20-F 1 imte210430-f20.htm FORM 20-F ENDED DECEMBER 31, 2020 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, 2020

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)

 

Con Unerkov, Executive Chairman and Chief Executive

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

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

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

 

 

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

 

  Title of each class Trading Symbol(s) Name of each exchange
on which registered
 
  Ordinary Shares IMTE 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 April 28, 2021 is 8,440,533

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 every Interactive Data File required to be submitted 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, a non-accelerated filer or an emerging growth company. See definition of "large accelerated filer", "accelerated filer" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

  Large accelerated filer ☐   Accelerated filer ☐   Non-accelerated filer ☒
Emerging growth company ☒
   

 

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.   

 

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 16
Item 4A. Unresolved Staff Comments 31
Item 5. Operating and Financial Review and Prospects 32
Item 6. Directors, Senior Management and Employees 45
Item 7. Major Shareholders and Related Party Transactions 50
Item 8. Financial Information 52
Item 9. The Offer and Listing 52
Item 10. Additional Information 53
Item 11. Quantitative and Qualitative Disclosures About Market Risks 62
Item 12. Description of Securities Other than Equity Securities 62
PART II   63
Item 13.   Defaults, Dividend Arrearages and Delinquencies 63
Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds 63
Item 15. Controls and Procedures 64
Item 15T Controls and Procedures 64
Item 16 Reserved 64
Item 16A. Audit Committee Financial Expert 64
Item 16B. Code of Ethics 64
Item 16C. Principal Accountant Fees and Services 64
Item 16D. Exemptions from the Listing Standards for Audit Committees 64
Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers 64
Item 16F. Change in Registrant's Certifying Accountant 64
Item 16G. Corporate Governance 64
Item 16H. Mine Safety Disclosure 64
PART III   65
Item 17. Financial Statements 65
Item 18. Financial Statements 65
Item 19. Exhibits 66
SIGNATURES 67

 

 

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, 2020 and 2019 and for the fiscal years ended December 31, 2020, 2019 and 2018 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 that was effected in 2017. 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,
    2020   2019   2018   2017   2016
    (Audited)   (Audited)   (Audited)   (Audited)   (Audited)
    (expressed in A$)
Total revenue   1,833,387   2,411,213   1,815,475   10,153,636   14,039,248
Cost of sales   (1,311,566)   (1,008,821)   (723,711)   (2,548,064)   (2,027,743)
Depreciation and amortization expenses   (2,078,762)   (3,174,784)   (2,029,373)   (2,021,131)   (2,147,231)
Corporate administrative expenses   (3,627,445)   (6,336,243)   (4,384,357)   (2,522,927)   (2,447,545)
(Loss) / gain on disposal of subsidiaries   (28,990)   -   608,995   -   (872)
Other operating expenses   (5,347,824)   (2,543,571)   (2,503,507)   (1,510,267)   (1,627,234)
Gain on fair value change in derivative financial instruments   2,312,197   127,551   709,543   -   -
Provision for impairment loss of goodwill   -   (4,486,301)   (9,953,311)   -   -
Exchange (loss) / gain   (194,383)   (10,296)   493,365   61,307   (100,950)
Finance costs   (2,100,272)   (1,561,625)   (1,383,399)   (107,101)   (73,666)
Income tax credit / (expense)   -   (117,322)   507,057   187,213   (2,018,939)
Net / (loss) profit   (10,543,658)   (16,700,199)   (16,843,223)   1,692,666   3,595,068
(Loss) / profit per share
- basic and diluted (post-reverse split)
 

 

(2.33)

  (4.63)   (5.93)   0.64   1.37
Weighted average number of ordinary shares outstanding
(post-reverse split)
 

 

 

 

 

     
- basic and diluted  

6,513,671

 

3,377,386

  2,692,543   2,643,611   2,643,611
Dividends per share   -   -   -   -   -

 

Consolidated Statement of Financial Position Data:

 

        As of December 31,
    2020   2019   2018   2017   2016
    (Audited)   (Audited)     (Audited)     (Audited)   (Audited)
    (expressed in A$)
Cash and cash equivalents   2,194,084   (166,758)   1,514,215   2,860,014   1,820,994
Working capital   1,276,431   (12,798,159)   1,279,813   5,478,132   8,263,311
Total assets   12,953,665   19,946,276   26,033,074   35,859,449   43,481,437
Long-term debt   3,688,257   1,874,392   4,690,822   16,748,877   22,657,065
Total shareholders' equity   4,905,852   79,023   16,621,751   15,390,334   14,354,982

 

  (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 A$1.00 to US$0.7709, the buying rate on December 31, 2020.

 

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.

 

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
2020     0.7709   0.6899   0.7709   0.5755

 

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 recurrence of the coronavirus disease COVID-19, or similar adverse public health developments in China and Korea, may materially and adversely affect our business and operating results.

The COVID-19 is currently impacting countries, communities, supply chains and markets globally. The outbreak of COVID-19 in Korea, China and Hong Kong has resulted and may continue to result in increased travel restrictions, border control, and shutdown of businesses, which may cause slower recovery of the global 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 the countries we operate 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.

We have a long history of operating losses and, unless we are able to generate sufficient and consistent revenue, we will incur losses from operations and may not achieve or maintain profitability. As of December 31, 2020, we had an accumulated deficit of A$34,102,300. For the year ended December 31, 2020 we recorded loss of A$10,543,658. The loss was the result of the decline of sales of our 3D display products, and the write-down of development and intellectual properties costs. 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 these issues facing the Company.

 

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 experienced 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. As a result, we are now 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 new businesses in nano-coat plated filters and the lamination operation for switchable glass. We will rely on nano-coat plated filters and switchable glass, and to a lesser extent, 3D display products to generate revenues in the future. It is possible that none of them will be successfully commercialized 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 limited success, and we are now starting the nano-coat plated filter and lamination operation for switchable glass. Our limited operating history in these businesses makes it difficult for potential investors to evaluate our businesses 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 these relatively new businesses. Our 3D display, nano-coat plated filter, and lamination operation for switchable glass businesses may face 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 these competitive markets, we face many questions on our Company, organization, finances, and product information before distributors are willing to carry our products into their network. Thus, it takes additional time to establish distributor network for our products, and 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 considering 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 our products. There can be no assurance that our efforts will be successful or that we will be able to attain profitability.

 

4

 

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 reviewed 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.

We had incurred a significant loss in 2020, and we may incur losses in the future as we continue to develop our businesses in 3D displays, nano-coat plated filters and switchable glass and financial research operation. Our actual cash requirements may vary from those now planned and will depend upon many factors, including: the timing, costs and results of commercialization of our products; 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 lamination operation from our switchable glass and its associated costs increase we will require additional funds to achieve our long-term goals of commercialization. In addition, we will require funds to defend intellectual property rights, outsource manufacturing capacity, develop marketing and sales capability and fund operating expenses for all our products. We intend to seek such additional funding through public or private financings and 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 conditions, and results of operations.

 

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 lamination lines for the switchable glass and the nano-coat plated filters. 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 to 2020 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.

 

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 from 2018 to 2020, but profits in 2017 and 2016 from our ASD products and software, 2D to 3D auto conversion workstations and the audio products. Currently we have stopped our R&D activities in 3D technologies and focuses on marketing and sales. In addition, we have increased our product offerings by entering nano-coat plated filter products and switchable glass. With the introduction of these new businesses, our future prospects are uncertain in light of the risks and uncertainties experienced by successfully selling new products in a global pandemic business environment. Due to our short history in these new products, 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 display, nano-coat plated filter and switchable glass businesses 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.

 

5

 

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 business will not be successful if we are unable to successfully operate and integrate the businesses we acquire such as the nano-coat plated filter business. 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, nano-coat plated filter and switchable glass 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.

  

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 Korea, Hong Kong and China, the functional currency for the companies operating in these territories will have a functional currency of South Korea won, 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 Korea, 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.

 

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. We no longer manufacture any 3D displays and instead rely on third party manufacturers. We manufacture nano-coat plated filters and in the second half of 2021, we expect to operate the lamination lines for the switchable glass, 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 display, nano-coat plated filter 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.

 

6

 

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 display, nano-coat plated filter and switchable glass products, 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.

 

Because we primarily rely on distributors in distributing our 3D display and nano-coat plated filter products, our failure to retain key distributors or attract additional distributors could materially and adversely affect our business.

We mainly rely on distributors to sell our 3D display and nano-coat filter products. 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, Asia 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 Korea, 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.

 

7

 

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.

 

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 Korea, 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.

 

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 display and switchable glass products.

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.

 

The integration of Sunup with our business operations may be unsuccessful.

In September 2020, we acquired 51% of Sunup Holdings Limited ("Sunup") for a total consideration of US$1,500,000. The profitability of this acquisition depends on our ability to successfully develop and integrate Sunup's business operations with our existing operations. As Sunup has only recently commenced commercial operations, there are uncertainties as to whether its business will be successfully developed and integrated into our existing business.

 

Our production of products from lamination machinery and nano-coat plating equipment involve a significant degree of risk and uncertainty in terms of operational performance and costs.

We rely on complex machinery for production of our products, and we may experience unexpected malfunctions from time to time requiring repairs and spare parts to fix the equipment. The availability of spare parts may not be available when needed. Unexpected malfunctions of our lamination and nano coated filter equipment ("Manufacturing Equipment") may significantly affect our operational efficiency and production. In addition, the operational performance and costs associated with the Manufacturing Equipment can be difficult to predict and may be influenced by factors outside of our control, such as, but not limited to, failures by suppliers to deliver necessary equipment components in a timely manner and at prices and volumes acceptable to us, which could have a material adverse effect on our operational performance, cash flows, financial condition, or prospects.

 

Disaster events may disrupt our business.

Unforeseen events, or the prospect of such events, including public health issues including health epidemics or pandemics, war and terrorism and other international conflicts, and natural disasters such as fire, hurricanes, earthquakes, tornados or other adverse weather and climate conditions, whether occurring in China or elsewhere, could disrupt our operations, disrupt the operations of suppliers or business customers or result in political or economic instability. These types of events outside of our control could adversely affect our operating results. We cannot assure that any backup systems will be adequate to protect it from the effects of fire, floods, typhoons, earthquakes, power loss, telecommunications failures, break-ins, war, riots, terrorist attacks or similar events. Any of the foregoing events may give rise to interruptions, breakdowns, system failures, technology platform failures or internet failures, which could cause the loss or corruption of data or malfunctions of software or hardware as well as adversely affect our ability to manufacture products and provide services. These events could reduce demand for our products and services, make it difficult or impossible to receive equipment from suppliers or impair our ability to deliver products and services to business customers on a timely basis. Any such disruption could damage our reputation and cause business customer attrition. We could be subject to claims or litigation with respect to losses caused by such disruptions. Our insurance may not cover a particular event at all or be sufficient to fully cover our losses.

 

Risk Factors Relating to Quality of Products

 

If our products fail to perform as expected, our ability to develop, market and sell its products and services could be harmed.

If our products of nano coated plated filters or our lamination glass products to be manufactured in the second half of 2021 contain defects in design and manufacture that cause them not to perform as expected or that require repair, or certain features of its products take longer than expected to become enabled or are legally restricted, our ability to develop, sell, and service its products could be harmed. Although we will attempt to remedy any issues it observes in its products as effectively and rapidly as possible, such efforts may not be timely, may hamper production or may not be to the satisfaction of our customers. While we will perform extensive internal testing on the products we manufacture, we currently have a limited frame of reference by which to evaluate detailed long-term quality, reliability, durability and performance characteristics of our products. There can be no assurance that we will be able to detect and fix any defects in our products prior to their sale to our customers.

 

Our inability to provide products or services in a timely manner, legal restrictions on product features, or defects in our products or services, including products and services of third parties that we incorporate into our product offerings, could adversely affect our reputation, result in delivery delays, product recalls, product liability claims, and significant warranty and other expenses, and subject the Company to claims or litigation. In addition, our inability to meet our customers' expectations with respect to our products or services could affect our ability to generate new business customers and thereby have a material adverse effect on our business, financial condition, cash flow or results of operations.

 

We rely on certain third-party providers of licensed software and services integral to our operations.

