Business Context and Reporting Period
Company: Integrated Media Technology Ltd (IMTE)
Filing Type: Form 20-F (Annual Report)
Reporting Period: Fiscal year ended December 31, 2018
Business Overview: IMTE is an Australian technology company focused on the development, sale, and distribution of autostereoscopic (glasses-free) 3D display technology, 3D conversion equipment, software, and audio products. The company operates primarily in Hong Kong and China. It is listed on the NASDAQ Capital Market.
Key Financial Metrics
| Metric (A$) | 2018 | 2017 |
|---|---|---|
| Total Revenue | 1,324,406 | 5,762,711 |
| Net Loss / Profit | (16,843,223) | 1,692,666 |
| Loss / Profit Per Share (Basic & Diluted) | (5.93) | 0.64 |
| Gross Profit | 600,695 | 3,214,647 |
| Gross Margin | 45.3% | 55.8% |
| Cash and Cash Equivalents (End of Period) | 619,705 | 2,070,072 |
| Working Capital | 1,279,813 | 5,478,132 |
| Total Assets | 26,033,074 | 35,859,449 |
| Long-term Debt | 4,690,822 | 16,748,877 |
| Total Shareholders' Equity | 16,621,751 | 15,390,334 |
Note: All figures are in Australian Dollars (A$). The 2018 results include a significant non-cash goodwill impairment charge.
Material Changes vs. Prior Period
- Revenue Decline: Revenue decreased by 77% (A$4.44 million) compared to 2017. This was driven by a cessation of sales in mobile/tablet devices, super workstations, and technology solutions, alongside a decline in display product sales due to contract manufacturing issues.
- Goodwill Impairment: The company recorded a non-cash provision for impairment loss of goodwill totaling A$9,953,311, which was the primary driver of the net loss.
- Operating Expenses: Total operating expenses increased by 153% to A$19.88 million, largely due to the goodwill impairment and increased professional/consulting fees related to corporate activities and fundraising.
- Finance Costs: Finance costs surged by 1,294% to A$1.38 million, primarily due to interest on convertible bonds issued in January 2018 and interest on amounts owed to the ultimate holding company.
- Cash Flow: Net cash used in operating activities was A$6.86 million, a reversal from the A$4.86 million inflow in 2017, reflecting the drop in revenue and increased operational burn.
Guidance, Outlook, Risks, and Unusual Items
Management Commentary and Outlook
Management attributes the 2018 loss to the decline in sales of ASD products and the goodwill write-down. The company plans to resolve manufacturing issues and focus on 3D display and video wall sales in 2019. Future growth strategies include expanding into Malaysia, Taiwan, Japan, and Korea, and developing a next-generation ASIC chip with 8K and HDR functions expected by 2020.
Going Concern Warning
The independent auditor has included an "Emphasis of Matter" paragraph regarding the company's ability to continue as a going concern. The company has an accumulated deficit of A$10.68 million and used A$6.86 million in cash for operations in 2018. Management believes current cash may not be sufficient to meet needs for the next 12 months without additional financing.
Key Risks
- Liquidity: The company requires additional financing to fund operations, R&D, and pay vendors. Failure to raise capital could force a curtailment of operations.
- Customer Concentration: In 2018, the two largest customers accounted for 72% of total revenue.
- Manufacturing: The company relies on third-party contractors for mass production, exposing it to risks regarding quality, capacity, and financial stability of these partners.
- Internal Controls: Management concluded that disclosure controls and internal controls over financial reporting were not effective as of December 31, 2018, citing inadequate segregation of duties and insufficient written policies.
Unusual Items
- Convertible Bonds: Issued HK$23 million (approx. A$3.8 million) in convertible bonds in January 2018, creating significant interest expense and derivative liabilities.
- Debt-to-Equity Conversion: On December 12, 2018, A$8 million of debt owed to the ultimate holding company was settled by issuing 708,500 shares.
- Disposal of Subsidiaries: The company disposed of several subsidiaries in 2018, resulting in a net gain of A$608,995.
Investor Verification Checklist
- Capital Adequacy: Verify the status of any new equity or debt financing raised since the filing date to address the "Going Concern" warning.
- Manufacturing Resolution: Confirm if the contract manufacturing issues cited as a cause for revenue decline have been resolved and if new production lines are operational.
- Customer Diversification: Assess the risk of revenue concentration given that two customers represented 72% of sales in 2018.
- Internal Control Remediation: Review subsequent filings for updates on the remediation of material weaknesses in internal controls over financial reporting.
- Convertible Bond Terms: Review the specific conversion terms and maturity dates of the convertible bonds to understand future dilution or cash outflow risks.