

 

For the years ended December 31,
  2019   2018
  Amount
A$
  % of
Total
Revenues
  Amount
A$
  % of
Total
Revenues
Products              
Displays 1,164,103   91.3   1,166,144   88.0
Tablets and mobiles -   0.0   -   0.0
Super workstations -   0.0   -   0.0
Software 1,504   0.1   13,731   1.0
Technology solutions -   0.0   -   0.0
Audio products -   0.0   48,609   3.7
Other products -   0.0   -   0.0
Sub-total 1,165,607   91.4   1,228,484   92.7
Services              
Conversation services 16,686   1.3   57,661   4.4
Other services 93,132   7.3   38,261   2.9
Consulting services income -   0.0   -   0.0
Sub-total 109,818   8.6   95,922   7.3
Total operating revenues 1,275,425   100.0   1,324,406   100.0

Revenues. The revenue from operating activities for the year ended December 31, 2019 was A$1,275,425 as compared to the prior year of A$1,324,406, a decrease of A$48,981 or 4% from the prior year. The revenue for the year ended December 31, 2019 consists of the sales and distribution of 3D autostereoscopic products and sales of 2D tablets. In 2020, we will put more emphasis on sales of 3D POS machines, a new advertising product.

Cost of Sales. The following table sets forth cost of sales by sources of revenues by amount and as a percentage of net revenues for the periods indicated:

 

  Years ended December 31,
  2019   2018
  Amount
A$
  % of Net
Revenues
  Amount
A$
  % of Net
Revenues
Products 962,799   75.0   559,840   42.3
Services 46,022   4.0   163,871   12.4
Total cost of sales 1,008,821   79.0   723,711   54.7

 

Cost of sales increased by 39% to A$1,008,821 in 2019 from A$723,711 in 2018, which primarily due to the change in product mix of the Group with 2D tablets being sold in current year, bringing more costs of sales than that of the products sold in the prior year.

Gross Profit and Gross Margin. Gross profit decreased by 56% from A$600,695 in 2018 to A$266,604 in 2019. Our gross margin significantly decreased from 45% in 2018 to 21% in 2019, primarily due to the change in product mix of the Group with 2D tablets being sold with comparatively lower profit margin than that of the products sold in the prior year.

 

Gain on disposal of financial assets at fair value through profit and loss.

 

The amount of derivative financial instrument issued that is recognized as income is A$127,551.

 

Provision for impairment loss of intangible assets and goodwill.

 

It represents the impairment loss of goodwill in 2019.

 

 

47


 

 

Other income

 

It represented primarily the government subsidy in respect of our technology development projects received for the years ended December 31, 2019 and 2018.

 

Expenses

 

The operating expenses for the year ended December 31, 2019 was A$18,909,446 as compared to the prior year of A$19,875,298 a decrease of A$965,852 or 4.86% from the prior year. The decrease in total operating expenses was mainly attributable to the following:

-A decrease of A$5,467,010 in the provision for impairment loss of goodwill from A$9,953,311 in 2018 to A$4,486,301 in 2019;

 

-An increase of A$285,110 in cost of sales from A$723,711 in 2018 to A$1,008,821 in 2019 as discussed above;
-An increase of A$1,789,967 in employee benefit expenses from A$2,253,411 in 2018 to A$4,034,378 in 2019, which was primarily due to increase in the number of staff and general salary increment. The increase of staff was primarily due to the addition of staff for GOXD operation and executive director’s compensation;
-An increase of A$1,145,411 in depreciation and amortization expenses from A$2,029,373 in 2018 to A$3,174,784 in 2019;
-A decrease of A$608,995 in gain on disposal of a subsidiaries relating to disposals of subsidiaries in 2018. There were no disposals in 2019;
-An increase of A$273,208 in professional and consulting expenses from A$1,746,762 in 2018 to A$2,019,970  in 2019 resulting from the increase in legal and professional fees for certain corporate activities during the year including the investor relations fees.
-An increase of A$331,530 in other operating expenses from A$2,010,142 in 2018 to A$2,341,672 in 2019 resulting from the operating cost of the GOXD operation for the full year in 2019; and

-An increase of A$117,322 in finance costs from A$1,383,399 in 2018 to A$1,561,625 in 2019 was mainly attributable to the convertible bonds interest of amount A$1,316,702 in 2019, compared to the prior year of A$930,276 in 2018 and interest charged of A$50,329 in 2019 on the amounts of revolving loan with interest rate on 8% per annum.

Income tax

 

Income tax expenses of A$117,322 were recognized during the year ended December 31, 2019 in mainly deferred tax were recognized during the year.

 

Net Profit (Loss)

 

We recorded a net loss of A$16,700,199 for the year ended December 31, 2019 while net loss of A$16,843,223 was recorded for the year ended December 2018.

 

 

48


 

 

Comparison of Year Ended December 31, 2018 to Year Ended December 31, 2017

 

Revenue

 

The following table sets forth revenues by sources and the percentage of our total operating revenues for the period indicated:

 

 

For the years ended December 31,
  2018   2017
  Amount
A$
  % of
Total
Revenues
  Amount
A$
  % of
Total
Revenues
Products              
Displays 1,166,144   88.0   2,528,885   43.9
Tablets and mobiles -   0.0   655,076   11.4
Super workstations -   0.0   1,085,416   18.8
Software 13,731   1.0   9,383   0.2
Technology solutions -   0.0   1,171,108   20.3
Audio products 48,609   3.7   54,251   0.9
Other products -   0.0   95,987   1.7
Sub-total 1,228,484   92.7   5,600,106   97.2
Services              
Conservation services 57,661   4.4   79,599   1.4
Other services 38,261   2.9   83,006   1.4
Consulting services income -   0.0   -   0.0
Sub-total 95,922   7.3   162,605   2.8
Total operating revenues 1,324,406   100.0   5,762,711   100.0

Revenues. The revenue from operating activities for the year ended December 31, 2018 was A$1,324,406 as compared to the prior year of A$5,762,711, a decrease of A$4,438,305 or 77% from the prior year. The revenue for the year ended December 31, 2018 consists of the sales and distribution of 3D autostereoscopic products and sales of software, sales and distribution of audio products, and provision of conversion and other services. The significant decrease in revenue from operations in the year ended December 31, 2017 is primarily attributable to the decline in sales of mobile and tablets of A$655,076, super workstation of A$1,085,416, technology solutions of A$1,171,108 and displays of $1,362,741. We did not have any sales in mobile and tablets, super workstation and technology solution when compared to the prior year. The technology solution sales are customized solutions and comes periodically. For display products, we encountered contract manufacturing problems in 2018 which limited commercial production for 3D display products. Going forward, we have identified a major contract manufacturer for our 3D display manufacturing. In addition, we will put more focus in the sale of 3D display and video wall in 2019.

Cost of Sales. The following table sets forth cost of sales by sources of revenues by amount and as a percentage of net revenues for the periods indicated:

 

  Years ended December 31,
  2018   2017
  Amount
A$
  % of Net
Revenues
  Amount
A$
  % of Net
Revenues
Products 559,840   42.3   2,468,763   42.8
Services 163,871   12.4   79,301   1.4
Total cost of sales 723,711   54.7   2,548,064   44.2

 

Cost of sales decreased by 72% to A$723,711 in 2018 from A$2,548,064 in 2017, which primarily due to the change in product mix of the Group with more software products and technology solutions being sold in the prior year, bringing more costs of sales than that of the products sold in the current year.

 

Gross Profit and Gross Margin. Gross profit decreased by 81% from A$3,214,647 in 2017 to A$600,695 in 2018. Our gross margin significantly decreased from 56% in 2017 to 45% in 2018, primarily due to the change in product mix of the Group with more software products and technology solutions being sold with comparatively higher profit margin than that of the products sold in the current year.

 

Fair value change in contingent consideration liability

 

This represents the change in fair value of the derivative financial instruments relating to the put option granted by the Company to the investor in MDL's Convertible Bond.

 

The amount of derivative financial instrument issued that is expected to be recognized as income after more than one year is A$126,095.

 

Provision for impairment loss of intangible assets and goodwill

 

It represents the impairment loss of goodwill in 2018.

 

 

49


 

 

Other income

 

It represented primarily the government subsidy in respect of our technology development projects received for the years ended December 31, 2018 and 2017.

 

Expenses

 

The operating expenses for the year ended December 31, 2018 was A$21,559,047 as compared to the prior year of A$8,648,183 an increase of A$12,910,864 or 149% from the prior year. The increase in total operating expenses was mainly attributable to provisions for impairment loss of goodwill of A$9,953,311 made during the year.

Employee benefit expenses increased by 19.3% to A$2,253,411 in 2018 from A$1,887,692 in 2017, which was primarily due to increase in the number of staff and general salary increment. As at December 31, 2018, the Group had a total of 74 staff, compared to 53 staff in the Group as at December 31, 2017. The increase of staff was primarily due to the addition of staff for GOXD operation.

The professionally and consulting expenses increased by A$1,445,030 resulting from the increase in legal and professional fees for certain corporate activities during the year including the convertible bonds, Marvel Finance Limited debt to share conversion, investor relations and fund raising fees.

Finance costs increased by A$1,276,298 from A$107,101 in 2017 to A$1,383,399 in 2018. The increase of A$1,276,298 was mainly attributable to the convertible bonds interest of amount A$930,276 and interest charged of A$396,868 in 2018 on the amounts by Marvel Finance Limited, the ultimate holding company in respect of the A$15 million owed to MFL at the beginning of 2018. A$8 million of the amount was settled by the issue of 708,500 shares to MFL on December 12, 2018.

The gain on disposal of subsidiaries for the year ended December 31, 2018 is related to the Company's shareholding in Yamaga Limited, Global Vantage Audio Limited, Marvel Digital (Shenzhen) Limited, Yamaga Audio Limited and Zamora Corporation, which were all disposed of in 2018. The majority of the gain of about A$521,042 was derived from the sale of Marvel Digital (Shenzhen) Limited.

 

Income tax

 

Income tax credit of A$507,057 were recognized during the year ended December 31, 2018 while A$102,853 and A$404,204 of current tax and deferred tax were recognized during the year ended December 31, 2018 which were arising primarily from the disposal of subsidiaries and the loss for the year.

 

Net Profit (Loss)

 

We recorded a net loss of A$16,843,223 for the year ended December 31, 2018 while net profit of A$1,692,666 was achieved for the year ended December 2017. The decrease was mainly due to provision for impairment losses of goodwill of A$9,953,311 in 2018. Additionally, our results were impacted by the decrease in our revenue from operating activities and increase in corporate expenses for setting up a new business stream. Included in the profit for the year ended 31 December 2017 was an amount of $3,953,537 being the fair value decrease in contingent consideration liability in relation to the acquisition of MDL.

 

 

50


 

 

Inflation and Seasonality

Management believes inflation has not had a material impact on our operations or financial condition and that our operations are not currently subject to seasonal influences.

New, Revised or Amending Accounting Standards and Interpretations

 

The Group has applied the following standards and amendments for first time in their annual reporting period commencing January 1, 2019:

 

•   IFRS 16 Leases

 

IFRS 16 Leases was issued in January 2016 and is effective as of January 1, 2019, replacing IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases under a single on-balance sheet model similar to the accounting for finance leases under IAS 17. The standard includes two recognition exemptions for lessees - leases of 'low-value' assets (e.g., personal computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees will be required to separately recognize the interest expense on the lease liability and the depreciation expense on the right-of-use asset.

 

The adoption of these amendments has been disclosed in note 3 to the consolidated financial statements.

 

•   IFRS 23 Uncertainty Over Income Tax Treatments

 

IFRIC 23 Uncertainty Over Income Tax Treatments clarifies how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments. It is effective for annual periods beginning on or after January 1, 2019 with early adoption permitted.

 

Management evaluated the new guidelines introduced by IFRIC 23 and did not identify any material impact for the Group.

 

The adoption of these amendments has not had a material impact on the Group.

 

 

51


 

 

New standards and interpretations not yet effective

 

The new and amended standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s financial statements are disclosed below. The Group intends to adopt these new and amended standards and interpretations, if applicable, when they become effective.

 

  (i) IFRS 17 Insurance Contracts

In May 2017, the IASB issued IFRS 17 Insurance Contracts (“IFRS 17”), a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. Once effective, IFRS 17 will replace IFRS 4 Insurance Contracts (“IFRS 4”) that was issued in 2005. IFRS 17 applies to all types of insurance contracts (i.e., life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as well as to certain guarantees and financial instruments with discretionary participation features. A few scope exceptions will apply. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent for insurers. In contrast to the requirements in IFRS 4, which are largely based on grandfathering previous local accounting policies, IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects. The core of IFRS 17 is the general model, supplemented by: • A specific adaptation for contracts with direct participation features (the variable fee approach) • A simplified approach (the premium allocation approach) mainly for short-duration contracts IFRS 17 is effective for reporting periods beginning on or after 1 January 2021, with comparative figures required. Early application is permitted, provided the entity also applies IFRS 9 and IFRS 15 on or before the date it first applies IFRS 17. This standard is not applicable to the Group.

 

  (ii) Amendments to IFRS 3: Definition of a Business

In October 2018, the IASB issued amendments to the definition of a business in IFRS 3 Business Combinations to help entities determine whether an acquired set of activities and assets is a business or not. They clarify the minimum requirements for a business, remove the assessment of whether market participants are capable of replacing any missing elements, add guidance to help entities assess whether an acquired process is substantive, narrow the definitions of a business and of outputs, and introduce an optional fair value concentration test. New illustrative examples were provided along with the amendments.

Since the amendments apply prospectively to transactions or other events that occur on or after the date of first application, the Group will not be affected by these amendments on the date of transition.

 

  (iii) Amendments to IAS 1 and IAS 8: Definition of Material

In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors to align the definition of ‘material’ across the standards and to clarify certain aspects of the definition. The new definition states that, ’Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity.’

The amendments to the definition of material is not expected to have a significant impact on the Group’s consolidated financial statements.

 

 

52


 

 

Critical Accounting Judgments, Estimates and Assumptions

The preparation of the consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts in the consolidated financial statements. Management continually evaluates its judgments and estimates in relation to assets, liabilities, contingent liabilities, revenue and expenses. Management bases its judgments, estimates and assumptions on historical experience and on other various factors, including expectations of future events, management believes to be reasonable under the circumstances. The resulting accounting judgments and estimates will seldom equal the related actual results.
The judgments, estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

  (i) Goodwill and other intangible assets

The goodwill included in the consolidated financial statements was derived from the acquisition of Marvel Digital Limited. Determining whether goodwill is impaired requires as estimation of the value in use of the cash generating unit (“CGU”) to which goodwill have been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the CGU and a suitable discount rate in order to calculate the present value. Where the actual future cash flows are less than expected, a material impairment loss may arise. At the end of the reporting year, the carrying amount of goodwill is A$NIL (2018: A$4,468,293). Details of the recoverable amount calculations are disclosed in Note 16.

 

  (ii) Provision for impairment of receivables

The provision for impairment of receivables assessment requires a degree of estimation and judgment. The level of provision is assessed by taking into account the recent sales experience, the ageing of receivables, historical collection rates and specific knowledge of the individual debtor’s financial position. Refer to Note 13 for further details.

 

  (iii) Estimation of useful lives of assets

The Group determines the estimated useful lives and related depreciation and amortization charges for its plant and equipment and finite life intangible assets. The useful lives could change significantly as a result of technical innovations or some other events.
The depreciation and amortization charge will increase where the useful lives are less than previously estimated lives, or technically obsolete or non-strategic assets that have been abandoned or sold will be written off or written down. Please refer to Note 3(e) and 3(k) for further detail.

  (iv) Income tax

The Group is subject to income taxes in the jurisdictions in which it operates. Significant judgment is required in determining the provision for income tax and in assessing whether deferred tax assets and certain deferred tax liabilities are recognized in the consolidated statement of financial position. Deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary differences, are recognized only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxable profits. Assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. In addition, there are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Group recognizes liabilities for anticipated tax audit issues based on the Group’s current understanding of the tax law. Where the final tax outcome of these matters is different from the carrying amounts, such differences will impact the current and deferred tax provisions in the period in which such determination is made.

Judgements are also required about the application of income tax legislation. These judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognized in the statement of financial position and the amount of other tax losses and temporary differences not yet recognized. In such circumstances, some or all of the carrying amounts of recognized deferred tax assets and liabilities may require adjustments, resulting in a corresponding credit or charge to the consolidated statement of profit or loss and comprehensive income.