Certain aspects of the operation of our business may depend on third-party software and service providers. With regard to licensed software technology, we may become dependent upon the ability of third parties to maintain, enhance or develop their software and services on a timely and cost-effective basis, to meet industry technological standards and innovations to deliver software and services that are free of defects or security vulnerabilities, and to ensure their software and services are free from disruptions or interruptions. Further, these third-party services and software licenses may not always be available to us on commercially reasonable terms or at all.

 

If the third-party software or services become obsolete, fail to function properly, are incompatible with future versions of our products or services, or are defective or otherwise fail to address our needs, there is no assurance that we would be able to replace the functionality provided by any future third-party software or services with software or services from alternative providers. Any of these factors could have a material adverse effect on our financial condition, cash flows or results of operations.

 

We may need to defend ourself against and may face liability in respect of claims for infringing, misappropriating or otherwise violating the intellectual property rights of others, which may be time-consuming and could cause us to incur substantial costs and/or materially impact our ability to operate.

From time to time, legal action by us may be necessary to enforce our contractual rights, to protect our manufacturing and distribution operation or to defend against claims of infringement, misappropriation or invalidity. Such litigation could result in substantial costs and diversion of resources and could negatively affect our business, operating results and financial condition. Others, including our competitors, may hold or obtain patents, copyrights, trademarks or other proprietary rights that could prevent, limit or interfere with our ability to make, use, develop, or sell its products and services, which could make it more difficult for us to operate our business. We may receive inquiries from holders of patents or trademarks inquiring whether we are infringing their proprietary rights and/or seek court declarations that they do not infringe upon our rights.

 

We may consider entering into licensing agreements with respect to such rights, although no assurance can be given that such licenses can be obtained on acceptable terms or that litigation will not occur, and such licenses could significantly increase our operating expenses. Companies holding patents or other intellectual property rights relating to switchable glass or nano coat plating technologies may bring suits alleging infringement of such rights or otherwise asserting their rights and seeking licenses. In addition, if we are determined to have infringed upon a third party's intellectual property rights, it may be required to cease making, selling or incorporating certain components or intellectual property into the goods and services it offers, to pay substantial damages and/or license royalties, obtain a license from the holder of the infringed intellectual property right, which license may not be available on reasonable terms or at all, to redesign its products and services, and/or to establish and maintain alternative branding for its products and services. In the event that we were required to take one or more such actions, our business, prospects, operating results and financial condition could be materially adversely affected. In addition, any litigation or claims, whether or not valid, could result in substantial costs, negative publicity and diversion of resources and management attention.

 

We cannot be certain that our products and services or those of third parties that we incorporate into our products do not and will not infringe the intellectual property rights of others. We do not own any patent technologies but rely on our equipment suppliers and technology partners. In future, we may be subject to claims based on allegations of infringement, misappropriation or other violations of the intellectual property rights of others, including litigation brought by competitors, potential competitors or special purpose or so-called "non-practicing" entities that focus solely on extracting royalties and settlements by enforcing intellectual property rights and against whom our patents may therefore provide little or no deterrence or protection.

 

Regardless of their merits, intellectual property claims divert the attention of our personnel and are often time-consuming and expensive. In addition, to the extent claims against we are successful, we may have to pay substantial monetary damages (including, for example, treble damages if we are found to have wilfully infringed patents and increased statutory damages if we are found to have wilfully infringed copyrights) or discontinue or modify certain products or services that are found to infringe another party's rights or enter into licensing agreements with costly royalty payments. Defending against claims of infringement, misappropriation or other violations or being deemed to be infringing, misappropriating or otherwise violating the intellectual property rights of others could impair our ability to innovate, develop, distribute and sell our current and planned products and services. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, there is a risk that some of own confidential information could be compromised by the discovery process. Although claims of this kind have not materially affected our business to date, there can be no assurance material claims will not arise in the future.

 

Our switchable glass products must comply with local building codes and ordinances, and failure of our products to comply with such codes and ordinances may have an adverse effect on our business.

Many of our products must comply with local building codes and ordinances. Building codes may also affect the products our customers are allowed to use, and, consequently, changes in building codes may also affect the sale of our products. If our products fail to comply with such local building codes or ordinances, our ability to market and sell such products would be impaired. Also, should these codes and ordinances be amended or expanded, or should new laws and regulations be enacted, we could incur additional costs or become subject to requirements or restrictions that require us to modify our products or adversely affect its ability to market and sell our products. If our products do not adequately or quickly adapt to building standards, we may lose market share to competitors, which would adversely affect our business, results of operation, financial condition, and cash flows. Furthermore, failure of our products to comply with such codes or ordinances could subject us to negative publicity or damage our reputation.

 

Our insurance strategy may not be adequate to protect us from all business risks.

We may be subject, in the ordinary course of business, to losses resulting from products liability, accidents, acts of God and other claims against us, for which we may have no insurance coverage. A loss that is uninsured or which exceeds policy limits may require us to pay substantial amounts, which could adversely affect our financial condition and operating results.

 

We are subject to all of the ordinary course operating hazards and risks that may come with the provision of our products and services and business operations. In addition to contractual provisions limiting our liability to business customers and third parties, we maintain insurance policies in such amounts and with such coverage and deductibles as required by law and that we believe are reasonable and prudent. Nevertheless, such insurance may not be adequate to protect us from all the liabilities and expenses that may arise from claims for personal injury, death or property damage arising in the ordinary course of our business and current levels of insurance may not be able to be maintained or be available at economical prices. If a significant liability claim is brought against us that is not covered by insurance, then we may have to pay the claim with our own funds, which could have a material adverse effect on our business, financial condition, cash flows or results of operations. We may not be able to secure additional product liability insurance coverage on commercially acceptable terms or at reasonable costs when needed, particularly if we do face liability for its products and are forced to make a claim under our policy.

 

We may become subject to product liability claims, which could harm our financial condition and liquidity if we are not able to successfully defend or insure against such claims.

Although our Manufactured Products (as defined above) will be designed and produced to be safe switchable glass or nano coat air filters, product liability claims, even those without merit, could harm our business, prospects, operating results and financial condition. We face inherent risk of exposure to claims in the event our products do not perform or are claimed to not have performed as expected. A successful product liability claim against us could require us to pay a substantial monetary award. Moreover, a product liability claim could generate substantial negative publicity about our products and business and could have a material adverse effect on our business, prospects and operating results.

 

If we are unable to achieve our targeted manufacturing costs for our products, our financial condition and operating results will suffer.

While we will continue reduce costs in our operations and from our suppliers, including through economies of scale in increased production, there is no guarantee that we will be able to achieve sufficient cost savings to reach our planned gross margin and profitability goals, or our other financial targets. If our efforts to continue to decrease manufacturing costs are not successful, we may incur substantial costs or cost overruns in utilizing and increasing the production capability of our manufacturing facility. Many of the factors that impact our manufacturing costs are beyond our control, such as potential increases in the costs of materials and components. If we are unable to continue to control and reduce our manufacturing costs, our operating results, business and prospects will be harmed.

 

8

 

Risks Relating to Our Organization

 

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 products (3D display, nano-coat plated filters, and switchable glass) 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 products (3D display, nano-coat plated filters, and switchable glass) 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.

 

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 Korea won, 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 Korea won, 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, Korea won, Hong Kong dollar or Chinese Renminbi, this may have an adverse effect on our costs incurred in either the U.S. or Korea won or Hong Kong or China (as applicable) but may have a positive effect on any revenues which we source from the U.S. or South Korea 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 South Korea, 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.

 

9

 

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 takeover 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.

 

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 and switchable glass businesses 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 2020 was 2.3% compared to 6.1% in 2019, 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.

 

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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 future operating revenues may be 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 Smartglass 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 Smartglass Shenzhen Limited to obtain foreign exchange through debt or equity financing, including by means of loans or capital contributions from us. 

 

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:

 

  media broadcast regulations over the Internet;

  

  foreign media to be distributed in China;

  

  operating permit for mobile sales and distribution;

  

  copyrighted digital media regulations;

  

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

 

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

 

These are only some of the examples that may have indirect 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.

 

Risks Associated with Our Technology and Intellectual Property

 

Potential technological changes in our field of businesses create considerable uncertainty.

We are no longer conducting research and development in our products. However, our products in 3D technology and nano-plated air filters are characterized by continuous and extensive research efforts, and rapid technological progress by others in these technologies. 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.

  

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

The 3D display and nano-coating technologies we use in our products are subject to rapid and significant technological change. Our competitors in Hong Kong, China, Korea 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, or which would render the technology in our products such as 3D display and nano-coated 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 in marketing, sales and commercializing new technologies of new or improved display products and nano-plated filter products.

 

We know that competitors are developing or manufacturing various technologies or products for the 3D display products and services competing in our product lines. 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.

 

For the nano-plated filter products, the manufacturing technology is from a third party, and to the extent that the equipment manufacturer will be able to continuously develop and upgrade the nano-plated filter technology to keep our nano-plated products competitive will determine the success of our business. If our equipment manufacturer is not able to innovate their technology to match our competitors technology development, then there is a risk that our nano-products will become uncompetitive in the market place which may have an adverse effect in our nano-plated business, financial condition and results of operations.

  

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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; and

 

  Protect our trade secrets and know-how.

 

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 the 3D patents we use 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 several 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.

  

While we intend to seek patent protection for some of our 3D products and technologies that we use which carried forward prior to the disposal of our R&D unit, we cannot be certain that any of the pending or future patent applications filed by us or on our behalf will be approved. We also cannot be certain that others will not independently develop similar products or processes, duplicate any of the products or processes developed by us previously 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.

 

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Risks Relating to Our Securities

 

If we do not maintain compliance with the Nasdaq continued listing requirements, our securities will be subject to delisting.

On June 19, 2020, the Company received a letter from the Listing Qualifications Staff (the "Staff") of The Nasdaq Stock Market LLC ("Nasdaq") notifying the Company that it no longer complied with Nasdaq Listing Rule 5550(b)(1) due to the Company's failure to maintain a minimum of US$2,500,000 in Stockholders' Equity (or meet the alternatives of market value of listed securities of US$35 million or US$500,000 in net income from continuing operations). On September 28, 2020, the Company announced that it believed that it was compliant as its Shareholders' Equity was approximately US$4.5 million. The Company subsequently received a letter from Nasdaq stating that the Staff had determined that the Company complies with the rule. However, the letter further stated that, if the Company fails to evidence compliance upon filing its next periodic report, it may be subject to delisting. In such event, the Staff will provide written notification to the Company, which will have an opportunity to appeal any such determination to a Hearings Panel. There are no assurances that our Shareholders' Equity will continue to be in compliance with the Nasdaq Listing Rule 5550(b)(1) of maintaining a minimum of US$2.5 million in stockholders' equity or meet the alternatives of market value of listed securities of US$35 million or US$500,000 in net income from continuing operations. If the Company is in non-compliance of this requirement, then the Company could be subject to delisting. As of the December 31, 2020, the Company was in compliance of Rule 5550(b) for continued listing of a company's Primary Equity Security on the Capital Market, as the Company's Stockholders' equity was at least US$2.5 million.

 

In the event that our ordinary shares are delisted from Nasdaq, U.S. broker-dealers may be discouraged from effecting transactions in shares of our ordinary shares because they may be considered penny stocks and thus be subject to the penny stock rules.

The SEC has adopted several rules to regulate "penny stock" that restrict transactions involving stock which is deemed to be penny stock. Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Exchange Act. These rules may have the effect of reducing the liquidity of penny stocks. "Penny stocks" generally are equity securities with a price of less than US$5.00 per share (other than securities registered on certain national securities exchanges or quoted on Nasdaq if current price and volume information with respect to transactions in such securities is provided by the exchange or system). Our ordinary shares have in the past constituted, and may again in the future constitute, "penny stock" within the meaning of the rules. The additional sales practice and disclosure requirements imposed upon U.S. broker-dealers may discourage such broker-dealers from effecting transactions in shares of our ordinary shares, which could severely limit the market liquidity of such ordinary shares and impede their sale in the secondary market.

 

A U.S. broker-dealer selling penny stock to anyone other than an established customer or "accredited investor" (generally, an individual with net worth in excess of US$1,000,000 or an annual income exceeding US$200,000, or US$300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the "penny stock" regulations require the U.S. broker-dealer to deliver, prior to any transaction involving a "penny stock", a disclosure schedule prepared in accordance with SEC standards relating to the "penny stock" market, unless the broker-dealer or the transaction is otherwise exempt. A U.S. broker-dealer is also required to disclose commissions payable to the U.S. broker-dealer and the registered representative and current quotations for the securities. Finally, a U.S. broker-dealer is required to submit monthly statements disclosing recent price information with respect to the "penny stock" held in a customer's account and information with respect to the limited market in "penny stocks".

 

Shareholders should be aware that, according to the SEC, the market for "penny stocks" has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) "boiler room" practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, resulting in investor losses. Our management is aware of the abuses that have occurred historically in the penny stock market. Although we do not expect to be in a position to dictate the behavior of the market or of broker-dealers who participate in the market, management will strive within the confines of practical limitations to prevent the described patterns from being established with respect to our securities.

 

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, 2020, 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. 

 

13

 

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.

 

Our ordinary shares trade on Nasdaq. However, trading volumes for our ordinary shares have been historically low and volatile. The limited trading market for our ordinary shares may cause fluctuations in the market value of our ordinary shares to be exaggerated, leading to price volatility in excess of that which would occur in a more active trading market for our ordinary shares.

 

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.

 

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 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 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 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.

 

14

 

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 Australian 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 if we were a domestic U.S. public corporation.

 

We may issue additional securities in the future, which may result in dilution to our shareholders.

As of April 23, 2021 we have 8,440,533 ordinary shares issued and outstanding, which does not include the number of shares to be issued under a previously issued and outstanding convertible promissory note. As of April 23, 2021 we have two outstanding convertible promissory notes of US$1,799,486 and US$1,650,000 at a conversion price of US$3.00 per share and US$3.25 per share respectively for a total of 1,107,520 shares issuable (the "Convertible Notes"). Under the terms of these Convertible Promissory Notes, there are adjustments to the conversion price if the Company issues shares below certain prices. In particular, if the Company issues shares below US$2.50 then the total shares issuable under the two Convertible Notes is 1,379,794. If the Company issues shares below US$1.50 then the total shares issuable under the two Convertible Notes is 2,299,657. In these cases, to the extent that the conversion rights are exercised by the noteholders, additional ordinary shares will be issued and would dilute our shareholders. In addition, subject to shareholder approval, we have two other convertible debt agreements with directors and officers of the Company to issue up to 401,939 shares in the Company at a price of US$3.61 for a total debt of US$1,451,000.

 

In addition, to the extent that we conduct additional equity offerings, additional ordinary shares will be issued, which may result in dilution to our current shareholders. Sales of substantial numbers of such shares in the public market would also result in further dilution to our shareholders and could adversely affect the market price of our ordinary shares.

 

We may seek to raise additional funds, finance acquisitions or develop strategic relationships by issuing securities that would dilute your ownership. Depending on the terms available to us, if these activities result in significant dilution, it may negatively impact the trading price of our ordinary shares.

We have financed our operations, and we expect to continue to finance our operations, acquisitions, if any, and the development of strategic relationships by issuing equity and/or convertible securities, which could significantly reduce the percentage ownership of our existing stockholders. Further, any additional financing that we secure, may require the granting of rights, preferences or privileges senior to, or pari passu with, those holders of our ordinary shares. Any issuances by us of equity securities may be at or below the prevailing market price of our ordinary shares and in any event may have a dilutive impact on your ownership interest, which could cause the market price of our ordinary shares to decline. We may also raise additional funds through the incurrence of debt or the issuance or sale of other securities or instruments senior to our ordinary shares. The holders of any securities or instruments we may issue may have rights superior to the rights of our shareholders. If we experience dilution from the issuance of additional securities and we grant superior rights to new securities over our shareholders, it may negatively impact the trading price of our ordinary shares and you may lose all or part of your investment.

 

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.

 

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 Australian 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 ordinary shares. No assurance can be given that brokerage firms will, in the future, want to conduct any secondary offerings on behalf of our Company.

 

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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 Suite 801, 8/F., Siu On Center, 188 Lockhart Road, Wanchai, Hong Kong and our telephone number is +852 2989 0288. 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 this 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) acquired 3D technology and audio companies (as discussed further below). However due to the capital-intensive nature of research and development and the losses incurred in 2018 and 2019, our management decided in early 2020 to stop the R&D activities and focus on the sales and marketing of 3D AST products. Management also decided to broaden the Company's revenue base by investing in a lamination glass project, a new nano-coast plated filter project, IoT projects and financial research. As a result, the Company now engages in business activities relating to the marketing and sales of 3D ASD products, laminated switchable glass, nano-coat plate filter, IoT products and financial research.

 

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 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 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 A$0.20 per share.

 

As a result of the acquisition of MDL, Marvel Finance Limited, a company wholly owned and controlled by our then 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 CICL 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.

 

On May 2, 2017, we effected a 1-for-30 reverse split of our ordinary shares, 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. 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, we established 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.

 

On August 3, 2017 our ordinary shares 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 A$3.8 million) Convertible Bonds (the "Convertible Bonds"): (i) Subscription Agreement between Marvel Digital Limited, a wholly-owned subsidiary of the Company ("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.

 

Pursuant to the terms of the Convertible Bonds, the Convertible Bonds are convertible 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.

 

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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 US$4,000,000 (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.

 

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 will pay 50,000 IMTE shares upon the commissioning of one 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 the 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$23 million (equivalent to approximately A$4.3 million) of the Convertible Bonds on the following schedule: i) HK$13 million (or about A$2.4 million) to be paid on January 17, 2020 and ii) the remaining HK$10 million (or about A$1.9 million) to be paid in equal installments over four months. Furthermore, the interest rate is changed to 15% per annum. All of the installments payments have been made.

 

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$2.6 million or about US$1.8 million) 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 US$1.50 per share, subject to regulatory or shareholder approval. As at the date of this Annual Report, (i) the Note is still outstanding, ii) a total of A$325,000 interest payment in the CN Agreement, and (iii) the fixed conversion price has been adjusted to US$3.00 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 to raise gross proceeds of US1 million. 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 used the net cash proceeds for partially paying off debts to a bondholder and general corporate purposes.

 

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

 

On August 6, 2020, IMTE entered into two conditional SP Agreements to buy 25.5% equity interest in Sunup from each of Nextglass Technologies Corp ("Nextglass") and Teko International Limited ("Teko") for US$750,000 each for a total consideration of US$1,500,000. The consideration paid was US$750,000 for each of Nextglass and Teko, and each of them was issued 250,000 ordinary shares in IMTE (the "Consideration Shares") at US$3.00 per share. Under the SP Agreements, IMTE could also pay a deferred consideration based on five times the annualized earnings for the two years following completion, less the initial consideration of US$750,000. For the duration of the agreements and until the deferred consideration is determined, Nextglass and Teko have the right to purchase their 25.5% Sunup equity interest back from IMTE through the restitution of the Consideration Shares if IMTE and Sunup terminate the directors and officers of Sunup without cause and without the consent of the Nextglass and Teko.

 

On December 21, 2020 the Company entered into a contract with RE&I International Limited and Zhenjiang Nextek Glass Film Limited to purchase one lamination line for our switchable glass operation for total proceeds of US$1,650,000.

 

On December 21, 2020, the Company entered into a subscription agreement to subscribe for up to 60% equity interest in Greifenberg Capital Limited ("Greifenberg") for a total subscription amount of US$1,200,000. The initial subscription amount is US$500,000, which is due on or before January 10, 2021 and the Company has the option to subscribe for an additional US$700,000 if Greifenberg achieves certain milestones after May 31, 2021. Greifenberg will be engaged in the business of providing financial research and risk analysis on China's financial markets.

 

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On December 21, 2020, Sunup, the Company's subsidiary entered into an assignment agreement to take up the rights to a Product Development Agreement for two new air filters. The contract provides for Sunup to own the trademark and the right to use the product design and the distribution right to sell the air filter products worldwide. The total investment cost for the product development is approximately US$728,000.

 

On January 28, 2021, the Company entered into a conditional sale and purchase agreement to acquire 70% equity interests in Shenzhen Koala Wisdom Fire Engineering Co., Ltd.

 

On February 5, 2021, CIMC Marketing Pty Limited ("CIMC"), a wholly owned subsidiary of the Company entered into an agreement with Xped Limited (now known as Oakridge International Limited) ("Oakridge"), a company listed on the Australian Securities Exchange. Pursuant to the agreement, CIMC agreed to purchase up to 500 million shares for any shortfall of acceptance from other shareholders ("Shortfall Shares") in Oakridge's rights issue announced on January 25, 2021 at the subscription price of A$0.001 per share. On March 1, 2021, CIMC announced that it had purchased 500 million shares at a subscription price of A$0.001 per share for a total amount of A$500,000 or equivalent to US$381,000. The 500 million shares represent approximately 15% of the total outstanding shares in Oakridge. Oakridge is engaged in the business of selling professional healthcare technology equipment and solutions to healthcare facilities. Recently Oakridge has focused on expanding into delivering assisted independent living technologies utilizing synergies with Oakridge's Internet of Things (IoT) platform. Oakridge also intends to build on smart home and smart building solutions for a more efficient interactive environment for its occupants.

 

On February 22, 2021, the Company entered into a Securities Purchase Agreement for the sale of 625,000 ordinary shares of the Company to an accredited investor at a price of US$4.00 per share for US$2,500,000. The Company intends to use the net cash proceeds for working capital purposes and development of existing and new businesses.

 

On March 4, 2021, the Company entered into subscription agreements in a private placement with twelve investors outside the United States to subscribe a total of 573,350 shares in the Company at a price of US$4.00 per share for total proceeds of US$2,293,400. The use of the proceeds is to build out of manufacturing infrastructure and working capital.

 

On March 23, 2021, the Company entered into a Securities Purchase Agreement for the sale of 708,000 ordinary shares of the Company to an accredited investor at a price of US$6.50 per share for gross proceeds of US$4,602,000. The Company intends to use the net cash proceeds for developing its current businesses, corporate expenditures, and general corporate purposes.

 

In summary, the Group's business activities are the marketing and sales of 3D ASD products, switchable glass, nano-coat plate filter project, IoT and financial research.

 

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B.   Business Overview

 

IMTE is an Australian company engaged in the business of glasses-free 3D (also known as autostereoscopic 3D) display, the manufacture and sale of nano-coated plates for filters, the sale of electronic glass, IoT products and financial research. 

 

Breakdown of total revenues by category for the years ended December 31, 2020, 2019 and 2018:

 

    Consolidated
    December 31,
2020
A$
  December 31,
2019
A$
  December 31,
2018
A$
Development, sales and distribution of 3D autostereoscopic products and conversion equipment   1,427,157   1,273,921   1,166,144
Sales of software and technology solutions   -   1,504   13,731
Sales and distribution of audio products   -   -   48,609
Provision of consultancy and other services   -   -   95,922
Sales of nano-coat plate for air-filters   317,472   -   -
Interest income   6,197   115,762   21,409
    1,750,826   1,391,187   1,345,815

 

Breakdown of total revenues by geographic market for the years ended December 31, 2020, 2019 and 2018:

 

    Consolidated
    December 31,
2020
A$
  December 31,
2019
A$
  December
31, 2018
A$
Korea   315,034   -   -
Singapore   2,439   -   -
Australia   -   -   65
Hong Kong   1,366,200   1,310,912   346,954
China   60,956   80,275   998,796
    1,744,629   1,391,187   1,345,815

 

At the beginning of 2019, IMTE was engaged in the business of development, manufacturing and distribution of glasses-free 3D (also known as autostereoscopic 3D) ("ASD") display. 2019 was a challenging year for our ASD business as our development of technologies was undercapitalized and much of our work plan was postponed or delayed until funding was secured. We also faced difficulties with our subcontractors to resolve the manufacturing process problems which further delayed sales. In early 2020, the COVID 19 pandemic hit China and then spread to the rest of the world, putting our business on hold for most of 2020 and possibly longer. The economic outlook for retail business is uncertain as the extent of the people's behaviour change to stay at home more and rely on pick-up and delivery services. This has and will drastically affect our 3D advertising platform business.