  (v) Capitalized technology development expenditure in intangibles

In determining which technology development expenditure may be capitalized the Group applies judgement to distinguish those costs which have a direct relationship to the criteria for capitalization described in accounting policy Note 3(e), from those which should be expensed in the period incurred. This involves evaluating the nature of work performed by staff as well as universities, educational and professional institutions, third party consultants and contractors, and in many cases includes a judgmental apportionment of costs.

  (vi) Impairment of non-financial assets

The Group assesses impairment of all assets (including intangible assets) at each reporting date by evaluating conditions specific to the Group and to the particular asset that may lead to impairment. These include product, technology, economic and political environments and future product expectations. If an impairment trigger exists the recoverable amount of the asset is determined. Given the current uncertain economic environment management considered that the indicators of impairment were significant enough and as such these assets have been tested for impairment in this financial period. Refer to Note 3(h) for details regarding the method and assumptions used.

  (vii) Fair value of convertible bonds

The fair value of convertible bonds are determined using valuation techniques including reference to other instruments that are substantially the same, discounted cash flow analysis and option pricing model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values.

  (viii) Fair value of derivative financial instruments

The fair values of derivative financial instruments that are not quoted in active markets are determined by using valuation techniques. Valuation techniques used include discounted cash flows analysis and models with built-in functions available in externally acquired financial analysis or risk management systems widely used by the industry such as option pricing models. To the extent practical, the models use observable data. In addition, valuation adjustments may be adopted if factors such as credit risk are not considered in the valuation models. Management judgement and estimates are required for the selection of appropriate valuation parameters, assumptions and modeling techniques.

  (ix) Valuation of contingent consideration

The contingent consideration to be transferred by the acquirer is recognized at acquisition-date fair value. The fair value of contingent consideration was based on an independent valuation which is determined by using the discounted cash flow method on the probability-weighted financial projection of MDL for the period from October 1, 2015 to September 30, 2017 and is under level 3 fair value adjustment which involve significant estimates and judgements from the management. There is no more contingent liabilities as at December 31, 2018 and 2019, as the Company recognized the actual deferred performance fee to be paid to MFL of A$15,110,749 in 2017.

 

 

53


 

 

B.   Liquidity and Capital Resources

Since our inception, our operations have mainly been financed through the issuance of equity securities. Additional funding has come through shareholder advances and short-term investments. We have incurred significant losses since our inception until 2015. For the past 3 years, we have recorded loss of A$16,700,199, loss of A$16,843,223, and profit of A$1,692,666, for the fiscal years ended December 31, 2019, 2018, and 2017 respectively.

Equity Issuances

The following table summarizes our issuance of ordinary shares for cash or from the conversion debts. We did not issue shares for share-based payments, executive and employee compensation in the last 3 fiscal years.

 

    Fiscal
Year
    Number of
Shares*
    Net Proceeds
                (in A$)
Issuance of new shares     2013       580,000*       3,480,000
Share issuance in respect of payment to a consultant     2013       16,666*       100,000
Share issuance in respect of acquisition of subsidiaries     2015       175,926*       5,277,804
Share issuance for payment to consultant     2018       25,275       491,750
Share issuance for debts     2018       708,500       8,000,000
Share issuance for debts or cash     2019       Nil       Nil

    * On post reverse split of 30 for 1

Capital Requirements

As of December 31, 2019, we had cash and cash equivalents of A$(166,758) and trade receivables of A$892,488. Our trade receivable balance significantly decreased as compared to A$1,086,161 as of December 31, 2018, was attributable to the decrease in sales in 2019. We anticipate that our current cash and cash equivalents will be sufficient to fund our operations for the next 12 months based on our budget and forecasted revenue. However, our forecast of the period through which our financial resources will be adequate to support our operations is a forward-looking statement that involves risks and uncertainties, and actual results could vary materially. If we are unable to raise additional capital when required or on acceptable terms or not realize our anticipated operating and sales plans, we may have to significantly delay, scale back or discontinue our 3D developments or our operations.

In addition, the Company has started to recapitalize its equity base by selling US$1 million of its shares in February 2020. Furthermore, the Company is working on increasing its shareholder’s equity to more than US$2.5 million so that it complies with Nasdaq’s continual listing requirement. The Company is seeking to increase its shareholders’ equity through debt conversion or sale of new shares.

 

 

54


 

 

Cash Flows

The following table summarizes our cash flows for the periods presented:

 

    Fiscal Year Ended December 31,
    2019   2018   2017
    A$   A$   A$
Net cash outflows in operating activities   (5,547,544)   (6,858,433)   4,864,308
Net cash outflows in investing activities   (1,828,617)   (3,319,768)   (2,189,991)
Net cash inflows/ (outflows) by financing activities   6,583,113   8,638,582   (1,579,552)
Net increase (decrease) in cash and cash equivalents   (793,048)   (1,539,619)   1,094,765
Effect of exchange rate changes on cash and cash equivalents   6,585   89,252   (61,658)
Cash and cash equivalents at beginning of period   619,705   2,070,072   1,036,965
Cash and cash equivalents at end of period   (166,758)   619,705   2,070,072

 

Net cash outflows in operating activities was A$(5,547,544), A$(6,858,433) and A$(4,864,308) during the years ended December 31, 2019, 2018 and 2017, respectively. Net cash outflows in operating activities during the year ended December 31, 2019 was mainly to the decrease in revenue. Net cash inflows in operating activities significantly increased during the year ended December 31, 2018 were attributable to the receipts from customers on sale of software and technology solutions.

Net cash outflows in investing activities were A$(1,828,617), A$(3,319,768), and A$(2,189,991) during the years ended December 31, 2019, 2018 and 2017, respectively. Net cash outflows in investing activities during the years ended December 31, 2019, 2018 and 2017 was primarily attributable to the payments for acquisition of various patents and intangible assets, and development costs incurred for various on-going technology projects.

Net cash inflows/(outflows) in financing activities was A$6,583,113, A$8,638,582, and (A$1,579,552) during the years ended December 31, 2019 and 2018, 2017 respectively.

Net cash inflows in financing activities during the years ended December 31, 2019 are attributable to the revolving loan provided from third party. Net cash outflows in financing activities during the years ended December 31, 2019 and 2018 are attributable to the revolving loan provided from third party, advances from related companies and ultimate holding company.

We had cash and bank balance of A$(166,758), A$619,705, and A$2,070,072 as at December 31, 2019, 2018 and 2017 respectively. Cash and bank balance as at December 31, 2019, 2018 and 2017 were consisted of A$735,424, A$1,514,215, and A$2,860,014 of cash and bank balances, and A$(902,482), A$(894,510) and A$(789,942) of bank overdraft, respectively.

 

C.   Research and Development, Patents and Licenses

 

For the 3 years ended December 31, 2019, we have employed 25, 10 and 10 staff, respectively, in the research and development of 3D autostereoscopic technology and we incur annual staffing costs of approximately A$6,155,884, A$716,000 and A$764,000 during the respective years. We also have Company sponsored research with certain universities and research institutes as discussed in Item 4. Information of the Company under Research and Developments, which also includes a cooperation agreement with the Hong Kong Applied Science and Technology Institute (ASTRI) to establish the ASTRI-Marvel Digital Joint Research and Development Center, focusing on research and development of advanced technology in 3D imaging, as announced on June 20, 2016.

 

D.   Trend Information

We are still a young company and it is not possible for us to predict with any degree of accuracy the outcome of our business in the future. Our operations is mainly dependent on further development and commercialization of our technologies.

 

E.   Off-Balance Sheet Arrangements

During fiscal years ended December 31, 2017, 2018 and 2019, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.

 

 

55


 

 

F.   Tabular Disclosure of Contractual Obligations

 

As of December 31, 2019 our contractual obligations were as set forth below:

 

    Payments Due by Period
    Total   Less than
1 year
  1-3 years   3-5 years   More than 5 years
    A$   A$   A$   A$   A$
Contractual Obligations                    
                     
Bank Borrowings   915,300   915,300   -   -   -
Lease liability   1,168,607   666,868   501,739   -   -
Total   2,083,907   1,582,168   501,739   -   -

 

The Group had internal capital commitments for the investments in two China subsidiaries of approximately A$1,755,456 (2018: A$3,189,000).

 

 

56


 

 

ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A.   Directors and Senior Management

The following table sets forth our directors and senior management and the positions they held as of the date of this annual report on Form 20-F. All of our directors and senior management may be contacted at our registered office located at Level 7, 420 King William Street, Adelaide, SA 5000, Australia.

 

Name       Position
Mr. Con UNERKOV (5)       Chairman and Chief Executive Officer
Dr. Man-Chung CHAN (3) (4)       Independent Non-Executive Director
Mr. Wuhua ZHANG  (6)       Non-Executive Director
Mr. Uwe von PARPART (1) (2) (7)       Independent Non-Executive Director
Dr. Heming CUI (1) (2) (13)       Independent Non-Executive Director
Mr. Cecil HO (10)       Chief Financial Officer and Joint Company Secretary
Dr. Herbert Ying Chiu LEE (12)       Executive Chairman
Dr. Chang Yuen CHAN (8)       Independent Non-Executive Director
Mr. Lawrence CHEN (1) (11)       Independent Non-Executive Director
Mr. George YATZIS (9)       Company Secretary
Mr. William King To NG       R&D Project Director
Mr. Tommy Wong       Accounting Manager
Ms. Lu Xia       Corporate Services Executive

 

   
(1) Member of the Audit Committee.
(2) Member of the Nomination and Remuneration Committee.
(3) Chairman of the Audit Committee.
(4) Chairman of the Nomination and Remuneration Committee.
(5) Mr. Con Unerkov was appointed as CEO in April 2019 and director and chairman on May 31, 2019.
(6) Mr. Wuhua Zhang was appointed as a director on August 13, 2018.
(7) Mr. Uwe von Parpart was appointed as a director on December 17, 2019 and a member of the Audit Committee and the Nomination and Remuneration Committee.
(8) Dr. Chang Yuen Chan resigned as an Independent Non-Executive Director on February 11, 2019. He also resigned as a member of the Audit Committee and Nomination and Remuneration Committee on the same date.
(9) Mr. George Yatzis resigned as the Company Secretary on March 13, 2019, Mr. Yatzis was also the interim CFO for the period from October 10, 2018 to March 13, 2019.
(10) Mr. Cecil Ho was appointed as the Chief Financial Officer and joint Company Secretary on March 15, 2019.
(11) Mr. Lawrence Chen was appointed as a director on December 1, 2018 and he retired on May 31, 2019.
(12) Dr. Herbert Ying Chiu Lee retired as a director and Chairman of the Board on May 31 2019 and on the same date, he also resigned from the Nomination and Remuneration Committee.
(13) Dr. Heming CUI was appointed as a director on June 12, 2020 and a member of the Audit Committee and the Nomination and Remuneration Committee.

 

Mr. Con UNERKOV ("Mr. Unerkov"), aged 51, is an Australian based businessman and former Director and CEO of the Company, re-joins the Company with more than 25 years of local and international senior executive experience. Throughout his career, Mr. Unerkov has worked as an executive and chief executive officer for a number of companies both in the private and public sectors. He has significant experience in the financial markets with a focus on structuring, M&A and corporate financing for both private and public companies, simultaneously providing parallel guidance for companies to gain market recognition, shareholder value and liquidity. Mr. Unerkov was a director of the Company in the past and he re-joined the Company as the CEO in April 2019 and as director and chairman on May 31, 2019. Mr. Unerkov is the non-executive Chairman of Xped Limited, a company listed on the Australian Securities Exchange (“ASX”) engaged in the Internet of Things (IoT) and healthcare sector.

 

Dr. Man-Chung CHAN ("Dr. MC Chan"), aged 61, graduated from the Chinese University of Hong Kong in 1980 in Philosophy and Government & Public Administration. He received his PhD in Computer Science from La Trobe University in Australia. From 1988 till 1994, he taught Computer Science at University of New South Wales. From 1994, he has worked with the Computing Department of the Hong Kong Polytechnic University. Dr. MC Chan was a computational logician and lately he worked in the broad field of knowledge management, artificial intelligence and intellectual property of computing. His theory of functional unification has bridged the gap between modal logic, natural language and logic programming. He founded the Institute of Systems Management in 2003. He has extensive working relationship with municipal government of Jiangsu, Hubei and Henan provinces in China.

Mr. Wuhua ZHANG ("Mr. Zhang"), aged 45, is a businessman with significant experience in the electronics industry with a specialty in the semiconductors product field. Mr. Zhang holds a Masters of Technology Management and a Bachelor of Applied Science in Electronic Engineering. Mr. Zhang has extensive experience in product and engineering management, product marketing and sales which was attained during his career as an Account Executive at ST Microelectronics (Shenzhen) Company and as a Key Account Manager at Philips Semiconductors. Mr. Zhang's primary responsibilities in those roles was to drive distribution sales for semiconductor products in China and discover any key new opportunities.

 

Mr. Uwe von PARPART ("Mr. Parpart"), aged 79, Mr. Parpart is currently the Chairman and Publisher of Asia Times Holding Limited, a Hong Kong based English language news media publishing group, covering politics, economics, business and culture from an Asian perspective. Previously, Mr. Parpart was the Executive Managing Director, Chief Strategist, and Head - Research of Reorient Group Limited, a company listed on the Hong Kong Stock Exchange Limited. Mr. Parpart brings over three decades of experience in finance, journalism, and academia to our Company. Before Reorient, he was the Chief Economist and Strategist at Cantor Fitzgerald HK Capital Markets and prior to that a senior currency strategist at Bank of America. Mr. Parpart's experience in Asia dates back to the late 1980s, when he worked with the Mitsubishi Research Institute in Tokyo, and later served as an advisor to the Thailand's Prime Minister's office. He has contributed to numerous magazines and publications; he was the founding editor of Asia Times from 1995 - 1997, a contributing editor of Forbes magazine, and a columnist for Shinchosha Foresight magazine, Tokyo. He is a frequent guest on CNBC and Bloomberg TV. After serving as an officer in the German Navy, Mr. Parpart received a Fulbright scholarship for doctoral studies in Mathematics and Philosophy at the University of Pennsylvania. He had also taught at University of Pennsylvania and Swarthmore College.

Dr. Heming CUI (“Dr. Cui”), aged 37, an assistant professor in Computer Science of the University of Hong Kong (“HKU”) since January 2015. His research interests are in distributed system, IoT, big-data computing, and parallel computing, with a particular focus on creating software infrastructures and tools to greatly improve the performance, reliability and security of real-world software. After joining HKU, Dr. Cui’s research publications mainly contained in two segments: (1) transparent and efficient distributed fault-tolerance systems, and (2) automated program analysis tools that can greatly improve the security of parallel and IoT software. Dr. Cui’s research in HKU has led to a series of open source projects as well as publications in international conferences and journals on computer systems (e.g., SOSP, NSDI, ATC, DSN, SOCC, ACSAC, SRDS, JSAC, and TPDS). Dr. Cui’s serves on the program committees of international top systems, and networking conferences, including NSDI, ATC, SOCC, DSN, and ICDCS. Much of the source code and evaluation results in Dr. Cui’s publications are adopted by global software companies, including RedHat, Android, Ubuntu, and VMWare. Before joining HKU, Dr. Cui obtained his master and bachelor degrees in Computer Science from Tsinghua University in Beijing, and PhD degree in Computer Science from Columbia University in New York. Dr. Cui is an independent director of Xped Limited, a company listed on the ASX engaged in the IoT and healthcare sector.

 

 

57


 

 

Mr. Cecil HO ('Mr. Ho"), aged 59, brings to IMTE nearly 30 years of financial management experience in both public and private companies. He most recently served as the CFO for Asia Times Holdings Limited, an online news publication in Hong Kong. Prior to that, Mr. Ho held various senior finance positions in public companies listed on the Hong Kong Stock Exchange. Currently, Mr. Ho is the CFO of Xped Limited, a company listed on the ASX engaged in IoT and healthcare sector. In his roles, Mr. Ho excelled in strategy execution, shareholder value creation and risk management. Mr. Ho is a member of the Hong Kong Institute of Certified Public Accountant and a Chartered Professional Accountant (CA). Mr. Ho holds a Bachelor of Commerce degree from the University of British Columbia in Canada.

Dr. Herbert Ying Chiu LEE ("Dr. Lee"), aged 67, is a seasoned businessman with significant experience in the Hong Kong and Chinese digital advertising market sector and technology development. Over the past 17 years, Dr. Lee has extensive working experience in technology management and 3D autostereoscopy. During these years, he has also invested in many technology startups and incubated them into successful companies.