 

In May 2020, we divested our research and development operation as a cost cutting measure. We decided to focus on the marketing and sales of ASD products and services. Most of the remaining development work will be outsourced with defined budgets. In the longer term, we may develop our technologies if we can see a clear path to market.

 

The Company is diversifying its business by dedicating resources to the electronic glass and the nano-coated plate filters businesses. These two businesses will not be affected by COVID 19 as much as the ASD business, which is operating in the retail advertising markets, in an uncertain pandemic environment. In particular, the air filter product should not be affected as much as the ASD business because, in a pandemic environment, we expect people to consider purchasing devices that cleanse the air. As for the electronic switchable glass business, this is a commercial product that is less susceptible to short-term interruptions in a pandemic environment because it does not depend on retail and or travel sector.

 

In line with our renewed business strategy, in August 2020, we acquired 25.5% interests in Sunup Holdings Limited ("Sunup") from each of Nextglass Technologies Corp. and Teko International Limited for US$750,000 each. In total, we acquired 51% of Sunup for a total consideration of US$1,500,000, which was paid by the issuance of a total of 500,000 shares at a price of US$3.00 per share. Sunup is engaged in the manufacturing and sale of nano-coated plates used in air filters. Sunup has set up its equipment and began commercial production in November 2020. At the time of the acquisition, Sunup was a non-operating company and its only assets were equipment.

 

Consistent with our current strategy to diversify and expand our business operations, on December 21, 2020, the Company entered into an agreement to acquire the majority interest in Greifenberg Capital Limited ("Greifenberg"), a company that seeks to analyse credit risk using Big Data and Artificial Intelligence, for a total subscription amount of US$1,200,000. This investment provides the Company with an opportunity to integrate its business operation with use of new data and Artificial Intelligence to foster growth in the new digital economy. We believe that strategically integrating our businesses with Artificial Intelligence and Big Data tools will enhance our business operations, especially in the advertising sector such as tracking or predicting trends in consumer behaviour.

 

Consistent with our current strategy to diversify and expand our business operations, on January 28, 2021 the Company entered into an agreement to acquire a 70% equity interest in Shenzhen Koala Wisdom Fire Engineering Co., Ltd., a company in the business of Internet of Things. Pursuant to the agreement, the vendors will enter into contracts for deployment of a IoT Detection System of not less than RMB200,000 within 60 days from the date of the agreement. IMTE will purchase the 70% equity interest in Shenzhen Koala for US$40,000 ("Initial Consideration") by the issuance of a total of 10,000 ordinary shares in the Company. In addition, the Company shall pay a deferred consideration of the Profits (as defined below) less the Initial Consideration. The deferred consideration would be paid by the issuance of ordinary shares in the Company (to a maximum number of shares not equal or exceeding 20% of the then issued shares of the Company) at a price equal to 85% of the prior 15 days VWAP of the Company's share price immediately prior to the date of the parties agreeing to the Profits and such date may not be later than March 31, 2022. Profits is defined as the profits before taxation of Shenzhen Koala for the period from the completion date to December 31, 2021 and excluding any relevant gross profits from uncollected sales receipts. As at the date of this report, this parties agreed to cancel this agreement and to negotiate another agreement involving other IoT projects.

 

On February 5, 2021, CIMC acquired 500 million shares representing approximately 15% or A$500,000 (approximately US$381,000) in Xped Limited (now known as Oakridge International Limited) ("Oakridge"), a company listed on the Australian Securities Exchange at the subscription price of A$0.001 per share. Oakridge is engaged in the business of selling professional healthcare technology equipment and solutions to healthcare facilities. Oakridge is focused on expanding into delivering assisted independent living technologies utilizing synergies with Oakridge's internet of Things (IoT) platform. Oakridge also intends to build on smart home and smart building solutions for a more efficient interactive environment for the occupants. Our investment provides a strategic investment into the technology and healthcare markets in Australia.

 

Currently, the Company is focusing on the marketing and distribution of ASD products, the manufacture and sale of nano coated plates for air filters and switchable glass, the sale of IoT, and financial research. We believe these two new business operations in air filters and electronic switchable glass will form the foundation of our future growth strategy.

 

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IMTE Products and Services

 

ASD Products

 

IMTE is focusing on the marketing and sale of our autostereoscopic display (ASD) products. The current products we offer are ASD technology displays and Marvel3DPro Super-workstation.

 

ASD Technology Display Products

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

 

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

 

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; and
  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.

 

Switchable Glass Products

We are planning to install and operate our switchable glass and energy saving glass lamination operation in late 2021. We plan to have 2-3 lamination lines with capabilities to produce annually between 160,000 - 240,000 m2 of laminated glass. The switchable glass are mainly for the real estate industry for both external and internal walls.

 

The real estate and construction industry in Asia and China in particular is expected to grow with the economies in these regions. Our switchable glass and energy saving glass would create a friendly energy savings environment for buildings and or homes.

 

Buildings today are built with windows for aesthetic purposes and also to allow natural light and outside views. However, the normal glass has two significant draw backs in letting heat and glare from sun light to come into the building. To compensate for this, we use blinds and curtains to shield us from these uncomfortable occurrences. In addition, the heat will require more energy to cool the internal environment such as the use of air conditioner which is detrimental to the environment and costly to the building owner.

 

Our laminated switchable glass and energy saving glass can provide more natural light and views while minimizing heat and glare. This is achieved by adjusting the tinting and transparent to opaque states, and vice versa, automatically by the use of sensors in determining the amount of sunlight to allow into the interior of the building.

 

Our lamination process is to laminate our partner's proprietary PLDC film between the glass to enable the glass to go from transparent and opaque, and vise versa, becoming our switchable glass. In the near future, we will also develop sensors to operate and manage each switchable glass to optimize energy savings and customer experience.

 

Our energy saving glass uses electrochromic technology from our supplier, Nextglass Technologies Corporation. Electrochromic is the phenomenon by which the light transmission through a transparent material changes when an electrical voltage is applied to it. Our energy saving glass can modulate ultraviolet, visible and infrared light simultaneously and can block more than 99% of solar radiation and achieve reduced energy consumption. This ability to control the transmission of light enables us to automatically control the amount of heat and glare into a building.

 

Our Advantages

Our switchable glass and energy saving glass provides multiple benefits to users and building owners.

 

    Sustainability and Energy Efficiency: Our switchable glass reduces energy usage in buildings by blocking heat from entering buildings and thus reducing the energy required to cool the building. Our switchable glass also helps bring in natural light reducing the daytime lighting energy requirements.

 

    Improved User Experience: Our energy saving glass will allow users to work closely to the glass/windows without the feeling of discomfort from heat and glare coming through the glass. Our energy saving windows can control the sun light and the heat from coming into the building for the comfort of the occupants

 

    Cost savings from switchable glass saves us from putting up the blinds or curtains to ongoing maintenance for the property owner.

 

Market Opportunities

We believe that the market for switchable and energy saving glass will include internal and external walls and, other applications for privacy walls/windows such as in hospitals and offices.

 

The growing demand for smart buildings in China in the next 10 years gives the Company an exciting platform to launch switchable and energy saving glass. The development of IoT, automation and other high tech industries in the Greater Bay Area in China (Guangdong Province, Hong Kong and Macau) leads to further development of smart buildings and smart cities where our switchable glass can be a major new building material for real estate developers and architects to build in. A truly intelligent building needs make its external walls smart through energy savings and aesthetically pleasing to the occupants while having a smaller carbon footprint.

 

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Our Customers

We plan to sell our products to the construction and real estate industry, including train stations, airports, convention centers, commercial offices, hospitals and residential homes and apartments.

 

We plan to engage with commercial building owners, architect, real estate developers and general contractors. We believe that market adoption of our products is strongly influenced by an appreciation of the cost savings to the owner and or tenants; and the overall improvement to the environment by reducing the carbon footprint of the buildings using our switchable and energy saving glasses.

 

Our Competition

We compete in the commercial window industry and the electrochromic glass industry, both of which is highly competitive in price and product functionality. We believe that our main sources of competition are existing commercial window manufacturers, electrochromic glass manufacturers, and companies developing smart window products. We believe the primary competitive factors in our markets are:

 

    Price,

 

    Product performance,

 

    Product functionality quality and durability,

 

    Ease of installation and maintenance, and

 

    Technological innovation.

 

Growth Strategies

We will need to introduce to the real estate industry participants i.e. developers and architects of the advantages of our switchable and energy saving glass products. We will also need to look at expanding the usage of our switchable glass to provide privacy walls such as in offices and hotels. The growth in the use of switchable and energy saving glasses will be in the use of costs savings in all applications where glass is used as a barrier to the outside environment.

 

Nano-coated Plate Filter Products

In August 2020, the Company purchased equipment to manufacture nano-coated plate filters using a new technology for air and water filters. These filters provide better clean air and eliminate small particle pollutants in the air for large indoor meeting places and in closed environment where the air is circulated i.e. trains, taxi, subways, buses, cruise ships, etc.

 

The current technology of Plasma-Enhanced Chemical Vapor Deposition (PECVD) is too expensive and causes emission of toxic material. However, we are using a new PECVD technology, patent owned by our Korea partner, makes the product at a much lower costs than the traditional PECVD technology and does not emit toxic material in the manufacturing process. The technology we use is superior in performance and less costly to produce.

 

What is Plasma-Enhanced Chemical Vapor Deposition

In PECVD, one or more gaseous reactants are used to form a solid insulating or conducting layer on the surface of a wafer. This layer is then enhanced by the use of a vapor containing electrically-charged particles or plasma, at lower temperatures.

 

PECVD processing enables deposition at lower temperatures. A plasma is formed from the gaseous chemicals in a reaction chamber. In contrast to traditional Chemical Vapor Deposition, where higher temperature is used to cause reactions, in PECVD the plasma provides the energy needed to cause the reaction, which means that it can be done at a lower temperature.

 

The positive effect of photo catalytic air purification and sterilization are:

 

Eliminate all kinds of particles.

 

Remove odors.

 

Eliminate cigarette smoke and carcinogens.

 

Remove VOCs contained in the dust.

 

Negative ions and oxygen in the taxi will increase.

 

Eliminate contact with allergen inducing substances and have the effect of allergy treatment.

 

We have started the manufacturing and selling of the product in Q4 2020. We have also invested in our own proprietary design of a family of air filter products to be available in Q2 2021. Currently we have started marketing our generation 2 air filter (picture below) in South Korea, China and South East Asia. The response has been very positive and we look to secure some orders in Q2 2021.

 

Our nano-coat plated products eliminate particles, eliminate germs and viruses, eliminate micro molecules that are harmful to human bod and odors in the air. We have sent the product to testing labs in Korea to certify our air filters eliminate particles in the air. With such test results we believe that we will receive many more enquiries and sales orders. In the second half of 2021, we will seek to sell our products in North America and Europe.

 

Our sales strategy is to appoint distributors and or channel partners for certain territories countries. For some markets we will sell direct to consumers online to build our own customer base.

 

Our product strategy is to build up a product line catering to all price points. We may invest in more designs for specific markets and applications such as air filters for baby care, aged care, and healthcare environments. As our air filters are designed to be mobile for personal use, there are many applications where users are in confined space such as travelers on trains or buses.

 

Going forward, we will look at using this technology to manufacture water filters for the home and for the food, sanitary water treatment industries.

 

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Internet of Things ("IoT") Products

 

IMTE will be focusing on the IoT products as one of the core businesses to invest as there are many developments in China spearheading the deployment of IoT technologies throughout society. In February, the Company took a strategic 15% stake in an ASX company Oakridge International Limited (formerly known as Xped Limited) ("Oakridge"). Oakridge is in the business of IoT and healthcare technologies to assisted healthcare, age homes and self-care homes.

 

IMTE is seeking opportunities to invest in IoT technologies locally in Hong Kong or China, and then bringing these technologies to other markets such as in Australia that could benefit from first mover advantage.

 

Financial Research

 

In December 2020, IMTE entered into an agreement to invest up to US$1.2 million for up to 60% in Greifenberg Capital Limited ("Greifenberg"), a Hong Kong company specialized in the development and sale of risk analytics for Chinese and East Asian credit markets.

 

Greifenberg Business

 

The Greifenberg Business is the development of risk analytics required to transform China's credit market into a globally accessible and investible one.

 

China's bond market is the world's second largest with a market capitalization of about US$15 trillion.

 

This includes US$3.7 trillion of non-financial corporate bonds and US$2.1 trillion of financial bonds.

 

Foreign ownership of Chinese bonds nearly doubled during 2017 and 2018 and is likely to increase more rapidly.

 

2,307 institutional investors were registered for direct trading in Chinese bonds through Bond Connect as of November 2020, and 612 institutional investors now are trading in the interbank bond market.

 

Although China's bond market is smaller than America's, real interest rates for government bonds are positive in China and negative in the US, Europe and Japan, and the aggregate yield offered in China's fixed income is greater than that of the US bond market. China's credit market should be a magnet for global investors, but foreign participation is discouraged by two related problems, namely inadequate resources for credit ratings and risk analysis, and poor secondary market liquidity.

 

The International Capital Markets Association found in a January 2020 survey: "Interviewees complain of very little transparency and price visibility in the secondary credit markets, making it difficult to know where to go to find prices. They report that many Tier 1 banks limit their market-making capacity in credit to perhaps only the 20-or-so most liquid issues, with a skew towards financials. Meanwhile, less liquid issues, in particular NFCs, tend to be traded by the Tier 2 or Tier 3 banks and securities houses, and even then, interviewees note that this tends to be more in a broking capacity than as a true market-maker."

 

Lack of transparency and liquidity have discouraged domestic as well as foreign participation in what should be one of the world's most attractive markets.

 

Only one US exchange-traded fund invests in Chinese high-yield bonds, the Kraneshares CCBS China Corporate High Yield ETF, and its net assets are only $7.84 million.

 

Uncertainty rather than performance is the main barrier to investor sponsorship of China's credit market.

 

Less than 1% of outstanding principal in China's bond market is in default, according to an analysis by Bocom Securities.

 

Two Chinese Credit Markets

 

China's credit market really is two markets, as the histogram below illustrates.

 

There are two universes of credit, one (on the left of the chart) composed of bonds of quasi-governmental entities and policy banks, with an average yield of about 4%, and another (on the right of the chart) composed of corporate issuers with an average yield of about 7%.

 

Illiquidity and lack of transparency characterize the right side of the distribution.

 

Yield Distribution of Electronically Priced RMB Bonds 

 

Huarong Asset Management Shows Need for Risk Analytics

 

Recent volatility in the price of bonds issued by Huarong Asset Management, the legacy portfolio of the Industrial and Commercial Bank of China's distressed assets, illustrates the problem. The job of distressed asset managers is to either liquidate or recapitalize troubled companies and raise salvageable businesses out of distress. If investors do not have the tools to assess the risk of high-yield companies, they will stay clear of distressed companies. The state-sponsored distressed managers remain a dead weight on the market.

 

22

 

China is eager to improve credit market liquidity.

 

In April 2021, China's securities regulator announced that high-yield corporate bonds could be pledged as collateral in the interbank repurchase-agreement market, an incentive to improve liquidity. The absence of reliable risk measurement, though, remains a crucial barrier to improved market liquidity.

 

In January 2020 China's largest rating agency, China Chengxin International Credit Rating Co., was suspended for three months after a state-owned utility, Yongcheng Coal, defaulted on a short-term RMB 1 billion bond issue shortly after the agency assigned the bond a top AAA rating. China's National Development and Reform Commission had ranked the suspended firm as the best among the country's credit rating agencies, and it was the largest provider of ratings during the third quarter of 2020.

 

Risk Measurement is the Key to Unlocking the Value of Chinese Credit

 

The key to unlocking the underlying value of China's corporate bond market is risk measurement. That is not a uniquely Chinese problem.

 

As recently as the early 1980's, what was then the largest fixed income market in the world, the market for US home mortgage lending, was entirely illiquid. Mortgages were held as long-term portfolio investments by more than 11,000 savings institutions who lacked the capital markets access and capacity to manage interest rate risk. The sharp rise in US interest rates during the early 1980s made almost all the savings institutions insolvent.

 

By the late 1980s, US mortgages had become one of the world's most liquid fixed-income markets with broad global participation, due to 1981 legislation that created mortgage-backed securities and gave rise to a liquid secondary market in home mortgages.

 

Mortgage cash flows are complex, and the advent of Option-Adjusted Spread models made available through financial institutions gave investors a standard gauge of risk compensation across a wide variety of securities.

 

The profit opportunity for the financial sector made fixed income the main source of brokerage industry revenues for the next two decades.

 

During the early 2000s, modeling of corporate bond default risk created a multi-trillion dollar market in structured credit products, including Collateralized Debt Obligations (CDOs).

 

As in the earlier case of mortgage-backed securities, quantitative risk models made possible the distribution of the cash flows of pools of corporate obligations to different investors with different risk tolerances and income requirements.

 

Issuance of CDOs globally rose from US$65 billion in 2000 to US$431 billion in 2006.

 

China's Opportunity is One of the Biggest in Market History

 

China's credit market presents an opportunity as great or greater than mortgage-backed securities and structured credit in the United States.

 

Greifenberg Capital's principals were pioneers in the development of fixed-income risk models in the United States and Europe, and participants in the revolution in risk analytics that built the modern securities industries. We now apply that experience to China's credit market, with specifically Chinese characteristics.

 

Greifenberg has built a suite of risk analytics combining the credit risk methods, including:

 

1)Proprietary analytics for corporate financials;

 

2)Contingent Claims Analysis of distance-to-default;

 

3)Artificial-Intelligence based fraud detection;

 

4)Natural Language Processing of news and social media comments on issuers;

 

5)Spread decomposition into credit risk and liquidity premia; and

 

6)AI-driven matrix pricing to estimate fair value prices for illiquid bonds.

 

Greifenberg's suite of models are inputs for a Meta-Model that employs machine learning to determine a best estimate of corporate bond risk.

 

Greifenberg Risk Analytics give market participants the most advanced available tools for trading and portfolio management of Chinese corporate bonds. They will assist:

 

1)the trading and sales businesses of broker-dealers,

 

2)the distribution business of private client services and exchange-traded funds, and

 

3)the portfolio management business of asset managers.

 

Greifenberg's mission is to set a standard for risk analytics as a catalyst for a thriving, liquid, and globally-sponsored Chinese credit market.

 

The same methods can be applied to credit markets outside of China.

 

23

 

Market and Competitive Landscape

 

The market for credit risk analysis in China is in early stages of development. There is presently no competitor who offers a credit risk management system comparable to Greifenberg's.

 

China's ratings agencies have poor credibility. Earlier this year China's largest rating agency, China Chengxin International Credit Rating Co., was suspended for three months after a state-owned utility, Yongcheng Coal, defaulted on a short-term RMB 1 billion bond issue shortly after the agency assigned the bond a top AAA rating. That leaves a vacuum which no other firm has filled.

 

The application of Artificial Intelligence to "Big Data" sets is frequently cited in advertising by credit firms, but the credibility of such systems remains low. We believe the decision of Chinese regulators to postpone the planned IPO of Ant Financial in November 2020 reflected in part lack of confidence in the company's credit risk management systems, which were widely believed to represent the state of the art.

 

What distinguishes Greifenberg's approach is the simultaneous use of several risk filters and a machine-learning overlay that weights the relevance of each risk filters by its actual predictive value in anticipating credit events. Several prospective competitors offer one of the risk filters employed by Greifenberg, but Greifenberg is unique in employing all of them. These include:

 

1)Natural Language Processing ("dynamic ontology") of news and social media as well as government publications;

 

2)Contingent Claims Analysis (based on options theory and observed equity price movements and balance sheet structure);

 

3)Analysis of reported corporate information;

 

4)Fraud detection (based on Artificial Intelligence analysis of the whole credit universe); and

 

5)Corporate governance analysis ("ecosystem" scoring).

 

The American ratings agency Standard and Poor's has developed a National Language Processing "sentiment index" based on published comments on corporate bond issuers. The S&P system appears to lacks the capacity to track regulatory risk, an important factor in China's bond market. CB Insights provides Natural Language Processing but concentrates on "venture capital, startups, patents, and partnerships" rather than on credit.

None of our prospective competitors now combines Contingent Claims Analysis with conventional balance sheet analysis along the lines of Greifenberg's "meta-model."

 

Several competitors perform analysis of reported corporate information. This is limited by the quality of available data. There are numerous companies providing financial data but their impact is limited by data quality.

 

We believe the prospective competitor with capabilities closest to Greifenberg is China Securities Credit Investment (CSCI), in association with Oliver Wyman. CSCI is limited by several factors, most importantly its association with Pengyuan, one of China's oldest credit rating systems. Existing ratings agencies have not performed well during the default wave of the past year, and Pengyuan was fined by the People's Bank of China in January 2021 for operating without a proper license and failing to file timely updates. According to the Business Information Industry Association, regulators in doing so were "delivering a severe reprimand to the financial data industry."

 

The poor performance of China's credit rating agencies provides a unique opportunity for Greifenberg's approach. The problems of China's existing fintech sector indicate that Greifenberg faces little hurdles to market entry.

 

The biggest business we face is that a large competitor might seek to reproduce our system and market it in competition with Greifenberg. That could work to our advantage as well as disadvantage, provided that we conduct a rapid and effective branding exercise.

 

Future Developments

 

The focus of the Group is to continue to develop its businesses switchable glass, nano-coat plated filters, IoT products and financial research to support our glasses-free 3D (autostereoscopic) displays (ASD). Our focus in the past has been in the technology development in ASD displays with limited success. We have experienced significant losses in the past 3 years and the Group needed to build a more diversified business and revenue base for the Company. The initiatives in 2020 to curtail the R&D operation and to start new revenue stream in the nano-coat plate is a move forward. In 2021, we look forward to continuing the development in the businesses of lamination for switchable glass, Iot products and financial research, to all contribute in the Group's revenue stream.

 

Due to recent losses incurred in operations and in order to reduce the overhead and expenses of the Group, in May 2020 we divested from the research and development operation. 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.

 

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.

 

24

 

Market and Industry Analysis

 

3D Display Market

 

The 3D display market has not changed and is still 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.

 

Nano-coating plated filter

 

The nano-coating plated air filters is expected to be a popular product during a pandemic where consumers are weary of the pollutants in the air. Thus, a product that can eliminate particles will stimulate interest in the healthcare industries.

 

Switchable glass

 

The market for switchable glass in China and Hong Kong is expected to grow as the roll out for more smart buildings. The switchable glass will reduce costs for building owners by reducing the amount of heat and glare in the building. Consequently the building will require less energy to cool its interiors and carbon footprint.

 

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. Other companies operating in this domain such as Magnetic 3D, Alioscopy, and Dimenco have started operations earlier than us. For the air filter products, there are many larger companies such as Samsung and LG selling air filters for the homes. We believe that our air filters are competitive in price and function. For the switchable glass, there are many companies offering switchable glass in China, however we do not believe that their products are competitively priced or have the functionality and durability as our switchable glass. The IoT products are generally available in the market so there are many competitors in China. However, we will select the IoT products that have advantages to the markets we enter.

 

Sourcing and Manufacturing

For certain products such as ASD or IoT products, we will source manufacturer to supply us the products for sale. However, for nano-coated plates and lamination of switchable glass, we will manufacture these products.

 

Marketing, Distribution and Sales

For our products we are in the process of building our own brand for our air filter and switchable glass products which we intend to launch when we take the products to market.

 

Sources and Availability of Raw Materials and Principal Suppliers

Other than our lamination line for switchable glass, our source and availability of raw materials is not dependent on a principal supplier. For the lamination operation we are reliant on our film manufacturer to supply film to be used in the lamination process. To mitigate the situation, we will place secured order of this raw materials so that we are not delayed in our manufacturing process.

 

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 2020, 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.

 

Research and Developments

Prior to 2020, the Company conducted a lot of its own R&D activities with limited success in commercializing the technologies developed. Due to the severity of the recent losses and the uncertainty of the COVID 19, in May 2020, we have divested from any internal R&D. We will rely on our partners and or third parties on development of new technologies in ASD, nano-coated plates, and lamination lines for switchable glass.

 

25

 

Intellectual Property

The intellectual property protection for 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, consultants and associates.

 

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 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.