 

Dr. Lee received his Bachelor of Applied Science in civil engineering in 1977 from the University of British Columbia, B.C., Canada. He obtained his training in structural design in Hong Kong after his graduation. In 1982, he became a member of the Institute of Structural Engineers (MIStructE.) and subsequently he obtained his Chartered Engineer title from the Engineering Council of the United Kingdom. In 2004, Dr. Lee finished his Master of Technology Management degree at the Hong Kong University of Science and Technology. In 2011, Dr. Lee had been conferred the degree of Doctor of Engineering from the Hong Kong Polytechnic University. In 2014, Dr. Lee was elected by the Council of the Association to be the Senior Fellowship of Asia College of Knowledge Management. Dr. Lee retired from the Board on May 31, 2019.

Dr. Chang Yuen CHAN ("Dr. CY Chan"), aged 54, graduated from the University of Hong Kong with a PhD in computer simulation and holds a LLB from the Manchester Metropolitan University. Dr. CY Chan is employed as a project manager at the Partner State Key Laboratory in ultra-precision machining technology working as one of the key project investigators. His main research interests are in light-field imaging, bionic vision, nano-machining mechanics, adaptive control and compensation, and the design of lubricating components for ultra-precision machining. Dr. CY Chan also has expertise in the areas of optical design and computer simulation and is also proficient in software development. He joins the Board as an advisor in the areas of technology evaluation and strategic decision making. Dr. CY Chan resigned from the Board on February 11, 2019.

Mr. Lawrence CHEN ("Mr. Chen"), aged 60, has 10+ years experience in business management, and technology transfer. Mr. Chen migrated to Australia in the late 1980 where he furthered his study in Western Sydney University, and he then went back to China in 2007 and started his career in technology transfer. He was appointed as deputy director in a system management institute in Jiangyin China in 2008 and was working on setting up different technology projects. Notable projects included involving animation and software enhancement of motion movies. With his extensive experiences and professional knowledge, he is now working in Australia as Deputy General Manager for Asia Pacific Resource Enterprises Corporation since 2017.

Mr. George YATZIS ("Mr. Yatzis"), aged 43, has served as our Company Secretary since November 9, 2015 until his resignation on March 13, 2019. Mr. Yatzis was also the interim CFO for the period from October 10, 2018 to March 13, 2019. Mr. Yatzis has worked and held Company Secretary roles in a number of Public Companies listed on the Australian Securities Exchange ("ASX"). He is currently a partner at global accounting firm BDO, working in the Adelaide office. Mr. Yatzis supports the board of directors in respect to all administrative and compliance matters relating to the Australian Securities Exchange. Mr. Yatzis has a Bachelor of Commerce from the University of Adelaide. He is also a member of Chartered Accountants Australia and New Zealand ("CAANZ").

Dr. William King To NG ("Dr. Ng"), aged 48, has served as our R&D Project Director since April 2013. He has more than ten years of experience in the 3D photography, auto-stereoscopic display and 3D TVs. Starting in 2003, Dr. Ng was a postdoctoral fellow of the Department of Electrical and Electronic Engineering, The University of Hong Kong. His research interests include visual communication, image-based rendering, and video transmission. He has published more than 30 papers in international journals and conferences. Dr. Ng has a Doctor of Philosophy degree and a Master of Philosophy degree in the Electrical and Electronic Engineering from The University of Hong Kong, and a Bachelor of Engineering degree in Computer Engineering from the City University of Hong Kong. He is also a member of the Institute of Electrical and Electronics Engineers (MIEEE).

Mr. Tommy WONG (“Mr. Wong”), aged 51, joined the Group since Nov 2019 as Accounting Manager. He has over 20 years experiences in accounting, auditing, taxation and financial management gained from various sizeable listed companies in Hong Kong. He holds a Bachelor’s degree of Business Administration from Hong Kong Baptist University. He is an associate member of the Hong Kong Institute of Certified Public Accountants and a fellow member of Association of Chartered Certified Accountants.

Ms. Lu XIA ("Ms. Xia"), aged 34, is our corporate services executive. Ms. Xia most recently was the executive in charge of our audio production division. Ms. Xia has worked for the Group since 2013 initially in the display division and then in business development. Ms. Xia has over 6 years of experience working in the audio and display industry, corporate affairs and general consulting. Ms. Xia has a Master of Science degree from Northeastern University and a Bachelor Degree of Arts from Shenzhen University in China.

 

There are no orders, judgments, or decrees of any governmental agency or administrator, or of any court of competent jurisdiction, revoking or suspending for cause any license, permit or other authority to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining any of our officers or directors from engaging in or continuing any conduct, practice or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security, or any aspect of the securities business or of theft or of any felony. Nor are any of the officers or directors of any corporation or entity affiliated with us so enjoined.

There are no family relationships among any of our officers and directors.

 

58


 

 

B.   Compensation
     

Remuneration Principles

Remuneration of all executive and non-executive directors and officers is determined by the Nomination and Remuneration Committee.

We are committed to remunerating senior executives and executive directors in a manner that is market-competitive and consistent with "Best Practice" including the interests of shareholders. Remuneration packages are based on fixed and variable components, determined by the executives' position, experience and performance, and may be satisfied via cash or equity.

Non-executive directors are remunerated out of the aggregate amount approved by shareholders and at a level that is consistent with industry standards. Non-executive directors do not receive performance based bonuses and prior shareholder approval is required to participate in any issue of equity. No retirement benefits are payable other than statutory superannuation, if applicable.

Our remuneration policy is based on our financial performance and on success of our development and commercializing of our technologies into products or solutions.

We envisage our performance, in terms of earnings, will indicate the success of our research and development. Shareholder wealth reflects this speculative and volatile market sector for technology companies.

The purpose of a performance bonus is to reward individual performance in line with our objectives. Consequently, performance based remuneration is paid to an individual where the individual's performance clearly contributes to a successful outcome. This is regularly measured in respect of performance against key performance indicators.

We use a variety of key performance indicators to determine achievement, depending on the role of the executive being assessed. These include:

 

    Successful in achieving sales targets,
    Successful contract negotiations,
    Achievement of research project milestones within scheduled time and/or budget, and
    Our share price reaching a targeted level on the ASX/NASDAQ over a period of time.

 

Executive Compensation

The following table sets forth all of the compensation awarded to, earned by or paid to each individual who served as directors in fiscal 2019.

 

    Short-term Benefits   Post Employment   Share-based   Total
        Benefits   Payments    
    Salary &   Other   Super-   Retirement   Shares   Options    
    Fees       annulation   Benefits            
    A$   A$   A$   A$   A$   A$   A$
Con Unerkov (4)   -   683,944   N/A   N/A   N/A   N/A   683,944
Uwe von Parpart (6)   -   N/A   N/A   N/A   N/A   N/A   -
Dr. Man-Chung Chan   12,000   N/A   N/A   N/A   N/A   N/A   12,000
Dr. Chang Yuen Chan (5)   1,537   N/A   N/A   N/A   N/A   N/A   1,537
Wuhua Zhang (1)   18,000   N/A   N/A   N/A   N/A   N/A   18,000
Lawrence Chen (2)   -   N/A   N/A   N/A   N/A   N/A   -
Dr. Herbert Ying Chiu Lee (3)   -   N/A   N/A   N/A   N/A   N/A   -
Total   31,537   683,944   N/A   N/A   N/A   N/A   715,301

 

   
(1) Mr. Wuhua Zhang was appointed as a director on August 13, 2018.
(2) Mr. Lawrence Chen retired as a director on May 31, 2019.
(3) Dr. Herbert Ying Chiu Lee retired as a director on May 31, 2019.
(4) Mr. Con Unerkov was appointed as director and chairman of the Board on May 31, 2019. He is engaged under a service agreement provided by a related company.

(5)

(6)

Dr. Chang Yuen Chan resigned as a director on February 11, 2019.

Mr. Uwe von Parpart was appointed as director on December 17, 2019

 

Service Agreements

All the directors have formal letters of appointment in place that have been executed which outline their roles and responsibilities. The agreements with the Company have no fixed term and the directors' position can be terminated with cause without notice, and subject to the Company's Constitution. The letters of appointment executed do not provide for any termination payment to directors in the event of being terminated or removed from their positions. Our director, Mr. Con Unerkov, has a service agreement provided by a related company. The service agreement can be terminated immediately for serious misconduct, and for all other cases, a 3 months' notice period. Please refer to the executive compensation table for details on director individual remuneration.

Employee Share Option Plan

The Company currently does not have an Employee Share Option Plan.

 

Pension and Retirement Benefits

 

There was no amount set aside or accrued by the Group to provide pension, retirement or similar benefits as at December 31, 2019 as these amounts were expensed and paid as of this date.

 

 

59


 

 

C.   Board Practices

Introduction

Our Board of Directors is elected by and accountable to our shareholders. It currently consists of five directors, the executive Chairman and four non-executive directors. The Chairman of our Board of Directors is responsible for the management of the Board of Directors and its functions.

Election of Directors

Directors are elected at our annual general meeting of shareholders. Under our Constitution, a director, other than a managing director, must not hold office for more than three years or beyond the third annual general meeting following his appointment (whichever is the longer period) without submitting himself for re-election. Our Board of Directors has the power to appoint any person to be a director, either to fill a vacancy or as an additional director (provided that the total number of directors does not exceed the maximum allowed by law), and any director so appointed may hold office only until the next annual general meeting when he or she shall be eligible for election.

Corporate Governance

ASX Corporate Governance Principles

Pursuant to an exception available to FPIs, we, as an Australian company, are not required to comply with the corporate governance practices followed by U.S. companies under NASDAQ listing standards. In Australia there are no defined corporate governance structures and practices that must be observed by a company listed on Nasdaq. The practices we follow in lieu of NASDAQ's corporate governance requirements is the ASX Best Practice Guide published by the ASX Corporate Governance Council. The Guide contains what are called the Recommendations which articulate eight core principles which are intended to provide a reference point for companies about their corporate governance structure and practices. It is not mandatory to follow the Recommendations. We believe that our established practices in the area of corporate governance are in line with the spirit of the NASDAQ standards and provide adequate protection to our shareholders. We believe that we are in material compliance with the ASX Corporate Governance Principles. Set forth below are material provisions of the ASX corporate Governance Principles together with the reasons, where applicable, for variation therefrom.

 

1. Lay solid foundations for management and oversight. Companies should establish and disclose the respective roles and responsibilities of board and management.

 

2. Structure the Board to add value. Companies should have a board of an effective composition, size, and commitment to adequately discharge its responsibilities and duties. During the year ended December 31, 2019, we varied from the Recommendations in the following area:

 

  a) No formal performance evaluation of the Board was conducted for the year ended December 31, 2019 as the Board believes that we are not of a size, nor are our financial affairs of such complexity, to warrant such an exercise. The Board recognizes the importance of performance evaluations and will continually assess the necessity and timing of future performance evaluation.

 

3. Act ethically and responsibly. Companies should actively promote ethical and responsible decision-making.

 

4. Safeguard integrity in financial reporting. Companies should have a structure to independently verify and safeguard the integrity of their financial reporting.

 

5. Make timely and balanced disclosure. Companies should promote timely and balanced disclosure of all material matters concerning the compliance.

 

6. Respect the rights of security holders. Companies should respect the rights of shareholders and facilitate the effective exercise of those rights.

 

7. Recognize and manage risk. Companies should establish a sound system of risk oversight and management and internal control.

 

8. Remunerate fairly and responsibly. Companies should ensure that the level and composition of remuneration is sufficient and reasonable and that its relationship to performance is clear.

 

 

60


 

 

Non-Executive and Independent Directors

Australian law does not require a company to appoint a certain number of independent directors to its board of directors or audit committee. However, under the ASX Corporate Governance Principles and Recommendations, that a listed company have a majority of independent directors on its board of directors and that the audit committee be comprised of independent directors. Our Board of Directors currently have five directors, of which four are non-executive directors within the meaning of the ASX Corporate Governance Principles and Recommendations, and our audit committee consists of such three non-executive directors. Accordingly, we currently comply with the Recommendations.

Under NASDAQ Marketplace Rules, in general a majority of our Board of Directors must qualify as independent directors within the meaning of the NASDAQ Marketplace Rules and our audit committee must have at least three members and be comprised only of independent directors, each of whom satisfies the respective "independence" requirements of NASDAQ and the U.S. Securities and Exchange Commission.

The Board of Directors does not have regularly scheduled meetings at which only independent directors are present. The Board of Directors does meet regularly and independent directors are expected to attend all such meetings. Our practices are consistent with the Recommendations, in that the Recommendations do not provide that independent directors should meet separately from the Board of Directors.

Our Board of Directors has determined that each of Dr. Man-Chung Chan, Mr. Uwe von Parpart and Dr. Heming Cui qualifies as an independent director under the requirements of the NASDAQ Marketplace Rules and U.S. Securities and Exchange Commission.

Committees of the Board of Directors

Audit Committee. NASDAQ Marketplace Rules require us to establish an audit committee comprised of at least three members, each of whom is financially literate and satisfies the respective "independence" requirements of the U.S. Securities and Exchange Commission and NASDAQ and one of whom has accounting or related financial management expertise at senior levels within a company.

Our Audit Committee assists our Board of Directors in overseeing the accounting and financial reporting processes of our Company and audits of our consolidated financial statements, including the integrity of our consolidated financial statements, compliance with legal and regulatory requirements, our independent registered public accounting firm’s qualifications and independence, and independent registered public accounting firm, and such other duties as may be directed by our Board of Directors. The Audit Committee is also required to assess risk management.

Our Audit Committee currently consists of three board members, each of whom satisfies the "independence" requirements of the U.S. Securities and Exchange Commission, NASDAQ Marketplace Rules and ASX Rules. Our Audit Committee is currently composed of Dr. Man-Chung Chan, Mr. Uwe von Parpart and Dr. Heming Cui. Dr. Man-Chung Chan is the chairman of the audit committee. The audit committee meets at least two times per year.

Nomination and Remuneration Committee. Our Board of Directors has established a Nomination and Remuneration Committee, which is comprised by majority of independent directors, within the meaning of NASDAQ Marketplace Rules. The Nomination and Remuneration Committee is responsible for reviewing the salary, incentives and other benefits of our directors, senior executive officers and employees, and to make recommendations on such matters for approval by our Board of Directors. The Nomination and Remuneration Committee is also responsible for overseeing and advising our Board of Directors about the adoption of policies that govern our compensation programs. Dr. Man-Chung Chan, Mr. Uwe von Parpart and Dr. Heming Cui are the current members of the Nomination and Remuneration Committee, each qualified as an "independent director" within the meaning of NASDAQ Marketplace Rules. Dr. Man-Chung Chan is the chairman of this committee.

 

 

61


 

 

Corporate Governance Requirements Arising from Our U.S. Listing - the Sarbanes-Oxley Act of 2002, SEC Rules and the Nasdaq Capital Market Marketplace Rules

Our shares will be quoted on the Nasdaq Capital Market. The Sarbanes-Oxley Act of 2002, as well as related new rules subsequently implemented by the SEC, require companies which are considered to be foreign private issuers in the U.S, such as us, to comply with various corporate governance practices. In addition, Nasdaq has made certain changes to its corporate governance requirements for companies that are listed on the Nasdaq Capital Market. These changes allow us to follow Australian "home country" corporate governance practices in lieu of the otherwise applicable Nasdaq corporate governance standards, as long as we disclose each requirement of Rule 5600 that we do not follow and describe the home country practice we follow in lieu of the relevant Nasdaq corporate governance standards. We intend to take all actions necessary to maintain compliance with applicable corporate governance requirements of the Sarbanes-Oxley Act of 2002, rules adopted by the SEC and listing standards of Nasdaq. We follow Australian corporate governance practices in lieu of the corporate governance requirements of the Nasdaq Marketplace Rules in respect of:

 

    Nasdaq requirement under Rule 5620(c) that a quorum consist of holders of 33 1/3% of the outstanding ordinary shares - In Australia, we do not have an express requirement that each listed company have a quorum of any particular number of the outstanding ordinary shares, but instead allow a listed issuer to establish its own quorum requirements. Our quorum is currently two persons who are entitled to vote. We believe this quorum requirement is consistent with the requirements in Australia and is appropriate and typical of generally accepted business practices in Australia.