 

26

 

Patent Portfolio

 

The following table presents our portfolio of patents and patent applications, including their status (as at December 31 2020) 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. Feb 2031
(ii) Method for stereoscopic illustration 2010 80019861.4 Granted in China May 2034
US 8,797,383 Granted in U.S. Feb 2031
102010028668 Granted in Germany May 2030
(iii) Glasses-free 3D display device 1252602 A Granted in HK Nov 2026
201711080471.8 Granted in China Nov 2037
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 Artifacts Aware View Synthesis US 10,404,961 B2 Nov 2036
(iii) A depth discontinuity based method for efficient intra coding for depth videos US15/748,532 May 2037
(iv) A multi overlay variable support and order kernel based representation for image deformation and view synthesis US15/748,503 Aug 2036
(v) Auxiliary Data for Artifacts Aware View Synthesis (US) 62/285,825 Aug 2036
(vi) Auxiliary Data for Artifacts Aware View Synthesis (PCT) PCT/CN2016/104887 N/A
JP2018523453A N/A
201680078156.9 N/A
(vii) Shape adaptive model based 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

 

27

 

Patent Owner

Title

Patent No.

/Application No.

Status

Expires

GOXD Technology Limited

Digital Photo Frame Device and Control Method thereof

18103421.3

Granted in HK

Mar 2026

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 Mar 2024
A Method, Apparatus and Device for Acquiring a Spatial Audio Directional vector 16103566.0 Granted in Hong Kong Mar 2024
201610566911.X Granted in China Jul 2036
15/216,726 Granted in U.S. Jul 2036
105134696 Granted in Taiwan Oct 2036
A Lens for Extended Light Source and Design Method Therefor 16106705.5 Granted in HK Jun 2024
201710427469.7 Granted in China Jun 2037
15/61,720 Granted in USA Jul 2038
18103254.5 Granted H.K. May 2037

A Method and a System for generating depth information associated with an image

16111725.1 Granted in HK Oct 2024
US15/404,461 Granted in U.S. May 2037

US 15/784,875

Granted in U.S.

May 2038

Method For Improving the Quality Of 2D-to-3D Automatic Conversion By Using Machine Learning 16111899.1 Granted in HK Oct 2024
15/784875 Granted in US May 2038
Parametric Splitting for Block Representation and Coding HK 19124279.1 Granted in HK May 2027
Methods for Multiple Layer Representation of Depth Map for Intra Coding HK 19124682.6 Granted in HK Jun 2027
Computer 1601506.3 Granted in HK Aug-2041
29/574,856 Granted in U.S. May 2031

 

28

 

Material Contracts Related to Intellectual Property and Commercialization Rights

 

License Agreement with Versitech Limited 

 

In September 2015, Versitech Limited ("Versitech") and a former subsidiary, 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.

 

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

 

During the 2020 year, there were royalty fee of HK$200,000 paid to Veritech (2019:Nil). There were no sublicense fee paid in both years.

 

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.

 

29

 

C.   Organizational Structure

 

As at December 31, 2020, we have a total of 12 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 investment holding
Binario Ltd British Virgin Islands 100% Direct Investment holding company
Digital Media Technology Ltd Labuan, Malaysia 100% Indirect Sale and distribution of Group products
Cystar International Ltd
(formerly Visumotion International Limited)
Hong Kong 100% Indirect Sale of software and provision of consultancy services
Colour Investment Limited Hong Kong 100% Direct Investment holding company
GOXD International Limited Hong Kong 80% Indirect Distribution of Digital Picture Frame
Great Gold Investment Limited Hong Kong 100% Direct Administrative services
Sunup Holdings Limited Hong Kong 51% Direct Manufacturing of filter plates
Sunup Korea Limited Hong Kong 51% Indirect Sales of filter plates and air filter products
Smartglass Limited (formerly Dragon Creative Ltd) Hong Kong 100% Direct Sales and distribution of switchable glass
Cystar International (Shenzhen) Limited China, PRC 100% Indirect Dormant
Smart (Shenzhen) Technology Limited China, PRC 100% Indirect Marketing and distribution
GOXD Dongguan Limited* China, PRC 76% Indirect Design and sale of 3D digital picture frame
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
Marvel Display Technology (Shenzhen) Limited (formerly Marvel Software (Shenzhen) Ltd)* China, PRC 95% Indirect Manufacturing and distribution of 3D products and provision of 3D consultancy services

 

* Disposed during the year.

 

30

 

D.   Property, Plant and Equipment

 

At December 31 2020, the Company has its registered office in Adelaide, Australia and its principal and main operating office located in Hong Kong, and an administration office in Shenzhen, China. In Australia in 2020, the Company rents a 100 square feet office on a month to month basis at a cost of A$1,000 per month until July 2020 and thereafter it was rent free until December 2020. In January 2021, the Company rents a 100 square feet office and 2 car parks on a month to month basis at a total cost of A$1,800 per month.

 

In Hong Kong, the Company's the principal office is approximately 3,000 square feet which in January 2020 the Company entered into a short-term arrangement to pay a monthly rent at US$20,000 (A$28,500) per month on a month to month arrangement. In January 2021, the Company terminated the lease for the Hong Kong's principal office and a Group company entered into a 2 year lease agreement to lease a 2,800 square feet our principal office at a monthly rent of approximately A$14,300.

 

The Company also rented 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 (ii) the other is approximately 4,400 square feet on a 3 year lease at approximately A$26,300 per month until October, 2021. In April and May 2020, the Group disposed of the subsidiaries holding these leases.

 

During the year, in China, the Company rented a 4,405 square feet development office in Dongguan, Guangdong Province, on a 3 year lease at approximately A$3,857 per month until November, 2021. In addition, the Company rented 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 facilities in Shenzhen for its 3D products, the Company plans to outsource the production of its products. Accordingly, the Company does not intend to build at this time any infrastructure for its manufacturing requirements for 3D products. 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, 2020 consists of A$262,626 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 are profiling locations to house our lamination line for manufacturing electronic glass products. We hope to conclude our factory site selection by June 30, 2021.

 

ITEM 4A.   UNRESOLVED STAFF COMMENTS

 

None.

 

31

 

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, 2020, as at and for the year ended December 31, 2019, and for the year ended December 31, 2018, 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 business of glasses-free 3D (also known as autostereoscopic 3D) display, the manufacture and sale of nano coated plates for filters, the sale of electronic glass and financial research. 

 

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 the Group recorded significant losses of A$16,700,199 and another loss of A$10,543,658 in 2020. In order to curtail the losses going forward, the Group restructured its operation by disposing its R&D and test manufacturing operation, and only focusing on the marketing and sales, in 3D autostereoscopic products. In May 2020, the Company disposed of these operations and this resulted in reducing our administrative and operating costs which resulted in reducing our losses in 2020. The Company also initiated new businesses in nano-coat plated filter products and switchable glass which should provide a wider revenue base and sales growth in the coming years. This will offset the business losses in this pandemic environment. The Company was severely affected by the pandemic as the majority of our 2020 sales plan was reduced or cancelled and we expect that. Going forward in 2021, Covid 19 will continue to present a challenge for the Company to grow sales in 2021 and become profitable.

 

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 issuances of convertible notes 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.

 

32

 

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 15 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.

 

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.

 

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.

 

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.

 

33

 

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 in‘plant 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.

 

34

 

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.

 

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.

 

35

 

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,
    2020   2019   2018
   

Amount

A$

  % of Net
Revenues
 

Amount

A$

  % of Net
Revenues
 

Amount

A$

  % of Net
Revenues
Revenues:                        
Products   1,659,916   95   1,165,607   91.4    1,228,485   92.8
Services   84,713   5   109,818   8.6   95,921   7.2
Total operating revenues   1,744,629   100   1,275,425   100    1,324,406   100.0
Expenses                        
Cost of sales   1,311,566   74.2   1,008,821   76.2   723,711   54.6
Employee benefit expenses   2,212,643   126.8   4,034,378   304.6   2,253,411   170.1
Depreciation and amortization expenses   2,078,762   119.2   3,174,784   239.7   2,029,373   153.2
Professional and consulting expenses   1,373,907   78.7   2,019,970   158.4   1,746,762   131.9
Loss / (gain) on disposal of subsidiaries   28,990   2.3   -   -   (608,995)   (46)
Travel and accommodation expenses   40,895   2.3   281,895   22.1   384,184   29.0
Other operating expenses   2,082,867   119.3   2,341,672   183.6   2,010,142   151.8
Provision for impairment loss for goodwill   -   -   4,486,301   351.8  

9,953,311

 

751.5

Provision for impairment loss for intangible assets   3,459,340   198.2   -   -  

-

 

-

Financial costs   2,100,272   120.4   1,561,625   122.4   1,383,399   104.5
Total expenses   14,689,242   841.9   18,909,446   1,482.6   19,875,298   1,300.7
Operating loss before income tax   (12,944,613)   (741.9)   (17,634,021)   (1,382.6)   (18,550,892)   (1,400.7)
Non-operating income                        
Interest income   6,197   0.4   115,762   9.1   21,409   1.6
Gain on disposal of financial assets at fair value through profit or loss   2,312,197   132.5   127,551   10.0      709,543      53.6
Other income   82,561   4.7   807,831   63.3   469,660   35.5
Net (loss) / profit before income taxes   (10,543,658)   (604.3)   (16,582,877)   (1,300.2)  

(17,350,280)

 

(1,310.0)

Income tax credit / (expense)   -   -   (117,322)   9.2   507,057   38.3
Net (loss) / profit   (10,543,658)   (604.3)   (16,700,199)   (1,309.4)   (16,843,223)   (1,271.8)

 

36

 

Comparison of Year Ended December 31, 2020 to Year Ended December 31, 2019

 

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,
  2020   2019
  Amount
A$
  % of
Total
Revenues
  Amount
A$
  % of
Total
Revenues
Products              
Displays 1,059,347   60.7   1,164,103   91.3
Tablets and mobiles 283,097   16.2   -   -
Software -   -   1,504   0.01
Nano-coat plated filter products 317,472   18.2   -   -
Sub-total 1,659,916   95.1   1,165,607   91.40
Services              
Conversion services 79,938   4.5   16,686   1.30
Other services 4,775   0.2   93,132   7.30
Consulting services income -   -   -   -
Sub-total 84,713   4.8   109,818   8.60
Total operating revenues 1,744,629   100.00   1,275,425   100.00

Revenues. The revenue from operating activities for the year ended December 31, 2020 was A$1,744,629 as compared to the prior year of A$1,275,425, a increase of A$469,204 or 37% from the prior year. The revenue for the year ended December 31, 2020 consists of the sales and distribution of 3D autostereoscopic products, 2D tablets and nano-coat plate filter products. In 2021, we will put more emphasis on sales of nano-coat plated filter products and switchable glass products.

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,
  2020   2019
  Amount
A$
  % of Net
Revenues
  Amount
A$
  % of Net
Revenues
Products 1,293,425   74.1   962,799   75.0
Services 18,141   1.0   46,022   4.0
Total cost of sales 1,311,566   75.1   1,008,821   79.0

 

Cost of sales increased by 30% to A$1,311,566 in 2020 from A$1,008,821 in 2019, 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 increased by 62% from A$266,604 in 2019 to A$433,063 in 2020. Our gross margin significantly increased from 21% in 2019 to 25% in 2020, primarily due to the change in product mix of the Group with nano-coat plated filter products being sold with comparatively higher 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$2,312,197.

 

Provision for impairment loss of intangible assets and goodwill.

 

It represents the impairment loss of intangible assets of A$3,459,340 in 2020.

 

37

 

Other income

 

It represented primarily the government subsidy in respect of our technology development projects received for the years ended December 31, 2020 and 2019. The decrease in 2020 was the result of the Company disposing the research and development operation which decreased the government subsidies.

 

Expenses

 

The operating expenses for the year ended December 31, 2020 was A$10,543,658 as compared to the prior year of A$18,909,446 a decrease of A$8,365,788 or 44.24% from the prior year. The decrease in total operating expenses was mainly attributable to the following:

 

-A decrease of A$4,486,301 in the provision for impairment loss of goodwill, as it was fully impaired in 2019;

 

-A decrease of A$1,821,735 in employee benefit expenses from A$4,034,378 in 2019 to A$2,212,643 in 2020, which was primarily due to group restructuring during the year and decreases in number of staffs in 2020;

 

-A decrease of A$1,096,022 in depreciation and amortization expenses from A$3,174,784 in 2019 to A$2,078,762 in 2020 as the result of the group restructuring during the year when it disposed of its R&D and test manufacturing operations;

 

-A decrease of A$646,063 in professional and consulting expenses from A$2,019,970 in 2019 to A$1,373,907 in 2020 resulting from the decrease in legal and professional fees for certain corporate activities during the respective years;

 

-A decrease of A$258,805 in other operating expenses from A$2,341,672 in 2019 to A$2,082,867 in 2020 resulted from the group restructuring during the year when it disposed of its R&D and test manufacturing in 3D autostereoscopic operations; and a decrease in rental from A$637,321 to A$126,382 as a result of the aforementioned group restructuring; and

 

-A increase of A$538,647 in finance costs from A$1,561,625 in 2019 to A$2,100,272 in 2020 was mainly attributable to a decrease in the convertible bonds interest of A$1,316,702 in 2019, which was fully repaid in January 2020, but imputed financial interest expenses for convertible promissory note valuation during the year.

 

Income tax

 

Income tax expenses of A$Nil were recognized during the year ended December 31, 2020.

 

Net Profit (Loss)

 

We recorded a net loss of A$7,020,972 for the year ended December 31, 2020 as compared to a net loss of A$16,700,199 was recorded for the year ended December 2019.

 

38

 

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 -   -   -   -
Software 1,504   0.1   13,731   1.0
Audio products -   -   48,609   3.7
Other products -   -   -   -
Sub-total 1,165,607   91.4   1,228,484   92.7
Services              
Conservation services 16,686   1.3   57,661   4.4
Other services 93,132   7.3   38,261   2.9
Consulting services income -   -   -   -
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.

 

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 2019 was A$18,909,446 as compared to 2018 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.

 

39

 

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.

 

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

 

(i) The Group has applied the following standards and amendments for first time in their annual reporting period commencing January 1, 2020:

 

Amendments to References to the Conceptual Framework in IFRS Standards

 

The Group has adopted the amendments included in Amendments to References to the Conceptual Framework in IFRS Standards for the first time in the current year. The amendments include consequential amendments to affected Standards so that they refer to the new Framework. Not all amendments, however, update those pronouncements with regard to references to and quotes from the Framework so that they refer to the revised Conceptual Framework. Some pronouncements are only updated to indicate which version of the Framework they are referencing to (the IASC Framework adopted by the IASB in 2001, the IASB Framework of 2010, or the new revised Framework of 2018) or to indicate that definitions in the Standard have not been updated with the new definitions developed in the revised Conceptual Framework.

 

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

 

Amendments to IFRS 3 Definition of a business

 

The Group has adopted the amendments to IFRS 3 for the first time in the current year. The amendments clarify that while businesses usually have outputs, outputs are not required for an integrated set of activities and assets to qualify as a business. To be considered a business an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs.

 

The amendments remove the assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs. The amendments also introduce additional guidance that helps to determine whether a substantive process has been acquired.

 

The amendments introduce an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business. Under the optional concentration test, the acquired set of activities and assets is not a business if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar assets. The amendments are applied prospectively to all business combinations and asset acquisitions for which the acquisition date is on or after 1 January 2020.

 

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

 

Amendments to IAS 1 and IAS 8 Definition of material

 

The Group has adopted the amendments to IAS 1 and IAS 8 for the first time in the current year. The amendments make the definition of material in IAS 1 easier to understand and are not intended to alter the underlying concept of materiality in IFRS Standards. The concept of 'obscuring' material information with immaterial information has been included as part of the new definition.

 

The threshold for materiality influencing users has been changed from 'could influence' to 'could reasonably be expected to influence'. The definition of material in IAS 8 has been replaced by a reference to the definition of material in IAS 1. In addition, the IASB amended other Standards and the Conceptual Framework that contain a definition of 'material' or refer to the term ‘material' to ensure consistency.

 

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

 

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(ii) New standards and interpretations not yet adopted

 

A number of new standards, amendments to standards and interpretations issued by the IASB which are not yet mandatorily applicable to the Group have not been applied in preparing these consolidated financial statements. Those which may be relevant to the Group are set out as below and not expected to have a significant impact on the Group's consolidated financial statements. The Group does not plan to adopt these standards early.

 

  IFRS 17 Insurance Contracts
  IFRS 10 and IAS 28 (amendments) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
  Amendments to IAS 1 Classification of Liabilities as Current or Non-current
  Amendments to IFRS 3 Reference to the Conceptual Framework
  Amendments to IAS 16 Property, Plant and Equipment—Proceeds before Intended Use
  Amendments to IAS 37 Onerous Contracts Cost of Fulfilling a Contract
  Annual Improvements to IFRS Standards 2018-2020 Cycle Amendments to IFRS 1 First-time Adoption of International Financial Reporting Standards, IFRS 9 Financial Instruments, IFRS 16 Leases and and IAS 41 Agriculture

 

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$NIL (2019: A$Nil). Details of the recoverable amount calculations are disclosed in Note 15.

 

(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 12 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.

 

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(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, 2020 and 2019, as the Company recognized the actual deferred performance fee to be paid to MFL of A$15,110,749 in 2017.

 

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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$7,020,972, A$16,700,199, loss of A$16,843,223, for the fiscal years ended December 31, 2020, 2019, and 2018 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$)
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
Share issuance in respect to payment to convertible bonds     2020     285,714     1,514,284
Share issuance for the settlement of interest on a convertible promissory note     2020     46,741     174,811
Share issuance for debt to equity conversion     2020     941,667     3,947,751
Share issuance in respect of development of new business and working capital     2020     1,857,692     7,666,999
Share issuance in respect of payment to a consultant     2020     4,471     23,249

 

Capital Requirements

 

As of December 31, 2020, we had cash and cash equivalents of A$2,194,084 and trade receivables of A$1,233,709. Our trade receivable balance significantly increased as compared to A$892,488 as of December 31, 2019, was partially attributable to the increase in sales in 2020. 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 nano-coat plate filter developments or our operations.

 

In addition, the Company has started to recapitalize its equity base by selling US$9.4 million of its shares in the first 3 months of 2021. Furthermore, the Company is working on increasing its shareholder's equity to more than US$2.5 million or having a market capitalization of more than US$35 million so that it complies with Nasdaq's continual listing requirement. At the date of this report, the Company is compliant with the continued listing rule requirement.

 

Cash Flows

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

 

    Fiscal Year Ended December 31,
    2020   2019   2018
    A$   A$   A$
Net cash outflows in operating activities   (6,191,115)   (6,540,014)   (6,685,106)
Net cash outflows in investing activities   (4,586,121)   (1,828,617)   (3,319,768)
Net cash inflows by financing activities   13,392,848   7,575,583   8,465,255
Net increase (decrease) in cash and cash equivalents   2,615,612   (793,048)   (1,539,619)
Effect of exchange rate changes on cash and cash equivalents   (254,770)   6,585   89,252
Cash and cash equivalents at beginning of period   (166,758)   619,705   2,070,072
Cash and cash equivalents at end of period   2,194,084   (166,758)   619,705

 

Net cash outflows in operating activities was A$(6,191,115), A$(6,540,014), and A$(6,685,106) during the years ended December 31, 2020, 2019 and 2018, respectively. Net cash outflows in operating activities during the year ended December 31, 2020 was mainly to the delay in receipts from customers. 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$(4,586,121), A$(1,828,617), and A$(3,319,768) during the years ended December 31, 2020, 2019 and 2018 respectively. Net cash outflows in investing activities during the years ended December 31, 2020, 2019 and 2018 was primarily attributable to the payments for acquisition of various patents and intangible assets, and development costs incurred for various on-going technology projects.

 

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Net cash inflows/(outflows) in financing activities was A$13,392,848, A$7,575,583, and A$8,465,255 during the years ended December 31, 2020, 2019 and 2018 respectively.

 

Net cash inflows in financing activities during the years ended December 31, 2020 are attributable to the issuance of shares. Net cash outflows in financing activities during the years ended December 31, 2020 and 2019 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$2,194,084, A$(166,758), and A$619,705 as at December 31, 2020, 2019 and 2018 respectively. Cash and bank balance as at December 31, 2020, 2019 and 2018 were consisted of A$2,194,084, A$735,424 and A$1,514,215 of cash and bank balances, and Nil, A$(902,482) and A$(894,510) of bank overdraft, respectively.

 

C. Research and Development, Patents and Licenses

 

The Company no longer conducts any research and development activities as during the year, it disposed its subsidiary that conducted research and development in 3D autostereoscopic. Accordingly, for the 3 years ended December 31, 2020, we have employed 0, 25, and 10 staff, respectively, in the research and development of 3D autostereoscopic technology and we incur annual staffing costs of approximately A$675,500 A$6,155,884, and A$716,000 during the respective years. In the prior year, 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 relatively 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, 2018, 2019 and 2020, 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.

 

F. Tabular Disclosure of Contractual Obligations

 

As of December 31, 2020, the Group had internal capital commitments for the investments in two China subsidiaries of approximately A$2,901,071 (2019: A$1,755,456).

 

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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.

 

Name   Position
Mr. Con UNERKOV(2)   Chairman and Chief Executive Officer
Mr. Uwe von PARPART (6)   Executive Director
Mr. Wuhua ZHANG (1)   Non-Executive Director
Dr. Man-Chung CHAN   Independent Non-Executive Director
Dr. Heming CUI (1) (2) (3) (5)   Independent Non-Executive Director
Mr. Luis PUYAT (1) (2) (4) (7)   Independent Non-Executive Director
Ms. Jannu Binti BABJAN (8)   Independent Non-Executive Director
Mr. Cecil HO   Chief Financial Officer and Joint Company Secretary

 

(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) Dr. Heming CUI was appointed as a director on June 12, 2020 and was appointed as the Chairman of the Audit Committee and a member of the Nomination and Remuneration Committee.
(6) Mr. Uwe von Parpart was changed from Independent Non-Executive director to Executive director on January 15, 2021. He also resigned as a member of Audit Committee on the same date.
(7) Mr. Luis Puyat was appointed as an Independent Non-Executive director on January 15, 2021 and a member of the Audit Committee and the Chairman of the Nomination and Remuneration Committee.
(8) Ms. Babjan was appointed as an Independent Non-Executive director on April 28, 2021 and a member of the Audit Committee.

 

Mr. Con UNERKOV, aged 52, is an Australian based businessman 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 Oakridge International Limited (formerly Xped Limited), a company listed on the Australian Securities Exchange ("ASX") engaged in the Internet of Things (IOT) and Healthcare sector.

 

Mr. Uwe von PARPART, aged 80, 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 was 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.

 

Mr. Luis Puyat, aged 58, is a businessman with significant experience in the banking and finance industry. Currently Mr. Puyat is the CEO of VGP Investments, Inc., a company engaged in property investments, and an executive director of First Sovereign Asset Management, Inc. Previously, Mr. Puyat was the Chairman of The Manila Banking Corporation from1999 to 2007. He was also the President of The Manila Bankers Life Insurance from 1993 to 1999. Mr. Puyat has a Masters in Business Economics (Non-Degree) from the University of Asia & the Pacific and a B.S. in Business Administration from the University of Philippines.

 

Dr. Heming CUI, aged 38, 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.

 

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Mr. Wuhua ZHANG, aged 46, 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.

 

Dr. Man-Chung CHAN, aged 62, 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.

Ms. Jannu Binti BABJAN, aged 54, is an Advocate & Solicitor practicing in Malaysia operating her own proprietary business for the past 5 years. She has over 29 years of experience in civil litigations in a wide range of areas including commercial disputes, employment and industrial matters, shareholder disputes, etc. Ms. Babjan has acted for clients in all tiers of the Malaysian Legal System from the magistrate courts right up to the Federal Court of Malaysia. Ms. Babjan graduated from the University of Malaya - LLB (Hons) Malaya.

Mr. Cecil HO, aged 60, 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 Ares Motor Works, Limited, a company engaged in electric commercial vehicles. 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.

 

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.

 

B. Compensation

 

Remuneration Principles

 

Remuneration of all 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 products, services or solutions.