 

    The Nasdaq requirements under Rules 5605(b)(1) and (2) relating to director independence, including the requirements that a majority of the board of directors must be comprised of independent directors and that independent directors must have regularly scheduled meetings at which only independent directors are present -The Nasdaq and ASX definitions of what constitute an independent director are not identical and the requirements relating to the roles and obligations of independent directors are not identical. In Australia, unlike Nasdaq, permits an issuer to establish its own materiality threshold for determining whether a transaction between a director and an issuer affects the director's status as independent and it does not require that a majority of the issuer's board of directors be independent, as long as the issuer publicly discloses this fact. In addition, in Australia, it is not required that the independent directors have regularly scheduled meeting at which only independent directors are present. We believe that our Board composition is consistent with the requirements in Australia and that it is appropriate and typical of generally accepted business practices in Australia.

 

    The Nasdaq requirements under Rule 5605(c)(1) and (2) relating to the composition of the audit committee and the audit committee charter - The Nasdaq and Australia's Recommendations on audit committee requirements are not identical. Moreover, differences in the requirements of Nasdaq and Australia's Recommendation also arise because of the differences in the definitions of who constitutes an independent director, as discussed above. We have an audit committee and audit committee charter that are consistent with the requirements of the Australia Recommendation and which we believe are appropriate and typical of generally accepted business practices in Australia.

 

    The Nasdaq requirements under Rules 5605(d) that compensation of an issuer's officers must be determined, or recommended to the Board for determination, either by a majority of the independent directors, or a compensation committee comprised solely of independent directors, and that director nominees must either be selected, or recommended for the Board's selection, either by a majority of the independent directors, or a nomination committee comprised solely of independent directors. The Nasdaq compensation committee requirements are not identical to the Australia's remuneration and nomination committee requirements. We have established a remuneration committee consisting of a majority of independent directors and an independent chairperson, or publicly disclose that it has not done so. We have a Nomination and Remuneration Committee that is consistent with the requirements in Australia and which we believe is appropriate and typical of generally accepted business practices in Australia.

Directors' Service Contracts

For details of directors' service contracts providing for benefits upon termination of employment, see "Item 6. Directors, Senior Management and Employees - B. Compensation - Service Agreements."

 

 

62


 

 

Indemnification of Directors and Officers

Our Constitution provides that, we may indemnify a person who is, or has been, an officer of our Company, to the full extent permissible by law, out of our property against any liability incurred by such person as an officer in defending proceedings, whether civil or criminal, and whatever their outcome.

In addition, our Constitution provides that to the extent permitted by law, we may pay, or agree to pay, a premium in respect of a contract insuring a person who is or has been an officer of our company or one of our subsidiaries against any liability:

 

    incurred by the person in his or her capacity as an officer of our company or a subsidiary of our company, and

 

    for costs and expenses incurred by that person in defending proceedings relating to that person acting as an officer of IMTE, whether civil or criminal, and whatever their outcome.

 

We maintain a directors' and officers' liability insurance policy. We have established a policy for the indemnification of our directors and officers against certain liabilities incurred as a director or officer, including costs and expenses associated in successfully defending legal proceedings.

 

D.    Employees

As of December 31, 2017, we had 53 employees. Of these employees, 3 were employed in administration and management located in the Australia, 11 employees in finance, administration and management located in the Hong Kong and 23 employees in operations located in Hong Kong, 7 employees in finance, administration and management located in the China and 9 employees in operations located in China.

As of December 31, 2018, we had 74 employees. Of these employees, 2 were employed in administration located in the Australia, 19 employees in finance, administration and management located in the Hong Kong and 27 employees in operations located in Hong Kong, 8 employees in finance, administration and management located in the China and 18 employees in operations located in China.

As of December 31, 2019, we had 53 employees. Of these employees, 2 were employed in administration located in the Australia, 11 employees in finance, administration and management located in the Hong Kong and 14 employees in operations located in Hong Kong, 7 employees in finance, administration and management located in the China and 19 employees in operations located in China.

Each of our full-time employees enters into an employment agreement. We also engage part-time employees from time to time. We may only terminate the employment of any of our employees in accordance with the relevant employee's contract of employment.

Our standard contract of employment for full time and part-time employees provides that we can terminate the employment of an employee without notice for serious misconduct or with between one to three months' notice without cause (as set out in the relevant employee's contract of employment). We can terminate the employment of a casual employee without notice. For a summary of the key terms of employment of each of our senior management, see "Item 6. Directors, Senior Management and Employees - B. Compensation - Service Agreements."

 

E.    Share Ownership

Beneficial Ownership of Senior Management and Directors

The beneficial ownership of senior management and directors are set out in Item 7 (A).

 

 

63


 

 

ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A.   Major Shareholders

The following table sets forth information regarding shares of our common stock beneficially owned as of December 31, 2019 by: (i) each of our directors; (ii) all the directors as a group; and (iii) each person known by us to beneficially own five percent or more of the outstanding shares of our common stock.

 
Name/Address (1)   Common
Stock
Common
Stock
Options Exercisable Within
60 Days
Common
Stock
Purchase Warrants/ Convertible
Note
Exercisable Within
60 Days
Total Stock
and Stock
Based Holdings (1)


%

Ownership (2)

---------------------------   ------------- -------------------- -------------------- ------------------ ----------------
             
Con Unerkov (3) (5)   - - - - -
Uwe von Parpart (4)            
Dr. Man-Chung Chan   - - - - -
Wuhua Zhang   - - - - -
All officers and directors as a Group (4 Persons)   - - - - -
Marvel Finance Limited (6)   2,201,412 - - 2,201,412 65.18%

 

  Notes:
 (1) Except as otherwise indicated, based on information furnished by the owners, we believe that the beneficial owners listed above have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and to the information contained in the footnotes to this table. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Unless otherwise indicated, the address of the beneficial owner is c/o Integrated Media Technology Limited at 7/F., Siu On Center, 188 Lockhart Road, Wanchai, Hong Kong.
(2) For purposes of computing the percentage of outstanding common stocks held by each person or group of persons named above, any shares that such person or group has the right to acquire within 60 days are deemed outstanding but are not deemed to be outstanding for purposes of computing the percentage ownership of any other person or group. As of the date of the table above on December 31, 2019, there were 3,377,386 outstanding shares of our common stock and there was no options, warrants, and convertible notes outstanding entitling the holders to purchase any shares of our common stock owned by officers and/or directors of the Company.

(3)

(4)

Appointed as a director of the Company on May 31, 2019.

Appointed as a director of the Company on December 17, 2019.

(5) The person holds less than one percent of the shares in the Company.
(6) Marvel Finance Limited, a company wholly owned and controlled by Dr. Herbert Ying Chiu Lee.

 

As of May 25, 2020, we had 273,970 shares of our Common Stock held by 245 shareholders in our share registrar in Australia, the host county and we had 3,389,130 shares of our Common Stock held by 25 shareholders in our share registrar in USA.

 

The Company is not aware that it is directly owned or controlled by another corporation, any foreign government or any other natural or legal person(s) severally or jointly. The Company is not aware of any arrangement, the operation of which may result in a change of control of the Company.

 

 

64


 

 

B.   Related Party Transactions

 

The following related party transactions, other than employment matters and indemnification agreements between our directors and executive officers on the one hand and IMTE on the other, occurred during the years ended December 31, 2019 and 2018 which are highlighted in the consolidated financial statements.

 

 

For the year ended December 31, 2019

 

During the year, the Group had the following related party transactions:

 

a)  Purchase of products of A$523,650 from related parties

c)  Service fees paid of A$571,519 to related parties

d)  Interest income of A$115,678 by the ultimate holding company

e)  Company secretarial and service fees paid of A$563,196 to related parties

 

During the year, the Group incurred expenditure of A$40,000 (excluding GST) to BDO Administration (SA) Pty Ltd in respect to company secretarial and taxation services. George Yatzis, Company Secretary of IMT is a director of BDO Administration (SA) Pty Ltd.

 

During the year ended 31 December 2019, the unsecured bank overdraft and bank borrowings are personally guaranteed by our former director, Dr. Herbert Ying Chiu LEE. No charge has been requested for this guarantee.

 

 

For the year ended December 31, 2018

 

During the year, the Group had the following related party transactions:

 

a)  Revenue received from related parties of A$41,291

b)  Purchases of plant and equipment from related parties of A$512,561

c)  Services fees paid of a related party of A$595,645

d)  Finance costs charged of A$396,868 by the ultimate holding company

e)  Company secretarial, taxation service and interim CFO fee totaling A$117,663 paid to a company where our former Company Secretary George Yatzis is a partner

 

During the year, on December 12, 2018 the shareholders of the Company approved the settlement of A$8,000,000 debt owed to MFL by the issuance of 708,500 shares in the Company. As at December 31, 2108, MFL owns 2,201,412 shares, representing approximately 65.18% in the Company and is the ultimate controlling party of the Group.

 

During the year, a Group company GOXD Technology Limited entered into a loan agreement to lend A$1,085,820 (HK$6,000,000) to Marvel Finance Limited, its parent company. The loan bears interest at 10% per annum, unsecured and payable on September 30, 2019. The Company accrued interest income of A$19,933 during the year. As at December 31, 2018, Marvel Finance Limited owed to the Group A$904,850 (HK$ 5,000,000) in respect of the loan.

 

During the year, on December 1, 2018, a Group company entered into a loan agreement with Oakridge (Hong Kong) Corporation Limited, a company owned and controlled by Dr. Herbert Ying Chiu LEE, where the Group borrowed of A$1,664,924 (HK$9,200,000) from Oakridge (Hong Kong) Corporation Limited. Pursuant to the loan agreement, the loan is non-interest bearing, unsecured and repayable on September 30, 2019.

 

During the year the Company used a 3,000 sq feet administrative and accounting office in Hong Kong rent free. This office belongs to the family of Dr. Herbert Ying Chiu Lee. There is no written lease agreement, but a general understanding that there will be a 3 months notice period to vacate this office. The Company's responsibility is to pay for the utilities.

 

During the years ended 31 December 2017 and 2018, the unsecured bank overdraft and bank borrowings are personally guaranteed by our director, Dr. Herbert Ying Chiu LEE. No charge has been requested for this guarantee.

 

C.   Interests of Experts and Counsel

Not applicable.

 

 

65


 

 

ITEM 8.   FINANCIAL INFORMATION

 

A.   Consolidated Statements and Other Financial Information

Our audited consolidated financial statements for the fiscal year ending December 31, 2019 are included in Item 18 of this annual report on Form 20-F.

Legal Proceedings

We are not involved in any significant legal, arbitration or governmental proceedings. We are not aware of any pending significant legal, arbitration or governmental proceedings with respect to IMTE.

Dividend Distribution Policy

We have never paid cash dividends to our shareholders. We intend to retain future earnings for use in our business and do not anticipate paying cash dividends on our ordinary shares in the foreseeable future. Any future dividend policy will be determined by the Board of Directors and will be based upon various factors, including our results of operations, financial condition, current and anticipated cash needs, future prospects, contractual restrictions and other factors as the Board of Directors may deem relevant.

 

B.   Significant Changes

 

On November 23, 2017, our major shareholder, Marvel Finance Limited, informed the Company that it had entered into a conditional share swap agreement with Vantage Ultimate Limited, a wholly owned subsidiary of Sharing Economy International Inc. (Nasdaq: SEII) being 1,348,241 fully paid ordinary shares at a price of US$10.00 per IMTE share (valuing the parcel of shares at US$13,482,410). In consideration for the transfer, Vantage Ultimate Limited shall arrange for SEII to issue and allocate a certain number of its ordinary voting shares, representing 19.5% of the then issued share capital of SEII, and a 5 year interest free promissory note with a principal amount of US$11,482,410 to MFL. The agreement is subject to various conditions, including entry into a definitive agreement satisfactory to the parties and legal and financial due diligence on or before February 28, 2018. On March 1, 2018, MFL has indicated as the timeline has ended on February 2018, the conditional share swap agreement has lapsed pursuant to its terms therein.

 

On January 12, 2018, the Group entered into the following agreements in connection with the issue of a HK$23 million (equivalent to approximately AU$3.8 million) Convertible Bonds (the "Convertible Bonds"): (i) Subscription Agreement between Marvel Digital Limited, a wholly-owned subsidiary of the Company (the "Issuer" or "MDL") and an independent third party entity ("Bondholder") for the Convertible Bonds, (ii) Deed of Guarantee between the Company and the Bondholder to guarantee the payment obligations under the Convertible Bonds and (iii) Put Option Deed between the Company and the Bondholder to repurchase any converted MDL Shares as described below. On the same date, pursuant to the Subscription Agreement, the Convertible Bonds were issued by MDL to the Bondholder as all the terms and conditions in respect of the Subscription of the Convertible Bonds were complied with and fulfilled.

 

Pursuant to the terms of the Convertible Bonds, the Convertible Bonds are convertible in the circumstances set out therein into 75,000 ordinary shares of MDL ("MDL Shares") at a conversion price of HK$306.67 per share, which is equivalent to 20% of the then enlarged issued share capital of MDL. The Bondholder will have the right to convert the whole of their Convertible Bonds into ordinary shares of MDL at any time during the period from January 3, 2018 to January 2, 2020. The period may be extended to a further 12 months subject to the mutual agreement among MDL, Company and Bondholder. Unless previously redeemed or converted, the Convertible Bonds will be redeemed at 100% of their principal amount on the Maturity Date.

 

On March 19, 2018, the Company announced that it had entered into two sale distribution agreements valued at approximately A$14.8 million (RMB76 million) with two independent customers. The agreements relate to sales of autostereoscopic 3D digital video walls and standalone digital signage. During 2018, we sold A$922,753 under these agreements and these agreements have since expired.

 

On July 17, 2018, the Company issued 25,275 ordinary shares at a share price of US$14.45 (or about A$19.456) per share for a total subscription proceeds of A$491,750.

 

On August 6, 2018, Marvel Digital Limited completed the Share Subscription Agreement (the "Subscription Agreement") entered into with an independent investor (the "Investor"). Pursuant to the Subscription Agreement, MDL received a total of approximately A$2,573,000 (HK$15,000,000) and issued to the Investor 15,790 ordinary shares in MDL (the "New Shares"). The New Shares represents approximately 5% of the then enlarged issued share capital of MDL and upon the issuance of the New Shares in MDL, IMTE's ownership interest in MDL decreased from 100% to 95%.

 

 

66


 

 

On August 8, 2018, one of the its subsidiaries of the Group, GOXD Technology Limited ("GOXD"), received approximately A$5,378,000 (US$4,000,000) under an Equity Investment Agreement (the "Equity Agreement") executed with an independent investor (the "Investor"). Pursuant to the Equity Agreement, GOXD agreed to issue to the Investor 20% of the enlarged share capital of GOXD for an aggregate subscription price of approximately A$5,378,000 (US$4,000,000). GOXD is a subsidiary of Marvel Digital Limited ("MDL") which is a subsidiary of IMTE. The proceeds from this issue of shares will be used by GOXD for marketing and promotion, product development, operations, order fulfillment, and working capital. In addition, the Investor has agreed to spend no less than approximately A$1,345,000 (US$1 million) for marketing and customer care, call center and other functions as required under the GOXD brand by the end of 2019 in Japan. Upon the issuance of the shares in GOXD to the Investor, MDL's shareholding in GOXD will be decreased from 100% to 80%.

 

On 12 December 2018, the shareholders of the Company approved the settlement of A$8,000,000 of debt owed to Marvel Finance Limited, the ultimate holding company of the Company, by the issuance of 708,500 shares in the Company.

 

In April 2019, the Company and Teko International Limited ("Teko") entered into a distribution rights agreement for the territory of Hong Kong and Guangzhou Province, China ("Territories") for a proprietary conductive film and 3rd generation Polymer Dispersed Liquid Crystal ("PDLC") film. Pursuant to the Agreement, the Company shall pay 50,000 IMTE shares upon the commissioning of one (1) lamination line, (ii) for each of the next 3 years after the commissioning of the manufacturing line, IMTE shall pay Teko 50,000 IMTE shares should the annual revenue reach US$10 million or 100,000 IMTE shares should the revenue reach US$20 million, and (iii) 50,000 IMTE shares for each additional lamination line installed. In addition, for managing the operations, the Company will pay to Teko 25% of the net profits from the sale of the PDLC fil products and the lamination operations. Mr. Con Unerkov and Mr. Cecil Ho, both the CEO and CFO, respectively of IMTE, were then directors and shareholders of Teko.

 

On January 20, 2020, the Company entered into a convertible note purchase agreement (the "Purchase Agreement") with CIMB Limited, an independent third party. Pursuant to the Purchase Agreement, CIMB will loan HK$14 million (about US$1.8 million) under a convertible promissory note (the "Note") with a coupon rate of 10% per annum, maturing in two years from the date of the Purchase Agreement. Interest is payable in cash on a quarterly basis, with the first payment due by March 31, 2020. The Company, at its sole option, may pay interest in ordinary shares based on 75% of the average of the closing prices of its ordinary shares for the five trading days prior to each end-of-quarter interest due date. The holder of the Note has the right to convert the principal and accrued interest to ordinary shares of the Company at a conversion price of US$5.00 per share over the term of the Note. The conversion price is subject to downward adjustment if the Company sells ordinary shares below the conversion price within 12 months after the date of the Purchase Agreement. Both the Company and the holder may request prepayment of the Note at any time without penalty after the Company receives financing of a minimum of US$4 million. The holder of the Note is also entitled to piggyback registration rights.

 

On February 11, 2020, the Company and the holder of the Note entered into a supplement agreement to the Note Purchase Agreement to limit the total number of ordinary shares of the Company issuable upon conversion of the Note to no more than 19.99% of the total issued and outstanding ordinary shares of the Company as of the date of Purchase Agreement. The supplement agreement further provides that the conversion price shall, in no event, be less than US$1.50 per share, subject to regulatory or shareholder approval.

 

As announced in the Form 6K on February 24, 2020, on February 20, 2020, the Company entered into a Securities Purchase Agreement for the sale of 158,730 ordinary shares of the Company ("Ordinary Shares") and warrants ("Warrants") to purchase up to 126,984 ordinary shares ("Warrant Shares") to an accredited investor ("Investor") at a price of US$6.30 per share (the "Cash Offering"). The Warrants will be exercisable for the period of 12 months from the date of issuance, at an exercise price of US$10.50 per Share. The Cash Offering is for US$1 million and will generate a net cash proceeds of approximately US$920,000 after deducting estimated expenses in connection with the offering. The Company intends to use the net cash proceeds for partially paying off debts to a bondholder and general corporate purposes.

 

Pursuant to the Securities Purchase Agreement, the Company may not, subject to certain exceptions, within 120 days of the closing, issue or enter into any agreement, other than with the Investor, to issue any ordinary shares (or securities convertible into ordinary shares) with registration rights or involving a drawdown 'off the shelf' on a variable rate transaction. Furthermore, the Investor a right of first participation, subject to certain conditions and only as long as the Investor holds Warrants (which expire 12 months after issuance), to participate in an amount of up to US$5 million in any debt or equity capital raising proposed by the Company.

 

Pursuant to the form of Warrant, if the VWAP of the Company's ordinary shares on the trading day immediately prior to the exercise date is less than US$10.50, then the Warrants may be exercised at such time by means of a cashless exercise where each Warrant exercised would receive one Share without any cash payment to the Company.

 

On May 12, 2020, the Company issued the Warrant Shares as a result of the exercise of Warrants. The Warrants were exercised by means of a cashless exercise where each Warrant exercised would receive one Share without any cash payment to the Company as the VWAP of the Company's ordinary shares on the trading day immediately prior to the exercise date was less than US$10.50 per Share.

 

In May 2020, the Company disposed its research and development operation to independent third parties so that the Group could rationalize its operations and focus on the marketing and sales of autostereoscopic 3D displays.

 

 

67


 

 

ITEM 9.   THE OFFER AND LISTING

 

A.   Offer and Listing Details

 

Nasdaq Capital Markets

Our ordinary shares have traded on the Nasdaq Capital Markets since August 4, 2017. The following table sets forth, for the periods indicated, the high and low market quotations for our ordinary shares as quoted on the Nasdaq since being listed on the Nasdaq Capital Markets.

 

         
    Per Ordinary Share (A$)
    High   Low

Fiscal Year Ended December 31,2017

  US$   US$
August 2017   7.20   6.00
September 2017   8.03   7.34
October 2017   7.50   7.12
November 2017   10.00   6.00
December 2017   7.24   5.60
         
         

Fiscal Year Ended December 31, 2018:

       
First Quarter   6.25   3.19
Second Quarter   44.00   1.85
Third Quarter   18.04   8.38
Fourth Quarter   12.99   4.01
         
Fiscal Year Ended December 31, 2019:        
First Quarter   18.00   5.31
Second Quarter   15.51   7.30
Third Quarter   10.26   6.35
Fourth Quarter   11.82   5.44
         
Month Ended:        
July 2019   10.26   6.35
August 2019   8.84   6.50
September 2019   8.60   6.66
October 2019   7.50   6.50
November 2019   8.71   5.44
December 2019   11.82   6.50
January 2020   9.9   7.72
February 2020   8.5   4.84
March 2020   5.49   2.60
April 2020   5.24   2.88
May 2020   4.37   2.93

 

Australian Securities Exchange

Our ordinary shares have traded on the ASX since our initial public offering on February 22, 2013 to our delisting from the ASX on June 15, 2018.

 

B.   Plan of Distribution

Not applicable.

 

C.   Markets

Our ordinary shares are listed and traded on the NASDAQ Capital Market and was traded on the Australian Securities Exchange Ltd., or ASX from February 2013 to June 15, 2018 when it was delisted from the ASX.

 

D.   Selling Shareholders

Not applicable.

 

E.   Dilution

Not applicable.

 

F.    Expenses of the Issue

Not applicable.

 

 

68


 

 

ITEM 10.   ADDITIONAL INFORMATION

 

A.   Share Capital

As at the date of this Annual report, there is no concept of authorized share capital and par value for companies incorporated in Australia. The Company can issue unlimited number of Common Stock without par value. The Company only has one class of Common Stock.

As at December 31, 2017, we had 2,643,611 Common Stock issued, outstanding and fully paid.

On July 17, 2018, the Company issued 25,275 ordinary shares at a share price of US$14.45 (on about A$ 19.456) per share for a total subscription proceeds of A$491,750 for settlement of consultancy service payment.

On December 12, 2018, the shareholder of the Company approved the conversion of A$8,000,000 of debt owed to Marvel Finance Limited, the ultimate holding company, by the issuance of 708,500 shares in the Company.

 

As at December 31, 2019, we had 3,377,386 Common Stock issued, outstanding and fully paid.

 

On February 20, 2020 the Company completed a Securities Purchase Agreement (“SPA”) and  issued 158,730 ordinary shares at a share price of USD6.30 (or about A$) per share for a total subscription proceeds of USD1,000,000.

 

On May 12, 2020, the Company issued 126,984 ordinary shares as a result of the exercise of warrants (as describe more fully under Warrants below) issued under the SPA above. The warrants were exercised by means of a cashless exercise pursuant to conditions in the form of warrant.

 

Common Stock

 

Each Common Stock entitles the holder thereof to one vote at any meeting of IMTE's shareholders. The holder of Common Shares is entitled to receive if, as and when declared by the Board, dividends in such amount as shall be determined by the Board. The holders of Common Shares have the right to receive the Company's remaining property in the event of a liquidation, dissolution or winding up, whether voluntary or involuntary.

 

Warrants

On February 20, 2020 the Company entered into a SPA for the sale of 158,730 ordinary shares of the Company and warrants (“Warrants”) to purchase up to 126,984 ordinary shares. The Warrants were exercisable for the period of 12 months from the date of issuance, at an exercise price of US$10.50 per Share. If the VWAP of the Company’s ordinary shares on the trading day immediately prior to the exercise date is less than US$10.50, then the Warrants may be exercised at such time by means of a cashless exercise where each Warrant exercised would receive one Share without any cash payment to the Company.  On May 12, 2020, all the Warrants were exercised by means of a cashless exercise.

 

Options

 

The Company has no share options outstanding at the date of this Annual report.

 

B.     Memorandum and Articles of Association

 

Incorporated by reference to our registration statement on Form 20-F filed on July 21, 2017.

 

C.   Material Contracts

 

Except for contracts entered into in the ordinary course of business, the only contracts entered into by IMTE within two years immediately preceding this Annual report that are still in effect, which may be regarded as material are as follows:

 

None.

 

 

69


 

 

D.       Exchange Controls

 

Australia has largely abolished exchange controls on investment transactions. The Australian dollar is freely convertible into U.S. dollars. In addition, there are currently no specific rules or limitations regarding the export from Australia of profits, dividends, capital or similar funds belonging to foreign investors, except that certain payments to non-residents must be reported to the Australian Transaction Reports and Analysis Centre, which monitors such transaction, and amounts on account of potential Australian tax liabilities which may be required to be withheld unless a relevant taxation treaty can be shown to apply. Article 11.8 of the free trade agreement between Australia and the US provides that all transfers relating to a covered investment is to be made freely and without delay into and out of each territory. Such transfers include inter alia contributions to capital, including the initial contribution; profits, dividends, capital gains and proceeds from the sale of all or any part of the covered investment or from the partial or complete liquidation of the covered investment.

 

The Foreign Acquisitions and Takeovers Act 1975

Under Australian law, in certain circumstances foreign persons are prohibited from acquiring more than a limited percentage of the shares in an Australian company without approval from the Australian Treasurer. These limitations are set forth in the Australian Foreign Acquisitions and Takeovers Act, or the Takeovers Act.

Under the Takeovers Act, as currently in effect, any foreign person, together with associates, or parties acting in concert, is prohibited (without approval) from acquiring 20% or more of the shares in any company having total assets of A$252 million or more (or A$1,094 million or more in case of private (non-government) U.S. investors). "Associates" is a broadly defined term under the Takeovers Act and includes:

 

    spouses, lineal ancestors and descendants, and siblings;
       
    any person with whom the person is acting, or proposes to act, in concert;

 

    partners, officers of companies, the company, employers and employees, and corporations;

 

    their shareholders related through substantial shareholdings or voting power;

 

    corporations whose directors are controlled by the person, or who control a person; and

 

    associations between trustees and substantial beneficiaries of trust estates.

In addition, a foreign person may not acquire shares in a company having total assets of A$252 million or more (or A$1,094 million or more in case of private (non-government) U.S. investors) if, as a result of that acquisition, the total holdings of all foreign persons and their associates will exceed 40% in aggregate without the approval of the Australian Treasurer. If the necessary approvals are not obtained, the Treasurer may make an order requiring the acquirer to dispose of the shares it has acquired within a specified period of time. At present, we do not have total assets of A$252million or more. At this time, our total assets do not exceed any of the above thresholds and therefore no approval would be required from the Australian Treasurer. Nonetheless, should our total assets exceed the threshold in the future, we will be mindful to monitor the holdings for foreign persons (together with the associates) to ensure that the thresholds will not be exceeded without the Australian Treasurer's approval.

Each foreign person seeking to acquire holdings in excess of the above caps (including their associates, as the case may be) would need to complete an application form setting out the proposal and relevant particulars of the acquisition/shareholding. The Australian Treasurer then has 30 days to consider the application and make a decision. However, the Australian Treasurer may extend the period by up to a further 90 days by publishing an interim order. The Australian Treasurer has issued a guideline titled Australia's Foreign Investment Policy which provides an outline of the policy. As for the risk associated with seeking approval, the policy provides that the Treasurer will reject an application if it is contrary to the national interest.

If the level of foreign ownership exceeds 40% at any time (or if one individual not ordinarily resident in Australia, a foreign corporation or a foreign government holds at least 20%), we would be considered a foreign person under the Takeovers Act. In such event, we would be required to obtain the approval of the Australian Treasurer for our company, together with our associates, to acquire (i) more than 20% of an Australian company or business with assets totaling over A$252 million (or A$1,094 million if we were considered a private US investor); or (ii) any direct or indirect ownership in certain real estate interests.

 

The percentage of foreign ownership in our company would also be included in determining the foreign ownership of any Australian company or business in which we may choose to invest. Since we have no current plans for any such investments or acquisitions and do not currently own any relevant real estate interests, any such approvals required to be obtained by us as a foreign person under the Takeovers Act will not affect our current or future ownership or lease of real estate interests in Australia.

Our Constitution does not contain any additional limitations on a non-resident's right to hold or vote our securities.

Australian law requires the transfer of shares in our company to be made in writing. No stamp duty will be payable in Australia on the transfer of ordinary shares quoted on the NASDAQ.

 

 

70


 

 

The Financial Transactions Reports Act 1988

 

The Financial Transactions Reports Act 1988 (Cth) is an act of the Parliament of the Commonwealth of Australia, designed to facilitate the administration and enforcement of Australia's taxation laws. It provides for the reporting of certain financial transactions and transfers, including the export or import of currency exceeding $10,000 to Australian Transaction Reports and Analysis Centre.

 

The Income Tax Assessment Act of 1936 and the Income Tax Assessment Act of 1997 (collectively, the "Tax Act")

 

The Income Tax Assessment Act 1936 (Cth) and the Income Tax Assessment Act 1997 (Cth) (collectively, the " Tax Act ") is the principal law governing the imposition of Federal taxes in Australia (except goods and services tax and a number of specific taxes such as fringe benefits tax).

 

Under the Tax Act, in some circumstances overseas residents are obliged to pay income tax in Australia on income derived from Australian sources or property.

 

E.   Taxation

 

The following is a summary of the current tax laws of the U.S. (including the Internal Revenue Code of 1986, as amended, its legislative history, existing and proposed regulations thereunder, published rulings and court decisions) and Australia as they relate to us and our shareholders, including United States and other non-Australian shareholders. The summary is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change, possibly on a retroactive basis. The discussion does not address any aspects of U.S. taxation other than federal income taxation or any aspects of Australian taxation other than federal income taxation, inheritance taxation, stamp duty and goods and services tax.

Existing and prospective holders of ordinary shares are advised to consult their own tax advisors with respect to the specific tax consequences to them of the purchase, ownership and disposition of ordinary shares, including, in particular, the effect of any foreign, state or local taxes.

 

Australian Tax Consequences

 

Non-Australian residents may be liable to pay Australian tax on income derived from Australian sources. One mechanism by which that tax is paid (for non-residents who have no permanent establishment or fixed base in Australia or where the income is not connected with a permanent establishment or fixed base) is known as withholding tax. Dividends paid by a resident Australian company to a resident of the United States of America who is entitled to the benefits of the Australia/US double tax treaty and is beneficially entitled to the dividends are subject to withholding tax at the rate of 15% to the extent the dividends are ‘unfranked'. The rate of withholding tax on dividends is normally 30%, but since the United States has concluded a double tax treaty agreement with Australia, the rate is reduced to 15% where the benefits of the treaty apply. It should be noted, however, that under Section 128B(3) of the Income Tax Assessment Act 1936 (Cth), to the extent that dividends paid to non-residents have been franked (generally where a company pays tax itself), such dividends are exempt from withholding tax. "Franked dividends" is the expression given to dividends when the profits out of which those dividends are paid have been taxed at company level and such tax is allocated to the dividend. Accordingly, an Australian company paying fully franked dividends to a non-resident is not required to deduct any withholding tax. Dividends on which withholding tax has been paid are generally not subject to any further Australian tax. In other words, the withholding tax should represent the final Australian tax liability in relation to those dividends.

The pertinent provisions of the double tax treaty between Australia and the United States provide that dividends are primarily liable for tax in the country of residence of the beneficial owner of the dividends. However, the source country, in this case Australia, may also tax them, but in such case the tax will be limited to 15% if the benefits of the treaty apply. Where the beneficial owner is a United States resident corporation that directly holds at least 10% of the voting power in us, the tax will be limited to 5%. The 15% limit does not apply to dividends derived by a resident of the United States of America who has a permanent establishment or fixed base in Australia, if the holding giving rise to the dividends is effectively connected with that establishment or base. Such dividends are taxed on a net assessment basis as business income or independent personal services income as the case may be.

We have not paid any cash dividends since our inception and we do not anticipate the payment of cash dividends in the foreseeable future. See "Item 8.A. Financial Statements and Other Financial Information–Dividend Policy."

Capital gains tax in Australia is payable on net assessable ‘real gains' over the period in which the shares have been held, that is, the difference between the selling price and the total cost price calculated under Australian tax law. In some cases the cost price may be indexed for inflation, or, if the shares have been held for more than one year, certain taxpayers can, with respect to shares held for more than one year, be eligible for a discount of up to 50% of the gross gain. Capital losses may be available to offset capital gains.

 

 

71


 

 

Stamp Duty

 

Any transfer of shares through trading on the NASDAQ, whether by Australian residents or foreign residents, should not be subject to stamp duty. 

 

Australian Death Duty

 

Australia does not have estate or death duties. Generally no capital gains tax liability is realized upon the inheritance of a deceased person's shares. The disposal of inherited shares by beneficiaries, may, however, give rise to a capital gains tax liability.