 

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 reaching operational/project milestones within scheduled time and/or budget, and
       
    Our share price reaching a targeted level on the 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 and officer in fiscal 2020.

 

    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$
Mr. Con Unerkov (1)   -   722,157   N/A   N/A   N/A   N/A   722,157
Dr. Man-Chung Chan   12,000   N/A   N/A   N/A   N/A   N/A   12,000
Mr. Wuhua Zhang   18,000   N/A   N/A   N/A   N/A   N/A   18,000
Mr. Uwe von Parpart   18,725   N/A   N/A   N/A   N/A   N/A   18,725
Dr. Heming Cui   9,950   N/A   N/A   N/A   N/A   N/A   9,950
Mr. Luis Puyat   -   N/A   N/A   N/A   N/A   N/A   -
Ms. Babjan   -   N/A   N/A   N/A   N/A   N/A   -
Mr. Cecil Ho   607,659   N/A   N/A   N/A   N/A   N/A   607,659
Total   666,334   722,157   N/A   N/A   N/A   N/A   1,388,491

 

(1) Mr. Con Unerkov is employed under a service agreement provided by a related company.

 

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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

 

In August 2020, an Employee Share Option Plan ("ESOP") was approved and established by the Board. The ESOP is available to employee, consultants and eligible persons (as the case may be) of the Company as the Board may in its discretion determine. See below under item 10.A for more information.

 

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, 2020 as these amounts were expensed and paid as of this date.

 

C. Board Practices

 

Introduction

 

Our Board of Directors is elected by and accountable to our shareholders. It currently consists of seven directors, the executive Chairman and executive director, one non-executive director and four independent 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

 

As a "foreign private issuer", we are not required to comply with all of 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, 2020, 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, 2020 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.

 

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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 six 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 independent 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. Puyat, Dr. Heming Cui and Ms. Babjan 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, and NASDAQ Marketplace Rules. Our Audit Committee is currently composed of Ms. Babjan, Mr. Luis Puyat and Dr. Heming Cui. Dr Heming Cui 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. Mr. Uwe Parpart, Mr. Luis Puyat and Dr. Heming Cui are the current members of the Nomination and Remuneration Committee. Mr. Luis Puyat and Dr Heming Cui both qualified as an "independent director" within the meaning of NASDAQ Marketplace Rules. Mr. Puyat is the chairman of this committee.

 

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

 

Nasdaq permits "foreign private issuers" such as the Company follow "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 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.

 

We have relied on and expect to continue to rely on an exemption from the requirement that our independent directors meet regularly in executive sessions under Nasdaq Listing Rules. The Corporations Act does not require the independent directors of an Australian company to have such executive sessions and, accordingly, we claim this exemption.

 

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.

 

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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."

 

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 currently do not maintain a directors' and officers' liability insurance policy. However, we intend to arrange an insurance policy for our directors and officers in the near future. 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, 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.

 

As of December 31, 2020, we had 15 employees of these employees, 2 were employed in administration in Australia, 6 employees in finance, administration and management located in Hong Kong, and 7 employees in operation located in Hong Kong. There were no employees employed in finance, administration, management and operations 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.

 

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ITEM 7.   MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A.   Major Shareholders

 

The following table sets forth information regarding shares of our ordinary shares beneficially owned as of March 2, 2021 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 (1)   Ordinary Shares Options Exercisable Within 60 Days Warrants/ Convertible
Note Exercisable Within 60 Days
Total Stock and Stock Based Holdings (1)
%
Ownership (2)
Mr. Con Unerkov (3) (7)   - - - - *
Mr. Uwe von Parpart (4) (7)   - - - - *
Dr. Man-Chung Chan   - - - - -
Mr. Wuhua Zhang   - - - - -
Dr. Heming Cui (5)   - - - - -
Mr. Luis Puyat (6)   - - - - -
All directors as a group (6 persons)   - - - - *
Marvel Finance Limited (8)   2,201,412 - - 2,201,412 23.06%
CIMB Limited (9)   988,408 - 599,828 1,588,236 16.63%
Nextglass Technologies Corp (10)   700,000 - 507,692 1,207,692 12.65%
Ionic Ventures LLC (11)   708,000 - - 708,000 7.42%

 

* less than 1%

 

Note

(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 ordinary shares shown as beneficially owned by them, subject 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 Suite 801, 8/F., Siu On Center, 188 Lockhart Road, Wanchai, Hong Kong.
(2) For purposes of computing the percentage of outstanding ordinary shares 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 April 19, 2021, there were 8,440,533 outstanding shares and there are convertible notes of 950,405 outstanding entitling the holders to purchase ordinary shares.
(3) Appointed as a director of the Company on May 31, 2019.
(4) Appointed as a director of the Company on December 17, 2019.
(5) Appointed as a director of the Company on June 12, 2020.
(6) Appointed as a director of the Company on January 15, 2021.
(7) The person holds less than one percent of the shares in the Company.
(8) Marvel Finance Limited, a company wholly owned and controlled by former director Dr. Herbert Ying Chiu Lee.
(9) Pursuant to convertible note purchase agreement and supplement agreement dated January 20, 2020 and February 11, 2020 respectively, CIMB Limited has right to convert about US$1,799,486 at a current downward adjusted conversion price of US$3.00 per share over the term of the convertible promissory note (the "Note"), subject to the maximum 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 a result, for the purpose of the calculating the right to acquire shares within 60 days, 442,713 shares are deemed to be converted to the ordinary shares of the Company.
(10) Pursuant to a convertible note purchase agreement and supplement agreement dated December 21, 2020. Nextglass Technologies Corp has the right to convert US$1,650,000 at a conversion price of US$3.25 per share over the term of the convertible promissory note, subject to the maximum number of ordinary shares of the Company issuable upon conversion of such note to no more than 19.99% of the total issued and outstanding ordinary shares of the Company. As a result, for the purpose of the calculating the right to acquire shares within 60 days, 507,692 shares are deemed to be beneficially owned.
(11) On March 23, 2021, the Company entered into a US$4,602,000 placement agreement with Ionic Ventures LLC at US$6.50 per share for a total of 708,000 ordinary shares.

 

As of April 28, 2021, we had 234,304 shares of our Common Stock held by 245 shareholders in our share registrar in Australia, the host county and we had 8,206,229 shares of our Common Stock held by 45 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.

 

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B.   Related Party Transactions

 

On February 5, 2021, CIMC Marketing Pty Limited, a subsidiary of the Company, acquired 500 million shares representing approximately 15% or A$500,000 (approximately US$381,000) in Oakridge International Limited (formerly Xped Limited) ("Oakridge"). Mr. Con Unerkov, the Chairman and Chief Executive Officer of the Company, is also the Chairman and Chief Executive Officer of Oakridge. Mr. Cecil Ho, the Chief Financial Officer of the Company, was also the Chief Financial Officer of Oakridge until March 10, 2021. 

 

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, 2020 and 2019.

 

For the year ended December 31, 2020

 

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

 

a)Purchase of products of A$29,794 from Marvel Digital Productions Limited, an entity controlled over by former director, Dr. Herbert Ying Chiu Lee;

 

b)Purchase of products of A$274,417 from Integration Mulitimedia Techno., an entity controlled by Mr. Zhang Wuhua, our director of the Group;

 

c)Sales of products of A$8,490 to Marvel Digital Productions Limited, an entity controlled over by former director, Dr. Herbert Ying Chiu Lee;

 

d)Sales of products of A$315,034 to SWIS Co., Limited, one of the subsidiaries of our shareholders;
   
e)Service fee paid of A$67,187 to Marvel Digital Productions Limited, an entity controlled over by former director, Dr. Herbert Ying Chiu Lee;
   
f)Service fee paid of A$21,812 to Marvel Research Limited, an entity controlled over by former director, Dr. Herbert Ying Chiu Lee;
   
g)Service fee paid of A$193,972 to Marvel Digital Group Limited, an entity controlled over by former director, Dr. Herbert Ying Chiu Lee;
   
h)Company secretarial and service fees paid of A$607,659 to Asset Union Limited, an entity controlled by Company Secretary, Mr. Cecil Ho.

 

For the year ended December 31, 2019

 

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

 

a)Purchase of products of A$22,588 from Marvel Digital Productions Limited, an entity controlled over by director, Dr. Herbert Ying Chiu Lee;

 

b)Purchase of products of A$501,062 from from Integration Mulitimedia Techno., an entity controlled by director, Mr. Zhang Wuhua;

 

c)Service fees paid of A$484,216 to Marvel Digital Group Limited, an entity controlled over by director, Dr. Herbert Ying Chiu Lee;

 

d)Service fees paid of A$87,303 to Marvel Digital Productions Limited, an entity controlled over by director, Dr. Herbert Ying Chiu Lee;
   
e)Interest income of A$115,678 by the ultimate holding company, Marvel Finance Limited, an entity controlled by director, Dr. Herbert Ying Chiu Lee;
   
f)Company secretarial and service fees paid of A$523,196 to Asset Union Limited, an entity controlled by Company Secretary, Mr. Cecil Ho.

 

During the year, the Company incurred expenditure of A$40,000 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 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.

 

C.   Interests of Experts and Counsel

Not applicable.

 

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ITEM 8.   FINANCIAL INFORMATION

 

A.   Consolidated Statements and Other Financial Information

Our audited consolidated financial statements for the fiscal year ending December 31, 2020 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

 

No significant changes occurred since the date of the annual financial statements.

 

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.

 

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. 

 

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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 ordinary shares.

 

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$14.45 (or about A$ 19.456) per share for a total subscription proceeds of A$491,750 for settlement of consultancy service payment.

 

On December 12, 2018, the shareholders of the Company approved the conversion of A$8,000,000 of debt owed to Marvel Finance Limited, the then 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 US$6.30 per share for a total subscription proceeds of US$1,000,000.

 

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.

 

On May 18, 2020, the Company issued 126,984 ordinary shares as a result of the exercise of warrants (the "Warrants") pursuant to Securities Purchase Agreement entered into on February 20, 2020. The Warrants were exercised by means of a cashless exercise pursuant to conditions in the form of warrant.

 

On July 28, 2020, the Company issued 700,000 ordinary shares at a share price of US$3.00 per share for the conversion of debt pursuant to debt conversion agreement dated July 25, 2020.

 

On September 15, 2020, the Company issued 450,000 ordinary shares at a share price of US$3.00 per share to raise US$1,350,000 for working capital.

 

On September 15, 2020, the Company issued 4,471 ordinary shares at a share price of US$3.81 per share for the provision of IT development services.

 

On September 17, 2020, the Company issued 500,000 ordinary shares at a share price of US$3.00 per share to acquire 51% interest in Sunup Holdings Limited.

 

On October 6, 2020, the Company issued 241,667 ordinary shares as a result of the conversion of convertible promissory note of US$725,000.

 

On October 6, 2020, the Company and its subsidiaries settled the interest accrued of A$174,811 by issuing 46,741 shares to the Noteholder of Convertible Promissory Note dated January 20, 2020.

 

On December 2, 2020, the Company issued 600,000 ordinary shares at a share price of US$3.00 per share to raise US$1,800,000 for working capital.

 

On December 21, 2020, the Company entered into a placement agreement selling 307,692 shares in the Company at a price of US$3.25 shares raising US$1.0 million.

 

On December 21, 2020, the Company completed the US$1.65 million convertible debt agreement. The Convertible Note is without interest, matures in 2 years from the date of the Convertible Note and is convertible into ordinary share of the Company at a conversion price of US$3.25 for the period from 2 months after the issuance of the Convertible Note to its maturity.

 

On February 2, 2021, the Company issued 17,744 ordinary shares at a share price of US$3.6125 per share for a total subscription amount of US$64,100 (A$84,000) for the performance remuneration.

 

On February 5, 2021, the Company issued 2,768 ordinary shares at a share price of US$3.6125 per share for a total subscription amount of US$10,000 (A$13,000) for the performance remuneration.

 

On February 22, 2021, the Company issued 625,000 ordinary shares at a share price of US$4.00 per share to raise US$2,500,000 (A$3,289,000) for working capital.

 

On March 23, 2021, the Company issued 708,000 ordinary shares at a price of US$6.50 per share to raise US$4,602,000 for developing its current businesses, corporate expenditures and general corporate purposes.

 

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