 

Goods and Services Tax

 

The issue or transfer of shares will not incur Australian goods and services tax and does not require a stockholder to register for Australian goods and services tax purposes.

 

U.S. Federal Income Tax Considerations

 

The following discussion summarizes the principal U.S. federal income tax considerations relating to the purchase, ownership and disposition of our ordinary shares by a U.S. holder (as defined below) holding such shares as capital assets (generally, property held for investment). This summary is based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury regulations, administrative pronouncements of the U.S. Internal Revenue Service (the "IRS") and judicial decisions, all as in effect on the date hereof, and all of which are subject to change (possibly with retroactive effect) and to differing interpretations. This summary does not describe any state, local or non-U.S. tax law considerations, or any aspect of U.S. federal tax law other than income taxation; U.S. holders are urged to consult their own tax advisors regarding such matters.

This summary does not purport to address all material federal income tax consequences that may be relevant to a holder of ordinary shares or warrants. This summary does not take into account the specific circumstances of any particular investors, some of which (such as tax-exempt entities, banks or other financial institutions, insurance companies, broker-dealers, traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, regulated investment companies, real estate investment trusts, U.S. expatriates, investors liable for the alternative minimum tax, partnerships and other pass-through entities, investors that own or are treated as owning 10% or more of our voting stock, investors that hold the ordinary shares as part of a straddle, hedge, conversion or constructive sale transaction or other integrated transaction, and U.S. holders whose functional currency is not the U.S. dollar) may be subject to special tax rules  This discussion does not address U.S. federal tax laws other than those pertaining to U.S. federal income taxation (such as estate or gift tax laws or the Medicare tax on investment income), nor does it address any aspects of U.S. state or local or non-U.S. taxation.

As used below, a "U.S. Holder" is a beneficial owner of an ordinary share that is, for U.S. federal income tax purposes, (i) a citizen or resident alien individual of the United States, (ii) a corporation (or an entity taxable as a corporation) created or organized under the law of the United States, any State thereof or the District of Columbia, (iii) an estate, the income of which is subject to U.S. federal income tax without regard to its source, or (iv) a trust if (1) a court within the United States is able to exercise primary supervision over the administration of the trust, and one or more U.S. persons have the authority to control all substantial decisions of the trust, or (2) the trust has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person. For purposes of this discussion, a "Non-U.S. Holder" is a beneficial owner of an ordinary share or warrant that is (i) a non-resident alien individual, (ii) a corporation (or an entity taxable as a corporation) created or organized in or under the law of a country other than the United States or a political subdivision thereof or (iii) an estate or trust that is not a U.S. holder. This discussion does not address any aspect of U.S. federal gift or estate tax, or state, local or non-U.S. tax laws. Additionally, the discussion does not consider the tax treatment of partnerships or other pass-through entities or persons who hold ordinary shares through such entities. If a partnership (including for this purpose any entity treated as a partnership for U.S. federal tax purposes) is a beneficial owner of ordinary shares or warrants, the U.S. federal tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. A holder of ordinary shares or warrants that is a partnership and partners in that partnership are urged to consult their own tax advisers regarding the U.S. federal income tax consequences of purchasing, holding and disposing of ordinary shares or warrants.

We have not sought a ruling from the IRS or an opinion of counsel as to any U.S. federal income tax consequence described herein. The IRS may disagree with the description herein, and its determination may be upheld by a court.

 

 

72


 

 

GIVEN THE COMPLEXITY OF THE TAX LAWS AND BECAUSE THE TAX CONSEQUENCES TO ANY PARTICULAR INVESTOR MAY BE AFFECTED BY MATTERS NOT DISCUSSED HEREIN, PROSPECTIVE INVESTORS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF THE ACQUISITION, OWNERSHIP AND DISPOSITION OF ORDINARY SHARES, INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS, AS WELL AS U.S. FEDERAL TAX LAWS.

 

TO ENSURE COMPLIANCE WITH REQUIREMENTS IMPOSED BY THE IRS UNDER TREASURY CIRCULAR 230, WE INFORM YOU THAT (1) ANY DISCUSSION OF U.S. FEDERAL INCOME TAX ISSUES CONTAINED HEREIN (INCLUDING ANY ATTACHMENTS), UNLESS OTHERWISE SPECIFICALLY STATED, WAS NOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OF AVOIDING PENALTIES UNDER THE UNITED STATES INTERNAL REVENUE CODE, AND (2) EACH U.S. HOLDER SHOULD SEEK ADVICE BASED UPON THEIR PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.

    

Taxation of Distributions

U.S. Holders.  In general, subject to the passive foreign investment company ("PFIC") rules discussed below, a distribution on an ordinary share will constitute a dividend for U.S. federal income tax purposes to the extent that it is made from our current or accumulated earnings and profits as determined under U.S. federal income tax principles. If a distribution exceeds the amount of our current and accumulated earnings and profits, it will be treated as a non-taxable reduction of basis to the extent of the U.S. Holder's tax basis in the ordinary share on which it is paid, and to the extent it exceeds that basis it will be treated as a capital gain. For purposes of this discussion, the term "dividend" means a distribution that constitutes a dividend for U.S. federal income tax purposes.

The gross amount of any dividend on an ordinary share (which will include the amount of any Australian taxes withheld) generally will be subject to U.S. federal income tax as foreign source dividend income and will not be eligible for the corporate dividends received deduction. The amount of a dividend paid in Australian currency will be its value in U.S. dollars based on the prevailing spot market exchange rate in effect on the day that the U.S. Holder receives the dividend, whether or not the dividend is converted into U.S. dollars. A U.S. holder will have a tax basis in any distributed Australian currency equal to its U.S. dollar amount on the date of receipt, and any gain or loss realized on a subsequent conversion or other disposition of the Australian currency generally will be treated as U.S. source ordinary income or loss. If dividends paid in Australian currency are converted into U.S. dollars on the date they are received by a U.S. Holder, the U.S. Holder generally should not be required to recognize foreign currency gain or loss in respect of the dividend income. U.S. Holders are urged to consult their own tax advisers regarding the treatment of any foreign currency gain or loss if any Australian currency received by the U.S. Holder is not converted into U.S. dollars on the date of receipt.

Subject to certain exceptions for short-term and hedged positions, any dividend that a non-corporate holder receives on an ordinary share will be subject to tax rate of 20% if the dividend is a "qualified dividend". A dividend on an ordinary share will be a qualified dividend if (i) either (a) the ordinary shares are readily tradable on an established securities market in the U.S. or (b) we are eligible for the benefits of a comprehensive income tax treaty with the U.S. that the U.S. Secretary of the Treasury determines is satisfactory for purposes of these rules and that includes an exchange of information program, and (ii) we were not, in the year prior to the year the dividend was paid, and are not, in the year the dividend is paid, a PFIC. The ordinary shares are listed on the Nasdaq Capital Market, which should then qualify them as readily tradable on an established securities market in the United States. In any event, the double tax treaty between Australia and the U.S. (the "Treaty") satisfies the requirements of clause (i)(b), and, although the matter is not free from doubt, we believe that we should be a resident of Australia entitled to the benefits of the Treaty. However, because the facts relating to our entitlement to the benefits of the Treaty can change over time, there can be no assurance that we will be entitled to the benefits of the Treaty for any taxable year. As discussed above, qualified dividends do not include dividends paid by a company which was a PFIC in the year prior to the year the dividend was paid, or in the year the dividend is paid. Based on our audited financial statements and relevant market and shareholder data, we believe we were not a PFIC for U.S. federal income tax purposes for our December 31, 2019 taxable year. Based on our audited consolidated financial statements and our current expectations regarding the value and nature of our assets, the sources and nature of our income, and relevant market and shareholder data, we do not expect that we could be classified as a PFIC for our December 31, 2019 taxable year. Given that the determination of PFIC status involves the application of complex tax rules, and that it is based on the nature of our income and assets from time to time, no assurances can be provided that we will not be considered a PFIC for any past or future taxable year. Moreover, as described in the section below entitled "Passive Foreign Investment Company Rules," if we were a PFIC in a year while a U.S. Holder held an ordinary share, and if the U.S. Holder has not made a qualified electing fund election effective for the first year the U.S. Holder held the ordinary share, the ordinary share remains an interest in a PFIC for all future years or until such an election is made. The IRS takes the position that that rule will apply for purposes of determining whether an ordinary share is an interest in a PFIC in the year a dividend is paid or in the prior year, even if the Company does not satisfy the tests to be a PFIC in either of those years.

  

 

73


 

 

Even if dividends on the ordinary shares would otherwise be eligible for qualified dividend treatment, in order to qualify for the reduced qualified dividend tax rates, a non-corporate holder must hold the ordinary share on which a dividend is paid for more than 60 days during the 120-day period beginning 60 days before the ex-dividend date, disregarding for this purpose any period during which the non-corporate holder has an option to sell, is under a contractual obligation to sell or has made (and not closed) a short sale of substantially identical stock or securities, is the grantor of an option to buy substantially identical stock or securities or, pursuant to Treasury regulations, has diminished their risk of loss by holding one or more other positions with respect to substantially similar or related property. In addition, to qualify for the reduced qualified dividend tax rates, the non-corporate holder must not be obligated to make related payments with respect to positions in substantially similar or related property. Payments in lieu of dividends from short sales or other similar transactions will not qualify for the reduced qualified dividend tax rates. A non-corporate holder that receives an extraordinary dividend eligible for the reduced qualified dividend rates must treat any loss on the sale of the stock as a long-term capital loss to the extent of the dividend. For purposes of determining the amount of a non-corporate holder's deductible investment interest expense, a dividend is treated as investment income only if the non-corporate holder elects to treat the dividend as not eligible for the reduced qualified dividend tax rates. Special limitations on foreign tax credits with respect to dividends subject to the reduced qualified dividend tax rates apply to reflect the reduced rates of tax.

The U.S. Treasury has announced its intention to promulgate rules pursuant to which non-corporate holders of stock of non-U.S. corporations, and intermediaries though whom the stock is held, will be permitted to rely on certifications from issuers to establish that dividends are treated as qualified dividends. Because those procedures have not yet been issued, it is not clear whether we will be able to comply with them.

Non-corporate holders of ordinary shares are urged to consult their own tax advisers regarding the availability of the reduced qualified dividend tax rates in the light of their own particular circumstances.

Any Australian withholding tax will be treated as a foreign income tax eligible for credit against a U.S. Holder's U.S. federal income tax liability, subject to generally applicable limitations under U.S. federal income tax law. For purposes of computing those limitations separately under current law for specific categories of income, a dividend generally will constitute foreign source "passive category income" or, in the case of certain holders, "general category income". A U.S. Holder will be denied a foreign tax credit with respect to Australian income tax withheld from dividends received with respect to the ordinary shares to the extent the U.S. Holder has not held the ordinary shares for at least 16 days of the 30-day period beginning on the date which is 15 days before the ex-dividend date or to the extent the U.S. Holder is under an obligation to make related payments with respect to substantially similar or related property. Any days during which a U.S. Holder has substantially diminished its risk of loss on the ordinary shares are not counted toward meeting the 16-day holding period required by the statute. The rules relating to the determination of the foreign tax credit are complex, and U.S. Holders are urged to consult with their own tax advisers to determine whether and to what extent they will be entitled to foreign tax credits as well as with respect to the determination of the foreign tax credit limitation. Alternatively, any Australian withholding tax may be taken as a deduction against taxable income, provided the U.S. Holder takes a deduction and not a credit for all foreign income taxes paid or accrued in the same taxable year. In general, special rules will apply to the calculation of foreign tax credits in respect of dividend income that is subject to preferential rates of U.S. federal income tax.

Non-U.S. Holders.  A dividend paid to a Non-U.S. Holder on an ordinary share will not be subject to U.S. federal income tax unless the dividend is effectively connected with the conduct of trade or business by the non-U.S. Holder within the United States (and is attributable to a permanent establishment or fixed base the Non-U.S. Holder maintains in the United States if an applicable income tax treaty so requires as a condition for the Non-U.S. Holder to be subject to U.S. taxation on a net income basis on income from the ordinary share). A Non-U.S. Holder generally will be subject to tax on an effectively connected dividend in the same manner as a U.S. Holder. A corporate Non-U.S. Holder may also be subject under certain circumstances to an additional "branch profits tax," the rate of which may be reduced pursuant to an applicable income tax treaty.

 

Taxation of Capital Gains

 

U.S. Holders.  Subject to the passive foreign investment company rules discussed below, on a sale or other taxable disposition of an ordinary share, a U.S. Holder will recognize capital gain or loss in an amount equal to the difference between the U.S. Holder's adjusted basis in the ordinary share and the amount realized on the sale or other disposition, each determined in U.S. dollars.

Such capital gain or loss will be long-term capital gain or loss if at the time of the sale or other taxable disposition the ordinary share has been held for more than one year. In general, any adjusted net capital gain of an individual is subject to a federal income tax rate of 20%. Capital gains recognized by corporate U.S. Holders generally are subject to U.S. federal income tax at the same rate as ordinary income. The deductibility of capital losses is subject to various limitations.

 

 

74


 

 

Any gain a U.S. Holder recognizes generally will be U.S. source income for U.S. foreign tax credit purposes, and, subject to certain exceptions, any loss will generally be a U.S. source loss. If an Australian tax is withheld on a sale or other disposition of an ordinary share, the amount realized will include the gross amount of the proceeds of that sale or disposition before deduction of the Australian tax. The generally applicable limitations under U.S. federal income tax law on crediting foreign income taxes may preclude a U.S. Holder from obtaining a foreign tax credit for any Australian tax withheld on a sale of an ordinary share. The rules relating to the determination of the foreign tax credit are complex, and U.S. Holders are urged to consult with their own tax advisers regarding the application of such rules. Alternatively, any Australian withholding tax may be taken as a deduction against taxable income, provided the U.S. Holder takes a deduction and not a credit for all foreign income taxes paid or accrued in the same taxable year.

Non-U.S. Holders.  A Non-U.S. Holder will not be subject to U.S. federal income tax on a gain recognized on a sale or other disposition of an ordinary share unless (i) the gain is effectively connected with the conduct of a trade or business by the Non-U.S. Holder within the United States (and is attributable to a permanent establishment or fixed base that the Non-U.S. Holder maintains in the United States if an applicable income tax treaty so requires as a condition for the Non-U.S. Holder to be subject to U.S. taxation on a net income basis on income from the ordinary share), or (ii) in the case of a Non-U.S. Holder who is an individual, the Non-U.S. Holder is present in the United States for 183 or more days in the taxable year of the sale or other disposition and certain other conditions apply. Any effectively connected gain of a corporate Non-U.S. Holder may also be subject under certain circumstances to an additional "branch profits tax", the rate of which may be reduced pursuant to an applicable income tax treaty.

  

Passive Foreign Investment Company Rules

A special set of U.S. federal income tax rules applies to a foreign corporation that is a PFIC for U.S. federal income tax purposes. As noted above, based on our audited consolidated financial statements and relevant market and shareholder data, we believe we were not a PFIC for U.S. federal income tax purposes for our December 31, 2019 taxable year. Moreover, given that the determination of PFIC status involves the application of complex tax rules, and that it is based on the nature of our income and assets from time to time, no assurances can be provided that we will be considered a PFIC for any future taxable year.

In general, a foreign corporation is a PFIC if at least 75% of its gross income for the taxable year is passive income or if at least 50% of its assets for the taxable year produce passive income or are held for the production of passive income. In general, passive income for this purpose means, with certain designated exceptions, dividends, interest, rents, royalties (other than certain rents and royalties derived in the active conduct of trade or business), annuities, net gains from dispositions of certain assets, net foreign currency gains, income equivalent to interest, income from notional principal contracts and payments in lieu of dividends. The determination of whether a foreign corporation is a PFIC is a factual determination made annually and is therefore subject to change. Subject to exceptions pursuant to certain elections that generally require the payment of tax, once stock in a foreign corporation is classified as stock in a PFIC in the hands of a particular shareholder that is a U.S. person, it remains stock in a PFIC in the hands of that shareholder.

Unfavorable tax consequences for a U.S. Holder can occur if we are treated as a PFIC for any year while a U.S. Holder owns ordinary shares. Certain of these tax consequences can be mitigated with respect to a U.S. Holder's ordinary shares (but not a U.S. Holder's warrants) if the U.S. Holder makes, or has made, a timely qualified electing fund election or election to mark to market the holder's ordinary shares, and such election is in effect for the first taxable year during which the U.S. Holder owns ordinary shares that we are a PFIC. If we are treated as a PFIC, and neither election is made, then contrary to the tax consequences described in "U.S. Federal Income Tax Considerations-Taxation of Distributions" and "U.S. Federal Income Tax Considerations-Taxation of Capital Gains" above, in any year in which the U.S. Holder either disposes of an ordinary share at a gain or receives one or more "excess distributions" in respect of our ordinary shares, special rules apply to the taxation of the gain or the excess distributions. For purposes of these rules, a U.S. Holder will be treated as receiving an "excess distribution" to the extent that actual or constructive distributions received in the current taxable year exceed 125% of the average distributions (whether actual or constructive and whether or not out of earnings and profits) received by such U.S. Holder in respect of our ordinary shares during the three preceding years or, if shorter, the U.S. Holder's holding period. A disposition of an ordinary share, for purposes of these rules, includes many transactions on which gain or loss is not realized under general U.S. federal income tax rules (but generally should not include the exercise of a warrant, as discussed below). The gain or the excess distributions must be allocated ratably to each day the U.S. Holder has held the ordinary share, as the case may be. Amounts allocated to each year are taxable as ordinary income in their entirety (and are not eligible for the reduced qualified dividend rates) and not as capital gain, and amounts allocable to prior years may not be offset by any deductions or losses. Amounts allocated to each such prior year are taxable at the highest rate in effect for that year and are subject to an interest charge at the rates applicable to deficiencies for income tax for those periods. In addition, a U.S. Holder's tax basis in an ordinary share that is acquired from a decedent would not receive a step-up to fair market value as of the date of the decedent's death but instead would be equal to the decedent's basis, if lower.

 

 

75


 

 

The special PFIC rules described above will not apply to a U.S. Holder's ordinary shares if the U.S. Holder makes a timely election, which remains in effect, to treat us as a qualified electing fund, or QEF, for the first taxable year in which the U.S. Holder owns an ordinary share and in which we are classified as a PFIC, provided that we comply with certain reporting requirements. Instead, a U.S. Holder that has made a QEF election is required for each taxable year to include in income a pro rata share of our ordinary earnings as ordinary income and a pro rata share of its net capital gain as long-term capital gain, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. In order for such a QEF election to be valid, we must provide U.S. Holders either (1) a statement showing such U.S. Holder's pro rata share of our ordinary earnings and net capital gain (calculated for U.S. tax purposes) for the Company's taxable year, (2) sufficient information to enable the U.S. Holder to calculate its pro rata share for such year, or (3) a statement that the Company has permitted the U.S. Holder to inspect and copy its permanent books of account, records, and such other documents as may be maintained by us that are necessary to establish that PFIC ordinary earnings and net capital gain are computed in accordance with U.S. income tax principles. We have not yet determined whether, in years in which we are classified as a PFIC, we will make the computations necessary to supply U.S. Holders with the information needed to report income and gain pursuant to a QEF election. It is, therefore, possible that U.S. Holders would not be able to make or retain that election in any year we are a PFIC. The QEF election is made on a shareholder-by-shareholder basis and once made, can only be revoked with the consent of the IRS. A U.S. Holder generally makes a QEF election by attaching a completed IRS Form 8621 (Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), including the information provided in a PFIC annual information statement, to a timely filed U.S. federal income tax return for the tax year to which the election relates. Retroactive QEF elections may only be made by filing a protective statement with such return or with the consent of the IRS. A U.S. Holder may make a separate election to defer the payment of taxes on undistributed income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interest charge.

If a U.S. Holder has elected the application of the QEF rules to the U.S. Holder's ordinary shares, and the special tax and interest charge rules described in the second preceding paragraph do not apply to such shares (because of a timely QEF election for the first tax year of the U.S. Holder's holding period for such shares, or, as described below, a purge of the PFIC taint pursuant to a special purging election), any gain realized on the disposition of an ordinary share generally will be taxable as capital gain and no interest charge will be imposed. As discussed above, U.S. Holders of a QEF are currently taxed on their pro rata shares of the QEF's earnings and profits, whether or not distributed. In such case, a subsequent distribution of such earnings and profits that were previously included in income generally will not be taxable as a dividend. The tax basis of a U.S. Holder's shares in a QEF will be increased by amounts that are included in income, and decreased by amounts distributed but not taxed as dividends, under the above rules. Similar basis adjustments apply to property if by reason of holding such property the U.S. Holder is treated under applicable attribution rules as owning shares in a QEF.

If a QEF election is not made for the first taxable year in which the U.S. Holder owns an ordinary share and in which we are a PFIC, certain elections can be made while we continue to satisfy the definition of a PFIC that, combined with a QEF election, can cause the QEF election to be treated as having been made for that first taxable year. Those elections may require the electing shareholder to recognize gain on a constructive sale or to be taxable on the shareholder's share of certain undistributed profits of the foreign corporation. If gain or income is recognized pursuant to one of those elections, the special PFIC rules set forth in the fourth preceding paragraph would apply to that gain or income. Even if a QEF election ceases to apply because in a later taxable year we cease to satisfy the tests to be a PFIC, the QEF election will apply again in any subsequent year in which the Company again satisfies the tests to be a PFIC. Moreover, if a U.S. Holder sells all of the ordinary shares they own and later reacquires other ordinary shares, any QEF election the U.S. Holder has made that remains in effect will apply to the ordinary shares acquired later. The applicable Treasury regulations provide that the Commissioner of the IRS has the discretion to invalidate or terminate a QEF election if the U.S. Holder or we, or an intermediary, fails to satisfy the requirements for the QEF election.

 

 

76


 

 

The special PFIC rules described in the fourth preceding paragraph will not apply to a U.S. Holder's ordinary shares if the U.S. Holder elects to mark the U.S. Holder's ordinary shares to market each year, provided that the ordinary shares are considered "marketable stock" within the meaning of the applicable Treasury regulations. A U.S. Holder that makes this election will recognize as ordinary income or loss each year an amount equal to the difference, if any, as of the close of the taxable year between the fair market value of the U.S. Holder's ordinary shares and the U.S. Holder's adjusted tax basis in the ordinary shares. Losses would be allowed only to the extent of net mark-to-market gain previously included in income by the U.S. Holder under the election for prior taxable years, reduced by losses allowed in prior taxable years. If the mark-to-market election were made, then the special PFIC rules set forth in the fourth preceding paragraph would not apply for periods covered by the election. In general, the ordinary shares will be marketable stock within the meaning of the applicable Treasury regulations if they are traded, other than in de minimis quantities, on at least 15 days during each calendar quarter on a "qualified exchange or other market" within the meaning of the applicable Treasury regulations and certain other requirements are met. The Australian Securities Exchange is a qualified exchange within the meaning of the applicable Treasury regulations. Thus, the ordinary shares should be "marketable stock" within the meaning of the applicable Treasury regulations. If a U.S. Holder makes a mark-to-market election, but does not make that election for the first taxable year in which the U.S. Holder owns an ordinary share and in which the Company is classified as a PFIC, and if the U.S. Holder had not made a QEF election for that first such taxable year, the rules set forth in the fourth preceding paragraph will apply to any distributions on an ordinary share in the year of the mark-to-market election, to any gain recognized on an actual sale of an ordinary share in that year, and to any gain recognized in that year pursuant to the mark-to-market election. The mark-to-market rules generally continue to apply to a U.S. Holder who makes the mark-to-market election, even in years we do not satisfy the tests to be a PFIC.

A U.S. Holder who owns ordinary shares during a year in which we are classified as a PFIC generally will remain subject to the rules set forth in the fifth preceding paragraph for all taxable years if the U.S. Holder has not made a QEF election or a mark-to-market election for the first taxable year in which the U.S. Holder owns an ordinary share and in which we are classified as a PFIC. In that event, those rules will apply to any gains on dispositions of ordinary shares and to any "excess distributions."  It is, however, possible for a U.S. Holder to avoid this "once a PFIC, always a PFIC" result by electing to treat all of the U.S. Holder's ordinary shares as sold for their fair market value as of the last day of the last taxable year we satisfy the tests to be a PFIC, provided the statute of limitations has not run for that year. If a gain is recognized on that constructive sale, the rules set forth in the fifth preceding paragraph would apply to that gain.

If we are classified as a PFIC for a taxable year, and, at any time during such taxable year, have a non-U.S. subsidiary that is classified as a PFIC, U.S. Holders generally would be deemed to own a portion of the shares of such lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described in the sixth preceding paragraph, if we receive a distribution from, or dispose of all or part of its interest in, the lower-tier PFIC. We have not yet determined whether, if we are classified as a PFIC, we would make the computations necessary to supply U.S. Holders with the information needed to make or maintain a QEF election with respect to the lower-tier PFIC. It is, therefore, possible that U.S. Holders would not be able to make or retain that election in any taxable year that we are classified as a PFIC and has a non-U.S. subsidiary that is also classified as a PFIC. U.S. Holders are urged to consult their own tax advisors regarding the tax issues raised by lower-tier PFICs.

A dividend from a foreign corporation that otherwise would qualify for reduced qualified dividend rates does not qualify for that rate if the foreign corporation is a PFIC in either the taxable year of the dividend or the preceding taxable year.

A U.S. Holder who owns (or is deemed to own) shares in a PFIC during any taxable year, such U.S. Holder may have to file an IRS Form 8621 (whether or not a QEF or mark-to-market election is made).

 

GIVEN THE COMPLEXITIES OF THE PFIC RULES AND THEIR POTENTIALLY ADVERSE TAX CONSEQUENCES, U.S. HOLDERS OF ORDINARY SHARES ARE URGED TO CONSULT THEIR TAX ADVISERS ABOUT THE PFIC RULES, INCLUDING THE CONSEQUENCES TO THEM OF MAKING A QEF ELECTION OR A MARK-TO-MARKET ELECTION WITH RESPECT TO THE ORDINARY SHARES IN THE EVENT THAT THE COMPANY QUALIFIES AS A PFIC FOR ANY TAXABLE YEAR.

 

 

77


 

 

Information Reporting and Backup Withholding

 

U.S. Holders.  Dividends paid on, and proceeds from the sale or other disposition of, an ordinary share generally may be subject to information reporting requirements and may be subject to backup withholding at the rate of 28% unless a U.S. Holder provides an accurate taxpayer identification number or otherwise demonstrates that they are exempt. The amount of any backup withholding collected from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder's U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that certain required information is submitted to the Internal Revenue Service. Under U.S. federal income tax law and U.S. Treasury Regulations, certain categories of U.S. holders must file information returns with respect to their investment in, or involvement in, a foreign corporation. U.S. holders are urged to consult with their own tax advisors concerning such reporting requirements.

Non-U.S. Holders.  Non-U.S. Holders generally will be exempt from these information reporting requirements and backup withholding tax but may be required to comply with certain certification and identification procedures in order to establish their eligibility for exemption.

 

THE DISCUSSION ABOVE IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO AN INVESTMENT IN ORDINARY SHARES. HOLDERS AND POTENTIAL HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISER(S) CONCERNING THE TAX CONSEQUENCES RELEVANT TO THEM IN THEIR PARTICULAR SITUATION.

 

 

F.   Dividends and Paying Agents

Not applicable.

 

G.   Statement by Experts

Not applicable.

 

H.   Documents on Display

We are subject to the reporting requirements of the United States Securities and Exchange Act of 1934, as amended, or the Exchange Act, as applicable to "foreign private issuers" as defined in Rule 3b-4 under the Exchange Act. As a foreign private issuer, we are exempt from certain provisions of the Exchange Act. Accordingly, our proxy solicitations are not subject to the disclosure and procedural requirements of regulation 14A under the Exchange Act, and transactions in our equity securities by our officers and directors are exempt from reporting and the "short-swing" profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required under the Exchange Act to file periodic reports and financial statements as frequently or as promptly as U.S. companies whose securities are registered under the Exchange Act. However, we will file with the U.S. Securities and Exchange Commission an annual report on Form 20-F containing financial statements that have been examined and reported on, with and opinion expressed by an independent registered public accounting firm, and we will submit reports to the U.S. Securities and Exchange Commission on Form 6-K containing (among other things) press releases and unaudited financial information for the first six months of each fiscal year. We post our annual report on Form 20-F on our website promptly following the filing of our annual report with the U.S. Securities and Exchange Commission. The information on our website is not incorporated by reference into this annual report.

This document and the exhibits thereto and any other document we file pursuant to the Exchange Act may be inspected without charge and copied at prescribed rates at the U.S. Securities and Exchange Commission public reference room at 100 F Street, N.E., Room 1580, Washington D.C. 20549. You may obtain information on the operation of the Securities and Exchange Commission's public reference room in Washington, D.C. by calling the U.S. Securities and Exchange Commission at 1-800-SEC-0330.

The U.S. Securities and Exchange Commission maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that make electronic filings with the U.S. Securities and Exchange Commission using its EDGAR (Electronic Data Gathering, Analysis, and Retrieval) system.

The documents concerning our Company which are referred to in this document may also be inspected at the offices of our registered office located at Level 7, 420 King William Street, Adelaide SA 5000, Australia.

 

 

78


 

 

I.   Subsidiary Information

At the date of this report, we have 9 subsidiaries as follows:

 

Subsidiary Name Place of Incorporation % held Business scope
CIMC Marketing Pty Ltd Australia 100% Direct Management services and trading
Binario Ltd British Virgin Islands 100% Direct Investment holding company
Smartglass Limited (Formerly Dragon Creative Ltd) Hong Kong 100% Direct Sales and distribution of switchable glass
GOXD Technology Limited Hong Kong 76% Indirect Development and distribution of 3D digital picture frames
Marvel Digital Ltd Hong Kong 95% Indirect Development of 3D autostereoscopic display technology and investment holding
Visumotion International Ltd (to be renamed Cystar International Limited) Hong Kong 95% Indirect Sale of software and provision of consultancy services
Marvel Display Technology (Shenzhen) Limited (formerly known as Marvel Software (Shenzhen) Ltd) China, PRC 95% Indirect Manufacturing and distribution of 3D products and provision of 3D consultancy services
GOXD Dongguan Ltd China, PRC 76% Indirect Design of 3D digital picture frames
Digital Media Technology Ltd Labuan, Malaysia 100% Indirect Sale and distribution of 3D and audio products

 

 

ITEM 11.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our cash and cash equivalents consist primarily of cash and money market funds in Australia and Hong Kong currency. We invest our excess cash and cash equivalents in interest-bearing accounts and term deposits with banks in Australia or Hong Kong. Our primary exposure to market risk is interest income sensitivity, which is affected by changes in the general level of Australian and or Hong Kong interest rates. However, because of the short-term nature of the instruments in our portfolio, a sudden change in market interest rates would not be expected to have a material impact on our financial condition and/or results of operation.

We are exposed to foreign currency risk via our operation in Hong Kong and China and trade and other payables we hold. We are required to make certain payments in U.S. dollars, Hong Kong dollars and Chinese Renminbi and other currencies. An adverse movement in end-of-period exchange rates would have a material impact on our operating results.

 

ITEM 12.   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

A.   Debt Securities

Not applicable.

 

B.   Warrants and Rights

Not applicable.

 

C.   Other Securities

Not applicable.

 

 

79


 

 

PART II

 

ITEM 13.   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not applicable.

 

ITEM 14.   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not applicable.

 

ITEM 15.   CONTROLS AND PROCEDURES

 


Disclosure Controls and Procedures

 

Management of the Company maintain disclosure controls and procedures as such term is defined in Rules 13 a-15 (e) and 15d-15(e) under the Securities Exchange Act of 1934 as amended (the "Exchange Act"), as amended, that are designed to ensure that information required to be disclosed in the reports that are filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including the Executive Chairman and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Disclosure controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives.

Management has carried out an evaluation, under the supervision and with the participation of the Executive Chairman and the Chief Financial Officer, of the effectiveness of the disclosure controls and procedures as of December 31, 2019. Based on that evaluation, the Executive Chairman and Chief Financial Officer concluded that the Company's disclosure controls and procedures were not effective as of December 31, 2019.

 

Management's Annual Report on Internal Control over Financial Reporting

 

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company's internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board. A Company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit the preparation of the consolidated financial statements in accordance with IFRS as issued by the International Accounting Standards Board and that receipts and expenditures of the Company are being made only in accordance with authorizations of our Board of Directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company's assets that could have a material effect on the consolidated financial statements.

 

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In particular, the design of a control system must be considered relative to their costs. Additionally, the design of a control system is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all potential future conditions. Due to its inherent limitations, internal control over financial reporting may not prevent or detect all misstatements to the consolidated financial statements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2019 based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") (the "2013 Framework") Internal Control-Integrated Framework. Based on this assessment, management concluded that the Company's internal control over financial reporting is not effective as of December 31, 2019 under the COSO 2013 Framework.

 

 

80


 

 

Management's Annual Report on Internal Control over Financial Reporting (Continued)

 

A material weakness is a deficiency, or combination of deficiencies, that results in more than a remote likelihood that a material misstatement of annual or interim financial statements will not be prevented or detected. In connection with the assessment described above, management identified the following control deficiencies that represent material weaknesses at December 31, 2019:

 

  i. inadequate segregation of duties due to limited number of personnel, which makes the reporting process susceptible to management override; and

 

  ii. ineffective controls over period end financial disclosure and reporting processes.

 

Management believes that the material weaknesses set forth in items (1) through (2) above did not have an effect on the Company's financial reporting during the year ended December 31, 2019.

 

Remediation of Material Weaknesses

 

A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (“PCAOB”) Auditing Standard No. 5), or combination of control deficiencies, that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. While management believes that the Company’s consolidated financial statements previously filed in the Company’s SEC reports have been properly recorded and disclosed in accordance with IFRS, we have designed and plan to implement, or in some cases have already implemented, the specific remediation initiatives described below:

 

  We plan to retain additional accounting personnel and continue to enhance our internal finance and accounting organizational structure.

 

  We are in the process of further enhancing the supervisory procedures to include additional levels of analysis and quality control reviews within the accounting and financial reporting functions.  

 

While we now believe that these material weaknesses are currently being addressed, we will continue our remediation efforts during fiscal year 2020.

 

Changes in Internal Control over Financial Reporting

 

There have been no significant changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect internal control over financial reporting during the period covered by this Annual Report.

 

 

81


 

 

ITEM 15T.   CONTROLS AND PROCEDURES

Not applicable.

 

ITEM 16.   RESERVED

Not applicable.

 

ITEM 16A.   AUDIT COMMITTEE FINANCIAL EXPERT

Not applicable.

 

ITEM 16B.   CODE OF ETHICS

We have adopted a code of ethics that applies to our executive directors and chief financial officer. A copy of this Code of Ethics is available on the Company's website at www.imtechltd.com .

No waivers to this Code of Ethics were granted to our executive directors or chief financial officer during the fiscal year ended December 31, 2019.

 

ITEM 16C.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

 

On January 15, 2019 the Company appointed Ramirez Jimenez International CPAs ("RJI") as our Principal Independent Registered Public Accountants engaged to audit our financial statements for the year ended December 31, 2018.

   

Fee Category   2019     2018  
Audit Fees   US$ 289,000     US$ 34,000  
Audit-Related Fees   US$ -     US$ -  
Tax Fees   US$ -     US$ -  
All Other Fees   US$ -     US$ -  

 

 

Audit Fees

 

This category consists of fees for professional services rendered by our principal independent registered public accountant for the audit of our annual financial statements, review of financial statements included in our interim reports and services that are normally provided by the independent registered public accounting firms in connection with statutory and regulatory filings or engagements for those fiscal years.

 

Audit-Related Fees

 

This category consists of fees for assurance and related services by our principal independent registered public accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under "Audit Fees". The services for the fees disclosed under this category include consultations concerning financial accounting and reporting standards.

 

Tax Fees

 

This category consists of fees for professional services rendered by our principal independent registered public accountant for tax compliance, tax advice, and tax planning.

 

All Other Fees

 

This category consists of fees for services provided by our principal independent registered public accountant other than the services described above.

 

Policy on Pre-Approval of Audit Services

 

The Audit Committee pre-approves all services, including both audit and non-audit services, provided by our independent registered public accounting firm. All audit services (including statutory audit engagements as required under local country laws) must be accepted by the Audit Committee before the audit commences.

 

Each year, management and the independent registered public accounting firm will jointly submit a pre-approval request, which will list each known and/or anticipated audit and non-audit service for the upcoming calendar year and which will include associated budgeted fees. The Audit Committee will review the requests and approve a list of annual pre-approved non-audit services.

 

 

82


 

 

ITEM 16D.   EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not applicable.

 

ITEM 16E.   PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

Not applicable.

 

ITEM 16F.   CHANGE IN REGISTRANT'S CERTIFYING ACCOUNTANT

On January 15, 2019 Ramirez Jimenez International CPAs ("RJI") was appointed as our independent PCAOB audit firm for US reporting purposes. Neither we, nor anyone on our behalf, consulted RJI prior the engagement of RJI regarding any of the matters set forth in Item 16F(a)(2)(i) and (ii).

 

ITEM 16G.   CORPORATE GOVERNANCE

 

Not applicable.

 

ITEM 16H.   MINE SAFETY DISCLOSURES

Not applicable.

 

 

83


 

 

PART III

 

ITEM 17. FINANCIAL STATEMENTS

We have elected to furnish financial statements and related information specified in Item 18.

 

ITEM 18. FINANCIAL STATEMENTS

 

Integrated Media Technology Limited

Financial Statements - Index to Consolidated Financial Statements

 

Report of Independent Registered Public Accounting Firm - 2019 and 2018 F-1
Report of Independent Registered Public Accounting Firm - 2017 F-2
Consolidated Statements of Profit or Loss and Other Comprehensive Income / (Loss) for the years ended December 31, 2017, 2018 and 2019 F-3
Consolidated Statements of Financial Position as of December 31, 2018 and 2019 F-4
Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 2018 and 2019 F-5
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2018 and 2019 F-6
Notes to the Consolidated Financial Statements F-7 through F-54

 

 

 

84


 

 

Logo   18012 Sky Park Circle, Suite 200
Irvine, California 92614
tel 949-852-1600
fax 949-852-1606
www.rjicpas.com

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Stockholders of
Integrated Media Technology Limited

 

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated statements of financial position of Integrated Media Technology Limited (the “Company”) and its subsidiaries (collectively, the “Group”) as of December 31, 2019 and 2018, and the related consolidated statements of profit or loss and other comprehensive income / (loss), changes in equity, and cash flows for the years ended December 31, 2019 and 2018, and the related notes to the consolidated financial statements (collectively referred to as the “consolidated financial statements”). In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2019 and 2018, and the results of their operations, and their cash flows for the years ended December 31, 2019 and 2018, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Emphasis of Matter

 

The accompanying consolidated financial statements have been prepared assuming that the Group will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Group incurred a net loss in the amount of $16,700,199 and used cash in operating activities in the amount of $5,547,544 during the year ended December 31, 2019, and had accumulated losses of $25,786,912 as of December 31, 2019, which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Group is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.

 

 

/s/ Ramirez Jimenez International CPAs         

Ramirez Jimenez International CPAs

 

 

Irvine, California

 

 

June 15, 2020

 

 

We have served as the Company’s auditor since 2019.

 

 

F-1


 

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

 

To the Board of Directors and Stockholders of

Integrated Media Technology Limited

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated statements of profit or loss and other comprehensive loss, changes in equity, and cash flows for the year ended December 31, 2017, and the related notes (collectively referred to as the "consolidated financial statements" of Integrated Media Technology Limited (the "Company") and its subsidiaries (collectively, the "Group")). In our opinion, such consolidated financial statements present fairly, in all material respects, the results of their operations, and their cash flows for the year then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on the Group's consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Group in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Group is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

 

 

/s/ HKCMCPA Company Limited

 

HKCM CPA & Co.

(Predecessor firm: HKCMCPA Company Limited)

Certified Public Accountants

 

We have served as the Company’s auditor since 2016 to January 15, 2019.

 
Hong Kong, China
 
March 31, 2018

 

 

15th Floor, Aubin House, 171-172 Gloucester Road, Wan Chai, Hong Kong
Tel: (852) 2573 2296      Fax: (852) 3015 3860 http://www.hkcmcpa.us

 

 

F-2


 

 

INTEGRATED MEDIA TECHNOLOGY LIMITED

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME / (LOSS)

(in Australian dollars, except number of shares)

 

        Years ended December 31,
    Note   2019
A$
  2018
A$
  2017
A$
Revenue, net   4   1,275,425   1,324,406   5,762,711
Cost of sales       (1,008,821)   (723,711)   (2,548,064)
        266,604   600,695   3,214,647
                 
Interest income       115,762   21,409   3,092
Gain on disposal of plant and equipment       212,195   -   -
Gain on fair value change in derivative financial instruments   25   127,551   709,543   -
Gain on fair value change in contingent consideration liability   5   -   -   3,953,537
Gain on disposal of subsidiaries   27(a)   -   608,995   -
Other income   6   807,831   469,660   434,296
        1,529,943   2,410,302   7,605,572
                 
Expenses                
Employee benefit expenses   8   (4,034,378)   (2,253,411)   (1,887,692)
Depreciation and amortization expenses   8   (3,174,784)   (2,029,373)   (2,021,131)
Professional and consulting expenses       (2,019,970)   (1,746,762)   (301,732)
Travel and accommodation expenses       (281,895)   (384,184)   (333,503)
Office expenses and supplies       (312,343)   (659,611)   (447,414)
Rental costs   8   (637,321)   (674,112)   (407,184)
Other operating expenses       (794,036)   (1,069,784)   (655,669)
Finance costs   7   (1,561,625)   (1,383,399)   (107,101)
Provision for impairment loss of goodwill       (4,486,301)   (9,953,311)   -
Provision for inventories obsolescence     8   (799,871)   (100,000)   -
Exchange (loss) / gain       (10,296)   493,365   61,307
Total expenses       (18,112,820)   (19,760,582)   (6,100,119)
                 
(Loss)/profit before income tax   8   (16,582,877)   (17,350,280)   1,505,453
Income tax (expenses) / credit   9   (117,322)   507,057   187,213
                 
(Loss)/profit for the year       (16,700,199)   (16,843,223)   1,692,666
                 
Other comprehensive income / (loss)                
Items that may be re-classified subsequently to profit or loss:                
Exchange differences on translation of financial statements of overseas subsidiaries       157,471   1,015,454   (657,314)
                 
Other comprehensive income / (loss) for the year, net of tax       157,471   1,015,454   (657,314)
                 
Total comprehensive (loss)/income for the year       (16,542,728)   (15,827,769)   1,035,352
                 
(Loss)/profit for the year attributable to:                
Equity shareholders of Integrated Media Technology Limited       (15,646,147)   (15,962,278)   1,695,567
Non-controlling interests       (1,054,052)   (880,945)   (2,901)
                 
        (16,700,199)   (16,843,223)   1,692,666
                 
Total comprehensive (loss)/income for the year attributable to:                
Equity shareholders of Integrated Media Technology Limited       (15,540,317)   (15,119,876)   1,033,582
Non-controlling interests       (1,002,411)   (707,893)   1,770
                 
        (16,542,728)   (15,827,769)   1,035,352
                 
                 
(Loss)/earnings per share       A$   A$   A$
- Basic and Diluted   11   (4.63)   (5.93)   0.64

 

The above consolidated statements of profit or loss and other comprehensive income / (loss) should be read in conjunction with the accompanying notes.

 

 

F-3


 

 

INTEGRATED MEDIA TECHNOLOGY LIMITED

CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(in Australian dollars) 

 

    December 31,
      2019   2018
     Note A$   A$
ASSETS          
Current Assets          
Cash and bank balances     735,724   1,514,215
Inventories   12 749,173   1,394,065
Right of use assets   23(a) 682,119   -
Trade and other receivables   13 770,958   1,183,765
Other assets   14 2,291,273   1,908,269
           
Total Current Assets     5,229,247   6,000,314
           
Non-Current Assets          
Plant and equipment   15 729,117   729,480
Intangible assets and goodwill   16 9,950,803   16,323,167
Right of use assets   23(a) 425,773   -
Development projects   17 3,611,336   2,980,113
           
Total Non-Current Assets     14,717,029   20,032,760
           
TOTAL ASSETS     19,946,276   26,033,074
           
LIABILITIES          
Current Liabilities          
Trade and other liabilities   18 4,338,495   636,042
Provision for employee benefits   19 64,135   54,320
Amounts due to related companies   20 6,101,850   2,130,368
Amount due to ultimate holding company   21 582,832   172,773
Borrowings   22 1,817,782   1,708,875
Lease liability   23(b) 666,868   18,123
Convertible bonds   24 4,420,899   -
           
Total Current Liabilities     17,992,861   4,720,501
           
Non-current Liabilities          
Lease liabilities   23(b) 501,739   39,169
Deferred tax liabilities   9 1,372,653   1,244,814
Convertible bonds   24 -   3,280,744
Derivative financial instruments   25 -   126,095
           
Total Non-Current Liabilities     1,874,392   4,690,822
           
TOTAL LIABILITIES     19,867,253   9,411,323
           
NET CURRENT (LIABILTIES) / ASSETS     (12,763,614)   1,279,813
           
NET ASSETS     79,023   16,621,751
           
CAPITAL AND RESERVES          
Issued capital (no par value, 3,377,386 ordinary shares issued and outstanding as of December 31, 2019 and 2018)   28 18,902,029   18,902,029
Foreign currency translation reserve   29(a) 735,213   629,383
Other reserves   29(b) 4,423,141   4,959,089
Accumulated losses     (25,786,912)   (10,676,713)
           
Total equity attributable to equity shareholders of Integrated Media Technology Limited     (1,726,529)   13,813,788
Non-controlling interests     1,805,552   2,807,963
           
TOTAL EQUITY     79,023   16,621,751

 

The above consolidated statements of financial position should be read in conjunction with the accompanying notes.

  

 

F-4


 

 

INTEGRATED MEDIA TECHNOLOGY LIMITED

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(in Australian dollars)

 

    Attributable to owners of the Company        
    Issued Capital   (Accumulated Losses) / Retained Earnings   Foreign Currency Translation Reserve   Other Reserves   Non-controlling Interests   Total
    A$   A$   A$   A$   A$   A$
Balance at January 1, 2017   10,410,279   3,589,998   410,326   -   (55,621)   14,354,982
Changes in equity for 2017:                        
Profit / (loss) for the year   -   1,695,567   -   -   (2,901)   1,692,666
Other comprehensive loss for the year, net of tax   -   -   (661,985)   -   4,671   (657,314)
Total comprehensive income for the year   -   1,695,567   (661,985)   -   1,770   1,035,352
Balance at December 31, 2017 and as at January 1 2018   10,410,279   5,285,565   (251,659)   -   (53,851)   15,390,334
                         
Changes in equity for 2018:                        
Loss for the year   -   (15,962,278)   -   -   (880,945)   (16,843,223)
Other comprehensive income for the year, net of tax   -   -   842,402   -   173,052   1,015,454
Total comprehensive loss for the year   -   (15,962,278)   842,402   -   (707,893)   (15,827,769)
Disposal of subsidiaries   -   -   38,640   -   41,420   80,060
Issue of convertible bonds
(Note 29(b)(i))
  -   -   -   535,948   -   535,948
Capital injection by non-controlling interests   -   -   -   -   3,528,287   3,528,287
Gain on deemed disposal of subsidiaries
(Note 29 (b)(ii) & (iii))
  -   -   -   4,423,141   -   4,423,141
Issuance of new ordinary shares
(Note 28(b))
  491,750   -   -   -   -   491,750
Issue of shares for conversion of debt
(Note 28(b))
  8,000,000   -   -   -   -   8,000,000
Balance at December 31, 2018 and as at January 1, 2019   18,902,029   (10,676,713)   629,383   4,959,089   2,807,963   16,621,751
                         
Changes in equity for 2019:                        
Loss for the year   -   (15,646,147)           (1,054,052)   (16,700,199)
Other comprehensive income for the year, net of tax   -   -   105,830   -   51,641   157,471
Total comprehensive loss for the year   -   (15,646,147)   105,830   -   (1,002,411)   (16,542,728)
                         
Transfer convertible bond reserves
(Note 29 (b))
  -   535,948   -   (535,948)   -   -
Balance at December 31, 2019   18,902,029   (25,786,912)   735,213   4,423,141   1,805,552   79,023

 

The above consolidated statements of changes in equity should be read in conjunction with the accompanying notes.

 

F-5


 

 

INTEGRATED MEDIA TECHNOLOGY LIMITED

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in Australian dollars)

 

        Years Ended December 31,
        2019   2018   2017
    Note   A$   A$   A$
Cash flows from operating activities                
(Loss) / profit before income tax       (16,582,877)   (17,350,280)   1,505,453
Adjustments to reconcile (loss) profit before income tax to net
cash (used in) / provided by operating activities:
               
Depreciation and amortization       3,174,784   2,029,373   2,021,131
Write off of plant and equipment       -